MAGNERA CORP
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the fiscal year ended December 31, 2010 | ||
|
or
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission file number 1-03560
P. H. Glatfelter
Company
(Exact name of registrant as
specified in its charter)
|
Pennsylvania
(State or other jurisdiction of incorporation or organization) |
23-0628360
(IRS Employer Identification No.) |
|
|
96 South George Street, Suite 500
York, Pennsylvania 17401 (Address of principal executive offices) |
(717) 225-4711
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
Name of Each Exchange on which registered
|
|
| Common Stock, par value $.01 per share | New York Stock Exchange |
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
.
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes
þ
No
o
.
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act) Yes
o
No
þ
.
Based on the closing price as of June 30, 2010, the
aggregate market value of the Common Stock of the Registrant
held by non-affiliates was $490.7 million.
Common Stock
outstanding on March 11, 2011 totaled
45,999,846 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference in this Annual Report on
Form 10-K:
Proxy Statement to be dated on or about March 30, 2011
(Part III).
P. H. GLATFELTER
COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2010
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2010
Table of
Contents
| Page | ||||||||||
| 1 | ||||||||||
| 7 | ||||||||||
| 11 | ||||||||||
| 11 | ||||||||||
| 11 | ||||||||||
| 11 | ||||||||||
| 12 | ||||||||||
| PART II | ||||||||||
| 12 | ||||||||||
| 13 | ||||||||||
| 14 | ||||||||||
| 23 | ||||||||||
| 24 | ||||||||||
| 57 | ||||||||||
| 57 | ||||||||||
| 57 | ||||||||||
| PART III | ||||||||||
| 57 | ||||||||||
| 57 | ||||||||||
| 57 | ||||||||||
| 57 | ||||||||||
| 57 | ||||||||||
| PART IV | ||||||||||
| 58 | ||||||||||
| 60 | ||||||||||
| 61 | ||||||||||
| EXHIBIT 10(P) | ||||||||||
| EXHIBIT 21 | ||||||||||
| EXHIBIT 23 | ||||||||||
| EXHIBIT 31.1 | ||||||||||
| EXHIBIT 31.2 | ||||||||||
| EXHIBIT 32.1 | ||||||||||
Table of Contents
| ITEM 1 | BUSINESS |
Overview
Glatfelter began operations in 1864
and we believe we are one of the world’s leading
manufacturers of specialty papers and fiber-based engineered
materials. Headquartered in York, Pennsylvania, we own and
operate manufacturing facilities located in Pennsylvania, Ohio,
Canada, Germany, the United Kingdom, France, and the Philippines.
Acquisitions
Over the past several years we
completed the following acquisitions:
|
Est.
|
|||||||||||||
|
Annual
|
Business
|
Primary
|
|||||||||||
| Dollars in millions | Date | Revenue (1) | Unit | Products | |||||||||
|
Location
|
|||||||||||||
|
Canada and Germany
|
Feb ’10 | $ | 203.0 |
Advanced Airlaid
Materials |
Airlaid non-woven
for feminine hygiene, adult incontinence and other |
||||||||
|
Wales
|
Nov ’07 | 53.4 | Composite Fibers | Metallized | |||||||||
|
Ohio
|
Apr ’06 | 440.0 | Specialty Papers | Carbonless & forms | |||||||||
|
England
|
Mar ’06 | 75.0 | Composite Fibers | Tea & coffee filter papers | |||||||||
| (1) | Represents annual revenue prior to acquisition. |
These strategic acquisitions significantly increased our
revenues and provided us with additional operating scale,
increased production capacity, and an expansion of our
geographic reach.
Products
Our three business units manufacture,
both domestically and internationally, a wide array of specialty
papers and fiber-based engineered materials including:
| • | Specialty Papers with revenues earned from the sale of carbonless papers and forms, book publishing, envelope & converting, and engineered products; | |
| • | Composite Fibers with revenue from the sale of food & beverage filtration papers, metallized papers, composite laminates used for decorative furniture and flooring applications, and technical specialties; and | |
| • | Advanced Airlaid Materials with revenue from the sale of airlaid non-woven fabric-like materials used in feminine hygiene products, adult incontinence products, cleaning pads and wipes, food pads, napkins and tablecloths, and baby wipes. |
Our Business Units
Since completing the
acquisition of Concert Industries Corp. (“Concert”) on
February 12, 2010, we now manage our company as three
distinct business units: (i) Specialty Papers;
(ii) Composite Fibers; and (iii) Advanced Airlaid
Materials. Consolidated net sales and the relative net sales
contribution of each of our business units for the past three
years are summarized below:
| Dollars in thousands | 2010 | 2009 | 2008 | ||||||||||||
|
Net sales
|
$ | 1,455,331 | $ | 1,184,010 | $ | 1,263,850 | |||||||||
|
Business unit contribution
|
|||||||||||||||
|
Specialty Papers
|
57.9 | % | 66.9 | % | 66.0 | % | |||||||||
|
Composite Fibers
|
28.8 | 33.1 | 34.0 | ||||||||||||
|
Advanced Airlaid Materials
|
13.3 | – | – | ||||||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Net tons sold by each business unit for the past three years
were as follows:
| 2010 | 2009 | 2008 | |||||||||||||
|
Specialty Papers
|
764,670 | 738,841 | 743,755 | ||||||||||||
|
Composite Fibers
|
90,350 | 80,064 | 85,599 | ||||||||||||
|
Advanced Airlaid Materials
|
72,833 | – | – | ||||||||||||
|
Total
|
927,853 | 818,905 | 829,354 | ||||||||||||
Specialty Papers
Our North
America-based Specialty Papers business unit focuses on
producing papers for the following markets:
| • | Carbonless & forms papers for credit card receipts, multi-part forms, security papers and other end-user applications; | |
| • | Book publishing papers for the production of high quality hardbound books and other book publishing needs; | |
| • | Envelope and converting papers for the direct mail market, shopping bags, and other converting applications; and | |
| • | Engineered products for digital imaging, transfer, casting, release, postal, playing card, FDA-compliant food and beverage applications, and other niche specialty applications. |
The market segments in which Specialty Papers competes have
undergone significant and rapid consolidation over the past
several years resulting in fewer, more globally focused
producers. This includes both commodity products (comprised of
envelopes and certain forms) and higher-value-added specialty
products.
Specialty Papers’ revenue composition by market consisted
of the following for the years indicated:
| In thousands | 2010 | 2009 | 2008 | ||||||||||||
|
Carbonless & forms
|
$ | 359,033 | $ | 320,088 | $ | 338,067 | |||||||||
|
Book publishing
|
168,155 | 176,646 | 201,040 | ||||||||||||
|
Envelope & converting
|
157,202 | 146,812 | 138,293 | ||||||||||||
|
Engineered products
|
155,257 | 143,490 | 149,372 | ||||||||||||
|
Other
|
2,967 | 4,879 | 7,127 | ||||||||||||
|
Total
|
$ | 842,614 | $ | 791,915 | $ | 833,899 | |||||||||
Many of the markets served by Specialty Papers are more mature
and, in certain instances, declining. However, we have been
successful in increasing this unit’s
Glatfelter 2010 Annual
Report 1
Table of Contents
shipments through new product and new business development
initiatives and leveraging the flexibility of our operating
assets to efficiently respond to changing customer demands.
During 2010, we invested approximately $10.4 million in
product development activities and, in each of 2009 and 2008, we
invested approximately $8.0 million. In each of the past
three years, in excess of 50% of net sales were generated from
products developed, enhanced or improved within the past five
years.
We believe we are one of the leading suppliers of book
publishing and carbonless papers in the United States. Although
the markets for book publishing and carbonless papers in North
America are declining, we have been successful in executing our
strategy to replace this lost volume with products such as
envelope and converting papers, forms and other products.
Specialty Papers also produces paper that is converted into
specialized envelopes in a wide array of colors, finishes and
capabilities. This market is generally more mature and
declining. However, we compete on our customer service
capabilities and have grown our market share in each of the last
three years.
Specialty Papers’ highly technical engineered products
include those designed for multiple end uses, such as papers for
pressure-sensitive postage stamps, greeting and playing cards,
conical cups, digital imaging applications and for release paper
applications. Such products comprise an array of distinct
business niches that are in a continuous state of evolution.
Many of these products are utilized by demanding, specialized
customer and end-user applications. Some of our products are new
and higher growth while others are more mature and further along
in the product life cycle. Because many of these products are
technically complex and involve substantial customer-supplier
development collaboration, they typically command higher per ton
prices and generally exhibit greater pricing stability relative
to commodity grade paper products.
In the carbonless paper and forms market, we compete with
Appleton Papers and, to a lesser extent, Nekoosa Papers, Inc. We
believe we are one of the leading producers of book publishing
papers and compete in these markets with, among others, Domtar
and North Pacific Paper (NORPAC). In the envelope sector we
compete with International Paper, Domtar and Evergreen, among
others. In our Specialty Papers’ engineered products
markets, competition is product line specific as the necessity
for technical expertise and specialized manufacturing equipment
limits the number of companies offering multiple product lines.
We compete with specialty divisions of large companies such as,
among others, International Paper, Domtar, Boise, NewPage and
Sappi. Service, product performance, technological advances and
product pricing are important competitive factors with respect
to all our products. We believe our reputation in these areas
continues to be excellent.
The Specialty Papers business unit operates two integrated pulp
and paper making facilities with the following combined
attributes:
|
Uncoated
|
Estimated Annual
|
Estimated
|
||||||||||||
|
Capacity (short
|
Principal Raw Material
|
Quantity of PRM
|
Percent of PRM
|
Percent of Need Generated |
Principal
|
Annual
|
||||||||
| tons) | (“PRM”) | (short tons) | Purchased (1) | Steam | Electricity | Source of Fuel | Quantity | |||||||
|
732,000
|
Pulpwood | 2,321,000 | 97% | 100% | 90% | Coal | 610,000 tons | |||||||
| Wood- and other pulps | 684,500 | 16 | Natural gas | 765,000 MCF | ||||||||||
| (1) | Represents percent purchased from unrelated third-parties. |
The Spring Grove, Pennsylvania facility includes five uncoated
paper machines that have been rebuilt and modernized from time
to time. It has an off-line combi-blade coater and a Specialty
Coater (“S-Coater”), which together yield a potential
annual production capacity for coated paper of approximately
68,000 tons. Since uncoated paper is used in producing coated
paper, this is not additional capacity. We view the S-Coater as
an important asset that allows us to expand our engineered paper
products business. The Spring Grove facility also includes a
pulpmill that has a production capacity of approximately 650
tons of bleached pulp per day.
The Chillicothe, Ohio facility operates four paper machines
producing uncoated and carbonless paper. This facility also
includes a pulpmill that has a production capacity of
approximately 955 tons of bleached pulp per day.
The principal raw material used to produce each facility’s
pulp is pulpwood, including both hardwoods and softwoods.
Hardwoods are available within a relatively short distance of
our mills. Softwoods are obtained from a variety of locations
including the states of Pennsylvania, Maryland, Delaware,
Virginia, Kentucky, Tennessee and South Carolina. To protect our
sources of pulpwood, we actively promote conservation and forest
management among suppliers and woodland owners. In addition to
sourcing the pulpwood in the open market, we have long-term
supply contracts that provide access to timber at market prices.
The Spring Grove facility produces more electricity than it
requires. Excess electricity was sold to the local
2
Table of Contents
power company under a long-term co-generation contract that
expired on March 31, 2010. During 2010, in anticipation of
the contract’s expiration, we became a member of PJM
Interconnection, a federally regulated regional transmission
organization that coordinates the movement and ensures
reliability of wholesale electricity in its region. As a member,
we are committed to providing capacity to the high-voltage
electricity grid and agree to sell excess power at market
prices. Accordingly, our margin earned from energy sales will be
subject to market volatility associated with the price at which
energy is sold together with volatility in input costs,
primarily related to coal.
Cellulosic Biofuel Production Credits and Alternative Fuel
Mixture Credits
The U.S. Internal
Revenue Code (the “IRC”) provided tax credits for
companies that produce cellulosic biofuel or use alternative
fuel mixtures to produce energy to operate their businesses. The
credits equal to $1.01 per gallon of cellulosic biofuel or $0.50
per gallon of alternative fuel contained in the mixture. In a
memorandum issued in July 2010, the Internal Revenue Service
issued guidance concluding that black liquor sold or used before
January 1, 2010, qualifies for the cellulosic biofuel
producer credit (“CBPC”) and no further certification
of eligibility was needed.
In connection with filing our 2009 income tax return, we claimed
$23.2 million, net of taxes, of CBPC for black liquor used
during the period January 1, 2009 through February 19,
2009.
The alternative fuel mixture credit is refundable to the
taxpayer. On May 11, 2009, we were notified by the Internal
Revenue Service that our application to be registered as an
alternative fuel mixer was approved. During 2009, we mixed and
burned eligible alternative fuels for the period
February 20, 2009 through December 31, 2009, and
earned $107.8 million of alternative fuel mixture credits.
Composite Fibers
Our Composite Fibers
business unit, based in Gernsbach, Germany, serves customers
globally and focuses on higher-value-added products in the
following markets:
| • | Food & Beverage paper used for tea bags and single serve coffee products; | |
| • | Metallized products used in the labeling of beer bottles, innerliners, gift wrap, self-adhesive labels and other consumer products applications; | |
| • | Composite Laminates papers used in production of decorative laminates, furniture and flooring applications; and | |
| • | Technical Specialties is a diverse line of paper products used in batteries, medical masks and other highly engineered applications. |
We believe this business unit maintains a market leadership
position in the growing tea bags and single-serve coffee
products markets and the composite laminates market. Since the
completion of the Caerphilly acquisition, we have the second
largest market share for metallized products globally. Composite
Fibers’ revenue composition by market consisted of the
following for the years indicated:
| In thousands | 2010 | 2009 | 2008 | ||||||||||||
|
Food & beverage
|
$ | 242,882 | $ | 233,899 | $ | 252,545 | |||||||||
|
Metallized
|
88,753 | 81,388 | 85,719 | ||||||||||||
|
Composite laminates
|
50,801 | 46,442 | 58,705 | ||||||||||||
|
Technical specialties and other
|
36,781 | 30,366 | 32,983 | ||||||||||||
|
Total
|
$ | 419,217 | $ | 392,095 | $ | 429,952 | |||||||||
We believe many of the market segments served by Composite
Fibers, particularly Food & Beverage and Metallized
papers, present attractive growth opportunities by expanding
into new geographic markets and by gaining market share through
quality product and service offerings. Growth in these markets
is driven by growing population and disposable income and
changes in consumer preferences. Many of this unit’s papers
are technically sophisticated. Most of the papers produced in
the Composite Fibers business unit, except for metallized
papers, are extremely lightweight and require very specialized
fibers. Our engineering capabilities, specifically designed
papermaking equipment and customer orientation position us well
to compete in these global markets.
The Composite Fibers Business Unit is comprised of the three
paper making facilities (Germany, France and the United
Kingdom), metallizing operations (Wales and Germany) and a pulp
mill (the Philippines) with the indicated combined attributes:
|
Estimated
|
||||||||||||||||||||||||||
|
Production
|
Annual
|
Percent of Need |
Principal
|
|||||||||||||||||||||||
|
Capacity
|
Principal Raw
|
Quantity of
|
Percent of
|
Generated |
Source of
|
Approximate
|
||||||||||||||||||||
| (short tons) | Material (“PRM”) | PRM (short tons) | PRM Purchased (1) | Steam | Electricity | Fuel | Quantity | |||||||||||||||||||
|
65,900
|
Lightweight | Abaca pulp | 15,500 | 20 | % | 100 | % | 15 | % | Natural gas | 1,654,000 MCF | |||||||||||||||
| Wood pulp | 42,600 | 100 | ||||||||||||||||||||||||
| Synthetic fiber | 10,600 | 100 | ||||||||||||||||||||||||
|
28,800
|
Metallized | Base stock | 30,500 | 100 | – | – | Natural gas | 44,500 MCF | ||||||||||||||||||
|
12,500
|
Abaca pulp | Abaca fiber | 19,100 | 100 | ||||||||||||||||||||||
| (1) | Represents percent purchased from unrelated third-parties. |
Glatfelter 2010 Annual
Report 3
Table of Contents
Our mill in the Philippines processes abaca fiber to produce a
specialized pulp. This abaca pulp production process provides a
unique advantage by supplying a key raw material in pulped form
used by our Composite Fibers business unit. In the event the
supply of abaca fiber becomes constrained or should production
demands exceed capacity from the Philippines mill, alternative
sources
and/or
substitute fibers are used to meet customer demands. In
addition, events may arise from the relatively unstable
political and economic environment in which the Philippine
facility operates that could interrupt the production of abaca
pulp. Management periodically evaluates the availability of
abaca pulp for our Composite Fibers business unit. Any extended
interruption of the Philippine operation could have a material
impact on our consolidated financial position
and/or
results of operations. We target to have approximately one month
of fiber supply in stock and one month of fiber supply at sea
available to us. In addition, we have established contingency
plans for alternative sources of abaca pulp. However, the cost
of obtaining abaca pulp from such alternative sources, if
available, would likely be much higher.
In Composite Fibers’ markets, competition is product line
specific as the necessity for technical expertise and
specialized manufacturing equipment limits the number of
companies offering multiple product lines. We believe we have
leading market positions for paper used in tea bags and single
serve coffee products and compete with companies such as
Ahlstrom and Purico. In composite laminates we compete with PdM,
a division of Schweitzer-Maudit, Purico and MB Papeles and for
metallized products, competitors include Vacumet, AR
Metallizing, Amsterdam Metallized Products, and Protec.
Advanced Airlaid Materials
On
February 12, 2010, we acquired Concert, which we now
operate as the Advanced Airlaid Materials business unit. Founded
in 1993, Concert is a leading global supplier of highly
absorbent cellulose-based airlaid non-woven materials used to
manufacture a diverse range of consumer and industrial products
for growing global end-use markets. These products include:
| • | feminine hygiene; | |
| • | adult incontinence; | |
| • | home care such as specialty wipes; | |
| • | table top and towels; and | |
| • | food pads and other. |
This acquisition affords us the opportunity to grow with our
customers who are industry leading consumer product companies
for feminine hygiene and adult incontinence products. Advanced
Airlaid Materials holds leading market share positions in the
markets it serves, excels in building long-term customer
relationships through superior quality and customer service
programs, and has a well-earned reputation for innovation and
its ability to quickly bring new products to market. Its
customers are within close proximity to its facilities, and
include multinational blue-chip consumer product companies.
Sales of feminine hygiene product material accounted for 81% of
Advanced Airlaid Material’s revenue in 2010. These markets
are considered to be more growth oriented in certain geographic
regions driven by population growth, consumer preferences and
suppliers’ ability to provide innovative products. In
developing markets, demand is also influenced by increases in
disposable income and cultural preferences.
The Advanced Airlaid Materials business unit operates two
facilities with the following combined attributes:
|
Estimated Annual
|
||||||||
|
Production Capacity
|
Principal Raw
|
Quantity of PRM
|
||||||
| (short tons) | Material | (short tons) | ||||||
| 102,300 | Fluff pulp | 68,200 | ||||||
Advanced Airlaid Materials operates
state-of-the-art
facilities in Gatineau, Quebec, Canada and Falkenhagen, Germany.
The Gatineau location consists of two airlaid production lines
employing multi-bonded and thermal airlaid techniques and a
single-lane
festooner. The Falkenhagen location operates three multi-bonded
production lines and three
single-lane
festooners.
Prior to our acquisition of Concert, approximately
$80 million was invested by its previous owners to install
a new line at the Falkenhagen facility. The new line, which
successfully commenced commercial production during the fourth
quarter of 2009, increased annual rated capacity by 19,400 tons,
a 27% increase in the business unit’s capacity. A
significant portion of this unit’s capacity is under
contract through 2013.
Advanced Airlaid Materials is a technology and product
innovation leader in technically demanding segments of the
airlaid market, most notably feminine hygiene. We believe that
its facilities are among the most modern and flexible airlaid
facilities in the world, which allow it to produce at industry
leading operating rates. Its proprietary
single-lane
rotary festooning technology, which was developed in 2002,
provides customers with product packaged for efficient use.
Advanced Airlaid Materials has leading market positions in
feminine hygiene and adult incontinence products, food pads and
specialty wipes. This business unit’s in-house technical
product and process expertise, festooning capabilities and
4
Table of Contents
rigorous customer requirements create large barriers to entry
for new entrants.
The airlaid industry is made up of a few large producers,
including Buckeye Technologies Inc., Georgia-Pacific LLC, Duni
AB, Fiberweb Plc., and us.
Additional financial information for each of our business units
is included in Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results of
Operations and in Item 8 – Financial Statements
and Supplementary Data, Note 21.
Our Business Strategy
Our vision is to become
the global supplier of choice in specialty papers and engineered
products. We are continuously developing and refining our
strategies to strengthen our business and position it for the
future. Execution of our strategies is dependent on our customer
relationships, technology, operational flexibility and our new
product development efforts.
Our strategy includes maintaining and expanding market leading
positions in global growth markets, focusing on specialization
and innovation, in part, through new product development,
driving efficiencies and cost reduction through ongoing
continuous improvement initiatives and maintaining our focus on
maximizing cash flow. With respect to each business unit, our
strategy includes:
Specialty Papers
The North American
uncoated free sheet market has been challenged by a supply and
demand imbalance, particularly for commodity-like products.
While the industry has narrowed the supply-demand gap by
eliminating capacity, the imbalance continues. To be successful
in the current market environment, our strategy is focused on:
| • | leveraging our flexible operating platform to optimize product mix by shifting production among facilities to more closely match output with changing demand trends; | |
| • | employing our new product and business development capabilities to meet changing customer demands and ensure optimal utilization of capacity; | |
| • | utilizing ongoing continuous improvement methodologies to ensure operational efficiencies; and | |
| • | maintaining superior customer service. |
Composite Fibers
The markets served by
this business unit are characterized by long-term growth
opportunities. To take advantage of this, our strategy is
focused on:
| • | capturing world-wide growth in Composite Fibers’ core markets of food & beverage, composite laminates and metallized papers; | |
| • | enhancing product mix across all of the business unit’s markets by utilizing new product development capabilities; and | |
| • | implementing continuous improvement methodologies to increase productivity, reduce costs and expand capacity. |
Advanced Airlaid Material
The markets
served by this business unit are characterized by attractive
growth opportunities. To take advantage of this, our strategy is
focused on:
| • | maintaining and expanding relationships with customers that are market-leading consumer product companies; | |
| • | expanding geographic reach of markets served; | |
| • | more fully utilizing and maximizing production capacity; | |
| • | employing continuous improvement methodologies and initiatives to reduce costs and improve efficiencies; and | |
| • | furthering our product innovation capabilities. |
Acquisitions
– We have a demonstrated
ability to establish leading market positions through the
successful acquisition and integration of complementary
businesses. Since 2006, we have successfully completed and
integrated four acquisitions. In February 2010, we further
diversified our global footprint with the Concert acquisition, a
technology and product innovation leader in technically
demanding segments of the airlaid market, most notably feminine
hygiene. We expect this acquisition will enable us to grow with
our customers who are industry leading consumer products
companies for feminine hygiene and adult incontinence products
and complements our long-term strategy of driving growth in our
markets in part through acquisitions.
Glatfelter 2010 Annual
Report 5
Table of Contents
Concentration of Customers
For each of the
past three years, no single customer represented more than 10%
of our consolidated net sales. However, as discussed in
Item 1A Risk Factors, one customer accounted for the
majority of Advanced Airlaid Materials net sales in 2010.
Capital Expenditures
Our business is capital
intensive and requires extensive expenditures for new and
enhanced equipment. These capital investments are necessary for
environmental compliance, normal upgrades or replacements,
business strategy and research and development. For 2011, we
expect capital expenditures to total approximately
$60 million to $65 million.
Environmental Matters
We are subject to laws
and regulations which operate to protect the environment as well
as human health and safety. We have, at various times, incurred
significant costs to comply with those regulations, as new
regulations are developed or regulatory priorities change.
Currently, we anticipate that we could incur material capital
and operating costs to comply with several air quality
regulations including the U.S. EPA Best Available Retrofit
Technology rule (BART; otherwise known as the Regional Haze
Rule) and the Boiler Maximum Achievable Control Technology rule
(Boiler MACT). Although we are in the process of analyzing the
potential impact of these requirements, compliance could require
significant capital expenditures. For a discussion of other
environmental matters, see Item 8 – Financial
Statements and Supplementary Data – Note 20.
Employees
The following table summarizes our
workforce as of December 31, 2010:
| Contract Period | ||||||||||||||||||||||
| Location | Total | Hourly (1) | Salaried | Start | End | Union | ||||||||||||||||
|
U.S.
|
||||||||||||||||||||||
|
Corporate/Spring Grove
|
969 | 603 | 366 | Jan. 2011 | Jan. 2014 | United Steelworkers International | ||||||||||||||||
|
Chillicothe/Fremont
|
1,399 | 1,051 | 348 | Aug. 2009 | Aug. 2012 |
Union and the Office and Professional
Employees International Union, |
||||||||||||||||
|
International
|
||||||||||||||||||||||
|
Gernsbach, Germany
|
602 | 364 | 238 | Sept. 2010 | Nov. 2012 |
Industriegewerkschaft
Bergbau, Chemie, Energie-IG BCE |
||||||||||||||||
|
Scaër, France
|
118 | 70 | 48 | Nov. 2008 | Nov. 2012 |
Confederation Generale des
Travailleurs & Force Ouvriere |
||||||||||||||||
|
Lydney, England
|
283 | 211 | 72 | Feb. 2011 | Feb. 2012 | Unite the Union | ||||||||||||||||
|
Caerphilly, Wales
|
125 | 83 | 42 | Jan. 2011 | Jan. 2012 | General Maintenance & Boiler’s | ||||||||||||||||
|
Philippines
|
92 | 63 | 29 | Sept. 2007 | Sept. 2012 | Newtech Pulp Workers Union & Federation of Democratic Labor Org. | ||||||||||||||||
|
Falkenhagen, Germany
|
425 | 344 | 81 | n/a | n/a | Works Council | ||||||||||||||||
|
Gatineau, Canada
|
324 | 240 | 84 | Jan. 2010 | Dec. 2013 |
La fraternité inter-provinciale des
ouvriers en électricités |
||||||||||||||||
| Jul. 2010 | Dec. 2011 | Le syndicat canadien des communications, de l’énergie et du papier | ||||||||||||||||||||
|
Total worldwide employees
|
4,337 | 3,029 | 1,308 | |||||||||||||||||||
| (1) | Generally, the majority of the hourly employees included in the table above are covered by terms and conditions of the collective bargaining agreements with the respective labor organization indicated. |
We consider the overall relationship with our employees to be
satisfactory.
Available Information
On our investor
relations page of our Corporate website at www.glatfelter.com we
make available free of charge our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K
and other related information as soon as reasonably practical
after they are filed with the Securities and Exchange
Commission. In addition, our website includes a Corporate
Governance page consisting of, among others, our Governance
Principles and Code of Business Conduct, and biographies of our
Board of Directors and Executive Officers, Audit, Compensation,
Finance and Nominating Committees of the Board of Directors and
their respective Charters, Code of Business Ethics for the CEO
and Senior Financial Officers of Glatfelter, our
“whistle-blower” policy and other related material. We
satisfy the disclosure requirement for any future amendments to,
or waivers from, our Code of Business Conduct or Code of
Business Ethics for the CEO and Senior Financial Officers by
posting such information on our website. We will provide a copy
of the Code of Business Conduct or Code of Business Ethics for
the CEO and Senior Financial Officers, without charge, to any
person who requests one, by calling
(717) 225-2724.
6
Table of Contents
| ITEM 1A | RISK FACTORS |
Our business
and financial performance may be adversely affected by the
adverse global economic environment or downturns in the target
markets that we serve.
Demand for our products in the markets we serve is primarily
driven by demand for our customers’ products, which is
often affected by general economic conditions. Downturns in our
target markets could result in decreased demand for our
products. In particular, our businesses may be adversely
affected in the event of weak global economic conditions and by
softness in targeted markets. Our results could be adversely
affected if economic conditions weaken or fail to continue to
improve. Also, there may be periods during which demand for our
products is insufficient to enable us to operate our production
facilities in an economical manner. The economic impact may
cause customer insolvencies which may result in their inability
to satisfy their financial obligations to us. These conditions
are beyond our ability to control and may have a significant
impact on our sales and results of operations.
In addition to fluctuations in demand for our products in the
markets we serve, the markets for our products are also
significantly affected by changes in industry capacity and
output levels. There have been periods of supply/demand
imbalance in our industry which have caused wood pulp, fluff
pulp and selling prices to be volatile. The timing and magnitude
of price increases or decreases in these markets have generally
varied by region and by product type. A sustained period of weak
demand or excess supply would likely adversely affect pulp,
fluff pulp and selling prices. This could have a material
adverse affect on our operating and financial results.
The cost of
raw materials and energy used to manufacture our products could
increase and the availability of certain raw materials could
become constrained.
We require access to sufficient and reasonably priced quantities
of pulpwood, purchased pulps, pulp substitutes, abaca fiber and
certain other raw materials. Our Spring Grove and Chillicothe
locations are vertically integrated manufacturing facilities
that generate approximately 85% of their annual pulp
requirements.
Our Philippine mill purchases abaca fiber to produce abaca pulp,
which we use to manufacture our paper for tea bags and single
serve coffee products at our Gernsbach, Scaër and Lydney
facilities. However, at certain times in the past, the supply of
abaca fiber has been constrained due to factors such as weather
related damage to the source crop as well as selection by land
owners of alternative uses of land in lieu of fiber producing
activities.
Our Advanced Airlaid Materials business unit requires access to
sufficient quantities of fluff pulp, the supply of which is
subject to availability of certain softwoods. Softwood
availability can be limited by many factors, including, weather
in regions where softwoods are abundant.
The cost of many of our production materials, including
petroleum based chemicals, and freight charges, are influenced
by the cost of oil. In addition, coal is a principal source of
fuel for both the Spring Grove and Chillicothe facilities and
natural gas is used as a source of fuel for our Chillicothe
facility, and the Composite Fibers and Advanced Airlaid
Materials business units’ facilities. In addition, our
vendors’ liquidity may be impacted by the economy creating
supply shortages.
Although we have contractual cost pass-through arrangements with
certain customers we may not be able to fully pass increased raw
materials or energy costs on to all customers if the market will
not bear the higher price or where existing agreements with our
customers limit price increases. If price adjustments
significantly trail increases in raw materials or energy prices
our operating results could be adversely affected.
Our industry
is highly competitive and increased competition could reduce our
sales and profitability.
In recent years, the global industries in which we compete have
been adversely affected by capacity exceeding the demand for
products and by declining uncoated free sheet demand. As a
result, steps have been taken to reduce underperforming
capacity. However. slowing demand or increased competition could
force us to lower our prices or to offer additional services at
a higher cost to us, which could reduce our gross margins and
net income. The greater financial resources of certain of our
competitors may enable them to commit larger amounts of capital
in response to changing market conditions. Certain competitors
may also have the ability to develop product or service
innovations that could put us at a competitive disadvantage.
Some of the factors that may adversely affect our ability to
compete in the markets in which we participate include:
| • | the entry of new competitors into the markets we serve, including foreign producers; | |
| • | the willingness of commodity-based producers to enter our markets when they are unable to |
Glatfelter 2010 Annual
Report 7
Table of Contents
| compete or when demand softens in their traditional markets; |
| • | the aggressiveness of our competitors’ pricing strategies, which could force us to decrease prices in order to maintain market share; | |
| • | our failure to anticipate and respond to changing customer preferences; | |
| • | the impact of emerging electronic-based substitutes for certain of our products such as book publishing and envelope; | |
| • | the impact of replacement or disruptive technologies; | |
| • | our inability to develop new, improved or enhanced products; and | |
| • | our inability to maintain the cost efficiency of our facilities. |
If we cannot effectively compete in the markets in which we
operate, our sales and operating results would be adversely
affected.
We may not be
able to develop new products acceptable to our
customers.
Our business strategy is market focused and includes investments
in developing new products to meet the changing needs of our
customers and to maintain our market share. Our success will
depend in large part on our ability to develop and introduce new
and enhanced products that keep pace with introductions by our
competitors and changing customer preferences. If we fail to
anticipate or respond adequately to these factors, we may lose
opportunities for business with both current and potential
customers. The success of our new product offerings will depend
on several factors, including our ability to:
| • | anticipate and properly identify our customers’ needs and industry trends; | |
| • | price our products competitively; | |
| • | develop and commercialize new products and applications in a timely manner; | |
| • | differentiate our products from our competitors’ products; and | |
| • | invest in research and development activities efficiently. |
Our inability to develop new products could adversely impact our
business and ultimately harm our profitability.
We are subject
to substantial costs and potential liability for environmental
matters.
We are subject to various environmental laws and regulations
that govern our operations, including discharges into the
environment, and the handling and disposal of hazardous
substances and wastes. We are also subject to laws and
regulations that impose liability and
clean-up
responsibility for releases of hazardous substances into the
environment. To comply with environmental laws and regulations,
we have incurred, and will continue to incur, substantial
capital and operating expenditures. We anticipate that
environmental regulation of our operations will continue to
become more burdensome and that capital and operating
expenditures necessary to comply with environmental regulations
will continue, and perhaps increase, in the future. Because
environmental regulations are not consistent worldwide, our
ability to compete globally may be adversely affected by capital
and operating expenditures required for environmental
compliance. In addition, we may incur obligations to remove or
mitigate any adverse effects on the environment, such as air and
water quality, resulting from mills we operate or have operated.
Potential obligations include compensation for the restoration
of natural resources, personal injury and property damages.
Despite the December 2009 and March 2011 favorable rulings in
the pending Fox River litigation, we continue to have exposure
to liability for remediation and other costs related to the
presence of polychlorinated biphenyls in the lower Fox River on
which our former Neenah, Wisconsin mill was located. There can
be no assurance that we will not be required to ultimately pay
material amounts to resolve our liability in the Fox River
matter. We have financial reserves for environmental matters,
including the Fox River site, but we cannot be certain that
those reserves will be adequate to provide for future
obligations related to these matters, that our share of costs
and/or
damages for these matters will not exceed our available
resources, or that such obligations will not have a long-term,
material adverse effect on our consolidated financial position,
liquidity or results of operations.
Our environmental issues are complicated and should be reviewed
in context; please see a more detailed discussion of these
matters in Item 8 – Financial Statements and
Supplementary Data – Note 20.
8
Table of Contents
The Advanced
Airlaid Materials business unit generates a substantial portion
of its revenue from one customer serving the feminine hygiene
products market, the loss of which could have a material adverse
effect on our results of operations.
Advanced Airlaid Materials generates the majority of its net
sales of feminine hygiene products in 2010 from one customer.
The loss of a significant customer could have a material adverse
effect on their operating results. In addition, sales in the
feminine hygiene market accounted for approximately 81% of
Advanced Airlaid Materials’ net sales in 2010. A decline in
sales of feminine hygiene products or in sales of feminine
hygiene products generally could have a material adverse effect
on this unit’s operating results. Customers in the airlaid
non-woven fabric material market, including the feminine hygiene
market, may also switch to less expensive products or otherwise
reduce demand for Advanced Airlaid Material’s products,
thus reducing the size of the markets in which it currently
sells its products. Any of the foregoing could result in our
failing to realize the benefits of the acquisition, which could
have a material adverse effect on our financial performance and
business prospects.
Our operations
may be impaired and we may be exposed to potential losses and
liability as a result of natural disasters, acts of terrorism or
sabotage or similar events.
Natural disasters, such as earthquakes, flooding or fire, and
acts of terrorism or sabotage affecting our operating activities
and major facilities could materially and adversely affect our
operations, our operating results and financial condition. In
particular, we own and operate four dams in York County,
Pennsylvania that were built to ensure a steady supply of water
for the operation of our paper mill in Spring Grove,
Pennsylvania, which is a primary manufacturing location for our
envelope papers and engineered products. Each of these dams is
classified as “high hazard” by the Commonwealth of
Pennsylvania because they are located in close proximity to
inhabited areas and sudden failure would endanger occupants or
residential, commercial or industrial structures. Failure or
breach of any of the dams, including as a result of natural
disaster or act of terrorism or sabotage, could cause
significant personal injuries and damage to residential and
commercial property downstream for which we may be liable. The
failure of a dam could also be extremely disruptive and result
in damage to or the shutdown of our Spring Grove mill. Any
losses or liabilities incurred due to the failure of one of our
dams may not be fully covered by our insurance policies or may
substantially exceed the limits of our policies, and could
materially and adversely affect our operating results and
financial condition.
In addition, many of our paper making operations require a
reliable and abundant supply of water. Such mills rely on a
local water body or water source for their water needs and,
therefore, are particularly impacted by drought conditions or
other natural or manmade interruptions to its water supplies. At
various times and for differing periods, each of our mills has
had to modify operations due to water shortages or low flow
conditions in its principal water supplies. Any interruption or
curtailment of operations at any of our paper mills due to
drought or low flow conditions at the principal water source or
another cause could materially and adversely affect our
operating results and financial condition.
Our pulp mill in Lanao del Norte on the Island of Mindanao in
the Republic of the Philippines is located along the Pacific Rim
in the world’s hazard belt. By virtue of its geographic
location, this mill is subject to, among other types of natural
disasters, floods, droughts, cyclones, typhoons, earthquakes,
windstorms and volcanic activity. Moreover, the area of Lanao
del Norte has been a target of terrorist activities, including
bombings, by suspected members of the al-Qaeda-linked Islamist
groups in the Philippines, such as the Abu Sayyaf and the Rajah
Solaiman Group and other Islamic militant groups, most notably
the Moro Islamic Liberation Front. The most common bomb targets
in Lanao del Norte to date have been power transmission towers.
Our pulp mill in Mindanao is located in a rural portion of the
island and is susceptible to attacks or power interruptions. The
Mindanao mill supplies approximately 80% of the abaca pulp that
is used by our Composite Fibers business unit to manufacture our
paper for tea bags and single serve coffee products. Any
interruption, loss or extended curtailment of operations at our
Mindanao mill could materially and adversely affect our
operating results and financial condition.
We have
operations in a potentially politically and economically
unstable location.
Our pulp mill in the Philippines is located in a region that is
unstable and subject to political unrest. As discussed above,
our Philippine pulp mill produces abaca pulp, a significant raw
material used by our Composite Fibers business unit, and is
currently our main provider of abaca pulp. There are limited
suitable alternative sources of readily available abaca pulp in
the world. In the event of a disruption in supply from our
Philippine mill, there is no guarantee that we could obtain
adequate amounts of abaca pulp from alternative sources at a
reasonable price or at all. As a consequence, any civil
disturbance, unrest, political instability or other event that
causes a disruption
Glatfelter 2010 Annual
Report 9
Table of Contents
in supply could limit the availability of abaca pulp and would
increase our cost of obtaining abaca pulp. Such occurrences
could adversely impact our sales volumes, revenues and operating
results.
Our
international operations pose certain risks that may adversely
impact sales and earnings.
We have significant operations and assets located in Canada,
Germany, France, the United Kingdom, and the Philippines. Our
international sales and operations are subject to a number of
special risks, in addition to the risks in our domestic sales
and operations, including differing protections of intellectual
property, trade barriers, labor unrest, exchange controls,
regional economic uncertainty, differing (and possibly more
stringent) labor regulation, risk of governmental expropriation,
domestic and foreign customs and tariffs, differing regulatory
environments, difficulty in managing widespread operations and
political instability. These factors may adversely affect our
future profits. Also, in some foreign jurisdictions, we may be
subject to laws limiting the right and ability of entities
organized or operating therein to pay dividends or remit
earnings to affiliated companies unless specified conditions are
met. Any such limitations would restrict our flexibility in
using funds generated in those jurisdictions.
Foreign
currency exchange rate fluctuations could adversely affect our
results of operations.
We own and operate manufacturing facilities in Canada, Germany,
France, the United Kingdom and the Philippines. The majority of
our business is transacted in U.S. dollars; however, a
substantial portion of business is transacted in Euros, British
Pound Sterling and Canadian dollars. With respect to the Euro,
we generate substantially greater cash inflow in these
currencies than we do outflow. However, with respect to the
British Pound Sterling and the Philippine Peso, we have greater
outflows than inflows of this currency. As a result of these
positions, we are exposed to changes in currency exchange rates.
Our ability to maintain our products’ price competitiveness
is reliant, in part, on the relative strength of the currency in
which the product is denominated compared to the currency of the
market into which it is sold and the functional currency of our
competitors. Changes in the rate of exchange of foreign
currencies in relation to the U.S. dollar, and other
currencies, may adversely impact our results of operations and
our ability to offer products in certain markets at acceptable
prices.
Substantially
lower and more volatile
market-based
prices for sales of excess electricity compared to the
fixed-price we historically received may prevent us from
achieving the historical margins on our sales of excess
electricity in relation to our coal supply contract, which could
have a material adverse effect on our consolidated financial
position and results of operations.
Because our Spring Grove facility produces more electricity than
it requires for its operations, we sell the excess energy
produced. Historically, we sold the excess electricity to the
local power company under a fixed-price long-term contract,
which expired March 31, 2010. We now sell our excess
electricity at wholesale market prices prevailing at the time of
sale. Market prices for electricity have historically been
volatile and may continue to be substantially lower than the
price we historically received under the expired contract.
We generate electricity at our Spring Grove facility using a
variety of fuels, including coal. We purchase coal for this
facility under a long-term, fixed price supply contract, which
expires at the end of 2012. Our cost of coal, as well as the
costs incurred for natural gas and other fuels used to generate
electricity, have a major impact on the net revenue and overall
profitability of our Specialty Paper business unit. The
combination of market-based pricing for energy sales and the
fixed pricing of the coal contract may limit our ability to
generate the level of net revenues from energy sales that we
historically achieved and limit the overall profitability of our
Specialty Papers business unit, which could have a material
adverse affect on our consolidated financial position and
results of operations.
An IRS audit
of our 2009 tax return could result in a change in the tax
treatment of the alternative fuel mixture credits we claimed in
2009, which could have a material adverse effect on our results
of operations and financial position.
The U.S. Internal Revenue Code, or the Code, provided a tax
credit for companies that used alternative fuel mixtures to
produce energy to operate their businesses on or prior to
December 31, 2009. During 2009, we registered two of our
facilities with the IRS as alternative fuel mixers based on
their use of black liquor as an alternative fuel source. For the
year ended December 31, 2009, we had substantial
alternative fuel mixture credits relating to these facilities.
Our results of operations in 2009 included, on a pre-tax basis,
$107.8 million of alternative fuel mixture credits all of
which has been used or realized in cash. In the event that the
IRS audits
10
Table of Contents
our tax return for the year ended December 31, 2009, the
IRS may conclude that some or all of the credits claimed are
subject to federal income taxes, which would subject us to
additional tax liabilities and could have a material adverse
effect on our results of operations and financial position.
In the event
any of the above risk factors impact our business in a material
way or in combination during the same period, we may be unable
to generate sufficient cash flow to simultaneously fund our
operations, finance capital expenditures, satisfy obligations
and make dividend payments on our common stock.
In addition to debt service obligations, our business is capital
intensive and requires significant expenditures for equipment
maintenance, new or enhanced equipment, environmental
compliance, and research and development to support our business
strategies. We expect to meet all of our near and long-term cash
needs from a combination of operating cash flow, cash and cash
equivalents, our existing credit facility and other long-term
debt. If we are unable to generate sufficient cash flow from
these sources, we could be unable to meet our near and long-term
cash needs or make dividend payments.
| ITEM 1B | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2 | PROPERTIES |
We own substantially all of the land and buildings comprising
our manufacturing facilities located in Pennsylvania; Ohio;
Canada; the United Kingdom; Germany; France; and the
Philippines. Substantially all of the equipment used in our
manufacturing and related operations is also owned. Our
metallized paper production facility located in Caerphilly,
Wales leases the building and land associated with its
operations. We also lease office space for a sales and
distribution office in Moscow, Russia, as well as our corporate
offices located in York, Pennsylvania. All of our properties,
other than those that are leased, are free from any material
liens or encumbrances. We consider all of our buildings to be in
good structural condition and well maintained and our properties
to be suitable and adequate for present operations.
| ITEM 3 | LEGAL PROCEEDINGS |
We are involved in various lawsuits that we consider to be
ordinary and incidental to our business. The ultimate outcome of
these lawsuits cannot be predicted with certainty; however, we
do not expect such lawsuits, individually or in the aggregate,
will have a material adverse effect on our consolidated
financial position, liquidity or results of operations.
For a discussion of commitments, legal proceedings and related
contingencies, see Item 8 – Financial Statements
and Supplementary Data – Note 20.
EXECUTIVE
OFFICERS
The following table sets forth certain information with respect
to our executive officers as of March 11, 2011.
| Name | Age | Office with the Company | ||||||
|
Dante C. Parrini
|
46 | President and Chief Executive Officer | ||||||
|
John P. Jacunski
|
45 | Senior Vice President and Chief Financial Officer | ||||||
|
Jonathan A. Bourget
|
46 | Vice President & General Manager, Advanced Airlaid Materials Business Unit | ||||||
|
David C. Elder
|
42 | Vice President and Corporate Controller | ||||||
|
Thomas G. Jackson
|
45 | Vice President, General Counsel and Secretary | ||||||
|
Debabrata Mukherjee
|
41 | Vice President & General Manager, Specialty Papers Business Unit | ||||||
|
Martin Rapp
|
51 | Vice President & General Manager, Composite Fibers Business Unit | ||||||
|
Mark A. Sullivan
|
56 | Vice President Global Supply Chain | ||||||
|
William T. Yanavitch II
|
50 | Vice President Human Resources and Administration | ||||||
Officers are elected to serve at the pleasure of the Board of
Directors. Except in the case of officers elected to fill a new
position or a vacancy occurring at some other date, officers are
generally elected at the organizational meeting of the Board of
Directors held immediately after the annual meeting of
shareholders.
Dante C. Parrini
became President and Chief Executive
Officer effective January 1, 2011. Prior to this
appointment, he was Executive Vice President and Chief Operating
Officer, a position he held since February 2005.
Mr. Parrini joined us in 1997 and has previously served as
Senior Vice President and General Manager, a position he held
beginning in January 2003 and prior to that as Vice President
responsible for Sales and Marketing.
John P. Jacunski
became Senior Vice President and Chief
Financial Officer in July 2006. From October 2003 until July
2006, he was Vice President and Corporate Controller.
Mr. Jacunski was previously Vice President and Chief
Financial Officer at WCI Steel, Inc. from June 1999 to October
2003. Prior to joining WCI, Mr. Jacunski was with KPMG, an
international accounting and consulting firm, where he served in
various capacities.
Jonathan A. Bourget
joined us in July 2010 as Vice
President & General Manager, Advanced Airlaid
Materials Business Unit. From 2008 until joining our Company,
Mr. Bourget was Vice President & General Manager
of European operations at Polymer Group Inc. Prior to this, he
held various positions of increasing
Glatfelter 2010 Annual
Report 11
Table of Contents
responsibility, including General Manager Specialties Division
in Europe, with Alcoa Inc.
David C. Elder
was appointed Vice President in March 2009
and has served as Corporate Controller and Chief Accounting
Officer since July 2006. Prior to joining us in January 2006,
Mr. Elder was Corporate Controller for YORK International
Corporation, a position he held since December 2003. Prior
thereto, he was the Director, Financial Planning and Analysis
for YORK International Corporation from August 2000 to December
2003.
Thomas G. Jackson
became Vice President, General Counsel
and Secretary in June 2008. Since joining us in November 2006,
Mr. Jackson has held various positions in our legal
department including Assistant General Counsel, Assistant
Secretary and Director of Compliance. Prior to joining our
company, Mr. Jackson was Director of Business Development
at C&D Technologies, Inc. from August 2005 to September
2006 and prior to that was Deputy General Counsel at C&D
Technologies from October 1999 to August 2005.
Debabrata Mukherjee
was appointed Vice
President & General Manager, Specialty Papers Business
Unit in April 2008. Dr. Mukherjee joined our Company in
1998 and since then has held various operational, sales and
technical leadership positions within the Specialty Papers
Business Unit. From March 2006 through March 2008,
Dr. Mukherjee served as Division Vice President,
Engineered & Converting Products. From February 2004
through February 2006, Dr. Mukherjee served as Director,
Engineered Products. Prior to joining Glatfelter,
Dr. Mukherjee served in various capacities with Felix
Schoeller, a German based global specialty paper manufacturer.
Martin Rapp
joined Glatfelter in August 2006 and serves
as Vice President and General Manager – Composite
Fibers Business Unit. Prior to this, Mr. Rapp was Vice
President and General Manager of Avery Dennison’s Roll
Materials Business in Central and Eastern Europe since August
2002.
Mark A. Sullivan
was appointed Vice President, Global
Supply Chain in February 2005. Mr. Sullivan joined our
company in December 2003 as Chief Procurement Officer. His
experience includes a broad array of operations and supply chain
management responsibilities during 20 years with the DuPont
Company.
William T. Yanavitch II
rejoined the Company in May
2005 as Vice President Human Resources and Administration.
Mr. Yanavitch served as Vice President Human Resources from
July 2000 until his resignation in January 2005 at which time he
became Corporate Human Resources Manager of Constellation Energy.
| ITEM 4 | [RESERVED] |
| ITEM 5 | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Common Stock Prices and Dividends Declared Information
The following table shows the high and low prices of our common
stock traded on the New York Stock Exchange under the symbol
“GLT” and the dividend declared per share for each
quarter during the past two years.
| Quarter | High | Low | Dividend | |||||||||||
|
2010
|
||||||||||||||
|
Fourth
|
$ | 13.37 | $ | 11.62 | $ | 0.09 | ||||||||
|
Third
|
12.65 | 10.08 | 0.09 | |||||||||||
|
Second
|
15.49 | 10.62 | 0.09 | |||||||||||
|
First
|
15.05 | 12.32 | 0.09 | |||||||||||
|
2009
|
||||||||||||||
|
Fourth
|
$ | 12.58 | $ | 10.01 | $ | 0.09 | ||||||||
|
Third
|
12.14 | 7.91 | 0.09 | |||||||||||
|
Second
|
11.59 | 6.00 | 0.09 | |||||||||||
|
First
|
9.80 | 4.57 | 0.09 | |||||||||||
As of March 11, 2011, we had 1,448 shareholders of record.
12
Table of Contents
STOCK PERFORMANCE
GRAPH
The following graph compares the cumulative
5-year
total
return of our common stock with the cumulative total returns of
both a peer group and a broad market index. For the year ended
December 31, 2010, we compare our stock performance to the
S&P Small Cap 600 Paper Products index. This index is
comprised of Buckeye Technologies Inc., Clearwater Paper Corp.,
Kapstone Paper & Packaging Corp., Neenah Paper Inc.,
Schweitzer-Mauduit International and Wausau Paper Corp. In
addition, the chart includes a comparison to the Russell 2000,
which we believe is an appropriate benchmark index for stocks
such as ours.
The graph assumes that the value of the investment in our common
stock, in each index, and the peer group (including reinvestment
of dividends) was $100 on December 31, 2005 and charts it
through December 31, 2010.
| ITEM 6 | SELECTED FINANCIAL DATA |
|
As of or for the Year Ended
December 31
|
||||||||||||||||||||||||
| Dollars in thousands, except per share | 2010 (1) | 2009 (3) | 2008 | 2007 | 2006 | |||||||||||||||||||
|
Net sales
|
$ | 1,455,331 | $ | 1,184,010 | $ | 1,263,850 | $ | 1,148,323 | $ | 986,411 | ||||||||||||||
|
Energy and related sales, net
|
10,653 | 13,332 | 9,364 | 9,445 | 10,726 | |||||||||||||||||||
|
Total revenue
|
1,465,984 | 1,197,342 | 1,273,214 | 1,157,768 | 997,137 | |||||||||||||||||||
|
Reversal of (charges for) shutdown and restructuring
|
– | – | 856 | (35 | ) | (30,318 | ) | |||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
453 | 898 | 18,468 | 78,685 | 17,394 | |||||||||||||||||||
|
Net income (loss)
|
$ | 54,434 | (2) | $ | 123,442 | $ | 57,888 | $ | 63,472 | $ | (12,236 | ) | ||||||||||||
|
Earnings (loss) per share
|
||||||||||||||||||||||||
|
Basic
|
$ | 1.19 | $ | 2.70 | $ | 1.28 | $ | 1.41 | $ | (0.27 | ) | |||||||||||||
|
Diluted
|
1.17 | 2.70 | 1.27 | 1.40 | (0.27 | ) | ||||||||||||||||||
|
Total assets
|
$ | 1,341,747 | $ | 1,190,294 | $ | 1,057,309 | $ | 1,287,067 | $ | 1,225,643 | ||||||||||||||
|
Total debt
|
333,022 | 254,583 | 313,285 | 313,185 | 397,613 | |||||||||||||||||||
|
Shareholders’ equity
|
552,442 | 510,704 | 342,707 | 476,068 | 388,368 | |||||||||||||||||||
|
Cash dividends declared per common share
|
0.36 | 0.36 | 0.36 | 0.36 | 0.36 | |||||||||||||||||||
|
Capital expenditures
|
36,491 | 26,257 | 52,469 | 28,960 | 44,460 | |||||||||||||||||||
|
Depreciation, depletion and amortization
|
65,839 | 61,256 | 60,611 | 56,001 | 50,021 | |||||||||||||||||||
|
Shares outstanding
|
45,976 | 45,706 | 45,434 | 45,141 | 44,821 | |||||||||||||||||||
|
Net tons sold
|
927,853 | 818,905 | 829,354 | 799,512 | 721,892 | |||||||||||||||||||
|
Number of employees
|
4,337 | 3,546 | 3,633 | 3,854 | 3,704 | |||||||||||||||||||
| (1) | The information set forth above for 2010 includes the financial information for Concert Industries Corp. prospectively from the February 12, 2010 acquisition date. | |
| (2) | During 2010, net income included a $23.2 million tax benefit from cellulosic biofuel production credits. | |
| (3) | During 2009, we recognized $107.8 million of alternative fuel mixture credits, all of which were recorded as a reduction to cost of products sold. |
Glatfelter 2010 Annual
Report 13
Table of Contents
| ITEM 7 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This Annual Report
on
Form 10-K
includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical fact, including statements
regarding industry prospects and future consolidated financial
position or results of operations, made in this Report on
Form 10-K
are forward looking. We use words such as
“anticipates”, “believes”,
“expects”, “future”, “intends” and
similar expressions to identify forward-looking statements.
Forward-looking statements reflect management’s current
expectations and are inherently uncertain. Our actual results
may differ significantly from such expectations. The following
discussion includes forward-looking statements regarding
expectations of, among others, non-cash pension expense,
environmental costs, capital expenditures and liquidity, all of
which are inherently difficult to predict. Although we make such
statements based on assumptions that we believe to be
reasonable, there can be no assurance that actual results will
not differ materially from our expectations. Accordingly, we
identify the following important factors, among others, which
could cause our results to differ from any results that might be
projected, forecasted or estimated in any such forward-looking
statements:
| i. | variations in demand for our products including the impact of any unplanned market-related downtime, or variations in product pricing; |
| ii. | changes in the cost or availability of raw materials we use, in particular pulpwood, market pulp, pulp substitutes, caustic soda and abaca fiber; |
| iii. | changes in energy-related costs and commodity raw materials with an energy component; |
| iv. | our ability to develop new, high value-added products; |
| v. | the impact of exposure to volatile market-based pricing for sales of excess electricity; |
| vi. | the impact of competition, changes in industry production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases; |
| vii. | the gain or loss of significant customers and/or on-going viability of such customers; |
| viii. | cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls (“PCBs”) in the lower Fox River on which our former Neenah mill was located; |
| ix. | risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates; |
| x. | geopolitical events, including war and terrorism; |
| xi. | disruptions in production and/or increased costs due to labor disputes; |
| xii. | the impact of unfavorable outcomes of audits by various state, federal or international tax authorities; |
| xiii. | enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation; |
| xiv. | adverse results in litigation; and |
| xv. | our ability to finance, consummate and integrate acquisitions. |
Introduction
We manufacture, both domestically
and internationally, a wide array of specialty papers and
fiber-based engineered materials. We manage our company along
three business units:
| • | Specialty Papers with revenues earned from the sale of carbonless papers and forms, book publishing, envelope & converting, and engineered products; | |
| • | Composite Fibers with revenue from the sale of food & beverage filtration papers, metallized papers, composite laminates used for decorative furniture and flooring applications, and technical specialties; and | |
| • | Advanced Airlaid Materials with revenue from the sale of airlaid non-woven fabric like materials used in feminine hygiene products, adult incontinence products, cleaning pads and wipes, food pads, napkins and tablecloths, and baby wipes. |
Overview
On February 12, 2010, we
completed the acquisition of Concert Industries Corp.
(“Concert”), a manufacturer of highly absorbent
cellulose-based airlaid non-woven materials with annual revenue
in 2009 of $203 million. Our results of operations for 2010
include the results of Concert (now operated as the Advanced
Airlaid Materials business unit) prospectively since the
acquisition was completed.
14
Table of Contents
Our reported results of operations for 2010 when compared to
2009 are lower primarily due to the higher amount of tax-related
credits recorded in 2009 than in 2010 associated with cellulosic
or alternative fuel mixtures. For 2010, net income included a
$23.2 million tax benefit from cellulosic biofuel credits
compared to $95.8 million, after-tax, alternative fuel
mixture credits during 2009.
Our 2010 results include $9.1 million, after-tax, of
acquisition and integration costs, together with a
$1.7 million loss on forward foreign currency contracts
that hedged the Canadian dollar purchase price, of the Concert
acquisition. Interest expense increased $6.2 million in
2010 compared to 2009 due to financing part of the acquisition
price.
Operationally, our results were favorably affected by higher
volumes shipped associated with improving demand in many of the
markets served by our businesses and the inclusion of Concert.
Higher average selling prices offset the adverse affect of
rising input costs, particularly purchased pulp.
Specialty Papers’ operating income totaled
$58.4 million and $55.9 million for 2010 and 2009,
respectively. The improvement in operating income was led by
higher volumes shipped, higher average selling prices,
productivity improvements and cost reduction initiatives
partially offset by lower sales of excess energy and renewable
energy credits. During 2009, the weak economic environment
adversely affected demand in all markets served by Specialty
Papers. As a result of weak demand in the first half of the year
and our efforts to reduce inventory, this unit incurred market
related downtime totaling 33,019 tons of paper.
Our Composite Fibers business unit’s operating income
increased to $32.9 million from $21.9 million in 2009.
Volumes shipped during 2010 increased 12.8% compared to 2009 as
a result of the improving economic environment. Conversely,
during 2009, as a result of weak demand and our inventory
reduction efforts, we incurred unscheduled downtime totaling
approximately 6,480 tons of paper, or 9.4% of the unit’s
total capacity for the period.
Advanced Airlaid Materials earned $4.4 million of operating
income on sales of $193.5 million for the ten and one half
months of operations since the date of acquisition. The results
were adversely impacted primarily by rapidly rising input costs,
a lag in the timing of cost-pass throughs and currency
fluctuations.
RESULTS OF
OPERATIONS
2010 versus
2009
The following table sets forth summarized consolidated results
of operations:
| Year Ended December 31 | ||||||||||||
| In thousands, except per share | 2010 | 2009 | ||||||||||
|
Net sales
|
$ | 1,455,331 | $ | 1,184,010 | ||||||||
|
Gross profit
|
186,247 | 269,764 | ||||||||||
|
Operating income
|
64,589 | 160,405 | ||||||||||
|
Net income
|
54,434 | 123,442 | ||||||||||
|
Earnings per diluted share
|
1.17 | 2.70 | ||||||||||
The consolidated results of operations for 2010 and 2009 include
the following items not considered to be part of our core
business operations:
|
After-tax
|
||||||||||
| In thousands, except per share | Income (loss) | Diluted EPS | ||||||||
|
2010
|
||||||||||
|
Cellulosic biofuel credit
|
$ | 23,184 | $ | 0.50 | ||||||
|
Acquisition and integration costs
|
(9,073 | ) | (0.20 | ) | ||||||
|
Foreign currency hedge on acquisition price
|
(1,673 | ) | (0.04 | ) | ||||||
|
Timberland sales and related transaction costs
|
1,063 | 0.02 | ||||||||
|
2009
|
||||||||||
|
Alternative fuel mixture credits
|
$ | 95,764 | $ | 2.09 | ||||||
|
Acquisition related costs
|
(1,768 | ) | (0.04 | ) | ||||||
These items increased earnings by $13.5 million, or $0.28
per diluted share in 2010. Comparatively, the items identified
above increased earnings in 2009 by $94.0 million, or $2.05
per diluted share.
Business Units
Results of individual business
units are presented based on our management accounting practices
and management structure. There is no comprehensive,
authoritative body of guidance for management accounting
equivalent to accounting principles generally accepted in the
United States of America; therefore, the financial results of
individual business units are not necessarily comparable with
similar information for any other company. The management
accounting process uses assumptions and allocations to measure
performance of the business units. Methodologies are refined
from time to time as management accounting practices are
enhanced and businesses change. The costs incurred by support
areas not directly aligned with the business unit are allocated
primarily based on an estimated utilization of support area
services or are included in “Other and Unallocated” in
the Business Unit Performance table.
Management evaluates results of operations of the business units
before pension income or expense, alternative fuel mixture
credits, charges related to the Fox River environmental
reserves, restructuring related charges, unusual items, certain
corporate level costs, and the effects of asset dispositions.
Management believes that
Glatfelter 2010 Annual
Report 15
Table of Contents
this is a more meaningful representation of the operating
performance of its core papermaking businesses, the
profitability of business units and the extent of cash flow
generated from these core operations. Such amounts are presented
under the caption “Other and Unallocated.” This
presentation is aligned with the management and operating
structure of our company. It is also on this basis that the
Company’s performance is evaluated internally and by the
Company’s Board of Directors.
|
Business Unit Performance
|
Year Ended December 31 | |||||||||||||||||||||||||||||||||||||||||||||
| Dollars in millions | Specialty Papers | Composite Fibers | Advanced Airlaid Materials | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||
|
Net sales
|
$ | 842.6 | $ | 791.9 | $ | 419.2 | $ | 392.1 | $ | 193.5 | $ | – | $ | – | $ | – | $ | 1,455.3 | $ | 1,184.0 | ||||||||||||||||||||||||||
|
Energy and related sales, net
|
10.7 | 13.3 | – | – | – | – | – | – | 10.7 | 13.3 | ||||||||||||||||||||||||||||||||||||
|
Total revenue
|
853.3 | 805.2 | 419.2 | 392.1 | 193.5 | – | – | – | 1,466.0 | 1,197.3 | ||||||||||||||||||||||||||||||||||||
|
Cost of products sold
|
740.2 | 693.9 | 350.5 | 334.4 | 181.7 | – | 7.4 | (100.7 | ) | 1,279.7 | 927.6 | |||||||||||||||||||||||||||||||||||
|
Gross profit
|
113.1 | 111.3 | 68.7 | 57.7 | 11.8 | – | (7.4 | ) | 100.7 | 186.2 | 269.8 | |||||||||||||||||||||||||||||||||||
|
SG&A
|
54.7 | 55.4 | 35.8 | 35.8 | 7.4 | – | 24.3 | 19.1 | 122.1 | 110.3 | ||||||||||||||||||||||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
– | – | – | – | – | – | (0.5 | ) | (0.9 | ) | (0.5 | ) | (0.9 | ) | ||||||||||||||||||||||||||||||||
|
Total operating income (loss)
|
58.4 | 55.9 | 32.9 | 21.9 | 4.4 | – | (31.2 | ) | 82.6 | 64.6 | 160.4 | |||||||||||||||||||||||||||||||||||
|
Nonoperating income (expense)
|
– | – | – | – | – | – | (31.1 | ) | (17.3 | ) | (31.1 | ) | (17.3 | ) | ||||||||||||||||||||||||||||||||
|
Income (loss) before income taxes
|
$ | 58.4 | $ | 55.9 | $ | 32.9 | $ | 21.9 | $ | 4.4 | $ | $ | (62.3 | ) | $ | 65.3 | $ | 33.5 | $ | 143.1 | ||||||||||||||||||||||||||
|
Supplementary Data
|
||||||||||||||||||||||||||||||||||||||||||||||
|
Net tons sold
(in thousands)
|
764.7 | 738.8 | 90.4 | 80.1 | 72.8 | – | – | – | 927.9 | 818.9 | ||||||||||||||||||||||||||||||||||||
|
Depreciation, depletion and amortization
|
$ | 34.9 | $ | 37.5 | $ | 23.7 | $ | 23.7 | $ | 7.2 | $ | – | $ | – | $ | – | $ | 65.8 | $ | 61.3 | ||||||||||||||||||||||||||
|
Capital expenditures
|
24.1 | 14.2 | 8.2 | 12.1 | 4.2 | – | – | – | 36.5 | 26.3 | ||||||||||||||||||||||||||||||||||||
The sum of individual amounts set forth above may not agree to
the consolidated financial statements included herein due to
rounding.
Sales and Costs
of Products Sold
| Year Ended December 31 | ||||||||||||||||
| In thousands | 2010 | 2009 | Change | |||||||||||||
|
Net sales
|
$ | 1,455,331 | $ | 1,184,010 | $ | 271,321 | ||||||||||
|
Energy and related sales – net
|
10,653 | 13,332 | (2,679 | ) | ||||||||||||
|
Total revenues
|
1,465,984 | 1,197,342 | 268,642 | |||||||||||||
|
Costs of products sold
(1)
|
1,279,737 | 927,578 | 352,159 | |||||||||||||
|
Gross profit
|
$ | 186,247 | $ | 269,764 | $ | (83,517 | ) | |||||||||
|
Gross profit as a percent of Net sales
|
12.8 | % | 22.8 | % | ||||||||||||
| (1) | 2009 includes $107.8 million of alternative fuel mixture credits, net of related expenses. |
The following table sets forth the contribution to consolidated
net sales by each business unit:
| Percent of total | ||||||||||||
| 2010 | 2009 | |||||||||||
|
Business Unit
|
||||||||||||
|
Specialty Papers
|
57.9 | % | 66.9 | % | ||||||||
|
Composite Fibers
|
28.8 | 33.1 | ||||||||||
|
Advanced Airlaid Materials
|
13.3 | – | ||||||||||
|
Total
|
100.0 | % | 100.0 | % | ||||||||
Net sales
Net sales for 2010 were
$1,445.3 million, a 22.9% increase compared with
$1,184.0 million for 2009, reflecting stronger business
activity in the our Specialty Papers and Composite Fibers
business units and the inclusion of Concert, now operated and
reported as Advanced Airlaid Materials business unit,
prospectively since the February 12, 2010 acquisition date.
In the Specialty Papers business unit, net sales for 2010
increased $50.7 million, or 6.4%, to $842.6 million.
The increase was primarily due to higher volumes shipped and a
$24.0 million benefit from higher selling prices.
Specialty Papers’ operating profit for 2010 improved by
$2.5 million compared with 2009 primarily due to higher
selling prices, a 3.5% increase in volumes shipped and the lack
of market-related downtime. These favorable factors were
partially offset by higher input costs, primarily pulp. In
addition, higher maintenance costs largely associated with the
annual mill outages and with unplanned production interruptions
adversely impacted the year over year comparison.
We sell excess power generated by the Spring Grove, PA facility.
In addition, two of our facilities are registered generators of
renewable energy credits (“RECs”). The following table
summarizes this activity for 2010 and 2009:
| In thousands | 2010 | 2009 | Change | |||||||||||||
|
Energy sales
|
$ | 14,296 | $ | 20,128 | $ | (5,832 | ) | |||||||||
|
Costs to produce
|
(10,403 | ) | (11,883 | ) | 1,480 | |||||||||||
|
Net
|
3,893 | 8,245 | (4,352 | ) | ||||||||||||
|
Renewable energy credits
|
6,760 | 5,087 | 1,673 | |||||||||||||
|
Total
|
$ | 10,653 | $ | 13,332 | $ | (2,679 | ) | |||||||||
RECs represent sales of certified credits earned related to
burning renewable sources of energy such as black liquor and
wood waste. We sell RECs into an emerging and somewhat illiquid
market. The extent and value of future revenues from REC sales
is dependent on many factors outside of management’s
control. Therefore, we may not be able to generate consistent
amounts of sales of RECs in future periods.
16
Table of Contents
In Composite Fibers, net sales for 2010 were
$419.2 million, an increase of $27.1 million, or 6.9%,
from 2009. The improvement reflects strengthening demand in each
of its product lines as volumes shipped increased 12.9%. On a
constant currency basis, average selling prices were lower by
$1.0 million, and the translation of foreign currencies
unfavorably affected net sales by approximately
$15.0 million.
Composite Fibers’ operating profit increased
$11.0 million, or 50.2%, in the year over year comparison.
The improved performance was driven by the $10.8 million
combined benefit from improved demand in markets served
resulting in higher shipments and the elimination of market
driven downtime. In addition, the production efficiencies from
continuous improvement initiatives more than offset the adverse
effect of foreign currency translation adjustments.
Results for Advanced Airlaid Materials are included from
February 12, 2010, the date of the Concert acquisition.
This business unit’s results were unfavorably affected by
rising input costs that outpaced the timing of increases in
selling prices. In addition, results were adversely impacted by
operating inefficiencies and by $1.4 million as a result of
charging cost of products sold for the
write-up
of
acquired inventory to fair value.
Alternative Fuel Mixture Credits
The
U.S. Internal Revenue Code provided a tax credit for
companies that use alternative fuel mixtures to produce energy
to operate their businesses. The credit, equal to $0.50 per
gallon of alternative fuel contained in the mixture, is
refundable to the taxpayer. On May 11, 2009, we were
notified by the Internal Revenue Service that our application to
be registered as an alternative fuel mixer was approved. During
2009, we mixed and burned eligible alternative fuels, and earned
$107.8 million of alternative fuel mixture credits. We
record all alternative fuel mixture credits as a reduction to
cost of goods sold.
According to the Internal Revenue Code, the tax credit expired
on December 31, 2009.
Pension Expense
The following table summarizes
the amounts of pension expense recognized for 2010 compared to
2009:
| Year Ended December 31 | ||||||||||||||||
| In thousands | 2010 | 2009 | Change | |||||||||||||
|
Recorded as
:
|
||||||||||||||||
|
Costs of products sold
|
$ | 7,056 | $ | 4,936 | $ | 2,120 | ||||||||||
|
SG&A expense
|
2,185 | 2,097 | 88 | |||||||||||||
|
Total
|
$ | 9,241 | $ | 7,033 | $ | 2,208 | ||||||||||
The amount of pension expense recognized each year is determined
using various actuarial assumptions and certain other factors,
including discount rates and the fair value of our pension
assets as of the beginning of the year. The primary reason for
the increase in pension expense in the comparison is due to
decreases in discount rates used.
Selling, general and administrative
(“SG&A”)
SG&A expenses
increased $11.9 million in the
year-to-year
comparison and totaled $122.1 million for 2010. The
increase was substantially all related to legal and professional
fees related to the Concert acquisition, costs to integrate the
acquired entities and the inclusion of its operations
prospectively from the date of acquisition.
Gain on Sales of Plant, Equipment and Timberlands,
net
During the years ended December 31, 2010
and 2009, we completed the following sales of assets:
| Dollars in thousands | Acres | Proceeds | Gain | |||||||||||||
|
2010
|
||||||||||||||||
|
Timberlands
|
164 | $ | 387 | $ | 373 | |||||||||||
|
Other
|
n/a | 177 | 80 | |||||||||||||
|
Total
|
$ | 564 | $ | 453 | ||||||||||||
|
2009
|
||||||||||||||||
|
Timberlands
|
319 | $ | 951 | $ | 906 | |||||||||||
|
Other
|
n/a | – | (8 | ) | ||||||||||||
|
Total
|
$ | 951 | $ | 898 | ||||||||||||
In connection with each of the asset sales set forth above, we
received cash proceeds.
Other nonoperating income (expense)
For the
year ended December 31, 2010, other non operating expense,
net totaled $6.3 million. In connection with the Concert
acquisition, we entered into a series of forward foreign
currency contracts to hedge the acquisition’s Canadian
dollar purchase price. All contracts were settled for cash
during the first quarter of 2010 and resulted in a
$3.4 million loss, net of realized currency translation
gains, which is presented under the caption
“Other-net”
in the accompanying consolidated statements of income. In
addition, in connection with purchase accounting for the Concert
transaction, we recorded a $2.5 million reserve for tax
risks, inclusive of accrued interest, existing at the time of
the acquisition and at the same time recorded a
$2.5 million receivable from the seller due to an
indemnification agreement. During the fourth quarter, a tax
ruling was issued that eliminated this tax risk and as a result
we recognized an expense of $2.5 million which is presented
under the caption
“Other-net”
in the accompanying consolidated statements of income to
eliminate the receivable from the seller. We also recognized a
$2.5 million tax benefit for this same item to eliminate
the tax reserve previously established resulting in no net
impact to earnings during 2010.
Glatfelter 2010 Annual
Report 17
Table of Contents
Income taxes
For 2010, we recorded income tax
benefits of $20.9 million on $33.5 million of pretax
income. The comparable amounts in the same period of 2009 were
income tax expense of $19.7 million on $143.1 million
of pretax income. The benefit in 2010 was due to
$23.2 million of cellulosic biofuel credits, net, recorded
as an income tax benefit in 2010 as discussed further below. We
also recorded the $2.5 million tax benefit discussed in the
previous paragraph, as well as a $6.4 million adjustment to
reduce tax liabilities resulting from the expiration of statutes
on uncertain tax positions and other factors. The tax provision
in 2009 included a $27.1 million benefit from nontaxable
alternative fuel mixture credit.
Cellulosic Biofuel Production Credit
In March
2010, our application to be registered as a cellulosic biofuel
producer was approved by the Internal Revenue Service. The
U.S. Internal Revenue Code provides for a non refundable
tax credit equal to $1.01 per gallon for taxpayers that produce
cellulosic biofuel. On July 9, 2010, the IRS Office of
Chief Counsel issued a memorandum which concluded that black
liquor sold or used in a taxpayer’s trade or business
during calendar year 2009, qualifies for the cellulosic biofuel
producer credit (“CBPC”). Accordingly, each gallon of
black liquor we produced during calendar year 2009 qualifies for
a non-refundable CBPC of $1.01 per gallon.
In connection with the filing of our 2009 income tax return, we
claimed $23.2 million, net of taxes, of CBPC. Subsequent to
the end of 2010, we received a cash tax refund of
$17.8 million, of which $2.7 million related to
alternative fuel mixture credits earned in 2009. The CBPC
claimed is attributable to black liquor produced and burned from
January 1, 2009 through February 19, 2009, after which
we began mixing black liquor and diesel fuel to qualify for
alternative fuel mixture credits.
In October 2010, the IRS issued further guidance concluding that
both the alternative fuel mixture credit and the cellulosic
biofuel production credit can be claimed in the same year, but
only for different volumes of black liquor.
With respect to CBPC, although we do not intend to claim any
additional credits, we could amend our 2009 federal tax return
and claim additional credits. If we were to elect to do so, we
would be required to return cash already received from
alternative fuel mixture credits, since we can only claim either
the alternative fuel mixture credit or CBPC. The ability to
realize the value of any additional CBPC depends on future
taxable income. We continue to evaluate opportunities, if any,
to claim additional CBPC from qualifying activities based on the
results of our ongoing operations.
Foreign Currency
In 2010, we owned and
operated manufacturing facilities in Canada, Germany, France,
the United Kingdom and the Philippines. The functional currency
in Canada is the U.S. dollar, in Germany and France it is
the Euro, in the UK it is the British Pound Sterling, and in the
Philippines it is the Peso. During 2010, Euro functional
currency operations generated approximately 25.5% of our sales
and 24.6% of operating expenses and British Pound Sterling
operations represented 8.8% of net sales and 8.7% of operating
expenses. The translation of the results from international
operations into U.S. dollars is subject to changes in
foreign currency exchange rates. The table below summarizes the
translation impact on reported results that changes in currency
exchange rates had on our
non-U.S. based
operations from the conversion of these operation’s results:
|
Year Ended
|
|||||||
| In thousands | December 31, 2010 | ||||||
|
Favorable
|
|||||||
| (unfavorable) | |||||||
|
Net sales
|
$ | (15,000 | ) | ||||
|
Costs of products sold
|
10,891 | ||||||
|
SG&A expenses
|
791 | ||||||
|
Income taxes and other
|
468 | ||||||
|
Net income
|
$ | (2,850 | ) | ||||
The above table only presents the financial reporting impact of
foreign currency translations. It does not present the impact of
certain competitive advantages or disadvantages of operating or
competing in multi-currency markets.
RESULTS OF
OPERATIONS
2009 versus 2008
The following table sets forth summarized consolidated results
of operations:
| Year Ended December 31 | ||||||||||||
| In thousands, except per share | 2009 | 2008 | ||||||||||
|
Net sales
|
$ | 1,184,010 | $ | 1,263,850 | ||||||||
|
Gross profit
|
269,764 | 177,782 | ||||||||||
|
Operating income
|
160,405 | 99,209 | ||||||||||
|
Net income
|
123,442 | 57,888 | ||||||||||
|
Earnings per diluted share
|
2.70 | 1.27 | ||||||||||
The consolidated results of operations for 2009 and 2008 include
the following items not considered to be part of our core
business operations:
|
After-tax
|
||||||||||||
| In thousands, except per share | Income (loss) | Diluted EPS | ||||||||||
|
2009
|
||||||||||||
|
Alternative fuel mixture credits
|
$ | 95,764 | $ | 2.09 | ||||||||
|
Acquisition related costs
|
(1,768 | ) | (0.04 | ) | ||||||||
|
2008
|
||||||||||||
|
Gains on sale of timberlands
|
$ | 10,984 | $ | 0.24 | ||||||||
|
Reversal of shutdown and restructuring charges
|
517 | 0.01 | ||||||||||
|
Acquisition integration costs
|
(889 | ) | (0.02 | ) | ||||||||
18
Table of Contents
These items increased earnings by $94.0 million, or $2.05
per diluted share in 2009. Comparatively, the items identified
above increased earnings in 2008 by $10.6 million, or $0.23
per diluted share.
|
Business Unit Performance
|
Year Ended December 31 | ||||||||||||||||||||||||||||||||||||||
| Dollars in millions | Specialty Papers | Composite Fibers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||||||||||||||||
|
Net sales
|
$ | 791.9 | $ | 833.9 | $ | 392.1 | $ | 430.0 | $ | – | $ | – | $ | 1,184.0 | $ | 1,263.9 | |||||||||||||||||||||||
|
Energy and related sales, net
|
13.3 | 9.4 | – | – | – | – | 13.3 | 9.4 | |||||||||||||||||||||||||||||||
|
Total revenue
|
805.2 | 843.3 | 392.1 | 430.0 | – | – | 1,197.3 | 1,273.2 | |||||||||||||||||||||||||||||||
|
Cost of products sold
|
693.9 | 739.5 | 334.4 | 366.8 | (100.7 | ) | (10.8 | ) | 927.6 | 1,095.4 | |||||||||||||||||||||||||||||
|
Gross profit (loss)
|
111.3 | 103.8 | 57.7 | 63.2 | 100.7 | 10.8 | 269.8 | 177.8 | |||||||||||||||||||||||||||||||
|
SG&A
|
55.4 | 54.6 | 35.8 | 38.2 | 19.1 | 5.1 | 110.3 | 97.9 | |||||||||||||||||||||||||||||||
|
Reversal of shutdown and restructuring charges
|
– | – | – | – | – | (0.9 | ) | – | (0.9 | ) | |||||||||||||||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
– | – | – | – | (0.9 | ) | (18.5 | ) | (0.9 | ) | (18.5 | ) | |||||||||||||||||||||||||||
|
Total operating income (loss)
|
55.9 | 49.2 | 21.9 | 25.0 | 82.6 | 25.1 | 160.4 | 99.2 | |||||||||||||||||||||||||||||||
|
Nonoperating income (expense)
|
– | – | – | – | (17.3 | ) | (18.2 | ) | (17.3 | ) | (18.2 | ) | |||||||||||||||||||||||||||
|
Income (loss) before income taxes
|
$ | 55.9 | $ | 49.2 | $ | 21.9 | $ | 25.0 | $ | 65.3 | $ | 6.9 | $ | 143.1 | $ | 81.0 | |||||||||||||||||||||||
|
Supplementary Data
|
|||||||||||||||||||||||||||||||||||||||
|
Net tons sold
(in thousands)
|
738.8 | 743.8 | 80.1 | 85.6 | – | – | 818.9 | 829.4 | |||||||||||||||||||||||||||||||
|
Depreciation, depletion and amortization
|
$ | 37.5 | $ | 35.0 | $ | 23.7 | $ | 25.6 | $ | – | $ | – | $ | 61.3 | $ | 60.6 | |||||||||||||||||||||||
|
Capital expenditures
|
14.2 | 20.9 | 12.1 | 31.6 | – | – | 26.3 | 52.5 | |||||||||||||||||||||||||||||||
Sales and Costs
of Products Sold
| Year Ended December 31 | ||||||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||||||
|
Net sales
|
$ | 1,184,010 | $ | 1,263,850 | $ | (79,840 | ) | |||||||||
|
Energy and related sales – net
|
13,332 | 9,364 | 3,968 | |||||||||||||
|
Total revenues
|
1,197,342 | 1,273,214 | (75,872 | ) | ||||||||||||
|
Costs of products
sold
(1)
|
927,578 | 1,095,432 | (167,854 | ) | ||||||||||||
|
Gross profit
|
$ | 269,764 | $ | 177,782 | $ | 91,982 | ||||||||||
|
Gross profit as a percent of Net sales
|
22.8 | % | 14.1 | % | ||||||||||||
| (1) | 2009 includes $107.8 million of alternative fuel mixture credits, net of related expenses. |
The following table sets forth the contribution to consolidated
net sales by each business unit:
| Percent of total | ||||||||||||
| 2009 | 2008 | |||||||||||
|
Business Unit
|
||||||||||||
|
Specialty Papers
|
66.9 | % | 66.0 | % | ||||||||
|
Composite Fibers
|
33.1 | 34.0 | ||||||||||
|
Total
|
100.0 | % | 100.0 | % | ||||||||
Net sales
Net sales totaled
$1,184.0 million for 2009, a decrease of
$79.8 million, or 6.3%, compared to 2008.
In the Specialty Papers business unit, 2009 net sales
decreased $42.0 million to $791.9 million. Operating
income increased $6.7 million in the year over year
comparison and totaled $55.9 million in 2009. The
improvement in operating income was primarily due to
$12.2 million of productivity efficiencies and cost
reduction initiatives and $4.5 million of lower input
costs. These favorable factors were offset by $7.6 million
of lower volumes and mix impact and $2.1 million of lower
selling prices. Operating income was also adversely impacted by
the costs of unplanned downtime at the Spring Grove and
Chillicothe facilities totaling approximately $6.6 million
in 2009 compared to 2008.
We sell excess power generated by the Spring Grove, PA facility
pursuant to a long-term contract that expired March 31,
2010. The following table summarizes this activity for each of
the past two years:
| In thousands | 2009 | 2008 | Change | ||||||||||||||
|
Energy sales
|
$ | 20,128 | $ | 19,731 | $ | 397 | |||||||||||
|
Costs to produce
|
(11,883 | ) | (10,367 | ) | (1,516 | ) | |||||||||||
|
Net
|
8,245 | 9,364 | (1,119 | ) | |||||||||||||
|
Renewable energy credits
|
5,087 | – | 5,087 | ||||||||||||||
|
Total
|
$ | 13,332 | $ | 9,364 | $ | 3,968 | |||||||||||
Renewable energy credits (“RECs”) represent sales of
certified credits earned related to burning renewable sources of
energy such as black liquor and wood waste.
In Composite Fibers, 2009 net sales were
$392.1 million, a decline of $37.9 million from 2008.
Operating income declined by $3.0 million in the comparison
to $21.9 million. Total volumes shipped by this business
unit declined 6.5% led by lower shipments of composite laminates
and food & beverage paper products, which declined
18.5% and 5.5%, respectively. The translation of foreign
currencies adversely impacted net sales by $23.0 million;
however, higher average selling prices contributed
$6.2 million.
Energy and raw material costs in the Composite Fibers business
unit were $3.9 million higher in 2009 than in 2008.
Market-related downtime adversely impacted operating results by
$7.4 million in 2009 compared to 2008.
Glatfelter 2010 Annual
Report 19
Table of Contents
Pension Expense/Income
The following table
summarizes the amounts of pension (expense) or income recognized
for 2009 compared to 2008:
|
Year Ended
|
||||||||||||||||
| December 31 | ||||||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||||||
|
Recorded as
:
|
||||||||||||||||
|
Costs of products sold
|
$ | (4,936 | ) | $ | 11,067 | $ | (16,003 | ) | ||||||||
|
SG&A expense
|
(2,097 | ) | 4,995 | (7,092 | ) | |||||||||||
|
Total
|
$ | (7,033 | ) | $ | 16,062 | $ | (23,095 | ) | ||||||||
The amount of pension expense or income recognized each year is
determined using various actuarial assumptions and certain other
factors, including the fair value of our pension assets as of
the beginning of the year. The fair value of the plans’
assets declined approximately 29% during 2008. As a result,
during 2009 we recognized net pension expense totaling
approximately $7.0 million, on a pre-tax basis. However, we
were not required to make cash contributions to our qualified
defined benefit pension plans in 2009.
Selling, general and administrative
(“SG&A”)
SG&A expenses
increased $12.4 million in the
year-to-year
comparison and totaled $110.3 million for 2009. In 2009,
SG&A included $2.1 million of pension expense compared
with $5.0 million of pension income in 2008. In addition,
we incurred higher legal and professional fees related to the
Fox River environmental matter and the Concert acquisition.
Gain on Sales of Plant, Equipment and Timberlands,
net
During the years ended December 31, 2009
and 2008, we completed sales of timberlands which are summarized
by the following table:
| Dollars in thousands | Acres | Proceeds | Gain | |||||||||||||
|
2009
|
||||||||||||||||
|
Timberlands
|
319 | $ | 951 | $ | 906 | |||||||||||
|
Other
|
n/a | – | (8 | ) | ||||||||||||
|
Total
|
$ | 951 | $ | 898 | ||||||||||||
|
2008
|
||||||||||||||||
|
Timberlands
|
4,561 | $ | 19,279 | $ | 18,649 | |||||||||||
|
Other
|
n/a | – | (181 | ) | ||||||||||||
|
Total
|
$ | 19,279 | $ | 18,468 | ||||||||||||
In connection with each of the asset sales set forth above, we
received cash proceeds.
Income taxes
Our results of operations for
2009 reflect an effective tax rate of 13.8% compared to 28.6% in
2008. The lower tax rate in 2009 was primarily due to a tax
benefit of $27.1 million due to nontaxable alternative fuel
mixture credits, and from a lower proportion of timberland
gains, which are taxed at a higher effective tax rate.
Foreign Currency
In 2009, we owned and
operated paper and pulp mills in Germany, France, the United
Kingdom and the Philippines. The functional currency in Germany
and France is the Euro, in the UK it is the British Pound
Sterling, and in the Philippines it is the Peso. During 2009,
Euro functional currency operations generated approximately
19.8% of our sales and 18.9% of operating expenses and British
Pound Sterling operations represented 10.6% of net sales and
10.8% of operating expenses. The translation of the results from
international operations into U.S. dollars is subject to
changes in foreign currency exchange rates. The table below
summarizes the translation impact on reported results that
changes in currency exchange rates had on our
non-U.S. based
operations from the conversion of these operation’s results:
|
Year Ended
|
|||||||
| In thousands | December 31, 2009 | ||||||
|
Favorable
|
|||||||
| (unfavorable) | |||||||
|
Net sales
|
$ | (22,975 | ) | ||||
|
Costs of products sold
|
24,116 | ||||||
|
SG&A expenses
|
3,233 | ||||||
|
Income taxes and other
|
883 | ||||||
|
Net income
|
$ | 5,257 | |||||
The above table only presents the financial reporting impact of
foreign currency translations. It does not present the impact of
certain competitive advantages or disadvantages of operating or
competing in multi-currency markets.
LIQUIDITY AND
CAPITAL RESOURCES
Our business is capital intensive and requires significant
expenditures for new or enhanced equipment, for environmental
compliance matters including, but not limited to, the Clean Air
Act, to support our research and development efforts and for our
business strategy. In addition, we have mandatory debt service
requirements of both principal and interest. The following table
summarizes cash flow information for each of the years presented:
|
Year Ended
|
||||||||||||
| December 31 | ||||||||||||
| In thousands | 2010 | 2009 | ||||||||||
|
Cash and cash equivalents at beginning of period
|
$ | 135,420 | $ | 32,234 | ||||||||
|
Cash provided by (used for)
|
||||||||||||
|
Operating activities
|
168,005 | 163,868 | ||||||||||
|
Investing activities
|
(264,217 | ) | 12,544 | |||||||||
|
Financing activities
|
59,681 | (75,329 | ) | |||||||||
|
Effect of exchange rate changes on cash
|
(3,101 | ) | 2,103 | |||||||||
|
Net cash (used) provided
|
(39,632 | ) | 103,186 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 95,788 | $ | 135,420 | ||||||||
At the end of the 2010, we had $95.8 million in cash and
cash equivalents and $219.6 million available under our
revolving credit agreement, which matures in May 2014. Operating
cash flow improved by $4.1 million primarily due to cash
received from alternative fuel mixture credits offset by less
provision of cash from
20
Table of Contents
working capital in 2010 than in 2009. In January 2009, we used
$6.5 million to satisfy a commitment we had to fund certain
Fox River environmental remediation activities.
Net cash used by investing activities totaled
$264.2 million in 2010 reflecting the Concert acquisition.
Capital expenditures totaled $36.5 million and
$26.2 million in 2010 and 2009, respectively. Capital
expenditures are expected to approximate $60 million to
$65 million in 2011.
Net cash provided by financing activities totaled
$59.7 million in 2010, reflecting increased borrowings to
fund the Concert acquisition including the proceeds, net of debt
issue costs and original issue discount, from the issuance of
$100.0 million of senior notes, at 95% of par. In addition,
during 2010, we refinanced our revolving credit facility and
repaid a $14.0 million term loan. In 2009, net cash used
for financing activities totaled $75.3 million, primarily
reflecting reductions of debt including $34.0 million
repaid in connection with the unwinding of the 2003 timberland
installment sale.
During 2010 and 2009, cash dividends paid on common stock
totaled $16.7 million and $16.6 million, respectively.
Our Board of Directors determines what, if any, dividends will
be paid to our shareholders. Dividend payment decisions are
based upon then-existing factors and conditions and, therefore,
historical trends of dividend payments are not necessarily
indicative of future payments.
The following table sets forth our outstanding long-term
indebtedness:
| December 31 | ||||||||||||
| In thousands | 2010 | 2009 | ||||||||||
|
Revolving credit facility, due April 2011
|
n/a | $ | – | |||||||||
|
Revolving credit facility, due May 2014
|
$ | – | n/a | |||||||||
|
Term Loan, due April 2011
|
– | 14,000 | ||||||||||
|
7
1
/
8
% Notes,
due May 2016
|
200,000 | 200,000 | ||||||||||
|
7
1
/
8
% Notes,
due May 2016 – net of original issue discount
|
95,529 | |||||||||||
|
Term Loan, due January 2013
|
36,695 | 36,695 | ||||||||||
|
Total long-term debt
|
332,224 | 250,695 | ||||||||||
|
Less current portion
|
– | (13,759 | ) | |||||||||
|
Long-term debt, excluding current portion
|
$ | 332,224 | $ | 236,936 | ||||||||
Our credit agreement contains a number of customary compliance
covenants. In addition, the Senior Notes contain cross default
provisions that could result in all such notes becoming due and
payable in the event of a failure to repay debt outstanding
under the credit agreement at maturity, or a default under the
credit agreement, that accelerates the debt outstanding
thereunder. As of December 31, 2010, we met all of the
requirements of our debt covenants.
The significant terms of the debt instruments are more fully
discussed in Item 8 – Financial Statements and
Supplementary Data – Note 16.
We are subject to various federal, state and local laws and
regulations which operate to protect the environment as well as
human health and safety. We have, at various times, incurred
significant costs to comply with these regulations, as new
regulations are developed or regulatory priorities change.
Currently, we anticipate that we could incur material capital
and operating costs to comply with several air quality
regulations including the U.S. EPA Best Available Retrofit
Technology rule (BART; otherwise known as the Regional Haze
Rule) and the Boiler Maximum Achievable Control Technology rule
(Boiler MACT). Although we are in the process of analyzing the
potential impact of these requirements, compliance could require
significant capital expenditures. In addition, we may incur
obligations to remove or mitigate any adverse effects on the
environment resulting from our operations, including the
restoration of natural resources and liability for personal
injury and for damages to property and natural resources. See
Item 8 – Financial Statements and Supplementary
Data – Note 20 for a summary of significant
environmental matters.
We expect to meet all of our near and long-term cash needs from
a combination of operating cash flow, cash and cash equivalents,
and our existing credit facilities. However, as discussed in
Item 8 – Financial Statements and Supplementary
Data – Note 20, an unfavorable outcome of various
environmental matters could have a material adverse impact on
our consolidated financial position, liquidity
and/or
results of operations.
Off-Balance-Sheet Arrangements
As of
December 31, 2010 and 2009, we had not entered into any
off-balance-sheet arrangements. Financial derivative instruments
to which we are a party and guarantees of indebtedness, which
solely consist of obligations of subsidiaries and a partnership,
are reflected in the condensed consolidated balance sheets
included herein in Item 8 – Financial Statements
and Supplementary Data.
Glatfelter 2010 Annual
Report 21
Table of Contents
Contractual Obligations
The following table
sets forth contractual obligations as of December 31, 2010:
|
Payments Due During the Year
|
|||||||||||||||||||||||
| Ended December 31, | |||||||||||||||||||||||
|
2012 to
|
2014 to
|
2016 and
|
|||||||||||||||||||||
| In millions | Total | 2011 | 2013 | 2015 | beyond | ||||||||||||||||||
|
Long-term
debt
(1)
|
$ | 456 | $ | 22 | $ | 80 | $ | 43 | $ | 311 | |||||||||||||
|
Operating
leases
(2)
|
26 | 8 | 8 | 3 | 7 | ||||||||||||||||||
|
Purchase
obligations
(3)
|
135 | 88 | 33 | 5 | 9 | ||||||||||||||||||
|
Other long-term
obligations
(4),(5)
|
94 | 17 | 17 | 18 | 42 | ||||||||||||||||||
|
Total
|
$ | 711 | $ | 135 | $ | 138 | $ | 69 | $ | 369 | |||||||||||||
| (1) | Represents principal and interest payments due on long-term debt. At December 31, 2010, we had $300.0 million of debt maturing in May 2016 and bearing a fixed rate of interest at 7 1 / 8 %, payable semiannually, and a $36.7 million note maturing in January 2013 bearing interest at six-month reserve adjusted LIBOR plus a margin rate of 1.66% per annum. | |
| (2) | Represents rental agreements for various land, buildings, vehicles, and computer and office equipment. | |
| (3) | Represents open purchase order commitments and other obligations, primarily for raw material forward purchases and pulpwood contracts with minimum annual purchase obligations. In certain situations, prices are subject to variations based on market prices. In such situations, the information above is based on prices in effect at December 31, 2010 or expectations based on historical experience and/or current market conditions. | |
| (4) | Primarily represents expected benefits to be paid pursuant to retirement medical plans and nonqualified pension plans over the next ten years and expected costs of asset retirement obligations. | |
| (5) | Since we are unable to reasonably estimate the timing of ultimate payment, the amounts set forth above do not include any payments that may be made related to uncertain tax positions, including potential interest, accounted for in accordance with ASC 740-10-20. As discussed in more detail in Item 8 – Financial Statements, Note 8, “Income Taxes”, such amounts totaled $38.7 million at December 31, 2010. |
Critical
Accounting Policies and Estimates
The preceding discussion and analysis of our consolidated
financial position and results of operations is based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated
financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to inventories,
long-lived assets, pension and post-retirement obligations,
environmental liabilities and income taxes. We base our
estimates on historical experience and on various other
assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates.
We believe the following represent the most significant and
subjective estimates used in the preparation of our consolidated
financial statements.
Inventory Reserves
We maintain reserves for
excess and obsolete inventories to reflect our inventory at the
lower of its stated cost or market value. Our estimate for
excess and obsolete inventory is based upon our assumptions
about future demand and market conditions. If actual conditions
are less favorable than those we have projected, we may need to
increase our reserves for excess and obsolete inventories. Any
increases in our reserves will adversely impact our results of
operations. The establishment of a reserve for excess and
obsolete inventory establishes a new cost basis in the
inventory. Such reserves are not reduced until the product is
sold. If we are able to sell such inventory, any related
reserves would be reversed in the period of sale.
Long-lived Assets
We evaluate the
recoverability of our long-lived assets, including plant,
equipment, timberlands, goodwill and other intangible assets
periodically or whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. Our
evaluations include analyses based on the cash flows generated
by the underlying assets, profitability information, including
estimated future operating results, trends or other determinants
of fair value. If the value of an asset determined by these
evaluations is less than its carrying amount, a loss is
recognized for the difference between the fair value and the
carrying value of the asset. Future adverse changes in market
conditions or poor operating results of the related business may
indicate an inability to recover the carrying value of the
assets, thereby possibly requiring an impairment charge in the
future.
Pension and Other Post-Retirement
Obligations
Accounting for defined-benefit
pension plans, and any curtailments thereof, requires various
assumptions, including, but not limited to, discount rates,
expected long-term rates of return on plan assets and future
compensation growth rates. Accounting for our retiree medical
plans, and any curtailments thereof, also requires various
assumptions, which include, but are not limited to, discount
rates and annual rates of increase in the per capita costs of
health care benefits. We evaluate these assumptions at least
once each year or as facts and circumstances dictate and we make
changes as
22
Table of Contents
conditions warrant. Changes to these assumptions will increase
or decrease our reported income or expense, which will result in
changes to the recorded benefit plan assets and liabilities.
Environmental Liabilities
We maintain accruals
for losses associated with environmental obligations when it is
probable that a liability has been incurred and the amount of
the liability can be reasonably estimated based on existing
legislation and remediation technologies. These accruals are
adjusted periodically as assessment and remediation actions
continue
and/or
further legal or technical information develops. Such
undiscounted liabilities are exclusive of any insurance or other
claims against third parties. Recoveries of environmental
remediation costs from other parties, including insurance
carriers, are recorded as assets when their receipt is assured
beyond a reasonable doubt.
Income Taxes
We record the estimated future
tax effects of temporary differences between the tax bases of
assets and liabilities and amounts reported in our balance
sheets, as well as operating loss and tax credit carry forwards.
These deferred tax assets and liabilities are measured using
enacted tax rates and laws that will be in effect when such
amounts are expected to reverse or be utilized. We regularly
review our deferred tax assets for recoverability based on
historical taxable income, projected future taxable income, the
expected timing of the reversals of existing temporary
differences and tax planning strategies. If we are unable to
generate sufficient future taxable income, or if there is a
material change in the actual effective tax rates or time period
within which the underlying temporary differences become taxable
or deductible, we could be required to increase the valuation
allowance against our deferred tax assets, which may result in a
substantial increase in our effective tax rate and a material
adverse impact on our reported results.
Significant judgment is required in determining our worldwide
provision for income taxes and recording the related assets and
liabilities. In the ordinary course of our business, there are
many transactions and calculations where the ultimate tax
determination is less than certain. We and our subsidiaries are
examined by various Federal, State and foreign tax authorities.
We regularly assess the potential outcomes of these examinations
and any future examinations for the current or prior years in
determining the adequacy of our provision for income taxes. We
continually assess the likelihood and amount of potential
adjustments and adjust the income tax provision, the current
liability and deferred taxes in the period in which the facts
that give rise to a revision become known.
Other significant accounting policies, not involving the same
level of uncertainties as those discussed above, are
nevertheless important to an understanding of the Consolidated
Financial Statements. Refer to Item 8 – Financial
Statements and Supplementary Data – Notes to
Consolidated Financial Statements for additional accounting
policies.
| ITEM 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
| Year Ended December 31 | At December 31, 2010 | |||||||||||||||||||||||||||||||
| Dollars in thousands | 2011 | 2012 | 2013 | 2014 | 2015 | Carrying Value | Fair Value | |||||||||||||||||||||||||
|
Long-term debt
|
||||||||||||||||||||||||||||||||
|
Average principal outstanding
|
||||||||||||||||||||||||||||||||
|
At fixed interest rates – Senior Notes
|
$ | 295,874 | $ | 296,600 | $ | 297,389 | $ | 298,244 | $ | 299,171 | $ | 295,529 | $ | 304,115 | ||||||||||||||||||
|
At variable interest rates
|
36,695 | 36,695 | 1,407 | – | – | 36,695 | 37,780 | |||||||||||||||||||||||||
| $ | 332,224 | $ | 341,895 | |||||||||||||||||||||||||||||
|
Weighted-average interest rate
|
||||||||||||||||||||||||||||||||
|
Fixed interest rate debt – Senior Notes
|
7.13 | % | 7.13 | % | 7.13 | % | 7.13 | % | 7.13 | % | ||||||||||||||||||||||
|
Variable interest rate debt
|
1.66 | % | 1.66 | % | 1.66 | % | – | – | ||||||||||||||||||||||||
The table above presents the average principal outstanding and
related interest rates for the next five years for debt
outstanding as of December 31, 2010. Fair values included
herein have been determined based upon rates currently available
to us for debt with similar terms and remaining maturities.
Our market risk exposure primarily results from changes in
interest rates and currency exchange rates. At December 31,
2010, we had long-term debt outstanding of $332.2 million,
of which $36.7 million or 10.0% was at variable interest
rates. Variable-rate debt outstanding represents a cash
collateralized borrowing incurred in connection with the 2007
installment timberland sale that accrues interest based on
6 month LIBOR plus a margin. At December 31, 2010, the
weighted-average interest rate paid was approximately 1.66%. A
hypothetical 100 basis point increase or decrease in the
interest rate on variable rate debt would increase or decrease
annual interest expense by $0.4 million.
We are subject to certain risks associated with changes in
foreign currency exchange rates to the extent our operations are
conducted in currencies other than the U.S. dollar. During
2010, Euro functional currency operations generated
approximately 25.5% of our sales and 24.6% of operating expenses
and British Pound Sterling operations represented 8.8% of net
sales and 8.7% of operating expenses.
Glatfelter 2010 Annual
Report 23
Table of Contents
| ITEM 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of P. H. Glatfelter Company (the “Company”)
is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company’s
internal control over financial reporting is a process designed
under the supervision of the chief executive and chief financial
officers to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
Company’s financial statements for external reporting
purposes in accordance with accounting principles generally
accepted in the United States.
As of December 31, 2010, management conducted an assessment
of the effectiveness of the Company’s internal control over
financial reporting based on the framework established in
Internal Control – Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). We excluded from our assessment, as permitted
under the applicable SEC rules, regulations and related
interpretations, the internal control over financial reporting
of Concert Industries Corp., which was acquired on
February 12, 2010, and whose total assets constitute 21% of
total assets, and which represented 13% of total net sales, of
the consolidated financial statement amounts as of and for the
year ended December 31, 2010. Management has determined
that the Company’s internal control over financial
reporting as of December 31, 2010 is effective to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company’s financial
statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States.
The Company’s internal control over financial reporting
includes policies and procedures that pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect transactions and dispositions of assets; provide
reasonable assurances that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the
United States, and that receipts and expenditures are being made
only in accordance with authorizations of management; and
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on our
financial statements.
The Company’s internal control over financial reporting as
of December 31, 2010, has been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report appearing
herein, which expresses an unqualified opinion on the
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2010.
The Company’s management, including the chief executive
officer and chief financial officer, does not expect that our
internal control over financial reporting will prevent or detect
all errors and all frauds. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives
will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based, in part, on certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with
policies or procedures.
24
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
P. H. Glatfelter Company
We have audited the internal control over financial reporting of
P. H. Glatfelter Company and subsidiaries (the
“Company”) as of December 31, 2010, based on
criteria established in
Internal Control –
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. As described in
Management’s Report on Internal Control Over Financial
Reporting, management excluded from its assessment the internal
control over financial reporting of Concert Industries Corp.,
which was acquired on February 12, 2010 and whose total
assets constitute 21% of total assets, and which represented 13%
of total net sales, of the consolidated financial statement
amounts as of and for the year ended December 31, 2010.
Accordingly, our audit did not include the internal control over
financial reporting at Concert Industries Corp. The
Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on the criteria established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2010 of
the Company and our report dated March 11, 2011 expressed
an unqualified opinion on those financial statements and
financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
| Philadelphia, Pennsylvania |
March 11, 2011
Glatfelter 2010 Annual
Report 25
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
P. H. Glatfelter Company
We have audited the accompanying consolidated balance sheets of
P. H. Glatfelter Company and subsidiaries (the
“Company”) as of December 31, 2010 and 2009, and
the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2010. Our audits
also included the financial statement schedule listed in the
Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of P.
H. Glatfelter Company and subsidiaries as of December 31,
2010 and 2009, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2010, based on the criteria established in
Internal Control – Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 11, 2011 expressed an
unqualified opinion on the Company’s internal control over
financial reporting.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 11, 2011
26
Table of Contents
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31 | ||||||||||||||||
| In thousands, except per share | 2010 | 2009 | 2008 | |||||||||||||
|
Net sales
|
$ | 1,455,331 | $ | 1,184,010 | $ | 1,263,850 | ||||||||||
|
Energy and related sales – net
|
10,653 | 13,332 | 9,364 | |||||||||||||
|
Total revenues
|
1,465,984 | 1,197,342 | 1,273,214 | |||||||||||||
|
Costs of products sold
|
1,279,737 | 927,578 | 1,095,432 | |||||||||||||
|
Gross profit
|
186,247 | 269,764 | 177,782 | |||||||||||||
|
Selling, general and administrative expenses
|
122,111 | 110,257 | 97,897 | |||||||||||||
|
Reversal of shutdown and restructuring charges
|
– | – | (856 | ) | ||||||||||||
|
Gains on disposition of plant, equipment and timberlands, net
|
(453 | ) | (898 | ) | (18,468 | ) | ||||||||||
|
Operating income
|
64,589 | 160,405 | 99,209 | |||||||||||||
|
Other nonoperating income (expense)
|
||||||||||||||||
|
Interest expense
|
(25,547 | ) | (19,220 | ) | (23,160 | ) | ||||||||||
|
Interest income
|
808 | 1,886 | 4,975 | |||||||||||||
|
Other – net
|
(6,321 | ) | 75 | 2 | ||||||||||||
|
Total other nonoperating expense
|
(31,060 | ) | (17,259 | ) | (18,183 | ) | ||||||||||
|
Income before income taxes
|
33,529 | 143,146 | 81,026 | |||||||||||||
|
Income tax (benefit) provision
|
(20,905 | ) | 19,704 | 23,138 | ||||||||||||
|
Net income
|
$ | 54,434 | $ | 123,442 | $ | 57,888 | ||||||||||
|
Weighted average shares outstanding
|
||||||||||||||||
|
Basic
|
45,922 | 45,678 | 45,247 | |||||||||||||
|
Diluted
|
46,374 | 45,774 | 45,572 | |||||||||||||
|
Earnings per share
|
||||||||||||||||
|
Basic
|
$ | 1.19 | $ | 2.70 | $ | 1.28 | ||||||||||
|
Diluted
|
1.17 | 2.70 | 1.27 | |||||||||||||
The accompanying notes are an
integral part of the consolidated financial
statements.
Glatfelter 2010 Annual
Report 27
Table of Contents
P. H. GLATFELTER
COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| December 31 | ||||||||||||
| Dollars in thousands, except par values | 2010 | 2009 | ||||||||||
|
Assets
|
||||||||||||
|
Current assets
|
||||||||||||
|
Cash and cash equivalents
|
$ | 95,788 | $ | 135,420 | ||||||||
|
Accounts receivable (less allowance for doubtful accounts:
|
||||||||||||
|
2010 – $3,118; 2009 – $2,888)
|
141,208 | 119,319 | ||||||||||
|
Inventories
|
201,077 | 168,370 | ||||||||||
|
Prepaid expenses and other current assets
|
64,617 | 96,947 | ||||||||||
|
Total current assets
|
502,690 | 520,056 | ||||||||||
|
Plant, equipment and timberlands – net
|
608,170 | 470,632 | ||||||||||
|
Other long-term assets
|
230,887 | 199,606 | ||||||||||
|
Total assets
|
$ | 1,341,747 | $ | 1,190,294 | ||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||
|
Current liabilities
|
||||||||||||
|
Current portion of long-term debt
|
$ | – | $ | 13,759 | ||||||||
|
Short-term debt
|
798 | 3,888 | ||||||||||
|
Accounts payable
|
98,594 | 63,604 | ||||||||||
|
Dividends payable
|
4,190 | 4,170 | ||||||||||
|
Environmental liabilities
|
248 | 440 | ||||||||||
|
Other current liabilities
|
109,316 | 100,249 | ||||||||||
|
Total current liabilities
|
213,146 | 186,110 | ||||||||||
|
Long-term debt
|
332,224 | 236,936 | ||||||||||
|
Deferred income taxes
|
94,918 | 96,668 | ||||||||||
|
Other long-term liabilities
|
149,017 | 159,876 | ||||||||||
|
Total liabilities
|
789,305 | 679,590 | ||||||||||
|
Commitments and contingencies
|
– | – | ||||||||||
|
Shareholders’ equity
|
||||||||||||
|
Common stock, $.01 par value; authorized –
120,000,000 shares; issued –
54,361,980 shares (including shares in treasury:
2010 – 8,385,772; 2009 – 8,655,826)
|
544 | 544 | ||||||||||
|
Capital in excess of par value
|
48,145 | 46,746 | ||||||||||
|
Retained earnings
|
749,453 | 711,765 | ||||||||||
|
Accumulated other comprehensive income (loss)
|
(121,247 | ) | (119,885 | ) | ||||||||
| 676,895 | 639,170 | |||||||||||
|
Less cost of common stock in treasury
|
(124,453 | ) | (128,466 | ) | ||||||||
|
Total shareholders’ equity
|
552,442 | 510,704 | ||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 1,341,747 | $ | 1,190,294 | ||||||||
The accompanying notes are an
integral part of the consolidated financial
statements.
28
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31 | ||||||||||||||||
| In thousands | 2010 | 2009 | 2008 | |||||||||||||
|
Operating activities
|
||||||||||||||||
|
Net income
|
$ | 54,434 | $ | 123,442 | $ | 57,888 | ||||||||||
|
Adjustments to reconcile to net cash provided by operations:
|
||||||||||||||||
|
Depreciation, depletion and amortization
|
65,839 | 61,256 | 60,611 | |||||||||||||
|
Amortization of debt issuance costs and original issue discount
|
2,758 | 1,690 | 1,654 | |||||||||||||
|
Pension expense (income), net of unfunded benefits paid
|
8,637 | 6,343 | (16,062 | ) | ||||||||||||
|
Reversals of shutdown and restructuring charges
|
– | – | (856 | ) | ||||||||||||
|
Deferred income taxes
|
(16,815 | ) | (22,981 | ) | 3,265 | |||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
(453 | ) | (898 | ) | (18,468 | ) | ||||||||||
|
Share-based compensation
|
5,767 | 4,599 | 4,350 | |||||||||||||
|
Alternative fuel mixture credits, net of credits applied to
taxes due
|
54,880 | (57,946 | ) | – | ||||||||||||
|
Change in operating assets and liabilities
|
||||||||||||||||
|
Accounts receivable
|
(598 | ) | 16,542 | (17,668 | ) | |||||||||||
|
Inventories
|
(7,592 | ) | 28,207 | (9,975 | ) | |||||||||||
|
Prepaid and other current assets
|
(13,318 | ) | 1,451 | 871 | ||||||||||||
|
Accounts payable
|
21,064 | 2,390 | 4,264 | |||||||||||||
|
Environmental matters
|
(29 | ) | (7,728 | ) | (13,012 | ) | ||||||||||
|
Accruals and other current liabilities
|
(1,490 | ) | 6,676 | (10,557 | ) | |||||||||||
|
Other
|
(5,079 | ) | 825 | 7,120 | ||||||||||||
|
Net cash provided by operations
|
168,005 | 163,868 | 53,425 | |||||||||||||
|
Investing activities
|
||||||||||||||||
|
Expenditures for purchases of plant, equipment and timberlands
|
(36,491 | ) | (26,257 | ) | (52,469 | ) | ||||||||||
|
Proceeds from disposal of plant, equipment and timberlands
|
564 | 951 | 19,279 | |||||||||||||
|
Proceeds from timberland installment sale note receivable
|
– | 37,850 | – | |||||||||||||
|
Acquisitions, net of cash acquired
|
(228,290 | ) | – | – | ||||||||||||
|
Net cash provided (used) by investing activities
|
(264,217 | ) | 12,544 | (33,190 | ) | |||||||||||
|
Financing activities
|
||||||||||||||||
|
Proceeds from $100 million
7
1
/
8
% note
offering, net of original issue discount
|
95,000 | – | – | |||||||||||||
|
Payments of note offering and credit facility costs
|
(5,340 | ) | – | – | ||||||||||||
|
Net repayments of revolving credit facility
|
– | (6,725 | ) | (24,197 | ) | |||||||||||
|
Repayments of $100 million term loan facility
|
(14,000 | ) | (16,000 | ) | (13,000 | ) | ||||||||||
|
Net (repayments of) proceeds from other short-term debt
|
(3,208 | ) | (2,008 | ) | 2,927 | |||||||||||
|
(Repayments of) proceeds from borrowing under Term Loans due 2013
|
– | (34,000 | ) | 36,695 | ||||||||||||
|
Payment of dividends
|
(16,746 | ) | (16,596 | ) | (16,469 | ) | ||||||||||
|
Proceeds and excess tax benefits from stock options exercised
and proceeds from government grants
|
3,975 | – | 1,165 | |||||||||||||
|
Net cash provided (used) by financing activities
|
59,681 | (75,329 | ) | (12,879 | ) | |||||||||||
|
Effect of exchange rate changes on cash
|
(3,101 | ) | 2,103 | (4,955 | ) | |||||||||||
|
Net (decrease) increase in cash and cash equivalents
|
(39,632 | ) | 103,186 | 2,401 | ||||||||||||
|
Cash and cash equivalents at the beginning of period
|
135,420 | 32,234 | 29,833 | |||||||||||||
|
Cash and cash equivalents at the end of period
|
$ | 95,788 | $ | 135,420 | $ | 32,234 | ||||||||||
|
Supplemental cash flow information
|
||||||||||||||||
|
Cash paid (received) for
|
||||||||||||||||
|
Interest
|
$ | 23,193 | $ | 17,338 | $ | 21,243 | ||||||||||
|
Income taxes
|
(40,265 | ) | 16,634 | 20,011 | ||||||||||||
The accompanying notes are an
integral part of the consolidated financial
statements.
Glatfelter 2010 Annual
Report 29
Table of Contents
P. H. GLATFELTER
COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2010, 2009 and 2008
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2010, 2009 and 2008
|
Accumulated
|
||||||||||||||||||||||||||
|
Capital in
|
Other
|
Total
|
||||||||||||||||||||||||
|
Common
|
Excess of
|
Retained
|
Comprehensive
|
Treasury
|
Shareholders’
|
|||||||||||||||||||||
| In thousands | Stock | Par Value | Earnings | Income (Loss) | Stock | Equity | ||||||||||||||||||||
|
Balance at January 1, 2008
|
$ | 544 | $ | 44,697 | $ | 563,608 | $ | 4,061 | $ | (136,842 | ) | $ | 476,068 | |||||||||||||
|
Net income
|
57,888 | 57,888 | ||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
(32,029 | ) | ||||||||||||||||||||||||
|
Change in benefit plans’ net funded status, net of tax
benefit of $92,570
|
(148,165 | ) | ||||||||||||||||||||||||
|
Other comprehensive income
|
(180,194 | ) | (180,194 | ) | ||||||||||||||||||||||
|
Comprehensive income
|
(122,306 | ) | ||||||||||||||||||||||||
|
Tax effect on employee stock options exercised
|
38 | 38 | ||||||||||||||||||||||||
|
Cash dividends declared ($0.36 per share)
|
(16,495 | ) | (16,495 | ) | ||||||||||||||||||||||
|
Share-based compensation expense
|
3,244 | 3,244 | ||||||||||||||||||||||||
|
Delivery of treasury shares
|
||||||||||||||||||||||||||
|
Performance Shares
|
(1,739 | ) | 1,400 | (339 | ) | |||||||||||||||||||||
|
401(k) plans
|
(248 | ) | 1,768 | 1,520 | ||||||||||||||||||||||
|
Director compensation
|
(43 | ) | 206 | 163 | ||||||||||||||||||||||
|
Employee stock options exercised – net
|
(143 | ) | 957 | 814 | ||||||||||||||||||||||
|
Balance at December 31, 2008
|
544 | 45,806 | 605,001 | (176,133 | ) | (132,511 | ) | 342,707 | ||||||||||||||||||
|
Comprehensive income
|
||||||||||||||||||||||||||
|
Net income
|
123,442 | 123,442 | ||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
11,941 | |||||||||||||||||||||||||
|
Change in benefit plans’ net funded status, net of taxes of
$27,164
|
44,307 | |||||||||||||||||||||||||
|
Other comprehensive income
|
56,248 | 56,248 | ||||||||||||||||||||||||
|
Comprehensive income
|
179,690 | |||||||||||||||||||||||||
|
Cash dividends declared ($0.36 per share)
|
(16,678 | ) | (16,678 | ) | ||||||||||||||||||||||
|
Share-based compensation expense
|
3,502 | 3,502 | ||||||||||||||||||||||||
|
Delivery of treasury shares
|
||||||||||||||||||||||||||
|
RSUs
|
(1,483 | ) | 1,280 | (203 | ) | |||||||||||||||||||||
|
401(k) plans
|
(995 | ) | 2,517 | 1,522 | ||||||||||||||||||||||
|
Director compensation
|
(84 | ) | 248 | 164 | ||||||||||||||||||||||
|
Balance at December 31, 2009
|
544 | 46,746 | 711,765 | (119,885 | ) | (128,466 | ) | 510,704 | ||||||||||||||||||
|
Comprehensive income
|
||||||||||||||||||||||||||
|
Net income
|
54,434 | 54,434 | ||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
(17,227 | ) | ||||||||||||||||||||||||
|
Change in benefit plans’ net funded status, net of taxes of
$9,905
|
15,865 | |||||||||||||||||||||||||
|
Other comprehensive income
|
(1,362 | ) | (1,362 | ) | ||||||||||||||||||||||
|
Comprehensive income
|
53,072 | |||||||||||||||||||||||||
|
Tax effect on employee stock options exercised
|
(50 | ) | (50 | ) | ||||||||||||||||||||||
|
Cash dividends declared ($0.36 per share)
|
(16,746 | ) | (16,746 | ) | ||||||||||||||||||||||
|
Share-based compensation expense
|
3,962 | 3,962 | ||||||||||||||||||||||||
|
Delivery of treasury shares
|
||||||||||||||||||||||||||
|
RSUs
|
(2,152 | ) | 1,662 | (490 | ) | |||||||||||||||||||||
|
401(k) plans
|
(318 | ) | 1,960 | 1,642 | ||||||||||||||||||||||
|
Director compensation
|
(16 | ) | 179 | 163 | ||||||||||||||||||||||
|
Employee stock options exercised – net
|
(27 | ) | 212 | 185 | ||||||||||||||||||||||
|
Balance at December 31, 2010
|
$ | 544 | $ | 48,145 | $ | 749,453 | $ | (121,247 | ) | $ | (124,453 | ) | $ | 552,442 | ||||||||||||
30
Table of Contents
P. H. GLATFELTER
COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ORGANIZATION |
P. H. Glatfelter Company and subsidiaries
(“Glatfelter”) is a manufacturer of specialty papers
and fiber-based engineered materials. Headquartered in York,
Pennsylvania, our manufacturing facilities are located in Spring
Grove, Pennsylvania; Chillicothe and Freemont, Ohio; Gatineau,
Quebec Canada; Gloucestershire (Lydney), England; Caerphilly,
Wales; Gernsbach and Falkenhagen, Germany; Scaër, France;
and the Philippines. Our products are marketed worldwide, either
through wholesale paper merchants, brokers and agents or
directly to customers.
| 2. | ACCOUNTING POLICIES |
Principles of Consolidation
The consolidated
financial statements include the accounts of Glatfelter and its
wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated.
Accounting Estimates
The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingencies as of the balance sheet date and the reported
amounts of revenues and expenses during the reporting period.
Management believes the estimates and assumptions used in the
preparation of these consolidated financial statements are
reasonable, based upon currently available facts and known
circumstances, but recognizes that actual results may differ
from those estimates and assumptions.
Cash and Cash Equivalents
We classify all
highly liquid instruments with an original maturity of three
months or less at the time of purchase as cash equivalents.
Inventories
Inventories are stated at the
lower of cost or market. Raw materials, in-process and finished
inventories of our domestic manufacturing operations are valued
using the
last-in,
first-out (LIFO) method, and the supplies inventories are valued
principally using the average-cost method. Inventories at our
foreign operations are valued using the average cost method.
Plant, Equipment and Timberlands
For financial
reporting purposes, depreciation is computed using the
straight-line method over the estimated useful lives of the
respective assets.
The range of estimated service lives used to calculate financial
reporting depreciation for principal items of plant and
equipment are as follows:
|
Buildings
|
10 – 45 Years | |||
|
Machinery and equipment
|
7 – 35 Years | |||
|
Other
|
4 – 40 Years |
Maintenance and Repairs
Maintenance and
repairs costs are charged to income and major renewals and
betterments are capitalized. At the time property is retired or
sold, the net carrying value is eliminated and any resultant
gain or loss is included in income.
Valuation of Long-lived Assets, Intangible Assets and
Goodwill
We evaluate long-lived assets for
impairment when a specific event indicates that the carrying
value of an asset may not be recoverable. Recoverability is
assessed based on estimates of future cash flows expected to
result from the use and eventual disposition of the asset. If
the sum of expected undiscounted cash flows is less than the
carrying value of the asset, the asset’s fair value is
estimated and an impairment loss is recognized for any
deficiencies. Goodwill is reviewed, on a discounted cash flow
basis, during the third quarter of each year for impairment.
Impairment losses, if any, are recognized for the amount by
which the carrying value of the reporting unit exceeds its fair
value. The carrying value of a reporting unit is defined using
an enterprise premise which is generally determined by the
difference between the unit’s assets and operating
liabilities.
Asset Retirement Obligations
In accordance
with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”)
No. 410, Asset Retirement and Environmental Obligations,
we accrue asset retirement obligations in the period in
which obligations relating to future asset retirements are
incurred and when a reasonable estimate of fair value can be
determined. Under these standards, costs are to be accrued at
estimated fair value, and a related long-lived asset is
capitalized. Over time, the liability is accreted to its
settlement value and the capitalized cost is depreciated over
the useful life of the related asset for which the obligation
exists. Upon settlement of the liability, we recognize a gain or
loss for any difference between the settlement amount and the
liability recorded.
Income Taxes
Income taxes are determined using
the asset and liability method of accounting for income taxes in
accordance with FASB ASC 740 Income Taxes (“ASC
740”). Under ASC 740, tax expense includes
U.S. and international income taxes plus the provision for
Glatfelter 2010 Annual
Report 31
Table of Contents
U.S. taxes on undistributed earnings of international
subsidiaries not deemed to be permanently invested. Tax credits
and other incentives reduce tax expense in the year the credits
are claimed. Certain items of income and expense are not
reported in tax returns and financial statements in the same
year. The tax effect of such temporary differences is reported
in deferred income taxes. Deferred tax assets are recognized if
it is more likely than not that the assets will be realized in
future years. We establish a valuation allowance for deferred
tax assets for which realization is not more likely than not.
Income tax contingencies are accounted for in accordance with
FASB
ASC 740-10-20
Income Taxes (formerly FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes –
an interpretation of FASB Statement No. 109”
).
Significant judgment is required in determining our worldwide
provision for income taxes and recording the related assets and
liabilities. In the ordinary course of our business, there are
many transactions and calculations where the ultimate tax
determination is less than certain. We and our subsidiaries are
examined by various Federal, State and foreign tax authorities.
We regularly assess the potential outcomes of these examinations
and any future examinations for the current or prior years in
determining the adequacy of our provision for income taxes. We
continually assess the likelihood and amount of potential
adjustments and record any necessary adjustments in the period
in which the facts that give rise to a revision become known.
Treasury Stock
Common stock purchased for
treasury is recorded at cost. At the date of subsequent reissue,
the treasury stock account is reduced by the cost of such stock
on the weighted-average cost basis.
Foreign Currency Translation
Foreign currency
translation gains and losses and the effect of exchange rate
changes on transactions designated as hedges of net foreign
investments are included as a component of other comprehensive
income (loss). Transaction gains and losses are included in
income in the period in which they occur.
Revenue Recognition
We recognize revenue on
product sales when the customer takes title and assumes the
risks and rewards of ownership. Estimated costs for sales
incentives, discounts and sales returns and allowances are
recorded as sales reductions in the period in which the related
revenue is recognized.
Revenue from energy sales is recognized when electricity is
delivered to the customer. Certain costs associated with the
production of electricity, such as fuel, labor, depreciation and
maintenance are netted against energy sales for presentation on
the Consolidated Statements of Income. Our fixed-price contract
to sell electricity generated in excess of our own use expired
March 31, 2010. Subsequent to the expiration, we now sell
excess power at market-rates.
Revenue from renewable energy credits is recognized when all
risks, rights and rewards to the certificate are transferred to
the counterparty.
Environmental Liabilities
Accruals for losses
associated with environmental obligations are recorded when it
is probable that a liability has been incurred and the amount of
the liability can be reasonably estimated based on existing
legislation and remediation technologies. Costs related to
environmental remediation are charged to expense. These accruals
are adjusted periodically as assessment and remediation actions
continue
and/or
further legal or technical information develops. Such
undiscounted liabilities are exclusive of any insurance or other
claims against third parties. Environmental costs are
capitalized if the costs extend the life of the asset, increase
its capacity
and/or
mitigate or prevent contamination from future operations.
Recoveries of environmental remediation costs from other
parties, including insurance carriers, are recorded as assets
when their receipt is assured beyond a reasonable doubt.
Accumulated Other Comprehensive Income
The
amounts reported on the consolidated Statement of
Shareholders’ Equity for Accumulated Other Comprehensive
Income (Loss) at December 31, 2010 consisted of a loss of
$120.4 million from additional defined benefit liabilities,
net of tax, and $0.8 million of losses from foreign
currency translation adjustments.
Earnings Per Share
Basic earnings per share
are computed by dividing net income by the weighted-average
common shares outstanding during the respective periods. Diluted
earnings per share are computed by dividing net income by the
weighted-average common shares and common share equivalents
outstanding during the period. The dilutive effect of common
share equivalents is considered in the diluted earnings per
share computation using the treasury stock method.
Fair Value of Financial Instruments
Under the
accounting for fair value measurements and disclosures, a fair
value hierarchy was established that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1
measurements) and the lowest priority to unobservable inputs
(level 3 measurements). A financial instrument’s level
within the fair value hierarchy is based on the lowest level of
any input that is significant to the fair value measurement.
32
Table of Contents
We use the following valuation techniques to measure fair value
for our assets and liabilities:
| Level 1 | Quoted market prices in active markets for identical assets or liabilities; |
| Level 2 | Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); and |
| Level 3 | Unobservable inputs for the asset or liability, which are valued based on management’s estimates of assumptions that market participants would use in pricing the asset or liability. |
| 3. | ACQUISITIONS |
On February 12, 2010, we completed the acquisition of all
the issued and outstanding stock of Concert Industries Corp.
(“Concert”), a manufacturer of highly absorbent
cellulose based airlaid non-woven materials, for cash totaling
$231.1 million based on the currency exchange rates on the
closing date, and net of post-closing working capital
adjustments. Concert has operations located in Gatineau, Quebec,
Canada and Falkenhagen, Brandenburg, Germany. Annual revenues
totaled $203.0 million in 2009.
Concert manufactures highly absorbent cellulose based airlaid
non-woven materials used in products such as feminine hygiene
and adult incontinence products, pre-moistened cleaning wipes,
food pads, napkins and tablecloths, and baby wipes. The
acquisition of Concert affords us the opportunity to grow with
our customers who are the industry leaders in feminine hygiene
and adult incontinence products. We believe that our acquisition
of Concert provides us with an industry-leading global business
that sells highly specialized, engineered fiber-based materials
to niche markets with substantial barriers to entry.
The share purchase agreement provides for, among other terms,
indemnification provisions for claims that may arise, including
among others, uncertain tax positions and other third party
claims.
We and the sellers reached agreement on working capital related
adjustments that reduced the purchase price by
$4.7 million. In addition, as a result of further
evaluation of asset appraisals, contingencies and other factors,
in accordance with FASB ASC 805, Business Combinations, we
have determined that certain retrospective adjustments to the
February 12, 2010 provisional allocation of the purchase
price to assets acquired and liabilities assumed were required.
The following summarizes the impact of the adjustments recorded
in 2010 and retrospectively reflected in the financial
statements. This provisional purchase price allocation is based
on information currently available to management:
|
As originally
|
|||||||||||||||
| In thousands | presented | Adjustment | Adjusted | ||||||||||||
|
Assets
|
|||||||||||||||
|
Cash
|
$ | 2,792 | $ | – | $2,792 | ||||||||||
|
Accounts receivable
|
24,703 | – | 24,703 | ||||||||||||
|
Inventory
|
28,034 | – | 28,034 | ||||||||||||
|
Prepaid and other current assets
|
5,941 | (1,316 | ) | 4,625 | |||||||||||
|
Plant, equipment and timberlands
|
177,253 | 8,301 | 185,554 | ||||||||||||
|
Intangible assets
|
3,138 | 1,902 | 5,040 | ||||||||||||
|
Deferred tax assets and other assets
|
20,738 | (5,830 | ) | 14,908 | |||||||||||
|
Total
|
262,599 | 3,057 | 265,656 | ||||||||||||
|
Liabilities
|
|||||||||||||||
|
Accounts payable and accrued expenses
|
25,322 | 611 | 25,933 | ||||||||||||
|
Deferred tax liabilities
|
1,267 | 3,852 | 5,119 | ||||||||||||
|
Other long term liabilities
|
212 | 3,310 | 3,522 | ||||||||||||
|
Total
|
26,801 | 7,773 | 34,574 | ||||||||||||
|
Total purchase price
|
$ | 235,798 | $ | (4,716 | ) | $231,082 | |||||||||
The adjustments set forth above did not materially impact
previously reported results of operations, earnings per share,
or cash flows.
We are in the process of finalizing certain contingencies and
the impact on taxes of any final adjustments to such necessary
to account for the Concert transaction in accordance with the
acquisition method of accounting set forth in FASB ASC 805.
Accordingly, the provisional purchase price allocation set forth
above is based on all information available to us at the present
time and is subject to change, and such changes could be
material.
For purposes of allocating the total purchase price, assets
acquired and liabilities assumed are recorded at their estimated
fair market value. The allocation set forth above is based on
management’s estimate of the fair value using valuation
techniques such as discounted cash flow models, appraisals and
similar methodologies. The amount allocated to intangible assets
represents the estimated value of technology and customer sales
contracts and relationships. Deferred tax assets reflect the
estimated value of future tax deductions acquired in the
transaction.
Acquired property plant and equipment are being depreciated on a
straight-line basis with estimated remaining lives ranging from
5 years to 40 years. Intangible assets are being
amortized on a straight-line basis over an estimated remaining
life of 11 to 20 years reflecting the expected future value.
During 2010, we incurred legal, professional and advisory costs
directly related to the Concert acquisition totaling
$6.9 million. All such costs are presented under
Glatfelter 2010 Annual
Report 33
Table of Contents
the caption “Selling, general and administrative
expenses” in the accompanying consolidated statements of
income. Deferred financing fees incurred in connection with
issuing debt related to the acquisition totaled
$3.0 million. The unamortized fees are recorded in the
accompanying consolidated balance sheet under the caption
“Other assets”.
In addition, in connection with the Concert acquisition, we
entered into a series of forward foreign currency contracts to
hedge the acquisition’s Canadian dollar purchase price. All
contracts were settled for cash during the first quarter of 2010
and resulted in a $3.4 million loss, net of realized
currency translation gains, which is presented under the caption
“Other-net”
in the accompanying consolidated statements of income for the
year ended December 31, 2010.
Our results of operations for the year ended December 31,
2010 include the results of Concert prospectively since the
acquisition was completed on February 12, 2010. All such
results are reported herein as the Advanced Airlaid Materials
business unit, a new reportable segment. Net sales and operating
income of Concert included in our consolidated results of
operations totaled $193.5 million and $4.4 million,
respectively, for 2010.
The unaudited pro-forma results presented below include the
effects of the acquisition as if it had been consummated as of
January 1, 2009. The pro forma results include the
amortization associated with the acquired intangible assets and
interest expense associated with debt used to fund the
acquisition, as well as fair value adjustments for plant,
equipment and timberlands. To better reflect the combined
operating results, material non-recurring charges directly
attributable to the acquisition have been excluded. The
unaudited pro forma financial information below is not
necessarily indicative of either future results of operations or
results that might have been achieved.
| Year Ended December 31 | |||||||||||
| In thousands, except per share | 2010 | 2009 | |||||||||
|
Pro forma
|
|||||||||||
|
Net sales
|
$1,480,980 | $1,388,120 | |||||||||
|
Net income
|
69,116 | 135,713 | |||||||||
|
Diluted earnings per share
|
1.49 | 2.96 | |||||||||
For purposes of presenting the above pro forma financial
information, non-recurring legal, professional and transaction
costs directly related to the acquisition have been eliminated.
This pro forma financial information is not necessarily
indicative of what the operating results would have been had the
acquisition been completed at the beginning of the respective
period nor is it indicative of future results.
| 4. | ALTERNATIVE FUEL MIXTURE CREDITS |
The U.S. Internal Revenue Code provided a tax credit for
companies that use alternative fuel mixtures to produce energy
to operate their businesses. The credit, equal to $0.50 per
gallon of alternative fuel contained in the mixture, is
refundable to the taxpayer. On May 11, 2009, we were
notified by the Internal Revenue Service that our application to
be registered as an alternative fuel mixer was approved. We
earned $107.8 million of alternative fuel mixture credits
for the alternative fuel mixture consumed during the period
February 20, 2009 through December 31, 2009. We record
all alternative fuel mixture credits as a reduction to cost of
goods sold and the net credit claimed is recorded in 2009 under
the caption “Prepaid expenses and other current
assets” in the accompanying Consolidated Balance Sheets.
The alternative fuel mixture credit expired on December 31,
2009. For information related to the Cellulosic Biofuel Credit,
see Note 8 – Income Taxes.
| 5. | ENERGY AND RELATED SALES, NET |
We sell excess power generated by the Spring Grove, PA facility.
Prior to the March 31, 2010 expiration of a long-term
contract, all sales were at a fixed price. Subsequently, we sell
excess power at prevailing market rates. We also sell renewable
energy credits generated by the Spring Grove, PA and
Chillicothe, OH facilities representing sales of certified
credits earned related to burning renewable sources of energy
such as black liquor and wood waste.
The following table summarizes this activity for each of the
past three years:
| In thousands | 2010 | 2009 | 2008 | ||||||||||||
|
Energy sales
|
$14,296 | $20,128 | $19,731 | ||||||||||||
|
Costs to produce
|
(10,403 | ) | (11,883 | ) | (10,367 | ) | |||||||||
|
Net energy sales
|
3,893 | 8,245 | 9,364 | ||||||||||||
|
Renewable energy credits
|
6,760 | 5,087 | – | ||||||||||||
|
Total energy and related sales , net
|
$10,653 | $13,332 | $9,364 | ||||||||||||
| 6. | GAIN ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS |
During 2010, 2009 and 2008, we completed the following sales of
assets:
| Dollars in thousands | Acres | Proceeds | Gain | ||||||||||||
|
2010
|
|||||||||||||||
|
Timberlands
|
164 | $ | 387 | $ | 373 | ||||||||||
|
Other
|
n/a | 177 | 80 | ||||||||||||
|
Total
|
$ | 564 | $ | 453 | |||||||||||
|
2009
|
|||||||||||||||
|
Timberlands
|
319 | $ | 951 | $ | 906 | ||||||||||
|
Other
|
n/a | – | (8 | ) | |||||||||||
|
Total
|
$ | 951 | $ | 898 | |||||||||||
|
2008
|
|||||||||||||||
|
Timberlands
|
4,561 | $ | 19,279 | $ | 18,649 | ||||||||||
|
Other
|
n/a | – | (181 | ) | |||||||||||
|
Total
|
$ | 19,279 | $ | 18,468 | |||||||||||
34
Table of Contents
The amounts set forth above for 2008 include a $2.9 million
gain from the sale of 246 acres of timberlands for cash
consideration to George H. Glatfelter II, our retired chief
executive officer, and his spouse. The 246 acres of
timberlands had been independently appraised and marketed for
public sale by us. Based on those appraisals and the marketing
process that was pursued, we and our Board believed that the
sale price agreed to with the Glatfelters constituted fair
market value for the timberland.
| 7. | EARNINGS PER SHARE |
The following table sets forth the details of basic and diluted
earnings per share (EPS):
| In thousands, except per share | 2010 | 2009 | 2008 | ||||||||||||
|
Net income
|
$54,434 | $ | 123,442 | $ | 57,888 | ||||||||||
|
Weighted average common shares outstanding used in basic EPS
|
45,922 | 45,678 | 45,247 | ||||||||||||
|
Common shares issuable upon exercise of dilutive stock options,
restricted stock awards and performance awards
|
452 | 96 | 325 | ||||||||||||
|
Weighted average common shares outstanding and common share
equivalents used in diluted EPS
|
46,374 | 45,774 | 45,572 | ||||||||||||
|
Basic EPS
|
$1.19 | $ | 2.70 | $ | 1.28 | ||||||||||
|
Diluted EPS
|
1.17 | 2.70 | 1.27 | ||||||||||||
The following table sets forth the potential common shares
outstanding for stock options and restricted stock units that
were not included in the computation of diluted EPS for the
period indicated, because their effect would be anti-dilutive:
| In thousands | 2010 | 2009 | 2008 | ||||||||||||
|
Potential common shares
|
1,405 | 2,215 | 1,132 | ||||||||||||
| 8. | INCOME TAXES |
Income taxes are recognized for the amount of taxes payable or
refundable for the current year and deferred tax liabilities and
assets for the future tax consequences of events that have been
recognized in our consolidated financial statements or tax
returns. The effects of income taxes are measured based on
enacted tax laws and rates.
The (benefit)/provision for income taxes from operations
consisted of the following:
| Year Ended December 31 | |||||||||||||||
| In thousands | 2010 | 2009 | 2008 | ||||||||||||
|
Current taxes
|
|||||||||||||||
|
Federal
|
$ | (8,238 | ) | $ | 29,848 | $ | 5,647 | ||||||||
|
State
|
(392 | ) | 4,050 | 2,609 | |||||||||||
|
Foreign
|
4,540 | 8,787 | 11,617 | ||||||||||||
| (4,090 | ) | 42,685 | 19,873 | ||||||||||||
|
Deferred taxes and other
|
|||||||||||||||
|
Federal
|
(17,530 | ) | (23,943 | ) | 9,026 | ||||||||||
|
State
|
(131 | ) | 3,760 | 86 | |||||||||||
|
Foreign
|
846 | (2,798 | ) | (5,847 | ) | ||||||||||
| (16,815 | ) | (22,981 | ) | 3,265 | |||||||||||
|
Income tax (benefit)/provision
|
$ | (20,905 | ) | $ | 19,704 | $ | 23,138 | ||||||||
The amounts set forth above for total deferred taxes and other
included a deferred tax benefit of $17.6 million in 2010, a
deferred tax benefit of $23.0 million in 2009 and a
deferred tax provision of $3.0 million in 2008,
respectively. Other taxes totaled $0.8 million,
$0.0 million, and $0.2 million in 2010, 2009 and 2008,
respectively, related to uncertain tax positions expected to be
taken in future tax filings.
The following are the domestic and foreign components of pretax
income from operations:
| Year Ended December 31 | |||||||||||||||
| In thousands | 2010 | 2009 | 2008 | ||||||||||||
|
United States
|
$ | 2,384 | $ | 122,657 | $ | 61,387 | |||||||||
|
Foreign
|
31,145 | 20,489 | 19,639 | ||||||||||||
|
Total pretax income
|
$ | 33,529 | $ | 143,146 | $ | 81,026 | |||||||||
A reconciliation between the income tax provision, computed by
applying the statutory federal income tax rate of 35% to income
before income taxes, and the actual income tax
(benefit)/provision is as follows:
| Year Ended December 31 | |||||||||||||||
| 2010 | 2009 | 2008 | |||||||||||||
|
Federal income tax provision at statutory rate
|
35.0 | % | 35.0 | % | 35.0 | % | |||||||||
|
State income taxes, net of federal income tax benefit
|
1.4 | 0.7 | 3.1 | ||||||||||||
|
Foreign income tax rate differential
|
(4.9 | ) | (0.5 | ) | (2.5 | ) | |||||||||
|
Change in statutory tax rates
|
1.5 | (0.3 | ) | – | |||||||||||
|
Tax credits
|
(7.8 | ) | (1.8 | ) | (5.7 | ) | |||||||||
|
Change in unrecognized tax benefits, net
|
(12.4 | ) | 8.0 | 2.5 | |||||||||||
|
Cellulosic Biofuel Credit, net of incremental state tax and
manufacturing deduction benefit
|
(69.3 | ) | – | – | |||||||||||
|
Adjustment for prior year estimates
|
(6.8 | ) | – | – | |||||||||||
|
Alternative fuel mixture credits
|
– | (26.4 | ) | – | |||||||||||
|
Valuation allowance release
|
– | – | (1.8 | ) | |||||||||||
|
Other
|
1.0 | (0.9 | ) | (2.0 | ) | ||||||||||
|
(Benefit)/provision for income taxes
|
(62.3 | )% | 13.8 | % | 28.6 | % | |||||||||
The sources of deferred income taxes were as follows at December
31:
| 2010 | 2009 | ||||||||||||||||||
|
Non
|
Non-
|
||||||||||||||||||
|
Current
|
current
|
Current
|
current
|
||||||||||||||||
|
Asset
|
Asset
|
Asset
|
Asset
|
||||||||||||||||
| In thousands | (Liability) | (Liability) | (Liability) | (Liability) | |||||||||||||||
|
Reserves
|
$ | 5,628 | $ | 10,422 | $ | 7,404 | $ | 9,677 | |||||||||||
|
Compensation
|
3,850 | 4,070 | 3,367 | 3,934 | |||||||||||||||
|
Post-retirement benefits
|
1,807 | 18,225 | 1,708 | 19,637 | |||||||||||||||
|
Property
|
692 | (98,012 | ) | 12 | (100,071 | ) | |||||||||||||
|
Pension
|
449 | (43,428 | ) | 660 | (38,000 | ) | |||||||||||||
|
Installment sales
|
– | (14,030 | ) | (4 | ) | (14,070 | ) | ||||||||||||
|
Inventories
|
348 | – | 438 | – | |||||||||||||||
|
Other
|
78 | 5,617 | 258 | 4,608 | |||||||||||||||
|
Tax carryforwards
|
8,002 | 57,547 | – | 29,238 | |||||||||||||||
|
Subtotal
|
20,854 | (59,589 | ) | 13,843 | (85,047 | ) | |||||||||||||
|
Valuation allowance
|
(2,925 | ) | (22,895 | ) | (2,379 | ) | (9,789 | ) | |||||||||||
|
Total
|
$ | 17,929 | $ | (82,484 | ) | $ | 11,464 | $ | (94,836 | ) | |||||||||
The increase in the valuation allowance of $13.7 million
from 2009 is primarily related to the establishment of a
valuation allowance for certain acquired deferred tax assets
related to Concert.
Glatfelter 2010 Annual
Report 35
Table of Contents
Current and non-current deferred tax assets and liabilities are
included in the following balance sheet captions:
| December 31 | |||||||||||||
| In thousands | 2010 | 2009 | |||||||||||
|
Prepaid expenses and other current assets
|
$ | 17,929 | $ | 11,519 | |||||||||
|
Other long-term assets
|
12,434 | 1,832 | |||||||||||
|
Other current liabilities
|
– | 55 | |||||||||||
|
Deferred income taxes
|
94,918 | 96,668 | |||||||||||
At December 31, 2010, we had state and foreign tax net
operating loss (“NOL”) carryforwards of
$78.6 million and $273.0 million, respectively. These
NOL carryforwards are available to offset future taxable income,
if any. The state NOL carryforwards expire between 2014 and
2027; certain foreign NOL carryforwards expire between 2013 and
2030.
In addition, we had federal foreign tax credit carryforwards of
$0.3 million, which expire in 2013, various state tax
credit carryforwards totaling $0.4 million, which expire
between 2014 and 2027, and foreign tax credits of
$3.2 million which expire between 2019 and 2030.
We have established a valuation allowance of $25.8 million
against the net deferred tax assets, primarily due to the
uncertainty regarding the ability to utilize state and foreign
tax NOL carryforwards and certain deferred foreign tax credits.
Tax credits and other incentives reduce tax expense in the year
the credits are claimed. In 2010, we recorded tax credits of
$2.6 million related to Research and Development
credits and the fuels tax credits. In 2009 and 2008 similar tax
credits of $2.6 million and $4.7 million,
respectively, were recorded.
At December 31, 2010 and 2009, unremitted earnings of
subsidiaries outside the United States deemed to be permanently
reinvested totaled $160.8 million and $134.6 million,
respectively. Because the unremitted earnings of subsidiaries
are deemed to be permanently reinvested as of December 31,
2010, no deferred tax liability has been recognized in our
consolidated financial statements.
In March 2010, our application to be registered as a cellulosic
biofuel producer was approved by the Internal Revenue Service.
The U.S. Internal Revenue Code provides a non refundable
tax credit equal to $1.01 per gallon for taxpayers that produce
cellulosic biofuel. In a memorandum issued in July 2010, the
Internal Revenue Service issued guidance concluding that black
liquor sold or used before January 1, 2010, qualifies for
the cellulosic biofuel producer credit (“CBPC”) and no
further certification of eligibility was needed.
In connection with the filing of our 2009 income tax return, we
claimed $23.2 million, net of taxes, of CBPC. The CBPC
claimed is attributable to black liquor produced and burned from
January 1, 2009 through February 19, 2009, after which
we began mixing black liquor and diesel fuel to qualify for
alternative fuel mixture credits.
With respect to CBPC, although we do not intend to claim any
additional credits, we could amend our 2009 federal tax return
and claim additional credits. If we were to elect to do so, we
would be required to return cash already received from
alternative fuel mixture credits, since we can only claim either
the alternative fuel mixture credit or CBPC. The ability to
realize the value of any additional CBPC depends on future
taxable income. We continue to evaluate opportunities, if any,
to claim additional CBPC from qualifying activities based on the
results of our ongoing operations.
As of December 31, 2010, December 31, 2009 and
December 31, 2008, we had $38.7 million,
$40.1 million and $29.2 million of gross unrecognized
tax benefits, respectively. As of December 31, 2010, if
such benefits were to be recognized, approximately
$35 million would be recorded as a component of income tax
expense, thereby affecting our effective tax rate.
A reconciliation of the beginning and ending balances of the
total amounts of gross unrecognized tax benefits is as follows:
| In millions | 2010 | 2009 | 2008 | ||||||||||||
|
Balance at January 1
|
$40.1 | $29.2 | $26.1 | ||||||||||||
|
Increases in tax positions for prior years
|
1.6 | 0.7 | 0.4 | ||||||||||||
|
Decreases in tax positions for prior years
|
(1.8 | ) | – | – | |||||||||||
|
Acquisition related:
|
|||||||||||||||
|
Purchase accounting
|
3.2 | – | – | ||||||||||||
|
Decrease for prior
years
(1)
|
(2.2 | ) | – | – | |||||||||||
|
Increases in tax positions for current year
|
1.9 | 11.2 | 3.2 | ||||||||||||
|
Settlements
|
– | (0.8 | ) | – | |||||||||||
|
Lapse in statute of limitations
|
(4.1 | ) | (0.2 | ) | (0.5 | ) | |||||||||
|
Balance at December 31
|
$38.7 | $40.1 | $29.2 | ||||||||||||
| (1) | in connection with purchase accounting for the Concert transaction, we recorded a $2.2 million reserve for an uncertain tax position and at the same time recorded a receivable from the seller due to an indemnification agreement. Prior to the end of 2010, a tax ruling was issued that eliminated this tax risk resulting in the elimination of both items. |
We, or one of our subsidiaries, file income tax returns with the
United States Internal Revenue Service, as well as various state
and foreign authorities. The
36
Table of Contents
following table summarizes tax years that remain subject to
examination by major jurisdiction:
| Open Tax Years | |||||
|
Examinations not yet
|
Examination in
|
||||
| Jurisdiction | initiated | progress | |||
|
United States
|
|||||
|
Federal
|
2007 – 2010 | N/A | |||
|
State
|
2005 – 2010 | 2004 & 2006–2008 | |||
|
Canada
(1)
|
2006 – 2010 | 2008 – 2009 | |||
|
Germany
(1)
|
2008 – 2010 | 2003 – 2009 | |||
|
France
|
2007 – 2010 | N/A | |||
|
United Kingdom
|
2007 – 2010 | N/A | |||
|
Philippines
|
2010 | 2007 – 2009 | |||
| (1) | includes provincial or similar local jurisdictions, as applicable. |
The amount of income taxes we pay is subject to ongoing audits
by federal, state and foreign tax authorities, which often
result in proposed assessments. Management performs a
comprehensive review of its global tax positions on a quarterly
basis and accrues amounts for uncertain tax positions. Based on
these reviews and the result of discussions and resolutions of
matters with certain tax authorities and the closure of tax
years subject to tax audit, reserves are adjusted as necessary.
However, future results may include favorable or unfavorable
adjustments to our estimated tax liabilities in the period the
assessments are determined or resolved or as such statutes are
closed. Due to potential for resolution of federal, state and
foreign examinations, and the expiration of various statutes of
limitation, it is reasonably possible our gross unrecognized tax
benefits balance may decrease within the next twelve months by a
range of zero to $8.2 million. Substantially all of this
range relates to tax positions taken in the U.S. and in
Germany.
We recognize interest and penalties related to uncertain tax
positions as income tax expense. The Company accrued minimal
interest, net of reversals during 2010, and in total, as of
December 31, 2010, has recognized a liability for interest
of $3.8 million. During 2009, the Company accrued interest
of $1.1 million, and in total, as of December 31, 2009
has recognized a liability for interest of $3.8 million.
During 2008, the Company accrued interest of $0.8 million.
We did not record any penalties associated with uncertain tax
positions during 2010 or 2009.
| 9. | STOCK-BASED COMPENSATION |
On April 29, 2009, our shareholders approved the P. H.
Glatfelter Amended and Restated Long Term Incentive Plan (the
“LTIP”) to authorize, among other things, the issuance
of up to 5,500,000 shares of Glatfelter common stock to
eligible participants. The LTIP provides for the issuance of
restricted stock units, restricted stock awards, non-qualified
stock options, performance shares, incentive stock options and
performance units. As of December 31, 2010,
2,661,632 shares of common stock were available for future
issuance under the LTIP.
Since the approval of the LTIP, we have issued to eligible
participants restricted stock units and stock only stock
appreciation rights (“SOSARs”).
Restricted Stock Units
(“RSU”)
Awards of RSUs are made under
the LTIP. Under terms of the awards, RSUs vest based solely on
the passage of time on a graded scale over a three, four, and
five-year period. The following table summarizes RSU activity
during the past three years:
| Units | 2010 | 2009 | 2008 | |||||||||||||
|
Beginning balance
|
564,037 | 486,988 | 505,173 | |||||||||||||
|
Granted
|
203,889 | 205,360 | 137,649 | |||||||||||||
|
Forfeited
|
(37,368 | ) | (8,700 | ) | (25,214 | ) | ||||||||||
|
Restriction lapsed/shares delivered
|
(150,757 | ) | (119,611 | ) | (130,620 | ) | ||||||||||
|
Ending balance
|
579,801 | 564,037 | 486,988 | |||||||||||||
|
Dollars in thousands
|
||||||||||||||||
|
Compensation expense
|
$1,708 | $1,622 | $1,772 | |||||||||||||
The weighted average grant fair value per unit for awards in
2010, 2009 and 2008 was $13.24, $10.11 and $14.82, respectively.
As of December 31, 2010, unrecognized compensation expense
for outstanding RSUs totaled $3.4 million. The weighted
average remaining period over which the expense will be
recognized is 3.6 years.
Glatfelter 2010 Annual
Report 37
Table of Contents
Stock Only Stock Appreciation Rights
The
following table sets forth information related to outstanding
SOSARS.
| 2010 | 2009 | 2008 | |||||||||||||||||||||||||
|
Wtd Avg
|
Wtd Avg
|
Wtd Avg
|
|||||||||||||||||||||||||
|
Exercise
|
Exercise
|
Exercise
|
|||||||||||||||||||||||||
| SOSARS | Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||||
|
Outstanding at Jan. 1,
|
1,762,020 | $ | 11.84 | 718,810 | $ | 14.63 | 484,800 | $ | 15.30 | ||||||||||||||||||
|
Granted
|
470,520 | 13.77 | 1,043,210 | 9.91 | 284,240 | 13.49 | |||||||||||||||||||||
|
Exercised
|
– | – | – | – | – | ||||||||||||||||||||||
|
Canceled
|
(170,663 | ) | 11.81 | – | – | (50,230 | ) | 14.63 | |||||||||||||||||||
|
Outstanding at Dec. 31,
|
2,061,877 | 12.28 | 1,762,020 | $ | 11.84 | 718,810 | $ | 14.63 | |||||||||||||||||||
|
Exercisable at Dec. 31,
|
1,135,281 | 12.78 | 390,575 | 14.89 | 150,967 | 15.30 | |||||||||||||||||||||
|
Vested and expected to vest
|
2,059,524 | 1,676,227 | 690,418 | ||||||||||||||||||||||||
|
Weighted average grant date fair value per share
|
$ | 4.65 | $ | 2.83 | $ | 3.77 | |||||||||||||||||||||
|
Aggregate grant date fair value
(in thousands)
|
2,179 | $ | 2,957 | $ | 1,002 | ||||||||||||||||||||||
|
Black-Scholes Assumptions
|
|||||||||||||||||||||||||||
|
Dividend yield
|
2.61 | % | 3.63 | % | 2.67 | % | |||||||||||||||||||||
|
Risk free rate of return
|
2.48 | 2.26 | 3.71 | ||||||||||||||||||||||||
|
Volatility
|
42.34 | 40.59 | 32.09 | ||||||||||||||||||||||||
|
Expected life
|
6yrs | 6yrs | 6yrs | ||||||||||||||||||||||||
|
Compensation expense
(in thousands)
|
$ | 2,254 | $ | 1,880 | $ | 1,472 | |||||||||||||||||||||
Under terms of the SOSAR, the recipients received the right to
receive a payment in the form of shares of common stock equal to
the difference, if any, in the fair market value of one share of
common stock at the time of exercising the SOSAR and the strike
price. The SOSARs vest ratably over a three year period. As of
December 31, 2010, the intrinsic value of SOSARs vested and
expected to vest totaled $2.3 million.
Non-Qualified Stock Options
The following
table summarizes the activity with respect to non-qualified
stock options:
| 2010 | 2009 | 2008 | |||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
Weighted-
|
|||||||||||||||||||||||||
|
Average
|
Average
|
Average
|
|||||||||||||||||||||||||
| Non-Qualified Options | Shares | Exercise Price | Shares | Exercise Price | Shares | Exercise Price | |||||||||||||||||||||
|
Outstanding at beginning of year
|
453,050 | $ | 14.20 | 537,700 | $ | 14.08 | 700,270 | $ | 13.81 | ||||||||||||||||||
|
Granted
|
– | – | – | – | – | – | |||||||||||||||||||||
|
Exercised
|
(14,250 | ) | 12.95 | – | – | (64,400 | ) | 12.64 | |||||||||||||||||||
|
Canceled
|
(76,750 | ) | 13.09 | (84,650 | ) | 13.46 | (98,170 | ) | 13.08 | ||||||||||||||||||
|
Outstanding and exercisable at end of year
|
362,050 | $ | 14.49 | 453,050 | $ | 14.20 | 537,700 | $ | 14.08 | ||||||||||||||||||
| Options Outstanding | ||||||||||||||||||||||
|
Weighted-
|
Options Exercisable | |||||||||||||||||||||
|
Average
|
Weighted-
|
Weighted-
|
||||||||||||||||||||
|
Remaining
|
Average
|
Average
|
||||||||||||||||||||
| Non-Qualified Options | Shares | Contractual Life | Exercise Price | Shares | Exercise Price | |||||||||||||||||
|
$10.78 to $12.41
|
36,250 | 3.0 | $ | 11.24 | 36,250 | $ | 11.24 | |||||||||||||||
|
12.95 to 14.44
|
132,700 | 1.9 | 13.71 | 132,700 | 13.71 | |||||||||||||||||
|
15.44 to 17.16
|
178,100 | 1.0 | 15.47 | 178,100 | 15.47 | |||||||||||||||||
|
17.54 to 18.78
|
15,000 | 1.3 | 17.54 | 15,000 | 17.54 | |||||||||||||||||
| 362,050 | 1.5 | 362,050 | ||||||||||||||||||||
All options expire on the earlier of termination or, in some
instances, a defined period subsequent to termination of
employment, or ten years from the date of grant. The exercise
price represents the quoted market price of Glatfelter common
stock on the date of grant, or the average quoted market prices
of Glatfelter common stock on the first day before and after the
date of grant for which quoted market price information was
available if such information was not available on the date of
grant. As of December 31, 2010, the intrinsic value of
outstanding stock options totaled $0.04 million.
| 10. | RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS |
We provide non-contributory retirement benefits under both
funded and unfunded plans to all U.S. employees and to
certain
non-U.S. employees.
U.S. benefits are based on either a final average pay
formula or a cash balance formula for salaried employees, and on
a unit-benefit formula for bargained hourly employees.
Non-U.S. benefits
are based, in the case of certain plans, on average salary and
years of service and, in the case of other plans, on a fixed
amount for each year of service. U.S. plan provisions and
funding meet the
38
Table of Contents
requirements of the Employee Retirement Income Security Act of
1974. We use a December 31-measurement date for all of our
defined benefit plans.
We also provide certain health care benefits to eligible
U.S.-based
retired employees and exclude all salaried employees hired after
January 1, 2008. These benefits include a comprehensive
medical plan for retirees prior to age 65 and fixed
supplemental premium payments to certain retirees over
age 65 to help defray the costs of Medicare. The plan is
partially funded and claims are paid as reported.
| Pension Benefits | Other Benefits | |||||||||||||||||||
| In millions | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
|
Change in Benefit Obligation
|
||||||||||||||||||||
|
Balance at beginning of year
|
$ | 406.1 | $ | 386.3 | $62.6 | $58.6 | ||||||||||||||
|
Service cost
|
9.5 | 8.6 | 2.9 | 2.6 | ||||||||||||||||
|
Interest cost
|
23.9 | 23.4 | 3.4 | 3.5 | ||||||||||||||||
|
Plan amendments
|
1.2 | 1.9 | – | – | ||||||||||||||||
|
Actuarial (gain)/loss
|
17.9 | 12.9 | (5.7 | ) | 1.3 | |||||||||||||||
|
Benefits paid
|
(24.3 | ) | (27.0 | ) | (4.7 | ) | (3.4 | ) | ||||||||||||
|
Balance at end of year
|
$ | 434.3 | $ | 406.1 | $58.5 | $62.6 | ||||||||||||||
|
Change in Plan Assets
|
||||||||||||||||||||
|
Fair value of plan assets at beginning of year
|
$ | 485.7 | $ | 400.6 | $6.3 | $5.7 | ||||||||||||||
|
Actual return on plan assets
|
63.2 | 110.0 | 0.9 | 1.6 | ||||||||||||||||
|
Employer contributions
|
1.8 | 2.1 | 3.7 | 2.4 | ||||||||||||||||
|
Benefits paid
|
(24.3 | ) | (27.0 | ) | (4.7 | ) | (3.4 | ) | ||||||||||||
|
Fair value of plan assets at end of year
|
526.4 | 485.7 | 6.2 | 6.3 | ||||||||||||||||
|
Funded status at end of year
|
$ | 92.1 | $ | 79.6 | $(52.3 | ) | $(56.3 | ) | ||||||||||||
The net prepaid pension cost for qualified pension plans is
primarily included in “Other long-term assets,” and
the accrued pension cost for non-qualified pension plans and
accrued post-retirement benefit costs are primarily included in
“Other long-term liabilities” on the Consolidated
Balance Sheets at December 31, 2010 and 2009.
Amounts recognized in the consolidated balance sheets consist of
the following as of December 31:
| Pension Benefits | Other Benefits | |||||||||||||||||||
| In millions | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
|
Other long-term assets
|
$ | 129.2 | $ | 112.9 | $ | – | $ | – | ||||||||||||
|
Current liabilities
|
(8.6 | ) | (1.8 | ) | (3.9 | ) | (4.6 | ) | ||||||||||||
|
Other long-term liabilities
|
(28.5 | ) | (31.5 | ) | (48.4 | ) | (51.7 | ) | ||||||||||||
|
Net amount recognized
|
$ | 92.1 | $ | 79.6 | $ | (52.3 | ) | $ | (56.3 | ) | ||||||||||
The components of amounts recognized as “Accumulated other
comprehensive income” consist of the following on a pre-tax
basis:
| Pension Benefits | Other Benefits | |||||||||||||||||||
| In millions | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||
|
Prior service cost/(credit)
|
$ | 15.5 | $ | 16.5 | $(4.2 | ) | $(5.3 | ) | ||||||||||||
|
Net actuarial loss
|
170.8 | 189.2 | 14.1 | 21.5 | ||||||||||||||||
The accumulated benefit obligation for all defined benefit
pension plans was $417.1 million and $390.9 million at
December 31, 2010 and 2009, respectively.
The weighted-average assumptions used in computing the benefit
obligations above were as follows:
| Pension Benefits | Other Benefits | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
|
Discount rate – benefit obligation
|
5.80 | % | 6.10 | % | 5.10 | % | 5.90 | % | ||||||||||||
|
Future compensation growth rate
|
4.0 | 4.0 | – | – | ||||||||||||||||
The discount rates set forth above were estimated based on the
modeling of expected cash flows for each of our benefit plans
and selecting a portfolio of high-quality debt instruments with
maturities matching the respective cash flows of each plan. The
resulting discount rates ranged from 5.00% to 6.10% for the
pension plans and for other benefit plans ranged from 4.65% to
5.20%.
Information for pension plans with an accumulated benefit
obligation in excess of plan assets was as follows:
| In millions | 2010 | 2009 | |||||||||
|
Projected benefit obligation
|
$ | 37.1 | $33.3 | ||||||||
|
Accumulated benefit obligation
|
32.0 | 29.2 | |||||||||
|
Fair value of plan assets
|
– | – | |||||||||
Net periodic benefit cost (income) includes the following
components:
| Year Ended December 31 | |||||||||||||||
| In millions | 2010 | 2009 | 2008 | ||||||||||||
|
Pension Benefits
|
|||||||||||||||
|
Service cost
|
$ | 9.5 | $ | 8.6 | $ | 8.3 | |||||||||
|
Interest cost
|
23.9 | 23.4 | 23.1 | ||||||||||||
|
Expected return on plan assets
|
(40.3 | ) | (39.8 | ) | (50.1 | ) | |||||||||
|
Amortization of prior service cost
|
2.5 | 2.2 | 2.3 | ||||||||||||
|
Amortization of actuarial loss
|
13.6 | 12.6 | 0.3 | ||||||||||||
|
Total net periodic benefit cost (income)
|
$ | 9.2 | $ | 7.0 | $ | (16.1 | ) | ||||||||
|
Other Benefits
|
|||||||||||||||
|
Service cost
|
$ | 2.9 | $ | 2.6 | $ | 2.1 | |||||||||
|
Interest cost
|
3.4 | 3.5 | 3.2 | ||||||||||||
|
Expected return on plan assets
|
(0.5 | ) | (0.5 | ) | (0.8 | ) | |||||||||
|
Amortization of prior service cost/(credit)
|
(1.2 | ) | (1.2 | ) | (1.3 | ) | |||||||||
|
Amortization of actuarial loss
|
1.5 | 2.1 | 1.3 | ||||||||||||
|
Total net periodic benefit cost
|
$ | 6.1 | $ | 6.5 | $ | 4.5 | |||||||||
The actuarial net (gain) loss and prior service cost for our
defined benefit pension plans that will be amortized from
accumulated other comprehensive income into net periodic benefit
cost over the next fiscal year are $14.1 million and
$2.4 million, respectively. The comparable amounts of
expected amortization for other benefit plans are
$1.1 million and a credit of $(1.2) million,
respectively.
Glatfelter 2010 Annual
Report 39
Table of Contents
Other changes in plan assets and benefit obligations recognized
in other comprehensive income (loss) were as follows:
| Year Ended December 31 | |||||||||||
| In millions | 2010 | 2009 | |||||||||
|
Pension Benefits
|
|||||||||||
|
Actuarial (gain) loss
|
$ | (4.5 | ) | $ | (57.7 | ) | |||||
|
Prior service cost
|
1.2 | 1.9 | |||||||||
|
Amortization of prior service cost
|
(2.5 | ) | (2.2 | ) | |||||||
|
Amortization of actuarial losses
|
(13.6 | ) | (12.6 | ) | |||||||
|
Total recognized in other comprehensive (income) loss
|
(19.4 | ) | (70.6 | ) | |||||||
|
Total recognized in net periodic benefit cost and other
comprehensive income (loss)
|
$ | (10.2 | ) | $ | (63.6 | ) | |||||
|
Other Benefits
|
|||||||||||
|
Actuarial (gain) loss
|
$ | (6.0 | ) | $ | 0.2 | ||||||
|
Amortization of prior service cost
|
1.2 | 1.2 | |||||||||
|
Amortization of actuarial losses
|
(1.5 | ) | (2.1 | ) | |||||||
|
Total recognized in other comprehensive (income) loss
|
(6.3 | ) | (0.7 | ) | |||||||
|
Total recognized in net periodic benefit cost and other
comprehensive loss
|
$ | (0.2 | ) | $ | 5.8 | ||||||
The weighted-average assumptions used in computing the net
periodic benefit (income) cost information above were as follows:
| Year Ended December 31 | |||||||||||||||
| In millions | 2010 | 2009 | 2008 | ||||||||||||
|
Pension Benefits
|
|||||||||||||||
|
Discount rate – benefit expense
|
6.10 | % | 6.25 | % | 6.25 | % | |||||||||
|
Future compensation growth rate
|
4.0 | 4.0 | 4.0 | ||||||||||||
|
Expected long-term rate of return on plan assets
|
8.5 | 8.5 | 8.5 | ||||||||||||
|
Other Benefits
|
|||||||||||||||
|
Discount rate – benefit expense
|
5.90 | 6.25 | % | 6.25 | % | ||||||||||
|
Expected long-term rate of return on plan assets
|
8.5 | 8.5 | 8.5 | ||||||||||||
To develop the expected long-term rate of return assumption, we
considered the historical returns and the future expected
returns for each asset class, as well as the target asset
allocation of the pension portfolio.
Assumed health care cost trend rates used to determine benefit
obligations at December 31 were as follows:
| 2010 | 2009 | ||||||||||
|
Health care cost trend rate assumed for next year
|
8.10 | % | 8.75 | % | |||||||
|
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
|
4.5 | 4.5 | |||||||||
|
Year that the rate reaches the ultimate rate
|
2021 | 2021 | |||||||||
Assumed health care cost trend rates have a significant effect
on the amounts reported for health care plans. A one
percentage-point change in assumed health care cost trend rates
would have the following effects:
| One Percentage Point | ||||||||||
| In millions | increase | decrease | ||||||||
|
Effect on:
|
||||||||||
|
Post-retirement benefit obligation
|
$ | 3.9 | $ | (3.5 | ) | |||||
|
Total of service and interest cost components
|
0.5 | (0.5 | ) | |||||||
Plan Assets
All pension plan assets in the
U.S. are invested through a single master trust fund. The
strategic asset allocation for this trust fund is selected by
management, reflecting the results of comprehensive asset
liability modeling. The general principles guiding
U.S. pension asset investment policies are those embodied
in the Employee Retirement Income Security Act of 1974 (ERISA).
These principles include discharging our investment
responsibilities for the exclusive benefit of plan participants
and in accordance with the “prudent expert” standard
and other ERISA rules and regulations. We establish strategic
asset allocation percentage targets and appropriate benchmarks
for significant asset classes with the aim of achieving a
prudent balance between return and risk.
Investments and decisions will be made solely in the interest of
the Plan’s participants and beneficiaries, and for the
exclusive purpose of providing benefits accrued thereunder. The
primary goal of the Plan is to ensure the solvency of the Plan
over time and thereby meet its distribution objectives. Plan
assets will be diversified. All investments in the Plan will be
made in accordance with ERISA and other applicable statutes.
Risk is minimized by diversification by asset class by style of
each manager and by sector and industry limits when applicable.
The target allocation for the Plan assets are:
|
Domestic Equity –
|
||||||
|
Large cap
|
39 | % | ||||
|
Small and mid cap
|
13 | |||||
|
International equity
|
13 | |||||
|
Real Estate Investment Trusts (REIT)
|
5 | |||||
|
Fixed income , cash and cash equivalents
|
30 | |||||
Diversification is achieved by:
| i. | placing restrictions on the percentage of equity investments in any one company, percentage of investment in any one industry, limiting the amount of assets placed with any one manager; and | |
| ii. | setting targets for duration of fixed income securities, maintaining a certain level of credit quality, and limiting the amount of investment in non-investment grade paper. |
A formal asset allocation review is done periodically to ensure
that the Plan has an appropriate asset allocation based on the
Plan’s projected benefit obligations. The target return for
each equity and fixed income manager will be one that places the
manager’s performance in the top 40% of its peers and on a
gross basis, exceeds that of the manager’s respective
benchmark index. The target return for cash and cash equivalents
is a return that at least equals that of the
90-day
T-bills.
The Investment Policy statement lists specific categories of
securities or activities that are prohibited including options,
futures, commodities, hedge funds, limited partnerships, and our
stock.
40
Table of Contents
The table below presents the fair values of our benefit plan
assets by level within the fair value hierarchy, as described in
Note 2:
| Fair Value Measurements at December 31, 2010 | ||||||||||||||||||||||
| in millions | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
|
Domestic Equity
|
||||||||||||||||||||||
|
Large cap
|
$ | 185.8 | $ | 185.8 | $ | – | $– | |||||||||||||||
|
Small and mid cap
|
67.5 | 67.5 | – | – | ||||||||||||||||||
|
International equity
|
93.7 | 57.8 | 35.9 | – | ||||||||||||||||||
|
REIT
|
24.1 | 24.1 | – | – | ||||||||||||||||||
|
Fixed income
|
147.4 | 59.5 | 87.9 | – | ||||||||||||||||||
|
Cash and equivalents
|
14.1 | 0.2 | 13.9 | – | ||||||||||||||||||
|
Total
|
$ | 532.6 | $ | 394.9 | $ | 137.7 | $– | |||||||||||||||
| Fair Value Measurements at December 31, 2009 | ||||||||||||||||||||||
| in millions | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
|
Domestic Equity
|
||||||||||||||||||||||
|
Large cap
|
$ | 176.0 | $ | 175.6 | $ | 0.4 | $– | |||||||||||||||
|
Small and mid cap
|
77.6 | 77.6 | – | – | ||||||||||||||||||
|
International equity
|
64.2 | 33.1 | 31.1 | – | ||||||||||||||||||
|
REIT
|
25.7 | 25.7 | – | – | ||||||||||||||||||
|
Fixed income
|
134.5 | 71.0 | 63.5 | – | ||||||||||||||||||
|
Cash and equivalents
|
14.0 | 14.0 | – | – | ||||||||||||||||||
|
Total
|
$ | 492.0 | $ | 397.0 | $ | 95.0 | $– | |||||||||||||||
Cash Flow
We did not make contributions to our
qualified pension plans in 2010. Benefit payments expected to be
made in 2011 under our non-qualified pension plans and other
benefit plans are summarized below:
| In thousands | ||||||||
|
Nonqualified pension plans
|
$ | 8,573 | ||||||
|
Other benefit plans
|
4,917 | |||||||
The following benefit payments under all pension and other
benefit plans, and giving effect to expected future service, as
appropriate, are expected to be paid:
| In thousands | Pension Benefits | Other Benefits | |||||||||||
|
2011
|
$ | 37,148 | $ | 4,917 | |||||||||
|
2012
|
30,119 | 4,971 | |||||||||||
|
2013
|
30,459 | 4,986 | |||||||||||
|
2014
|
30,927 | 5,382 | |||||||||||
|
2015
|
31,522 | 5,500 | |||||||||||
|
2016 through 2020
|
162,117 | 30,339 | |||||||||||
Defined Contribution Plans
We maintain 401(k)
plans for certain hourly and salaried employees. Employees may
contribute up to 15% of their salary to these plans, subject to
certain restrictions. We will match a portion of the
employee’s contribution, subject to certain limitations, in
the form of shares of Glatfelter common stock. The expense
associated with our 401(k) match was $1.0 million,
$0.9 million and $0.9 million in 2010, 2009 and 2008,
respectively.
| 11. | INVENTORIES |
Inventories, net of reserves were as follows:
| In thousands | 2010 | 2009 | ||||||||||||
|
Raw materials
|
$ | 52,538 | $ | 44,150 | ||||||||||
|
In-process and finished
|
94,118 | 78,340 | ||||||||||||
|
Supplies
|
54,421 | 45,880 | ||||||||||||
|
Total
|
$ | 201,077 | $ | 168,370 | ||||||||||
We value all of our U.S. inventories on the LIFO method. If
we had valued these inventories using the
first-in,
first-out method, inventories would have been $20.2 million
and $16.9 million higher than reported at December 31,
2010 and 2009, respectively. During 2010 and 2009, we liquidated
certain LIFO inventories, the effect of which did not have a
significant impact on results of operations.
| 12. | PLANT, EQUIPMENT AND TIMBERLANDS |
Plant, equipment and timberlands at December 31 were as follows:
| In thousands | 2010 | 2009 | ||||||||||||
|
Land and buildings
|
$ | 185,469 | $ | 136,260 | ||||||||||
|
Machinery and equipment
|
1,080,065 | 970,708 | ||||||||||||
|
Furniture, fixtures, and other
|
109,168 | 101,327 | ||||||||||||
|
Accumulated depreciation
|
(807,441 | ) | (773,057 | ) | ||||||||||
| 567,261 | 435,238 | |||||||||||||
|
Construction in progress
|
30,904 | 23,947 | ||||||||||||
|
Asset retirement – Lagoons
|
8,829 | 10,300 | ||||||||||||
|
Timberlands, less depletion
|
1,176 | 1,147 | ||||||||||||
|
Total
|
$ | 608,170 | $ | 470,632 | ||||||||||
| 13. | GOODWILL AND INTANGIBLE ASSETS |
The following table sets forth information with respect to
goodwill and other intangible assets which are recorded in the
caption “Other long-term assets” in the accompanying
Consolidated Balance Sheets:
| December 31 | ||||||||||||
| In thousands | 2010 | 2009 | ||||||||||
|
Goodwill – Composite Fibers
|
$ | 16,483 | $ | 17,331 | ||||||||
|
Specialty Papers
|
||||||||||||
|
Customer relationships
|
$ | 6,155 | $ | 6,155 | ||||||||
|
Composite Fibers
|
||||||||||||
|
Technology and related
|
4,194 | 4,373 | ||||||||||
|
Customer relationships and related
|
1,799 | 1,867 | ||||||||||
|
Advanced Airlaid Materials
|
||||||||||||
|
Technology and related
|
1,594 | – | ||||||||||
|
Customer relationships and related
|
3,350 | – | ||||||||||
|
Total intangibles
|
17,092 | 12,395 | ||||||||||
|
Accumulated amortization
|
(5,245 | ) | (3,525 | ) | ||||||||
|
Net intangibles
|
$ | 11,847 | $ | 8,870 | ||||||||
The decrease in goodwill was due to foreign currency translation
adjustments. Other than
non-amortizable
goodwill, intangible assets are amortized on a straight-line
basis. Customer relationships are amortized
Glatfelter 2010 Annual
Report 41
Table of Contents
over periods ranging from 3 years to 14 years and
technology and related intangible assets are amortized over
period ranging from 14 years to 20 years. The
following table sets forth information pertaining to
amortization of intangible assets:
| In thousands | 2010 | 2009 | ||||||||||
|
Aggregate amortization expense:
|
$ | 1,763 | $ | 981 | ||||||||
|
Estimated amortization expense:
|
||||||||||||
|
2011
|
$ | 1,811 | ||||||||||
|
2012
|
1,770 | |||||||||||
|
2013
|
1,317 | |||||||||||
|
2014
|
1,317 | |||||||||||
|
2015
|
1,317 | |||||||||||
The remaining weighted average useful life of intangible assets
was 10 years at December 31, 2010.
| 14. | OTHER LONG-TERM ASSETS |
Other long-term assets consist of the following:
| December 31 | ||||||||||||
| In thousands | 2010 | 2009 | ||||||||||
|
Pension
|
$ | 129,207 | $ | 112,903 | ||||||||
|
Installment note receivable
|
43,183 | 43,183 | ||||||||||
|
Goodwill and intangibles
|
28,330 | 26,201 | ||||||||||
|
Other
|
30,167 | 17,319 | ||||||||||
|
Total
|
$ | 230,887 | $ | 199,606 | ||||||||
| 15. | OTHER CURRENT LIABILITIES |
Other current liabilities consist of the following:
| December 31 | ||||||||||||
| In thousands | 2010 | 2009 | ||||||||||
|
Accrued payroll and benefits
|
$ | 47,205 | $ | 46,141 | ||||||||
|
Other accrued compensation and retirement benefits
|
13,491 | 6,476 | ||||||||||
|
Income taxes payable
|
2,192 | 4,684 | ||||||||||
|
Accrued rebates
|
16,086 | 14,195 | ||||||||||
|
Other accrued expenses
|
30,342 | 28,753 | ||||||||||
|
Total
|
$ | 109,316 | $ | 100,249 | ||||||||
| 16. |
|
Long-term debt is summarized as follows:
| December 31 | ||||||||||||
| In thousands | 2010 | 2009 | ||||||||||
|
Revolving credit facility, due April 2011
|
n/a | $ | – | |||||||||
|
Revolving credit facility, due May 2014
|
$ | – | n/a | |||||||||
|
Term Loan, due April 2011
|
– | 14,000 | ||||||||||
|
7
1
/
8
% Notes,
due May 2016
|
200,000 | 200,000 | ||||||||||
|
7
1
/
8
% Notes,
due May 2016 – net of original issue discount
|
95,529 | – | ||||||||||
|
Term Loan, due January 2013
|
36,695 | 36,695 | ||||||||||
|
Total long-term debt
|
332,224 | 250,695 | ||||||||||
|
Less current portion
|
– | (13,759 | ) | |||||||||
|
Long-term debt, excluding current portion
|
$ | 332,224 | $ | 236,936 | ||||||||
On April 29, 2010, we entered into a new four-year,
$225 million, multi-currency, revolving credit agreement
with a consortium of banks. The new agreement matures
May 31, 2014 and replaced and terminated our old revolving
credit agreement which was due to mature April 2011.
For all US dollar denominated borrowings under the new
agreement, the interest rate is either, at our option,
(a) the bank’s base rate plus an applicable margin
(the base rate is the greater of the bank’s prime rate, the
federal funds rate plus 50 basis points, or the daily LIBOR
rate plus 100 basis points); or (b) daily LIBOR rate
plus an applicable margin ranging from 175 basis points to
275 basis points according to our corporate credit rating
determined by S&P and Moody’s. For non-US dollar
denominated borrowings, interest is based on (b) above.
The credit agreement contains a number of customary covenants
for financings of this type that, among other things, restrict
our ability to dispose of or create liens on assets, incur
additional indebtedness, repay other indebtedness, limits
certain intercompany financing arrangements, make acquisitions
and engage in mergers or consolidations. We are also required to
comply with specified financial tests and ratios, each as
defined in the credit agreement, including: i) maximum net
debt to earnings before interest, taxes, depreciation and
amortization (“EBITDA”) ratio; and ii) a
consolidated EBITDA to interest expense ratio. A breach of these
requirements would give rise to certain remedies under the
credit agreement, among which are the termination of the
agreement and accelerated repayment of the outstanding
borrowings plus accrued and unpaid interest under the credit
facility.
On April 28, 2006 we completed an offering of
$200.0 million aggregate principal amount of our
7
1
/
8
% Senior
Notes due 2016
(“7
1
/
8
% Notes”).
Net proceeds from this offering totaled approximately
$196.4 million, after deducting the commissions and other
fees and expenses relating to the offering. The proceeds were
primarily used to redeem $150.0 million aggregate principal
amount of our then outstanding
6
7
/
8
% notes
due July 2007, plus the payment of applicable redemption premium
and accrued interest.
On February 5, 2010, we issued an additional
$100 million in aggregate principal amount of
7
1
/
8
% Notes
due 2016 (together with the April 28, 2006 offering, the
“Senior Notes”). The notes were issued at 95.0% of the
principal amount. Net proceeds from this offering after
deducting offering fees and expenses, were used to fund, in
part, the Concert acquisition. The original issue discount is
being accreted as a charge to income on the effective interest
method.
Interest on the Senior Notes accrues at the rate of
7
1
/
8
%
per annum and is payable semiannually in arrears on May 1 and
November 1.
42
Table of Contents
The Senior Notes contain cross default provisions that could
result in all such notes becoming due and payable in the event
of a failure to repay debt outstanding under the credit
agreement at maturity or a default under the credit agreement
that accelerates the debt outstanding thereunder. As of
December 31, 2010, we were not aware of any violations of
our debt covenants.
In November 2007, we sold approximately 26,000 acres of
timberland. In connection with that transaction, we formed GPW
Virginia Timberlands LLC (“GPW Virginia”) as an
indirect, wholly owned and bankruptcy-remote subsidiary of ours.
GPW Virginia received as consideration for the timberland sold
in that transaction a $43.2 million, interest-bearing note
that matures in 2027 from the buyer, Glawson Investments Corp.
(“Glawson”), a Georgia corporation, and GIC
Investments LLC, a Delaware limited liability company owned by
Glawson. The Glawson note receivable is fully secured by a
letter of credit issued by The Royal Bank of Scotland plc. In
January 2008, GPW Virginia monetized the Glawson note receivable
by entering into a $36.7 million term loan agreement (the
“2008 Term Loan”) with a financial institution. The
2008 Term Loan is secured by all of the assets of GPW Virginia,
including the Glawson note receivable, the related letter of
credit and additional notes with an aggregate principal amount
of $9.2 million that we issued in favor of GPW Virginia
(the “Company Note”). The 2008 Term Loan bears
interest at a six month reserve adjusted LIBOR rate plus a
margin rate of 1.20% per annum. Interest on the 2008 Term Loan
is payable semiannually. The principal amount of the 2008 Term
Loan is due on January 15, 2013, but GPW Virginia may
prepay the 2008 Term Loan at any time, in whole or in part,
without premium or penalty. During the year ended
December 31, 2010, GPW Virginia received aggregate interest
income of $1.0 million under the Glawson note receivable
and the Company Note and, in turn, incurred interest expense of
$0.7 million under the 2008 Term Loan.
Under terms of the above transaction, minimum credit ratings
must be maintained by the letter of credit issuing bank. An
“event of default” is deemed to have occurred under
the debt instrument governing the Note Payable unless actions
are taken to cure such default within 60 days from the date
such credit rating falls below the specified minimum. Potential
remedial actions include: (i) amending the terms of the
applicable debt instrument; (ii) a replacement of the
letter of credit with an appropriately rated institution; or
(iii) repaying the Note Payable.
The following schedule sets forth the maturity of our long-term
debt during the indicated year:
| In thousands | ||||||
|
2011
|
$– | |||||
|
2012
|
– | |||||
|
2013
|
36,695 | |||||
|
2014
|
– | |||||
|
2015
|
– | |||||
|
Thereafter
|
300,000 | |||||
P. H. Glatfelter Company guarantees all debt obligations of
its subsidiaries. All such obligations are recorded in these
consolidated financial statements.
As of December 31, 2010 and 2009, we had $5.4 million
and $5.7 million, respectively, of letters of credit issued
to us by certain financial institutions. Such letters of credit
reduce amounts available under our revolving credit facility.
The letters of credit outstanding as of December 31, 2010,
primarily provide financial assurances for the benefit of
certain state workers compensation insurance agencies in
conjunction with our self-insurance program. We bear the credit
risk on this amount to the extent that we do not comply with the
provisions of certain agreements. No amounts are outstanding
under the letters of credit.
| 17. | ASSET RETIREMENT OBLIGATION |
During 2008, we recorded $11.5 million, net present value,
of asset retirement obligations related to the legal requirement
to close several lagoons at the Spring Grove, PA facility.
Historically, lagoons were used to dispose of residual waste
material. Closure of the lagoons, which is expected to occur
over the next six years, will be accomplished by filling the
lagoons, installing a non-permeable liner which will be covered
with soil to construct the required cap over the lagoons. The
amount referred to above, in addition to the upward revision in
2009, was accrued with a corresponding increase in the carrying
value of the property, equipment and timberlands caption on the
consolidated balance sheet. The amount capitalized is being
amortized as a charge to operations on the straight-line basis
in relation to the expected closure period. Following is a
summary of the reserve for asset retirement obligations for the
periods indicated:
| In thousands | 2010 | 2009 | ||||||||||
|
Beginning balance
|
$ | (11,292 | ) | $ | (11,606 | ) | ||||||
|
Upward revision
|
– | (600 | ) | |||||||||
|
Payments
|
2,179 | 1,535 | ||||||||||
|
Accretion
|
(604 | ) | (621 | ) | ||||||||
|
Ending balance
|
$ | (9,717 | ) | $ | (11,292 | ) | ||||||
Of the total liability at the end of 2010, $1.5 million is
recorded in the accompanying consolidated balance sheet under
the caption “Other current liabilities” and
$8.2 million is recorded under the caption “Other
long-term liabilities.” The comparable amounts as of
December 31, 2009 were $2.4 million and
$8.9 million, respectively.
Glatfelter 2010 Annual
Report 43
Table of Contents
| 18. | FAIR VALUE OF FINANCIAL INSTRUMENTS AND FINANCIAL DERIVATIVES |
The amounts reported on the consolidated balance sheets for cash
and cash equivalents, accounts receivable and short-term debt
approximate fair value. The following table sets forth carrying
value and fair value of long-term debt:
| December 31, 2010 | December 31, 2009 | ||||||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||||||||
| In thousands | Value | Value | Value | Value | |||||||||||||||
|
Fixed-rate Bonds
|
$ | 295,529 | $ | 304,115 | $200,000 | $196,750 | |||||||||||||
|
Variable rate debt
|
36,695 | 37,780 | 50,695 | 51,209 | |||||||||||||||
|
Total
|
$ | 332,224 | $ | 341,895 | $250,695 | $247,959 | |||||||||||||
As of December 31, 2010 and 2009, we had
$300.0 million and $200.0 million, respectively, of
7
1
/
8
%
fixed rate debt. The amount outstanding as of the end of 2010
includes $100.0 million that is recorded net of unamortized
original issue discount. All of this fixed rate debt is publicly
registered, but is thinly traded. Accordingly, the values set
forth above are based on debt instruments with similar
characteristics, or Level 2. The fair value of the
remaining debt instrument was estimated using a discounted cash
flow model based on independent sources, or Level 3.
As part of our overall risk management practices, we enter into
foreign exchange forward contracts primarily designed to
mitigate the impact that changes in currency exchange rates have
on intercompany financing transactions and to hedge exposure to
certain foreign currency denominated receivables and payables.
None of these contracts are designated as hedges for financial
accounting purposes and, accordingly, changes in value of the
foreign exchange forward contract and the offsetting underlying
intercompany transactions are reflected in the accompanying
statement of operations under the caption
“Other – net.” For the year ended
December 31, 2010, our results of operations included a
$0.4 million net loss from forward foreign currency
exchange contracts. This activity was substantially all offset
by adjustments to translate the underlying intercompany
financing transactions.
The fair values of the foreign exchange forward contracts are
considered to be Level 2. The following table sets forth
the notional values of outstanding foreign exchange forward
contracts together with the unrealized fair value as of
December 31, 2010:
|
Notional
|
||||||||
|
Amount
|
Fair Value
|
Balance Sheet
|
||||||
| December 31, 2010 | (millions) | (thousands) | Location | |||||
|
Sell euro for US$
|
€57.0 | $ | (563.0 | ) | Other current liabilities | |||
|
Buy euro for British pound
|
€3.0 | (14.0 | ) | Other current liabilities | ||||
|
Sell Philippine peso for US$
|
PHP 247.0 | (4.0 | ) | Other current liabilities | ||||
Each of the contracts set forth above have a maturity of one
month from the date the respective contract was entered into.
We are exposed to credit risk related to this activity arising
in the event of the inability of a counterparty to meet its
obligations to us under the terms of these contracts. This
exposure is generally limited to the amounts, if any, by which
the counterparty’s obligations exceed our obligation to
them. Our policy is to enter into such financial instruments
with financial institutions which meet certain minimum debt
ratings.
| 19. | SHAREHOLDERS’ EQUITY |
The following table summarizes outstanding shares of common
stock:
| Year Ended December 31, | ||||||||||||||||
| In thousands | 2010 | 2009 | 2008 | |||||||||||||
|
Shares outstanding at beginning of year
|
45,706 | 45,434 | 45,143 | |||||||||||||
|
Treasury shares issued for:
|
||||||||||||||||
|
Restricted stock awards
|
112 | 86 | 94 | |||||||||||||
|
401(k) plan
|
132 | 169 | 119 | |||||||||||||
|
Director compensation
|
12 | 17 | 14 | |||||||||||||
|
Employee stock options exercised
|
14 | – | 64 | |||||||||||||
|
Shares outstanding at end of year
|
45,976 | 45,706 | 45,434 | |||||||||||||
| 20. | COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS |
Contractual Commitments
The following table
summarizes the minimum annual payments due on noncancelable
operating leases and other similar contractual obligations
having initial or remaining terms in excess of one year:
| In thousands | Leases | Other | ||||||||||
|
2011
|
$ | 7,975 | $ | 87,946 | ||||||||
|
2012
|
4,629 | 52,817 | ||||||||||
|
2013
|
3,207 | 30,474 | ||||||||||
|
2014
|
1,676 | 2,777 | ||||||||||
|
2015
|
1,332 | 2,602 | ||||||||||
|
Thereafter
|
7,171 | 9,149 | ||||||||||
Other contractual obligations primarily represent minimum
purchase commitments under energy and pulp wood supply contracts
and other purchase obligations.
At December 31, 2010, required minimum annual payments due
under operating leases and other similar contractual obligations
aggregated $26.0 million and $185.8 million,
respectively.
Fox
River – Neenah, Wisconsin
Background
We have significant
uncertainties associated with environmental claims arising out
of the presence of polychlorinated biphenyls (“PCBs”)
in sediments in the lower Fox River and in the Bay of Green Bay
Wisconsin (“Site”). As part of our 1979 acquisition of
the Bergstrom Paper Company, we acquired a facility
44
Table of Contents
located at the Site (the “Neenah Facility”). The
Neenah Facility used wastepaper as a source of fiber. Discharges
to the lower Fox River from the Neenah Facility that may have
contained PCBs from wastepaper may have occurred from 1954 to
the late 1970s. We believe that any PCBs that the Neenah
Facility may have discharged into the lower Fox River resulted
from the presence of PCBs in
NCR
®
-brand
carbonless copy paper in the wastepaper that was recycled at the
Neenah Facility. We closed the Neenah Facility in June 2006.
The United States, the State of Wisconsin and various state and
federal governmental agencies (collectively, the
“Governments”), as well as other entities (including
local Native American tribes), have found PCBs in sediments in
the bed of the Fox River, apparently from a number of sources at
municipal and industrial facilities along the upstream and
downstream portions of the Site. The Governments have identified
manufacturing and recycling of
NCR
®
-brand
carbonless copy paper as the principal source of that
contamination.
The United States Environmental Protection Agency
(“EPA”) has divided the lower Fox River and the Bay of
Green Bay site into five “operable units” (the
“OUs”), including the most upstream (“OU1”)
and four downstream reaches of the river and bay
(“OU2-5”). OU1 extends from primarily Lake Winnebago
to the dam at Appleton, and is comprised of Little Lake Butte
des Morts. The Neenah Facility discharged its wastewater into
OU1.
Our liabilities, if any, for this contamination primarily arise
under the federal Comprehensive Environmental, Response,
Compensation and Liability Act (“CERCLA” or
“Superfund”), pursuant to which the Governments have
sought to recover “response actions” or “response
costs,” which are the costs of studying and cleaning up
contamination. Other agencies and natural resource trustee
agencies (collectively, the “Trustees”) have sought to
recover natural resource damages (“NRDs”), including
natural resource damage assessment costs.
We are one of eight entities that have been formally notified
that they are potentially responsible parties (“PRPs”)
under CERCLA for response costs or NRDs. Others, including the
United States and the State of Wisconsin, may also be liable for
some or all of the costs of NRD at this Site.
The Governments have sought to recover response actions,
response costs, and NRDs from us through three principal
enforcement actions.
OU1 CD
.
On October 1, 2003, the
United States and the State of Wisconsin commenced an action
captioned
United States v. P.H. Glatfelter Co.
against us and WTM I Co. in the United States District Court
for the Eastern District of Wisconsin and simultaneously lodged
a consent decree (“OU1 CD”) that the court entered on
April 12, 2004. Under that OU1 CD, and an amendment dated
August 2008, we and WTM I, with a limited fixed
contribution from Menasha Corp. and funds provided by the United
States from an agreement with others, have implemented the
remedy for OU1. We have also resolved claims for all
Governmental response costs in OU1 after July 2003 and made a
payment on NRDs. That remedy is complete. We have continuing
operation and maintenance obligations that we expect to fund
from contributions we and WTM I have already made to an escrow
account for OU1 under the OU1 CD.
OU2-5 UAO
.
In November 2007, the United
States Environmental Protection Agency (“EPA”) issued
an administrative order for remedial action (“UAO”) to
Appleton Papers Inc. (“API”), CBC Coating, Inc.
(formerly known as Riverside Paper Corporation), Georgia-Pacific
Consumer Products, L.P. (formerly known as Fort James
Operating Company), Menasha Corporation, NCR Corporation,
Glatfelter, U.S. Paper Mills Corp., and WTM I Company
(“WTM”) directing those respondents to implement the
remedy in OU2-5. Shortly following issuance of the UAO, API and
NCR commenced litigation against us and others, as described
below. Accordingly, we have no vehicle for complying with the
UAO’s overall requirements other than answering a judgment
in the litigation, and we have so informed EPA, but, to minimize
disruptions, have paid certain
de minimis
amounts to EPA
for oversight costs under the UAO.
Government Action
.
On October 14,
2010, the United States and the State of Wisconsin filed an
action in the United States District Court for the Eastern
District of Wisconsin captioned
United States v. NCR
Corp.
(the “Government Action”) against 12
parties, including us. The Government Action seeks to recover
from each of the defendants, jointly and severally, all of the
governments’ past costs of response, which amount to in
excess of $16.5 million to date, a declaration as to
liability for all of the governments’ future costs of
response, and compensation for natural resource damages, as well
as a declaration as to liability for compliance with the UAO for
OU2-5.
We are engaged in litigation to allocate costs and NRDs among
the parties responsible for this site.
Whiting Litigation
.
On January 7,
2008, NCR and API commenced litigation in the United States
District Court for the Eastern District of Wisconsin captioned
Appleton Papers Inc. v. George A. Whiting Paper Co.
,
seeking to reallocate costs and damages allegedly incurred or
paid or to be incurred or paid by NCR or API (the “Whiting
Litigation”). At present, the case involves allocation
claims among the two plaintiffs and 28
Glatfelter 2010 Annual
Report 45
Table of Contents
defendants including us. We and other defendants counterclaimed
against NCR and API.
Claims against governments
.
The Whiting
Litigation involves claims by certain parties against federal
agencies who are responsible parties for this site. In the
Government Action many defendants, including us, asserted
counterclaims against the United States and the State of
Wisconsin.
Settlements
.
Certain parties have
resolved their liability to the United States affording them
contribution protection. These settlements are embodied in
consent decrees. Notably, we entered into the OU1 CD. Also, in a
case captioned
United States v. George A. Whiting Paper
Co.
, the district court entered two consent decrees under
which 13
de minimis
defendants in the Whiting Litigation
settled with the United States and Wisconsin. NCR and API
appealed and await disposition by the Court of Appeals for the
Seventh Circuit. Further, Georgia-Pacific Consumer Products LP,
has entered into a consent decree resolving its liability for
NRDs and on October 14, 2010, lodged a consent decree in
the Government Action that would resolve all of its liabilities
except for the downstream portion of the OU4 remedy. The court
has not yet entered that consent decree. Finally, the United
States has lodged a consent decree that would resolve the
liability of itself and two municipalities. We oppose entry of
that consent decree.
Cleanup Decisions.
The extent of our exposure
depends, in large part, on the decisions made by EPA and the
Wisconsin Department of Natural Resources (“WDNR”) as
to how the Site will be cleaned up and the costs and timing of
those response actions. The nature of the response actions has
been highly controversial. Between 2002 and 2008, the EPA issued
records of decision (“RODs”) regarding required
remedial actions for the OUs. Some of those RODs have been
amended We contend that the remedy for OU2-5 is arbitrary and
capricious. We and others may litigate that issue in the
Government Action. If we were to be successful in modifying any
existing selected remedy, our exposure could be reduced
materially.
NRD Assessment.
We are engaged in disputes as
to (i) whether various documents prepared by the Trustees
taken together constitute a sufficient NRD assessment under
applicable regulations, and (ii) on a number of legal
grounds, whether the Trustees may recover from us on the
specific NRD claims they have made.
Past Cost Demand.
We are also disputing a
demand by EPA that we and six other parties reimburse EPA for
approximately $17.6 million in costs that EPA claims it
incurred.
Cost estimates.
Estimates of the Site
remediation change over time as we, or others, gain additional
data and experience at the Site. In addition, disagreement
exists over the likely costs for some of this work. Based upon
estimates made by the Governments and independent estimates
commissioned by various potentially responsible parties, we have
no reason to disagree with the Governments’ assertion that
total past and future costs and NRDs at this site may exceed
$1 billion and that $1.5 billion is a reasonable
“outside estimate.”
NRDs.
Of that amount, the Trustees’
assessment documents claimed that we are jointly and severally
responsible for NRDs with a value between $176 million and
$333 million. They now claim that this range should be
inflated to 2009 dollars and then certain unreimbursed past
assessment costs should be added, so that the range of their
claim would be $287 million to $423 million. We deny
liability for most of these NRDs and believe that even if anyone
is liable, that we are not jointly and severally liable for the
full amount. Moreover, we believe that the Trustees may not
legally pursue this claim at this late date, as the limitations
period for NRD claims is three years from discovery.
Allocation and Divisibility.
We contend that
we are not jointly and severally liable for costs or damages
arising from the presence of PCBs downstream of OU1. In
addition, we contend that NCR or other sources of
NCR
®
-brand
carbonless copy paper that our Neenah Mill recycled bear most,
if not all, of the responsibility for costs and damages arising
from the presence of PCBs in OU1 and downstream.
On December 16, 2009, the court granted motions for summary
judgment in our favor in the Whiting Litigation holding that
neither NCR nor API may seek contribution from us or other
recyclers under CERCLA. The Court made no ruling as to any other
allocation, the liability of NCR or API to us for costs we have
incurred, or our liability to the Governments or Trustees. NCR
and API have stated their intention to appeal, but an appeal is
not yet timely because the court has not entered a final
judgment.
We also filed counterclaims against NCR and API to recover the
costs we have incurred and may later incur and the damages we
have paid and may later pay in connection with the Site. Other
defendants have similar claims. On March 1, 2011, the
district court granted our summary judgment motions on those
counterclaims in part and denied them in part. While we are
still evaluating the court’s opinion, the court granted a
declaration that NCR and API are liable to us (and to others) in
contribution for 100% of any costs of response (that is, clean
up) that we may be required to pay for work in OU2-5 in the
future. The court requires further
46
Table of Contents
proceedings to decide whether or to what extent NCR and API owe
contribution to us and others for costs that we and others
incurred in the past and costs that we and others incurred in
connection with OU1. We are uncertain as to the court’s
ruling with respect to our claim that NCR and API owe
contribution to us (and others) for NRDs or natural resource
damage assessment costs that we have paid or may be required to
pay in the future.
Reserves for the Site.
As of December 31,
2010, our reserve for our claimed liability at the Site,
including our remediation and ongoing monitoring obligations at
OU1, our claimed liability for the remediation of the rest of
the Site, our claimed liability for NRDs associated with PCB
contamination at the Site and all pending, threatened or
asserted and unasserted claims against us relating to PCB
contamination at the Site totaled $17.0 million. No
additional amounts were accrued during the three year period
ended December 31, 2010. Of our total reserve for the Fox
River, $0.2 million is recorded in the accompanying
consolidated balance sheets under the caption
“Environmental liabilities” and the remainder is
recorded under the caption “Other long term
liabilities.”
Although we believe that amounts already funded by us and WTM to
implement the OU1 remedy are adequate and no payments have been
required since January 2009, there can be no assurance that
these amounts will in fact suffice. WTM has filed a bankruptcy
petition in the Bankruptcy Court in Richmond; accordingly, there
can be no assurance that WTM will be able to fulfill its
obligation to pay half of any additional costs, if required.
We believe that we have strong defenses to liability for further
remediation downstream of OU1, including the existence of ample
data that indicate that PCBs did not leave OU1 in concentrations
that could have caused or contributed to the need for additional
cleanup downstream. Others, including the EPA and other PRPs,
disagree with us and, as a result, the EPA has issued a UAO to
us and to others to perform the additional remedial work, and
filed the Government Action seeking, in part, the same relief.
NCR and API commenced the Whiting Litigation and joined us and
others as defendants, but, to this point, have not prevailed.
Even if we are not successful in establishing that we have no
further remediation liability, we do not believe that we would
be allocated a significant percentage share of liability in any
equitable allocation of the remediation costs and natural
resource damages. The accompanying consolidated financial
statements do not include reserves for defense costs for the
Whiting Litigation, the Government Action, or any future defense
costs related to our involvement at the Site, which could be
significant.
In setting our reserve for the Site, we have assessed our legal
defenses, including our successful defenses to the allegations
made in the Whiting Litigation, and assumed that we will not
bear the entire cost of remediation or damages to the exclusion
of other known PRPs at the Site, who are also potentially
jointly and severally liable. The existence and ability of other
PRPs to participate has also been taken into account in setting
our reserve, and is generally based on our evaluation of recent
publicly available financial information on each PRP and any
known insurance, indemnity or cost sharing agreements between
PRPs and third parties. In addition, our assessment is based
upon the magnitude, nature, location and circumstances
associated with the various discharges of PCBs to the river and
the relationship of those discharges to identified
contamination. We will continue to evaluate our exposure and the
level of our reserves, including, but not limited to, our
potential share of the costs and NRDs, if any, associated with
the Site.
The amount and timing of future expenditures for environmental
compliance, cleanup, remediation and personal injury, NRDs and
property damage liabilities cannot be ascertained with any
certainty due to, among other things, the unknown extent and
nature of any contamination, the response actions that may
ultimately be required, the availability of remediation
equipment, and landfill space, and the number and financial
resources of any other PRPs.
Other Information.
The Governments have
published studies estimating the amount of PCBs discharged by
each identified PRP’s facility to the lower Fox River and
Green Bay. These reports estimate the Neenah Facility’s
share of the mass of PCBs discharged to be as high as 27%. We do
not believe the discharge mass estimates used in these studies
are accurate because (a) the studies themselves disclose
that they are not accurate and (b) the PCB mass estimates
contained in the studies are based on assumptions that are
unsupported by existing data on the Site. We believe that the
Neenah Facility’s volumetric contribution of PCB mass is
significantly lower than the estimates set forth in these
studies.
In any event, based upon the court’s December 16,
2009, and March 1, 2011, rulings in the Whiting Litigation,
as well as certain other procedural orders, we continue to
believe that an allocation in proportion to mass of PCBs
discharged would not constitute an equitable allocation of the
potential liability for the contamination at the Fox River. We
contend that other factors, such as the location of
contamination, the location of
Glatfelter 2010 Annual
Report 47
Table of Contents
discharge, and a party’s role in causing discharge, must be
considered in order for the allocation to be equitable.
We previously entered into interim cost-sharing agreements with
six of the other PRPs, which provided for those PRPs to share
certain costs relating to scientific studies of PCBs discharged
at the Site (“Interim Cost Sharing Agreements”). These
Interim Cost Sharing Agreements do not establish the final
allocation of remediation costs incurred at the Site. Based upon
our evaluation of the Court’s December 16, 2009,
ruling in the Whiting Litigation as well as the volume, nature
and location of the various discharges of PCBs at the Site and
the relationship of those discharges to identified
contamination, we believe our allocable share of liability at
the Site is less than our share of costs under the Interim Cost
Sharing Agreements.
Range of Reasonably Possible Outcomes.
Our
analysis of the range of reasonably possible outcomes is derived
from all available information, including but not limited to
official documents such as RODs, discussions with the United
States and other PRPs, as well as legal counsel and engineering
consultants. Based on our analysis of the current RODs and cost
estimates for work to be performed at the Site, we believe that
it is reasonably possible that our costs associated with the Fox
River matter may exceed our cost estimates and the aggregate
amounts accrued for the Fox River matter by amounts that are
insignificant or that could range up to $265 million over
an undeterminable period that could range beyond 15 years.
We believe that the likelihood of an outcome in the upper end of
the monetary range is significantly less than other possible
outcomes within the range and that the possibility of an outcome
in excess of the upper end of the monetary range is remote. The
two summary judgments in our favor in the Whiting Litigation, if
sustained on appeal, suggest that outcomes in the upper end of
the monetary range have become somewhat less probable, while
increases in cost estimates for some of the work may make an
outcome in the upper end of the range more likely.
Summary.
Our current assessment is that we
will be able to manage this environmental matter without a
long-term, material adverse impact on the Company. This matter
could, however, at any particular time or for any particular
year or years, have a material adverse effect on our
consolidated financial position, liquidity
and/or
results of operations or could result in a default under our
loan covenants. Moreover, there can be no assurance that our
reserves will be adequate to provide for future obligations
related to this matter, that our share of costs
and/or
damages will not exceed our available resources, or that such
obligations will not have a long-term, material adverse effect
on our consolidated financial position, liquidity or results of
operations. Should a court grant the United States or the State
of Wisconsin relief which requires us either to perform directly
or to contribute significant amounts towards remedial action
downstream of OU1 or to natural resource damages, those
developments could have a material adverse effect on our
consolidated financial position, liquidity and results of
operations and might result in a default under our loan
covenants.
Ecusta Environmental Matters
Beginning
in April 2003, government authorities, including the North
Carolina Department of Environment and Natural Resources
(“NCDENR”), initiated discussions with us and other
parties regarding, among other environmental issues, certain
landfill closure liabilities associated with our former Ecusta
mill and its properties (the “Ecusta Property”). The
discussions focused on NCDENR’s desire to establish a plan
and secure financial resources to close three landfills located
at the Ecusta Property and to address other environmental
matters at the facility. During the third quarter of 2003, the
discussions ended with NCDENR’s conclusion to hold us
responsible for the closure of three landfills. Accordingly, in
2003 we established reserves totaling approximately
$7.6 million representing estimated landfill closure costs.
During 2009, we completed the closure of the last of those three
landfills (collectively, the “Landfill Closure and
Post-Closure Obligations”).
In September 2005, we established an additional
$2.7 million reserve for potential environmental
liabilities associated with the Ecusta Property relating to:
(i) mercury releases from the Electro-Chemical Building;
(ii) contamination in and operation of the aeration and
stabilization basin (the “ASB”), which is part of the
Ecusta Property’s wastewater treatment system; (iii) a
previously closed ash landfill (“Brown #1
Landfill”); and (iv) contamination in the vicinity of
a former caustic building.
On January 25, 2008, we entered into a series of agreements
with, among others, Davidson River Village, LLC
(“DRV”)- the current owner of the Ecusta Property
pursuant to which we transferred potential liabilities for
certain environmental matters at the Ecusta Property to DRV (the
“DRV Transaction”). In connection with the DRV
Transaction, DRV assumed, and indemnified us for, liability
arising from environmental matters and conditions at the Ecusta
Property with certain exceptions, including the Landfill Closure
and Post-Closure Obligations and investigation and remediation
(if necessary) of any pollutants that may have migrated from the
Ecusta Property to the Davidson and French Broad Rivers (the
“River Areas”), which liabilities were retained by us.
48
Table of Contents
| 21. | SEGMENT AND GEOGRAPHIC INFORMATION |
The following tables set forth profitability and other
information by business unit:
|
For the Year Ended December 31, 2010
|
Advanced Airlaid
|
Other and
|
||||||||||||||||||||||||
| In millions | Specialty Papers | Composite Fibers | Materials | Unallocated | Total | |||||||||||||||||||||
|
Net sales
|
$ | 842.6 | $ | 419.2 | $ | 193.5 | $ | – | $ | 1,455.3 | ||||||||||||||||
|
Energy and related sales, net
|
10.7 | – | – | – | 10.7 | |||||||||||||||||||||
|
Total revenue
|
853.3 | 419.2 | 193.5 | – | 1,466.0 | |||||||||||||||||||||
|
Cost of products sold
|
740.2 | 350.5 | 181.7 | 7.4 | 1,279.7 | |||||||||||||||||||||
|
Gross profit
|
113.1 | 68.7 | 11.8 | (7.4 | ) | 186.2 | ||||||||||||||||||||
|
SG&A
|
54.7 | 35.8 | 7.4 | 24.3 | 122.1 | |||||||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
– | – | – | (0.5 | ) | (0.5 | ) | |||||||||||||||||||
|
Total operating income (loss)
|
58.4 | 32.9 | 4.4 | (31.2 | ) | 64.6 | ||||||||||||||||||||
|
Non-operating income (expense)
|
– | – | – | (31.1 | ) | (31.1 | ) | |||||||||||||||||||
|
Income (loss) before income taxes
|
$ | 58.4 | $ | 32.9 | $ | 4.4 | $ | (62.3 | ) | $ | 33.5 | |||||||||||||||
|
Supplementary Data
|
||||||||||||||||||||||||||
|
Plant, equipment and timberlands, net
|
$ | 251.3 | $ | 181.6 | $ | 175.3 | $ | – | $ | 608.2 | ||||||||||||||||
|
Capital expenditures
|
24.1 | 8.2 | 4.2 | – | 36.5 | |||||||||||||||||||||
|
Depreciation, depletion and amortization
|
34.9 | 23.7 | 7.2 | – | 65.8 | |||||||||||||||||||||
|
For the Year Ended December 31, 2009
|
Advanced Airlaid
|
Other and
|
||||||||||||||||||||||||
| In millions | Specialty Papers | Composite Fibers | Materials | Unallocated | Total | |||||||||||||||||||||
|
Net sales
|
$ | 791.9 | $ | 392.1 | $ | – | $ | – | $ | 1,184.0 | ||||||||||||||||
|
Energy and related sales, net
|
13.3 | – | – | – | 13.3 | |||||||||||||||||||||
|
Total revenue
|
805.2 | 392.1 | – | – | 1,197.3 | |||||||||||||||||||||
|
Cost of products sold
|
693.9 | 334.4 | – | (100.7 | ) | 927.6 | ||||||||||||||||||||
|
Gross profit
|
111.3 | 57.7 | – | 100.7 | 269.8 | |||||||||||||||||||||
|
SG&A
|
55.4 | 35.8 | – | 19.1 | 110.3 | |||||||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
– | – | – | (0.9 | ) | (0.9 | ) | |||||||||||||||||||
|
Total operating income (loss)
|
55.9 | 21.9 | – | 82.6 | 160.4 | |||||||||||||||||||||
|
Non-operating income (expense)
|
– | – | – | (17.3 | ) | (17.3 | ) | |||||||||||||||||||
|
Income (loss) before income taxes
|
$ | 55.9 | $ | 21.9 | $ | – | $ | 65.3 | $ | 143.1 | ||||||||||||||||
|
Supplementary Data
|
||||||||||||||||||||||||||
|
Plant, equipment and timberlands, net
|
$ | 262.8 | $ | 207.8 | $ | – | $ | – | $ | 470.6 | ||||||||||||||||
|
Capital expenditures
|
14.2 | 12.1 | – | – | 26.3 | |||||||||||||||||||||
|
Depreciation, depletion and amortization
|
37.5 | 23.7 | – | – | 61.3 | |||||||||||||||||||||
|
For the Year Ended December 31, 2008
|
Advanced Airlaid
|
Other and
|
||||||||||||||||||||||||
| In millions | Specialty Papers | Composite Fibers | Materials | Unallocated | Total | |||||||||||||||||||||
|
Net sales
|
$ | 833.9 | $ | 430.0 | $ | – | $ | – | $ | 1,263.9 | ||||||||||||||||
|
Energy and related sales, net
|
9.4 | – | – | – | 9.4 | |||||||||||||||||||||
|
Total revenue
|
843.3 | 430.0 | – | – | 1,273.2 | |||||||||||||||||||||
|
Cost of products sold
|
739.5 | 366.8 | – | (10.8 | ) | 1,095.4 | ||||||||||||||||||||
|
Gross profit
|
103.8 | 63.2 | – | 10.8 | 177.8 | |||||||||||||||||||||
|
SG&A
|
54.6 | 38.2 | – | 5.1 | 97.9 | |||||||||||||||||||||
|
Reversal of shutdown and restructuring charges
|
– | – | (0.9 | ) | (0.9 | ) | ||||||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
– | – | – | (18.5 | ) | (18.5 | ) | |||||||||||||||||||
|
Total operating income (loss)
|
49.2 | 25.0 | – | 25.1 | 99.2 | |||||||||||||||||||||
|
Non-operating income (expense)
|
– | – | – | (18.2 | ) | (18.2 | ) | |||||||||||||||||||
|
Income (loss) before income taxes
|
$ | 49.2 | $ | 25.0 | $ | - | $ | 6.9 | $ | 81.0 | ||||||||||||||||
|
Supplementary Data
|
||||||||||||||||||||||||||
|
Plant, equipment and timberlands, net
|
$ | 284.7 | $ | 208.9 | $ | – | $ | – | $ | 493.6 | ||||||||||||||||
|
Capital expenditures
|
20.9 | 31.6 | – | 52.5 | ||||||||||||||||||||||
|
Depreciation, depletion and amortization
|
35.0 | 25.6 | – | – | 60.6 | |||||||||||||||||||||
The sum of individual amounts set forth above may not agree to
the consolidated financial statements included herein due to
rounding.
Glatfelter 2010 Annual
Report 49
Table of Contents
Results of individual business units are presented based on our
management accounting practices and management structure. There
is no comprehensive, authoritative body of guidance for
management accounting equivalent to accounting principles
generally accepted in the United States of America; therefore,
the financial results of individual business units are not
necessarily comparable with similar information for any other
company. The management accounting process uses assumptions and
allocations to measure performance of the business units.
Methodologies are refined from time to time as management
accounting practices are enhanced and businesses change. The
costs incurred by support areas not directly aligned with the
business unit are allocated primarily based on an estimated
utilization of support area services.
Management evaluates results of operations of the business units
before pension income or expense, alternative fuel mixture
credits, charges related to the Fox River environmental
reserves, restructuring related charges, unusual items, certain
corporate level costs, and the effects of asset dispositions.
Management believes that this is a more meaningful
representation of the operating performance of its core
papermaking businesses, the profitability of business units and
the extent of cash flow generated from these core operations.
Such amounts are presented under the caption “Other and
Unallocated.” This presentation is aligned with the
management and operating structure of our company. It is also on
this basis that the Company’s performance is evaluated
internally and by the Company’s Board of Directors.
Our
Specialty Papers
business unit focuses on producing
papers for the following markets:
| • | Carbonless & forms papers for credit card receipts, multi-part forms, security papers and other end-user applications; | |
| • | Book publishing papers for the production of high quality hardbound books and other book publishing needs; | |
| • | Envelope and converting papers for the direct mail market, shopping bags, and other converting applications; and | |
| • | Engineered products for digital imaging, transfer, casting, release, postal, playing card, FDA-compliant food and beverage applications, and other niche specialty applications. |
Specialty Papers’ revenue composition by market consisted
of the following for the years indicated:
| In thousands | 2010 | 2009 | 2008 | ||||||||||||
|
Carbonless & forms
|
$ | 359,033 | $ | 320,088 | $ | 338,067 | |||||||||
|
Book publishing
|
168,155 | 176,646 | 201,040 | ||||||||||||
|
Envelope & converting
|
157,202 | 146,812 | 138,293 | ||||||||||||
|
Engineered products
|
155,257 | 143,490 | 149,372 | ||||||||||||
|
Other
|
2,967 | 4,879 | 7,127 | ||||||||||||
|
Total
|
$ | 842,614 | $ | 791,915 | $ | 833,899 | |||||||||
Our
Composite Fibers
business unit serves customers
globally and focuses on higher-value-added products in the
following markets:
| • | Food & Beverage paper used for tea bags and single serve coffee products; | |
| • | Metallized products used in the labeling of beer bottles, innerliners, gift wrap, self-adhesive labels and other consumer products applications; | |
| • | Composite Laminates papers used in production of decorative laminates, furniture and flooring applications; and | |
| • | Technical Specialties is a diverse line of paper products used in batteries, medical masks and other highly engineered applications. |
Composite Fibers’ revenue composition by market consisted
of the following for the years indicated:
| In thousands | 2010 | 2009 | 2008 | ||||||||||||
|
Food & beverage
|
$ | 242,882 | $ | 233,899 | $ | 252,545 | |||||||||
|
Metallized
|
88,753 | 81,388 | 85,719 | ||||||||||||
|
Composite laminates
|
50,801 | 46,442 | 58,705 | ||||||||||||
|
Technical specialties and other
|
36,781 | 30,366 | 32,983 | ||||||||||||
|
Total
|
$ | 419,217 | $ | 392,095 | $ | 429,952 | |||||||||
50
Table of Contents
On February 12, 2010, we acquired Concert Industries Corp.,
which we now operate as the
Advanced Airlaid Materials
business unit. Founded in 1993 and based in Gatineau,
Quebec, Canada, Concert is a leading global supplier of highly
absorbent cellulose-based airlaid non-woven materials used to
manufacture a diverse range of consumer and industrial products
for growing global end-use markets. These products include:
| • | feminine hygiene; | |
| • | adult incontinence; | |
| • | home care such as specialty wipes; | |
| • | table top and towels; and | |
| • | food pads and other. |
| In thousands | 2010 | |||||
|
Feminine hygiene
|
$ | 157,691 | ||||
|
Adult incontinence
|
6,146 | |||||
|
Home care
|
17,902 | |||||
|
Food pads
|
8,200 | |||||
|
Other
|
3,560 | |||||
| $ | 193,499 | |||||
No individual customer accounted for more than 10% of our
consolidated net sales in 2010, 2009 or 2008. However, one
customer accounted for the majority of Advanced Airlaid
Materials net sales in 2010.
Our net sales to external customers and location of net plant,
equipment and timberlands are summarized below. Net sales are
attributed to countries based upon origin of shipment.
| 2010 | 2009 | 2008 | |||||||||||||||||||||||||
|
Plant,
|
Plant,
|
Plant,
|
|||||||||||||||||||||||||
|
Equipment and
|
Equipment and
|
Equipment and
|
|||||||||||||||||||||||||
| In thousands | Net sales | Timberlands – Net | Net sales | Timberlands – Net | Net sales | Timberlands – Net | |||||||||||||||||||||
|
United States
|
$ | 880,089 | $ | 251,318 | $ | 824,833 | $ | 262,807 | $ | 869,325 | $ | 284,689 | |||||||||||||||
|
Germany
|
327,952 | 198,585 | 191,660 | 124,881 | 216,011 | 131,304 | |||||||||||||||||||||
|
United Kingdom
|
128,598 | 55,672 | 125,047 | 60,104 | 134,212 | 53,054 | |||||||||||||||||||||
|
Canada
|
75,195 | 80,177 | – | – | – | – | |||||||||||||||||||||
|
Other
|
43,497 | 22,418 | 42,470 | 22,840 | 44,302 | 24,517 | |||||||||||||||||||||
|
Total
|
$ | 1,455,331 | $ | 608,170 | $ | 1,184,010 | $ | 470,632 | $ | 1,263,850 | $ | 493,564 | |||||||||||||||
Glatfelter 2010 Annual
Report 51
Table of Contents
| 22. | GUARANTOR FINANCIAL STATEMENTS |
Our Senior Notes are fully and unconditionally guaranteed, on a
joint and several basis, by certain of our 100%-owned domestic
subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., The
Glatfelter Pulp Wood Company, and Glatfelter Holdings, LLC.
The following presents our consolidating statements of income
and cash flow for the years ended December 31, 2010, 2009
and 2008 and our consolidating balance sheets as of
December 31, 2010 and 2009. These financial statements
reflect P. H. Glatfelter Company (the parent), the guarantor
subsidiaries (on a combined basis), the non-guarantor
subsidiaries (on a combined basis) and elimination entries
necessary to combine such entities on a consolidated basis. We
have reclassified certain interest income amounts in 2008 of
$4.9 million in total from Other – net, to
Interest Expense, net, to conform to the 2010 and 2009
presentation. This reclassification had no effect on the
reported amounts of Interest Income, Interest Expense, or
Other – net for any period presented in our
accompanying consolidated statement of operations.
Condensed
Consolidating Statement of Income for the
year ended December 31, 2010
year ended December 31, 2010
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net sales
|
$842,615 | $49,919 | $612,716 | $(49,919 | ) | $1,455,331 | ||||||||||||||||
|
Energy and related sales, net
|
10,653 | – | – | – | 10,653 | |||||||||||||||||
|
Total revenues
|
853,268 | 49,919 | 612,716 | (49,919 | ) | 1,465,984 | ||||||||||||||||
|
Costs of products sold
|
753,562 | 43,468 | 532,454 | (49,747 | ) | 1,279,737 | ||||||||||||||||
|
Gross profit
|
99,706 | 6,451 | 80,262 | (172 | ) | 186,247 | ||||||||||||||||
|
Selling, general and administrative expenses
|
73,802 | 2,287 | 46,022 | – | 122,111 | |||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
(123 | ) | (373 | ) | 43 | – | (453 | ) | ||||||||||||||
|
Operating income
|
26,027 | 4,537 | 34,197 | (172 | ) | 64,589 | ||||||||||||||||
|
Other non-operating income (expense)
|
||||||||||||||||||||||
|
Interest expense, net
|
(24,963 | ) | 7,445 | (5,906 | ) | (1,315 | ) | (24,739 | ) | |||||||||||||
|
Other – net
|
24,428 | (1,218 | ) | 330 | (29,861 | ) | (6,321 | ) | ||||||||||||||
|
Total other income (expense)
|
(535 | ) | 6,227 | (5,576 | ) | (31,176 | ) | (31,060 | ) | |||||||||||||
|
Income (loss) before income taxes
|
25,492 | 10,764 | 28,621 | (31,348 | ) | 33,529 | ||||||||||||||||
|
Income tax provision (benefit)
|
(28,942 | ) | 2,463 | 6,142 | (568 | ) | (20,905 | ) | ||||||||||||||
|
Net income (loss)
|
$54,434 | $8,301 | $22,479 | $(30,780 | ) | $54,434 | ||||||||||||||||
Condensed
Consolidating Statement of Income for the
year ended December 31, 2009
year ended December 31, 2009
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net sales
|
$791,915 | $46,796 | $392,095 | $(46,796 | ) | $1,184,010 | ||||||||||||||||
|
Energy and related sales, net
|
13,332 | – | – | – | 13,332 | |||||||||||||||||
|
Total revenues
|
805,247 | 46,796 | 392,095 | (46,796 | ) | 1,197,342 | ||||||||||||||||
|
Costs of products sold
|
597,693 | 42,320 | 334,544 | (46,979 | ) | 927,578 | ||||||||||||||||
|
Gross profit
|
207,554 | 4,476 | 57,551 | 183 | 269,764 | |||||||||||||||||
|
Selling, general and administrative expenses
|
71,484 | 2,304 | 36,469 | – | 110,257 | |||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
9 | (907 | ) | – | – | (898 | ) | |||||||||||||||
|
Operating income
|
136,061 | 3,079 | 21,082 | 183 | 160,405 | |||||||||||||||||
|
Other non-operating income (expense)
|
||||||||||||||||||||||
|
Interest expense, net
|
(16,324 | ) | 5,025 | (2,810 | ) | (3,225 | ) | (17,334 | ) | |||||||||||||
|
Other – net
|
15,000 | 1,470 | (144 | ) | (16,251 | ) | 75 | |||||||||||||||
|
Total other income (expense)
|
(1,324 | ) | 6,495 | (2,954 | ) | (19,476 | ) | (17,259 | ) | |||||||||||||
|
Income (loss) before income taxes
|
134,737 | 9,574 | 18,128 | (19,293 | ) | 143,146 | ||||||||||||||||
|
Income tax provision (benefit)
|
11,295 | 3,382 | 6,171 | (1,144 | ) | 19,704 | ||||||||||||||||
|
Net income (loss)
|
$123,442 | $6,192 | $11,957 | $(18,149 | ) | $123,442 | ||||||||||||||||
52
Table of Contents
Condensed
Consolidating Statement of Income for the
year ended December 31, 2008
year ended December 31, 2008
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net sales
|
$833,900 | $45,640 | $429,950 | $(45,640 | ) | $1,263,850 | ||||||||||||||||
|
Energy sales – net
|
9,364 | – | – | – | 9,364 | |||||||||||||||||
|
Total revenues
|
843,264 | 45,640 | 429,950 | (45,640 | ) | 1,273,214 | ||||||||||||||||
|
Costs of products sold
|
729,425 | 44,448 | 367,005 | (45,446 | ) | 1,095,432 | ||||||||||||||||
|
Gross profit
|
113,839 | 1,192 | 62,945 | (194 | ) | 177,782 | ||||||||||||||||
|
Selling, general and administrative expenses
|
56,425 | 1,910 | 39,562 | – | 97,897 | |||||||||||||||||
|
Reversal of shutdown and restructuring charges
|
(856 | ) | – | – | – | (856 | ) | |||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
183 | (18,651 | ) | – | – | (18,468 | ) | |||||||||||||||
|
Operating income (loss)
|
58,087 | 17,933 | 23,383 | (194 | ) | 99,209 | ||||||||||||||||
|
Other non-operating income (expense)
|
||||||||||||||||||||||
|
Interest expense, net
|
(1,293 | ) | (12,518 | ) | (5,810 | ) | (23,600 | ) | (18,185 | ) | ||||||||||||
|
Other – net
|
17,729 | (1,402 | ) | (1,779 | ) | (14,546 | ) | 2 | ||||||||||||||
|
Total other income (expense)
|
16,436 | 11,116 | (7,589 | ) | (38,146 | ) | (18,183 | ) | ||||||||||||||
|
Income (loss) before income taxes
|
74,523 | 29,049 | 15,794 | (38,340 | ) | 81,026 | ||||||||||||||||
|
Income tax provision (benefit)
|
16,635 | 11,486 | 4,211 | (9,194 | ) | 23,138 | ||||||||||||||||
|
Net income (loss)
|
$57,888 | $17,563 | $11,583 | $(29,146 | ) | $57,888 | ||||||||||||||||
Condensed
Consolidating Balance Sheet as of December 31,
2010
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Assets
|
||||||||||||||||||||||
|
Current assets
|
||||||||||||||||||||||
|
Cash and cash equivalents
|
$61,953 | $91 | $33,744 | $– | $95,788 | |||||||||||||||||
|
Other current assets
|
230,957 | 380,986 | 203,048 | (408,089 | ) | 406,902 | ||||||||||||||||
|
Plant, equipment and timberlands – net
|
244,157 | 7,161 | 356,836 | 16 | 608,170 | |||||||||||||||||
|
Other assets
|
773,254 | 167,877 | 103,250 | (813,494 | ) | 230,887 | ||||||||||||||||
|
Total assets
|
$1,310,321 | $556,115 | $696,878 | $(1,221,567 | ) | $1,341,747 | ||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||
|
Current liabilities
|
$277,343 | $3,672 | $336,679 | $(404,548 | ) | $213,146 | ||||||||||||||||
|
Long-term debt
|
295,529 | – | 36,695 | – | 332,224 | |||||||||||||||||
|
Deferred income taxes
|
70,575 | 14,836 | 42,204 | (32,697 | ) | 94,918 | ||||||||||||||||
|
Other long-term liabilities
|
114,432 | 13,210 | 9,999 | 11,376 | 149,017 | |||||||||||||||||
|
Total liabilities
|
757,879 | 31,718 | 425,577 | (425,869 | ) | 789,305 | ||||||||||||||||
|
Shareholders’ equity
|
552,442 | 524,397 | 271,301 | (795,698 | ) | 552,442 | ||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$1,310,321 | $556,115 | $696,878 | $(1,221,567 | ) | $1,341,747 | ||||||||||||||||
Glatfelter 2010 Annual
Report 53
Table of Contents
Condensed
Consolidating Balance Sheet as of December 31,
2009
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Assets
|
||||||||||||||||||||||
|
Current assets
|
||||||||||||||||||||||
|
Cash and cash equivalents
|
$76,970 | $985 | $57,465 | $– | $135,420 | |||||||||||||||||
|
Other current assets
|
275,490 | 260,834 | 148,090 | (299,778 | ) | 384,636 | ||||||||||||||||
|
Plant, equipment and timberlands – net
|
255,886 | 6,921 | 207,825 | – | 470,632 | |||||||||||||||||
|
Other assets
|
600,116 | 145,304 | 75,731 | (621,545 | ) | 199,606 | ||||||||||||||||
|
Total assets
|
$1,208,462 | $414,044 | $489,111 | $(921,323 | ) | $1,190,294 | ||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||
|
Current liabilities
|
$301,908 | $1,357 | $179,273 | $(296,428 | ) | $186,110 | ||||||||||||||||
|
Long-term debt
|
200,241 | – | 36,695 | – | 236,936 | |||||||||||||||||
|
Deferred income taxes
|
71,035 | 15,347 | 26,284 | (15,998 | ) | 96,668 | ||||||||||||||||
|
Other long-term liabilities
|
124,574 | 13,531 | 9,654 | 12,117 | 159,876 | |||||||||||||||||
|
Total liabilities
|
697,758 | 30,235 | 251,906 | (300,309 | ) | 679,590 | ||||||||||||||||
|
Shareholders’ equity
|
510,704 | 383,809 | 237,205 | (621,014 | ) | 510,704 | ||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$1,208,462 | $414,044 | $489,111 | $(921,323 | ) | $1,190,294 | ||||||||||||||||
Condensed
Consolidating Statement of Cash Flows for the year
ended December 31, 2010
ended December 31, 2010
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net cash provided (used) by
|
||||||||||||||||||||||
|
Operating activities
|
$(6,114 | ) | $106,448 | $68,986 | $(1,315 | ) | $168,005 | |||||||||||||||
|
Investing activities
|
||||||||||||||||||||||
|
Purchase of plant, equipment and timberlands
|
(23,367 | ) | (695 | ) | (12,429 | ) | – | (36,491 | ) | |||||||||||||
|
Proceeds from disposal plant, equipment and timberlands
|
124 | 387 | 53 | – | 564 | |||||||||||||||||
|
Repayments from (advances of) intercompany loans, net
|
(8,257 | ) | (105,294 | ) | 6,895 | 106,656 | – | |||||||||||||||
|
Acquisitions, net of cash acquired
|
– | – | (228,290 | ) | – | (228,290 | ) | |||||||||||||||
|
Total investing activities
|
(31,500 | ) | (105,602 | ) | (233,771 | ) | 106,656 | (264,217 | ) | |||||||||||||
|
Financing activities
|
||||||||||||||||||||||
|
Net (repayments of) proceeds from indebtedness
|
75,660 | – | (3,208 | ) | – | 72,452 | ||||||||||||||||
|
Payment of dividends to shareholders
|
(16,746 | ) | – | – | – | (16,746 | ) | |||||||||||||||
|
(Repayments) borrowings of intercompany loans, net
|
(40,292 | ) | (425 | ) | 147,373 | (106,656 | ) | – | ||||||||||||||
|
Payment of intercompany dividends
|
– | (1,315 | ) | – | 1,315 | – | ||||||||||||||||
|
Proceeds from stock options exercised and other
|
3,975 | – | – | – | 3,975 | |||||||||||||||||
|
Total financing activities
|
22,597 | (1,740 | ) | 144,165 | (105,341 | ) | 59,681 | |||||||||||||||
|
Effect of exchange rate on cash
|
(3,101 | ) | (3,101 | ) | ||||||||||||||||||
|
Net increase (decrease) in cash
|
(15,017 | ) | (894 | ) | (23,721 | ) | – | (39,632 | ) | |||||||||||||
|
Cash at the beginning of period
|
76,970 | 985 | 57,465 | – | 135,420 | |||||||||||||||||
|
Cash at the end of period
|
$61,953 | $91 | $33,744 | $– | 95,788 | |||||||||||||||||
54
Table of Contents
Condensed
Consolidating Statement of Cash Flows for the year
ended December 31, 2009
ended December 31, 2009
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net cash provided (used) by
|
||||||||||||||||||||||
|
Operating activities
|
$102,891 | $17,534 | $46,668 | $(3,225 | ) | $163,868 | ||||||||||||||||
|
Investing activities
|
||||||||||||||||||||||
|
Purchase of plant, equipment and timberlands
|
(14,040 | ) | (137 | ) | (12,080 | ) | – | (26,257 | ) | |||||||||||||
|
Proceeds from disposal plant, equipment and timberlands
|
– | 951 | – | – | 951 | |||||||||||||||||
|
Proceeds from timberland installment note receivable
|
– | – | 37,850 | – | 37,850 | |||||||||||||||||
|
Repayments from (advances of) intercompany loans, net
|
9,186 | (9,394 | ) | – | 208 | – | ||||||||||||||||
|
Total investing activities
|
(4,854 | ) | (8,580 | ) | 25,770 | 208 | 12,544 | |||||||||||||||
|
Financing activities
|
||||||||||||||||||||||
|
Net (repayments of) proceeds from indebtedness
|
(22,725 | ) | – | (36,008 | ) | – | (58,733 | ) | ||||||||||||||
|
Payment of dividends to shareholders
|
(16,596 | ) | – | – | – | (16,596 | ) | |||||||||||||||
|
(Repayments) borrowings of intercompany loans, net
|
9,394 | (5,500 | ) | (3,686 | ) | (208 | ) | – | ||||||||||||||
|
Payment of intercompany dividends
|
– | (3,225 | ) | – | 3,225 | – | ||||||||||||||||
|
Total financing activities
|
(29,927 | ) | (8,725 | ) | (39,694 | ) | 3,017 | (75,329 | ) | |||||||||||||
|
Effect of exchange rate on cash
|
– | – | 2,103 | – | 2,103 | |||||||||||||||||
|
Net increase (decrease) in cash
|
68,110 | 229 | 34,847 | – | 103,186 | |||||||||||||||||
|
Cash at the beginning of period
|
8,860 | 756 | 22,618 | – | 32,234 | |||||||||||||||||
|
Cash at the end of period
|
$76,970 | $985 | $57,465 | $– | $135,420 | |||||||||||||||||
Condensed
Consolidating Statement of Cash Flows for the year
ended December 31, 2008
ended December 31, 2008
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net cash provided (used) by
|
||||||||||||||||||||||
|
Operating activities
|
$15,641 | $26,929 | $34,455 | $(23,600 | ) | $53,425 | ||||||||||||||||
|
Investing activities
|
||||||||||||||||||||||
|
Purchase of plant, equipment and timberlands
|
(19,998 | ) | (880 | ) | (31,591 | ) | – | (52,469 | ) | |||||||||||||
|
Proceeds from disposal plant, equipment and timberlands
|
19,279 | – | – | – | 19,279 | |||||||||||||||||
|
Repayments from (advances of) intercompany loans, net
|
4,593 | (19,678 | ) | (17,502 | ) | 32,587 | – | |||||||||||||||
|
Return (contributions) of intercompany capital, net
|
– | 24,997 | – | (24,997 | ) | – | ||||||||||||||||
|
Total investing activities
|
3,874 | 4,439 | (49,093 | ) | 7,590 | (33,190 | ) | |||||||||||||||
|
Financing activities
|
||||||||||||||||||||||
|
Net (repayments of) proceeds from indebtedness
|
(39,196 | ) | – | 41,621 | – | 2,425 | ||||||||||||||||
|
Payment of dividends to shareholders
|
(16,469 | ) | – | – | – | (16,469 | ) | |||||||||||||||
|
(Repayments) borrowings of intercompany loans, net
|
39,280 | (7,174 | ) | 481 | (32,587 | ) | – | |||||||||||||||
|
Return of intercompany capital, net
|
– | – | (24,997 | ) | 24,997 | |||||||||||||||||
|
Payment of intercompany dividends
|
– | (23,600 | ) | – | 23,600 | |||||||||||||||||
|
Proceeds from stock options exercised and other
|
1,165 | – | – | – | 1,165 | |||||||||||||||||
|
Total financing activities
|
(15,220 | ) | (30,774 | ) | 17,105 | 16,010 | (12,879 | ) | ||||||||||||||
|
Effect of exchange rate on cash
|
(2,128 | ) | – | (2,827 | ) | – | (4,955 | ) | ||||||||||||||
|
Net increase (decrease ) in cash
|
2,167 | 594 | (360 | ) | – | 2,401 | ||||||||||||||||
|
Cash at the beginning of period
|
6,693 | 162 | 22,978 | 29,833 | ||||||||||||||||||
|
Cash at the end of period
|
$8,860 | $756 | $22,618 | $– | $32,234 | |||||||||||||||||
Glatfelter 2010 Annual
Report 55
Table of Contents
| 23. | QUARTERLY RESULTS (UNAUDITED) |
|
Diluted
|
||||||||||||||||||||||||||||||||||||||
|
Earnings (loss)
|
||||||||||||||||||||||||||||||||||||||
| Net sales | Gross Profit | Net Income (loss) | Per Share | |||||||||||||||||||||||||||||||||||
|
In thousands,
|
||||||||||||||||||||||||||||||||||||||
| except per share | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||||||||||
|
First
|
$ | 337,275 | $ | 291,552 | $ | 44,216 | $ | 43,314 | $ | (374 | ) | $11,538 | $ | (0.01 | ) | $ | 0.25 | |||||||||||||||||||||
|
Second
|
362,781 | 278,979 | 35,460 | 59,001 | 103 | 19,870 | – | 0.43 | ||||||||||||||||||||||||||||||
|
Third
|
379,097 | 312,358 | 55,740 | 82,465 | 39,437 | 45,994 | 0.85 | 1.00 | ||||||||||||||||||||||||||||||
|
Fourth
|
376,178 | 301,121 | 50,831 | 84,984 | 15,268 | 46,040 | 0.33 | 1.00 | ||||||||||||||||||||||||||||||
The information set forth above includes the following, on an
after-tax basis:
|
Alternative Fuel
|
Gains (losses) on Sales
|
Acquisition Integration
|
|||||||||||||||||||||||||||
|
Mixture/Cellulosic Biofuel
|
of Plant, Equipment and
|
Costs/Foreign currency
|
|||||||||||||||||||||||||||
| Credits | Timberlands | Hedge Loss | |||||||||||||||||||||||||||
| In thousands | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||
|
First
|
$ | – | $ | – | $ | – | $ | 378 | $ | (9,078 | ) | $– | |||||||||||||||||
|
Second
|
– | 30,418 | 99 | (441 | ) | (915 | ) | – | |||||||||||||||||||||
|
Third
|
23,100 | 32,890 | – | (5 | ) | (407 | ) | – | |||||||||||||||||||||
|
Fourth
|
84 | 32,456 | 964 | 65 | (345 | ) | (1,768 | ) | |||||||||||||||||||||
56
Table of Contents
| ITEM 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
None.
| ITEM 9A | CONTROLS AND PROCEDURES |
Disclosure
Controls and Procedures
Our chief executive officer and our chief financial officer,
after evaluating the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e)),
as of December 31, 2010, have concluded that, as of the
evaluation date, our disclosure controls and procedures were
effective.
Internal Control
Over Financial Reporting
Management’s report on the Company’s internal control
over financial reporting (as defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f))
and the related report of our independent registered public
accounting firm are included in Item 8 –
Financial Statements and Supplementary Data.
Changes in
Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the three months ended December 31, 2010,
that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting
| ITEM 9B | OTHER INFORMATION |
None.
| ITEM 10 | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Directors
The information with respect
to directors required under this Item is incorporated herein by
reference to our Proxy Statement, to be dated on or about March
30, 2011. Our board of directors has determined that, based on
the relevant experience of the members of the Audit Committee,
all members are
audit committee financial experts
as this
term is set forth in the applicable regulations of the SEC.
Executive Officers of the
Registrant
The information with respect to
the executive officers required under this Item incorporated
herein by reference to “Executive Officers” as set
forth in Part I, page 12 of this report.
We have adopted a Code of Business Ethics for the CEO and Senior
Financial Officers in compliance with applicable rules of the
Securities and Exchange Commission that applies to our chief
executive officer, chief financial officer and our principal
accounting officer or controller, or persons performing similar
functions. A copy of the Code of Ethical Business Conduct is
filed as an exhibit to this Annual Report on
Form 10-K
and is available on our website, free of charge, at
www.glatfelter.com.
| ITEM 11 | EXECUTIVE COMPENSATION |
The information required under this Item is incorporated herein
by reference to our Proxy Statement, to be dated on or about
March 30, 2011.
| ITEM 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
The information required under this Item is incorporated herein
by reference to our Proxy Statement, to be dated on or about
March 30, 2011.
| ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required under this Item is incorporated herein
by reference to our Proxy Statement, to be dated on or about
March 30, 2011.
| ITEM 14 | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required under this Item is incorporated herein
by reference to our Proxy Statement, to be dated on or about
March 30, 2011.
Our Chief Executive Officer has certified to the New York Stock
Exchange that he is not aware of any violations by the Company
of the NYSE corporate governance listing standards.
Glatfelter 2010 Annual
Report 57
Table of Contents
| ITEM 15 | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
|
(a)
|
1. | Our Consolidated Financial Statements as follows are included in Part II, Item 8: | ||||||
| i. | Consolidated Statements of Income for the Years Ended December 31, 2010, 2009 and 2008 | |||||||
| ii. | Consolidated Balance Sheets as of December 31, 2010 and 2009 | |||||||
| iii. | Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 | |||||||
| iv. | Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2010, 2009 and 2008 | |||||||
| v. | Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008 | |||||||
| 2. | Financial Statement Schedules (Consolidated) are included in Part IV: | |||||||
| i. | Schedule II -Valuation and Qualifying Accounts – For Each of the Three Years in the Period Ended December 31, 2010 |
| (b) | Exhibit Index |
| Exhibit Number | Description of Documents | Incorporated by Reference to | ||||||||||
| Exhibit | Filing | |||||||||||
| 2 | (a) |
Share Purchase Agreement, dated January 4, 2010, among
Brookfield Special Situations Management Limited, P. H.
Glatfelter Company and Glatfelter Canada, Inc., (the schedules
have been omitted pursuant to Item 601(b)(2) of
Regulation S-K
and will be provided to the Securities and Exchange Commission
upon request) filed herewith.
|
2(a) | 2009 Form 10-K | ||||||||
| (b) |
Amendment to the Share Purchase Agreement, dated
February 12, 2010, filed herewith.
|
2(b) | 2009 Form 10-K | |||||||||
| 3 | (a) |
Articles of Incorporation, as amended through December 20,
2007 (restated for the purpose of filing on EDGAR)
|
3(b) | 2007 Form 10-K | ||||||||
| (b) |
By-Laws as amended through March 3, 2011
|
3.2 |
March 3, 2011
Form 8-K |
|||||||||
| 4 | .1 | (a) |
Indenture, dated as of February 5, 2010 by and between the
Company, Guarantors named therein and HSBC Bank USA, National
Association, as trustee relating to
7
1
/
8
Notes due 2016.
|
4.1 |
February 5, 2010
Form 8-K |
|||||||
| (b) |
Indenture, dated as of April 28, 2006, by and between the
Company and SunTrust Bank, as trustee relating to
7
1
/
8
Notes due 2016
|
4.1 |
May 3, 2006
Form 8-K |
|||||||||
| (c) |
First Supplemental Indenture, dated as of September 22,
2006, among Glatfelter Holdings, LLC, Glatfelter Holdings II,
LLC, the Existing Subsidiary Guarantors named therein and
SunTrust Bank relating to
7
1
/
8
Notes due 2016
|
4.3 |
September 22, 2006
Form S-4/A |
|||||||||
| 4 | .2 |
Registration Rights Agreement, dated February 5, 2010, among the
Company, the Guarantors named therein and the Initial Purchasers
|
4.2 |
February 5, 2010
Form 8-K |
||||||||
| 10 | (a) |
P. H. Glatfelter Company Amended and Restated Management
Incentive Plan, effective January 1, 2010**
|
10.1 |
May 5, 2010
Form 8-K |
||||||||
| (b) |
P. H. Glatfelter Company Supplemental Executive Retirement Plan,
as amended and restated effective April 23, 1998 and
further amended December 20, 2000**
|
10(c) | 2000 Form 10-K** | |||||||||
| (c) |
P. H. Glatfelter Company Supplemental Management Pension Plan,
effective as of April 23, 1998**
|
10(f) | 1998 Form 10-K** | |||||||||
| (d) |
P. H. Glatfelter Company Amended and Restated Long-Term
Incentive Plan**
|
10.1 |
May 5, 2009
Form 8-K |
|||||||||
| (e) | (A) |
Form of Top Management Restricted Stock Unit Award Certificate.**
|
10.2 |
May 5, 2009
Form 8-K |
||||||||
| (e) | (B) |
Form of Non-Employee Director Restricted Stock Unit Award
Certificate**
|
10.3 |
April 27, 2005
Form 8-K |
||||||||
| (f) |
P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998**
|
10(h) | 1998 Form 10-K** | |||||||||
| (g) |
Change in Control Employment Agreement by and between P.H.
Glatfelter Company and George H. Glatfelter II, dated as of
December 8, 2008
|
10(i) | 2008 Form 10-K | |||||||||
| (h) |
Form of Change in Control Employment Agreement by and between P.
H. Glatfelter Company and certain employees, dated as of
December 8, 2008**
|
10(j) | 2008 Form 10-K | |||||||||
| (h) | (A) |
Schedule of Change in Control Employment Agreements**
|
10(j)A | 2008 Form 10-K | ||||||||
| (i) |
Guidelines for Executive Severance**
|
10.2 |
July 6, 2010
Form 8-K |
|||||||||
| (j) |
Agreement between the State of Wisconsin and Certain Companies
Concerning the Fox River, dated as of January 31, 1997,
among P. H. Glatfelter Company, Fort Howard Corporation,
NCR Corporation, Appleton Papers Inc., Riverside Paper
Corporation, U.S. Paper Mills, Wisconsin Tissue Mills Inc. and
the State of Wisconsin
|
10(i) | 1996 Form 10-K | |||||||||
| (k) |
Non-Competition and Non-Solicitation Agreement by and between P.
H. Glatfelter Company and Dante C. Parrini, dated July 2,
2010.**
|
10.1 |
July 2, 2010
Form 8-K |
|||||||||
58
Table of Contents
| Exhibit Number | Description of Documents | Incorporated by Reference to | ||||||||||
| Exhibit | Filing | |||||||||||
| (l) |
Credit Agreement, dated as of April 29, 2010, by and among
the Company, certain of the Company’s subsidiaries as
borrowers, certain of the Company’s subsidiaries as
guarantors, the banks party thereto, PNC Bank, National
Association, as agent for the banks under the Credit Agreement,
PNC Capital Markets LLC and Citizens Bank of Pennsylvania, as
joint arrangers and bookrunners, Citizens Bank of Pennsylvania,
as syndication agent.
|
10.1 |
June 30, 2010
Form 10-Q |
|||||||||
| (m) |
Consent Decree for Remedial Design and Remedial Action at
Operable Unit 1 of the Lower Fox River and Green Bay site by and
among the United States of America and the State of
Wisconsin v. P. H. Glatfelter Company and WTMI Company
(f/k/a Wisconsin Tissue Mills, Inc.)
|
10.3(a) |
June 30, 2010
Form 10-Q |
|||||||||
| (m) | (A) |
Agreed Supplement to Consent Decree between United States of
America and the State of Wisconsin vs. P.H. Glatfelter Company
and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
|
10.3(b) |
June 30, 2010
Form 10-Q |
||||||||
| (m) | (B) |
Second Agreed Supplement to Consent Decree between United States
of America and the State of Wisconsin vs. P.H. Glatfelter
Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
|
10.3(c) |
June 30, 2010
Form 10-Q |
||||||||
| (n) |
Amended Consent Decree for Remedial Design and Remedial Action
at Operable Unit 1 of the Lower Fox River and Green Bay Site by
and among the United States of America and the State of
Wisconsin v. P. H. Glatfelter and WTM I Company (f/k/a
Wisconsin Tissue Mills Inc.), certain Appendices have been
intentionally omitted, copies of which can be obtained free of
charge from the Registrant)
|
10.3(d) |
June 30, 2010
Form 10-Q |
|||||||||
| (o) |
Administrative Order for Remedial Action dated November 13,
2007; issued by the United States Environmental Protection Agency
|
10.2 |
Nov 19, 2007
Form 8-K |
|||||||||
| (p) |
Compensatory Arrangements with Certain Executive Officers, filed
herewith**
|
|||||||||||
| (q) |
Summary of Non-Employee Director Compensation (effective
January 1, 2007), filed herewith**
|
|||||||||||
| (r) |
Service Agreement, commencing on August 1, 2007, between
the Registrant (through a wholly owned subsidiary) and Martin
Rapp**
|
10(r) | 2006 Form 10-K | |||||||||
| (s) |
Retirement Pension Contract, dated October 31, 2008,
between Registrant (through a wholly owned subsidiary) and
Martin Rapp**
|
10(t) | 2007 Form 10-K | |||||||||
| (t) |
Form of Stock-Only Stock Appreciation Right Award Certificate**
|
10.3 |
May 5, 2009
Form 8-K |
|||||||||
| (u) |
Form of 2007 Top Management Restricted Stock Unit Award
Certificate**
|
10(t) | 2006 Form 10-K | |||||||||
| (v) |
Timberland Purchase & Sale Agreement –
Virginia Timberlands, entered into by and among Glawson
Investments Corp., GIC Investments LLC and Glatfelter Pulp Wood
Company, dated and effective as of August 8, 2007
|
10.1 |
Sept. 30, 2007
Form 10-Q |
|||||||||
| (w) |
Term Loan Agreement dated January 15, 2008, among GPW
Virginia Timberlands LLC, certain lenders party thereto and
SunTrust Bank, in its capacity as agent for such lenders
|
10.2 |
June 30, 2010
Form 10-Q |
|||||||||
| 14 |
Code of Business Ethics for the CEO and Senior Financial
Officers of Glatfelter
|
14 | 2003 Form 10-K | |||||||||
| 21 |
Subsidiaries of the Registrant, filed herewith
|
|||||||||||
| 23 |
Consent of Independent Registered Public Accounting Firm, filed
herewith.
|
|||||||||||
| 31 | .1 |
Certification of Dante C. Parrini, President and Chief Executive
Officer of Glatfelter, pursuant to Section 302 (a) of
the Sarbanes-Oxley Act Of 2002, filed herewith
|
||||||||||
| 31 | .2 |
Certification of John P. Jacunski, Senior Vice President and
Chief Financial Officer of Glatfelter, pursuant to
Section 302 (a) of the Sarbanes-Oxley Act Of 2002,
filed herewith
|
||||||||||
| 32 | .1 |
Certification of Dante C. Parrini, President and Chief Executive
Officer of Glatfelter, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
filed herewith
|
||||||||||
| 32 | .2 |
Certification of John P. Jacunski, Senior Vice President and
Chief Financial Officer of Glatfelter, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350, filed herewith
|
||||||||||
| ** | Management contract or compensatory plan |
Glatfelter 2010 Annual
Report 59
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
P. H. GLATFELTER COMPANY
(Registrant)
March 11, 2011
| By |
/s/ Dante
C. Parrini
|
Dante C. Parrini
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities and on the dates
indicated:
| Date | Signature | Capacity | ||
|
March 11, 2011
|
/s/ Dante
C. Parrini
President and Chief Executive Officer |
Principal Executive Officer and Director | ||
|
March 11, 2011
|
/s/ John
P. Jacunski
Senior Vice President and Chief Financial Officer |
Principal Financial Officer | ||
|
March 11, 2011
|
/s/ David
C. Elder
Vice President and Corporate Controller |
Controller and Chief Accounting Officer | ||
|
March 11, 2011
|
/s/ George
H. Glatfelter II
|
Chairman of the Board | ||
|
March 11, 2011
|
/s/ Kathleen
A. Dahlberg
|
Director | ||
|
March 11, 2011
|
/s/ Nicholas
DeBenedictis
|
Director | ||
|
March 11, 2011
|
/s/ Richard
C. Ill
|
Director | ||
|
March 11, 2011
|
/s/ J.
Robert Hall
|
Director | ||
|
March 11, 2011
|
/s/ Ronald
J. Naples
|
Director | ||
|
March 11, 2011
|
/s/ Richard
L. Smoot
|
Director | ||
|
March 11, 2011
|
/s/ Lee
C. Stewart
|
Director | ||
60
Table of Contents
P. H.
GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
For each of the
three years ended December 31, 2010
Valuation and Qualifying Accounts
Valuation and Qualifying Accounts
| Allowance for | ||||||||||||||||||||||||||||
| In thousands | Doubtful Accounts | Sales Discounts and Deductions | ||||||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||||||
|
Balance, beginning of year
|
$2,888 | $2,633 | $3,117 | $2,789 | $3,369 | $4,345 | ||||||||||||||||||||||
|
Provision
|
1,269 | 506 | (36 | ) | 3,593 | 3,575 | 6,620 | |||||||||||||||||||||
|
Write-offs, recoveries and discounts allowed
|
(993 | ) | (306 | ) | (296 | ) | (3,517 | ) | (4,197 | ) | (6,045 | ) | ||||||||||||||||
|
Other(a)
|
(46 | ) | 55 | (152 | ) | (20 | ) | 42 | (1,551 | ) | ||||||||||||||||||
|
Balance, end of year
|
$3,118 | $2,888 | $2,633 | $2,845 | $2,789 | $3,369 | ||||||||||||||||||||||
The provision for doubtful accounts is included in selling,
general and administrative expense and the provision for sales
discounts and deductions is deducted from sales. The related
allowances are deducted from accounts receivable.
| (a) | Relates primarily to changes in currency exchange rates and, in 2008, a change in presentation of certain customer rebates. |
Glatfelter 2010 Annual
Report 61
TABLE OF CONTENTS
Part IItem 1 BusinessItem 1A Risk FactorsItem 1B Unresolved Staff CommentsItem 2 PropertiesItem 3 Legal ProceedingsItem 4 [reserved]Part IIItem 5 Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6 Selected Financial DataItem 7 Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A Quantitative and Qualitative Disclosures About Market RiskItem 8 Financial Statements and Supplementary DataItem 9 Changes in and Disagreements with Accountants on Accounting and Financial DisclosuresItem 9A Controls and ProceduresItem 9B Other InformationPart IIIItem 10 Directors, Executive Officers and Corporate GovernanceItem 11 Executive CompensationItem 12 Security Ownership Of Certain Beneficial Owners and ManagementItem 13 Certain Relationships and Related Transactions, and Director IndependenceItem 14 Principal Accounting Fees and ServicesPart IVItem 15 Exhibits, Financial Statement Schedules