200 9 An nual Repo rt
P. H. Glatfelter Company • 96 South George Street • Suite 500 • York, PA 17401 • www.glatfelter.com
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STRATEGY. RESULTS. MOMENTUM.
© 2 01 0 Gla tfel ter
Glatfelter
today
Our refl ections on 2009 and our outlook for 2010
and beyond can be summed up in three words:
STRATEGY. RESULTS. MOMENTUM.
Strategy guides everything we do, our 2009 results were strong, and the momentum
heading into 2010 is very real.
Headquartered in York, PA, Glatfelter is a global manufacturer of specialty papers
and engineered products, offering over a century of experience, technical expertise
and world-class service. U.S. operations include facilities in Spring Grove, PA and
Chillicothe and Fremont, OH. International operations include facilities in Germany,
France, the United Kingdom, Canada and the Philippines, a representative offi ce
in China and a sales and distribution offi ce in Russia. Glatfelter’s sales exceed
$1 billion annually and its common stock is traded on the
New York Stock Exchange under the ticker symbol GLT.
OUR VISION is to become the global supplier of choice
in specialty papers and engineered products.
Contents
2
5
6
8
Letter to Our Shareholders
Financial Highlights
Strategy – Proven, Consistent Approach Drives Value
Results – Delivering Enviable Performance in Challenging Times
10
Momentum – Built to Thrive in 2010 and Beyond
12
Directors and Offi cers and Corporate Information
Form 10-K
Directory of Locations
FORWARD-LOOKING STATEMENTS
Certain statements made in this annual report which pertain to future fi nancial and business performance, conditions and strategies and other fi nancial and business matters are “forward-
looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These statements are based on management’s
current expectations and are subject to numerous risks, uncertainties and other unpredictable or uncontrollable factors which may cause actual results or performance to differ materially
from the Company’s expectations. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-
looking statements are detailed on page 15 of the accompanying 2009 Annual Report on Form 10-K included herein. A copy of that Form, which is on fi le with the Securities and Exchange
Commission, is also available at www.glatfelter.com or upon request.
Specialty Papers
2009 NET SALES:
$791.9M
2009 TONS SOLD:
~738,841 tons
2009 AVERAGE PRICE:
~$1,072/ton
Our North America-based Specialty Papers
business unit focuses on producing papers
for the following markets:
(cid:129) CARBONLESS & FORMS: papers for credit card
receipts, multi-part forms, security papers
and other end-use applications
(cid:129) BOOK PUBLISHING: papers for the production
of high-quality hardbound books and other
book publishing needs
(cid:129) ENGINEERED PRODUCTS: papers for digital
imaging, transfer, casting, release, postal,
playing and greeting cards, and other niche
specialty applications
(cid:129) ENVELOPE & CONVERTING: papers for the
Product Sales Mix
18%
19%
41%
22%
Carbonless & Forms
Book Publishing
Envelope & Converting
direct mail market, shopping bags and
Engineered Products
drawing papers
Composite Fibers
2009 NET SALES:
$392.1M
2009 TONS SOLD:
~80,064 tons
2009 AVERAGE PRICE:
~$4,897/ton
Our Composite Fibers business unit, based
in Gernsbach, Germany, serves customers
globally and focuses on higher-value-added
products in the following markets:
(cid:129) FOOD & BEVERAGE: paper used for tea bags
and coffee pads/pods
(cid:129) METALLIZED: products used in the labeling
of beer bottles, innerliners, gift wrap,
self-adhesive labels and other consumer
product applications
(cid:129) COMPOSITE LAMINATES: papers used in the
production of decorative laminates, furni-
ture and fl ooring applications
(cid:129) TECHNICAL SPECIALTIES: diverse line of paper
Product Sales Mix
8%
12%
21%
59%
Food & Beverage
Metallized
Composite Laminates
products used in batteries, medical masks
Technical Specialties
and other highly engineered applications
Advanced Airlaid Materials*
2009 NET SALES:
$203.0M
2009 TONS SOLD:
~70,960 tons
2009 AVERAGE PRICE:
~$2,861/ton
Our Canada- and Germany-based Advanced
Airlaid Materials business unit focuses on
producing highly absorbent cellulose-based
airlaid non-woven materials for high-growth
consumer and industrial applications and
markets, including:
(cid:129) Highly specialized, engineered fi bers
for feminine hygiene and adult
incontinence products
Product Sales Mix
3%
12%
85%
Feminine Hygiene
Other
Adult Incontinence
* This section refl ects the 2009 results of Concert Industries,
which Glatfelter acquired on February 12, 2010.
1
George H. Glatfelter II
Chairman and Chief Executive Offi cer
DEAR FELLOW SHAREHOLDERS
In my letter to you a year ago, I stated that in light of the severe macroeconomic
conditions confronting the business, our goal for 2009 was to preserve the Company’s
fi nancial core while positioning us to take full advantage of opportunities as these
conditions moderated. Our objective was to emerge a stronger Company –
not just a survivor.
To accomplish this objective, we focused
operational success. Our performance was a
the organization on three areas of our busi-
testament to the soundness of our strategy,
ness: 1) preserving the strength of the balance
the strength and resilience of our specialized
sheet by improving our cash fl ow profi le and
business model and the commitment of
driving down debt; 2) putting the needs of
Glatfelter PEOPLE around the world.
customers fi rst by ensuring them that we
For Glatfelter, the story of 2009 is one
would remain a stable and secure supply
of precise strategic execution, which drove
partner; and 3) reminding each employee that
solid results, thereby positioning our business
Glatfelter PEOPLE matter, and that they can
to enter 2010 with renewed momentum. Not
make a difference through continuous cost
many companies that I know of can make that
reduction, improved business processes and
claim. And I think that’s a strong statement to
active collaboration.
our shareholders.
I am proud to report to you today
The following list of key achievements
that we not only achieved our goals – we
confi rms the progress we made throughout
exceeded them.
the year. I must say that I could not be more
2009 was an excellent year for Glatfelter,
pleased with the results.
with both strong fi nancial results and notable
2
2009 Financial Highlights
positioned the Company to take the next step
Our Core Values
• Generated free cash fl ow of $138 million
in its visionary journey through the acquisition
•
Increased adjusted EBITDA in 2009
of Concert Industries.
compared to 2008
Creating indelible linkage between oper-
• Expanded EBITDA margins to 10.6 percent
ating strategy and business results – that is the
from 10.0 percent in 2008
reason Glatfelter is a stronger Company today
•
Improved operating profi t for Specialty
than when I last wrote to you one year ago.
Papers by 13.6 percent to $55.9 million
Looking Ahead
•
Improved working capital management
to generate $47 million of cash fl ow
• Reduced net debt by $128 million
As for the upcoming year, it seems to me
that much of the economic chaos that defi ned
2009 is behind us. At the same time, recovery
In many ways, the results speak for
is likely to be an extended and rather choppy
Virtually every day we rely on our values
to frame a decision, develop a strategy or
guide us in other ways. We believe our
values, combined with our business model
and our PEOPLE, allow us to continue to
generate sustainable value creation.
Our core values are clear and consistent:
Integrity: We are ethical and responsible
in all of our business endeavors, all
the time.
themselves. We not only protected the balance
experience. Regardless, I am excited about
Financial Discipline: We are responsible
sheet, we improved it. We capitalized on non-
2010 because I believe Glatfelter has several
for the prudent management of the
traditional cash generating activities, generating
value drivers in place that will be of benefi t
resources entrusted to us and for the
$30 million of cash from the use of alternative
to shareholders.
fuels under the Alternative Fuel Mixture (AFM)
First and foremost, I expect to be able
legislation and $5 million through the sale
to sustain our strong cash flow throughout
of Renewable Energy Credits. In the face of
the year – thanks, in large part, to the steady
uncertain sales demand, we developed more
performance of our U.S.-based Specialty
generation of fi nancial value for
all constituents.
Mutual Respect: We treat each other
with honesty and respect. We recognize
that what we have and what we will
than 60,000 tons of new business through
Papers Business Unit and supplemented by an
achieve is through the efforts of our
aggressive prospecting and leveraging the new
additional $58 million of cash from AFM
employees. We will strive to provide
product capabilities and operational fl exibility
credits. We also expect strengthening demand
them with rewarding challenges and
of the organization. This capability allowed
in markets served by our Europe-based
opportunities for advancement.
Glatfelter to keep its North American sales
Composite Fibers Business Unit to contribute to
volume virtually fl at on a year-over-year basis
our top-line growth, which we will bring to the
despite volume in the markets served by the
bottom line. From a balance sheet perspective,
Company declining by 16 percent.
a primary focus will be to utilize the strong
Finally, and perhaps most signifi cantly,
cash generation profile of the business, as well
while others were internally focused and
as potential additional sales of our remaining
distracted, Glatfelter had the management
32,250 acres of timberland, to further enhance
capacity, fi nancial fl exibility and courage to
our financial flexibility.
seek out opportunities to further advance our
Similarly, I am excited about the addition
long-term strategy. We moved forward to open
of Concert Industries, a target of ours for many
a sales and distribution offi ce in Moscow,
years given our ongoing interest in the global
Russia for our Food and Beverage and
airlaid non-wovens market. I believe we bought
Metallized customers in that region. And we
this business at the right time and for the
Customer Focus: We are dedicated to
understanding and anticipating the needs
of our customers and helping them to
achieve their business objectives.
Environmental Responsibility: We
recognize that our business impacts the
environment. We are committed to
continuous environmental improvement
and the prevention of pollution. We will
be in compliance with all environmental
laws and regulations.
Social Responsibility: We recognize
our responsibility to contribute to the
betterment of the communities in which
we operate and the world in which
we live.
3
right price. Concert is viewed as the innova-
sustainable organization is found in its ability
tion leader in the highly defensible, technically
to survive and grow stronger through genera-
demanding feminine hygiene and adult incon-
tional challenges. 2009 was yet another step
tinence market segments. The acquisition will
in our journey.
immediately rebalance the Glatfelter product
In summary, while external infl uences
portfolio to growth markets and substantially
caused us to modify our operating strategy
expand our global footprint. The acquisition is
early in 2009, the results we generated simply
expected to be modestly accretive to earnings
could not have happened without the solid
in 2010 and deliver $0.20 to $0.25 per diluted
performance and deep commitment of
share of earnings accretion in 2011. We view
Glatfelter PEOPLE everywhere. Most rewarding
Concert as a well-run business that is prepared
to me is that our success in large part resulted
to make the next step. Glatfelter has the scale,
from improved business processes and
know-how and fi nancial strength to make that
principles of continuous improvement that
next step a reality. I believe our businesses
are now embedded in the organization. By
are a perfect fi t.
implementing the operating strategy to drive
results, we not only delivered strong fi nancial
“...we not only achieved our goals – we exceeded them.”
performance in 2009, but also emerged with
Long-Term View
2009 was a great test for Glatfelter and
its PEOPLE, one that I believe we passed with
fl ying colors. And, while 2009 was a watershed
year for us in many ways, I believe it is also just
another example of our Company’s enduring
resiliency and strength of conviction. In this re-
spect, it may be helpful to refl ect for a moment
upon Glatfelter’s heritage. Our Company was
founded in 1864. The battle of Gettysburg had
just been fought 20 miles to the west of our
founding location. In our 146-year history, this
clear momentum for our future.
On the following pages, I invite you to
read more about Glatfelter’s proven strategy,
strong results and powerful momentum. We
hope you’ll agree that this Company has come
a long way over the past 12 months and, in so
doing, has created signifi cantly more growth
opportunities for the future.
On behalf of my fellow Directors, our man-
agement team and the PEOPLE of Glatfelter,
I thank you for your ongoing interest and
investment in our Company. I look forward to
updating you on our progress moving forward.
Company has survived the Great Depression,
two World Wars, innumerable military, social
Sincerely,
and political upheavals and even disco music.
Our business culture is based upon sustain-
ability. And we know that uncertain times offer
George H. Glatfelter II
unique opportunity for organizations focused
Chairman and Chief Executive Offi cer
upon a clear plan. 2009 was not the toughest
year we’ve ever faced and it won’t be the
March 10, 2010
last tough year to come. The hallmark of a
4
FINANCIAL HIGHLIGHTS
Selected Consolidated Financial Data (In thousands, except per share data)
As of or for the year ended December 31,
Net sales
Gross profi t
Gross profi t %
Reversal of (Shutdown and restructuring charges)
—
Gains on disposition of PP&E and timberlands,
2009
2008
2007
2006
2005
$1,184,010
$1,263,850
$1,148,323
$986,411
$579,121
269,764*
177,782
156,312
105,294
97,176
23%
14%
856
14%
11%
17%
(35)
(30,318)
(1,564)
insurance recoveries
898
18,468
78,685
17,599
42,204
Net income (loss)
Diluted EPS
Adjusted EPS**
Balance sheet information:
Total assets
Total debt
123,442
57,888
63,472
(12,236)
38,609
2.70
0.64
1.27
1.04
1.40
0.81
(0.27)
0.55
0.87
0.35
1,190,294
1,057,309
1,287,067
1,225,643
1,044,977
254,583
313,285
313,185
397,613
207,073
Shareholders’ equity
510,704
342,707
476,068
388,368
432,312
4
6
2
,
1
$
4
8
1
,
1
$
8
4
1
,
1
$
Net Sales
(in millions)
6
8
9
$
9
7
5
$
4
0
.
1
$
1
8
.
0
$
4
6
.
0
$
Adjusted
Earnings
Per Share**
5
5
.
0
$
5
3
.
0
$
Cash Flow
from Operations
(in millions)
9
.
3
6
1
$
3
.
0
0
1
$
4
.
3
5
$
9
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4
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(
05
06
07
08
09
05
06
07
08
09
05
06
07
08
09
*Includes $107.8 million of alternative fuel mixture credits.
**Adjusted earnings per share is a non-GAAP fi nancial measure as it excludes the impact of certain items. It is used by the Company to evaluate the performance of its core paper making operations. Adjusted
earnings per share excludes the following items, all on an after-tax per share basis: Alternative fuel mixture credits in 2009 of $2.09; gains from timberland sales and other asset sales in 2008 through 2005 of
$0.24, $0.97, $0.20 and $0.25, respectively; shutdown, restructuring charges and asset writedowns in 2008 of $(0.01) and $0.79 and $0.02, in 2006 and 2005, respectively; acquisition integration costs of $0.04,
$0.02, $0.03 and $0.19 in 2009 through 2006, respectively; reserves for environmental matters of $0.35 in 2007; insurance recoveries of $0.29 in 2005; and debt redemption costs of $0.04 in 2006.
5
forward, enduring business
At Glatfelter, we have a straight-
sustainable value for our inves-
tors, our customers and our PEOPLE – we offer
strategy that enables us to create
New product development remains criti-
improved productivity, asset utilization and
cal to the implementation of our strategy in
deployment of continuous improvement
the business units. In 2009, 53 percent of our
methodology. Early in the year, in response to
gross revenues were derived from new product
market choppiness and inventory destocking
development – the sixth straight year that we
by certain customers, we reduced our paper
a broad and diverse product line of value-
have exceeded our goal of at least 50 percent
inventory by 15 percent and accelerated the
added products and superb customer service
contribution from products developed, en-
timing of planned machine downtime for
to higher-margin or growing niche markets.
hanced or improved within the last fi ve years.
maintenance – which allowed us to more
2009 was further validation of the strategy and
During 2009, Specialty Papers launched
closely match demand. An experienced
an opportunity to extend our reach into new
CleanPress™ CF, a new technology for
management team with a track record of
product categories and additional markets,
carbonless rolls that is cleaner, greener and
success and commitment to a strong balance
while continuing to profi tably operate the core
longer-running while maintaining high imaging
sheet was instrumental in managing the level
of our business.
quality. CleanPress builds on the environmental
and timing of these adjustments.
At the business unit level, innovation and
values we have established, and end users
Inherent in our strategy are our time-
speed to market are the primary drivers of the
appreciate the greener chemistry and the
tested Core Values, which guide our actions
strategy. In the Specialty Papers Business Unit,
reduction in energy, waste and cleanup.
and how we treat the PEOPLE closest to us –
we are focused on managing our product
Composite Fibers added to its portfolio of
our employees, shareholders, customers and
mix and volume by developing new, value-
new products for the food and beverage
other partners in the marketplace. Our six
adding products, leveraging our asset fl exibility
industry, including higher-performance tea
core values are: Integrity, Financial Discipline,
and providing superior customer service. In
bag papers, and expanded adoption of its
Mutual Respect, Customer Focus, Environ-
Composite Fibers, we are working to generate
new line of pasting papers for automobile
mental Responsibility and Social Responsibility.
top-line growth through expanded positions
batteries and similar applications.
With those values as our moral compass, we
in growth markets, new product development
To ensure we effectively translate our top-
execute our strategy to drive strong results. The
and opportunistic acquisitions. Both business
line performance into bottom-line growth, our
benefi ts of staying true to our values were very
units continue to hold leading market share
strategy also includes a disciplined approach to
evident in our results for 2009, as you’ll read
positions in their key product lines.
cost containment, including an emphasis on
in the next section.
6
Glatfelter Value Drivers
(cid:129) Broad and diverse product line
(cid:129) Leading market positions
(cid:129) Successful business strategy
(cid:129) Flexible operating platform
(cid:129) Strong balance sheet
STRATEGY
Proven, Consistent Approach
Drives Value
T his year provided a strong
validation of Glatfelter’s business
strategy. Despite severe challenges
in the global economy and many of
our niche markets, the Company was able to
we developed more than 60,000 tons of new
alternative fuel mixture credits. Since we began
deliver strong fi nancial results, which included
business by expanding our customer base,
mixing and burning eligible alternative fuels,
net sales of $1,184 million, net income of
deepening our customer relationships, leverag-
we have earned approximately $107.8 million
$123.4 million, or $2.70 per diluted share, and
ing our new product capabilities and expand-
of alternative fuel mixture credits, of which
adjusted earnings (a non-GAAP measure) of
ing in adjacent markets and new geographies.
nearly $30 million has been received in cash,
$29.4 million.
In Specialty Papers, operating income for
$20.1 million was used to reduce estimated
Those numbers are just the beginning
the year increased 13.6 percent, even though
interim tax payments, and $58.0 million will be
of the story, however. While delivering these
net sales were down 5.0 percent. Fourth-
claimed as future refundable income tax credits
fi nancial results, we were also able to create
quarter operating income of $23.1 million,
(which are expected to be realized in cash
additional fi nancial fl exibility by reducing net
a 48 percent increase over the prior year,
primarily during the fi rst half of 2010). We also
debt by $128 million. In addition, aggressive
was indicative of the results and momentum
generated $5 million of cash through the sale
working capital management initiatives and
Glatfelter was building at year-end. The fourth
of Renewable Energy Credits.
disciplined management of capital expendi-
quarter was also strong for Composite Fibers,
We believe the 2009 results, coupled with
tures generated free cash fl ow of $138 million
as net sales increased 6.2 percent, gross
the free cash fl ow generation, demonstrate the
for the year.
margins grew to 15.8 percent (from 13 percent
strength and resiliency of our business model
Our fi nancial performance is directly
a year ago), and operating income increased
and the dedication of Glatfelter PEOPLE around
attributable to the value-added products and
91.7 percent.
the world. And they have generated signifi cant
services of our operating segments. All told,
In addition, the 2009 full-year results
momentum for 2010 and beyond, which we
even in the face of uncertain sales demand,
include, on an after-tax basis, $95.8 million for
discuss in the next section.
8
RESULTS
Delivering Enviable Performance
in Challenging Times
Results the Right Way
While we are acutely focused on delivering results for our investors, we are equally
vigilant in conducting our business in a manner that addresses the long-term needs
of all of our stakeholders. We take seriously our responsibility to our employees,
our customers, our communities and the ever-changing world – as evidenced by our
ongoing environmental and safety initiatives, as well as our commitment to the highest
corporate governance standards. For more information on our latest efforts to produce
results the right way, please visit www.glatfelter.com/sustainability.
threefold – continued execution of
T he Glatfelter story of 2009 was
recession, and, last but not least, the cultiva-
the proven strategy, solid fi nancial
results in the face of a far-reaching
annual rate of approximately 5 percent for the
such as Asia, Central and Eastern Europe,
next four years. This will provide us another
and South America. Glatfelter expects the
platform to generate sustained organic growth
acquisition will be modestly accretive to
over the long term.
earnings in 2010 and contribute $0.20 to
Already a successful and growing busi-
$0.25 earnings per share in 2011.
tion of institutional momentum that has set
ness, Concert is poised for signifi cant growth
The acquisition of Concert is Glatfelter’s
the stage for sustainable growth in 2010
in 2010 and beyond. The majority of its
fourth since 2006. Previous transactions have
and beyond. The momentum is coming from
production technology and manufacturing
similarly spurred the Company’s ability to grow
organic growth and acquired growth, from
equipment is less than 10 years old, and, in
in the food and beverage, metallized products
current and new customers, and from adjacent
2009, the Company began operating a new
and other specialized niche application markets.
markets and fast-growing geographies.
$70 million production line at its facility in
These markets, along with the steady success
In addition to the numerous fi nancial and
Germany. Glatfelter plans to operate the new
of our Specialty Papers business in outperform-
operational successes detailed on the previous
Advanced Airlaid Materials as a third business
ing the uncoated free sheet market overall, are
pages, perhaps the most visible accelerator
unit, along with its Specialty Papers and
critical momentum builders for 2010. In both
of our pace forward was the acquisition of
Composite Fibers business units.
businesses, we continue to derive signifi cant
Concert Industries, which was announced on
Like Specialty Papers and Composite
organic growth from new product development
January 5, 2010 and completed on February
Fibers, Advanced Airlaid Materials holds
and steady market share gains. In addition, in
12, 2010. Concert is a leading global supplier
number-one or number-two market positions
early 2010, we announced the opening of a
of highly absorbent cellulose-based airlaid
in its key product categories. It utilizes tech-
new sales and distribution center in Moscow,
non-woven materials, used to manufacture
nologies that Glatfelter is familiar with and
which will enhance service to Composite Fibers
a diverse range of consumer and industrial
broadens our relationship with premier
customers in Russia and the region.
products for growing global end-use markets,
multinational consumer products companies
As proud as we are of our performance
including feminine hygiene and adult inconti-
such as The Procter & Gamble Company,
in 2009, we are even more excited about
nence products, specialty wipes and food pads.
Johnson & Johnson, SCA and Kimberly-Clark.
the opportunities ahead. The strategy is
Approximately 85 percent of Concert’s
Advanced Airlaid Materials is particularly
working, the results are gratifying and the
sales come from the feminine hygiene market,
well positioned to serve developing markets
momentum is real.
which is expected to grow at a compound
10
“We view Concert as a natural fi t for our
business and right in line with our growth
strategy. Like Glatfelter’s existing business units,
Concert Industries holds leading market share
positions, excels in building long-term customer
relationships, and has a well-earned reputation
for innovation and its ability to quickly bring
new products to market.”
– George H. Glatfelter II, Chairman and Chief Executive Offi cer
MOMENTUM
Built to Thrive in 2010
and Beyond
DIRECTORS AND OFFICERS
Executive Offi cers
George H. Glatfelter II
Chairman and
Chief Executive Offi cer
David C. Elder
Vice President and
Corporate Controller
Martin Rapp
Vice President and General Manager,
Composite Fibers Business Unit
Dante C. Parrini
Thomas G. Jackson
Mark A. Sullivan
Executive Vice President and
Vice President, General Counsel
Vice President
Chief Operating Offi cer
and Corporate Secretary
Global Supply Chain
John P. Jacunski
Senior Vice President and
Chief Financial Offi cer
Debabrata Mukherjee
William T. Yanavitch II
Vice President and General Manager,
Vice President
Specialty Papers Business Unit
Human Resources and Administration
Directors
Kathleen A. Dahlberg
Founder, President and
Chief Executive Offi cer
Open Vision Partners and
Chief Executive Offi cer
2Unify LLC
Nicholas DeBenedictis
J. Robert Hall
Chief Executive Offi cer
Ardale Enterprises, LLC
Richard C. Ill
Richard L. Smoot
Retired Regional Chairman
PNC Bank, NA
Philadelphia/South Jersey Markets
President and Chief Executive Offi cer
Lee C. Stewart
Triumph Group, Inc.
Financial Consultant
Chairman and Chief Executive Offi cer
Ronald J. Naples
Aqua America Corporation
Chairman of Pennsylvania Stimulus
Oversight Commission and
George H. Glatfelter II
Chief Accountability Offi cer for
Chairman and Chief Executive Offi cer
Commonwealth of Pennsylvania
CORPORATE INFORMATION
World Headquarters
P. H. Glatfelter Company
Annual Meeting
of Shareholders
Information Sources
For the latest quarterly business results
96 S. George Street
Suite 500
York, PA 17401
ph: 717-225-4711
fax: 717-846-7208
www.glatfelter.com
Stock Exchange
New York Stock Exchange
Stock Symbol
GLT
May 5, 2010 10:00 a.m. EST
or other information,
York Expo Center,
visit www.glatfelter.com or contact:
334 Carlisle Avenue, York, PA
Investor Relations
P. H. Glatfelter Company
96 S. George Street, Suite 500
York, PA 17401
ph: 717-225-4711
E-mail: ir@glatfelter.com
Transfer Agent,
Dividend Disbursing Agent
and Registrar
BNY Mellon Shareowner Services
480 Washington Boulevard
Jersey City, NJ 07310-1900
Toll free #: 800-756-3353
12
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
¥
n
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
or
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)
96 South George Street, Suite 500
York, Pennsylvania 17401
(Address of principal executive offices)
23-0628360
(IRS Employer Identification No.)
(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
Yes n
No ¥.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Yes n
No ¥.
Act.
Act.
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 ¥
No n.
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).
Yes n
No n
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. n
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 n
Accelerated filer ¥
Non-accelerated filer n
(Do not check if a smaller reporting company)
Smaller reporting company n
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes n
No ¥.
Based on the closing price as of June 30, 2009, the aggregate market value of the Common Stock of the Registrant held
by non-affiliates was $404.7 million.
Common Stock outstanding on March 12, 2010 totaled 45,751,906 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 29, 2010 (Part III).
P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2009
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
[Reserved]
Executive Officers
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Quantitative and Qualitative Disclosures about
Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and
Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Page
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6
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PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
SIGNATURES
CERTIFICATIONS
SCHEDULE II
PART I
ITEM 1 BUSINESS
Overview Glatfelter began operations in 1864
and today, we believe we are one of the world’s leading
manufacturers of specialty papers and fiber-based engi-
neered products. Headquartered in York, Pennsylvania,
we own and operate manufacturing facilities located in
Pennsylvania, Ohio, Germany, the United Kingdom,
France, the Philippines and Canada.
We manufacture a broad and diverse line of prod-
ucts serving customers in numerous markets. Many of the
markets in which we operate are characterized by higher-
value-added products and, in some cases, by higher
growth prospects and lower cyclicality than commodity
paper markets. Examples of some of our markets and
product applications include:
(cid:129) papers for carbonless and forms products and
specialized envelopes
(cid:129) filtration papers for the tea and coffee industry
(cid:129) book publishing papers
Acquisitions Over the past four years we com-
pleted the following additional acquisitions:
Dollars in millions
Date
Business Location
Purchase
Price
Est
Annual
Revenue
Primary
Paper
Products
Lydney, England
Mar ’06
$65.0
$ 75.0
Chillicothe, Ohio
Caerphilly, Wales
Apr ’06
Nov ’07
83.3
12.6
440.0
53.4
Tea bags &
coffee papers
Carbonless &
forms
Metallized
These strategic acquisitions significantly increased
our revenues and provided us with additional operating
scale, increased production capacity, and an expansion of
our geographic reach.
Our Business Units
Prior to the completion of
the Concert acquisition, we managed our business as
two distinct units: (i) the North America-based Specialty
Papers business unit; and (ii) the Europe-based Compos-
ite Fibers business unit. 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
2009
2008
2007
Net sales
Business unit contribution
Specialty Papers
Composite Fibers
$1,184,010
$1,263,850
$1,148,323
66.9%
33.1
66.0%
34.0
69.9%
30.1
Total
100.0%
100.0%
100.0%
(cid:129) metallized papers for packaging and bottled bev-
Net tons sold by each business unit for the past
erage labels
three years were as follows:
(cid:129) overlay papers for decorative laminate, flooring
and furniture applications
(cid:129) papers for a wide variety of other specialty
products including postage stamps, playing cards,
greeting cards, digital imaging papers and FDA
grades
Recent Developments On February 12, 2010,
we completed the acquisition of Concert Industries Corp.
(“Concert”), a privately-held, leading supplier of airlaid
non-woven fabric-like material, for $234.4 million based
on the currency exchange rates on the closing date.
Concert, with approximately 590 employees, has opera-
tions located in Gatineau, Quebec, Canada and Falkenha-
gen, Brandenburg, Germany. Annual revenues totaled
$203.0 million in 2009.
Concert manufactures highly absorbent cellulose
based airlaid non-woven material used in products such
as feminine hygiene and adult incontinence products,
baby wipes, pre-moistened cleaning wipes, napkins and
tablecloths, and food pads.
Specialty Papers
Composite Fibers
Total
2009
2008
2007
738,841
80,064
743,755
85,599
726,657
72,855
818,905
829,354
799,512
Specialty Papers Our North America-based Spe-
cialty Papers business unit focuses on producing papers
for the following markets:
(cid:129) Carbonless & forms papers for credit card
receipts, multi-part forms, security papers and
other end-user applications;
(cid:129) Book publishing papers for the production of
high quality hardbound books and other book
publishing needs;
(cid:129) Envelope and converting papers for the direct
mail market, shopping bags, and other converting
applications; and
(cid:129) Engineered products for digital imaging, trans-
fer, casting, release, postal, playing card and
other niche specialty applications.
The markets in which Specialty Papers competes
have undergone significant and rapid consolidation over
the past several years resulting in fewer, more globally
Glatfelter 2009 Annual Report
1
focused producers. Over 80% of the North American
market share is now served by five paper companies, of
which Glatfelter is one. Specialty Papers’ revenue compo-
sition by market consisted of the following for the years
indicated:
In thousands
2009
2008
2007
Carbonless & forms
Book publishing
Envelope & converting
Engineered products
Other
$320,088
176,646
146,812
143,490
4,879
$338,067
201,040
138,293
149,372
7,127
$345,785
185,343
116,797
136,785
17,583
Total
$791,915
$833,899
$802,293
We believe we are one of the leading suppliers of
book publishing papers in the United States and the
second leading carbonless paper producer. Although the
market for carbonless papers in North America is declin-
ing approximately 8% to 10% per year, and in 2009, in
part due to the recession, this decline was greater, 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 special-
ized 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 prod-
ucts include those designed for multiple end uses, such
as papers for pressure-sensitive postage stamps, greeting
and playing cards, conical cups, digital imaging applica-
tions 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 typi-
cally command higher per ton prices and generally exhibit
greater pricing stability relative to commodity grade
paper products.
2
Composite Fibers Our Composite Fibers busi-
ness unit, based in Gernsbach, Germany, serves custom-
ers globally and focuses on higher-value-added products
in the following markets:
(cid:129) Food & Beverage paper used for tea bags and
coffee pods/pads;
(cid:129) Metallized products used in the labeling of beer
bottles, innerliners, gift wrap, self-adhesive labels
and other consumer products applications;
(cid:129) Composite Laminates papers used in produc-
tion of decorative laminates, furniture and floor-
ing applications; and
(cid:129) 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 tea bag and coffee pods/pads
and filters market 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
2009
2008
2007
Food & beverage
Metallized
Composite laminates
Technical specialties and other
$233,899
81,388
46,442
30,366
$252,545
85,719
58,705
32,983
$218,961
45,426
52,972
28,671
Total
$392,095
$429,952
$346,030
Our focus on products made from abaca pulp has
made us the world’s largest producer of tea bag and
coffee pods/pads filter papers. Many of this unit’s papers
are technically sophisticated. Most of the papers pro-
duced in the Composite Fibers business unit, except for
metallized papers, are extremely lightweight and require
very specialized fibers. Our engineering capabilities, spe-
cifically designed papermaking equipment and customer
orientation position us well to compete in these global
markets.
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 State-
ments and Supplementary Data, Note 22.
We intend to manage the operations of Concert
Industries as a separate business unit to be known as
Advanced Airlaid Materials.
Our Competitive Strengths
Since commencing
operations over 145 years ago, we believe that Glatfelter
has developed into one of the world’s leading
manufacturers of specialty papers and engineered prod-
ucts. We believe that the following competitive strengths
have contributed to our success:
used by this business unit. The Philippine mill produces
approximately 80% of the annual abaca pulp required
for Composite Fibers’ production requirements.
(cid:129) Broad and diverse product portfolio. We manu-
facture a very large portfolio of specialized paper
products which diversifies our revenue base,
enabling us to access a variety of end-markets
and to pursue a wide range of customers. We
have the ability to shift production in order to
capitalize on market opportunities. The breadth
and global reach of our product range help
cushion the impact of external economic influ-
ences on us.
(cid:129) Leading market positions in higher-value, niche
segments. We have focused our resources to
achieve market-leading positions in certain
higher-value, niche segments. Our products
include various highly specialized paper products
designed for technically demanding end uses.
Consequently, many of our products achieve pre-
mium pricing relative to that of commodity paper
grades. In each of the past three years, approxi-
mately 77%, 81% and 81% respectively, of our
sales were derived from these higher-value, niche
products. The specialized nature of these products
generally provides greater pricing stability relative
to commodity paper products.
(cid:129) Integrated and flexible production. As a nearly
fully integrated producer, we are able to mitigate
adverse fluctuations in the costs of certain raw
materials and energy. In Specialty Papers, our
Spring Grove and Chillicothe facilities are verti-
cally integrated operations producing in excess of
85% of the annual pulp required for their paper
production. Our Spring Grove and Chillicothe
facilities also generate 100% of the steam and
substantially all of the electricity required for their
operations. The flexible operating platform of our
Specialty Papers business offers the following
unique benefits:
(cid:129) the capability to manufacture a broad and
diverse product portfolio;
(cid:129) the ability to shift manufacturing capacity among
product lines;
(cid:129) the flexibility to maximize manufacturing efficien-
cies in response to changing market
dynamics; and
(cid:129) support for our New Product Development
initiatives.
In Composite Fibers, our Philippine mill processes
abaca fiber to produce abaca pulp, a key raw material
(cid:129) Customer-centric business focus. We offer a
unique and diverse product line that can be
customized to serve the individual needs of our
customers. This allows us to develop close rela-
tionships with our key customers and to be
adaptable in our product development, manufac-
turing, sales and marketing practices to meet
changing customer needs. We believe that this
approach has led to the development of excellent
customer relationships, defensible market posi-
tions, and increased pricing stability relative to
commodity paper producers. Additionally, our
customer-centric focus has been a key driver to
our success in new product development.
(cid:129) Significant investment in product development.
In order to keep up with our customers’ ever-
changing needs, we continually enhance our
product offerings through significant investment
in product development. In each of the past three
years, we invested approximately $8 million in
product development activities. We derive a sig-
nificant portion of our revenue from products
developed, enhanced or improved as a result of
these activities. Revenue generated from products
developed, enhanced or improved within the five
previous years as a result of these activities
represented in excess of 50% of net sales in
each of the past three years ended December 31,
2009.
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. Components of our strategy include:
Specialty Papers The North American uncoated
free sheet market has been challenged by a supply and
demand imbalance, particularly for commodity-like prod-
ucts. 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:
(cid:129) leveraging our flexible operating platform to opti-
mize product mix by shifting production among
facilities to more closely match output with
changing demand trends;
Glatfelter 2009 Annual Report
3
(cid:129) employing our new product development capabil-
ities to meet changing customer demands and to
replace declining carbonless volumes;
(cid:129) employing a low-cost approach to our manufac-
turing activities and continuously implementing
cost reduction initiatives; and
(cid:129) improving business processes and deploying con-
tinuous improvement capabilities to maintain
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:
(cid:129) capturing world-wide growth in Composite
Fibers’ core markets of food & beverage, compos-
ite laminates and metallized papers;
(cid:129) enhancing product mix across all of the business
unit’s markets by utilizing new product develop-
ment capabilities; and
(cid:129) implementing cost reduction initiatives including,
among others, work-force efficiencies and
improved supply chain management.
Balance Sheet We are focused on prudent finan-
cial management and the maintenance of a conservative
capital structure. By aggressively managing working cap-
ital to maximize cash flow from operations, making
disciplined capital expenditure decisions and monetizing
the value of our timberland assets, we are able to
maintain a strong balance sheet, thereby preserving the
flexibility to pursue strategic opportunities that will bene-
fit our shareholders.
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 fully
integrated three acquisitions. In November 2007, we
expanded our growth platform in metallized products and
created a major increase in our European production
scale through our acquisition of Metallised Products
Limited and its facility located in Caerphilly, United
Kingdom. Our acquisition of the carbonless business
operations of NewPage Corporation in April 2006 permit-
ted us to take advantage of that operation’s scale and
efficient manufacturing environment to expand our
higher-value-added Specialty Papers business unit. Lastly,
our acquisition of the Lydney mill from J R Crompton Ltd.
in March 2006 further strengthened our leading position
in tea bags and coffee filter papers. We expect that our
purchase of Concert will enable us to grow with the
industry leaders in feminine hygiene and adult inconti-
nence products and complements our long-term strategy
4
of driving growth in our markets in part through
acquisitions.
Raw Material and Energy
The following table
provides an overview of the estimated amount of princi-
pal raw materials (“PRM”) expected to be used in 2010
by each of our manufacturing facilities:
Estimated Annual
Quantity (short
tons)
Percent of PRM
Purchased
Specialty Papers
Spring Grove
Pulpwood(1)
Wood – and other pulps
Chillicothe(1)
Pulpwood
Wood – and other pulps
Composite Fibers
Abaca fiber
Wood- and other pulps
Abaca pulp
Synthetic fiber
Metallized base stock
1,051,000
272,800
1,270,000
384,900
17,000
40,200
16,000
10,200
33,000
92
16
100
10
100
100
13
100
100
(1) Pulpwood is used to produce woodpulp.
(2) The information set forth above does not include the raw material
needs of Concert Industries which was acquired on February 12,
2010.
Our Spring Grove, Pennsylvania and Chillicothe,
Ohio mills are vertically integrated operations producing
in excess of 85% of the combined annual pulp required
for paper production. The principal raw material used to
produce this pulp is pulpwood, including both hardwoods
and softwoods. Hardwoods are available within a rela-
tively 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.
In addition to integrated pulp making, both the
Spring Grove and Chillicothe facilities generate 100% of
the steam and 100% and 80%, respectively, of their
electricity needs. Principal fuel sources vary by facility and
include over 600,000 tons of coal, 870,000 MMBTUs of
natural gas, as well as recycled pulping chemicals, bark,
wood waste, and fuel oil. Spring Grove’s coal needs are
met under a three year contract that expires at the end
of 2012 and Chillicothe’s coal needs are supplied under
two contracts that expire in the fourth quarter of 2010.
Energy and related sales activities The Spring
Grove facility produces more electricity than it requires.
Excess electricity is sold to the local power company
under a long-term co-generation contract expiring
March 31, 2010. Anticipating the 2010 expiration of our
co-generation contract, we became a member of PJM
Interconnection, a federally regulated regional transmis-
sion 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 price at which energy is sold together
with volatility in input costs, primarily related to coal. The
Gernsbach, Scaër and Lydney facilities generate all of the
steam required for their operations. The Gernsbach facility
generated approximately 19.5% of its 2009 electricity
needs and purchased the balance. The Scaër and Lydney
facilities purchased 100% of their 2009 electric power
requirements. Natural gas was used to produce substan-
tially all internally generated energy at the Gernsbach,
Scaër and Lydney facilities during 2009.
Our mill in the Philippines processes abaca fiber to
produce a specialized pulp. This abaca pulp production
provides a unique advantage by supplying a key raw
material used by our Composite Fibers business unit. The
supply of abaca fiber was somewhat constrained in
2008. As a result, the Composite Fibers business unit
slowed its paper machines and used substitute grades of
abaca and substitute fibers to meet customer demands.
In addition, events may arise from the relatively unstable
political and economic environment in which the Philip-
pine facility operates that could interrupt the production
of abaca pulp. Management periodically evaluates the
availability of abaca pulp for our Composite Fibers busi-
ness unit. Any extended interruption of the Philippine
operation could have a material impact on our consoli-
dated 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.
AlternativeFuelMixtureCredits The U.S. Inter-
nal Revenue Code provides 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. We began mixing black liquor
and diesel fuel in late February 2009. 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. Since we began mixing and burning
eligible alternative fuels, we earned $107.8 million of
alternative fuel mixture credits.
According to the Internal Revenue Code, the tax
credit expired on December 31, 2009. Accordingly, we do
not expect to be eligible for additional credits.
Based on information currently available, we believe
that we will continue to have ready access, for the
foreseeable future, to all principal raw materials used in
the production of our products. The cost of our raw
materials is subject to significant change, including, but
not limited to, the costs of wood, pulp products, certain
commodity chemicals and energy.
Concentration of Customers
For each of the
past three years, no single customer represented more
than 10% of our consolidated net sales.
Competition Our industry is highly competitive.
We compete on the basis of product quality, customer
service, product development, price and distribution. We
offer our products throughout the United States and
globally in approximately 85 countries, exclusive of the
Concert acquisition. Competition in the markets in which
we participate comes from companies of various sizes,
some of which have greater financial and other capital
resources than we do.
There are a number of companies in the United
States that manufacture printing and converting papers.
We believe we are one of the leading producers of book
publishing papers and compete in these markets with,
among others, Domtar and Fraser. In the envelope sector
we compete with, among others, International Paper,
Domtar and Blue Ridge. In the carbonless paper and
forms market, we compete with Appleton Papers and, to
a lesser extent, Nekoosa Papers, Inc. In our Specialty
Papers’ engineered products markets and for the Com-
posite Fibers business unit’s markets, competition is
product line specific as the necessity for technical exper-
tise 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, Ahlstrom, International Paper, Sappi
and Stora Enso. Service, product performance, technolog-
ical advances and product pricing are important compet-
itive factors with respect to all our products. We believe
our reputation in these areas continues to be excellent.
Glatfelter 2009 Annual Report
5
Capital Expenditures Our business is capital
intensive and requires extensive expenditures for new and
enhanced equipment. These capital investments are nec-
essary for environmental compliance, normal upgrades or
replacements, business strategy and research and devel-
opment. For 2010, we expect capital expenditures to
total approximately $45 million to $50 million, inclusive
of Concert.
Environmental Matters We are subject to loss
contingencies resulting from regulation by various federal,
state, local and foreign governmental authorities with
respect to the environmental impact of our mills. To
comply with environmental laws and regulations, we
have incurred substantial capital and operating expendi-
tures in past years. For a discussion of environmental
matters, see Item 8 – Financial Statements and Supple-
mentary Data – Note 21.
Employees
The following table summarizes our workforce as of December 31, 2009:
Location(3)
U.S.
Total
Hourly
Salaried
Start
End
Union
Contract Period
Corporate/Spring Grove
943
581(1)
362
Jan. 2008
Jan. 2011
Chillicothe/Fremont
International
Gernsbach
Scaër
Lydney
Caerphilly
Philippines
1,424
1,073(1)
351
Aug. 2009
Aug. 2012
579
118
278
112
92
222(1)
357
69(1)
213(1)
82(1)
61(1)
49
65
30
31
(2)
(2)
(2)
(2)
(2)
Total worldwide employees
3,546
2,301
1,245
United Steelworkers International
Union and the Office and Professional
Employees International Union,
Industriegewerkschaft
Bergbau, Chemie, Energie-IG BCE
Confederation Generale des
Travailleurs & Force Ouvriere
Unite the Union
General Maintenance & Boiler’s
Newtech Pulp Workers Union
(1) Generally, the majority of the hourly employees included in the table above are covered by terms and conditions of the collective bargaining agree-
ments with the respective labor organization indicated.
(2) Employees of these facilities are generally covered by one-year labor agreements. Negotiations to renew the agreements are underway at various
times during the year. The terms and conditions of the existing agreements will remain in effect until new agreements are reached.
(3) The data does not include Concert, which employs approximately 590 people.
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
ITEM 1A RISK FACTORS
Our business and financial performance may be
adversely affected by the adverse global eco-
nomic 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 continue to be adversely affected by the
global economic downturn and by softness in targeted
markets. Our results could be adversely affected if eco-
nomic conditions further 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 man-
ner. The economic impact may cause customer insolven-
cies 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 prod-
ucts in the markets we serve, the markets for our paper
products are also significantly affected by changes in
industry capacity and output levels. There have been
periods of supply/demand imbalance in the pulp and
paper industry, which have caused pulp and paper prices
to be volatile. The timing and magnitude of price
increases or decreases in the pulp and paper market have
generally varied by region and by product type. A
sustained period of weak demand or excess supply would
likely adversely affect pulp and paper 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 in excess
of 85% of their annual pulp requirements. However, as a
result of selling timberlands over the past two years,
purchased timber will represent a larger source of the
total pulpwood used in our operations.
Our Philippine mill purchases abaca fiber to produce
abaca pulp, which we use to manufacture our tea bag
and coffee pods/pads and filter paper products at our
Gernsbach, Scaër and Lydney facilities. However, in the
past the supply of abaca fiber has been constrained
unexpectedly due to severe weather related damage to
the source crop as well as selection by land owners of
alternative uses of land in lieu of fiber producing activi-
ties. As a result of supply constraints, pricing pressure
persists.
The cost of many of our production materials and
costs, 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 and Composite Fibers’
business unit facilities. Also, in prior years other input
costs such as caustic, starch and others, have exhibited
extreme upward pricing pressure. In addition, our ven-
dors’ liquidity may be impacted by the economy creating
supply shortages.
We may not be able to pass increased raw materi-
als or energy costs on to our customers if the market will
not bear the higher price or where existing agreements
with our customers limit price increases. If price adjust-
ments 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 paper industry in which
we compete has been adversely affected by paper pro-
ducing capacity exceeding the demand for products and
by declining uncoated free sheet demand. As a result,
the uncoated free sheet industry has taken steps 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:
(cid:129) the entry of new competitors into the markets
we serve, including foreign producers;
(cid:129) the willingness of commodity-based paper pro-
ducers to enter our specialty markets when they
are unable to compete or when demand softens
in their traditional markets;
(cid:129) the aggressiveness of our competitors’ pricing
strategies, which could force us to decrease
prices in order to maintain market share;
(cid:129) our failure to anticipate and respond to changing
customer preferences;
(cid:129) the impact of emerging electronic-based substi-
tutes for certain of our products such as book
publishing and envelope;
(cid:129) our inability to develop new, improved or
enhanced products; and
(cid:129) 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
Glatfelter 2009 Annual Report
7
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:
(cid:129) anticipate and properly identify our customers’
needs and industry trends;
(cid:129) price our products competitively;
(cid:129) develop and commercialize new products and
applications in a timely manner;
(cid:129) differentiate our products from our competitors’
products; and
(cid:129) 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 poten-
tial liability for environmental matters.
We are subject to various environmental laws and
regulations that govern our operations, including dis-
charges 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 environ-
mental 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 burden-
some and that capital and operating expenditures neces-
sary 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 envi-
ronmental compliance. In addition, we may incur obliga-
tions 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.
We 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. In December 2009,
the United States District Court for the Eastern District of
Wisconsin issued a favorable order in the pending litiga-
tion relating to the Fox River site that while not fully
8
resolving our liability at the site, essentially dismissed the
plaintiffs’ claims against the defendants. The plaintiffs
have filed a notice of appeal of this order. There can be
no assurance that we will be able to successfully defend
against such appeal. We have financial reserves for
environmental matters, including the Fox River site, but
we cannot be certain that those reserves will be ade-
quate 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 21.
We may not be able to successfully integrate
the Concert acquisition or realize the potential
benefits of the acquisition, which could have a
material adverse effect on our results of
operations.
We may not be able to combine successfully the
operations of Concert with our operations. The integra-
tion of Concert with our operations will require signifi-
cant attention from management and may impose
substantial demands for other resources. Acquisitions
inherently involve risks, including those associated with
assimilating and integrating different business operations,
corporate cultures, personnel, infrastructures and technol-
ogies or products and increasing the scope, geographic
diversity and complexity of our operations. There may be
additional costs or liabilities that are not currently antic-
ipated, including unexpected loss of key employees or
customers of Concert and hiring additional management
and other critical personnel. The acquisition may also be
disruptive to our ongoing business and may not be
successfully received by our customers. The purchase of
Concert also involved a significant capital commitment,
and the return that we achieve on any capital invested
may be less than the return that we would achieve on
our other projects or investments. Any of these factors
could adversely affect our operations, financial results
and liquidity.
Furthermore, we may not realize the potential ben-
efits of the acquisition. Historically, Concert has been
dependent upon a limited number of customers and
product markets for a significant portion of its net sales.
One customer accounted for the majority of Concert’s net
sales for the three years ended December 31, 2009. The
loss of a significant customer could have a material
adverse effect on Concert’s operating results. In addition,
Concert’s sales in the feminine hygiene market accounted
for over three-fourths of its net sales in 2009. A decline
in Concert’s sales of feminine hygiene products or in
sales of feminine hygiene products generally could have a
material adverse effect on Concert’s operating results.
Customers in the airlaid non-woven fabric material mar-
ket, including the feminine hygiene market, may also
switch to less expensive products or otherwise reduce
demand for Concert’s products, thus reducing the size of
the markets in which Concert 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 oper-
ate 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 book publishing
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 struc-
tures. 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 down-
stream 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
requires a reliable and abundant supply of water. Such
mills rely on a local water body or water source for its
water needs and, therefore, is particularly impacted by
drought conditions or other natural or manmade interrup-
tions 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.
In addition, 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 Mind-
anao is located in a rural portion of the island and is
susceptible to attacks or power interruptions. The Mind-
anao mill supplies approximately 80% of the abaca pulp
that is used by our Composite Fibers business unit to
manufacture our coffee and tea bag filter papers. 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
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 Germany, France, the United Kingdom, the Philippines
and as a result of the recent completion of the Concert
Industries acquisition, in Canada. Our international sales
and operations are subject to a number of special risks,
Glatfelter 2009 Annual Report
9
market price for coal is approximately 10% higher than
the fixed price we pay under the contract. In addition,
because our Spring Grove facility produces more electric-
ity than it requires, we have historically sold the excess
electricity to the local power company under a long-term
co-generation contract, which expires March 31, 2010.
The fixed price we receive for electricity under this
contract is approximately 30% higher than current for-
ward prices for electricity. We are unable to renew this
co-generation contract upon its expiration on March 31,
2010 and will, instead, sell our excess electricity at
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
currently receive under our expiring co-generation
contract.
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. By
selling our excess electricity at market prices prevailing at
the time of sale, we may not be able to continue to sell
excess electricity at acceptable margins in relation to the
prices under our coal supply contract, if at all. A reduc-
tion in these margins or an inability to sell our excess
electricity could reduce the net revenues and overall
profitability of our Specialty Papers business unit, which
would have a material adverse affect on our consolidated
financial position and results of operations.
The impairment of financial institutions may
adversely affect us.
We, our customers and our vendors, have transac-
tions and borrowing arrangements with U.S. and foreign
commercial banks, and other financial institutions, some
of whom may be exposed to ratings downgrade, bank-
ruptcy, liquidity, default or similar risks, especially in
connection with recent financial market turmoil. A ratings
downgrade, bankruptcy, receivership, default or similar
event involving such institutions may adversely affect the
counterparty’s performance under letters of credit, limit
our access to capital, impact the ability of our suppliers
to provide us with raw materials needed for our produc-
tion, impact our customers’ ability to meet obligations to
us, or adversely affect our liquidity position, future
business and results of operations.
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 paper and pulp mills in
Germany, France, the United Kingdom and the Philippines
and as a result of the recent completion of the Concert
acquisition, in Canada. 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 and
Canadian dollar, we generate substantially greater cash
inflow in these currencies than we do outflow. However,
with respect to the British Pound Sterling, 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 compet-
itiveness 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
prices for sales of excess electricity compared
to the price we currently receive 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 affect on our consolidated financial
position and results of operations.
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. The current
10
An IRS audit of our 2009 tax return could result
in a change in the tax treatment of the alterna-
tive 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 busi-
nesses 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 Decem-
ber 31, 2009, we will have 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 of which
$29.7 million has been received in cash, $20.1 million
was used to reduce estimated interim tax payments and
$58.0 million will be claimed as refundable income tax
credits and is expected to be realized in cash primarily in
the first half of 2010. In the event that the IRS audits
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 simul-
taneously fund our operations, finance capital
expenditures, satisfy obligations and make divi-
dend 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 combina-
tion 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
Our leased corporate offices are located in York,
Pennsylvania. In addition, we lease office space for a
sales and distribution office in Moscow, Russia. As of
December 31, 2009, we owned and operated paper mills
located in Pennsylvania; Ohio; the United Kingdom; Ger-
many; and France. Our metallized paper production facil-
ity located in Caerphilly, Wales leases the building and
land associated with its operations. We also own and
operate a pulp mill in the Philippines. Substantially all of
the equipment used in our papermaking and related
operations is also owned. 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.
The following table summarizes the estimated pro-
duction capacity of each of our facilities as of Decem-
ber 31, 2009:
Estimated Annual Production
Capacity (short tons)
Specialty Papers
Spring Grove
Chillicothe
Composite Fibers
Gernsbach
Scaër
Lydney
Caerphilly
Philippines
332,000
68,000
400,000
7,500
40,000
11,800
6,000
16,800
17,000
13,000
Uncoated
Coated
Uncoated
Coated
Lightweight
Metallized
Lightweight
Lightweight
Metallized
Abaca pulp
The Spring Grove facility includes five uncoated
paper machines that have been rebuilt and modernized
from time to time with the capacity to produce 332,000
tons. 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 approxi-
mately 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.
Glatfelter 2009 Annual Report
11
The Chillicothe facility operates four paper machines
which together yield a potential annual production capac-
ity of uncoated and carbonless paper of approximately
400,000 tons. In addition, this location produces 7,500
tons per year of other coated paper. This facility also
includes a pulpmill that has a production capacity of
approximately 955 tons of bleached pulp per day.
The Composite Fibers business unit’s four facilities
operate a combined ten papermaking machines with the
capacity to produce approximately 60,700 tons of light-
weight paper on an annual basis. In addition, the
business unit has the capacity to produce an aggregate
of 27,500 tons of metallized papers from its lacquering
and metallizing operations in Gernsbach, Germany and
Caerphilly, Wales.
Our facility in the Philippines consists of a pulpmill
that supplies a majority of the abaca pulp requirements
of the Composite Fibers paper mills.
Concert, which was acquired in February 2010, has
annual rated capacity totaling approximately 84,000 met-
ric tons of airlaid products.
ITEM 3 LEGAL PROCEEDINGS
We are involved in various lawsuits that we con-
sider 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 State-
ments and Supplementary Data – Note 21.
ITEM 4 [RESERVED]
12
EXECUTIVE OFFICERS
The following table sets forth certain information
with respect to our executive officers as of March 15,
2010.
Name
Age
Office with the Company
George H. Glatfelter II
Dante C. Parrini
John P. Jacunski
David C. Elder
Thomas G. Jackson
Debabrata Mukherjee
Martin Rapp
Mark A. Sullivan
William T. Yanavitch II
58
45
44
41
44
40
50
55
49
Chairman and Chief Executive Officer
Executive Vice President and Chief
Operating Officer
Senior Vice President and Chief Financial
Officer
Vice President and Corporate Controller
Vice President General Counsel and
Corporate Secretary
Vice President and General Manager,
Specialty Papers Business Unit
Vice President and General Manager,
Composite Fibers Business Unit
Vice President Global Supply Chain
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 organiza-
tional meeting of the Board of Directors held immediately
after the annual meeting of shareholders.
George H. Glatfelter II is our Chairman and
Chief Executive Officer, positions he has held since Febru-
ary 2001. Mr. Glatfelter joined our company in January
1977. He also serves as a director of Met-Pro
Corporation.
Dante C. Parrini became Executive Vice President
and Chief Operating Officer in February 2005. Prior to
this, Mr. Parrini was Senior Vice President and General
Manager, a position he held beginning in January 2003.
Mr. Parrini previously was Vice President responsible for
Sales and Marketing.
John P. Jacunski became Senior Vice President &
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.
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, Gen-
PART II
ITEM 5 MARKETFORREGISTRANT’SCOMMON
EQUITY, RELATEDSTOCKHOLDERMATTERS
AND ISSUERPURCHASESOFEQUITY
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
2009
Fourth
Third
Second
First
2008
Fourth
Third
Second
First
High
Low
Dividend
$12.58
12.14
11.59
9.80
$ 13.69
15.76
15.76
15.44
$10.01
7.91
6.00
4.57
$ 7.50
12.51
13.51
12.85
$0.09
0.09
0.09
0.09
$ 0.09
0.09
0.09
0.09
As of March 12, 2010, we had 1,515 shareholders
of record.
eral Counsel and Secretary in June 2008. Since joining us
in November 2006, Mr. Jackson has held various posi-
tions 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 Octo-
ber 1999 to August 2005.
Debabrata Mukherjee was appointed Vice Presi-
dent & 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 – Compo-
site 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 opera-
tions and supply chain management responsibilities dur-
ing 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.
Glatfelter 2009 Annual Report
13
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, 2009, as a
result of changes in our industry, including the bank-
ruptcy of certain companies previously included in the old
peer group, we now compare our stock performance to
the S&P Small Cap 600 Paper Products index. This peer
index is comprised of Buckeye Technologies Inc., Clear-
water Paper Corp., Neenah Paper Inc., Schweitzer-Maud-
uit International and Wausau Paper Corp. The old peer
group consisted of AbitibiBowater, Inc., 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 bench-
mark index for stocks such as ours.
The graph assumes that the value of the investment
in our common stock, in each index, and in each of the
peer groups (including reinvestment of dividends) was
$100 on December 31, 2004 and charts it through
December 31, 2009.
$140
$120
$100
$80
$60
$40
$20
$0
12/04
12/05
12/06
12/07
12/08
12/09
Glatfelter
Russell 2000
Old Peer Group
S&P SmallCap 600 Paper Products
*$100 Invested on December 31, 2004 in stock or index, Including reinvestment of dividends.
Fiscal year ending December 31.
Copyright©2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
ITEM 6 SELECTED FINANCIAL DATA
As of or for the year ended December 31
Dollars in thousands, except per share
Net sales
Energy sales, net
Total revenue
Reversal of (shutdown and restructuring charges and unusual items)
Gains on dispositions of plant, equipment and timberlands, net
Gains from insurance recoveries
Net income (loss)
Earnings (loss) per share
Basic
Diluted
Total assets
Total debt
Shareholders’ equity
Cash dividends declared per common share
Shares outstanding
Capital expenditures
Depreciation and amortization
Tons sold
Number of employees
2009(1)
2008
2007
2006
2005
$1,184,010
13,332
$1,263,850
9,364
$1,148,323
9,445
$ 986,411
10,726
$ 579,121
10,078
1,197,342
—
898
—
123,442
2.70
2.70
1,190,294
254,583
510,704
0.36
45,706
26,257
61,256
818,905
3,546
1,273,214
856
18,468
—
57,888
1.28
1.27
1,057,309
313,285
342,707
0.36
45,434
52,469
60,611
829,354
3,633
1,157,768
(35)
78,685
—
63,472
1.41
1.40
1,287,067
313,185
476,068
0.36
45,141
28,960
56,001
799,512
3,854
997,137
(30,318)
17,394
205
(12,236)
(0.27)
(0.27)
1,225,643
397,613
388,368
0.36
44,821
44,460
50,021
721,892
3,704
589,199
(1,564)
22,053
20,151
38,609
0.88
0.87
1,044,977
207,073
432,312
0.36
44,132
31,024
50,647
498,593
1,958
(1) 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.
14
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 “antic-
ipates”, “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 state-
ments regarding expectations of, among others, net sales,
costs of products sold, non-cash pension expense, envi-
ronmental 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 expecta-
tions. 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.
ii.
iii.
iv.
v.
vi.
variations in demand for our products including the
impact of any unplanned market-related downtime,
or variations in product pricing;
changes in the cost or availability of raw materials
we use, in particular pulpwood, market pulp, pulp
substitutes, caustic soda and abaca fiber;
changes in energy-related costs and commodity
raw materials with an energy component;
our ability to develop new, high value-added Spe-
cialty Papers and Composite Fibers products;
our inability to renew our electricity sales agree-
ment resulting in market pricing that is currently
below historical margins in relation to our current
coal supply contract;
the impact of competition, changes in industry
paper production capacity, including the construc-
tion of new mills, the closing of mills and incre-
mental changes due to capital expenditures or
productivity increases;
vii.
the impairment of financial institutions as a result
of the current credit market conditions and any
resulting impact on us, our customers or our
vendors;
viii.
ix.
x.
xi.
xii.
xiii.
the gain or loss of significant customers and/or on-
going viability of such customers;
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;
risks associated with our international operations,
including local economic and political environments
and fluctuations in currency exchange rates;
geopolitical events, including war and terrorism;
disruptions in production and/or increased costs
due to labor disputes;
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
current or future acquisitions.
Introduction We manufacture, both domestically
and internationally, a wide array of specialty papers and
engineered products. Substantially all of our revenue is
earned from the sale of our products to customers in
numerous markets, including book publishing, envelope &
converting, carbonless papers and forms, food & bever-
age filter papers, decorative laminates for furniture and
flooring, metallized papers and other highly technical
niche markets.
Overview Our results of operations for 2009
when compared with 2008 were impacted by the weak
global economic conditions. Overall volumes shipped by
Specialty Papers declined slightly and Composite Fibers
declined 6.5% in the year-to-year comparison. As a result
of the soft demand for most of our products and our
efforts to reduce inventory, during the second quarter of
2009, we incurred significant market-related downtime at
many of our facilities which adversely affected results of
operations. This downtime continued within our Compos-
ite Fibers business unit into the third quarter, although to
a lesser extent. For 2009, we generated $163.9 million
of cash from operations, including alternative fuel mixture
credits, as a result of improved operations, inventory
reductions and effective working capital management
initiatives.
During 2009, we registered two of our facilities
with the U.S. Internal Revenue Service as alternative fuel
mixers based on their use of black liquor as an
Glatfelter 2009 Annual Report
15
alternative fuel source. Our 2009 results of operations
included, on a pre-tax basis, $107.8 million of alternative
fuel mixture credits, of which $29.7 million was received
in cash and another $20.1 million was used to offset
interim estimated tax payments. We expect to realize the
remaining $58.0 million of credits in the form of non-
taxable refundable income tax credits.
Specialty Papers’ operating income totaled
$55.9 million and $49.2 million for 2009 and 2008,
respectively. The improvement in operating income was
led by productivity improvements and cost reduction
initiatives and sales of renewable energy credits, partially
offset by the adverse impact of lower volumes and selling
prices. 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. During the year, we reduced Specialty
Papers’ inventories by 13.3%.
Our Composite Fibers business unit’s operating
income declined to $21.9 million from $25.0 million in
2008. Volumes shipped during 2009 declined 6.5%
compared to 2008 as a result of the weak economic
environment and our customers’ actions to reduce their
inventory levels. As a result of weak demand and our
inventory reduction efforts, during 2009 we incurred
unscheduled downtime totaling approximately 6,480 tons
of paper, or 9.4% of the unit’s total capacity for the
period.
In addition, our pre-tax results of operations in
2009 included $17.7 million of lower gains from the sale
of timberlands than what was realized in 2008. We also
recorded $7.0 million of pension expense in 2009 com-
pared with pension income of $16.1 million in 2008.
RESULTS OF OPERATIONS
2009 versus 2008
The following table sets forth summarized results of
operations:
Year Ended December 31
2009
2008
$1,184,010
269,764
160,405
123,442
2.70
$1,263,850
177,782
99,209
57,888
1.27
In thousands, except per share
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
16
The consolidated results of operations for 2009 and
2008 include the following items not considered to be
part of our core business operations:
In thousands, except per share
2009
Alternative fuel mixture credits
Acquisition related costs
2008
Gains on sale of timberlands
Reversal of shutdown and restructuring
charges
Acquisition integration costs
After-tax
Income (loss)
Diluted EPS
$95,764
(1,768)
$ 2.09
(0.04)
$ 10,984
$ 0.24
517
(889)
0.01
(0.02)
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 Units
Results of individual business
units are presented based on our management account-
ing practices and management structure. There is no
comprehensive, authoritative body of guidance for man-
agement 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 esti-
mated utilization of support area services or are included
in “Other and Unallocated” in the Business Unit Perfor-
mance table.
Management evaluates results of operations of the
business units before pension income or expense, alterna-
tive 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 our performance is evaluated internally and by
our Board of Directors.
Business Unit Performance
In thousands, except tons
Net sales
Energy sales, net
Total revenue
Cost of products sold
Gross profit (loss)
SG&A
Reversal of shutdown and restructuring charges
Gains on dispositions of plant, equipment and
timberlands
Total operating income (loss)
Non operating income (expense)
Year Ended December 31
Specialty Papers
2009
2008
Composite Fibers
2009
2008
Other and Unallocated
2008
2009
Total
2009
2008
$791,915
13,332
$833,899
9,364
$392,095
–
$429,952
–
$
–
–
(1)
–
$1,184,010
13,332
$1,263,850
9,364
805,247
693,949
111,298
55,408
–
–
55,890
–
843,263
739,481
103,782
54,596
–
–
49,186
–
392,095
334,378
57,717
35,779
–
429,952
366,791
63,161
38,206
–
–
(100,749)
100,749
19,070
–
(1)
(10,840)
10,839
5,095
(856)
1,197,342
927,578
1,273,214
1,095,432
269,764
110,257
–
177,782
97,897
(856)
–
–
(898)
(18,468)
(898)
(18,468)
21,938
–
24,955
–
82,577
(17,259)
25,068
(18,183)
160,405
(17,259)
99,209
(18,183)
Income (loss) before income taxes
$ 55,890
$ 49,186
$ 21,938
$ 24,955
$ 65,318
$ 6,885
$ 143,146
$
81,026
Supplementary Data
Net tons sold
Depreciation, depletion and amortization
Capital expenditures
738,841
$ 37,520
14,077
743,755
$ 35,010
20,878
80,064
$ 23,736
12,080
85,599
$ 25,601
31,591
$
–
–
100
$
–
–
–
$
818,905
61,256
26,257
$
829,354
60,611
52,469
Sales and Costs of Products Sold
In thousands
Year Ended December 31
2009
2008
Change
Net sales
Energy and related sales – net
$1,184,010
13,332
$1,263,850
9,364
$ (79,840)
3,968
Total revenues
Costs of products sold (1)
1,197,342
927,578
1,273,214
1,095,432
(75,872)
(167,854)
Gross profit
$ 269,764
$ 177,782
$ 91,982
We sell excess power generated by the Spring
Grove, PA facility pursuant to a long-term contract that
expires March 31, 2010. The following table summarizes
this activity for each of the past two years:
In thousands
Energy sales
Costs to produce
Net
2009
2008
Change
$ 20,128
(11,883)
$ 19,731
(10,367)
$
397
(1,516)
8,245
5,087
9,364
–
(1,119)
5,087
Gross profit as a percent of
Net sales
22.8%
14.1%
Renewable energy credits
(1) 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:
Business Unit
Specialty Papers
Composite Fibers
Total
Percent of total
2009
2008
66.9% 66.0%
33.1
34.0
100.0% 100.0%
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 reduc-
tion 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 approxi-
mately $6.6 million in 2009 compared to 2008.
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.
The market for such certificates is 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 additional sales of RECs in future
periods. In addition, the certification by the Public Utility
Commission of Ohio of our Chillicothe, OH facility as a
renewable energy generator was appealed by a consumer
advocacy group. While we believe the certification will be
upheld, we are unable to predict its ultimate outcome.
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 compar-
ison 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 prod-
ucts, 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.
Glatfelter 2009 Annual Report
17
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.
Alternative Fuel Mixture Credits
The U.S. Inter-
nal Revenue Code provides 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 applica-
tion to be registered as an alternative fuel mixer was
approved. We received a payment from the Internal
Revenue Service on June 30, 2009 in the amount of
$29.7 million for the alternative fuel mixture consumed
at our Spring Grove, PA and Chillicothe, OH facilities
during the period February 20, 2009 through May 17,
2009. Since we began mixing and burning eligible alter-
native fuels, we have earned $107.8 million of alternative
fuel mixture credits of which $29.7 million has been
received in cash, $20.1 million was used to reduce
estimated interim tax payments and $58.0 million will be
claimed as refundable income tax credits and is expected
to be realized in cash primarily in the first half of 2010.
We record all alternative fuel mixture credits as a reduc-
tion to cost of goods sold.
According to the Internal Revenue Code, the tax
credit expired on December 31, 2009.
Pension Expense/Income
The following table
summarizes the amounts of pension expense or income
recognized for 2009 compared to 2008:
In thousands
2009
2008
Change
Year Ended December 31
Recorded as:
Costs of products sold
SG&A expense
$(4,936)
(2,097)
$11,067
4,995
$(16,003)
(7,092)
Total
$(7,033)
$16,062
$(23,095)
The amount of pension expense or income recog-
nized 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. As discussed in Item 8 – Financial Statements –
Note 11, 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
18
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 Industries acquisition.
Gain on Sales of Plant, Equipment and Tim-
berlands 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
Other
Total
2008
Timberlands
Other
Total
319
n/a
$
951
–
$
906
(8)
$
951
$
898
4,561
n/a
$19,279
–
$18,649
(181)
$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% a year ago. 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 oper-
ated 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 opera-
tions 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:
In thousands
Net sales
Costs of products sold
SG&A expenses
Income taxes and other
Net income
Year Ended
December 31, 2009
Favorable
(unfavorable)
$(22,975)
24,116
3,233
883
$ 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-cur-
rency markets.
The consolidated results of operations for the years
ended December 31, 2008 and 2007 include the follow-
ing non-routine items:
RESULTS OF OPERATIONS
2008 versus 2007
The following table sets forth summarized results of
operations:
In thousands, except per share
2008
Gains on sale of timberlands
Reversal of shutdown and restructuring
charges
Acquisition integration costs
2007
Gains on sale of timberlands
Environmental remediation
Acquisition integration costs
After-tax
Income (loss)
Diluted EPS
$ 10,984
$ 0.24
517
(889)
$ 44,052
(15,979)
(1,569)
0.01
(0.02)
$ 0.97
(0.35)
(0.03)
These items increased earnings by $10.6 million, or
$0.23 per diluted share in 2008. Comparatively, the
items identified above increased earnings in 2007 by
$26.5 million, or $0.59 per diluted share.
Year Ended December 31
2008
2007
$1,263,850
177,782
99,209
57,888
1.27
$1,148,323
156,312
118,818
63,472
1.40
In thousands, except per share
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
Business Unit Performance
In thousands, except tons
Net sales
Energy sales, net
Total revenue
Cost of products sold
Gross profit (loss)
SG&A
Shutdown and restructuring charges
Gains on dispositions of plant, equipment and
timberlands
Total operating income (loss)
Non operating income (expense)
Income (loss) before income taxes
Supplementary Data
Net tons sold
Depreciation, depletion and amortization
Capital expenditures
Year Ended December 31
Specialty Papers
2008
2007
Composite Fibers
2008
2007
Other and Unallocated
Total
2008
2007
2008
2007
$833,899
9,364
843,263
739,481
103,782
54,596
–
–
49,186
–
$ 49,186
$802,293
9,445
811,738
721,216
90,522
56,561
–
–
33,961
–
$ 33,961
$429,952
–
429,952
366,791
63,161
38,206
–
–
24,955
–
$ 24,955
$346,030
–
346,030
287,606
58,424
32,541
–
–
25,883
–
$ 25,883
$
(1)
–
(1)
(10,840)
10,839
5,095
(856)
(18,468)
25,068
(18,183)
$ 6,885
$
–
–
–
(7,366)
7,366
27,042
35
(78,685)
58,974
(24,884)
$ 34,090
743,755
$ 35,010
20,878
726,657
$ 34,882
17,395
85,599
$ 25,601
31,591
72,855
$ 21,119
11,565
$
–
–
–
$
–
–
–
$1,263,850
9,364
1,273,214
1,095,432
177,782
97,897
(856)
(18,468)
99,209
(18,183)
81,026
829,354
60,611
52,469
$
$
$1,148,323
9,445
1,157,768
1,001,456
156,312
116,144
35
(78,685)
118,818
(24,884)
93,934
799,512
56,001
28,960
$
$
Sales and Costs of Products Sold
In thousands
Net sales
Energy sales – net
Year Ended December 31
2008
2007
Change
$1,263,850
9,364
$1,148,323
9,445
$115,527
(81)
Total revenues
Costs of products sold
1,273,214
1,095,432
1,157,768
1,001,456
115,446
93,976
Gross profit
$ 177,782
$ 156,312
$ 21,470
Gross profit as a percent of
Net sales
14.1%
13.6%
The following table sets forth the contribution to
consolidated net sales by each business unit:
Business Unit
Specialty Papers
Composite Fibers
Total
Percent of total
2007
2008
66.0%
34.0
69.9%
30.1
100.0% 100.0%
Net sales
totaled $1,263.9 million for the year
ended December 31, 2008, an increase of $115.5 million,
or 10.1%, compared to the previous year.
In the Specialty Papers business unit, net sales for
2008 increased $31.6 million to $833.9 million and
operating income totaled $49.2 million, an increase of
$15.2 million over the previous year. The improved
operating income is primarily due to progress achieved in
executing Chillicothe’s profit improvement initiatives and
improved operating efficiencies. Higher average selling
prices contributed $36.4 million of the increase in net
sales and volumes shipped increased 2.4%. These price
and volume increases were partially offset by expected
mix changes between carbonless papers and uncoated
papers, as well as lower sales of scrap paper. The
benefits of higher average selling prices were offset by
$37.7 million of higher costs, largely driven by fiber and
energy. Unplanned operating downtime at the Spring
Grove and Chillicothe facilities also reduced operating
results by $4.3 million in 2008 compared to 2007.
In Composite Fibers, net sales were $430.0 million
for 2008, an increase of $83.9 million from the previous
year. The completion of the November 30, 2007 Caer-
philly acquisition accounted for $40.9 million of the
increase in net sales, the translation of foreign currencies
Glatfelter 2009 Annual Report
19
benefited net sales by $14.4 million and higher average
selling prices contributed $16.3 million. Total volumes
shipped by this business unit increased 17.5%, including
a 4.3% increase in Food & Beverage paper product
shipments. Shipments of Composite Laminates were
down 1.5% primarily due to the weak housing and
related markets.
Energy and raw material costs in the Composite
Fibers business unit were $17.1 million higher than a
year ago, increasing at a rate faster than average selling
prices. Operating income for Composite Fibers declined
$0.9 million in the comparison and totaled $25.0 million
for 2008. During 2008, this unit’s results were adversely
impacted by an aggregate of $6.2 million due to operat-
ing issues, market related downtime and accelerated
depreciation related to completed or planned machine
upgrades.
Non-Cash Pension Income Non-cash pension
income resulted from the over-funded status of our
pension plans. The following summarizes non-cash pen-
sion income for 2008 compared to 2007:
In thousands
Recorded as:
Costs of products sold
SG&A expense
Total
Year Ended
December 31
2008
2007
Change
$11,067
4,995
$16,062
$ 8,846
4,050
$12,896
$2,221
945
$3,166
The amount of pension 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. As
discussed in Item 8 – Financial Statements and Supple-
mentary Data – Note 11, the fair value of the plans’
assets has declined approximately 29% since the begin-
ning of 2008.
SG&A expenses decreased $18.2 million in the
year-to-year comparison and totaled $97.9 million in
2008 compared to $116.1 million a year ago. The
decrease was primarily due to a $26.0 million charge for
the Fox River environmental matter in 2007 partially
offset by the inclusion in 2008 of a full year’s result for
the Caerphilly acquisition.
Gain on Sales of Plant, Equipment and
Timberlands During 2008 and 2007, we completed sales
of timberlands which are included in the following table:
Dollars in thousands
Acres
Proceeds
Gain
2008
Timberlands
Other
Total
2007
Timberlands
Other
Total
20
4,561
n/a
37,448
n/a
$19,279
–
$19,279
$84,409
377
$84,786
$18,649
(181)
$18,468
$78,958
(273)
$78,685
We received cash proceeds in connection with each
of the asset sales set forth above, with the exception of
the sale of approximately 26,000 acres of timberland
completed in November 2007. 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 mil-
lion 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 2009, GPW
Virginia received aggregate interest payments of $1.5 mil-
lion under the Glawson note receivable and the Company
Note and, in turn, made interest payments of $1.1 million
under the 2008 Term Loan.
Income taxes During 2008, we recorded income
tax expense totaling $23.1 million on pre-tax income of
$81.0 million. The comparable amounts in 2007 were
income taxes of $30.5 million on a taxable income of
$93.9 million. The effective rate in 2007 included a
$5.7 million deferred income tax benefit related to the
reduction of German corporate income tax rates passed
into law July 2007. Overall, the decline in the effective
tax rate from 2007 to 2008 was primarily due to higher
gains from timberland sales in the prior year which are
taxed at a higher rate.
Foreign Currency
In 2008, we owned and oper-
ated 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 2008, Euro functional currency operations
generated approximately 20.6% of our sales and 19.9%
of operating expenses and British Pound Sterling opera-
tions represented 10.6% of net sales and 11.2% 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:
In thousands
Net sales
Costs of products sold
SG&A expenses
Income taxes and other
Net income
Year Ended
December 31, 2008
Favorable
(unfavorable)
$ 14,360
(10,435)
(855)
(1,033)
$ 2,037
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 signifi-
cant expenditures for new or enhanced equipment, for
environmental compliance matters including, but not limited
to, the Clean Air Act, to support our research and develop-
ment 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:
In thousands
Cash and cash equivalents at beginning of period
Cash provided by (used for)
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net cash provided
Year Ended
December 31
2009
2008
$ 32,234
$ 29,833
163,868
12,544
(75,329)
2,103
53,425
(33,190)
(12,879)
(4,955)
103,186
2,401
Cash and cash equivalents at end of period
$135,420
$ 32,234
At the end of the 2009, we had $135.4 million in
cash and cash equivalents and $194.3 million available
under our revolving credit agreement, which matures in
April 2011. Operating cash flow improved by
$110.4 million primarily due to cash generated from
working capital management initiatives including
$28.2 million of cash in 2009 from reduced inventory
compared with a use of $10.0 million in 2008 and
$16.5 million from lower accounts receivable in 2009
compared with a $17.7 million use in 2008. In addition,
$29.7 million of cash was received from alternative fuel
mixture credits. In January 2009, we used $6.5 million to
satisfy a commitment we had to fund certain Fox River
environmental remediation activities.
Net cash provided from investing activities totaled
$12.5 million in 2009 compared with a net use of
$33.2 million in 2008. The improvement reflects the
collection of a $37.9 million note receivable in connec-
tion with the unwinding of the 2003 timberland install-
ment sale, and $26.2 million from reduced capital
expenditures in connection with the deferral of discretion-
ary capital expenditures.
Net cash used for financing activities totaled
$75.3 million in 2009, primarily reflecting reductions of
debt including $34.0 million repaid in connection with
the above referenced unwinding of the 2003 timberland
installment sale, term loan principal repayments of
$16.0 million and reduced usage under our revolving
credit facility.
During 2009 and 2008, cash dividends paid on
common stock totaled $16.6 million and $16.5 million,
respectively. Our Board of Directors determines what, if any,
dividends will be paid to our shareholders. Dividend pay-
ment 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:
In thousands
Revolving credit facility, due April 2011
Term loan, due April 2011
71⁄8% Notes, due May 2016
2008 Term Loan, due January 2013
Note payable, due March 2013
Total long-term debt
Less current portion
December 31
2009
2008
$
–
14,000
200,000
36,695
–
$
6,724
30,000
200,000
36,695
34,000
250,695
(13,759)
307,419
(13,759)
Long-term debt, excluding current portion
$236,936
$293,660
The significant terms of the debt instruments are
more fully discussed in Item 8 – Financial Statements and
Supplementary Data – Note 17.
We are subject to loss contingencies resulting from
regulation by various federal, state, local and foreign
governmental authorities with respect to the environmen-
tal impact of mills we operate, or have operated. To
comply with environmental laws and regulations, we
have incurred substantial capital and operating expendi-
tures in past years. We anticipate that environmental
regulation of our operations will continue to be burden-
some and that capital and operating expenditures neces-
sary to comply with environmental regulations will
continue, and perhaps increase, in the future. 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
Glatfelter 2009 Annual Report
21
Statements and Supplementary Data – Note 21 for a
summary of significant environmental matters.
On February 5, 2010, we and certain of our subsid-
iaries (the “Guarantors”) issued and sold $100 million in
aggregate principal amount of 71⁄8% Senior Notes due
2016 (the “Notes”). The Notes were issued at 95.0% of
the principal amount. We used the net proceeds from the
sale, along with borrowings under our revolving credit
facility and cash on hand, to fund the acquisition of
Concert Industries Corp. See Item 8 – Financial
Statements and Supplementary Data – Note 24 for a
summary of these transactions.
We will pay interest on the Notes on May 1 and
November 1 of each year, beginning on May 1, 2010. The
Notes will mature on May 1, 2016. The Notes are senior
unsecured obligations and will rank equally with our other
and future senior unsecured obligations. The Notes are
guaranteed, jointly and severally, on a senior unsecured basis,
by certain of our current and future domestic subsidiaries.
We may redeem some or all of the notes at any
time and from time to time on or after May 1, 2011 at
the applicable redemption price plus accrued and unpaid
interest to the date of redemption. We have the option
to redeem the Notes in whole, but not in part, prior to
May 1, 2011 at a redemption price equal to 100% of
the principal amount plus accrued and unpaid interest
and a make-whole premium.
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 facili-
ties. However, as discussed in Item 8 – Financial State-
ments and Supplementary Data – Note 21, an
unfavorable outcome of various environmental matters
could have a material adverse impact on our consolidated
financial position, liquidity and/or results of operations.
Our credit agreement, as amended, contains a
number of customary compliance covenants. In addition,
both the Notes and our previously issued $200 million in
aggregate principal amount of 71⁄8% Senior Notes due
2016 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 there-
under. As of December 31, 2009, we met all of the
requirements of our debt covenants.
Off-Balance-Sheet Arrangements As of Decem-
ber 31, 2009 and 2008, we had not entered into any off-
balance-sheet arrangements. Financial derivative instru-
ments to which we are a party and guarantees of indebt-
edness, which solely consist of obligations of subsidiaries
and a partnership, are reflected in the condensed consoli-
dated balance sheets included herein in Item 8 – Financial
Statements and Supplementary Data.
Contractual Obligations
The following table sets forth contractual obligations as of December 31, 2009:
In millions
Long-term debt(1)
Operating leases(2)
Purchase obligations(3)
Other long term obligations (4),(5)
Total
Payments Due During the Year
Ended December 31,
2011 to
2012
2013 to
2014
2015 and
beyond
$ 30
5
69
20
$124
$66
3
–
26
$95
$219
7
–
47
$273
Total
2010
$344
20
163
104
$ 29
5
94
11
$631
$139
(1) Represents principal and interest payments due on long-term debt. At December 31, 2009, we had $200.0 million of debt maturing in May 2016
and bearing a fixed rate of interest at 71⁄8%, payable semiannually, a $36.7 million note maturing in January 2013 bearing interest at six-month
reserve adjusted LIBOR plus a margin rate of 1.20% per annum, and a $34.0 million note maturing in March 2013 and bearing a fixed rate of
interest of 3.10%. The amounts set forth above do not include the $100 million Notes issued in February 2010 scheduled to mature in 2016.
(2) Represents rental agreements for various land buildings, and computer and office equipment.
(3) Represents open purchase order commitments and other obligations, primarily for raw material forward purchases and pulpwood contracts with min-
imum 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, 2009 or expectations based on historical experience and/or current market conditions.
(4) Primarily represents expected benefits to be paid pursuant to medical retirement 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 9, “Income Taxes”, such amounts totaled $40.1 million at December 31, 2009.
22
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 gener-
ally accepted in the United States of America. The prepa-
ration 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 esti-
mates, including those related to inventories, long-lived
assets, pension and post-retirement obligations, environ-
mental 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 signif-
icant 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 and intangible assets periodically or when-
ever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Our evalua-
tions include analyses based on the cash flows generated
by the underlying assets, profitability information, includ-
ing 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
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 technolo-
gies. These accruals are adjusted periodically as assess-
ment and remediation actions continue and/or further
legal or technical information develops. Such undis-
counted 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
Glatfelter 2009 Annual Report
23
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 Consol-
idated Financial Statements. Refer to Item 8 – Financial
Statements and Supplementary Data – Notes to Consoli-
dated Financial Statements for additional accounting
policies.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dollars in thousands
Long-term debt
Average principal outstanding
At fixed interest rates – Bond
At variable interest rates
Weighted – average interest rate
Fixed interest rate debt – Bond
Variable interest rate debt
2010
Year Ended December 31
2012
2013
2011
At December 31, 2009
2014
Carrying Value
Fair Value
$200,000
43,815
$200,000
36,815
$200,000
36,695
$200,000
1,407
$200,000
–
$200,000
50,695
$196,750
51,209
$250,695
$247,959
7.13%
1.57
7.13%
1.65
7.13%
1.66
7.13%
1.66
7.13%
–
The table above presents the average principal
outstanding and related interest rates for the next five
years for debt outstanding as of December 31, 2009. Fair
values included herein have been determined based upon
rates currently available to us for debt with similar terms
and remaining maturities. The amounts set forth above
do not give effect to the issuance in February 2010 of
$100 million 71⁄8% senior notes due May 2016. These
notes are described more fully in Item 8 – Financial
Statements and Supplementary Data, Note 24.
Our market risk exposure primarily results from
changes in interest rates and currency exchange rates. At
December 31, 2009, we had long-term debt outstanding
of $250.7 million, of which $50.7 million or 20.2% was
at variable interest rates. Variable-rate debt outstanding
represents i) borrowings under our revolving credit facility
and term loans that accrue interest based on the
domestic prime rate or a Eurocurrency rate, at our option,
plus a margin; and ii) cash collateralized borrowing
incurred in connection with the 2007 installment timber-
land sale that accrues interest based on 6 month LIBOR
plus a margin. At December 31, 2009, the weighted-
average interest rate paid was approximately 1.57%. 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 2009, Euro functional currency opera-
tions 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.
24
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 maintain-
ing 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 reason-
able assurance regarding the reliability of financial report-
ing 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, 2009, 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 Orga-
nizations of the Treadway Commission (COSO). Manage-
ment has determined that the Company’s internal control
over financial reporting as of December 31, 2009 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 gener-
ally accepted in the United States.
The Company’s internal control over financial report-
ing includes policies and procedures that pertain to the
maintenance of records that, in reasonable detail, accu-
rately 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 prin-
ciples generally accepted in the United States, and that
receipts and expenditures are being made only in accor-
dance 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 report-
ing as of December 31, 2009, 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, 2009.
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 misstate-
ments 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 circum-
vented 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. Projec-
tions 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.
Glatfelter 2009 Annual Report
25
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, 2009, based on
criteria established in Internal Control – Integrated Frame-
work issued by the Committee of Sponsoring Organiza-
tions of the Treadway Commission. 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 the accompanying Man-
agement’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 assur-
ance about whether effective internal control over finan-
cial 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 circum-
stances. 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 offi-
cers, or persons performing similar functions, and effected
by the company’s board of directors, management, and
other personnel to provide reasonable assurance regard-
ing the reliability of financial reporting and the prepara-
tion 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 disposi-
tions of the assets of the company; (2) provide
26
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) pro-
vide 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 con-
trol 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 inade-
quate 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, 2009, 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 state-
ments and financial statement schedule as of and for the
year ended December 31, 2009 of the Company and our
report dated March 16, 2010 expressed an unqualified
opinion on those financial statements and financial state-
ment schedule.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 16, 2010
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 subsidiar-
ies (the “Company”) as of December 31, 2009 and
2008, and the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2009. 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 assur-
ance about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclo-
sures 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 state-
ments present fairly, in all material respects, the financial
position of P. H. Glatfelter Company and subsidiaries as
of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three
years in the period ended December 31, 2009, in confor-
mity 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, present fairly, in all material respects, the informa-
tion 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, 2009, based
on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Orga-
nizations of the Treadway Commission and our report
dated March 16, 2010 expressed an unqualified opinion
on the Company’s internal control over financial
reporting.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 16, 2010
Glatfelter 2009 Annual Report
27
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share
Net sales
Energy and related sales – net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative expenses
(Reversals of) Shutdown and restructuring charges
Gains on disposition of plant, equipment and timberlands, net
Operating income
Other nonoperating income (expense)
Interest expense
Interest income
Other – net
Total other nonoperating expense
Income before income taxes
Income tax provision
Net income
Weighted average shares outstanding
Basic
Diluted
Earnings per share
Basic
Diluted
2009
Year Ended December 31
2008
2007
$1,184,010
13,332
$1,263,850
9,364
$1,148,323
9,445
1,197,342
927,578
1,273,214
1,095,432
1,157,768
1,001,456
269,764
110,257
–
(898)
160,405
(19,220)
1,886
75
(17,259)
143,146
19,704
177,782
97,897
(856)
(18,468)
99,209
(23,160)
4,975
2
(18,183)
81,026
23,138
156,312
116,144
35
(78,685)
118,818
(29,022)
3,933
205
(24,884)
93,934
30,462
$ 123,442
$
57,888
$
63,472
45,678
45,774
45,247
45,572
45,035
45,422
$
$
2.70
2.70
$
1.28
1.27
1.41
1.40
The accompanying notes are an integral part of the consolidated financial statements.
28
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except par values
Assets
Current assets
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts: 2009 – $2,888; 2008 –
$2,633)
Inventories
Prepaid expenses and other current assets
Total current assets
Plant, equipment and timberlands – net
Other long-term assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt
Short-term debt
Accounts payable
Dividends payable
Environmental liabilities
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity
Common stock, $.01 par value; authorized – 120,000,000 shares; issued –
54,361,980 shares (including shares in treasury: 2009 – 8,655,826; 2008 –
8,928,004)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive income (loss)
Less cost of common stock in treasury
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31
2009
2008
$ 135,420
$
32,234
119,319
168,370
96,947
520,056
470,632
199,606
132,635
193,354
33,596
391,819
493,564
171,926
$1,190,294
$1,057,309
$
13,759
3,888
63,604
4,170
440
100,249
186,110
236,936
96,668
159,876
679,590
–
$
13,759
5,866
59,750
4,089
5,734
100,904
190,102
293,660
90,158
140,682
714,602
–
544
46,746
711,765
(119,885)
639,170
(128,466)
544
45,806
605,001
(176,133)
475,218
(132,511)
510,704
342,707
$1,190,294
$1,057,309
The accompanying notes are an integral part of the consolidated financial statements.
Glatfelter 2009 Annual Report
29
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
Operating activities
Net income
Adjustments to reconcile to net cash provided by operations:
Depreciation, depletion and amortization
Pension expense (income), net of unfunded benefits paid
(Reversals of) shutdown and restructuring charges
Deferred income taxes
Gains on dispositions of plant, equipment and timberlands, net
Share-based compensation
Alternative fuel mixture credits, net of credits applied to taxes due
Change in operating assets and liabilities
Accounts receivable
Inventories
Prepaid and other current assets
Accounts payable
Environmental matters
Accruals and other current liabilities
Other
Net cash provided by operations
Investing activities
Expenditures for purchases of plant, equipment and timberlands
Proceeds from disposal of plant, equipment and timberlands
Proceeds from timberland installment sale note receivable
Acquisitions, net of cash acquired
Net cash provided (used) by investing activities
Financing activities
Net repayments of revolving credit facility
Net (repayments of) proceeds from other short-term debt
Repayments of $100 million term loan facility
(Repayments of) proceeds from borrowing under Term Loans due 2013
Payment of dividends
Proceeds and excess tax benefits from stock options exercised and other
Net cash used by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Year Ended December 31
2008
2009
2007
$123,442
$ 57,888
$ 63,472
61,256
6,343
–
(22,981)
(898)
4,599
(57,946)
16,542
28,207
1,451
2,390
(7,728)
6,676
2,515
60,611
(16,062)
(856)
3,265
(18,468)
4,350
–
(17,668)
(9,975)
871
4,264
(13,012)
(10,557)
8,774
56,001
(12,896)
35
8,004
(78,685)
3,850
–
16,662
8,493
(2,461)
(10,045)
26,000
20,408
1,494
163,868
53,425
100,332
(26,257)
951
37,850
–
(52,469)
19,279
–
–
(28,960)
41,616
–
(7,923)
12,544
(33,190)
4,733
(6,725)
(2,008)
(16,000)
(34,000)
(16,596)
–
(75,329)
2,103
103,186
32,234
(24,197)
2,927
(13,000)
36,695
(16,469)
1,165
(12,879)
(4,955)
2,401
29,833
(30,656)
(6,916)
(53,000)
–
(16,350)
7,551
(99,371)
2,154
7,848
21,985
Cash and cash equivalents at the end of period
$135,420
$ 32,234
$ 29,833
Supplemental cash flow information
Cash paid for
Interest
Income taxes
$ 17,338
16,634
$ 21,243
20,011
$ 28,498
2,614
The accompanying notes are an integral part of the consolidated financial statements.
30
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2009, 2008 and 2007
In thousands
Balance at January 1, 2007
Net income
Foreign currency translation adjustments
Change in benefit plans’ net funded status, net of tax benefit of $7,167
Other comprehensive income
Comprehensive income
Cumulative effect of adopting of FIN 48
Tax effect on employee stock options exercised
Cash dividends declared ($0.36 per share)
Share-based compensation expense – RSU
Delivery of treasury shares
Performance Shares
401(k) plans
Director compensation
Employee stock options exercised – net
Balance at December 31, 2007
Comprehensive income
Net income
Foreign currency translation adjustments
Change in benefit plans’ net funded status, net of tax benefit of $92,570
Other comprehensive income
Comprehensive income
Cumulative effect of adopting of FIN 48
Tax effect on employee stock options exercised
Cash dividends declared ($0.36 per share)
Share-based compensation expense
Delivery of treasury shares
RSUs
401(k) plans
Director compensation
Employee stock options exercised – net
Balance at December 31, 2008
Comprehensive income
Net income
Foreign currency translation adjustments
Change in benefit plans’ net funded status, net of taxes of $27,164
Other comprehensive income
Comprehensive income
Cash dividends declared ($0.36 per share)
Share-based compensation expense
Delivery of treasury shares
RSUs
401(k) plans
Director compensation
Common
Stock
Capital in
Excess of
Par Value
$ 544
$ 42,288
Retained
Earnings
$ 519,489
63,472
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
$ (32,337)
$ (141,616)
Total
Shareholders’
Equity
$ 388,368
63,472
24,966
11,432
36,398
36,398
99,870
(2,974)
89
(16,379)
2,348
3,134
163
1,449
3,049
162
1,563
(2,974)
(16,379)
89
2,348
85
1
(114)
544
44,697
563,608
4,061
(136,842)
476,068
(32,029)
(148,165)
(180,194)
57,888
(16,495)
38
3,244
(1,739)
(248)
(43)
(143)
57,888
(180,194)
(122,306)
38
(16,495)
3,244
(339)
1,520
163
814
1,400
1,768
206
957
544
45,806
605,001
(176,133)
(132,511)
342,707
123,442
(16,678)
11,941
44,307
56,248
3,502
(1,483)
(995)
(84)
123,442
56,248
179,690
(16,678)
3,502
(203)
1,522
164
1,280
2,517
248
Balance at December 31, 2009
$544
$46,746
$711,765
$(119,885)
$(128,466)
$510,704
The accompanying notes are an integral part of the consolidated financial statements.
Glatfelter 2009 Annual Report
31
P. H. GLATFELTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
P. H. Glatfelter Company and subsidiaries (“Glatfel-
ter”) is a manufacturer of specialty papers and engi-
neered products. Headquartered in York, Pennsylvania,
our manufacturing facilities are located in Spring Grove,
Pennsylvania; Chillicothe and Freemont, Ohio; Gloucester-
shire (Lydney), England; Caerphilly, Wales, Gernsbach,
Germany; Scaër, France; and the Philippines. Our products
are marketed throughout the United States and in over
85 other countries, either through wholesale paper mer-
chants, 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 finan-
cial statements in conformity with accounting principles
generally accepted in the United States of America
requires management to make estimates and assump-
tions 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 aver-
age-cost method. Inventories at our foreign operations
are valued using a method that approximates average
cost.
Plant, Equipment and Timberlands
For finan-
cial reporting purposes, depreciation is computed using
the straight-line method over the estimated useful lives
of the respective assets.
32
The range of estimated service lives used to calcu-
late financial reporting depreciation for principal items of
plant and equipment are as follows:
Buildings
Machinery and equipment
Other
10 – 45 Years
7 – 35 Years
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 undis-
counted cash flows is less than the carrying value of the
asset, the asset’s fair value is estimated and an impair-
ment loss is recognized for any deficiencies. Goodwill is
reviewed for impairment on a discounted cash flow basis
at least annually. Impairment losses, if any, are recog-
nized for the amount by which the carrying value of the
asset exceeds its fair value.
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, if any, 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
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.
Effective January 1, 2007, 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 inter-
pretation of FASB Statement No. 109”). Significant judg-
ment 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 ulti-
mate 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 examina-
tions for the current or prior years in determining the
adequacy of our provision for income taxes. We continu-
ally assess the likelihood and amount of potential adjust-
ments 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
Our subsidiaries
outside the United States use their local currency as the
functional currency. Accordingly, translation gains and
losses and the effect of exchange rate changes on
transactions designated as hedges of net foreign invest-
ments are included as a component of other comprehen-
sive 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. We record revenue
net of an allowance for customer returns and rebates.
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 State-
ments of Income. Our current contract to sell electricity
generated in excess of our own use expires in the year
2010 and requires that the customer purchase all of our
excess electricity up to a certain level. The price for the
electricity is determined pursuant to a formula and varies
depending upon the amount sold in any given year.
Revenue from renewable energy credits is recog-
nized 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 technolo-
gies. Costs related to environmental remediation are
charged to expense. These accruals are adjusted periodi-
cally as assessment and remediation actions continue
and/or further legal or technical information develops.
Such undiscounted liabilities are exclusive of any insur-
ance 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 envi-
ronmental 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 Comprehen-
sive Income at December 31, 2009 consisted of a loss of
$136.3 million from additional defined benefit liabilities,
net of tax, and $16.4 million of gains from foreign
currency translation adjustments.
Earnings Per Share
Basic earnings per share are
computed by dividing net income by the weighted-aver-
age 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 equiva-
lents 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 finan-
cial 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.
Glatfelter 2009 Annual Report
33
We use the following valuation techniques to mea-
sure fair value for our assets and liabilities:
165 people at the time of the acquisition and had 2007
revenues of approximately $53.4 million.
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 esti-
mates of assumptions that market participants
would use in pricing the asset or liability.
The amounts reported on the Consolidated Balance
Sheets for cash and cash equivalents, accounts receivable,
other assets, and short-term debt approximate fair value.
3. RECENT PRONOUNCEMENTS
In June 2009, the FASB issued Statement of Finan-
cial Accounting Standards (“SFAS”) No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of
GAAP, a replacement of SFAS No. 162” (“SFAS 168”) as
codified under ASC 105 “Generally Accepted Accounting
Principles.” SFAS No. 168 became the source of authori-
tative GAAP recognized by the FASB. SFAS No. 168 was
effective for financial statements issued for interim and
annual periods ending after September 15, 2009. On the
effective date of SFAS No. 168, the ASC superseded all
then-existing non-SEC accounting and reporting stan-
dards. The issuance of SFAS No. 168 requires references
to authoritative US GAAP to coincide with the appropri-
ate section of the ASC. Accordingly, this standard did not
have an impact on our financial condition or results of
operations.
4. ACQUISITIONS
Metallised Products Limited
On November 30,
2007, through Glatfelter-UK Limited (“GLT-UK”), a
wholly-owned subsidiary, we completed our acquisition of
Metallised Products Limited (“MPL”), a privately owned
company that manufactures a variety of metallized paper
products for consumer and industrial applications. MPL is
based in Caerphilly, Wales.
Under terms of the agreement, we agreed to
purchase the stock of MPL for $7.2 million cash and
assumed $5.8 million of debt in addition to $1.4 million
of transaction costs. The acquisition was financed from
our existing cash balance. This facility employed about
34
The following table summarizes the allocation of
the purchase price to assets acquired and liabilities
assumed:
In thousands
Assets
Cash
Accounts receivable
Inventory
Property and equipment
Other assets
Goodwill
Total
Liabilities
Acquisition related liabilities including accounts payable and
accrued expenses
Long term debt
Total
Total purchase price
$
730
7,718
4,731
9,663
903
2,239
25,984
11,783
5,830
17,613
$ 8,371
5. 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 received a payment from
the Internal Revenue Service on June 30, 2009 in the
amount of $29.7 million for the alternative fuel mixture
consumed at our Spring Grove, PA and Chillicothe, OH
facilities during the period February 20, 2009 through
May 17, 2009. Since we began mixing and burning
eligible alternative fuels, we have earned $107.8 million
of alternative fuel mixture credits of which $29.7 million
has been received in cash, $20.1 million was used to
reduce estimated interim tax payments and $58.0 million
will be claimed as refundable income tax credits and is
expected to be realized in cash primarily in the first half
of 2010. We record all alternative fuel mixture credits as
a reduction to cost of goods sold and the net credit to
be claimed is recorded under the caption “Prepaid and
other Current Assets” in the accompanying Consolidated
Balance Sheets.
The alternative fuel mixture credit expired on
December 31, 2009.
6.
ENERGY AND RELATED SALES, NET
We sell excess power generated by the Spring
Grove, PA facility pursuant to a long-term contract that
expires March 31, 2010. In addition we 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
Energy sales
Costs to produce
Net energy sales
Renewable energy credits
Total energy and related sales , net
2009
2008
2007
$20,128
(11,883)
8,245
5,087
$13,332
$19,731
(10,367)
9,364
–
$9,364
$19,683
(10,238)
9,445
–
$9,445
7. GAIN ON DISPOSITIONS OF PLANT, EQUIP-
MENT AND TIMBERLANDS
During 2009, 2008 and 2007, we completed sales
of timberlands. The following table summarizes these
transactions:
Dollars in thousands
Acres
Proceeds
Gain
2009
Timberlands
Other
Total
2008
Timberlands
Other
Total
2007
Timberlands
Other
Total
319
n/a
4,561
n/a
37,448
n/a
$
$
951
–
951
$19,279
–
$19,279
$84,409
377
$84,786
$
$
906
(8)
898
$18,649
(181)
$18,468
$78,958
(273)
$78,685
The amounts set forth above for 2008 include a
$2.9 million gain from the sale of 246 acres of timber-
lands for cash consideration to George H. Glatfelter II,
our chairman and chief executive officer, and his spouse.
The 246 acres of timberlands had been independently
appraised and marketed for public sale by the Company.
Based on those appraisals and the marketing process
that was pursued, the Company and its Board believed
that the sale price agreed to with the Glatfelters consti-
tuted fair market value for the timberland. In accordance
with terms of our credit facility, we are required to use
the proceeds from timberland sales to reduce amounts
outstanding under our term loan.
In connection with the asset sales set forth above,
we received cash proceeds with the exception of the sale
of approximately 26,000 acres of timberland completed
in November 2007. As consideration for the timberland
sold in this transaction, we received a $43.2 million,
20-year interest-bearing note due from the buyer, Glaw-
son Investments Corp. (“Glawson”), a Georgia corpora-
tion, and GIC Investments LLC, a Delaware limited
liability company owned by Glawson. The note receivable
is fully secured by a letter of credit issued by The Royal
Bank of Scotland plc.
8.
EARNINGS PER SHARE
The following table sets forth the details of basic
and diluted earnings per share (EPS):
In thousands, except per share
2009
2008
2007
Net income
$123,442
$57,888
$63,472
Weighted average common shares
outstanding used in basic EPS
Common shares issuable upon exercise of
dilutive stock options, restricted stock
awards and performance awards
Weighted average common shares
outstanding and common share
equivalents used in diluted EPS
Basic EPS
Diluted EPS
45,678
45,247
45,035
96
325
387
45,774
$2.70
2.70
45,572
$1.28
1.27
45,422
$1.41
1.40
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
Potential common shares
2009
2008
2007
2,215
1,132
438
9.
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 provision for income taxes from operations
consisted of the following:
In thousands
Current taxes
Federal
State
Foreign
Deferred taxes and other
Federal
State
Foreign
Income tax provision
Year Ended December 31
2008
2009
2007
$29,848
4,050
8,787
42,685
(23,943)
3,760
(2,798)
(22,981)
$19,704
$5,647
2,609
11,617
19,873
9,026
86
(5,847)
3,265
$23,138
$8,388
4,422
6,397
19,207
11,766
2,674
(3,185)
11,255
$30,462
The amounts set forth above for total deferred taxes
and other included a deferred tax benefit of $23.0 million
in 2009 and a deferred tax provision of $3.0 million and
$8.0 million in 2008 and 2007, respectively. Other taxes
totaled $0, $0.2 million, and $3.3 million in 2009, 2008
and 2007, respectively, related to uncertain tax positions
expected to be taken in future tax filings.
Glatfelter 2009 Annual Report
35
The following are the domestic and foreign compo-
nents of pretax income from operations:
various state tax credit carryforwards totaling $0.4 million,
which expire between 2014 and 2027.
In thousands
United States
Foreign
Total pretax income
Year Ended December 31
2008
2009
2007
$122,657
20,489
$143,146
$61,387
19,639
$81,026
$70,051
23,883
$93,934
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 is as follows:
Year Ended December 31
2008
2009
2007
Federal income tax provision at statutory
rate
State income taxes, net of federal income
tax benefit
Foreign income tax rate differential
Change in statutory tax rates
Tax credits
Alternative fuel mixture credits
Change in unrecognized tax benefits, net
Valuation allowance release
Other
Total provision for income taxes
35.0%
35.0%
35.0%
0.7
(0.5)
(0.3)
(1.8)
(26.4)
8.0
–
(0.9)
13.8%
3.1
(2.5)
–
(5.7)
–
2.5
(1.8)
(2.0)
28.6%
3.5
0.2
(5.8)
(2.8)
–
4.0
–
(1.7)
32.4%
The sources of deferred income taxes were as
follows at December 31:
2009
2008
In thousands
Reserves
Compensation
Post-retirement benefits
Property
Pension
Installment sales
Inventories
Other
Tax carryforwards
Subtotal
Valuation allowance
Total
Current
Asset
(Liability)
$ 7,404
3,367
1,708
12
660
(4)
438
258
–
13,843
(2,379)
$11,464
Non
current
Asset
(Liability)
Current
Asset
(Liability)
$
9,677
3,934
19,637
(100,071)
(38,000)
(14,070)
–
4,608
29,238
(85,047)
(9,789)
$ 8,983
3,292
1,619
13
781
–
(803)
475
–
14,360
(2,547)
$ (94,836) $11,813
Non-
current
Asset
(Liability)
$ 11,086
3,368
18,748
(107,921)
(13,507)
(25,148)
–
6,909
28,006
(78,459)
(10,215)
$ (88,674)
Current and non-current deferred tax assets and
liabilities are included in the following balance sheet
captions:
In thousands
Prepaid expenses and other current assets
Other long term assets
Other current liabilities
Deferred income taxes
December 31
2009
2008
$11,519
1,832
55
96,668
$14,421
1,484
2,608
90,158
At December 31, 2009, we had state and foreign
tax net operating loss (“NOL”) carryforwards of $92.0 mil-
lion and $37.0 million, respectively. These NOL carryfor-
wards are available to offset future taxable income, if
any. The state NOL carryforwards expire between 2015
and 2027; the foreign NOL carryforwards do not expire.
In addition, we had federal foreign tax credit
carryforwards of $0.3 million, which expire in 2013, and
36
During 2009, we claimed the alternative fuel mix-
ture credits as a combination of cash refunds through
excise tax refund claims and income tax credits on the
federal income tax return to be filed for the 2009 tax
year. For purposes of calculating federal and state income
taxes, we treat the credits claimed as cash refunds of
excise tax and the credits claimed on the federal income
tax return as nontaxable income. In 2009, we recorded a
tax benefit of $27.1 million, net of unrecognized tax
benefits, due to the nontaxable nature of the alternative
fuel mixture credits claimed on the federal and certain
state income tax returns.
We have established a valuation allowance of
$12.2 million against the net deferred tax assets, prima-
rily due to the uncertainty regarding the ability to utilize
state tax carryforwards and certain deferred foreign tax
credits.
Tax credits and other incentives reduce tax expense
in the year the credits are claimed. In 2009, we recorded
tax credits of $2.6 million related to Research and
Development credits, fuels tax, and the electricity produc-
tion tax credits. In 2008 and 2007 similar tax credits of
$4.7 million and $2.6 million, respectively, were
recorded.
At December 31, 2009 and 2008, unremitted earn-
ings of subsidiaries outside the United States deemed to
be permanently reinvested totaled $134.6 million and
$107.4 million, respectively. Because the unremitted
earnings of subsidiaries are deemed to be permanently
reinvested as of December 31, 2009, no deferred tax
liability has been recognized in our consolidated financial
statements.
As of December 31, 2009 and December 31, 2008,
we had $40.1 million and $29.2 million of gross unrec-
ognized tax benefits respectively. As of December 31,
2009, if such benefits were to be recognized, approxi-
mately $36.1 million would be recorded as a component
of income tax expense, thereby affecting our effective tax
rate.
A reconciliation of the beginning and ending bal-
ances of the total amounts of gross unrecognized tax
benefits is as follows:
In millions
Balance at January 1
Increases in tax positions for prior years
Decreases in tax positions for prior years
Increases in tax positions for current year
Settlements
Lapse in statute of limitations
Balance at December 31
2009
2008
2007
$29.2
0.7
–
11.2
(0.8)
(0.2)
$26.1
0.4
–
3.2
–
(0.5)
$20.7
0.3
(0.5)
6.1
–
(0.5)
$40.1
$29.2
$26.1
The current year increase was primarily due to tax
positions expected to be taken, on the U.S. federal and
certain state income tax returns, related to the alternative
fuel mixture credit.
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
following table summarizes tax years that remain subject
to examination by major jurisdiction:
Jurisdiction
United States
Federal
State
Germany(1)
France
United Kingdom
Philippines
Open Tax Year
Examination in
progress
Examination not yet
initiated
N/A
2004
2003 – 2006
N/A
N/A
2005 – 2008
2007 – 2009
2004 – 2009
2007 – 2009
2006 – 2009
2006 – 2009
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 authori-
ties, which often result in proposed assessments. Man-
agement 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 unfavor-
able 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 reason-
ably possible our gross unrecognized tax benefits balance
may decrease within the next twelve months by a range
of zero to $8.8 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. Interest
expense recognized in 2009 and 2008, respectively,
totaled $3.8 million and $2.6 million. We did not record
any penalties associated with uncertain tax positions
during 2009 or 2008.
10.
STOCK-BASED COMPENSATION
On April 29, 2009, our shareholders approved the
P. H. Glatfelter Amended and Restated Long Term Incen-
tive 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, 2009, 3,141,047 shares of common stock
were available for future issuance under the 2005 Plan.
During 2009, 2008 and 2007, we recognized non-
cash stock-based compensation expense totaling $4.6 mil-
lion, $4.4 million and $3.8 million, respectively. Since the
approval of the 2005 Plan, we have issued to eligible
participants restricted stock units and stock only stock
appreciation rights.
Restricted Stock Units (“RSU”) Awards of
RSUs are made under our 2005 Plan. Under terms of the
awards, the 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
2009
2008
2007
Beginning balance
Granted
Forfeited
Restriction lapsed/shares delivered
Ending balance
486,988
205,360
(8,700)
(119,611)
564,037
505,173
137,649
(25,214)
(130,620)
486,988
411,154
127,423
(33,404)
–
505,173
Dollars in thousands
Compensation expense
$
1,622
$
1,772
$
1,768
The weighted average grant fair value per unit for
awards in 2009, 2008 and 2007 was $10.11, $14.82,
and $15.32, respectively. As of December 31, 2009,
unrecognized compensation expense for outstanding
RSUs totaled $2.9 million. The weighted average remain-
ing period over which the expense will be recognized is
3.5 years.
Non-Qualified Stock Options
The following table summarizes the activity with respect to non-qualified stock
options:
Non-Qualified Options
Outstanding at beginning of year
Granted
Exercised
Canceled
Outstanding and exercisable at end of year
2009
Weighted-
Average
Exercise Price
$14.08
–
–
13.46
$14.20
Shares
537,700
–
–
(84,650)
453,050
2008
Weighted-
Average
Exercise Price
$13.81
–
12.64
13.08
$14.08
Shares
700,270
–
(64,400)
(98,170)
537,700
2007
Weighted-
Average
Exercise Price
$14.06
13.78
17.07
Shares
906,210
–
(105,190)
(100,750)
700,270
$13.81
Glatfelter 2009 Annual Report
37
Non-Qualified Options
$10.78 to $12.41
12.95 to 14.44
15.44 to 17.16
17.54 to 18.78
Shares
37,750
219,700
178,100
17,500
453,050
Options Outstanding
Weighted-
Average
Remaining
Contractual Life
3.9
2.2
2.0
2.3
2.2
Weighted-
Average
Exercise Price
$11.22
13.42
15.47
17.54
Options Exercisable
Weighted-
Average
Exercise Price
$11.22
13.42
15.47
17.54
Shares
37,750
219,700
178,100
17,500
453,050
All options expire on the earlier of termination or,
in some instances, a defined period subsequent to termi-
nation 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.
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.
The following table sets forth information related to
outstanding SOSARS.
2009
2008
SOSARS
Outstanding at Jan. 1,
Granted
Exercised
Canceled
Outstanding at
Dec. 31,
Exercisable at Dec. 31,
Vested and expected to
vest
Weighted average grant
date fair value per
share
Aggregate grant date
fair value (in
thousands)
Black-Scholes
Assumptions
Dividend yield
Risk free rate of
return
Volatility
Expected life
Shares
718,810
1,043,210
–
–
1,762,020
390,575
1,676,227
Shares
484,800
284,240
–
(50,230)
718,810
150,967
690,418
Wtd Avg
Exercise
Price
$14.63
9.91
–
–
$11.84
$ 2.83
$2,957
3.63%
2.26
40.59
6 yrs
Wtd Avg
Exercise
Price
$15.30
13.49
–
14.63
$14.63
15.30
$ 3.77
$1,002
2.67%
3.71
32.09
6 yrs
11. RETIREMENT PLANS AND OTHER POST-
RETIREMENT BENEFITS
We have both funded and, with respect to our
international operations, unfunded noncontributory
defined-benefit pension plans covering substantially all of
our employees. The 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
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 retired employees. These benefits include a com-
prehensive 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.
In millions
Change in Benefit Obligation
Balance at beginning of year
Service cost
Interest cost
Plan amendments
Actuarial (gain)/loss
Participant contributions
Benefits paid
Balance at end of year
Change in Plan Assets
Fair value of plan assets at
beginning of year
Actual return on plan assets
Employer contributions
Participant contributions
Benefits paid
Fair value of plan assets at end
of year
Funded status at end of year
Pension Benefits
2009
2008
Other Benefits
2009
2008
$386.3
8.6
23.4
1.9
12.9
–
(27.0)
$406.1
$ 373.3
8.3
23.1
6.5
2.6
–
(27.5)
$ 386.3
$400.6
110.0
2.1
–
(27.0)
$ 603.6
(177.7)
2.2
–
(27.5)
$58.6
2.6
3.5
–
1.3
–
(3.4)
$62.6
$5.7
1.6
2.4
–
(3.4)
$55.3
2.1
3.2
–
2.5
0.9
(5.4)
$58.6
$9.9
(2.9)
3.2
0.9
(5.4)
485.7
$ 79.6
400.6
$ 14.3
6.3
$(56.3)
5.7
$(52.9)
The net prepaid pension cost for qualified pension
plans is primarily included in “Other 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 Consoli-
dated Balance Sheets at December 31, 2009 and 2008.
Amounts recognized in the consolidated balance
sheets consist of the following as of December 31:
In millions
Other long-term assets
Current liabilities
Other long-term liabilities
Net amount recognized
Pension Benefits
2009
2008
Other Benefits
2009
2008
$112.9
(1.8)
(31.5)
$ 79.6
$ 44.5
(1.2)
(29.0)
$ 14.3
$–
(4.6)
(51.7)
$(56.3)
$–
(4.2)
(48.7)
$(52.9)
The components of amounts recognized as “Accu-
mulated other comprehensive income” consist of the
following on a pre-tax basis:
In millions
Pension Benefits
2009
2008
Other Benefits
2009
2008
Prior service cost/(credit)
Net actuarial loss
$ 16.5
189.2
$ 16.5
259.9
$ (5.3)
21.5
$ (6.5)
23.4
The accumulated benefit obligation for all defined
benefit pension plans was $390.9 million and $367.3 mil-
lion at December 31, 2009 and 2008, respectively.
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss) were as
follows:
The weighted-average assumptions used in comput-
ing the benefit obligations above were as follows:
In millions
Pension Benefits
2009
2008
Other Benefits
2009
2008
Discount rate – benefit obligation
Future compensation growth rate
6.10%
4.0
6.25% 5.90% 6.25%
4.0
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 5.90% to 6.20% for the pension plans
and were 5.90% for the other benefit plans.
Information for pension plans with an accumulated
benefit obligation in excess of plan assets was as
follows:
In millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2009
$33.3
29.2
–
2008
$30.2
27.2
–
Net periodic benefit cost (income) includes the
following components:
In millions
Pension Benefits
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial loss
Total net periodic benefit cost (income)
Other Benefits
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial loss
Total net periodic benefit cost
Year Ended December 31
2008
2007
2009
$8.6
23.4
(39.8)
2.2
12.6
$7.0
$2.6
3.5
(0.5)
(1.2)
2.1
$6.5
$8.3
23.1
(50.1)
2.3
0.3
$(16.1)
$2.1
3.2
(0.8)
(1.3)
1.3
$4.5
$9.6
21.8
(47.5)
2.4
0.8
$(12.9)
$2.0
3.0
(0.9)
(1.0)
1.0
$4.1
The estimated net loss and prior service cost for our
defined benefit pension plans that will be amortized from
accumulated other comprehensive income into net peri-
odic benefit cost over the next fiscal year are $13.6 mil-
lion and $2.4 million, respectively. The comparable
amounts of expected amortization for other benefit plans
are $1.8 million and $(1.2) million, respectively.
Pension Benefits
Actuarial (gain) loss
Prior service cost
Amortization of prior service cost
Amortization of actuarial losses
Total recognized in other comprehensive (income) loss
Total recognized in net periodic benefit cost and other
comprehensive (income) loss
Other Benefits
Actuarial (gain) loss
Amortization of prior service cost
Amortization of actuarial losses
Total recognized in other comprehensive (income) loss
Total recognized in net periodic benefit cost and other
comprehensive loss
Year Ended
December 31
2009
2008
$(57.7)
1.9
(2.2)
(12.6)
$(70.6)
$230.6
7.0
(2.4)
(0.4)
$234.8
$(63.6)
$218.7
$ 0.2
1.2
(2.1)
(0.7)
$6.4
1.3
(1.3)
6.4
$ 5.8
$10.9
The weighted-average assumptions used in comput-
ing the net periodic benefit (income) cost information
above were as follows:
In millions
Pension Benefits
Discount rate – benefit expense
Future compensation growth rate
Expected long-term rate of return on plan assets
Other Benefits
Discount rate – benefit expense
Expected long-term rate of return on plan assets
Year Ended December 31
2009
2007
2008
6.25% 6.25% 5.75%
4.0
8.5
4.0
8.5
4.0
8.5
6.25% 6.25% 5.75%
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:
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate rate
2009
2008
8.75%
8.75%
4.5
2021
4.5
2021
Assumed health care cost trend rates have a signif-
icant 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:
In millions
One Percentage Point
increase
decrease
Effect on:
Post-retirement benefit obligation
Total of service and interest cost components
$4.1
0.5
$3.7
0.4
Plan Assets On December 31, 2009, we prospec-
tively implemented new disclosure requirements which
expand disclosure for assets held by employer defined
benefit pension and other postretirement benefit plans.
All pension plan assets in the U.S. are invested
through a single master trust fund. The strategic asset
Glatfelter 2009 Annual Report
39
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 invest-
ment 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 there under. 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 diver-
sified. 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:
The Investment Policy statement lists specific cate-
gories of securities or activities that are prohibited –
examples are options, futures, commodities, hedge funds,
limited partnerships, and our stock.
The table below presents the fair values of our
pension assets by level within the fair value hierarchy, as
described in Note 2:
In millions
Domestic Equity
Large cap
Small and mid cap
International equity
REIT
Fixed income
Cash and equivalents
Total
Fair Value Measurements at December 31,
2009
Total
Level 1
Level 2
Level 3
$176.0
77.6
64.2
25.7
134.5
14.0
$492.0
$175.6
77.6
33.1
25.7
71.0
14.0
$397.0
$0.4
–
31.1
–
63.5
–
$95.0
$–
–
–
–
–
–
$–
Cash Flow We did not make contributions to our
qualified pension plans in 2009. Contributions expected
to be made in 2010 under our non-qualified pension
plans and other benefit plans are summarized below:
In thousands
Nonqualified pension plans
Other benefit plans
$1,287
4,327
The following benefit payments, which reflect
expected future service, as appropriate, are expected to
be paid:
Domestic Equity –
Large cap
Small and mid cap
International equity
Real Estate Investment Trust (REIT)
Fixed income
Diversification is achieved by:
i.
ii.
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
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 alloca-
tion 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 perfor-
mance 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.
40
In thousands
2010
2011
2012
2013
2014
2015 through 2019
39%
13
13
5
30
Pension Benefits
Other Benefits
$ 30,316
29,918
30,166
30,459
30,743
160,153
$ 6,009
6,182
6,052
5,958
6,182
32,133
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 $0.9 million, $0.9 million and $1.5 million in
2009, 2008 and 2007, respectively.
12.
INVENTORIES
Inventories, net of reserves were as follows:
In thousands
Raw materials
In-process and finished
Supplies
Total
2009
2008
$ 44,150
78,340
45,880
$ 49,083
97,390
46,881
$168,370
$193,354
If we had valued all inventories using the average-
cost method, inventories would have been $6.4 million
and $16.9 million higher than reported at December 31,
2009 and 2008, respectively. During 2009 and 2008, we
Goodwill – Composite Fibers
$17,331
$16,513
In thousands
liquidated certain LIFO inventories, the effect of which
did not have a significant impact on results of
operations.
13. PLANT, EQUIPMENT AND TIMBERLANDS
Plant, equipment and timberlands at December 31
were as follows:
In thousands
Land and buildings
Machinery and equipment
Furniture, fixtures, and other
Accumulated depreciation
Construction in progress
Asset retirement – Lagoons
Timberlands, less depletion
Total
2009
2008
$ 136,260
970,708
101,327
(773,057)
$ 131,258
964,502
90,535
(722,630)
435,238
23,947
10,300
1,147
463,665
17,141
11,085
1,673
$ 470,632
$ 493,564
14. 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:
In thousands
December 31
2009
2008
Specialty Papers
Customer relationships
Composite Fibers
Technology and related
Customer relationships and related
Total intangibles
Accumulated amortization
Net intangibles
$ 6,155
$ 6,155
4,373
1,867
3,931
291
12,395
(3,525)
10,377
(2,534)
$ 8,870
$ 7,843
The increase in goodwill was due to foreign cur-
rency translation adjustments. Other than non-amortiz-
able goodwill, intangible assets are amortized on a
straight-line basis. Customer relationships are amortized
over periods ranging from 3 years to 14 years and
technology and related intangible assets are amortized
over a 14 year period.
During 2009, we purchased certain intangible assets
primarily consisting of Russian-based customer lists previ-
ously served by a distributor.
In thousands
Aggregate amortization expense:
Estimated amortization expense:
2010
2011
2012
2013
2014
2009
2008
$ 981
$999
1,436
1,436
1,395
940
940
The remaining weighted average useful life of intan-
gible assets was 8 years at December 31, 2009.
15. OTHER LONG-TERM ASSETS
Other long-term assets consist of the following:
In thousands
Pension
Installment notes receivable
Goodwill and intangibles
Other
Total
December 31
2009
2008
$112,903
43,183
26,201
17,319
$ 44,460
81,033
24,356
22,077
$199,606
$171,926
16. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
In thousands
Accrued payroll and benefits
Other accrued compensation and retirement
benefits
Income taxes payable
Accrued rebates
Other accrued expenses
Total
December 31
2009
2008
$ 46,141
$ 39,672
6,476
4,684
14,195
28,753
6,560
6,163
16,205
32,304
$100,249
$100,904
17.
LONG-TERM DEBT
Long-term debt is summarized as follows:
Revolving credit facility, due April 2011
Term Loan, due April 2011
71⁄8% Notes, due May 2016
Term Loan, due January 2013
Note payable due March 2013
Total long-term debt
Less current portion
December 31
2009
2008
$
–
14,000
200,000
36,695
–
$
6,724
30,000
200,000
36,695
34,000
250,695
(13,759)
307,419
(13,759)
Long-term debt, excluding current portion
$236,936
$293,660
On April 3, 2006, we, along with certain of our
subsidiaries as borrowers and certain of our subsidiaries
as guarantors, entered into a credit agreement with
certain financial institutions. Pursuant to the credit agree-
ment, we may borrow, repay and reborrow revolving
credit loans in an aggregate principal amount not to
exceed $200 million outstanding at any time. All borrow-
ings under our credit facility are unsecured. The revolving
credit commitment expires on April 2, 2011.
In addition, on April 3, 2006, pursuant to the credit
agreement, we received a term loan in the principal
amount of $100 million. Quarterly repayments of princi-
pal outstanding under the term loan began on March 31,
2007 with the final principal payment due on April 2,
2011. In addition, if certain prepayment events occur,
such as a sale of assets, the incurrence of additional
indebtedness in excess of $30.0 million in the aggregate,
or issuance of additional equity; we must repay a speci-
fied portion of the term loan within five days of the
prepayment event.
Glatfelter 2009 Annual Report
41
Borrowings under the credit agreement bear inter-
est, at our option, at either (a) the bank’s base rate
described in the credit agreement as the greater of the
prime rate or the federal funds rate plus 50 basis points,
or (b) the EURO rate based generally on the London
Interbank Offer Rate, plus an applicable margin that
varies from 67.5 basis points to 137.5 basis points
according to our corporate credit rating determined by
S&P and Moody’s.
We have the right to prepay the term loan and
revolving credit borrowings in whole or in part without
premium or penalty, subject to timing conditions related
to the interest rate option chosen.
The credit agreement contains a number of custom-
ary 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, 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 a consolidated minimum net
worth test and a maximum debt to earnings before
interest, taxes, depreciation and amortization (“EBITDA”)
ratio. A breach of these requirements, of which we were
not aware of any at December 31, 2009, would give rise
to certain remedies under the credit agreement as
amended, 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
71⁄8% Senior Notes due 2016 (“71⁄8% 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
67⁄8% notes due July 2007, plus the payment of applica-
ble redemption premium and accrued interest.
Interest on these Senior Notes accrues at the rate
of 71⁄8% per annum and is payable semiannually in
arrears on May 1 and November 1.
Prior to May 1, 2011, we may redeem all, but not
less than all, of the notes at a redemption price equal to
100% of the principal amount thereof plus accrued and
unpaid interest, if any, plus a “make-whole” premium.
On or after May 1, 2011, we may redeem some or all of
the notes at specified redemption prices. This feature
expired in 2009.
42
Our credit agreement, as amended, contains a
number of customary compliance covenants. In addition,
both the Notes and our previously issued $200 million in
aggregate principal amount of 71⁄8% Senior Notes due
2016 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 there-
under. As of December 31, 2009, we met all of the
requirements 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 mil-
lion 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 2009, GPW
Virginia received aggregate interest payments of $1.5 mil-
lion under the Glawson note receivable and the Company
Note and, in turn, made interest payments of $1.1 million
under the 2008 Term Loan.
On March 21, 2003, we sold timberlands and
received as consideration a $37.9 million 10-year interest
bearing note receivable from the timberland buyer Sus-
tainable Conservation, Inc. (the “Sustainable Note”). We
pledged this note as collateral under a $34.0 million
promissory note payable to a financial institution (the
“Note Payable”). The Note Payable, as amended was
scheduled to mature in March 2013 and was secured by
a letter of credit issued in our favor by SunTrust Bank
backing the collectability of the Sustainable Note.
Under terms of each of the above transactions,
18. ASSET RETIREMENT OBLIGATION
minimum credit ratings must be maintained by the
respective financial institution issuing the letters of credit.
If, after 60 days from the date such credit rating falls
below the specified minimum, an “event of default” is
deemed to have occurred under the respective debt
instrument owed by us to the financial institution unless
actions are taken to cure such default. 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.
On April 23, 2009, the credit rating of the financial
institution that issued the letter of credit behind the
Sustainable Note fell below the required minimum level.
To avoid the occurrence of an event of default associated
with the credit downgrade of SunTrust, on June 10,
2009, we, Sustainable Conservation and SunTrust agreed
to collapse the transaction, the effect of which was:
i) the acceleration of the maturity date of the Sustainable
Note to June 10, 2009; (ii) satisfaction in full of the
$37.9 million Sustainable Note owed to us; and iii) the
satisfaction in full of the $34 million indebtedness owed
by us to SunTrust under the Term Loan Agreement. As a
result, we received net proceeds of approximately
$3.5 million, after transaction costs.
The following schedule sets forth the maturity of
our long-term debt during the indicated year.
In thousands
2010
2011
2012
2013
2014
Thereafter
$13,759
241
–
36,695
–
200,000
P. H. Glatfelter Company guarantees all debt obli-
gations of its subsidiaries. All such obligations are
recorded in these consolidated financial statements.
At December 31, 2009 and 2008, we had $5.7 mil-
lion and $12.1 million, respectively, of letters of credit
issued to us by a financial institution. Such letters of
credit reduce amounts available under our revolving
credit facility. The letters of credit provide financial assur-
ances for i) the benefit of certain state workers compen-
sation insurance agencies in conjunction with our self-
insurance program, and ii) assurance related to the
purchase of certain utilities for our manufacturing facili-
ties. We bear the credit risk on this amount to the extent
that we do not comply with the provisions of certain
agreements.
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 seven
years, will be accomplished by filling the lagoons, install-
ing 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 activity recorded during 2009 and 2008:
In thousands
Beginning balance
Upward revision
Payments
Accretion
Ending balance
2009
2008
$(11,606)
(600)
1,535
(621)
$(11,487)
–
110
(229)
$(11,292)
$(11,606)
Of the total liability at the end of 2009, $2.4 million
is recorded in the accompanying consolidated balance
sheet under the caption “Other current liabilities” and
$8.9 million is recorded under the caption “Other long-
term liabilities.” The comparable amounts as of Decem-
ber 31, 2008 were $1.6 million and $10.0 million,
respectively.
19.
FAIR VALUE OF FINANCIAL INSTRUMENTS
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:
In thousands
Fixed-rate Bonds
Fixed rate note
payable
Variable rate debt
Total
December 31, 2009
Carrying
Value
Fair
Value
December 31, 2008
Fair
Value
Carrying
Value
$200,000
$196,750
$200,000
$167,727
–
50,695
$250,695
–
51,209
$247,959
34,000
73,419
$307,419
36,164
75,202
$279,093
As of December 31, 2009 and 2008, we had
$200.0 million of 71⁄8% fixed rate debt that 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 instruments was estimated using dis-
counted cash flow models based on interest rates
obtained from readily available, independent sources, or
Level 3.
Glatfelter 2009 Annual Report
43
20.
SHAREHOLDERS’ EQUITY
The following table summarizes outstanding shares
of common stock:
In thousands
Year Ended December 31,
2008
2007
2009
Shares outstanding at beginning of year
Treasury shares issued for:
Restricted stock performance awards
401(k) plan
Director compensation
Employee stock options exercised
Shares outstanding at end of year
45,434
45,143
44,821
86
169
17
–
45,706
94
119
14
64
45,434
–
206
11
105
45,143
21. COMMITMENTS, CONTINGENCIES AND LEGAL
PROCEEDINGS
Contractual Commitments
The following table
summarizes the minimum annual payments due on non-
cancelable operating leases and other similar contractual
obligations having initial or remaining terms in excess of
one year:
In thousands
2010
2011
2012
2013
2014
Thereafter
Leases
Other
$5,022
3,098
1,905
1,685
1,059
7,480
$93,646
40,563
28,550
—
—
—
Other contractual obligations primarily represent
minimum purchase commitments under energy and pulp
wood supply contracts and other purchase obligations.
At December 31, 2009, required minimum annual
payments due under operating leases and other similar
contractual obligations aggregated $20.2 million and
$162.8 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 sedi-
ments in the lower Fox River and in the Bay of Green
Bay Wisconsin (“Site”). As part of the 1979 acquisition
of the Bergstrom Paper Company we acquired a facility
located at the Site (the “Neenah Facility”). In part, the
Neenah Facility used wastepaper as a source of fiber. At
no time did the Neenah Facility utilize PCBs in the pulp
and paper making process, but discharges to the lower
Fox River from the Neenah Facility which may have
contained PCBs from wastepaper may have occurred from
1954 to the late 1970s. Any PCBs that our Neenah
Facility 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.
44
The United States, the State of Wisconsin and
various state and federal governmental agencies (collec-
tively, the “Governments”), as well as private parties,
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 down-
stream 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” numbered from
the most upstream (“OU1”) to the most downstream
(“OU5”). OU1 is the reach from primarily Lake Win-
nebago to the dam at Appleton, and is comprised of
Little Lake Butte des Morts. Our Neenah Facility dis-
charged its wastewater into OU1. OU2 extends from the
dam at Appleton to the dam at Little Rapids, OU3 from
the dam at Little Rapids to the dam at De Pere, OU4
from the dam at De Pere to the mouth of the river, and
OU5 from the mouth into the lower portion of Green
Bay. The river extends 39 miles from the upstream end of
OU1 to the downstream end of OU4.
Our liabilities, if any, for this contamination primarily
arise under the federal Comprehensive Environmental,
Response, Compensation and Liability Act (“CERCLA” or
“Superfund”). The Governments have sought to recover
“response actions” or “response costs,” which are the
costs of studying and cleaning up contamination, from
various “responsible parties.” In addition, various natural
resource trustee agencies of the United States, the States
of Wisconsin and Michigan, and several Indian Tribes (the
“Natural Resources Trustees” or “Trustees”) have sought
to recover natural resource damages (“NRDs”), including
natural resource damage assessment costs. Parties that
have incurred response costs or NRDs either voluntarily
or in response to the governments’ and Trustees’
demands may have an opportunity to seek contribution
or other recovery of some or all of those costs from other
parties who are jointly and severally responsible under
Superfund for those costs. Therefore, as we incur costs,
we also acquire a claim against other parties who may
not have paid their equitable share of those costs. As
others incur costs, they acquire a claim against us to the
extent that they claim that we have not paid our
equitable share of the total. Any party that resolves its
liability to the United States or a state in a judicially or
administratively approved settlement agreement obtains
protection from contribution claims for matters addressed
in the settlement.
For these reasons, all of the parties who are
potentially responsible (“PRPs”) under CERCLA for
response costs or NRDs have exposure to liability for:
(a) the cost of past response actions taken by anyone
else, (b) the cost of past NRD payments or restoration
projects incurred by anyone else, (c) the cost of response
actions to be taken in the future, and (d) NRDs. All of
this exposure is subject to substantial defenses, including,
for example, that the PRP is not liable or not jointly and
severally liable for any particular cost or damage, that
the cost or damage is not recoverable under CERCLA or
any other law, or that the recovery is barred by the
passage of time. In addition, a party that has incurred or
committed to incur costs or has paid NRDs may be able
to claim credit for that cost or payment in any equitable
allocation of response costs or NRDs in any action for
reallocation of costs.
Cleanup Decisions. Our liability exposure
depends importantly on the decisions made by EPA and
the Wisconsin Department of Natural Resources
(“WDNR”) as to how the Site will be cleaned up, and
consequently the costs and timing of those response
actions. The nature of the response actions has been
highly controversial. EPA issued a record of decision
(“ROD”) selecting response actions for OU1 and OU2 in
December 2002. EPA issued a separate ROD selecting
response actions for OU3, OU4, and OU5 in March 2004
and in June 2007.
EPA amended the RODs for OUs 2-5 in June 2007
to require less dredging and more capping and covering
of sediments containing PCBs. The governments have
concluded that these methods will result in a reduction in
the costs for this portion of the cleanup. Others disagree.
Likewise, in June 2008, EPA also amended the ROD for
OU1.
NRD Assessment.
The Natural Resources Trust-
ees have engaged in work to assess NRDs at and arising
from the Site. However, they have not completed a
required NRD Assessment under the pertinent regulations.
The Trustees’ 2009 estimate of NRDs and associated
costs ranges from $287 million to $423 million, some of
which has already been satisfied. With specific respect to
NRD claims, we and others contended that the Trustees’
claims are barred by the applicable 3 year statute of
limitations.
Past Costs Demand.
By letter dated January 15,
2009, EPA demanded that we and six other parties
reimburse EPA for approximately $17.6 million in costs
that EPA claims it incurred as necessary costs of response
not subject to any other agreement in this matter. In
response, we and the other parties which were con-
tacted, notified the EPA that the supporting documenta-
tion provided by EPA did not allow us to fully evaluate
this demand and we requested that the EPA provide
additional supporting information for the claimed costs.
EPA has not yet responded to this request. Accordingly,
we are unable to reasonably estimate our potential
liability for these costs.
Work Under Agreements, Orders, and
Decrees. As we mention above, our exposure to liabil-
ity depends on the amount of work done, costs incurred,
and damages paid both by us and by others. The
procedural context of any work done, costs incurred, and
damages paid also impact are ultimate exposure.
Since 1991, the Governments and various groups of
potentially responsible parties, including us, have entered
into a series of agreements, orders, and decrees under
which we and others have performed work, incurred
costs, or paid damages in connection with the Site. As a
result, some parties have contributed or performed sub-
stantial work at the Site and at least one party,
Fort Howard Corporation (whose successor is either the
Fort James Operating Company or Georgia Pacific Corpo-
ration) has resolved its NRD liability at the Site.
Notably, in April 2004, the United States District
Court for the Eastern District of Wisconsin entered a
consent decree (“OU1 Consent Decree”) in United
States v. P.H. Glatfelter Co., No. 2:03-cv-949, under
which we and WTM I Corp. have been implementing the
remedy in OU1, dividing costs evenly in addition to a
$7 million contribution from Menasha Corp. and a
$10 million contribution that the United States contrib-
uted from a separate settlement in United States v.
Appleton Papers Inc., No. 2:01-cv-816, obligating NCR
and Appleton Papers to contribute to certain NRD
projects. In June 2008, the parties entered into an
amendment to the OU1 Consent Decree (“Amended OU1
Consent Decree”). That amendment allowed for imple-
mentation of the amended remedy for OU1 and commit-
ted us and WTM I to implement that remedy without a
cost limitation on that commitment. We and WTM I have
substantially completed the amended remedy for OU1.
We anticipate that the remaining tasks, other than
monitoring and maintenance, will be completed by the
second quarter of 2010.
Further, in November 2007, EPA issued an adminis-
trative order for remedial action (“UAO”) to Appleton
Papers Inc., CBC Coating, Inc. (formerly known as River-
side Paper Corporation), Georgia-Pacific Consumer Prod-
ucts, L.P. (formerly known as Fort James Operating
Company), Menasha Corporation, NCR Corporation, us,
U.S. Paper Mills Corp., and WTM I Company directing
those respondents to implement the amended remedy in
OU2-5. Shortly following issuance of the UAO, Appleton
Papers Inc. and NCR Corp. commenced litigation against
us and others, as described below. Accordingly, we have
Glatfelter 2009 Annual Report
45
no vehicle for complying with the UAO’s overall require-
ments other than answering a judgment in the litigation,
and we have so informed EPA. However, in February
2009, the EPA sent a demand to each of the respondents
on the UAO other than WTM I demanding payment of
the government’s oversight costs under the UAO for the
period from November 2007 through August 2008. In
February 2009, we notified the EPA that we believed that
its demand could prove distracting to litigation com-
menced by Appleton Papers and NCR against the other
UAO respondents. In order to remove this distraction,
and in the spirit of cooperation, we stated that we would
satisfy the EPA’s demand, an amount which was insignif-
icant, in full. We paid this amount.
Cost estimates.
Estimates of the Site remedia-
tion change over time as we, or others, gain additional
data and experience at the Site. In addition, disagree-
ment exists over the likely costs for some of this work.
The Governments estimate that the total cost of imple-
menting the amended remedy in OU1 will be approxi-
mately $102 million. Because we have completed a
significant amount of work in this portion of the river, we
believe the costs of completing the remedial actions
specified in the amended ROD can be completed for this
amount. On February 26, 2010, EPA issued an “explana-
tion of Significant Differences” – a document explaining
changes to a remedy, including changes in cost, that are
significant but which do not require the issuance of a
new Record of Decision. In that ESD, EPA estimated the
cost for the OU 2-5 remedy to be $701 million. EPA
estimates costs as a range, in this case from $491 million
to $1.05 billion. This estimate is slightly different than,
but not inconsistent with, an estimate of the total cost
for remediation of the Site that the Governments pre-
pared for purposes of justifying a recent “de minimis”
settlement with certain parties whose liability at the Site
the United States and the Governments believe to be
insignificant. That settlement was approved by the federal
court in Green Bay on December 16, 2009. In their brief
in support of that settlement, the Governments estimated
the total past costs incurred at the Site – including the
OU1 project – to be $200 million. In addition, they
estimated the cost of implementing the remedy set forth
in the amended ROD for OU2-5 (the downstream por-
tions of the Site) to total between $600 million and
$700 million exclusive of amounts already spent. For
purposes of the settlement, the Governments took the
high end of that range and applied a 50% contingency
to arrive at a cost estimate for future cleanup work of
$1.05 billion. Based upon independent estimates commis-
sioned by various potentially responsible parties, we have
no reason to disagree with the Governments’ assertion
that future costs to implement the amended remedy for
46
OU2-5 are likely to fall between $700 million and
$1.05 billion.
NRDs.
The Trustees claimed that we were jointly
and severally responsible for NRDs with a value between
$176 million and $333 million. In their recently filed
brief, they further 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 (a) liability for most of these NRDs, (b) that if
anyone is liable, that we are jointly and severally liable
for the full amount; and (c) that the Trustees can pursue
this claim at this late date as the limitations period for
NRD claims is three years from discovery.
Allocation.
Since 1991, various potentially
responsible parties have, without success, attempted to
agree on a binding, final, allocation of costs and dam-
ages among themselves. All costs that they have incurred
to date have been incurred individually, or under interim,
nonbinding allocations. However, the consent decree in
United States v. P. H. Glatfelter Co. affords us and WTM
I contribution protection for claims seeking to reallocate
costs of implementing the OU1 remedy, and Fort James
Operating Co. (now Georgia-Pacific) has certain rights
under its consent decree. Otherwise, the parties have not
litigated their internal allocation with us except as
described below.
NCR and Appleton Papers Inc. commenced litigation
in the United States District Court for the Eastern District
of Wisconsin captioned Appleton Papers Inc. v. George A.
Whiting Paper Co., No. 2:08-cv-16, seeking to reallocate
costs and damages allegedly incurred or paid or to be
incurred or paid by NCR or Appleton Papers (the “Whit-
ing Litigation”). They have to date joined a number of
defendants, dismissed some of those, filed a parallel
action, and consolidated the two cases. At present, the
case involves allocation claims among the two plaintiffs
and 28 defendants: us, George A. Whiting Paper Co.,
Menasha Corporation, Green Bay Packaging Inc., Interna-
tional Paper Company, Leicht Transfer & Storage Com-
pany, Neenah Foundry Company, Newpage Wisconsin
System Inc., The Procter & Gamble Paper Products Com-
pany, Wisconsin Public Service Corp., the Cities of Apple-
ton, De Pere, and Green Bay, Brown County, Green Bay
Metropolitan Sewerage District, Heart of the Valley Met-
ropolitan Sewerage District, Neenah-Menasha Sewerage
Commission, WTM I Company, U.S. Paper Mills Corpora-
tion, Georgia-Pacific Consumer Products LP, Georgia-
Pacific LLC, Fort James Operating Company, CBC Coating
Company, Inc., Fort James Corporation, Kimberly-Clark
Corporation, LaFarge North America Inc., Union Pacific
Railroad Company, and the United States Army Corps of
Engineers. As the result of certain third-party claims,
federal agencies other than the Corps of Engineers are
also involved in this allocation.
to resolve its liability at the Site. That Consent Decree
has not yet been approved.
On December 16, 2009, the Court granted motions
for summary judgment in our favor on the contribution
claims brought by NCR and Appleton Papers Inc. in the
Whiting litigation. The Court held that neither NCR nor
Appleton Papers 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 Appleton
Papers to us for costs we have incurred, or our liability
to the governments or Trustees. NCR and Appleton
Papers have stated their intention to appeal, but an
appeal is not yet timely because the Court has not
entered a final judgment.
As described above, we have counterclaims against
NCR and Appleton Papers Inc. 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 Fox
River site. Other defendants have similar claims. On
January 20, 2010, the Court issued an order inviting
submissions from the parties as to whether the counter-
claims of the defendants, as well as certain additional
claims, could be resolved without a trial within approxi-
mately six months. If the Court is convinced that the case
may be resolvable on that basis, it will establish a
briefing schedule and attempt to decide the remaining
issues on our claims before an appeal will become
timely.
As noted above, on December 16, 2009, the Court
approved a de minimis party consent decree (“Consent
Decree”) settlement among the United States, the State
of Wisconsin, and eleven defendants resolving those
defendants’ liability for this site. The eleven settling
defendants are: George A. Whiting Paper Co.; Green Bay
Metropolitan Sewerage District; Green Bay Packaging,
Inc.; Heart of the Valley Metropolitan Sewerage District;
International Paper Co.; LaFarge North America Inc.;
Leicht Transfer and Storage Co.; Neenah Foundry Co.;
Procter & Gamble Paper Products Co.; Union Pacific
Railroad Co.; and Wisconsin Public Service Corp. (collec-
tively, the “Eleven Settling Defendants”). The Consent
Decree reflects the conclusion by the United States and
the State of Wisconsin that each of the Eleven Settling
Defendants qualifies for treatment as a de minimis party
under CERCLA. The Consent Decree requires the Settling
Defendants to make a collective payment of $1,875,000.
Those Eleven Settling Defendants have moved for judg-
ment in the Whiting Litigation based upon the protec-
tions in the Consent Decree. In addition, the
Governments on September 25, 2009, lodged a separate
consent decree in the same case that would, if entered,
resolve the liabilities of the City of DePere. Under that
consent decree, the City of DePere would pay $210,000
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 of the
responsibility for costs and damages arising from the
presence of PCBs in OU1. Other parties disagree. Our
counterclaims for a re-allocation of costs we have
incurred or may incur remain pending.
Reserves for the Fox River Site. As of Decem-
ber 31, 2009, our reserve for our claimed liability at the
Fox River, including our remediation and ongoing moni-
toring obligations at OU1, our claimed liability for the
remediation of OU2-5, 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 $17.4 million. No additional amounts were
accrued during 2009 or 2008. Of our total reserve for
the Fox River, $0.4 million is recorded in the accompany-
ing consolidated balance sheets under the caption “Envi-
ronmental liabilities” and the remaining $17.0 million is
recorded under the caption “Other long term liabilities.”
Under the OU1 Consent Decree which was signed
in 2004, we contributed $27.0 million to past and future
costs and NRDs. We later contributed $6.0 million under
an agreed supplement to the OU1 Consent Decree and
have since contributed an additional $9.5 million under
the Amended Consent Decree. WTM I has contributed
parallel amounts. These funds are placed into an escrow
account from which we and WTM I pay for work on the
project. As required by the Amended Consent Decree, in
a quarterly report submitted to EPA in November 2009,
we and WTM I concluded that the amounts in the escrow
account would be sufficient to pay for the estimated cost
of the work at OU1, including operation, maintenance,
and other post-construction expenses. However, there can
be no assurance that these amounts will in fact suffice.
WTM I has filed a bankruptcy petition in the Bankruptcy
Court in Richmond. There can be no assurance should
additional amounts be required to complete the project
that WTM I will be able to fulfill its obligation to pay
half the additional cost.
We believe that we have strong defenses to liability
for remediation of OU2-5 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 cleanup in OU2-5. 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 OU2-5 work. NCR and Appleton Papers commenced
Glatfelter 2009 Annual Report
47
the Whiting Litigation and joined us and others as
defendants, but did not prevail. Additional litigation
associated with the remediation of the Site is likely. As
illustrated by the Whiting Litigation, we believe that there
are additional potentially responsible parties other than
the PRPs who were named in the UAO or who have been
joined in the Whiting Litigation, including the owners of
public wastewater treatment facilities who discharged
PCB-contaminated wastewater to the Fox River and enti-
ties providing PCB-containing wastepaper to each of the
recycling mills.
Even if we are not successful in establishing that
we are not liable for the remediation of OU2-5, we do
not believe that we would be allocated a significant
percentage share of liability in any equitable allocation of
the remediation costs and other potential damages asso-
ciated with OU2-5. The accompanying consolidated finan-
cial statements do not include reserves for defense costs
for the Whiting Litigation or any future defense costs
related to our involvement at the Fox River which could
be significant.
In setting our reserve for the Fox River, we have
assessed our legal defenses, including our successful
defenses to the allegations made in the Whiting Litiga-
tion, and assumed that we will not bear the entire cost
of remediation and 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 evalu-
ation 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 relation-
ship 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
Fox River site.
Other than with respect to the Amended OU1
Consent Decree, the amount and timing of future expen-
ditures for environmental compliance, cleanup, remedia-
tion 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. Based in part upon the
Court’s December 16, 2009, ruling and the Court’s
48
January 10, 2010 order in the Whiting Litigation, we
continue to believe that a volumetric allocation 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 discharge, and a party’s
role in causing discharge, must be considered in order for
the allocation to be equitable.
The Wisconsin DNR and FWS have each published
studies, the latter in draft form, estimating the amount of
PCBs discharged by each identified PRP’s facility to the
lower Fox River and the Bay of Green Bay. These reports
estimate the Neenah Facility’s share of the volumetric
discharge to be as high as 27%. We do not believe the
volumetric estimates used in these studies are accurate
because (a) the studies themselves disclose that they are
not accurate and (b) the volumetric estimates contained
in the studies are based on assumptions that are unsup-
ported by existing data on the Site. We believe that the
Neenah Facility’s volumetric contribution is significantly
lower than the estimates set forth in these studies.
We previously entered into interim cost-sharing
agreements with four 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 agree-
ments 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 contamina-
tion, we believe our allocable share of liability at the Site
is less than our share of costs under the Interim Cost
Sharing Agreements.
While the Amended OU1 Consent Decree provides a
negotiated framework for resolving both our and WTM I’s
liability for the remediation of OU1, it does not resolve
our exposure at the Site. The OU1 Consent Decree does
not address response costs necessary to remediate the
remainder of the Site and only addresses NRDs and
claims for reimbursement of government expenses to a
limited extent. Because CERCLA imposes strict and often
joint and several liability, uncertainty persists regarding
our exposure with respect to the remainder of the Fox
River site. In addition, as mentioned previously, EPA has
issued a UAO to us and others calling for further work in
OU2-5, and Appleton Papers and NCR have commenced
the Whiting Litigation that may become more compli-
cated and involve additional parties. We cannot predict
the ultimate outcome of the Whiting Litigation or any
other litigation or regulatory actions related to this
matter.
Range of Reasonably Possible Outcomes.
Our analysis of the range of reasonably possible out-
comes 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 liability associated with
the Fox River matter may exceed the aggregate amounts
which we have accrued for the Fox River matter by
amounts that are insignificant or that could range up to
$265 million over a period that is currently undetermin-
able but 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 possi-
ble outcomes within the range and that the possibility of
an outcome in excess of the upper end of the monetary
range is remote. The summary judgment in our favor in
the Whiting Litigation, if sustained on appeal, suggests
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 militate in the
opposite direction.
All remedial work in OU-1 has been completed and
we and WTM I are in the process of decommissioning
and performing the restoration of the staging area from
which the remediation activity occurred and completing
all required reports for the project. We believe that these
activities can be completed with the funds that remain in
the OU1 Escrow Account.
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 obliga-
tions 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. If we are not
successful in obtaining acknowledgment that the reme-
dial work at OU1 has been substantially completed
and/or should the United States seek to enforce the UAO
for OU2-5 against us which requires us either to perform
directly or to contribute significant amounts towards the
performance of that work, 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. Dur-
ing 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 estab-
lished reserves totaling approximately $7.6 million repre-
senting 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) contami-
nation 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 condi-
tions at the Ecusta Property with certain exceptions,
including the Landfill Closure and Post-Closure Obliga-
tions 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.
Glatfelter 2009 Annual Report
49
22.
SEGMENT AND GEOGRAPHIC INFORMATION
The following table sets forth profitability and other information by business unit for the year ended December 31:
In thousands
Net sales
Energy sales, net
Total revenue
Cost of products sold
Gross profit
SG&A
Restructuring charges
Gains on dispositions
of plant, equipment
and timberlands
Total operating
income
Nonoperating income
(expense)
Income before income
Specialty Papers
2008
2009
2007
2009
Composite Fibers
2008
2007
Other and Unallocated
2008
2009
2007
2009
Total
2008
2007
$–
$791,915 $833,899 $802,293 $392,095 $429,952 $346,030
–
–
346,030
–
287,606 (100,749)
100,749
58,424
19,070
32,541
–
–
13,332
805,247
693,949
111,298
55,408
–
–
392,095
334,378
57,717
35,779
–
9,364
843,263
739,481
103,782
54,596
–
–
429,952
366,791
63,161
38,206
–
9,445
811,738
721,216
90,522
56,561
–
$(1)
–
(1)
(10,840)
10,839
5,095
(856)
$– $1,184,010
13,332
–
1,197,342
–
927,578
(7,366)
269,764
7,366
110,257
27,042
–
35
$1,263,850 $1,148,323
9,445
1,157,768
1,001,456
156,312
116,144
35
9,364
1,273,214
1,095,432
177,782
97,897
(856)
–
–
–
–
–
–
(898)
(18,468)
(78,685)
(898)
(18,468)
(78,685)
55,890
49,186
33,961
21,938
24,955
25,883
82,577
25,068
58,974
160,405
99,209
118,818
–
–
–
–
–
–
(17,259)
(18,183)
(24,884)
(17,259)
(18,183)
(24,884)
taxes
$55,890
$49,186
$33,961
$21,938
$24,955
$25,883
$65,318
$6,885 $34,090
$143,146
$81,026
$93,934
Supplemental Data
Plant, equipment and
timberlands, net
Capital expenditures
Depreciation,
depletion and
amortization
$262,807 $284,689 $287,107 $207,825 $208,875 $232,759
11,565
14,077
12,080
20,878
17,395
31,591
37,520
35,010
34,882
23,736
25,601
21,119
$–
–
–
$–
–
–
$–
–
–
$470,632
26,257
$493,564
52,469
$519,866
28,960
61,256
60,611
56,001
Results of individual business units are presented
Our North America-based Specialty Papers business
unit focuses on producing papers for the following
markets:
(cid:129) Carbonless and forms papers for credit card
receipts, multi-part forms, security papers and
other end-user applications;
(cid:129) Book publishing papers for the production of
high quality hardbound books and other book
publishing needs;
(cid:129) Envelope and converting papers for the direct
mail market, shopping bags, and other converting
applications; and
(cid:129) Engineered products for digital imaging, trans-
fer, casting, release, postal, playing card and
other niche specialty applications.
Specialty Papers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
Carbonless & forms
Book publishing
Envelope & converting
Engineered products
Other
Total
2009
2008
2007
$320,088
176,646
146,812
143,490
4,879
$791,915
$338,067
201,040
138,293
149,372
7,127
$833,899
$345,785
185,343
116,797
136,785
17,583
$802,293
based on our management accounting practices and
management structure. There is no comprehensive,
authoritative body of guidance for management account-
ing 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 com-
pany. The management accounting process uses assump-
tions 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, alterna-
tive 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 our performance is evaluated internally and by
our Board of Directors.
50
Our Composite Fibers business unit, based in
Gernsbach, Germany, serves customers globally and
focuses on higher-value-added products in the following
markets:
(cid:129) Food & Beverage paper used for tea bags and
coffee pods/pads and filters;
(cid:129) Metallized products used in the labeling of beer
bottles, innerliners, gift wrap, self-adhesive labels
and other consumer products applications;
(cid:129) Composite Laminates papers used in produc-
tion of decorative laminates for furniture and
flooring; and
(cid:129) 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
2009
2008
2007
Food & beverage
Metallized
Composite laminates
Technical specialties and other
Total
$233,899
81,388
46,442
30,366
$392,095
$252,545
85,719
58,705
32,983
$429,952
$218,961
45,426
52,972
28,671
$346,030
We sell a significant portion of our specialty papers
through wholesale paper merchants. No individual cus-
tomer accounted for more than 10% of our consolidated
net sales in 2009, 2008 or 2007.
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.
In thousands
United States
Germany
United Kingdom
Other
Total
2009
Plant,
Equipment and
Timberlands – Net
$262,807
124,881
60,104
22,840
2008
Plant,
Equipment and
Timberlands – Net
$284,689
131,304
53,054
24,517
2007
Plant,
Equipment and
Timberlands – Net
$287,107
133,505
74,000
25,254
Net sales
$ 832,724
190,796
87,054
37,749
Net sales
$ 869,325
216,011
134,212
44,302
Net sales
$ 824,833
191,660
125,047
42,470
$1,184,010
$470,632
$1,263,850
$493,564
$1,148,323
$519,866
Glatfelter 2009 Annual Report
51
23. GUARANTOR FINANCIAL STATEMENTS
Our 71⁄8% Notes have been 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, 2009,
2008 and 2007 and our consolidating balance sheets as of December 31, 2009 and 2008. 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.
Condensed Consolidating Statement of Income for the
year ended December 31, 2009
In thousands
Net sales
Energy sales – net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative expenses
Gains on dispositions of plant, equipment and timberlands, net
Operating income
Non-operating income (expense)
Interest expense
Other income (expense) – net
Total other income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Parent
Company
$791,915
13,332
805,247
597,693
207,554
71,484
9
136,061
(16,324)
15,000
(1,324)
134,737
11,295
Guarantors
Non
Guarantors
Adjustments/
Eliminations
$46,796
–
46,796
42,320
$392,095
–
392,095
334,544
$(46,796)
–
(46,796)
(46,979)
Consolidated
$1,184,010
13,332
1,197,342
927,578
4,476
2,304
(907)
3,079
5,025
1,470
6,495
9,574
3,382
57,551
36,469
–
21,082
(2,810)
(144)
(2,954)
18,128
6,171
183
–
–
183
(3,225)
(16,251)
(19,476)
(19,293)
(1,144)
269,764
110,257
(898)
160,405
(17,334)
75
(17,259)
143,146
19,704
$123,442
$6,192
$11,957
$(18,149)
$123,442
Condensed Consolidating Statement of Income for the
year ended December 31, 2008
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Parent
Company
$833,900
9,364
843,264
729,425
113,839
56,425
(856)
183
$45,640
–
45,640
44,448
1,192
1,910
–
(18,651)
58,087
17,933
(19,940)
36,376
16,436
74,523
16,635
(14)
11,130
11,116
29,049
11,486
$429,950
–
429,950
367,005
62,945
39,562
–
–
23,383
(3,206)
(4,383)
(7,589)
15,794
4,211
$(45,640)
–
(45,640)
(45,446)
(194)
–
–
–
(194)
–
(38,146)
(38,146)
(38,340)
(9,194)
$57,888
$17,563
$11,583
$(29,146)
Consolidated
$1,263,850
9,364
1,273,214
1,095,432
177,782
97,897
(856)
(18,468)
99,209
(23,160)
4,977
(18,183)
81,026
23,138
$57,888
In thousands
Net sales
Energy sales – net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative expenses
Reversal of shutdown and restructuring charges
Gains on dispositions of plant, equipment and timberlands, net
Operating income (loss)
Non-operating income (expense)
Interest expense
Other income (expense) – net
Total other income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
52
Condensed Consolidating Statement of Income for the
year ended December 31, 2007
In thousands
Net sales
Energy sales – net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative expenses
(Reversal of) Shutdown and restructuring charges
Gains on dispositions of plant, equipment and timberlands, net
Operating income
Non-operating income (expense)
Interest expense
Other income (expense) – net
Total other income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Parent
Company
$802,293
9,445
811,738
716,015
95,723
80,112
201
76
15,334
(26,980)
75,806
48,826
64,160
688
Guarantors
Non
Guarantors
Adjustments/
Eliminations
$42,801
–
42,801
40,181
2,620
1,845
–
(78,761)
79,536
(3)
15,910
15,907
95,443
35,992
$346,030
–
346,030
287,931
$(42,801)
–
(42,801)
(42,671)
58,099
34,187
(166)
–
24,078
(2,039)
(5,939)
(7,978)
16,100
555
(130)
–
–
–
(130)
–
(81,639)
(81,639)
(81,769)
(6,773)
$63,472
$59,451
$15,545
$(74,996)
Consolidated
$1,148,323
9,445
1,157,768
1,001,456
156,312
116,144
35
(78,685)
118,818
(29,022)
4,138
(24,884)
93,934
30,462
$63,472
Condensed Consolidating Balance Sheet as of December 31, 2009
In thousands
Assets
Cash and cash equivalents
Other current assets
Plant, equipment and timberlands – net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Shareholders’ equity
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$76,970
275,490
255,886
600,116
$985
260,834
6,921
145,304
$57,465
148,090
207,825
75,731
$–
(299,778)
–
(621,545)
$135,420
384,636
470,632
199,606
$1,208,462
$414,044
$489,111
$(921,323)
$1,190,294
$301,908
200,241
71,035
124,574
697,758
510,704
$1,357
–
15,347
13,531
30,235
383,809
$179,273
36,695
26,284
9,654
251,906
237,205
$(296,428)
–
(15,998)
12,117
(300,309)
(621,014)
$186,110
236,936
96,668
159,876
679,590
510,704
Total liabilities and shareholders’ equity
$1,208,462
$414,044
$489,111
$(921,323)
$1,190,294
Glatfelter 2009 Annual Report
53
Condensed Consolidating Balance Sheet as of December 31, 2008
In thousands
Assets
Cash and cash equivalents
Other current assets
Plant, equipment and timberlands – net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Shareholders’ equity
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$8,860
266,899
277,215
510,144
$756
256,834
7,470
175,927
$22,618
88,288
208,879
(29,767)
$–
(252,436)
–
(484,378)
$32,234
359,585
493,564
171,926
$1,063,118
$440,987
$290,018
$(736,814)
$1,057,309
$336,182
222,965
53,976
107,288
720,411
342,707
$17,072
–
24,615
13,838
55,525
385,462
$85,668
70,695
26,272
8,941
191,576
98,442
$(248,820)
–
(14,705)
10,615
(252,910)
(483,904)
$190,102
293,660
90,158
140,682
714,602
342,707
Total liabilities and shareholders’ equity
$1,063,118
$440,987
$290,018
$(736,814)
$1,057,309
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2009
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Purchase of plant, equipment and timberlands
Proceeds from disposal plant, equipment and timberlands
Proceeds from timberland installment note receivable
Repayments from (advances of) intercompany loans, net
Total investing activities
Financing activities
Net (repayments of) proceeds from indebtedness
Payment of dividends to shareholders
(Repayments) borrowings of intercompany loans, net
Payment of intercompany dividends
Total financing activities
Effect of exchange rate on cash
Net increase (decrease) in cash
Cash at the beginning of period
Cash at the end of period
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$102,891
$17,534
$46,668
$(3,225)
$163,868
(14,040)
–
–
9,186
(4,854)
(22,725)
(16,596)
9,394
–
(29,927)
–
68,110
8,860
$76,970
(137)
951
–
(9,394)
(8,580)
–
–
(5,500)
(3,225)
(8,725)
–
229
756
$985
(12,080)
–
37,850
–
25,770
(36,008)
–
(3,686)
–
(39,694)
2,103
34,847
22,618
$57,465
–
–
–
208
208
–
–
(208)
3,225
3,017
–
–
–
$–
(26,257)
951
37,850
–
12,544
(58,733)
(16,596)
–
–
(75,329)
2,103
103,186
32,234
$135,420
54
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2008
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Purchase of plant, equipment and timberlands
Proceeds from disposal plant, equipment and timberlands
Repayments from (advances of) intercompany loans, net
Return (contributions) of intercompany capital, net
Total investing activities
Financing activities
Net (repayments of) proceeds from indebtedness
Payment of dividends to shareholders
(Repayments) borrowings of intercompany loans, net
Return of intercompany capital, net
Payment of intercompany dividends
Proceeds from stock options exercised and other
Total financing activities
Effect of exchange rate on cash
Net increase (decrease ) in cash
Cash at the beginning of period
Cash at the end of period
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$15,641
$26,929
$34,455
$(23,600)
$53,425
(19,998)
19,279
4,593
–
3,874
(39,196)
(16,469)
39,280
–
–
1,165
(15,220)
(2,128)
2,167
6,693
$8,860
(880)
–
(19,678)
24,997
4,439
–
–
(7,174)
–
(23,600)
–
(30,774)
–
594
162
$756
(31,591)
–
(17,502)
–
(49,093)
41,621
–
481
(24,997)
–
–
17,105
(2,827)
(360)
22,978
$22,618
–
–
32,587
(24,997)
7,590
–
–
(32,587)
24,997
23,600
–
16,010
–
–
$–
(52,469)
19,279
–
–
(33,190)
2,425
(16,469)
–
–
–
1,165
(12,879)
(4,955)
2,401
29,833
$32,234
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2007
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Purchase of plant, equipment and timberlands
Proceeds from disposal plant, equipment and timberlands
Acquisitions, net of cash acquired
Total investing activities
Financing activities
Net (repayments of) proceeds from indebtedness
Payment of dividends
Proceeds from stock options exercised and other
Total financing activities
Effect of exchange rate on cash
Net increase (decrease) in cash
Cash at the beginning of period
Cash at the end of period
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$92,366
$(40,334)
$48,300
$–
$100,332
(16,334)
199
–
(16,135)
(71,570)
(16,350)
7,551
(80,369)
604
(3,534)
10,227
$6,693
(1,091)
41,041
–
39,950
–
–
–
–
–
(384)
546
$162
(11,535)
376
(7,923)
(19,082)
(19,002)
–
–
(19,002)
1,550
11,766
11,212
$22,978
–
–
–
–
–
–
–
–
–
–
–
–
(28,960)
41,616
(7,923)
4,733
(90,572)
(16,350)
7,551
(99,371)
2,154
7,848
21,985
$29,833
Glatfelter 2009 Annual Report
55
24.
SUBSEQUENT EVENTS
On February 5, 2010, we and certain of our subsid-
iaries (the “Guarantors”) issued and sold $100 million in
aggregate principal amount of 71/8% Senior Notes due
2016 (the “Notes”). The Notes were issued at 95.0% of
the principal amount. We used the net proceeds from the
sale, along with borrowings under our revolving credit
facility and cash on hand, to fund the acquisition of
Concert Industries Corp. (“Concert”).
The Notes and the guarantees thereof (the “Guar-
antees”) were issued pursuant to an indenture dated as
of February 5, 2010 (the “Indenture”) among us, the
Guarantors and HSBC Bank USA, National Association,
as trustee (the “Trustee”). The Indenture contains cove-
nants that, among other things, limits the ability of us
and the Guarantors to incur debt, make restricted pay-
ments, create certain liens, sell assets, enter into certain
sale and leaseback transactions, and consolidate, merge
or transfer all or substantially all of our assets and the
assets of our subsidiaries on a consolidated basis. The
Indenture provides for customary events of default.
We will pay interest on the Notes on May 1 and
November 1 of each year, beginning on May 1, 2010.
The Notes will mature on May 1, 2016. The Notes are
senior unsecured obligations and will rank equally with
our other and future senior unsecured obligations. The
Notes are guaranteed, jointly and severally, on a senior
unsecured basis, by certain of our current and future
domestic subsidiaries.
We may redeem some or all of the notes at any
time and from time to time on or after May 1, 2011 at
the applicable redemption price plus accrued and unpaid
interest to the date of redemption. We have the option
to redeem the Notes in whole, but not in part, prior to
May 1, 2011 at a redemption price equal to 100% of
the principal amount plus accrued and unpaid interest
and a make-whole premium.
On February 12, 2010, we completed the acquisi-
tion (Concert) of all of the issued and outstanding shares
of Concert from Brookfield Special Situations Manage-
ment Limited (f/k/a Tricap Management Limited) (” Ven-
dor”) pursuant to a share purchase agreement entered
into among us and Vendor on January 4, 2010, as
amended on February 12, 2010. The purchase price paid
was approximately $234.4 million based on the currency
exchange rates on the closing date, subject to a post-
closing working capital adjustment. 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, including feminine hygiene and
adult incontinence products, specialty wipes and food
pads. In 2009, Concert’s revenues were approximately
$203.0 million.
25. QUARTERLY RESULTS (UNAUDITED)
In thousands,
except per share
First
Second
Third
Fourth
2009
$291,552
278,979
312,358
301,121
Net sales
Gross Profit
Net Income (loss)
2008
$305,499
320,224
339,822
298,305
2009
$43,314
59,001
82,465
84,984
2008
$44,258
32,398
57,172
43,954
2009
$11,538
19,870
45,994
46,040
2008
$19,675
3,156
21,662
13,395
The information set forth above includes the following, on an after-tax basis:
Diluted
Earnings
Per Share
2009
$0.25
0.43
1.00
1.00
2008
$0.43
0.07
0.47
0.29
Alternative Fuel Mixture
Credits
2009
$
–
30,418
32,890
32,456
2008
$–
–
–
–
Gains (losses) on Sales of Plant,
Equipment and Timberlands
2009
2008
$ 378
(441)
(5)
65
$8,662
–
2,371
(9)
Acquisition Integration
Costs
2009
$
–
–
–
(1,768)
2008
$(411)
(177)
(240)
(61)
In thousands
First
Second
Third
Fourth
56
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
committee financial experts as this term is set forth in
the applicable regulations of the SEC.
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,
2009, 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 Supple-
mentary Data.
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 Commis-
sion 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 incorpo-
rated herein by reference to our Proxy Statement, to be
dated on or about March 29, 2010.
Changes in Internal Control over Financial
Reporting
ITEM 12 SECURITYOWNERSHIP OF CERTAIN BEN-
EFICIAL OWNERS AND MANAGEMENT
There were no changes in our internal control over
financial reporting during the three months ended
December 31, 2009, that have materially affected or are
reasonably likely to materially affect our internal control
over financial reporting. In the course of completing our
evaluation of internal control over financial reporting we
implemented certain changes and enhancements to our
controls.
ITEM 9B OTHER INFORMATION
None.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Directors The information with respect to direc-
tors required under this Item is incorporated herein by
reference to our Proxy Statement, to be dated on or
about March 29, 2010. Our board of directors has
determined that, based on the relevant experience of the
members of the Audit Committee, all members are audit
The information required under this Item is incorpo-
rated herein by reference to our Proxy Statement, to be
dated on or about March 29, 2010.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required under this Item is incorpo-
rated herein by reference to our Proxy Statement, to be
dated on or about March 29, 2010.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND
SERVICES
The information required under this Item is incorpo-
rated herein by reference to our Proxy Statement, to be
dated on or about March 29, 2010.
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 gover-
nance listing standards.
Glatfelter 2009 Annual Report
57
PART IV
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
1.
2.
Our Consolidated Financial Statements as follows are included in Part II, Item 8:
Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 and 2007
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements for the Years Ended December 31, 2009, 2008 and 2007
Financial Statement Schedules (Consolidated) are included in Part IV:
Schedule II – Valuation and Qualifying Accounts – For Each of the Three Years in the Period Ended December 31, 2009
i.
ii.
iii.
iv.
v.
i.
(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.
Amendment to the Share Purchase Agreement, dated February 12, 2010, filed herewith.
Asset Purchase Agreement, dated February 21, 2006, among NewPage Corporation, Chillicothe
Paper Inc. and P. H. Glatfelter Company
Agreement
for Sale of Assets (Lydney), dated March 8, 2006, by and among J R Crompton
Limited, Nicholas James Dargan and Willian Kenneth Dawson, as administrators and
Glatfelter-UK Limited and the Company
Agreement, dated as of November 30, 2007, between Metallised Products Limited (“MPL”) and
Glatfelter Lydney Limited, a wholly-owned indirect subsidiary of P. H. Glatfelter Company to
acquire MPL, (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.
2.1
10
February 21, 2006
Form 8-K
March 31, 2006
Form 10-Q
2(c)
2007 Form 10-K
Articles of Incorporation, as amended through December 20, 2007 (restated for the purpose of
3(b)
2007 Form 10-K
filing on EDGAR)
By-Laws as amended through February 18, 2009
Indenture, dated as of February 5, 2010 by and between the Company and HSBC Bank USA,
National Association, as trustee relating to 71⁄8 Notes due 2016.
Indenture, dated as of April 28, 2006, by and between the Company and SunTrust Bank, as
trustee relating to 71⁄8 Notes due 2016
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 71⁄8 Notes due 2016
3.1
4.1
4.1
4.3
June 30, 2009
Form 10-Q
February 5, 2010
Form 8-K
May 3, 2006
Form 8-K
September 22, 2006
Form S-4/A
P. H. Glatfelter Company Management Incentive Plan, effective January 1, 1982, as amended
10(a)
2000 Form 10-K**
and restated effective January 1, 1994**
P. H. Glatfelter Company 2005 Management Incentive Plan, adopted as of April 27, 2006**
P. H. Glatfelter Company Supplemental Executive Retirement Plan, as amended and restated
effective April 23, 1998 and further amended December 20, 2000**
Description of Executive Salary Continuation Plan**
P. H. Glatfelter Company Supplemental Management Pension Plan, effective as of April 23,
1998**
10.4
10(c)
10(g)
10(f)
April 27, 2006
Form 8-K
2000 Form 10-K**
1990 Form 10-K**
1998 Form 10-K**
P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive Plan, as amended December
10(g)
2000 Form 10-K**
20, 2000**
P. H. Glatfelter Company 2005 Long-Term Incentive Plan, adopted as of April 27, 2006**
(g)
(A)
Form of Top Management Restricted Stock Unit Award Certificate.**
(g)
(B)
Form of Non-Employee Director Restricted Stock Unit Award Certificate**
(h)
(i)
P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of April 22,
1998**
Change in Control Employment Agreement by and between P. H. Glatfelter Company and
George H. Glatfelter II, dated as of December 8, 2008**
10.1
10.2
10.3
10(h)
10(i)
April 27, 2006
Form 8-K
April 27, 2006
Form 8-K
April 27, 2006
Form 8-K
1998 Form 10-K**
2008 Form 10-K**
(b)
(c)
(d)
(e)
(a)
(b)
(a)
(b)
(c)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
3
4
10
58
Exhibit
Number
(j)
(j)
(k)
(l)
Description of Documents
Incorporated by Reference to
Exhibit
Filing
Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company
10(j)
2008 Form 10-K**
and certain employees, dated as of December 8, 2008**
(A)
Schedule of Change in Control Employment Agreements, filed herewith**
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
Credit Agreement, dated as of April 3, 2006, by and among the Company, 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 Credit Suisse Securities (USA) LLC, as joint arrangers and bookrunners, and Credit Suisse
Securities (USA) LLC, as syndication agent
10(i)
1996 Form 10-K
10.1
April 7, 2006
Form 8-K
10(o)
2002 Form 10-K
(l)
(A)
First Amendment to Credit Agreement among the Company, certain of the Company’s
10.1
subsidiaries, certain lenders party thereto and PNC Bank, National Association, in its capacity
as agent for such lenders, dated April 25, 2006
(l)
(B)
Second Amendment to Credit Agreement among the Company, certain of the Company’s
10.2
subsidiaries, certain lenders party thereto and PNC Bank, National Association, in its capacity
as agent for such lenders, dated December 22, 2006
(l)
(C)
Third Amendment to Credit Agreement among the Company, certain of the Company’s
10.3
subsidiaries, certain lenders party thereto and PNC Bank, National Association, in its capacity
as agent for such lenders, dated June 8, 2007*
(m)
Contract for the Purchase and Bargain Sale of Property, dated as of December 16, 2002, by
and among Glatfelter Pulp Wood Company (a wholly owned subsidiary of the Registrant),
the Conservation Fund and Fidelity National Title Insurance Company
(n)
Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox
10.2
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.)
(n)
(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.)
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.)
Administrative Order for Remedial Action dated November 13, 2008; issued by the United
States Environmental Protection Agency
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)
Compensatory Arrangements with Certain Executive Officers, filed herewith**
Summary of Non-Employee Director Compensation (effective January 1, 2007), filed herewith**
Service Agreement, commencing on August 1, 2007, between the Registrant (through a wholly
owned subsidiary) and Martin Rapp**
Retirement Pension Contract, dated October 31, 2008, between Registrant (through a wholly
owned subsidiary) and Martin Rapp**
Form of Stock-Only Stock Appreciation Right Award Certificate**
Form of 2007 Top Management Restricted Stock Unit Award Certificate**
Separation Agreement and General Release entered into between Jeffrey J. Norton and P. H.
Glatfelter Company dated as of October 25, 2008
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(o)
10.1
10.2
10.1
10(r)
10(t)
10(s)
10(t)
10.1
10.1
June 30, 2007
Form 10-Q
June 30, 2007
Form 10-Q
June 30, 2007
Form 10-Q
October 1, 2003
Form 8-K/A – No. 1
2007 Form 10-K
Nov 15, 2008
Form 8-K
Nov 15, 2008
Form 8-K
June 30, 2008
Form 8-K
2006 Form 10-K
2007 Form 10-K
2006 Form 10-K
2006 Form 10-K
Sept. 30, 2008
Form 10-Q
Sept. 30, 2007
Form 10-Q
Term Loan Agreement dated January 15, 2008, among GPW Virginia Timberlands LLC, certain
10(x)
2007 Form 10-K
lenders party thereto and SunTrust Bank, in its capacity as agent for such lenders
Contract for Sale for Sale of Real Estate between Glatfelter Pulp Wood Company, a wholly
owned subsidiary of the Company, and George H. Glatfelter II and Beverly G. Glatfelter,
dated May 8, 2008
Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter
Subsidiaries of the Registrant, filed herewith
Consent of Independent Registered Public Accounting Firm, filed herewith.
Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter,
pursuant to Section 302 (a) of the Sarbanes-Oxley Act Of 2002, filed herewith
10.2
June 30, 2008
Form 10Q
14
2003 Form 10-K
Glatfelter 2009 Annual Report
59
(n)
(B)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(w)
(x)
(y)
(z)
14
21
23
31.1
Exhibit
Number
31.2
32.1
32.2
Description of Documents
Incorporated by Reference to
Exhibit
Filing
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
Certification of George H. Glatfelter II, Chairman 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
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
* Portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and
Exchange Commission.
** Management contract or compensatory plan
60
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.
SIGNATURES
March 16, 2010
P. H. GLATFELTER COMPANY
(Registrant)
By /s/ George H. Glatfelter II
George H. Glatfelter II
Chairman 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 16, 2010
/s/ George H. Glatfelter II
George H. Glatfelter II
Chairman and Chief Executive Officer
March 16, 2010
John P. Jacunski
/s/
John P. Jacunski
Senior Vice President and
Chief Financial Officer
March 16, 2010
/s/ David C. Elder
David C. Elder
Vice President and Corporate Controller
March 16, 2010
Kathleen A. Dahlberg
/s/
Kathleen A. Dahlberg
March 16, 2010
/s/ Nicholas DeBenedictis
Nicholas DeBenedictis
March 16, 2010
Richard C. Ill
/s/
Richard C. Ill
March 16, 2010
J. Robert Hall
/s/
J. Robert Hall
March 16, 2010
Ronald J. Naples
/s/
Ronald J. Naples
March 16, 2010
Richard L. Smoot
/s/
Richard L. Smoot
March 16, 2010
Lee C. Stewart
/s/
Lee C. Stewart
Principal Executive Officer and Director
Principal Financial Officer
Controller and Chief Accounting Officer
Director
Director
Director
Director
Director
Director
Director
Glatfelter 2009 Annual Report
61
CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, George H. Glatfelter II, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2009 of P. H. Glatfelter Company
(“Glatfelter”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report.
4. Glatfelter’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Glatfelter and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to Glatfelter, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, 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;
(c) Evaluated the effectiveness of Glatfelter’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in Glatfelter’s internal control over financial reporting that occurred during
Glatfelter’s most recent fiscal quarter (the fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, Glatfelter’s internal control over financial
reporting; and
5. Glatfelter’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to Glatfelter’s auditors and the audit committee of Glatfelter’s board of directors or persons
performing the equivalent functions:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect Glatfelter’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in Glatfelter’s internal control over financial reporting.
Date: March 16, 2010
By: /s/ George H. Glatfelter II
George H. Glatfelter II
Chairman and Chief Executive Officer
62
CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, John P. Jacunski, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2009 of P. H. Glatfelter Company
(“Glatfelter”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. Glatfelter’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Glatfelter and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to Glatfelter, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, 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;
(c) Evaluated the effectiveness of Glatfelter’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in Glatfelter’s internal control over financial reporting that occurred during
Glatfelter’s most recent fiscal quarter (the fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, Glatfelter’s internal control over financial
reporting; and
5. Glatfelter’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to Glatfelter’s auditors and the audit committee of Glatfelter’s board of directors or persons
performing the equivalent functions:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect Glatfelter’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in Glatfelter’s internal control over financial reporting.
Date: March 16, 2010
By: /s/
John P. Jacunski
John P. Jacunski
Senior Vice President and Chief Financial Officer
Glatfelter 2009 Annual Report
63
Schedule II
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
For each of the three years ended December 31, 2009
Valuation and Qualifying Accounts
Allowance for
In thousands
Doubtful Accounts
Sales Discounts and Deductions
Balance, beginning of year
Provision
Write-offs, recoveries and discounts allowed
Other(a)
Balance, end of year
2009
$2,633
506
(306)
55
$2,888
2008
$3,117
(36)
(296)
(152)
$2,633
2007
$3,613
781
(1,319)
42
$3,117
2009
$3,369
3,575
(4,197)
42
$2,789
2008
$4,345
6,620
(6,045)
(1,551)
$3,369
2007
$2,585
6,723
(5,195)
232
$4,345
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.
64
Glatfelter
today
heading into 2010 is very real.
Our refl ections on 2009 and our outlook for 2010
and beyond can be summed up in three words:
STRATEGY. RESU LTS. MOMENTUM.
Strategy guides everything we do, our 2009 results were strong, and the momentum
Headquartered in York, PA, Glatfelter is a global manufacturer of specialty papers
and engineered products, offering over a century of experience, technical expertise
and world-class service. U.S. operations include facilities in Spring Grove, PA and
Chillicothe and Fremont, OH. International operations include facilities in Germany,
France, the United Kingdom, Canada and the Philippines, a representative offi ce
in China and a sales and distribution offi ce in Russia. Glatfelter’s sales exceed
$1 billion annually and its common stock is traded on the
New York Stock Exchange under the ticker symbol GLT.
OUR VISION is to become the global supplier of choice
in specialty papers and engineered products.
Contents
2
5
6
8
Letter to Our Shareholders
Financial Highlights
Strategy – Proven, Consistent Approach Drives Value
Results – Delivering Enviable Performance in Challenging Times
10
Momentum – Built to Thrive in 2010 and Beyond
12
Directors and Offi cers and Corporate Information
Form 10-K
Directory of Locations
FORWARD-LOOKING STATEMENTS
Certain statements made in this annual report which pertain to future fi nancial and business performance, conditions and strategies and other fi nancial and business matters are “forward-
looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These statements are based on management’s
current expectations and are subject to numerous risks, uncertainties and other unpredictable or uncontrollable factors which may cause actual results or performance to differ materially
from the Company’s expectations. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-
looking statements are detailed on page 15 of the accompanying 2009 Annual Report on Form 10-K included herein. A copy of that Form, which is on fi le with the Securities and Exchange
Commission, is also available at www.glatfelter.com or upon request.
SALES OFFICES
Spring Grove, Pennsylvania
Lydney, United Kingdom
228 South Main Street
Spring Grove, PA 17362
Chillicothe, Ohio
401 Paint Street
Chillicothe, OH 45601
Gainesville, Georgia
200 Broad Street, Suite 206
Gainesville, GA 30501
Gernsbach, Germany
Hördener Straße 5
76593 Gernsbach
Germany
LOCATIONS
World Headquarters
P. H. Glatfelter Company
96 South George Street
Suite 500
York, PA 17401
U.S.
Operating
Locations
Spring Grove Facility
228 South Main Street
Spring Grove, PA 17362
Chillicothe Facility
401 Paint Street
Chillicothe, OH 45601
Fremont Facility
2275 Commerce Drive
Fremont, OH 43420
Glatfelter Pulp Wood Company
228 South Main Street
Spring Grove, PA 17362
Church Road
Hong Kong
P.O. Box No. 13158
Lydney, Gloucestershire
Central Post Offi ce, Hong Kong
GL15 5EJ
United Kingdom
Caerphilly, United Kingdom
Pontygwindy Industrial Estate
Moscow, Russia
Presnenskaya emb. 10
Block C, 5th Floor
Moscow, 123317
Caerphilly, Mid Glamorgan
Russia
CF83 3HU
United Kingdom
Scaër, France
BP 2
29390 Scaër
France
International
Operating
Locations
Gernsbach Facility
Hördener Straße 5
76593 Gernsbach
Germany
Scaër Facility
BP 2
29390 Scaër
France
Lydney Facility
Church Road
Lydney, Gloucestershire
GL15 5EJ
United Kingdom
Caerphilly Facility
Pontygwindy Industrial Estate
Caerphilly, Mid Glamorgan
CF83 3HU
United Kingdom
Gatineau Facility
1680 rue Atmec
Gatineau, QC J8P 7G7
Canada
Falkenhagen Facility
Gewerbepark Prignitz/Falkenhagen
Am Lehmberg 10
16928 Pritzwalk
Germany
Balo-I Facility
Bo. Maria Cristina
9217 Balo-I, Lanao del Norte
Philippines
Other
Locations
Glatfelter Composite Fibers NA, Inc.
200 Broad Street, Suite 206
Gainesville, GA 30501
China Representative Offi ce
Century Financial Tower, A205
No. 1 Suhua Road
Suzhou-SIP, Jiangsu 215021
China
Hong Kong
P.O. Box No. 13158
Central Post Offi ce, Hong Kong
Glatfelter Russia, LLC
Presnenskaya emb. 10
Block C, 5th Floor
Moscow, 123317
Russia
P. H. Glatfelter Company • 96 South George Street • Suite 500 • York, PA 17401 • www.glatfelter.com
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