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the continuity of change
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© 2 01 1 Glatfe lte r
glatfelteR
Headquartered in york, Pa, Glatfelter is a global manufacturer of specialty papers
and fiber-based engineered materials, offering more than 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 Canada, Germany, france, the united kingdom and the Philippines,
a representative office in China, and a sales and distribution office in russia.
Glatfelter’s sales approximate $1.5 billion annually and its common stock is traded
on the new york Stock exchange under the ticker symbol Glt.
contentS
1
2
5
financial Highlights
letter to our Shareholders
interview with Ceo Dante Parrini
10
Glatfelter at a Glance
12
Directors and officers and Corporate information
form 10-k
Directory of locations
forwarD-lookinG StatementS
Certain statements made in this annual report which pertain to future financial and business performance and conditions and other financial 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 the forward-looking statements
are detailed on page 14 of the accompanying 2010 annual report on form 10-k included herein.
SaleS officeS
Spring Grove, Pennsylvania
falkenhagen, Germany
Scaër, france
locationS
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
Gatineau, Canada
1680 rue atmec
Gatineau, QC J8P 7G7
Canada
Gernsbach, Germany
Hördener Straße 5
76593 Gernsbach
Germany
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
Gewerbepark Prignitz/falkenhagen
Bp 2
am lehmberg 10
16928 Pritzwalk
Germany
29390 Scaër
france
Hong Kong
lydney, United Kingdom
P.o. Box no. 13158
Church road
lydney, Gloucestershire
Gl15 5eJ
united kingdom
Central Post office, Hong kong
Moscow, russia
Chechersky proezd, 24
moscow, 117042
Caerphilly, United Kingdom
russia
Pontygwindy industrial estate
Caerphilly, mid Glamorgan
Cf83 3Hu
united kingdom
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 Office
Century financial tower, a205
no. 1 Suhua road
Suzhou-SiP, Jiangsu 215021
China
Hong Kong
P.o. Box no. 13158
Central Post office, Hong kong
Glatfelter russia, llC
Chechersky proezd, 24
moscow, 117042
russia
FinanCial highlightS
Selected Consolidated Financial Data (In thousands, except per share data)
As of or for the year ended December 31,
Net sales
Gross profit
Gross profit %
Reversal of (Shutdown and restructuring charges)
Gains on disposition of PP&E and timberlands,
insurance recoveries
Net income (loss)*
Diluted EPS
Adjusted EPS***
Balance sheet information:
Total assets
Total debt
2010
2009
2008
2007
2006
$1,455,331 $1,184,010
$1,263,850
$1,148,323
$986,411
186,247
269,764 **
177,782
156,312
105,294
13%
23%
—
453
—
898
14%
856
14%
(35)
11%
(30,318)
18,468
78,685
17,394
54,434
123,442
57,888
63,472
(12,236)
1.17
0.88
2.70
0.64
1.27
1.04
1.40
0.81
(0.27)
0.55
1,341,747
1,190,294
1,057,309
1,287,067
1,225,643
333,022
254,583
313,285
313,185
397,613
Shareholders’ equity
552,442
510,704
342,707
476,068
388,368
5
5
4
,
1
$
Net Sales
(in millions)
4
6
2
,
1
$
4
8
1
,
1
$
8
4
1
,
1
$
6
8
9
$
Adjusted
Earnings
Per Share***
4
0
.
1
$
1
8
.
0
$
8
8
.
0
$
4
6
.
0
$
5
5
.
0
$
Cash Flow
from Operations
(in millions)
9
.
3
6
1
$
0
.
8
6
1
$
3
.
0
0
1
$
4
.
3
5
$
)
4
.
8
2
$
(
06
07
08
09
10
06
07
08
09
10
06
07
08
09
10
*During 2010, net income included a $23.2 million tax benefit from cellulosic biofuel production credits.
**Includes $107.8 million of alternative fuel mixture credits.
***Adjusted earnings per share is a non-GAAP financial measure as it excludes the impact of certain items. It is used by the Company to evaluate the performance of its core business operations. Adjusted
earnings per share excludes the following items, all on an after-tax per share basis: benefit of cellulosic biofuel production credits in 2010 of $0.50; acquisition and integration related costs aggregating $0.24,
$0.04, $0.02, $0.03 and $0.19 in 2010 through 2006, respectively; alternative fuel mixture credits in 2009 of $2.09; gains from timberland sales and other asset sales in 2010 and 2008 through 2006 of
$0.02, $0.24, $0.97, and $0.20, respectively; shutdown, restructuring charges and asset writedowns of $(0.01) in 2008 and $0.79 in 2006; reserves for environmental matters of $0.35 in 2007; and debt
redemption costs of $0.04 in 2006.
1
DEAR FELLOW SHAREHOLDERS,
For the past 12 years, George Glatfelter skillfully
led the Company and guided it through several
business cycles, significant geographic and market
expansion, and four acquisitions to strategically repo-
sition the business. He and I have worked together
since 1997, and I would like to thank George for his
support and encouragement throughout my career
It is my distinct pleasure to write to you
with Glatfelter. Although we are different people, we
today as your recently appointed president
and chief executive officer. I appreciate
do share similar values and ideals, and at the top of
the list is an unwavering faith in Glatfelter PEOPLE,
whose integrity, resiliency and resourcefulness are
the confidence and support that the Board
central to our ongoing strength as a Company. With-
of Directors has shown in me, and I am truly
out a doubt, our PEOPLE are a big part of my high
level of optimism about what lies ahead for Glatfelter
honored to succeed George Glatfelter in
as we embrace The Continuity of Change.
this role and lead Glatfelter at this exciting
time in the Company’s history.
2010 Accomplishments
I am pleased to report that we ended 2010 and
entered 2011 financially strong and well positioned
for continued growth. The year was marked by a
number of financial, operational and strategic accom-
plishments, as well as the challenges of integrating
a major acquisition, improving operational efficiency,
and responding to some unevenness in the eco-
nomic recovery. I am pleased with how the Company
Without a doubt, our PEOPLE are a big
part of my high level of optimism about
what lies ahead for Glatfelter as we
embrace The Continuity of Change.
Dante C. Parrini
President and Chief Executive Officer
handled the challenges and opportunities, and the
to deliver outstanding value to both customers and
results we achieved.
shareholders. The same can be said of our strategy
From a financial perspective in 2010, we were
for the Specialty Papers business, which continues to
able to increase net sales by approximately 23 percent,
thrive as a nimble and sustainable niche player due to
which increased business unit operating income by
its ongoing new product and business development
23 percent to $95.7 million and adjusted earnings
efforts, and rigorous cost control initiatives.
per share by approximately 38 percent to $0.88 per
diluted share. These strong results were driven primar-
ily by our Composite Fibers business, which effectively
parlayed its leading market position into a 13 percent
I am pleased with how the Company
handled the challenges and opportunities,
year-over-year increase in shipments and continued to
and the results we achieved.
realize operating efficiencies from ongoing continu-
ous improvement initiatives. Similarly, our Specialty
Papers business finished the year with higher year-
Clearly, our most significant strategic move in
over-year shipments, again outperforming the broader
2010 was the acquisition of Concert Industries, now
uncoated free-sheet market, and generated increased
known as our Advanced Airlaid Materials business.
operating profit for the sixth consecutive year.
This acquisition, our fourth since 2006, provides us
From an operations standpoint, the success of
access to the fast-growing feminine hygiene and
our continuous improvement programs was reflected
adult incontinence markets globally. Over the course
in our strong bottom-line performance and our ability
of the year, we began addressing this business’ oper-
to generate the free cash flow necessary to execute
ating efficiencies by aggressively implementing con-
our smart growth strategy. This strategy depends on
tinuous improvement initiatives similar to those we
prudent reinvestment in our operations and targeted
have successfully instituted elsewhere in our business.
acquisitions of strategic assets that further expand
Although we did not meet our expectations for this
our value creation potential. For 2010, free cash flow
business in 2010, we continue to refine the business
(cash provided by operations less capital expenditures)
and we are excited about its growth opportunities.
was $131.5 million.
From a strategic standpoint, 2010 was a break-
growing glatfelter in 2011 and Beyond
out year for our Composite Fibers business, which
As we aspire to become the global supplier of
has become the world leader in materials for the
choice in specialty papers and engineered products,
expanding tea and coffee industry, among others.
we remain vigilant in growing the business smartly
With operating margins up 226 basis points resulting
to ensure we are creating sustainable value for our
in a 50 percent improvement in operating income, it
shareholders. Specialty papers remains a cornerstone,
is apparent to us that our strategy of driving market-
and, yet, nearly half of our business now comes from
leading positions through innovation and continuous
some form of a fiber-based engineered material.
improvement is on target and working as designed
The continued diversification will enable us to build
3
a more resilient business by adapting to the needs
We will strive to continue delivering at least
of an ever-changing world, profitably growing our
50 percent of annual sales from products less
business, and delivering distinctive value to customers
than five years old.
and investors alike.
• Finally, we will ensure the long-term competi-
In order to grow Glatfelter in 2011 and beyond,
tiveness of our organization by further expanding
we will focus on four core growth drivers:
our CONTINUOUS IMPROVEMENT efforts. Doing
• In the area of GLOBALIZATION, we will
so will enable us to aggressively manage costs while
continue to grow our business by supporting our
keeping safety and quality a top priority, develop the
multinational, market-making customers, such as
talent of Glatfelter PEOPLE, and strengthen our busi-
those serving the feminine hygiene and tea and
ness processes worldwide. We will target generating
coffee markets. We will seek to further expand into
savings equal to 1 percent of annual sales from our
new geographies and attractive adjacent markets,
continuous improvement initiatives.
while leveraging our newly created scale to extend
In capitalizing on these growth opportunities,
our competitive positioning and source materials
we will continue to be guided by our Core Values –
and services more efficiently.
integrity, financial discipline, mutual respect, customer
We remain vigilant in growing the
of how Glatfelter PEOPLE exemplify these values on a
focus, and environmental and social responsibility. I
believe in the strength of our culture and I am proud
business smartly to ensure we are creating
sustainable value for our shareholders.
daily basis. I also believe we have the scale, collective
will and capabilities to take this company to the next
level of performance.
For more insight on how we are embracing
The Continuity of Change, I invite you to review
• Continued advancements in SPECIALIZATION
the Q&A discussion on the following pages. I look
will ensure we are able to adapt quickly to chang-
forward to updating you on our progress as we move
ing market dynamics, preserve our enviable position
the Company forward and I thank you for your
as the supplier of choice, and bolster the Glatfelter
continued interest in Glatfelter.
brand with technically superior, high-value offerings.
• By increasing our focus on INNOVATION,
Sincerely,
we will leverage – and exploit – our institutional
speed, knowledge and technical capabilities to
better position Glatfelter as the innovation partner
Dante C. Parrini
of choice, meeting customers’ needs for distinctive,
President and Chief Executive Officer
environmentally and financially sustainable solutions.
March 11, 2011
4
intERviEW
With CEO DantE PaRRini
1. For those who haven’t worked with you directly, how
2. As you have become CEO, how do you see the
would you describe your management style?
business evolving under your direction?
I would say that I am a direct person and certainly want
I view this leadership transition as one of strategic
others to be direct with me. I’m focused on results, solutions
continuity but not status quo. The Company has achieved
and advancing toward goals as a team with an appropriate
meaningful growth in recent years, has much to be proud of
sense of urgency. The concept of “team” is very important to
and is ready to take the next steps.
me. I really do believe in the power of a unified and motivated
I don’t think anyone here believes we’ve reached our full
team. And I take my role in leading teams seriously. I’m a
potential. As the new CEO, I am focused on helping the team
hands-on leader and feel it’s important to lead by example,
to build on our growth platforms of globalization, specializa-
particularly when it comes to applying our Core Values on a
tion, innovation and continuous improvement to create a more
day-to-day basis.
vibrant and sustainable company. For example, we need to
generate organic growth consistently in order to truly comple-
ment and leverage our targeted strategic acquisition effort. At
the same time, we must consistently apply financial discipline in
order to maintain our financial flexibility.
5
I N T E R V I E W
“as the new CEO, i am focused on helping the team to build on our growth platforms
of globalization, specialization, innovation and continuous improvement
to create a more vibrant and sustainable company.”
3. What accomplishments and successes over the past
5. In the letter, you talk about the company’s growth
year do you think the company can build on in 2011?
strategy. How will you define success as it relates to
I think there are several accomplishments that we can
“globalization,” “specialization” and “innovation”?
continue to benefit from.
In my view, success within these growth platforms will
Clearly, our Composite Fibers business had a fantastic
be measured in a variety of ways, and we are very aware that
year. Composite Fibers is a great example of what we can
we need to deliver results that are meaningful for our investors,
achieve through our pursuit of organic, profitable growth. And
customers and employees.
it shows what a motivated, engaged, customer-focused team
For example, investors will want to see how these
can accomplish together. I fully expect this business to be a key
platforms translate our global scale and specialized products
growth driver for us going forward.
into steady and profitable growth. They will also be watching
I am also very proud of what our team in the Specialty
our cash flow from operations as closely as we will. Customers
Papers business accomplished in 2010 – its sixth consecutive
will judge us on our ability to meet their needs for customized
year of outperforming the broader market and increased op-
solutions quickly and consistently anywhere in the world. At the
erating income. This is a real testament to the power of speed,
same time, success for our employees will be indicated by them
flexibility, innovation and continuous improvement.
having the opportunity to contribute and grow their careers at
I remain very excited about the growth potential of our
a truly global organization that thrives on new ideas and values
Advanced Airlaid Materials business, which grew shipment
individual excellence. So, success will be measured by specific
volumes by 17.1 percent in 2010. I firmly believe we will see
results and overall progress that will benefit all of our critical
meaningful, positive results from this business in 2011.
stakeholders.
Finally, I believe our proven ability to generate strong
free cash flow will serve us well in 2011 and beyond.
6. What organizational metrics will you use to monitor
4. What business challenges are you focused
on for 2011?
“continuous improvement”?
From a quantitative standpoint, we target to achieve
a financial impact of approximately 1 percent of full-year
Assuming macroeconomic conditions remain steady,
revenues from continuous improvement, which improves our
I would say our primary business challenges in 2011 will be:
margins and helps to offset cost inflation. We also closely
1) accelerating the progress of our Advanced Airlaid Materials
measure safety performance, quality levels, facility-specific
business and 2) managing the inflationary pressure on raw
productivity and customer satisfaction, to name a few.
materials and other input costs. To a lesser extent, I also think
From a qualitative standpoint, we want to see continu-
we have to make sure our internal processes are aligned with
ous improvement shift from a project- or event-specific focus
the realities of our growing business and that we remain
to a consistent daily mindset of “How can we do this better,
vigilant in our execution as we continue to grow Glatfelter.
smarter, safer, faster?”
I would add that I think the team has done an excellent
job preparing for these challenges as they became apparent
during our 2011 planning process.
6
I N T E R V I E W
“... investors will want to see how these platforms translate our global scale
and specialized products into steady and profitable growth.”
7. Given the challenges that the Company has disclosed
9. What is it about “the Glatfelter story” that you hope
with the recently acquired Advanced Airlaid Materials
investors will learn more about over the next year?
business, has your outlook for this business unit changed?
Without a doubt, it’s the size and strength of our growth
If so, how? If not, why?
engine and the upside it represents.
I feel good about this business and believe it will prove
As we discussed earlier, our Composite Fibers business
to be a significant contributor to the Company’s long-term val-
had a breakout year in 2010 and exemplifies precisely what we
ue creation. Rapidly rising input costs and currency fluctuations
are looking to accomplish through our smart growth strategy.
had a negative effect on this business’ 2010 results. Clearly, its
We are having similar success outworking, out-thinking and
operating performance needs to improve, and we have a com-
out-innovating the competition within the Specialty Papers seg-
prehensive plan in place to do just that, which includes a sharp
ment. And we have been doing so for some time now. When
focus on improving the cost structure. Immediate challenges
you factor in the potential of our Advanced Airlaid Materials
aside, shipments were up 17.1 percent on a year-over-year basis
business, our strong balance sheet and cash flow profile, I think
as we asserted our market-leading position, which signals to us
we have a compelling growth story to offer investors. Obvious-
that we have opportunities to continue the strong growth.
ly, the key to it will be delivering that growth consistently across
the business segments.
8. Going forward, what role do you think acquisitions
will play in the company’s business strategy?
10. How do you plan to deliver this message
Acquisitions will continue to be a part of our smart
to investors?
growth strategy and we’ll continue to look at those opportu-
As an organization, we are going to remain appropri-
nities that will allow us to access adjacent markets and new
ately transparent in our disclosures and proactively engage with
geographies, as well as those that enable us to accelerate our
our current and prospective investors. Personally, I plan to be an
globalization, specialization and innovation growth drivers.
active participant in our ongoing dialogue with investors. The
That said, given the significant organic growth potential in
last thing I want to do is become a voice that’s heard only once
the business right now, I would expect much of our growth in
a quarter on a conference call. I think it is important for the
the near term will come from our existing business platforms.
market to hear from me and for me to get firsthand input and
insight from investors.
8
at a glanCE
Specialty Papers
Composite Fibers
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
Advanced Airlaid Materials
3%
15%
82%
3%
15%
82%
Feminine Hygiene
Other
Adult Incontinence
Feminine Hygiene
Other
Adult Incontinence
2010 NET SALES:
$419.2M
Composite Fibers
2010 TONS SOLD:
~90,350 tons
9%
12%
2010 AVERAGE PRICE:
21%
9%
~$4,640/ton
12%
21%
58%
58%
Food & Beverage
Metallized
Composite Laminates
Our Composite Fibers business unit
Technical Specialties
Food & Beverage
serves customers globally and focuses
Metallized
on higher-value-added products in the
Composite Laminates
following markets:
Technical Specialties
• FOOD & BEVERAGE: paper used for tea
bags and single-serve coffee products
• METALLIZED: products used in the labeling
of beer bottles, innerliners, gift wrap,
self-adhesive labels and other consumer
product applications
• COMPOSITE LAMINATES: papers used in
the production of decorative laminates,
furniture and flooring applications
• TECHNICAL SPECIALTIES: diverse line
of paper products used in batteries,
medical masks and other highly
engineered applications
2010 NET SALES:
$842.6M
2010 TONS SOLD:
~764,670 tons
2010 AVERAGE PRICE:
~$1,102/ton
Our Specialty Papers business unit
focuses on producing papers for
the following markets primarily in
North America:
• CARBONLESS & FORMS: papers for credit
card receipts, multi-part forms, security
papers and other end-use applications
• BOOk PUBLISHING: papers for the
production of high-quality hardbound
books and other book publishing needs
• ENVELOPE AND CONVERTING: papers for
the direct mail market, shopping bags,
and other converting applications
• ENGINEERED PRODUCTS: for digital
imaging, transfer, casting, release, postal,
playing card, FDA-compliant food and
beverage applications, and other niche
specialty applications
Specialty Papers
Product SaleS Mix
18%
19%
18%
20%
19%
43%
43%
Carbonless & Forms
20%
Book Publishing
Envelope & Converting
Engineered Products
Carbonless & Forms
Book Publishing
Envelope & Converting
Engineered Products
Specialty Papers‘ volumes
outperformed the broader
uncoated free-sheet
market and increased
operating profit for the
6th consecutive year.
10
Specialty Papers
Specialty Papers
Composite Fibers
Specialty Papers
Specialty Papers
Composite Fibers
Product SaleS Mix
18%
18%
43%
43%
19%
18%
20%
19%
18%
20%
43%
43%
19%
19%
9%
12%
21%
9%
12%
58%
advanced airlaid Materials
Composite Fibers
Advanced Airlaid Materials
Advanced Airlaid Materials
2010 NET SALES:
Composite Fibers
$193.5M
Advanced Airlaid Materials
Advanced Airlaid Materials
Product SaleS Mix
9%
2010 TONS SOLD:
12%
~72,833 tons
3%
15%
3%
15%
21%
2010 AVERAGE PRICE:
58%
9%
~$2,657/ton
12%
82%
3%
82%
3%
15%
15%
21%
58%
21%
58%
82%
82%
Carbonless & Forms
20%
Book Publishing
Carbonless & Forms
Food & Beverage
Food & Beverage
Feminine Hygiene
Feminine Hygiene
20%
Book Publishing
Metallized
Metallized
Other
Other
Envelope & Converting
Envelope & Converting
Composite Laminates
Composite Laminates
Adult Incontinence
Adult Incontinence
Engineered Products
Carbonless & Forms
Engineered Products
Carbonless & Forms
Technical Specialties
Food & Beverage
Book Publishing
Book Publishing
Metallized
Envelope & Converting
Envelope & Converting
Composite Laminates
Engineered Products
Engineered Products
Technical Specialties
Food & Beverage
Technical Specialties
Our Advanced Airlaid Materials
Feminine Hygiene
business unit focuses on producing
Metallized
Other
highly absorbent cellulose-based airlaid
Composite Laminates
Adult Incontinence
non-woven materials for high-growth
Technical Specialties
consumer and industrial applications
and markets, including:
• FEMININE HyGIENE
• ADULT INCONTINENCE
Feminine Hygiene
Other
Adult Incontinence
2010 was a breakout
• HOME CARE such as specialty wipes
advanced airlaid Materials
year for Composite Fibers,
• TABLETOP AND TOWELS
• FOOD PADS
which increased
operating profit by
50% over
2009 results.
grew shipments by
17% in 2010
and is well-positioned
for meaningful growth.
11
Directors anD officers
Officers and Management
Dante C. Parrini
President and
Chief Executive Officer
John P. Jacunski
Senior Vice President and
Chief Financial Officer
Christopher W. Astley
Vice President
Corporate Strategy
Thomas G. Jackson
William T. Yanavitch II
Vice President, General Counsel
Vice President
and Secretary
Janis C. Jesse
Vice President
Information Technology
Human Resources and Administration
John R. Blind
Division Vice President,
Printing & Carbonless Papers
Debabrata Mukherjee
Vice President and General Manager,
Specialty Papers Business Unit
Timothy R. Hess
Division Vice President,
Engineered & Converting Products
Jonathan A. Bourget
Martin Rapp
Vice President and General Manager,
Vice President and General Manager,
Reinhard S. Schiebeler
Operations Director,
Advanced Airlaid Materials Business Unit
Composite Fibers Business Unit
Composite Fibers Business Unit
David C. Elder
Mark A. Sullivan
Vice President and Corporate Controller
Vice President
Global Supply Chain
Directors
George H. Glatfelter II
J. Robert Hall
Chairman
Kathleen A. Dahlberg
Chief Executive Officer
2Unify LLC
Nicholas DeBenedictis
Chief Executive Officer
Ardale Enterprises, LLC
Dante C. Parrini
President and
Chief Executive Officer
Richard C. Ill
Richard L. Smoot
Chairman and Chief Executive Officer
Retired Regional Chairman
Triumph Group, Inc.
PNC Bank, NA
Philadelphia/South Jersey Markets
Chairman and Chief Executive Officer
Ronald J. Naples
Aqua America Corporation
Retired Chairman and
Chief Executive Officer
Quaker Chemical Corporation
Lee C. Stewart
Financial Consultant
corporate information
World Headquarters
P. H. Glatfelter Company
Annual Meeting
of Shareholders
Information Sources
For the latest quarterly business results
96 South George Street
May 4, 2011 10:00 a.m. EST
or other information,
Suite 500
York, PA 17401
ph: 717-225-4711
fax: 717-846-7208
www.glatfelter.com
Stock Exchange
New York Stock Exchange
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GLT
York Expo Center,
visit www.glatfelter.com or contact:
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Transfer Agent,
Dividend Disbursing Agent
and Registrar
P. H. Glatfelter Company
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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, 2010
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).
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
Yes n
No ¥.
Act)
Based on the closing price as of June 30, 2010, the aggregate market value of the Common Stock of the Registrant held
by non-affiliates was $490.7 million.
Common Stock outstanding on March 11, 2011 totaled 45,999,846 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this Annual Report on Form 10-K:
Proxy Statement to be dated on or about March 30, 2011 (Part III).
P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2010
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Executive Officers
(Reserved)
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
1
7
11
11
11
11
12
12
13
14
23
24
57
57
57
57
57
57
57
57
58
60
61
63
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 we believe we are one of the world’s leading
manufacturers of specialty papers and fiber-based engi-
neered materials. Headquartered in York, Pennsylvania,
we own and operate manufacturing facilities located in
Pennsylvania, Ohio, Canada, Germany, the United King-
dom, France, and the Philippines.
of our business units for the past three years are
summarized below:
Dollars in thousands
2010
2009
2008
Net sales
Business unit contribution
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
$1,455,331
$1,184,010
$1,263,850
57.9%
28.8
13.3
66.9%
33.1
–
66.0%
34.0
–
Total
100.0%
100.0%
100.0%
Net tons sold by each business unit for the past
Acquisitions Over the past several years we
three years were as follows:
completed the following acquisitions:
Dollars in millions
Date
Est.
Annual
Revenue(1)
Business
Unit
Primary
Products
Location
Canada and Germany
Feb ’10
$203.0
Wales
Ohio
Nov ’07
53.4
Apr ’06
440.0
England
Mar ’06
75.0
Advanced
Airlaid
Materials
Composite
Fibers
Specialty
Papers
Composite
Fibers
Airlaid non-woven
for feminine
hygiene, adult
incontinence and other
Metallized
Carbonless & forms
Tea & coffee filter papers
(1) Represents annual revenue prior to acquisition.
These strategic acquisitions significantly increased
our revenues and provided us with additional operating
scale, increased production capacity, and an expansion of
our geographic reach.
Products Our three business units manufacture,
both domestically and internationally, a wide array of
specialty papers and fiber-based engineered materials
including:
(cid:129) Specialty Papers with revenues earned from the
sale of carbonless papers and forms, book pub-
lishing, envelope & converting, and engineered
products;
(cid:129) Composite Fibers with revenue from the sale of
food & beverage filtration papers, metallized
papers, composite laminates used for decorative
furniture and flooring applications, and technical
specialties; and
(cid:129) AdvancedAirlaid Materials with revenue from the
sale of airlaid non-woven fabric-like materials
used in feminine hygiene products, adult inconti-
nence products, cleaning pads and wipes, food
pads, napkins and tablecloths, and baby wipes.
Our Business Units
Since completing the acqui-
sition of Concert Industries Corp. (“Concert”) on Febru-
ary 12, 2010, we now manage our company as three
distinct business units: (i) Specialty Papers; (ii) Composite
Fibers; and (iii) Advanced Airlaid Materials. Consolidated
net sales and the relative net sales contribution of each
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
Total
2010
2009
2008
764,670
90,350
72,833
738,841
80,064
–
743,755
85,599
–
927,853
818,905
829,354
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, FDA-
compliant food and beverage applications, and
other niche specialty applications.
The market segments in which Specialty Papers
competes have undergone significant and rapid consoli-
dation over the past several years resulting in fewer,
more globally focused producers. This includes both com-
modity products (comprised of envelopes and certain
forms) and higher-value-added specialty products.
Specialty Papers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2010
2009
2008
Carbonless & forms
Book publishing
Envelope & converting
Engineered products
Other
$359,033
168,155
157,202
155,257
2,967
$320,088
176,646
146,812
143,490
4,879
$338,067
201,040
138,293
149,372
7,127
Total
$842,614
$791,915
$833,899
Many of the markets served by Specialty Papers are
more mature and, in certain instances, declining. How-
ever, we have been successful in increasing this unit’s
Glatfelter 2010 Annual Report
1
shipments through new product and new business devel-
opment initiatives and leveraging the flexibility of our
operating assets to efficiently respond to changing cus-
tomer demands. During 2010, we invested approximately
$10.4 million in product development activities and, in
each of 2009 and 2008, we invested approximately
$8.0 million. In each of the past three years, in excess of
50% of net sales were generated from products devel-
oped, enhanced or improved within the past five years.
We believe we are one of the leading suppliers of
book publishing and carbonless papers in the United
States. Although the markets for book publishing and
carbonless papers in North America are declining, we
have been successful in executing our strategy to replace
this lost volume with products such as envelope and
converting papers, forms and other products. Specialty
Papers also produces paper that is converted into 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.
In the carbonless paper and forms market, we
compete with Appleton Papers and, to a lesser extent,
Nekoosa Papers, Inc. We believe we are one of the
leading producers of book publishing papers and compete
in these markets with, among others, Domtar and North
Pacific Paper (NORPAC). In the envelope sector we com-
pete with International Paper, Domtar and Evergreen,
among others. In our Specialty Papers’ engineered prod-
ucts markets, competition is product line specific as the
necessity for technical expertise and specialized manufac-
turing equipment limits the number of companies offering
multiple product lines. We compete with specialty divi-
sions of large companies such as, among others, Interna-
tional Paper, Domtar, Boise, NewPage and Sappi. Service,
product performance, technological advances and product
pricing are important competitive factors with respect to
all our products. We believe our reputation in these areas
continues to be excellent.
The Specialty Papers business unit operates two integrated pulp and paper making facilities with the following
combined attributes:
Uncoated
Capacity (short
tons)
732,000
Principal Raw Material
(“PRM”)
Estimated
Annual
Quantity of PRM
(short tons)
Percent of PRM
Purchased(1)
Percent of Need Generated
Steam
Electricity
Principal
Source of Fuel
Estimated
Annual
Quantity
Pulpwood
Wood- and other pulps
2,321,000
684,500
97%
16
100%
90%
Coal
Natural gas
610,000 tons
765,000 MCF
(1) Represents percent purchased from unrelated third-parties.
The Spring Grove, Pennsylvania facility includes five
uncoated paper machines that have been rebuilt and
modernized from time to time. It has an off-line combi-
blade coater and a Specialty Coater (“S-Coater”), which
together yield a potential annual production capacity for
coated paper of approximately 68,000 tons. Since
uncoated paper is used in producing coated paper, this is
not additional capacity. We view the S-Coater as an
important asset that allows us to expand our engineered
paper products business. The Spring Grove facility also
includes a pulpmill that has a production capacity of
approximately 650 tons of bleached pulp per day.
The Chillicothe, Ohio facility operates four paper
machines producing uncoated and carbonless paper. This
facility also includes a pulpmill that has a production
2
capacity of approximately 955 tons of bleached pulp per
day.
The principal raw material used to produce each
facility’s pulp is pulpwood, including both hardwoods and
softwoods. Hardwoods are available within a relatively
short distance of our mills. Softwoods are obtained from
a variety of locations including the states of Pennsylvania,
Maryland, Delaware, Virginia, Kentucky, Tennessee and
South Carolina. To protect our sources of pulpwood, we
actively promote conservation and forest management
among suppliers and woodland owners. In addition to
sourcing the pulpwood in the open market, we have
long-term supply contracts that provide access to timber
at market prices.
The Spring Grove facility produces more electricity
than it requires. Excess electricity was sold to the local
power company under a long-term co-generation contract
that expired on March 31, 2010. During 2010, in antic-
ipation of the contract’s expiration, we became a member
of PJM Interconnection, a federally regulated regional
transmission organization that coordinates the movement
and ensures reliability of wholesale electricity in its
region. As a member, we are committed to providing
capacity to the high-voltage electricity grid and agree to
sell excess power at market prices. Accordingly, our
margin earned from energy sales will be subject to
market volatility associated with the price at which
energy is sold together with volatility in input costs,
primarily related to coal.
Cellulosic Biofuel Production Credits and Alter-
native FuelMixture Credits The U.S. Internal Revenue
Code (the “IRC”) provided tax credits for companies that
produce cellulosic biofuel or use alternative fuel mixtures
to produce energy to operate their businesses. The credits
equal to $1.01 per gallon of cellulosic biofuel or $0.50
per gallon of alternative fuel contained in the mixture. In a
memorandum issued in July 2010, the Internal Revenue
Service issued guidance concluding that black liquor sold
or used before January 1, 2010, qualifies for the cellulosic
biofuel producer credit (“CBPC”) and no further certifica-
tion of eligibility was needed.
In connection with filing our 2009 income tax
return, we claimed $23.2 million, net of taxes, of CBPC
for black liquor used during the period January 1, 2009
through February 19, 2009.
The alternative fuel mixture credit is refundable to the
taxpayer. On May 11, 2009, we were notified by the
Internal Revenue Service that our application to be regis-
tered as an alternative fuel mixer was approved. During
2009, we mixed and burned eligible alternative fuels for the
period February 20, 2009 through December 31, 2009, and
earned $107.8 million of alternative fuel mixture credits.
Composite Fibers Our Composite Fibers 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
single serve coffee products;
(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 growing tea bags and single-serve
coffee products markets and the composite laminates mar-
ket. Since the completion of the Caerphilly acquisition, we
have the second largest market share for metallized prod-
ucts globally. Composite Fibers’ revenue composition by
market consisted of the following for the years indicated:
In thousands
2010
2009
2008
Food & beverage
Metallized
Composite laminates
Technical specialties and other
$242,882
88,753
50,801
36,781
$233,899
81,388
46,442
30,366
$252,545
85,719
58,705
32,983
Total
$419,217
$392,095
$429,952
We believe many of the market segments served by
Composite Fibers, particularly Food & Beverage and
Metallized papers, present attractive growth opportunities
by expanding into new geographic markets and by gain-
ing market share through quality product and service
offerings. Growth in these markets is driven by growing
population and disposable income and changes in con-
sumer preferences. Many of this unit’s papers are techni-
cally sophisticated. Most of the papers produced in the
Composite Fibers business unit, except for metallized
papers, are extremely lightweight and require very spe-
cialized fibers. Our engineering capabilities, specifically
designed papermaking equipment and customer orienta-
tion position us well to compete in these global markets.
The Composite Fibers Business Unit is comprised of the three paper making facilities (Germany, France and the
United Kingdom), metallizing operations (Wales and Germany) and a pulp mill (the Philippines) with the indicated
combined attributes:
Production
Capacity
(short tons)
65,900
Lightweight
28,800
12,500
Metallized
Abaca pulp
Principal Raw
Material (“PRM”)
Abaca pulp
Wood pulp
Synthetic fiber
Base stock
Abaca fiber
Estimated
Annual
Quantity of
PRM (short tons)
Percent of
PRM Purchased(1)
Percent of Need
Generated
Steam
Electricity
Principal
Source of
Fuel
Approximate
Quantity
15,500
42,600
10,600
30,500
19,100
20%
100
100
100
100
100%
15%
Natural gas
1,654,000 MCF
–
–
Natural gas
44,500 MCF
(1) Represents percent purchased from unrelated third-parties.
Glatfelter 2010 Annual Report
3
Our mill in the Philippines processes abaca fiber to
produce a specialized pulp. This abaca pulp production
process provides a unique advantage by supplying a key
raw material in pulped form used by our Composite
Fibers business unit. In the event the supply of abaca
fiber becomes constrained or should production demands
exceed capacity from the Philippines mill, alternative
sources and/or substitute fibers are used to meet cus-
tomer demands. In addition, events may arise from the
relatively unstable political and economic environment in
which the Philippine facility operates that could interrupt
the production of abaca pulp. Management periodically
evaluates the availability of abaca pulp for our Composite
Fibers business unit. Any extended interruption of the
Philippine operation could have a material impact on our
consolidated financial position and/or results of opera-
tions. We target to have approximately one month of
fiber supply in stock and one month of fiber supply at
sea available to us. In addition, we have established
contingency plans for alternative sources of abaca pulp.
However, the cost of obtaining abaca pulp from such
alternative sources, if available, would likely be much
higher.
In Composite Fibers’ markets, competition is product
line specific as the necessity for technical expertise and
specialized manufacturing equipment limits the number
of companies offering multiple product lines. We believe
we have leading market positions for paper used in tea
bags and single serve coffee products and compete with
companies such as Ahlstrom and Purico. In composite
laminates we compete with PdM, a division of Sch-
weitzer-Maudit, Purico and MB Papeles and for metal-
lized products, competitors include Vacumet, AR
Metallizing, Amsterdam Metallized Products, and Protec.
Advanced Airlaid Materials On February 12,
2010, we acquired Concert, which we now operate as
the Advanced Airlaid Materials business unit. Founded in
1993, Concert is a leading global supplier of highly
absorbent cellulose-based airlaid non-woven materials
used to manufacture a diverse range of consumer and
industrial products for growing global end-use markets.
These products include:
(cid:129) feminine hygiene;
(cid:129) adult incontinence;
(cid:129) home care such as specialty wipes;
(cid:129) table top and towels; and
(cid:129) food pads and other.
This acquisition affords us the opportunity to grow
with our customers who are industry leading consumer
product companies for feminine hygiene and adult incon-
tinence products. Advanced Airlaid Materials holds
4
leading market share positions in the markets it serves,
excels in building long-term customer relationships
through superior quality and customer service programs,
and has a well-earned reputation for innovation and its
ability to quickly bring new products to market. Its
customers are within close proximity to its facilities, and
include multinational blue-chip consumer product
companies.
Sales of feminine hygiene product material
accounted for 81% of Advanced Airlaid Material’s reve-
nue in 2010. These markets are considered to be more
growth oriented in certain geographic regions driven by
population growth, consumer preferences and suppliers’
ability to provide innovative products. In developing
markets, demand is also influenced by increases in
disposable income and cultural preferences.
The Advanced Airlaid Materials business unit oper-
ates two facilities with the following combined attributes:
Production Capacity
(short tons)
102,300
Principal Raw
Material
Fluff pulp
Estimated Annual
Quantity of PRM
(short tons)
68,200
Advanced Airlaid Materials operates state-of-the-art
facilities in Gatineau, Quebec, Canada and Falkenhagen,
Germany. The Gatineau location consists of two airlaid
production lines employing multi-bonded and thermal
airlaid techniques and a single-lane festooner. The Falken-
hagen location operates three multi-bonded production
lines and three single-lane festooners.
Prior to our acquisition of Concert, approximately
$80 million was invested by its previous owners to install
a new line at the Falkenhagen facility. The new line,
which successfully commenced commercial production
during the fourth quarter of 2009, increased annual rated
capacity by 19,400 tons, a 27% increase in the business
unit’s capacity. A significant portion of this unit’s capacity
is under contract through 2013.
Advanced Airlaid Materials is a technology and
product innovation leader in technically demanding seg-
ments of the airlaid market, most notably feminine
hygiene. We believe that its facilities are among the most
modern and flexible airlaid facilities in the world, which
allow it to produce at industry leading operating rates.
Its proprietary single-lane rotary festooning technology,
which was developed in 2002, provides customers with
product packaged for efficient use. Advanced Airlaid
Materials has leading market positions in feminine
hygiene and adult incontinence products, food pads and
specialty wipes. This business unit’s in-house technical
product and process expertise, festooning capabilities and
rigorous customer requirements create large barriers to
entry for new entrants.
The airlaid industry is made up of a few large
producers, including Buckeye Technologies Inc., Georgia-
Pacific LLC, Duni AB, Fiberweb Plc., and us.
Additional financial information for each of our
business units is included in Item 7 – Management’s
Discussion and Analysis of Financial Condition and
Results of Operations and in Item 8 – Financial State-
ments and Supplementary Data, Note 21.
Our Business Strategy Our vision is to become
the global supplier of choice in specialty papers and
engineered products. We are continuously developing and
refining our strategies to strengthen our business and
position it for the future. Execution of our strategies is
dependent on our customer relationships, technology,
operational flexibility and our new product development
efforts.
Our strategy includes maintaining and expanding
market leading positions in global growth markets, focus-
ing on specialization and innovation, in part, through
new product development, driving efficiencies and cost
reduction through ongoing continuous improvement initi-
atives and maintaining our focus on maximizing cash
flow. With respect to each business unit, our strategy
includes:
Specialty Papers The North American uncoated
free sheet market has been challenged by a supply and
demand imbalance, particularly for commodity-like 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;
(cid:129) employing our new product and business devel-
opment capabilities to meet changing customer
demands and ensure optimal utilization of
capacity;
(cid:129) utilizing ongoing continuous improvement meth-
odologies to ensure operational efficiencies; and
(cid:129) maintaining superior customer service.
Composite Fibers The markets served by this
business unit are characterized by long-term growth
opportunities. To take advantage of this, our strategy is
focused on:
(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 continuous improvement methodol-
ogies to increase productivity, reduce costs and
expand capacity.
Advanced Airlaid Material The markets served
by this business unit are characterized by attractive
growth opportunities. To take advantage of this, our
strategy is focused on:
(cid:129) maintaining and expanding relationships with
customers that are market-leading consumer
product companies;
(cid:129) expanding geographic reach of markets served;
(cid:129) more fully utilizing and maximizing production
capacity;
(cid:129) employing continuous improvement methodolo-
gies and initiatives to reduce costs and improve
efficiencies; and
(cid:129) furthering our product innovation capabilities.
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, as opportu-
nities warrant, 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 benefit 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 inte-
grated four acquisitions. In February 2010, we further
diversified our global footprint with the Concert acquisi-
tion, a technology and product innovation leader in
technically demanding segments of the airlaid market,
most notably feminine hygiene. We expect this acquisition
will enable us to grow with our customers who are
industry leading consumer products companies for femi-
nine hygiene and adult incontinence products and com-
plements our long-term strategy of driving growth in our
markets in part through acquisitions.
Glatfelter 2010 Annual Report
5
Concentration of Customers
For each of the
past three years, no single customer represented more
than 10% of our consolidated net sales. However, as
discussed in Item 1A Risk Factors, one customer
accounted for the majority of Advanced Airlaid Materials
net sales in 2010.
Capital Expenditures Our business is capital
intensive and requires extensive expenditures for new and
enhanced equipment. These capital investments are nec-
essary for environmental compliance, normal upgrades or
replacements, business strategy and research and devel-
opment. For 2011, we expect capital expenditures to
total approximately $60 million to $65 million.
Environmental Matters We are subject to laws
and regulations which operate to protect the environment
as well as human health and safety. We have, at various
times, incurred significant costs to comply with those
regulations, as new regulations are developed or regula-
tory priorities change. Currently, we anticipate that we
could incur material capital and operating costs to com-
ply with several air quality regulations including the
U.S. EPA Best Available Retrofit Technology rule (BART;
otherwise known as the Regional Haze Rule) and the
Boiler Maximum Achievable Control Technology rule
(Boiler MACT). Although we are in the process of analyz-
ing the potential impact of these requirements, compli-
ance could require significant capital expenditures. For a
discussion of other environmental matters, see Item 8 –
Financial Statements and Supplementary Data – Note 20.
Employees
The following table summarizes our workforce as of December 31, 2010:
Location
U.S.
Corporate/Spring Grove
Chillicothe/Fremont
International
Gernsbach, Germany
Scaër, France
Lydney, England
Caerphilly, Wales
Philippines
Falkenhagen, Germany
Gatineau, Canada
Total
Hourly(1)
Salaried
Start
End
Union
Contract Period
969
1,399
603
1,051
366
348
Jan. 2011
Aug. 2009
Jan. 2014
Aug. 2012
United Steelworkers International
Union and the Office and Professional
Employees International Union,
602
118
283
125
92
425
324
364
70
211
83
63
344
240
238
Sept. 2010
Nov. 2012
Nov. 2008
Nov. 2012
Feb. 2011
Jan. 2011
Sept. 2007
Feb. 2012
Jan. 2012
Sept. 2012
48
72
42
29
81
84
n/a
Jan. 2010
Dec. 2013
n/a Works Council
Industriegewerkschaft
Bergbau, Chemie, Energie-IG BCE
Confederation Generale des
Travailleurs & Force Ouvriere
Unite the Union
General Maintenance & Boiler’s
Newtech Pulp Workers Union & Federation of
Democratic Labor Org.
La fraternité inter-provinciale des
ouvriers en électricités
Le syndicat canadien des communications, de
l’énergie et du papier
Total worldwide employees
4,337
3,029
1,308
Jul. 2010
Dec. 2011
(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.
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
6
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.
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 be adversely affected in the event of
weak global economic conditions and by softness in
targeted markets. Our results could be adversely affected
if economic conditions weaken or fail to continue to
improve. Also, there may be periods during which
demand for our products is insufficient to enable us to
operate our production facilities in an economical 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
products are also significantly affected by changes in
industry capacity and output levels. There have been
periods of supply/demand imbalance in our industry
which have caused wood pulp, fluff pulp and selling
prices to be volatile. The timing and magnitude of price
increases or decreases in these markets have generally
varied by region and by product type. A sustained period
of weak demand or excess supply would likely adversely
affect pulp, fluff pulp and selling prices. This could have
a material adverse affect on our operating and financial
results.
The cost of raw materials and energy used to
manufacture our products could increase and
the availability of certain raw materials could
become constrained.
We require access to sufficient and reasonably
priced quantities of pulpwood, purchased pulps, pulp
substitutes, abaca fiber and certain other raw materials.
Our Spring Grove and Chillicothe locations are vertically
integrated manufacturing facilities that generate approxi-
mately 85% of their annual pulp requirements.
Our Philippine mill purchases abaca fiber to produce
abaca pulp, which we use to manufacture our paper for
tea bags and single serve coffee products at our
Gernsbach, Scaër and Lydney facilities. However, at cer-
tain times in the past, the supply of abaca fiber has been
constrained due to factors such as weather related
damage to the source crop as well as selection by land
owners of alternative uses of land in lieu of fiber
producing activities.
Our Advanced Airlaid Materials business unit
requires access to sufficient quantities of fluff pulp, the
supply of which is subject to availability of certain
softwoods. Softwood availability can be limited by many
factors, including, weather in regions where softwoods
are abundant.
The cost of many of our production materials,
including petroleum based chemicals, and freight charges,
are influenced by the cost of oil. In addition, coal is a
principal source of fuel for both the Spring Grove and
Chillicothe facilities and natural gas is used as a source
of fuel for our Chillicothe facility, and the Composite
Fibers and Advanced Airlaid Materials business units’
facilities. In addition, our vendors’ liquidity may be
impacted by the economy creating supply shortages.
Although we have contractual cost pass-through
arrangements with certain customers we may not be able
to fully pass increased raw materials or energy costs on
to all customers if the market will not bear the higher
price or where existing agreements with our customers
limit price increases. If price adjustments significantly trail
increases in raw materials or energy prices our operating
results could be adversely affected.
Our industry is highly competitive and increased
competition could reduce our sales and
profitability.
In recent years, the global industries in which we
compete have been adversely affected by capacity
exceeding the demand for products and by declining
uncoated free sheet demand. As a result, steps have
been taken to reduce underperforming capacity. However.
slowing demand or increased competition could force us
to lower our prices or to offer additional services at a
higher cost to us, which could reduce our gross margins
and net income. The greater financial resources of certain
of our competitors may enable them to commit larger
amounts of capital in response to changing market
conditions. Certain competitors may also have the ability
to develop product or service innovations that could put
us at a competitive disadvantage.
Some of the factors that may adversely affect our
ability to compete in the markets in which we participate
include:
(cid:129) the entry of new competitors into the markets
we serve, including foreign producers;
(cid:129) the willingness of commodity-based producers to
enter our markets when they are unable to
Glatfelter 2010 Annual Report
7
compete or when demand softens in their tradi-
tional markets;
We are subject to substantial costs and
potential liability for environmental matters.
We are subject to various environmental laws and
regulations that govern our operations, including 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.
Despite the December 2009 and March 2011 favor-
able rulings in the pending Fox River litigation, we
continue to have exposure to liability for remediation and
other costs related to the presence of polychlorinated
biphenyls in the lower Fox River on which our former
Neenah, Wisconsin mill was located. There can be no
assurance that we will not be required to ultimately pay
material amounts to resolve our liability in the Fox River
matter. We have financial reserves for environmental
matters, including the Fox River site, but we cannot be
certain that those reserves will be adequate to provide
for future obligations related to these matters, that our
share of costs and/or damages for these matters will not
exceed our available resources, or that such obligations
will not have a long-term, material adverse effect on our
consolidated financial position, liquidity or results of
operations.
Our environmental issues are complicated and
should be reviewed in context; please see a more
detailed discussion of these matters in Item 8 – Financial
Statements and Supplementary Data – Note 20.
(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) the impact of replacement or disruptive
technologies;
(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
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.
8
The Advanced Airlaid Materials business unit
generates a substantial portion of its revenue
from one customer serving the feminine
hygiene products market, the loss of which
could have a material adverse effect on our
results of operations.
Advanced Airlaid Materials generates the majority
of its net sales of feminine hygiene products in 2010
from one customer. The loss of a significant customer
could have a material adverse effect on their operating
results. In addition, sales in the feminine hygiene market
accounted for approximately 81% of Advanced Airlaid
Materials’ net sales in 2010. A decline in sales of
feminine hygiene products or in sales of feminine hygiene
products generally could have a material adverse effect
on this unit’s operating results. Customers in the airlaid
non-woven fabric material market, including the feminine
hygiene market, may also switch to less expensive prod-
ucts or otherwise reduce demand for Advanced Airlaid
Material’s products, thus reducing the size of the markets
in which it currently sells its products. Any of the
foregoing could result in our failing to realize the benefits
of the acquisition, which could have a material adverse
effect on our financial performance and business
prospects.
Our operations may be impaired and we may
be exposed to potential losses and liability as a
result of natural disasters, acts of terrorism or
sabotage or similar events.
Natural disasters, such as earthquakes, flooding or
fire, and acts of terrorism or sabotage affecting our
operating activities and major facilities could materially
and adversely affect our operations, our operating results
and financial condition. In particular, we own and 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 envelope papers
and engineered products. Each of these dams is classified
as “high hazard” by the Commonwealth of Pennsylvania
because they are located in close proximity to inhabited
areas and sudden failure would endanger occupants or
residential, commercial or industrial structures. Failure or
breach of any of the dams, including as a result of
natural disaster or act of terrorism or sabotage, could
cause significant personal injuries and damage to resi-
dential and commercial property downstream for which
we may be liable. The failure of a dam could also be
extremely disruptive and result in damage to or the
shutdown of our Spring Grove mill. Any losses or liabili-
ties incurred due to the failure of one of our dams may
not be fully covered by our insurance policies or may
substantially exceed the limits of our policies, and could
materially and adversely affect our operating results and
financial condition.
In addition, many of our paper making operations
require a reliable and abundant supply of water. Such
mills rely on a local water body or water source for their
water needs and, therefore, are particularly impacted by
drought conditions or other natural or manmade 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 curtail-
ment of operations at any of our paper mills due to
drought or low flow conditions at the principal water
source or another cause could materially and adversely
affect our operating results and financial condition.
Our pulp mill in Lanao del Norte on the Island of
Mindanao in the Republic of the Philippines is located
along the Pacific Rim in the world’s hazard belt. By virtue
of its geographic location, this mill is subject to, among
other types of natural disasters, floods, droughts,
cyclones, typhoons, earthquakes, windstorms and volcanic
activity. Moreover, the area of Lanao del Norte has been
a target of terrorist activities, including bombings, by
suspected members of the al-Qaeda-linked Islamist
groups in the Philippines, such as the Abu Sayyaf and the
Rajah Solaiman Group and other Islamic militant groups,
most notably the Moro Islamic Liberation Front. The most
common bomb targets in Lanao del Norte to date have
been power transmission towers. Our pulp mill in 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 paper for tea bags and single serve
coffee products. Any interruption, loss or extended cur-
tailment of operations at our Mindanao mill could mate-
rially and adversely affect our operating results and
financial condition.
We have operations in a potentially politically
and economically unstable location.
Our pulp mill in the Philippines is located in a
region that is unstable and subject to political unrest. As
discussed above, our Philippine pulp mill produces abaca
pulp, a significant raw material used by our Composite
Fibers business unit, and is currently our main provider of
abaca pulp. There are limited suitable alternative sources
of readily available abaca pulp in the world. In the event
of a disruption in supply from our Philippine mill, there is
no guarantee that we could obtain adequate amounts of
abaca pulp from alternative sources at a reasonable price
or at all. As a consequence, any civil disturbance, unrest,
political instability or other event that causes a disruption
Glatfelter 2010 Annual Report
9
in supply could limit the availability of abaca pulp and
would increase our cost of obtaining abaca pulp. Such
occurrences could adversely impact our sales volumes,
revenues and operating results.
Our international operations pose certain risks
that may adversely impact sales and earnings.
We have significant operations and assets located
in Canada, Germany, France, the United Kingdom, and
the Philippines. Our international sales and operations
are subject to a number of special risks, in addition to
the risks in our domestic sales and operations, including
differing protections of intellectual property, trade barri-
ers, 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 envi-
ronments, difficulty in managing widespread operations
and political instability. These factors may adversely affect
our future profits. Also, in some foreign jurisdictions, we
may be subject to laws limiting the right and ability of
entities organized or operating therein to pay dividends
or remit earnings to affiliated companies unless specified
conditions are met. Any such limitations would restrict
our flexibility in using funds generated in those
jurisdictions.
Foreign currency exchange rate fluctuations
could adversely affect our results of operations.
We own and operate manufacturing facilities in
Canada, Germany, France, the United Kingdom and the
Philippines. The majority of our business is transacted in
U.S. dollars; however, a substantial portion of business is
transacted in Euros, British Pound Sterling and Canadian
dollars. With respect to the Euro, we generate substan-
tially greater cash inflow in these currencies than we do
outflow. However, with respect to the British Pound
Sterling and the Philippine Peso, we have greater out-
flows 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.
10
Substantially lower and more volatile mar-
ket-based prices for sales of excess electricity
compared to the fixed-price we historically
received may prevent us from achieving the
historical margins on our sales of excess elec-
tricity in relation to our coal supply contract,
which could have a material adverse effect on
our consolidated financial position and results
of operations.
Because our Spring Grove facility produces more
electricity than it requires for its operations, we sell the
excess energy produced. Historically, we sold the excess
electricity to the local power company under a fixed-price
long-term contract, which expired March 31, 2010. We
now sell our excess electricity at wholesale market prices
prevailing at the time of sale. Market prices for electricity
have historically been volatile and may continue to be
substantially lower than the price we historically received
under the expired contract.
We generate electricity at our Spring Grove facility
using a variety of fuels, including coal. We purchase coal
for this facility under a long-term, fixed price supply
contract, which expires at the end of 2012. Our cost of
coal, as well as the costs incurred for natural gas and
other fuels used to generate electricity, have a major
impact on the net revenue and overall profitability of our
Specialty Paper business unit. The combination of market-
based pricing for energy sales and the fixed pricing of
the coal contract may limit our ability to generate the
level of net revenues from energy sales that we histori-
cally achieved and limit the overall profitability of our
Specialty Papers business unit, which could have a mate-
rial adverse affect on our consolidated financial position
and results of operations.
An IRS audit of our 2009 tax return could result
in a change in the tax treatment of the
alternative fuel mixture credits we claimed in
2009, which could have a material adverse
effect on our results of operations and financial
position.
The U.S. Internal Revenue Code, or the Code,
provided a tax credit for companies that used alternative
fuel mixtures to produce energy to operate their 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 had substantial alternative fuel mixture
credits relating to these facilities. Our results of opera-
tions in 2009 included, on a pre-tax basis, $107.8 million
of alternative fuel mixture credits all of which has been
used or realized in cash. In the event that the IRS audits
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.
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 20.
In the event any of the above risk factors
impact our business in a material way or in
combination during the same period, we may
be unable to generate sufficient cash flow to
simultaneously fund our operations, finance
capital expenditures, satisfy obligations and
make dividend payments on our common stock.
In addition to debt service obligations, our business
is capital intensive and requires significant expenditures
for equipment maintenance, new or enhanced equipment,
environmental compliance, and research and development
to support our business strategies. We expect to meet all
of our near and long-term cash needs from a 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
We own substantially all of the land and buildings
comprising our manufacturing facilities located in Penn-
sylvania; Ohio; Canada; the United Kingdom; Germany;
France; and the Philippines. Substantially all of the equip-
ment used in our manufacturing and related operations is
also owned. Our metallized paper production facility
located in Caerphilly, Wales leases the building and land
associated with its operations. We also lease office space
for a sales and distribution office in Moscow, Russia, as
well as our corporate offices located in York, Pennsylva-
nia. All of our properties, other than those that are
leased, are free from any material liens or encumbrances.
We consider all of our buildings to be in good structural
condition and well maintained and our properties to be
suitable and adequate for present operations.
ITEM 3 LEGAL PROCEEDINGS
We are involved in various lawsuits that we 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
EXECUTIVE OFFICERS
The following table sets forth certain information
with respect to our executive officers as of March 11,
2011.
Name
Age
Office with the Company
Dante C. Parrini
John P. Jacunski
Jonathan A. Bourget
David C. Elder
Thomas G. Jackson
Debabrata Mukherjee
Martin Rapp
Mark A. Sullivan
William T. Yanavitch II
46
45
46
42
45
41
51
56
50
President and Chief Executive Officer
Senior Vice President and Chief Financial
Officer
Vice President & General Manager,
Advanced Airlaid Materials Business Unit
Vice President and Corporate Controller
Vice President, General Counsel and
Secretary
Vice President & General Manager,
Specialty Papers Business Unit
Vice President & 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.
Dante C. Parrini became President and Chief
Executive Officer effective January 1, 2011. Prior to this
appointment, he was Executive Vice President and Chief
Operating Officer, a position he held since February
2005. Mr. Parrini joined us in 1997 and has previously
served as Senior Vice President and General Manager, a
position he held beginning in January 2003 and prior to
that as Vice President responsible for Sales and
Marketing.
John P. Jacunski became Senior Vice President
and Chief Financial Officer in July 2006. From October
2003 until July 2006, he was Vice President and Corpo-
rate 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 consult-
ing firm, where he served in various capacities.
Jonathan A. Bourget joined us in July 2010 as
Vice President & General Manager, Advanced Airlaid
Materials Business Unit. From 2008 until joining our
Company, Mr. Bourget was Vice President & General
Manager of European operations at Polymer Group Inc.
Prior to this, he held various positions of increasing
Glatfelter 2010 Annual Report
11
responsibility, including General Manager Specialties Divi-
sion in Europe, with Alcoa Inc.
David C. Elder was appointed Vice President in
March 2009 and has served as Corporate Controller and
Chief Accounting Officer since July 2006. Prior to joining
us in January 2006, Mr. Elder was Corporate Controller
for YORK International Corporation, a position he held
since December 2003. Prior thereto, he was the Director,
Financial Planning and Analysis for YORK International
Corporation from August 2000 to December 2003.
Thomas G. Jackson became Vice President, Gen-
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.
ITEM 4 [RESERVED]
PART II
ITEM 5 MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MAT-
TERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Common Stock Prices and Dividends Declared
Information
The following table shows the high and low prices
of our common stock traded on the New York Stock
Exchange under the symbol “GLT” and the dividend
declared per share for each quarter during the past two
years.
Quarter
2010
Fourth
Third
Second
First
2009
Fourth
Third
Second
First
High
Low
Dividend
$13.37
12.65
15.49
15.05
$ 12.58
12.14
11.59
9.80
$11.62
10.08
10.62
12.32
$ 10.01
7.91
6.00
4.57
$0.09
0.09
0.09
0.09
$ 0.09
0.09
0.09
0.09
As of March 11, 2011, we had 1,448 shareholders
of record.
12
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative 5-year
total return of our common stock with the cumulative
total returns of both a peer group and a broad market
index. For the year ended December 31, 2010, we
compare our stock performance to the S&P Small Cap
600 Paper Products index. This index is comprised of
Buckeye Technologies Inc., Clearwater Paper Corp., Kap-
stone Paper & Packaging Corp., Neenah Paper Inc.,
Schweitzer-Mauduit International and Wausau Paper
Corp. In addition, the chart includes a comparison to the
Russell 2000, which we believe is an appropriate 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 the peer group
(including reinvestment of dividends) was $100 on
December 31, 2005 and charts it through December 31,
2010.
$250
$200
$150
$100
$50
$0
12/05
12/06
12/07
12/08
12/09
12/10
Glatfelter Co.
Russell 2000
S&P SmallCap 600 Paper Products
ITEM 6 SELECTED FINANCIAL DATA
As of or for the Year Ended December 31
Dollars in thousands, except per share
Net sales
Energy and related sales, net
Total revenue
Reversal of (charges for) shutdown and restructuring
Gains on dispositions of plant, equipment and timberlands, net
Net income (loss)
Earnings (loss) per share
Basic
Diluted
Total assets
Total debt
Shareholders’ equity
Cash dividends declared per common share
Capital expenditures
Depreciation, depletion and amortization
Shares outstanding
Net tons sold
Number of employees
2010(1)
2009(3)
2008
2007
2006
$1,455,331
10,653
$1,184,010
13,332
1,465,984
–
453
1,197,342
–
898
54,434(2) $ 123,442
$
$
1.19
1.17
$1,341,747
333,022
552,442
0.36
36,491
65,839
45,976
927,853
4,337
$
2.70
2.70
$1,190,294
254,583
510,704
0.36
26,257
61,256
45,706
818,905
3,546
$1,263,850
9,364
1,273,214
856
18,468
57,888
$
$
1.28
1.27
$1,057,309
313,285
342,707
0.36
52,469
60,611
45,434
829,354
3,633
$1,148,323
9,445
$ 986,411
10,726
1,157,768
(35)
78,685
63,472
$
997,137
(30,318)
17,394
$ (12,236)
$
1.41
1.40
$1,287,067
313,185
476,068
0.36
28,960
56,001
45,141
799,512
3,854
$
(0.27)
(0.27)
$1,225,643
397,613
388,368
0.36
44,460
50,021
44,821
721,892
3,704
(1) The information set forth above for 2010 includes the financial information for Concert Industries Corp. prospectively from the February 12, 2010
acquisition date.
(2) During 2010, net income included a $23.2 million tax benefit from cellulosic biofuel production credits.
(3) During 2009, we recognized $107.8 million of alternative fuel mixture credits, all of which were recorded as a reduction to cost of products sold.
Glatfelter 2010 Annual Report
13
ITEM 7 MANAGEMENT’S DISCUSSION ANDANAL-
YSIS 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 state-
ments of historical fact, including statements regarding
industry prospects and future consolidated financial posi-
tion or results of operations, made in this Report on
Form 10-K are forward looking. We use words such as
“anticipates”, “believes”, “expects”, “future”, “intends”
and similar expressions to identify forward-looking state-
ments. Forward-looking statements reflect management’s
current expectations and are inherently uncertain. Our
actual results may differ significantly from such expecta-
tions. The following discussion includes forward-looking
statements regarding expectations of, among others, non-
cash pension expense, environmental costs, capital expen-
ditures 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 mate-
rially from our expectations. Accordingly, we identify the
following important factors, among others, which could
cause our results to differ from any results that might be
projected, forecasted or estimated in any such forward-
looking statements:
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
products;
the impact of exposure to volatile market-based
pricing for sales of excess electricity;
the impact of competition, changes in industry
production capacity, including the construction of
new mills, the closing of mills and incremental
changes due to capital expenditures or productiv-
ity increases;
the gain or loss of significant customers and/or
on-going viability of such customers;
cost and other effects of environmental compli-
ance, cleanup, damages, remediation or restora-
tion, or personal injury or property damages
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
14
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 environ-
ments and fluctuations in currency exchange rates;
geopolitical events, including war and terrorism;
disruptions in production and/or increased costs
due to labor disputes;
the impact of unfavorable outcomes of audits by
various state, federal or international tax
authorities;
enactment of adverse state, federal or foreign tax
or other legislation or changes in government
policy or regulation;
adverse results in litigation; and
our ability to finance, consummate and integrate
acquisitions.
ix.
x.
xi.
xii.
xiii.
xiv.
xv.
Introduction We manufacture, both domestically
and internationally, a wide array of specialty papers and
fiber-based engineered materials. We manage our com-
pany along three business units:
(cid:129) Specialty Papers with revenues earned from the
sale of carbonless papers and forms, book pub-
lishing, envelope & converting, and engineered
products;
(cid:129) Composite Fibers with revenue from the sale of
food & beverage filtration papers, metallized
papers, composite laminates used for decorative
furniture and flooring applications, and technical
specialties; and
(cid:129) Advanced Airlaid Materials with revenue from the
sale of airlaid non-woven fabric like materials
used in feminine hygiene products, adult inconti-
nence products, cleaning pads and wipes, food
pads, napkins and tablecloths, and baby wipes.
Overview On February 12, 2010, we completed
the acquisition of Concert Industries Corp. (“Concert”), a
manufacturer of highly absorbent cellulose-based airlaid
non-woven materials with annual revenue in 2009 of
$203 million. Our results of operations for 2010 include
the results of Concert (now operated as the Advanced
Airlaid Materials business unit) prospectively since the
acquisition was completed.
Our reported results of operations for 2010 when
RESULTS OF OPERATIONS
compared to 2009 are lower primarily due to the higher
amount of tax-related credits recorded in 2009 than in
2010 associated with cellulosic or alternative fuel mix-
tures. For 2010, net income included a $23.2 million tax
benefit from cellulosic biofuel credits compared to
$95.8 million, after-tax, alternative fuel mixture credits
during 2009.
Our 2010 results include $9.1 million, after-tax, of
acquisition and integration costs, together with a
$1.7 million loss on forward foreign currency contracts
that hedged the Canadian dollar purchase price, of the
Concert acquisition. Interest expense increased $6.2 mil-
lion in 2010 compared to 2009 due to financing part of
the acquisition price.
Operationally, our results were favorably affected by
higher volumes shipped associated with improving
demand in many of the markets served by our businesses
and the inclusion of Concert. Higher average selling
prices offset the adverse affect of rising input costs,
particularly purchased pulp.
Specialty Papers’ operating income totaled
$58.4 million and $55.9 million for 2010 and 2009,
respectively. The improvement in operating income was
led by higher volumes shipped, higher average selling
prices, productivity improvements and cost reduction initi-
atives partially offset by lower sales of excess energy and
renewable energy credits. During 2009, the weak eco-
nomic 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 down-
time totaling 33,019 tons of paper.
Our Composite Fibers business unit’s operating
income increased to $32.9 million from $21.9 million in
2009. Volumes shipped during 2010 increased 12.8%
compared to 2009 as a result of the improving economic
environment. Conversely, during 2009, as a result of
weak demand and our inventory reduction efforts, we
incurred unscheduled downtime totaling approximately
6,480 tons of paper, or 9.4% of the unit’s total capacity
for the period.
Advanced Airlaid Materials earned $4.4 million of
operating income on sales of $193.5 million for the ten
and one half months of operations since the date of
acquisition. The results were adversely impacted primarily
by rapidly rising input costs, a lag in the timing of cost-
pass throughs and currency fluctuations.
2010 versus 2009
The following table sets forth summarized consoli-
dated results of operations:
In thousands, except per share
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
Year Ended December 31
2010
2009
$1,455,331
186,247
64,589
54,434
1.17
$1,184,010
269,764
160,405
123,442
2.70
The consolidated results of operations for 2010 and
2009 include the following items not considered to be
part of our core business operations:
In thousands, except per share
2010
Cellulosic biofuel credit
Acquisition and integration costs
Foreign currency hedge on acquisition price
Timberland sales and related transaction
costs
2009
Alternative fuel mixture credits
Acquisition related costs
After-tax
Income (loss)
Diluted EPS
$23,184
(9,073)
(1,673)
$ 0.50
(0.20)
(0.04)
1,063
0.02
$ 95,764
(1,768)
$ 2.09
(0.04)
These items increased earnings by $13.5 million, or
$0.28 per diluted share in 2010. Comparatively, the
items identified above increased earnings in 2009 by
$94.0 million, or $2.05 per diluted share.
Business Units
Results of individual business
units are presented based on our management 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
Glatfelter 2010 Annual Report
15
this is a more meaningful representation of the operating
performance of its core papermaking businesses, the
profitability of business units and the extent of cash flow
generated from these core operations. Such amounts are
presented under the caption “Other and Unallocated.”
This presentation is aligned with the management and
operating structure of our company. It is also on this
basis that the Company’s performance is evaluated inter-
nally and by the Company’s Board of Directors.
Business Unit Performance
Dollars in millions
Net sales
Energy and related sales, net
Total revenue
Cost of products sold
Gross profit
SG&A
Gains on dispositions of plant, equipment and
timberlands, net
Total operating income (loss)
Nonoperating income (expense)
Specialty Papers
2010
2009
Composite Fibers
2010
2009
$842.6
10.7
$791.9
13.3
853.3
740.2
113.1
54.7
–
58.4
–
805.2
693.9
111.3
55.4
–
55.9
–
$419.2
–
419.2
350.5
$392.1
–
392.1
334.4
68.7
35.8
–
32.9
–
57.7
35.8
–
21.9
–
Year Ended December 31
Advanced Airlaid
Materials
Other and
Unallocated
Total
2010
2009
2010
2009
2010
2009
$193.5
–
$–
–
$
–
–
–
–
–
–
–
193.5
181.7
11.8
7.4
–
4.4
–
4.4
–
–
–
7.4
(7.4)
24.3
(0.5)
(31.2)
(31.1)
$
–
–
$1,455.3
10.7
$1,184.0
13.3
–
(100.7)
100.7
19.1
(0.9)
82.6
(17.3)
1,466.0
1,279.7
186.2
122.1
(0.5)
64.6
(31.1)
1,197.3
927.6
269.8
110.3
(0.9)
160.4
(17.3)
Income (loss) before income taxes
$ 58.4
$ 55.9
$ 32.9
$ 21.9
$
$
$(62.3)
$ 65.3
$
33.5
$ 143.1
Supplementary Data
Net tons sold (in thousands)
Depreciation, depletion and amortization
Capital expenditures
764.7
$ 34.9
24.1
738.8
$ 37.5
14.2
90.4
$ 23.7
8.2
80.1
$ 23.7
12.1
$
72.8
7.2
4.2
–
$–
–
$
–
–
–
$
–
–
–
$
927.9
65.8
36.5
$
818.9
61.3
26.3
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
Sales and Costs of Products Sold
In thousands
Year Ended December 31
2010
2009
Change
Net sales
Energy and related sales – net
$1,455,331
10,653
$1,184,010
13,332
$271,321
(2,679)
Total revenues
Costs of products sold (1)
1,465,984
1,279,737
1,197,342
927,578
268,642
352,159
Gross profit
$ 186,247
$ 269,764
$ (83,517)
Gross profit as a percent of
Net sales
12.8%
22.8%
(1) 2009 includes $107.8 million of alternative fuel mixture credits, net
of related expenses.
The following table sets forth the contribution to
consolidated net sales by each business unit:
Business Unit
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
Total
Percent of total
2010
2009
57.9% 66.9%
28.8
13.3
33.1
–
100.0% 100.0%
The increase was primarily due to higher volumes shipped
and a $24.0 million benefit from higher selling prices.
Specialty Papers’ operating profit for 2010 improved
by $2.5 million compared with 2009 primarily due to
higher selling prices, a 3.5% increase in volumes shipped
and the lack of market-related downtime. These favorable
factors were partially offset by higher input costs, prima-
rily pulp. In addition, higher maintenance costs largely
associated with the annual mill outages and with
unplanned production interruptions adversely impacted
the year over year comparison.
We sell excess power generated by the Spring
Grove, PA facility. In addition, two of our facilities are
registered generators of renewable energy credits
(“RECs”). The following table summarizes this activity for
2010 and 2009:
In thousands
Energy sales
Costs to produce
Net
Renewable energy credits
2010
2009
Change
$ 14,296
(10,403)
$ 20,128
(11,883)
$(5,832)
1,480
3,893
6,760
8,245
5,087
(4,352)
1,673
$ 10,653
$ 13,332
$(2,679)
Net sales Net sales for 2010 were $1,445.3 mil-
Total
lion, a 22.9% increase compared with $1,184.0 million
for 2009, reflecting stronger business activity in the our
Specialty Papers and Composite Fibers business units and
the inclusion of Concert, now operated and reported as
Advanced Airlaid Materials business unit, prospectively
since the February 12, 2010 acquisition date.
In the Specialty Papers business unit, net sales for
2010 increased $50.7 million, or 6.4%, to $842.6 million.
RECs represent sales of certified credits earned
related to burning renewable sources of energy such as
black liquor and wood waste. We sell RECs into an
emerging and somewhat illiquid market. The extent and
value of future revenues from REC sales is dependent on
many factors outside of management’s control. Therefore,
we may not be able to generate consistent amounts of
sales of RECs in future periods.
16
In Composite Fibers, net sales for 2010 were
$419.2 million, an increase of $27.1 million, or 6.9%,
from 2009. The improvement reflects strengthening
demand in each of its product lines as volumes shipped
increased 12.9%. On a constant currency basis, average
selling prices were lower by $1.0 million, and the trans-
lation of foreign currencies unfavorably affected net sales
by approximately $15.0 million.
Composite Fibers’ operating profit increased
$11.0 million, or 50.2%, in the year over year compari-
son. The improved performance was driven by the
$10.8 million combined benefit from improved demand in
markets served resulting in higher shipments and the
elimination of market driven downtime. In addition, the
production efficiencies from continuous improvement ini-
tiatives more than offset the adverse effect of foreign
currency translation adjustments.
Results for Advanced Airlaid Materials are included
from February 12, 2010, the date of the Concert acquisi-
tion. This business unit’s results were unfavorably affected
by rising input costs that outpaced the timing of
increases in selling prices. In addition, results were
adversely impacted by operating inefficiencies and by
$1.4 million as a result of charging cost of products sold
for the write-up of acquired inventory to fair value.
Alternative Fuel Mixture Credits
The U.S. Inter-
nal 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 applica-
tion to be registered as an alternative fuel mixer was
approved. During 2009, we mixed and burned eligible
alternative fuels, and earned $107.8 million of alternative
fuel mixture credits. We record all alternative fuel mixture
credits as a reduction to cost of goods sold.
According to the Internal Revenue Code, the tax
credit expired on December 31, 2009.
Pension Expense
The following table summa-
rizes the amounts of pension expense recognized for
2010 compared to 2009:
In thousands
Recorded as:
Costs of products sold
SG&A expense
Total
Year Ended December 31
2010
2009
Change
$7,056
2,185
$9,241
$4,936
2,097
$2,120
88
$7,033
$2,208
The amount of pension expense recognized each
year is determined using various actuarial assumptions
and certain other factors, including discount rates and
the fair value of our pension assets as of the beginning
of the year. The primary reason for the increase in
pension expense in the comparison is due to decreases in
discount rates used.
Selling, general and administrative (“SG&A”)
SG&A expenses increased $11.9 million in the
year-to-year comparison and totaled $122.1 million for
2010. The increase was substantially all related to legal
and professional fees related to the Concert acquisition,
costs to integrate the acquired entities and the inclusion
of its operations prospectively from the date of
acquisition.
Gain on Sales of Plant, Equipment and
Timberlands, net During the years ended Decem-
ber 31, 2010 and 2009, we completed the following
sales of assets:
Dollars in thousands
Acres
Proceeds
Gain
2010
Timberlands
Other
Total
2009
Timberlands
Other
Total
164
n/a
319
n/a
$387
177
$564
$ 951
–
$ 951
$373
80
$453
$ 906
(8)
$ 898
In connection with each of the asset sales set forth
above, we received cash proceeds.
Other nonoperating income (expense)
For
the year ended December 31, 2010, other non operating
expense, net totaled $6.3 million. In connection with the
Concert acquisition, we entered into a series of forward
foreign currency contracts to hedge the acquisition’s
Canadian dollar purchase price. All contracts were settled
for cash during the first quarter of 2010 and resulted in
a $3.4 million loss, net of realized currency translation
gains, which is presented under the caption “Other-net”
in the accompanying consolidated statements of income.
In addition, in connection with purchase accounting for
the Concert transaction, we recorded a $2.5 million
reserve for tax risks, inclusive of accrued interest, existing
at the time of the acquisition and at the same time
recorded a $2.5 million receivable from the seller due to
an indemnification agreement. During the fourth quarter,
a tax ruling was issued that eliminated this tax risk and
as a result we recognized an expense of $2.5 million
which is presented under the caption “Other-net” in the
accompanying consolidated statements of income to
eliminate the receivable from the seller. We also recog-
nized a $2.5 million tax benefit for this same item to
eliminate the tax reserve previously established resulting
in no net impact to earnings during 2010.
Glatfelter 2010 Annual Report
17
Income taxes
For 2010, we recorded income tax
benefits of $20.9 million on $33.5 million of pretax
income. The comparable amounts in the same period of
2009 were income tax expense of $19.7 million on
$143.1 million of pretax income. The benefit in 2010 was
due to $23.2 million of cellulosic biofuel credits, net,
recorded as an income tax benefit in 2010 as discussed
further below. We also recorded the $2.5 million tax benefit
discussed in the previous paragraph, as well as a $6.4 mil-
lion adjustment to reduce tax liabilities resulting from the
expiration of statutes on uncertain tax positions and other
factors. The tax provision in 2009 included a $27.1 million
benefit from nontaxable alternative fuel mixture credit.
In March
Cellulosic Biofuel Production Credit
2010, our application to be registered as a cellulosic
biofuel producer was approved by the Internal Revenue
Service. The U.S. Internal Revenue Code provides for a
non refundable tax credit equal to $1.01 per gallon for
taxpayers that produce cellulosic biofuel. On July 9,
2010, the IRS Office of Chief Counsel issued a memoran-
dum which concluded that black liquor sold or used in a
taxpayer’s trade or business during calendar year 2009,
qualifies for the cellulosic biofuel producer credit
(“CBPC”). Accordingly, each gallon of black liquor we
produced during calendar year 2009 qualifies for a non-
refundable CBPC of $1.01 per gallon.
In connection with the filing of our 2009 income
tax return, we claimed $23.2 million, net of taxes, of
CBPC. Subsequent to the end of 2010, we received a
cash tax refund of $17.8 million, of which $2.7 million
related to alternative fuel mixture credits earned in 2009.
The CBPC claimed is attributable to black liquor produced
and burned from January 1, 2009 through February 19,
2009, after which we began mixing black liquor and
diesel fuel to qualify for alternative fuel mixture credits.
In October 2010, the IRS issued further guidance
concluding that both the alternative fuel mixture credit and
the cellulosic biofuel production credit can be claimed in the
same year, but only for different volumes of black liquor.
With respect to CBPC, although we do not intend
to claim any additional credits, we could amend our
2009 federal tax return and claim additional credits. If
we were to elect to do so, we would be required to
return cash already received from alternative fuel mixture
credits, since we can only claim either the alternative fuel
mixture credit or CBPC. The ability to realize the value of
any additional CBPC depends on future taxable income.
We continue to evaluate opportunities, if any, to claim
additional CBPC from qualifying activities based on the
results of our ongoing operations.
Foreign Currency
In 2010, we owned and oper-
ated manufacturing facilities in Canada, Germany, France,
18
the United Kingdom and the Philippines. The functional
currency in Canada is the U.S. dollar, in Germany and
France it is the Euro, in the UK it is the British Pound
Sterling, and in the Philippines it is the Peso. During 2010,
Euro functional currency operations generated approxi-
mately 25.5% of our sales and 24.6% of operating
expenses and British Pound Sterling operations represented
8.8% of net sales and 8.7% of operating expenses. The
translation of the results from international operations into
U.S. dollars is subject to changes in foreign currency
exchange rates. The table below summarizes the transla-
tion 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, 2010
Favorable
(unfavorable)
$(15,000)
10,891
791
468
$ (2,850)
The above table only presents the financial reporting
impact of foreign currency translations. It does not
present the impact of certain competitive advantages or
disadvantages of operating or competing in multi-cur-
rency markets.
RESULTS OF OPERATIONS
2009 versus 2008
The following table sets forth summarized consoli-
dated results of operations:
In thousands, except per share
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
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
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 Unit Performance
Dollars in millions
Net sales
Energy and related 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, net
Total operating income (loss)
Nonoperating income (expense)
Income (loss) before income taxes
Supplementary Data
Net tons sold (in thousands)
Depreciation, depletion and amortization
Capital expenditures
Specialty Papers
2009
2008
Composite Fibers
2009
2008
Other and Unallocated
2009
2008
Total
2009
2008
Year Ended December 31
$791.9
13.3
805.2
693.9
111.3
55.4
–
–
55.9
–
$ 55.9
738.8
$ 37.5
14.2
$833.9
9.4
843.3
739.5
103.8
54.6
–
–
49.2
–
$ 49.2
743.8
$ 35.0
20.9
$392.1
–
392.1
334.4
57.7
35.8
–
–
21.9
–
$ 21.9
80.1
$ 23.7
12.1
$430.0
–
430.0
366.8
63.2
38.2
–
–
25.0
–
$ 25.0
85.6
$ 25.6
31.6
$
–
–
–
(100.7)
100.7
19.1
–
(0.9)
82.6
(17.3)
$ 65.3
$
–
–
–
$
–
–
–
(10.8)
10.8
5.1
(0.9)
(18.5)
25.1
(18.2)
$ 6.9
$1,184.0
13.3
1,197.3
927.6
269.8
110.3
–
(0.9)
160.4
(17.3)
$ 143.1
$1,263.9
9.4
1,273.2
1,095.4
177.8
97.9
(0.9)
(18.5)
99.2
(18.2)
81.0
$
$
–
–
–
$
818.9
61.3
26.3
$
829.4
60.6
52.5
Sales and Costs of Products Sold
In thousands
Net sales
Energy and related sales –
net
Total revenues
Costs of products sold(1)
Year Ended December 31
2009
2008
Change
$1,184,010
$1,263,850
$ (79,840)
13,332
1,197,342
927,578
9,364
3,968
1,273,214
1,095,432
(75,872)
(167,854)
Gross profit
$ 269,764
$ 177,782
$ 91,982
Gross profit as a percent
of Net sales
22.8%
14.1%
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.
We sell excess power generated by the Spring
Grove, PA facility pursuant to a long-term contract that
expired March 31, 2010. The following table summarizes
this activity for each of the past two years:
In thousands
Energy sales
Costs to produce
Net
2009
2008
Change
$ 20,128
(11,883)
$ 19,731
(10,367)
8,245
5,087
9,364
–
$
397
(1,516)
(1,119)
5,087
(1) 2009 includes $107.8 million of alternative fuel mixture credits, net
Renewable energy credits
of related expenses.
Total
$ 13,332
$ 9,364
$ 3,968
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%
33.1
66.0%
34.0
100.0% 100.0%
Net sales Net sales totaled $1,184.0 million for
2009, a decrease of $79.8 million, or 6.3%, compared
to 2008.
In the Specialty Papers business unit, 2009 net sales
decreased $42.0 million to $791.9 million. Operating
income increased $6.7 million in the year over year
comparison and totaled $55.9 million in 2009. The
improvement in operating income was primarily due to
$12.2 million of productivity efficiencies and cost 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
Renewable energy credits (“RECs”) represent sales
of certified credits earned related to burning renewable
sources of energy such as black liquor and wood waste.
In Composite Fibers, 2009 net sales were
$392.1 million, a decline of $37.9 million from 2008.
Operating income declined by $3.0 million in the 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.
Energy and raw material costs in the Composite
Fibers business unit were $3.9 million higher in 2009
than in 2008. Market-related downtime adversely
impacted operating results by $7.4 million in 2009
compared to 2008.
Glatfelter 2010 Annual Report
19
Pension Expense/Income
The following table
summarizes the amounts of pension (expense) or income
recognized for 2009 compared to 2008:
In thousands
Recorded as:
Costs of products sold
SG&A expense
Total
Year Ended
December 31
2009
2008
Change
$(4,936)
(2,097)
$(7,033)
$11,067
4,995
$16,062
$(16,003)
(7,092)
$(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. The fair value of the plans’ assets declined approx-
imately 29% during 2008. As a result, during 2009 we
recognized net pension expense totaling approximately
$7.0 million, on a pre-tax basis. However, we were not
required to make cash contributions to our qualified
defined benefit pension plans in 2009.
Selling, general and administrative (“SG&A”)
SG&A expenses increased $12.4 million in the
year-to-year comparison and totaled $110.3 million for
2009. In 2009, SG&A included $2.1 million of pension
expense compared with $5.0 million of pension income
in 2008. In addition, we incurred higher legal and
professional fees related to the Fox River environmental
matter and the Concert acquisition.
Gain on Sales of Plant, Equipment and
Timberlands, net During the years ended Decem-
ber 31, 2009 and 2008, we completed sales of timber-
lands 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
–
951
$
$
906
(8)
898
4,561
n/a
$19,279
–
$18,649
(181)
$19,279
$18,468
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.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and requires signif-
icant expenditures for new or enhanced equipment, for
environmental compliance matters including, but not
limited to, the Clean Air Act, to support our research and
development efforts and for our business strategy. In
addition, we have mandatory debt service requirements
of both principal and interest. The following table sum-
marizes cash flow information for each of the years
presented:
In thousands
Year Ended
December 31
2010
2009
Cash and cash equivalents at beginning of
period
$ 135,420
$ 32,234
In connection with each of the asset sales set forth
Cash provided by (used for)
above, we received cash proceeds.
Income taxes Our results of operations for 2009
reflect an effective tax rate of 13.8% compared to
28.6% in 2008. The lower tax rate in 2009 was primarily
due to a tax benefit of $27.1 million due to nontaxable
alternative fuel mixture credits, and from a lower propor-
tion 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
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net cash (used) provided
168,005
(264,217)
59,681
(3,101)
163,868
12,544
(75,329)
2,103
(39,632)
103,186
Cash and cash equivalents at end of period
$ 95,788
$135,420
At the end of the 2010, we had $95.8 million in
cash and cash equivalents and $219.6 million available
under our revolving credit agreement, which matures in
May 2014. Operating cash flow improved by $4.1 million
primarily due to cash received from alternative fuel
mixture credits offset by less provision of cash from
20
working capital in 2010 than in 2009. In January 2009,
we used $6.5 million to satisfy a commitment we had to
fund certain Fox River environmental remediation
activities.
Net cash used by investing activities totaled
$264.2 million in 2010 reflecting the Concert acquisition.
Capital expenditures totaled $36.5 million and $26.2 mil-
lion in 2010 and 2009, respectively. Capital expenditures
are expected to approximate $60 million to $65 million
in 2011.
Net cash provided by financing activities totaled
$59.7 million in 2010, reflecting increased borrowings to
fund the Concert acquisition including the proceeds, net
of debt issue costs and original issue discount, from the
issuance of $100.0 million of senior notes, at 95% of
par. In addition, during 2010, we refinanced our revolving
credit facility and repaid a $14.0 million term loan. In
2009, net cash used for financing activities totaled
$75.3 million, primarily reflecting reductions of debt
including $34.0 million repaid in connection with the
unwinding of the 2003 timberland installment sale.
During 2010 and 2009, cash dividends paid on
common stock totaled $16.7 million and $16.6 million,
respectively. Our Board of Directors determines what, if
any, dividends will be paid to our shareholders. Dividend
payment decisions are based upon then-existing factors
and conditions and, therefore, historical trends of divi-
dend 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
Revolving credit facility, due May 2014
Term Loan, due April 2011
71⁄8% Notes, due May 2016
71⁄8% Notes, due May 2016 – net of original
issue discount
Term Loan, due January 2013
Total long-term debt
Less current portion
December 31
2010
2009
$
n/a
–
–
200,000
$
–
n/a
14,000
200,000
95,529
36,695
332,224
–
36,695
250,695
(13,759)
Long-term debt, excluding current portion
$332,224
$236,936
Our credit agreement contains a number of custom-
ary compliance covenants. In addition, the Senior Notes
contain cross default provisions that could result in all
such notes becoming due and payable in the event of a
failure to repay debt outstanding under the credit agree-
ment at maturity, or a default under the credit agree-
ment, that accelerates the debt outstanding thereunder.
As of December 31, 2010, we met all of the require-
ments of our debt covenants.
The significant terms of the debt instruments are
more fully discussed in Item 8 – Financial Statements and
Supplementary Data – Note 16.
We are subject to various federal, state and local
laws and regulations which operate to protect the
environment as well as human health and safety. We
have, at various times, incurred significant costs to
comply with these regulations, as new regulations are
developed or regulatory priorities change. Currently, we
anticipate that we could incur material capital and
operating costs to comply with several air quality regula-
tions including the U.S. EPA Best Available Retrofit Tech-
nology rule (BART; otherwise known as the Regional
Haze Rule) and the Boiler Maximum Achievable Control
Technology rule (Boiler MACT). Although we are in the
process of analyzing the potential impact of these
requirements, compliance could require significant capital
expenditures. In addition, we may incur obligations to
remove or mitigate any adverse effects on the environ-
ment resulting from our operations, including the restora-
tion of natural resources and liability for personal injury
and for damages to property and natural resources. See
Item 8 – Financial Statements and Supplementary Data –
Note 20 for a summary of significant environmental
matters.
We expect to meet all of our near and long-term
cash needs from a combination of operating cash flow,
cash and cash equivalents, and our existing credit facili-
ties. However, as discussed in Item 8 – Financial State-
ments and Supplementary Data – Note 20, an
unfavorable outcome of various environmental matters
could have a material adverse impact on our consolidated
financial position, liquidity and/or results of operations.
Off-Balance-Sheet Arrangements As of
December 31, 2010 and 2009, we had not entered into
any off-balance-sheet arrangements. Financial derivative
instruments to which we are a party and guarantees of
indebtedness, which solely consist of obligations of sub-
sidiaries and a partnership, are reflected in the condensed
consolidated balance sheets included herein in Item 8 –
Financial Statements and Supplementary Data.
Glatfelter 2010 Annual Report
21
Contractual Obligations
The following table sets forth contractual obligations as of December 31, 2010:
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,
2012 to
2013
2014 to
2015
2016 and
beyond
$ 80
8
33
17
$138
$43
3
5
18
$69
$311
7
9
42
$369
Total
2011
$456
26
135
94
$ 22
8
88
17
$711
$135
(1) Represents principal and interest payments due on long-term debt. At December 31, 2010, we had $300.0 million of debt maturing in May 2016
and bearing a fixed rate of interest at 71⁄8%, payable semiannually, and a $36.7 million note maturing in January 2013 bearing interest at six-month
reserve adjusted LIBOR plus a margin rate of 1.66% per annum.
(2) Represents rental agreements for various land, buildings, vehicles, and computer and office equipment.
(3) Represents open purchase order commitments and other obligations, primarily for raw material forward purchases and pulpwood contracts with 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, 2010 or expectations based on historical experience and/or current market conditions.
(4) Primarily represents expected benefits to be paid pursuant to retirement medical plans and nonqualified pension plans over the next ten years and
expected costs of asset retirement obligations.
(5) Since we are unable to reasonably estimate the timing of ultimate payment, the amounts set forth above do not include any payments that may be
made related to uncertain tax positions, including potential interest, accounted for in accordance with ASC 740-10-20. As discussed in more detail
in Item 8 – Financial Statements, Note 8, “Income Taxes”, such amounts totaled $38.7 million at December 31, 2010.
Critical Accounting Policies and Estimates
The preceding discussion and analysis of our consol-
idated financial position and results of operations is
based upon our consolidated financial statements, which
have been prepared in accordance with accounting prin-
ciples generally accepted in the United States of America.
The preparation of these consolidated financial state-
ments requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contin-
gent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to inven-
tories, long-lived assets, pension and post-retirement
obligations, environmental liabilities and income taxes.
We base our estimates on historical experience and on
various other assumptions that we believe are reasonable
under the circumstances, the results of which form the
basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these
estimates.
We believe the following represent the most 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.
22
The establishment of a reserve for excess and obsolete
inventory establishes a new cost basis in the inventory.
Such reserves are not reduced until the product is sold. If
we are able to sell such inventory, any related reserves
would be reversed in the period of sale.
Long-lived Assets We evaluate the recoverability
of our long-lived assets, including plant, equipment,
timberlands, goodwill and other intangible assets period-
ically or whenever events or changes in circumstances
indicate that the carrying amounts may not be recover-
able. Our evaluations include analyses based on the cash
flows generated by the underlying assets, profitability
information, including estimated future operating results,
trends or other determinants of fair value. If the value of
an asset determined by these evaluations is less than its
carrying amount, a loss is recognized for the difference
between the fair value and the carrying value of the
asset. Future adverse changes in market conditions or
poor operating results of the related business may
indicate an inability to recover the carrying value of the
assets, thereby possibly requiring an impairment charge
in the future.
Pension and Other Post-Retirement
Obligations Accounting for defined-benefit pension
plans, and any curtailments thereof, requires various
assumptions, including, but not limited to, discount rates,
expected long-term rates of return on plan assets and
future compensation growth rates. Accounting for our
retiree medical plans, and any curtailments thereof, also
requires various assumptions, which include, but are not
limited to, discount rates and annual rates of increase in
the per capita costs of health care benefits. We evaluate
these assumptions at least once each year or as facts
and circumstances dictate and we make changes as
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
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 Consoli-
dated Financial Statements. Refer to Item 8 – Financial State-
ments and Supplementary Data – Notes to Consolidated
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 – Senior Notes
At variable interest rates
Weighted-average interest rate
Fixed interest rate debt – Senior Notes
Variable interest rate debt
2011
Year Ended December 31
2013
2014
2012
At December 31, 2010
2015
Carrying Value
Fair Value
$295,874
36,695
$296,600
36,695
$297,389
1,407
$298,244
–
$299,171
–
$295,529
36,695
$304,115
37,780
$332,224
$341,895
7.13%
1.66%
7.13%
1.66%
7.13%
1.66%
7.13%
–
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, 2010. Fair
values included herein have been determined based upon
rates currently available to us for debt with similar terms
and remaining maturities.
that accrues interest based on 6 month LIBOR plus a
margin. At December 31, 2010, the weighted-average
interest rate paid was approximately 1.66%. A hypothet-
ical 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.
Our market risk exposure primarily results from
changes in interest rates and currency exchange rates. At
December 31, 2010, we had long-term debt outstanding
of $332.2 million, of which $36.7 million or 10.0% was
at variable interest rates. Variable-rate debt outstanding
represents a cash collateralized borrowing incurred in
connection with the 2007 installment timberland sale
We are subject to certain risks associated with changes
in foreign currency exchange rates to the extent our opera-
tions are conducted in currencies other than the U.S. dollar.
During 2010, Euro functional currency operations generated
approximately 25.5% of our sales and 24.6% of operating
expenses and British Pound Sterling operations represented
8.8% of net sales and 8.7% of operating expenses.
Glatfelter 2010 Annual Report
23
ITEM 8 FINANCIAL STATEMENTS AND SUPPLE-
MENTARY 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, 2010, management conducted
an assessment of the effectiveness of the Company’s
internal control over financial reporting based on the
framework established in Internal Control–Integrated
Framework issued by the Committee of Sponsoring Orga-
nizations of the Treadway Commission (COSO). We
excluded from our assessment, as permitted under the
applicable SEC rules, regulations and related interpreta-
tions, the internal control over financial reporting of
Concert Industries Corp., which was acquired on Febru-
ary 12, 2010, and whose total assets constitute 21% of
total assets, and which represented 13% of total net
sales, of the consolidated financial statement amounts as
of and for the year ended December 31, 2010. Manage-
ment has determined that the Company’s internal control
over financial reporting as of December 31, 2010 is
effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
the Company’s financial statements for external reporting
purposes in accordance with accounting principles 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
24
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, 2010, has been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report appearing
herein, which expresses an unqualified opinion on the
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2010.
The Company’s management, including the chief
executive officer and chief financial officer, does not
expect that our internal control over financial reporting
will prevent or detect all errors and all frauds. A control
system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the
control system’s objectives will be met. The design of a
control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that 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.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders of
P. H. Glatfelter Company
We have audited the internal control over financial
reporting of P. H. Glatfelter Company and subsidiaries
(the “Company”) as of December 31, 2010, based on
criteria established in Internal Control–Integrated Frame-
work issued by the Committee of Sponsoring Organiza-
tions of the Treadway Commission. As described in
Management’s Report on Internal Control Over Financial
Reporting, management excluded from its assessment the
internal control over financial reporting of Concert Indus-
tries Corp., which was acquired on February 12, 2010
and whose total assets constitute 21% of total assets,
and which represented 13% of total net sales, of the
consolidated financial statement amounts as of and for
the year ended December 31, 2010. Accordingly, our
audit did not include the internal control over financial
reporting at Concert Industries Corp. The Company’s
management is responsible for maintaining effective
internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on
Internal Control Over Financial Reporting. Our responsibil-
ity 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 reason-
able 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, 2010, based on the criteria
established in Internal Control–Integrated Framework
issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial state-
ments and financial statement schedule as of and for the
year ended December 31, 2010 of the Company and our
report dated March 11, 2011 expressed an unqualified
opinion on those financial statements and financial state-
ment schedule.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 11, 2011
Glatfelter 2010 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 accompanying consolidated
balance sheets of P. H. Glatfelter Company and subsidiar-
ies (the “Company”) as of December 31, 2010 and
2009, and the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2010. Our audits
also included the financial statement schedule listed in
the Index at Item 15. These financial statements and
financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express
an opinion on the financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable 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, 2010 and 2009, and the results of their
operations and their cash flows for each of the three
years in the period ended December 31, 2010, in 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, presents fairly, in all material respects, the infor-
mation set forth therein.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control
over financial reporting as of December 31, 2010, based
on the criteria established in Internal Control–Integrated
Framework issued by the Committee of Sponsoring Orga-
nizations of the Treadway Commission and our report
dated March 11, 2011 expressed an unqualified opinion
on the Company’s internal control over financial
reporting.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 11, 2011
26
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
Reversal 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 (benefit) provision
Net income
Weighted average shares outstanding
Basic
Diluted
Earnings per share
Basic
Diluted
2010
Year Ended December 31
2009
2008
$1,455,331
10,653
$1,184,010
13,332
$1,263,850
9,364
1,465,984
1,279,737
1,197,342
927,578
1,273,214
1,095,432
186,247
122,111
–
(453)
64,589
(25,547)
808
(6,321)
(31,060)
33,529
(20,905)
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
$
54,434
$ 123,442
$
57,888
45,922
46,374
45,678
45,774
45,247
45,572
$
$
1.19
1.17
$
2.70
2.70
1.28
1.27
The accompanying notes are an integral part of the consolidated financial statements.
Glatfelter 2010 Annual Report
27
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:
2010 – $3,118; 2009 – $2,888)
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: 2010 – 8,385,772; 2009 –
8,655,826)
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
2010
2009
$
95,788
$ 135,420
141,208
201,077
64,617
502,690
608,170
230,887
119,319
168,370
96,947
520,056
470,632
199,606
$1,341,747
$1,190,294
$
–
798
98,594
4,190
248
109,316
213,146
332,224
94,918
149,017
789,305
–
$
13,759
3,888
63,604
4,170
440
100,249
186,110
236,936
96,668
159,876
679,590
–
544
48,145
749,453
(121,247)
676,895
(124,453)
544
46,746
711,765
(119,885)
639,170
(128,466)
552,442
510,704
$1,341,747
$1,190,294
The accompanying notes are an integral part of the consolidated financial statements.
28
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
Amortization of debt issuance costs and original issue discount
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
Proceeds from $100 million 71⁄8% note offering, net of original issue
discount
Payments of note offering and credit facility costs
Net repayments of revolving credit facility
Repayments of $100 million term loan facility
Net (repayments of) proceeds from other short-term debt
(Repayments of) proceeds from borrowing under Term Loans due 2013
Payment of dividends
Proceeds and excess tax benefits from stock options exercised and proceeds
from government grants
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
Supplemental cash flow information
Cash paid (received) for
Interest
Income taxes
Year Ended December 31
2009
2010
2008
$ 54,434
$123,442
$ 57,888
65,839
2,758
8,637
–
(16,815)
(453)
5,767
54,880
(598)
(7,592)
(13,318)
21,064
(29)
(1,490)
(5,079)
61,256
1,690
6,343
–
(22,981)
(898)
4,599
(57,946)
16,542
28,207
1,451
2,390
(7,728)
6,676
825
168,005
163,868
(36,491)
564
–
(228,290)
(264,217)
95,000
(5,340)
–
(14,000)
(3,208)
–
(16,746)
3,975
59,681
(3,101)
(26,257)
951
37,850
–
12,544
–
–
(6,725)
(16,000)
(2,008)
(34,000)
(16,596)
–
(75,329)
2,103
60,611
1,654
(16,062)
(856)
3,265
(18,468)
4,350
–
(17,668)
(9,975)
871
4,264
(13,012)
(10,557)
7,120
53,425
(52,469)
19,279
–
–
(33,190)
–
–
(24,197)
(13,000)
2,927
36,695
(16,469)
1,165
(12,879)
(4,955)
(39,632)
135,420
$ 95,788
103,186
32,234
$135,420
2,401
29,833
$ 32,234
$ 23,193
(40,265)
$ 17,338
16,634
$ 21,243
20,011
The accompanying notes are an integral part of the consolidated financial statements.
Glatfelter 2010 Annual Report
29
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2010, 2009 and 2008
In thousands
Balance at January 1, 2008
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
Tax effect on employee stock options exercised
Cash dividends declared ($0.36 per share)
Share-based compensation expense
Delivery of treasury shares
Performance Shares
401(k) plans
Director compensation
Employee stock options exercised – net
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Shareholders’
Equity
$ 544
$ 44,697
$ 563,608
$
4,061
$ (136,842)
$ 476,068
57,888
57,888
(32,029)
(148,165)
(180,194)
(180,194)
(122,306)
38
(16,495)
3,244
(339)
1,520
163
814
1,400
1,768
206
957
(16,495)
38
3,244
(1,739)
(248)
(43)
(143)
Balance at December 31, 2008
544
45,806
605,001
(176,133)
(132,511)
342,707
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
123,442
123,442
11,941
44,307
56,248
56,248
179,690
(16,678)
3,502
(203)
1,522
164
1,280
2,517
248
(16,678)
3,502
(1,483)
(995)
(84)
Balance at December 31, 2009
544
46,746
711,765
(119,885)
(128,466)
510,704
Comprehensive income
Net income
Foreign currency translation adjustments
Change in benefit plans’ net funded status, net of taxes of $9,905
Other comprehensive income
Comprehensive income
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
54,434
54,434
(17,227)
15,865
(1,362)
(1,362)
53,072
(50)
(16,746)
3,962
(490)
1,642
163
185
1,662
1,960
179
212
(16,746)
(50)
3,962
(2,152)
(318)
(16)
(27)
Balance at December 31, 2010
$544
$48,145
$749,453
$(121,247)
$(124,453)
$552,442
30
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 fiber-
based engineered materials. Headquartered in York, Penn-
sylvania, our manufacturing facilities are located in Spring
Grove, Pennsylvania; Chillicothe and Freemont, Ohio;
Gatineau, Quebec Canada; Gloucestershire (Lydney),
England; Caerphilly, Wales; Gernsbach and Falkenhagen,
Germany; Scaër, France; and the Philippines. Our products
are marketed worldwide, either through wholesale paper
merchants, brokers and agents or directly to customers.
2. ACCOUNTING POLICIES
Principles of Consolidation The consolidated
financial statements include the accounts of Glatfelter
and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated.
Accounting Estimates
The preparation of 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 the average cost method.
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.
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, on a discounted cash flow basis, during the
third quarter of each year for impairment. Impairment
losses, if any, are recognized for the amount by which
the carrying value of the reporting unit exceeds its fair
value. The carrying value of a reporting unit is defined
using an enterprise premise which is generally determined
by the difference between the unit’s assets and operating
liabilities.
Asset Retirement Obligations
In accordance
with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) No. 410,
Asset Retirement and Environmental Obligations, we
accrue asset retirement obligations in the period in which
obligations relating to future asset retirements are
incurred and when a reasonable estimate of fair value
can be determined. Under these standards, costs are to
be accrued at estimated fair value, and a related long-
lived asset is capitalized. Over time, the liability is
accreted to its settlement value and the capitalized cost
is depreciated over the useful life of the related asset for
which the obligation exists. Upon settlement of the
liability, we recognize a gain or loss for any difference
between the settlement amount and the liability
recorded.
Income Taxes
Income taxes are determined
using the asset and liability method of accounting for
income taxes in accordance with FASB ASC 740 Income
Taxes (“ASC 740”). Under ASC 740, tax expense includes
U.S. and international income taxes plus the provision for
Glatfelter 2010 Annual Report
31
U.S. taxes on undistributed earnings of international
subsidiaries not deemed to be permanently invested. Tax
credits and other incentives reduce tax expense in the
year the credits are claimed. Certain items of income and
expense are not reported in tax returns and financial
statements in the same year. The tax effect of such
temporary differences is reported in deferred income
taxes. Deferred tax assets are recognized if it is more
likely than not that the assets will be realized in future
years. We establish a valuation allowance for deferred
tax assets for which realization is not more likely than
not.
Income tax contingencies are accounted for in
accordance with FASB ASC 740-10-20 Income Taxes
(formerly FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes–an interpretation of FASB
Statement No. 109”). Significant judgment is required in
determining our worldwide provision for income taxes
and recording the related assets and liabilities. In the
ordinary course of our business, there are many transac-
tions and calculations where the ultimate tax determina-
tion is less than certain. We and our subsidiaries are
examined by various Federal, State and foreign tax
authorities. We regularly assess the potential outcomes
of these examinations and any future examinations for
the current or prior years in determining the adequacy of
our provision for income taxes. We continually assess the
likelihood and amount of potential adjustments and
record any necessary adjustments in the period in which
the facts that give rise to a revision become known.
Treasury Stock Common stock purchased for
treasury is recorded at cost. At the date of subsequent
reissue, the treasury stock account is reduced by the cost
of such stock on the weighted-average cost basis.
Foreign Currency Translation Foreign currency
translation gains and losses and the effect of exchange
rate changes on transactions designated as hedges of net
foreign investments are included as a component of other
comprehensive income (loss). Transaction gains and
losses are included in income in the period in which they
occur.
Revenue Recognition We recognize revenue on
product sales when the customer takes title and assumes
the risks and rewards of ownership. Estimated costs for
sales incentives, discounts and sales returns and allow-
ances are recorded as sales reductions in the period in
which the related revenue is recognized.
Revenue from energy sales is recognized when
electricity is delivered to the customer. Certain costs
associated with the production of electricity, such as fuel,
labor, depreciation and maintenance are netted against
energy sales for presentation on the Consolidated
32
Statements of Income. Our fixed-price contract to sell
electricity generated in excess of our own use expired
March 31, 2010. Subsequent to the expiration, we now
sell excess power at market-rates.
Revenue from renewable energy credits is 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 (Loss) at December 31, 2010 consisted of a
loss of $120.4 million from additional defined benefit
liabilities, net of tax, and $0.8 million of losses from
foreign currency translation adjustments.
Earnings Per Share
Basic earnings per share are
computed by dividing net income by the weighted-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.
We use the following valuation techniques to mea-
sure fair value for our assets and liabilities:
allocation of the purchase price to assets acquired and
liabilities assumed were required.
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.
3. ACQUISITIONS
On February 12, 2010, we completed the acquisi-
tion of all the issued and outstanding stock of Concert
Industries Corp. (“Concert”), a manufacturer of highly
absorbent cellulose based airlaid non-woven materials,
for cash totaling $231.1 million based on the currency
exchange rates on the closing date, and net of post-
closing working capital adjustments. Concert has 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 materials used in products such
as feminine hygiene and adult incontinence products,
pre-moistened cleaning wipes, food pads, napkins and
tablecloths, and baby wipes. The acquisition of Concert
affords us the opportunity to grow with our customers
who are the industry leaders in feminine hygiene and
adult incontinence products. We believe that our acquisi-
tion of Concert provides us with an industry-leading
global business that sells highly specialized, engineered
fiber-based materials to niche markets with substantial
barriers to entry.
The share purchase agreement provides for, among
other terms, indemnification provisions for claims that
may arise, including among others, uncertain tax posi-
tions and other third party claims.
We and the sellers reached agreement on working
capital related adjustments that reduced the purchase
price by $4.7 million. In addition, as a result of further
evaluation of asset appraisals, contingencies and other
factors, in accordance with FASB ASC 805, Business
Combinations, we have determined that certain retro-
spective adjustments to the February 12, 2010 provisional
The following summarizes the impact of the adjust-
ments recorded in 2010 and retrospectively reflected in
the financial statements. This provisional purchase price
allocation is based on information currently available to
management:
In thousands
Assets
Cash
Accounts receivable
Inventory
Prepaid and other current assets
Plant, equipment and
timberlands
Intangible assets
Deferred tax assets and other
assets
Total
Liabilities
Accounts payable and accrued
expenses
Deferred tax liabilities
Other long term liabilities
Total
Total purchase price
As originally
presented
Adjustment
Adjusted
$
2,792
24,703
28,034
5,941
177,253
3,138
20,738
262,599
25,322
1,267
212
26,801
$235,798
$
–
–
–
(1,316)
8,301
1,902
(5,830)
3,057
611
3,852
3,310
7,773
$(4,716)
$2,792
24,703
28,034
4,625
185,554
5,040
14,908
265,656
25,933
5,119
3,522
34,574
$231,082
The adjustments set forth above did not materially
impact previously reported results of operations, earnings
per share, or cash flows.
We are in the process of finalizing certain contin-
gencies and the impact on taxes of any final adjustments
to such necessary to account for the Concert transaction
in accordance with the acquisition method of accounting
set forth in FASB ASC 805. Accordingly, the provisional
purchase price allocation set forth above is based on all
information available to us at the present time and is
subject to change, and such changes could be material.
For purposes of allocating the total purchase price,
assets acquired and liabilities assumed are recorded at
their estimated fair market value. The allocation set forth
above is based on management’s estimate of the fair
value using valuation techniques such as discounted cash
flow models, appraisals and similar methodologies. The
amount allocated to intangible assets represents the
estimated value of technology and customer sales con-
tracts and relationships. Deferred tax assets reflect the
estimated value of future tax deductions acquired in the
transaction.
Acquired property plant and equipment are being
depreciated on a straight-line basis with estimated
remaining lives ranging from 5 years to 40 years. Intan-
gible assets are being amortized on a straight-line basis
over an estimated remaining life of 11 to 20 years
reflecting the expected future value.
During 2010, we incurred legal, professional and
advisory costs directly related to the Concert acquisition
totaling $6.9 million. All such costs are presented under
Glatfelter 2010 Annual Report
33
the caption “Selling, general and administrative
expenses” in the accompanying consolidated statements
of income. Deferred financing fees incurred in connection
with issuing debt related to the acquisition totaled
$3.0 million. The unamortized fees are recorded in the
accompanying consolidated balance sheet under the cap-
tion “Other assets”.
In addition, in connection with the Concert acquisi-
tion, we entered into a series of forward foreign currency
contracts to hedge the acquisition’s Canadian dollar
purchase price. All contracts were settled for cash during
the first quarter of 2010 and resulted in a $3.4 million
loss, net of realized currency translation gains, which is
presented under the caption “Other-net” in the accompa-
nying consolidated statements of income for the year
ended December 31, 2010.
Our results of operations for the year ended Decem-
ber 31, 2010 include the results of Concert prospectively
since the acquisition was completed on February 12,
2010. All such results are reported herein as the
Advanced Airlaid Materials business unit, a new report-
able segment. Net sales and operating income of Concert
included in our consolidated results of operations totaled
$193.5 million and $4.4 million, respectively, for 2010.
The unaudited pro-forma results presented below
include the effects of the acquisition as if it had been
consummated as of January 1, 2009. The pro forma
results include the amortization associated with the
acquired intangible assets and interest expense associ-
ated with debt used to fund the acquisition, as well as
fair value adjustments for plant, equipment and timber-
lands. To better reflect the combined operating results,
material non-recurring charges directly attributable to the
acquisition have been excluded. The unaudited pro forma
financial information below is not necessarily indicative
of either future results of operations or results that might
have been achieved.
4. ALTERNATIVE FUEL MIXTURE CREDITS
The U.S. Internal Revenue Code provided a tax
credit for companies that use alternative fuel mixtures to
produce energy to operate their businesses. The credit,
equal to $0.50 per gallon of alternative fuel contained in
the mixture, is refundable to the taxpayer. On May 11,
2009, we were notified by the Internal Revenue Service
that our application to be registered as an alternative
fuel mixer was approved. We earned $107.8 million of
alternative fuel mixture credits for the alternative fuel
mixture consumed during the period February 20, 2009
through December 31, 2009. We record all alternative
fuel mixture credits as a reduction to cost of goods sold
and the net credit claimed is recorded in 2009 under the
caption “Prepaid expenses and other current assets” in
the accompanying Consolidated Balance Sheets.
The alternative fuel mixture credit expired on
December 31, 2009. For information related to the
Cellulosic Biofuel Credit, see Note 8 – Income Taxes.
5.
ENERGY AND RELATED SALES, NET
We sell excess power generated by the Spring
Grove, PA facility. Prior to the March 31, 2010 expiration
of a long-term contract, all sales were at a fixed price.
Subsequently, we sell excess power at prevailing market
rates. We also sell renewable energy credits generated by
the Spring Grove, PA and Chillicothe, OH facilities repre-
senting 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
2010
2009
2008
$14,296
(10,403)
3,893
6,760
$10,653
$20,128
(11,883)
8,245
5,087
$13,332
$19,731
(10,367)
9,364
–
$9,364
In thousands, except per share
Pro forma
Net sales
Net income
Diluted earnings per share
Year Ended December 31
2010
2009
$1,480,980
69,116
1.49
$1,388,120
135,713
2.96
6. GAIN ON DISPOSITIONS OF PLANT, EQUIP-
MENT AND TIMBERLANDS
During 2010, 2009 and 2008, we completed the
following sales of assets:
Dollars in thousands
Acres
Proceeds
Gain
For purposes of presenting the above pro forma
financial information, non-recurring legal, professional
and transaction costs directly related to the acquisition
have been eliminated. This pro forma financial informa-
tion is not necessarily indicative of what the operating
results would have been had the acquisition been com-
pleted at the beginning of the respective period nor is it
indicative of future results.
2010
Timberlands
Other
Total
2009
Timberlands
Other
Total
2008
Timberlands
Other
Total
34
164
n/a
319
n/a
$
$
$
$
387
177
564
951
–
951
$
$
$
$
373
80
453
906
(8)
898
4,561
n/a
$19,279
–
$19,279
$18,649
(181)
$18,468
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 retired chief executive officer, and his spouse. The
246 acres of timberlands had been independently
appraised and marketed for public sale by us. Based on
those appraisals and the marketing process that was
pursued, we and our Board believed that the sale price
agreed to with the Glatfelters constituted fair market
value for the timberland.
7.
EARNINGS PER SHARE
The following table sets forth the details of basic
and diluted earnings per share (EPS):
In thousands, except per share
2010
2009
2008
Net income
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
$54,434
$123,442
$57,888
45,922
45,678
45,247
452
96
325
46,374
$1.19
1.17
45,774
2.70
2.70
$
45,572
$ 1.28
1.27
The following table sets forth the potential common
shares outstanding for stock options and restricted stock
units that were not included in the computation of
diluted EPS for the period indicated, because their effect
would be anti-dilutive:
In thousands
Potential common shares
2010
2009
2008
1,405
2,215
1,132
8.
INCOME TAXES
Income taxes are recognized for the amount of
taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in our
consolidated financial statements or tax returns. The
effects of income taxes are measured based on enacted
tax laws and rates.
The (benefit)/provision for income taxes from opera-
tions consisted of the following:
In thousands
Current taxes
Federal
State
Foreign
Deferred taxes and other
Federal
State
Foreign
Income tax (benefit)/provision
Year Ended December 31
2009
2010
2008
$ (8,238)
(392)
4,540
(4,090)
(17,530)
(131)
846
(16,815)
$(20,905)
$ 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
The amounts set forth above for total deferred taxes
and other included a deferred tax benefit of $17.6 million
in 2010, a deferred tax benefit of $23.0 million in 2009
and a deferred tax provision of $3.0 million in 2008,
respectively. Other taxes totaled $0.8 million, $0.0 million,
and $0.2 million in 2010, 2009 and 2008, respectively,
related to uncertain tax positions expected to be taken in
future tax filings.
The following are the domestic and foreign compo-
nents of pretax income from operations:
In thousands
United States
Foreign
Total pretax income
Year Ended December 31
2009
2010
2008
$ 2,384
31,145
$33,529
$122,657
20,489
$143,146
$61,387
19,639
$81,026
A reconciliation between the income tax provision,
computed by applying the statutory federal income tax
rate of 35% to income before income taxes, and the
actual income tax (benefit)/provision is as follows:
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
Change in unrecognized tax benefits, net
Cellulosic Biofuel Credit, net of incremental state
tax and manufacturing deduction benefit
Adjustment for prior year estimates
Alternative fuel mixture credits
Valuation allowance release
Other
(Benefit)/provision for income taxes
Year Ended December 31
2010
2008
2009
35.0% 35.0% 35.0%
1.4
(4.9)
1.5
(7.8)
(12.4)
0.7
(0.5)
(0.3)
(1.8)
8.0
3.1
(2.5)
–
(5.7)
2.5
(69.3)
(6.8)
–
–
1.0
–
–
(26.4)
–
(0.9)
(62.3)% 13.8% 28.6%
–
–
–
(1.8)
(2.0)
The sources of deferred income taxes were as
follows at December 31:
2010
2009
Current
Asset
(Liability)
Non
current
Asset
(Liability)
$ 5,628
3,850
$ 10,422
4,070
1,807
692
449
–
348
78
8,002
20,854
(2,925)
$17,929
18,225
(98,012)
(43,428)
(14,030)
–
5,617
57,547
(59,589)
(22,895)
$(82,484)
Current
Asset
(Liability)
$ 7,404
3,367
1,708
12
660
(4)
438
258
–
13,843
(2,379)
$11,464
Non-
current
Asset
(Liability)
$
9,677
3,934
19,637
(100,071)
(38,000)
(14,070)
–
4,608
29,238
(85,047)
(9,789)
$ (94,836)
In thousands
Reserves
Compensation
Post-retirement
benefits
Property
Pension
Installment sales
Inventories
Other
Tax carryforwards
Subtotal
Valuation allowance
Total
The increase in the valuation allowance of $13.7 mil-
lion from 2009 is primarily related to the establishment
of a valuation allowance for certain acquired deferred tax
assets related to Concert.
Glatfelter 2010 Annual Report
35
In connection with the filing of our 2009 income
tax return, we claimed $23.2 million, net of taxes, of
CBPC. The CBPC claimed is attributable to black liquor
produced and burned from January 1, 2009 through
February 19, 2009, after which we began mixing black
liquor and diesel fuel to qualify for alternative fuel
mixture credits.
With respect to CBPC, although we do not intend
to claim any additional credits, we could amend our
2009 federal tax return and claim additional credits. If
we were to elect to do so, we would be required to
return cash already received from alternative fuel mixture
credits, since we can only claim either the alternative fuel
mixture credit or CBPC. The ability to realize the value of
any additional CBPC depends on future taxable income.
We continue to evaluate opportunities, if any, to claim
additional CBPC from qualifying activities based on the
results of our ongoing operations.
As of December 31, 2010, December 31, 2009 and
December 31, 2008, we had $38.7 million, $40.1 million
and $29.2 million of gross unrecognized tax benefits,
respectively. As of December 31, 2010, if such benefits
were to be recognized, approximately $35 million would
be recorded as a component of income tax expense,
thereby affecting our effective tax rate.
A reconciliation of the beginning and ending 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
Acquisition related:
Purchase accounting
Decrease for prior years(1)
Increases in tax positions for current year
Settlements
Lapse in statute of limitations
2010
2009
2008
$40.1
1.6
(1.8)
$29.2
0.7
–
$26.1
0.4
–
3.2
(2.2)
1.9
–
(4.1)
–
–
11.2
(0.8)
(0.2)
–
–
3.2
–
(0.5)
Balance at December 31
$38.7
$40.1
$29.2
(1) in connection with purchase accounting for the Concert transaction,
we recorded a $2.2 million reserve for an uncertain tax position
and at the same time recorded a receivable from the seller due to
an indemnification agreement. Prior to the end of 2010, a tax rul-
ing was issued that eliminated this tax risk resulting in the elimina-
tion of both items.
We, or one of our subsidiaries, file income tax
returns with the United States Internal Revenue Service,
as well as various state and foreign authorities. The
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
2010
2009
$17,929
12,434
–
94,918
$11,519
1,832
55
96,668
At December 31, 2010, we had state and foreign
tax net operating loss (“NOL”) carryforwards of $78.6 mil-
lion and $273.0 million, respectively. These NOL carryfor-
wards are available to offset future taxable income, if
any. The state NOL carryforwards expire between 2014
and 2027; certain foreign NOL carryforwards expire
between 2013 and 2030.
In addition, we had federal foreign tax credit
carryforwards of $0.3 million, which expire in 2013,
various state tax credit carryforwards totaling $0.4 million,
which expire between 2014 and 2027, and foreign tax
credits of $3.2 million which expire between 2019 and
2030.
We have established a valuation allowance of
$25.8 million against the net deferred tax assets, prima-
rily due to the uncertainty regarding the ability to utilize
state and foreign tax NOL carryforwards and certain
deferred foreign tax credits.
Tax credits and other incentives reduce tax expense
in the year the credits are claimed. In 2010, we recorded
tax credits of $2.6 million related to Research and Devel-
opment credits and the fuels tax credits. In 2009 and
2008 similar tax credits of $2.6 million and $4.7 million,
respectively, were recorded.
At December 31, 2010 and 2009, unremitted earn-
ings of subsidiaries outside the United States deemed to
be permanently reinvested totaled $160.8 million and
$134.6 million, respectively. Because the unremitted
earnings of subsidiaries are deemed to be permanently
reinvested as of December 31, 2010, no deferred tax
liability has been recognized in our consolidated financial
statements.
In March 2010, our application to be registered as
a cellulosic biofuel producer was approved by the Internal
Revenue Service. The U.S. Internal Revenue Code provides
a non refundable tax credit equal to $1.01 per gallon for
taxpayers that produce cellulosic biofuel. In a memoran-
dum issued in July 2010, the Internal Revenue Service
issued guidance concluding that black liquor sold or used
before January 1, 2010, qualifies for the cellulosic biofuel
producer credit (“CBPC”) and no further certification of
eligibility was needed.
36
following table summarizes tax years that remain subject
to examination by major jurisdiction:
record any penalties associated with uncertain tax posi-
tions during 2010 or 2009.
Jurisdiction
United States
Federal
State
Canada(1)
Germany(1)
France
United Kingdom
Philippines
Open Tax Years
Examinations not yet
initiated
Examination in
progress
2007 – 2010
2005 – 2010
2006 – 2010
2008 – 2010
2007 – 2010
2007 – 2010
2010
N/A
2004 & 2006–2008
2008 – 2009
2003 – 2009
N/A
N/A
2007 – 2009
(1) includes provincial or similar local jurisdictions, as applicable.
The amount of income taxes we pay is subject to
ongoing audits by federal, state and foreign tax 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 $8.2 million. Substantially all of this range
relates to tax positions taken in the U.S. and in Germany.
We recognize interest and penalties related to
uncertain tax positions as income tax expense. The
Company accrued minimal interest, net of reversals
during 2010, and in total, as of December 31, 2010, has
recognized a liability for interest of $3.8 million. During
2009, the Company accrued interest of $1.1 million, and
in total, as of December 31, 2009 has recognized a
liability for interest of $3.8 million. During 2008, the
Company accrued interest of $0.8 million. We did not
9.
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, 2010, 2,661,632 shares of common stock
were available for future issuance under the LTIP.
Since the approval of the LTIP, we have issued to
eligible participants restricted stock units and stock only
stock appreciation rights (“SOSARs”).
Restricted Stock Units (“RSU”) Awards of
RSUs are made under the LTIP. Under terms of the
awards, RSUs vest based solely on the passage of time
on a graded scale over a three, four, and five-year period.
The following table summarizes RSU activity during the
past three years:
Units
Beginning balance
Granted
Forfeited
Restriction lapsed/shares delivered
Ending balance
Dollars in thousands
Compensation expense
2010
2009
2008
564,037
203,889
(37,368)
(150,757)
579,801
486,988
205,360
(8,700)
(119,611)
564,037
505,173
137,649
(25,214)
(130,620)
486,988
$1,708
$1,622
$1,772
The weighted average grant fair value per unit for
awards in 2010, 2009 and 2008 was $13.24, $10.11
and $14.82, respectively. As of December 31, 2010,
unrecognized compensation expense for outstanding
RSUs totaled $3.4 million. The weighted average remain-
ing period over which the expense will be recognized is
3.6 years.
Glatfelter 2010 Annual Report
37
Stock Only Stock Appreciation Rights
The following table sets forth information related to outstanding
SOSARS.
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
1,762,020
470,520
–
(170,663)
2,061,877
1,135,281
2,059,524
2010
Weighted-
Average
Exercise Price
$11.84
13.77
11.81
12.28
12.78
$ 4.65
2,179
2.61%
2.48
42.34
6yrs
Shares
718,810
1,043,210
–
–
1,762,020
390,575
1,676,227
2009
Weighted-
Average
Exercise Price
$14.63
9.91
–
–
$11.84
14.89
$ 2.83
$2,957
3.63%
2.26
40.59
6yrs
Shares
484,800
284,240
–
(50,230)
718,810
150,967
690,418
2008
Weighted-
Average
Exercise Price
$15.30
13.49
–
14.63
$14.63
15.30
$ 3.77
$1,002
2.67%
3.71
32.09
6yrs
Compensation expense (in thousands)
$
2,254
$
1,880
$ 1,472
Under terms of the SOSAR, the recipients received the right to receive a payment in the form of shares of common
stock equal to the difference, if any, in the fair market value of one share of common stock at the time of exercising the
SOSAR and the strike price. The SOSARs vest ratably over a three year period. As of December 31, 2010, the intrinsic
value of SOSARs vested and expected to vest totaled $2.3 million.
Non-Qualified Stock Options
The following table summarizes the activity with respect to non-qualified stock
options:
Non-Qualified Options
Outstanding at beginning of year
Granted
Exercised
Canceled
Outstanding and exercisable at end of year
Non-Qualified Options
$10.78 to $12.41
12.95 to 14.44
15.44 to 17.16
17.54 to 18.78
Shares
36,250
132,700
178,100
15,000
362,050
2010
Weighted-
Average
Exercise Price
$14.20
–
12.95
13.09
$14.49
Shares
453,050
–
(14,250)
(76,750)
362,050
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
Options Outstanding
Weighted-
Average
Remaining
Contractual Life
3.0
1.9
1.0
1.3
1.5
Weighted-
Average
Exercise Price
$11.24
13.71
15.47
17.54
Options Exercisable
Weighted-
Average
Exercise Price
$11.24
13.71
15.47
17.54
Shares
36,250
132,700
178,100
15,000
362,050
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. As of December 31, 2010, the intrinsic value of
outstanding stock options totaled $0.04 million.
10. RETIREMENT PLANS AND OTHER
POST-RETIREMENT BENEFITS
We provide non-contributory retirement benefits
under both funded and unfunded plans to all U.S. employ-
ees and to certain non-U.S. employees. U.S. benefits are
based on either a final average pay formula or a cash
balance formula for salaried employees, and on a unit-
benefit formula for bargained hourly employees.
Non-U.S. benefits are based, in the case of certain plans,
on average salary and years of service and, in the case
of other plans, on a fixed amount for each year of
service. U.S. plan provisions and funding meet the
38
requirements of the Employee Retirement Income Security
Act of 1974. We use a December 31-measurement date
for all of our defined benefit plans.
We also provide certain health care benefits to
eligible U.S.-based retired employees and exclude all
salaried employees hired after January 1, 2008. These
benefits include a comprehensive medical plan for retirees
prior to age 65 and fixed supplemental premium pay-
ments to certain retirees over age 65 to help defray the
costs of Medicare. The plan is partially funded and claims
are paid as reported.
Pension Benefits
2010
2009
Other Benefits
2009
2010
$406.1
9.5
23.9
1.2
17.9
(24.3)
$434.3
$386.3
8.6
23.4
1.9
12.9
(27.0)
$406.1
$62.6
2.9
3.4
–
(5.7)
(4.7)
$58.5
$485.7
63.2
1.8
(24.3)
$400.6
110.0
2.1
(27.0)
$6.3
0.9
3.7
(4.7)
$58.6
2.6
3.5
–
1.3
(3.4)
$62.6
$5.7
1.6
2.4
(3.4)
In millions
Change in Benefit Obligation
Balance at beginning of year
Service cost
Interest cost
Plan amendments
Actuarial (gain)/loss
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
Benefits paid
Fair value of plan assets at end of
year
Funded status at end of year
The weighted-average assumptions used in comput-
ing the benefit obligations above were as follows:
Pension Benefits
2010
2009
Other Benefits
2010
2009
Discount rate – benefit obligation
Future compensation growth rate
5.80% 6.10% 5.10% 5.90%
4.0
4.0
–
–
The discount rates set forth above were estimated
based on the modeling of expected cash flows for each
of our benefit plans and selecting a portfolio of high-
quality debt instruments with maturities matching the
respective cash flows of each plan. The resulting discount
rates ranged from 5.00% to 6.10% for the pension plans
and for other benefit plans ranged from 4.65% to
5.20%.
Information for pension plans with an accumulated
benefit obligation in excess of plan assets was as
follows:
In millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2010
$37.1
32.0
–
2009
$33.3
29.2
–
Net periodic benefit cost (income) includes the
following components:
526.4
$ 92.1
485.7
$ 79.6
6.2
$(52.3)
6.3
$(56.3)
In millions
Year Ended December 31
2009
2010
2008
The net prepaid pension cost for qualified pension
plans is primarily included in “Other long-term assets,”
and the accrued pension cost for non-qualified pension
plans and accrued post-retirement benefit costs are
primarily included in “Other long-term liabilities” on the
Consolidated Balance Sheets at December 31, 2010 and
2009.
Amounts recognized in the consolidated balance
sheets consist of the following as of December 31:
In millions
Other long-term assets
Current liabilities
Other long-term liabilities
Net amount recognized
Pension Benefits
2010
2009
Other Benefits
2010
2009
$129.2
(8.6)
(28.5)
$ 92.1
$112.9
(1.8)
(31.5)
$ 79.6
$
–
(3.9)
(48.4)
$(52.3)
$
–
(4.6)
(51.7)
$(56.3)
The components of amounts recognized as “Accu-
mulated other comprehensive income” consist of the
following on a pre-tax basis:
In millions
Pension Benefits
2010
2009
Other Benefits
2010
2009
Prior service cost/(credit)
Net actuarial loss
$ 15.5
170.8
$ 16.5
189.2
$(4.2)
14.1
$(5.3)
21.5
The accumulated benefit obligation for all defined
benefit pension plans was $417.1 million and $390.9 mil-
lion at December 31, 2010 and 2009, respectively.
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/(credit)
Amortization of actuarial loss
Total net periodic benefit cost
$ 9.5
23.9
(40.3)
2.5
13.6
$ 9.2
$ 2.9
3.4
(0.5)
(1.2)
1.5
$ 6.1
$ 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
The actuarial net (gain) loss and prior service cost
for our defined benefit pension plans that will be amor-
tized from accumulated other comprehensive income into
net periodic benefit cost over the next fiscal year are
$14.1 million and $2.4 million, respectively. The compa-
rable amounts of expected amortization for other benefit
plans are $1.1 million and a credit of $(1.2) million,
respectively.
Glatfelter 2010 Annual Report
39
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss) were as
follows:
In millions
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
2010
2009
$ (4.5)
1.2
(2.5)
(13.6)
(19.4)
$(57.7)
1.9
(2.2)
(12.6)
(70.6)
$(10.2)
$(63.6)
$ (6.0)
1.2
(1.5)
(6.3)
$ 0.2
1.2
(2.1)
(0.7)
$ (0.2)
$ 5.8
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
2010
2008
2009
6.10% 6.25% 6.25%
4.0
8.5
4.0
8.5
4.0
8.5
5.90
8.5
6.25% 6.25%
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
2010
2009
8.10%
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
Effect on:
One Percentage Point
increase
decrease
Post-retirement benefit obligation
Total of service and interest cost components
$3.9
0.5
$(3.5)
(0.5)
Plan Assets All pension plan assets in the
U.S. are invested through a single master trust fund. The
strategic asset allocation for this trust fund is selected by
management, reflecting the results of comprehensive
asset liability modeling. The general principles guiding
U.S. pension asset investment policies are those embod-
ied in the Employee Retirement Income Security Act of
40
1974 (ERISA). These principles include discharging our
investment responsibilities for the exclusive benefit of
plan participants and in accordance with the “prudent
expert” standard and other ERISA rules and regulations.
We establish strategic asset allocation percentage targets
and appropriate benchmarks for significant asset classes
with the aim of achieving a prudent balance between
return and risk.
Investments and decisions will be made solely in
the interest of the Plan’s participants and beneficiaries,
and for the exclusive purpose of providing benefits
accrued thereunder. The primary goal of the Plan is to
ensure the solvency of the Plan over time and thereby
meet its distribution objectives. Plan assets will be 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:
Domestic Equity –
Large cap
Small and mid cap
International equity
Real Estate Investment Trusts (REIT)
Fixed income , cash and cash equivalents
Diversification is achieved by:
39%
13
13
5
30
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.
The Investment Policy statement lists specific cate-
gories of securities or activities that are prohibited includ-
ing options, futures, commodities, hedge funds, limited
partnerships, and our stock.
The table below presents the fair values of our
benefit plan assets by level within the fair value hierar-
chy, as described in Note 2:
11.
INVENTORIES
Inventories, net of reserves were as follows:
in millions
Domestic Equity
Large cap
Small and mid cap
International equity
REIT
Fixed income
Cash and equivalents
Total
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,
2010
Total
Level 1
Level 2
Level 3
$185.8
67.5
93.7
24.1
147.4
14.1
$532.6
$185.8
67.5
57.8
24.1
59.5
0.2
$394.9
$
–
–
35.9
–
87.9
13.9
$137.7
$–
–
–
–
–
–
$–
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 2010. Benefit payments
expected to be made in 2011 under our non-qualified
pension plans and other benefit plans are summarized
below:
In thousands
Nonqualified pension plans
Other benefit plans
$8,573
4,917
The following benefit payments under all pension
and other benefit plans, and giving effect to expected
future service, as appropriate, are expected to be paid:
In thousands
Raw materials
In-process and finished
Supplies
Total
2010
2009
$ 52,538
94,118
54,421
$ 44,150
78,340
45,880
$201,077
$168,370
We value all of our U.S. inventories on the LIFO
method. If we had valued these inventories using the
first-in, first-out method, inventories would have been
$20.2 million and $16.9 million higher than reported at
December 31, 2010 and 2009, respectively. During 2010
and 2009, we liquidated certain LIFO inventories, the
effect of which did not have a significant impact on
results of operations.
12. PLANT, EQUIPMENT AND TIMBERLANDS
Plant, equipment and timberlands at December 31
were as follows:
In thousands
Land and buildings
Machinery and equipment
Furniture, fixtures, and other
Accumulated depreciation
Construction in progress
Asset retirement – Lagoons
Timberlands, less depletion
Total
2010
2009
$ 185,469
1,080,065
109,168
(807,441)
$ 136,260
970,708
101,327
(773,057)
567,261
30,904
8,829
1,176
435,238
23,947
10,300
1,147
$ 608,170
$ 470,632
In thousands
2011
2012
2013
2014
2015
2016 through 2020
Pension Benefits
Other Benefits
13. GOODWILL AND INTANGIBLE ASSETS
$ 37,148
30,119
30,459
30,927
31,522
162,117
$ 4,917
4,971
4,986
5,382
5,500
30,339
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:
Defined Contribution Plans We maintain
401(k) plans for certain hourly and salaried employees.
Employees may contribute up to 15% of their salary to
these plans, subject to certain restrictions. We will match
a portion of the employee’s contribution, subject to
certain limitations, in the form of shares of Glatfelter
common stock. The expense associated with our 401(k)
match was $1.0 million, $0.9 million and $0.9 million in
2010, 2009 and 2008, respectively.
In thousands
Goodwill – Composite Fibers
Specialty Papers
Customer relationships
Composite Fibers
Technology and related
Customer relationships and related
Advanced Airlaid Materials
Technology and related
Customer relationships and related
Total intangibles
Accumulated amortization
Net intangibles
December 31
2010
2009
$16,483
$17,331
$ 6,155
$ 6,155
4,194
1,799
1,594
3,350
4,373
1,867
–
–
17,092
(5,245)
12,395
(3,525)
$11,847
$ 8,870
The decrease 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
Glatfelter 2010 Annual Report
41
over periods ranging from 3 years to 14 years and
technology and related intangible assets are amortized
over period ranging from 14 years to 20 years. The
following table sets forth information pertaining to amor-
tization of intangible assets:
In thousands
Aggregate amortization expense:
Estimated amortization expense:
2011
2012
2013
2014
2015
2010
2009
$1,763
$981
$1,811
1,770
1,317
1,317
1,317
The remaining weighted average useful life of intan-
gible assets was 10 years at December 31, 2010.
14. OTHER LONG-TERM ASSETS
Other long-term assets consist of the following:
In thousands
Pension
Installment note receivable
Goodwill and intangibles
Other
Total
December 31
2010
2009
$129,207
43,183
28,330
30,167
$112,903
43,183
26,201
17,319
$230,887
$199,606
15. 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
2010
2009
$ 47,205
$ 46,141
13,491
2,192
16,086
30,342
6,476
4,684
14,195
28,753
$109,316
$100,249
16.
LONG-TERM DEBT
Long-term debt is summarized as follows:
In thousands
Revolving credit facility, due April 2011
Revolving credit facility, due May 2014
Term Loan, due April 2011
71⁄8% Notes, due May 2016
71⁄8% Notes, due May 2016 – net of original
issue discount
Term Loan, due January 2013
Total long-term debt
Less current portion
December 31
2010
2009
$
n/a
–
–
200,000
$
–
n/a
14,000
200,000
95,529
36,695
332,224
–
–
36,695
250,695
(13,759)
Long-term debt, excluding current portion
$332,224
$236,936
May 31, 2014 and replaced and terminated our old
revolving credit agreement which was due to mature
April 2011.
For all US dollar denominated borrowings under the
new agreement, the interest rate is either, at our option,
(a) the bank’s base rate plus an applicable margin (the
base rate is the greater of the bank’s prime rate, the
federal funds rate plus 50 basis points, or the daily LIBOR
rate plus 100 basis points); or (b) daily LIBOR rate plus
an applicable margin ranging from 175 basis points to
275 basis points according to our corporate credit rating
determined by S&P and Moody’s. For non-US dollar
denominated borrowings, interest is based on (b) above.
The credit agreement contains a number of 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, limits certain intercompany financing
arrangements, make acquisitions and engage in mergers
or consolidations. We are also required to comply with
specified financial tests and ratios, each as defined in the
credit agreement, including: i) maximum net debt to
earnings before interest, taxes, depreciation and amorti-
zation (“EBITDA”) ratio; and ii) a consolidated EBITDA to
interest expense ratio. A breach of these requirements
would give rise to certain remedies under the credit
agreement, among which are the termination of the
agreement and accelerated repayment of the outstanding
borrowings plus accrued and unpaid interest under the
credit facility.
On April 28, 2006 we completed an offering of
$200.0 million aggregate principal amount of our 7-
1⁄8% Senior Notes due 2016 (“71⁄8% Notes”). Net pro-
ceeds 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.
On February 5, 2010, we issued an additional
$100 million in aggregate principal amount of
71⁄8% Notes due 2016 (together with the April 28, 2006
offering, the “Senior Notes”). The notes were issued at
95.0% of the principal amount. Net proceeds from this
offering after deducting offering fees and expenses, were
used to fund, in part, the Concert acquisition. The
original issue discount is being accreted as a charge to
income on the effective interest method.
On April 29, 2010, we entered into a new four-year,
$225 million, multi-currency, revolving credit agreement
with a consortium of banks. The new agreement matures
Interest on the Senior Notes accrues at the rate of
71⁄8% per annum and is payable semiannually in arrears
on May 1 and November 1.
42
The Senior Notes contain cross default provisions
The following schedule sets forth the maturity of
that could result in all such notes becoming due and
payable in the event of a failure to repay debt outstand-
ing under the credit agreement at maturity or a default
under the credit agreement that accelerates the debt
outstanding thereunder. As of December 31, 2010, we
were not aware of any violations of our debt covenants.
In November 2007, we sold approximately
26,000 acres of timberland. In connection with that
transaction, we formed GPW Virginia Timberlands LLC
(“GPW Virginia”) as an indirect, wholly owned and
bankruptcy-remote subsidiary of ours. GPW Virginia
received as consideration for the timberland sold in that
transaction a $43.2 million, interest-bearing note that
matures in 2027 from the buyer, Glawson Investments
Corp. (“Glawson”), a Georgia corporation, and GIC
Investments LLC, a Delaware limited liability company
owned by Glawson. The Glawson note receivable is fully
secured by a letter of credit issued by The Royal Bank of
Scotland plc. In January 2008, GPW Virginia monetized
the Glawson note receivable by entering into a $36.7 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 the year
ended December 31, 2010, GPW Virginia received aggre-
gate interest income of $1.0 million under the Glawson
note receivable and the Company Note and, in turn,
incurred interest expense of $0.7 million under the 2008
Term Loan.
Under terms of the above transaction, minimum
credit ratings must be maintained by the letter of credit
issuing bank. An “event of default” is deemed to have
occurred under the debt instrument governing the Note
Payable unless actions are taken to cure such default
within 60 days from the date such credit rating falls
below the specified minimum. Potential remedial actions
include: (i) amending the terms of the applicable debt
instrument; (ii) a replacement of the letter of credit with
an appropriately rated institution; or (iii) repaying the
Note Payable.
our long-term debt during the indicated year:
In thousands
2011
2012
2013
2014
2015
Thereafter
$–
–
36,695
–
–
300,000
P. H. Glatfelter Company guarantees all debt obli-
gations of its subsidiaries. All such obligations are
recorded in these consolidated financial statements.
As of December 31, 2010 and 2009, we had
$5.4 million and $5.7 million, respectively, of letters of
credit issued to us by certain financial institutions. Such
letters of credit reduce amounts available under our
revolving credit facility. The letters of credit outstanding
as of December 31, 2010, primarily provide financial
assurances for the benefit of certain state workers
compensation insurance agencies in conjunction with our
self-insurance program. We bear the credit risk on this
amount to the extent that we do not comply with the
provisions of certain agreements. No amounts are out-
standing under the letters of credit.
17. ASSET RETIREMENT OBLIGATION
During 2008, we recorded $11.5 million, net present
value, of asset retirement obligations related to the legal
requirement to close several lagoons at the Spring Grove,
PA facility. Historically, lagoons were used to dispose of
residual waste material. Closure of the lagoons, which is
expected to occur over the next six years, will be accom-
plished by filling the lagoons, installing a non-permeable
liner which will be covered with soil to construct the
required cap over the lagoons. The amount referred to
above, in addition to the upward revision in 2009, was
accrued with a corresponding increase in the carrying
value of the property, equipment and timberlands caption
on the consolidated balance sheet. The amount capitalized
is being amortized as a charge to operations on the
straight-line basis in relation to the expected closure
period. Following is a summary of the reserve for asset
retirement obligations for the periods indicated:
In thousands
Beginning balance
Upward revision
Payments
Accretion
Ending balance
2010
2009
$(11,292)
–
2,179
(604)
$(11,606)
(600)
1,535
(621)
$ (9,717)
$(11,292)
Of the total liability at the end of 2010, $1.5 million
is recorded in the accompanying consolidated balance sheet
under the caption “Other current liabilities” and $8.2 million
is recorded under the caption “Other long-term liabilities.”
The comparable amounts as of December 31, 2009 were
$2.4 million and $8.9 million, respectively.
Glatfelter 2010 Annual Report
43
18.
FAIR VALUE OF FINANCIAL INSTRUMENTS
AND FINANCIAL DERIVATIVES
The amounts reported on the consolidated balance
sheets for cash and cash equivalents, accounts receivable
and short-term debt approximate fair value. The following
table sets forth carrying value and fair value of long-term
debt:
In thousands
Fixed-rate Bonds
Variable rate debt
Total
December 31, 2010
Carrying
Value
Fair
Value
December 31, 2009
Fair
Value
Carrying
Value
$295,529
36,695
$332,224
$304,115
37,780
$341,895
$200,000
50,695
$250,695
$196,750
51,209
$247,959
As of December 31, 2010 and 2009, we had
$300.0 million and $200.0 million, respectively, of 71⁄8%
fixed rate debt. The amount outstanding as of the end of
2010 includes $100.0 million that is recorded net of
unamortized original issue discount. All of this fixed rate
debt is publicly registered, but is thinly traded. Accord-
ingly, the values set forth above are based on debt
instruments with similar characteristics, or Level 2. The
fair value of the remaining debt instrument was esti-
mated using a discounted cash flow model based on
independent sources, or Level 3.
As part of our overall risk management practices,
we enter into foreign exchange forward contracts prima-
rily designed to mitigate the impact that changes in
currency exchange rates have on intercompany financing
transactions and to hedge exposure to certain foreign
currency denominated receivables and payables. None of
these contracts are designated as hedges for financial
accounting purposes and, accordingly, changes in value
of the foreign exchange forward contract and the offset-
ting underlying intercompany transactions are reflected in
the accompanying statement of operations under the
caption “Other – net.” For the year ended December 31,
2010, our results of operations included a $0.4 million
net loss from forward foreign currency exchange con-
tracts. This activity was substantially all offset by adjust-
ments to translate the underlying intercompany financing
transactions.
The fair values of the foreign exchange forward
contracts are considered to be Level 2. The following
table sets forth the notional values of outstanding foreign
exchange forward contracts together with the unrealized
fair value as of December 31, 2010:
December 31, 2010
Sell euro for US$
Buy euro for British pound
Notional
Amount
(millions)
u57.0
u3.0
Sell Philippine peso for US$
PHP 247.0
Fair Value
(thousands)
Balance Sheet
Location
$(563.0)
Other current liabilities
(14.0)
(4.0)
Other current liabilities
Other current liabilities
44
Each of the contracts set forth above have a
maturity of one month from the date the respective
contract was entered into.
We are exposed to credit risk related to this activity
arising in the event of the inability of a counterparty to
meet its obligations to us under the terms of these
contracts. This exposure is generally limited to the
amounts, if any, by which the counterparty’s obligations
exceed our obligation to them. Our policy is to enter into
such financial instruments with financial institutions
which meet certain minimum debt ratings.
19.
SHAREHOLDERS’ EQUITY
The following table summarizes outstanding shares
of common stock:
In thousands
Year Ended December 31,
2009
2008
2010
Shares outstanding at beginning of year
Treasury shares issued for:
Restricted stock awards
401(k) plan
Director compensation
Employee stock options exercised
Shares outstanding at end of year
45,706
45,434
45,143
112
132
12
14
45,976
86
169
17
–
45,706
94
119
14
64
45,434
20. 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
2011
2012
2013
2014
2015
Thereafter
Leases
Other
$7,975
4,629
3,207
1,676
1,332
7,171
$87,946
52,817
30,474
2,777
2,602
9,149
Other contractual obligations primarily represent
minimum purchase commitments under energy and pulp
wood supply contracts and other purchase obligations.
At December 31, 2010, required minimum annual
payments due under operating leases and other similar
contractual obligations aggregated $26.0 million and
$185.8 million, respectively.
Fox River–Neenah, Wisconsin
Background We have significant uncertainties
associated with environmental claims arising out of the
presence of polychlorinated biphenyls (“PCBs”) in sedi-
ments in the lower Fox River and in the Bay of Green
Bay Wisconsin (“Site”). As part of our 1979 acquisition
of the Bergstrom Paper Company, we acquired a facility
located at the Site (the “Neenah Facility”). The Neenah
Facility used wastepaper as a source of fiber. Discharges
to the lower Fox River from the Neenah Facility that may
have contained PCBs from wastepaper may have occurred
from 1954 to the late 1970s. We believe that any PCBs
that the Neenah Facility may have discharged into the
lower Fox River resulted from the presence of PCBs in
NCR»-brand carbonless copy paper in the wastepaper
that was recycled at the Neenah Facility. We closed the
Neenah Facility in June 2006.
The United States, the State of Wisconsin and
various state and federal governmental agencies (collec-
tively, the “Governments”), as well as other entities
(including local Native American tribes), have found PCBs
in sediments in the bed of the Fox River, apparently from
a number of sources at municipal and industrial facilities
along the upstream and downstream portions of the Site.
The Governments have identified manufacturing and recy-
cling of NCR»-brand carbonless copy paper as the princi-
pal source of that contamination.
The United States Environmental Protection Agency
(“EPA”) has divided the lower Fox River and the Bay of
Green Bay site into five “operable units” (the “OUs”),
including the most upstream (“OU1”) and four down-
stream reaches of the river and bay (“OU2-5”). OU1
extends from primarily Lake Winnebago to the dam at
Appleton, and is comprised of Little Lake Butte des
Morts. The Neenah Facility discharged its wastewater into
OU1.
Our liabilities, if any, for this contamination primarily
arise under the federal Comprehensive Environmental,
Response, Compensation and Liability Act (“CERCLA” or
“Superfund”), pursuant to which the Governments have
sought to recover “response actions” or “response
costs,” which are the costs of studying and cleaning up
contamination. Other agencies and natural resource
trustee agencies (collectively, the “Trustees”) have sought
to recover natural resource damages (“NRDs”), including
natural resource damage assessment costs.
We are one of eight entities that have been
formally notified that they are potentially responsible
parties (“PRPs”) under CERCLA for response costs or
NRDs. Others, including the United States and the State
of Wisconsin, may also be liable for some or all of the
costs of NRD at this Site.
The Governments have sought to recover response
actions, response costs, and NRDs from us through three
principal enforcement actions.
OU1 CD. On October 1, 2003, the United States
and the State of Wisconsin commenced an action cap-
tioned United States v. P.H. Glatfelter Co. against us and
WTM I Co. in the United States District Court for the
Eastern District of Wisconsin and simultaneously lodged a
consent decree (“OU1 CD”) that the court entered on
April 12, 2004. Under that OU1 CD, and an amendment
dated August 2008, we and WTM I, with a limited fixed
contribution from Menasha Corp. and funds provided by
the United States from an agreement with others, have
implemented the remedy for OU1. We have also resolved
claims for all Governmental response costs in OU1 after
July 2003 and made a payment on NRDs. That remedy is
complete. We have continuing operation and mainte-
nance obligations that we expect to fund from contribu-
tions we and WTM I have already made to an escrow
account for OU1 under the OU1 CD.
OU2-5 UAO. In November 2007, the United States
Environmental Protection Agency (“EPA”) issued an
administrative order for remedial action (“UAO”) to
Appleton Papers Inc. (“API”), CBC Coating, Inc. (formerly
known as Riverside Paper Corporation), Georgia-Pacific
Consumer Products, L.P. (formerly known as Fort James
Operating Company), Menasha Corporation, NCR Corpo-
ration, Glatfelter, U.S. Paper Mills Corp., and WTM I
Company (“WTM”) directing those respondents to imple-
ment the remedy in OU2-5. Shortly following issuance of
the UAO, API and NCR commenced litigation against us
and others, as described below. Accordingly, we have no
vehicle for complying with the UAO’s overall requirements
other than answering a judgment in the litigation, and
we have so informed EPA, but, to minimize disruptions,
have paid certain de minimis amounts to EPA for
oversight costs under the UAO.
Government Action. On October 14, 2010, the
United States and the State of Wisconsin filed an action
in the United States District Court for the Eastern District
of Wisconsin captioned United States v. NCR Corp. (the
“Government Action”) against 12 parties, including us.
The Government Action seeks to recover from each of
the defendants, jointly and severally, all of the govern-
ments’ past costs of response, which amount to in excess
of $16.5 million to date, a declaration as to liability for
all of the governments’ future costs of response, and
compensation for natural resource damages, as well as a
declaration as to liability for compliance with the UAO
for OU2-5.
We are engaged in litigation to allocate costs and
NRDs among the parties responsible for this site.
Whiting Litigation. On January 7, 2008, NCR and
API commenced litigation in the United States District
Court for the Eastern District of Wisconsin captioned
Appleton Papers Inc. v. George A. Whiting Paper Co.,
seeking to reallocate costs and damages allegedly
incurred or paid or to be incurred or paid by NCR or API
(the “Whiting Litigation”). At present, the case involves
allocation claims among the two plaintiffs and 28
Glatfelter 2010 Annual Report
45
defendants including us. We and other defendants coun-
terclaimed against NCR and API.
Claims against governments. The Whiting Litiga-
tion involves claims by certain parties against federal
agencies who are responsible parties for this site. In the
Government Action many defendants, including us,
asserted counterclaims against the United States and the
State of Wisconsin.
Settlements. Certain parties have resolved their
liability to the United States affording them contribution
protection. These settlements are embodied in consent
decrees. Notably, we entered into the OU1 CD. Also, in a
case captioned United States v. George A. Whiting Paper
Co., the district court entered two consent decrees under
which 13 de minimis defendants in the Whiting Litigation
settled with the United States and Wisconsin. NCR and
API appealed and await disposition by the Court of
Appeals for the Seventh Circuit. Further, Georgia-Pacific
Consumer Products LP, has entered into a consent decree
resolving its liability for NRDs and on October 14, 2010,
lodged a consent decree in the Government Action that
would resolve all of its liabilities except for the down-
stream portion of the OU4 remedy. The court has not yet
entered that consent decree. Finally, the United States
has lodged a consent decree that would resolve the
liability of itself and two municipalities. We oppose entry
of that consent decree.
Cleanup Decisions.
The extent of our exposure
depends, in large part, on the decisions made by EPA
and the Wisconsin Department of Natural Resources
(“WDNR”) as to how the Site will be cleaned up and the
costs and timing of those response actions. The nature of
the response actions has been highly controversial.
Between 2002 and 2008, the EPA issued records of
decision (“RODs”) regarding required remedial actions for
the OUs. Some of those RODs have been amended We
contend that the remedy for OU2-5 is arbitrary and
capricious. We and others may litigate that issue in the
Government Action. If we were to be successful in
modifying any existing selected remedy, our exposure
could be reduced materially.
NRD Assessment. We are engaged in disputes
as to (i) whether various documents prepared by the
Trustees taken together constitute a sufficient NRD
assessment under applicable regulations, and (ii) on a
number of legal grounds, whether the Trustees may
recover from us on the specific NRD claims they have
made.
Past Cost Demand. We are also disputing a
demand by EPA that we and six other parties reimburse
EPA for approximately $17.6 million in costs that EPA
claims it incurred.
46
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.
Based upon estimates made by the Governments and
independent estimates commissioned by various poten-
tially responsible parties, we have no reason to disagree
with the Governments’ assertion that total past and
future costs and NRDs at this site may exceed $1 billion
and that $1.5 billion is a reasonable “outside estimate.”
NRDs. Of that amount, the Trustees’ assessment
documents claimed that we are jointly and severally
responsible for NRDs with a value between $176 million
and $333 million. They now claim that this range should
be inflated to 2009 dollars and then certain unreim-
bursed past assessment costs should be added, so that
the range of their claim would be $287 million to
$423 million. We deny liability for most of these NRDs
and believe that even if anyone is liable, that we are not
jointly and severally liable for the full amount. Moreover,
we believe that the Trustees may not legally pursue this
claim at this late date, as the limitations period for NRD
claims is three years from discovery.
Allocation and Divisibility. We contend that
we are not jointly and severally liable for costs or
damages arising from the presence of PCBs downstream
of OU1. In addition, we contend that NCR or other
sources of NCR»-brand carbonless copy paper that our
Neenah Mill recycled bear most, if not all, of the
responsibility for costs and damages arising from the
presence of PCBs in OU1 and downstream.
On December 16, 2009, the court granted motions
for summary judgment in our favor in the Whiting
Litigation holding that neither NCR nor API may seek
contribution from us or other recyclers under CERCLA.
The Court made no ruling as to any other allocation, the
liability of NCR or API to us for costs we have incurred,
or our liability to the Governments or Trustees. NCR and
API have stated their intention to appeal, but an appeal
is not yet timely because the court has not entered a
final judgment.
We also filed counterclaims against NCR and API to
recover the costs we have incurred and may later incur
and the damages we have paid and may later pay in
connection with the Site. Other defendants have similar
claims. On March 1, 2011, the district court granted our
summary judgment motions on those counterclaims in
part and denied them in part. While we are still evaluat-
ing the court’s opinion, the court granted a declaration
that NCR and API are liable to us (and to others) in
contribution for 100% of any costs of response (that is,
clean up) that we may be required to pay for work in
OU2-5 in the future. The court requires further
proceedings to decide whether or to what extent NCR
and API owe contribution to us and others for costs that
we and others incurred in the past and costs that we
and others incurred in connection with OU1. We are
uncertain as to the court’s ruling with respect to our
claim that NCR and API owe contribution to us (and
others) for NRDs or natural resource damage assessment
costs that we have paid or may be required to pay in the
future.
Reserves for the Site. As of December 31,
2010, our reserve for our claimed liability at the Site,
including our remediation and ongoing monitoring obli-
gations at OU1, our claimed liability for the remediation
of the rest of the Site, our claimed liability for NRDs
associated with PCB contamination at the Site and all
pending, threatened or asserted and unasserted claims
against us relating to PCB contamination at the Site
totaled $17.0 million. No additional amounts were
accrued during the three year period ended December 31,
2010. Of our total reserve for the Fox River, $0.2 million
is recorded in the accompanying consolidated balance
sheets under the caption “Environmental liabilities” and
the remainder is recorded under the caption “Other long
term liabilities.”
Although we believe that amounts already funded
by us and WTM to implement the OU1 remedy are
adequate and no payments have been required since
January 2009, there can be no assurance that these
amounts will in fact suffice. WTM has filed a bankruptcy
petition in the Bankruptcy Court in Richmond; accord-
ingly, there can be no assurance that WTM will be able
to fulfill its obligation to pay half of any additional costs,
if required.
We believe that we have strong defenses to liability
for further remediation downstream of OU1, including
the existence of ample data that indicate that PCBs did
not leave OU1 in concentrations that could have caused
or contributed to the need for additional cleanup down-
stream. Others, including the EPA and other PRPs, dis-
agree with us and, as a result, the EPA has issued a
UAO to us and to others to perform the additional
remedial work, and filed the Government Action seeking,
in part, the same relief. NCR and API commenced the
Whiting Litigation and joined us and others as defen-
dants, but, to this point, have not prevailed.
Even if we are not successful in establishing that
we have no further remediation liability, we do not
believe that we would be allocated a significant percent-
age share of liability in any equitable allocation of the
remediation costs and natural resource damages. The
accompanying consolidated financial statements do not
include reserves for defense costs for the Whiting Litiga-
tion, the Government Action, or any future defense costs
related to our involvement at the Site, which could be
significant.
In setting our reserve for the Site, we have assessed
our legal defenses, including our successful defenses to
the allegations made in the Whiting Litigation, and
assumed that we will not bear the entire cost of
remediation or damages to the exclusion of other known
PRPs at the Site, who are also potentially jointly and
severally liable. The existence and ability of other PRPs to
participate has also been taken into account in setting
our reserve, and is generally based on our evaluation of
recent publicly available financial information on each
PRP and any known insurance, indemnity or cost sharing
agreements between PRPs and third parties. In addition,
our assessment is based upon the magnitude, nature,
location and circumstances associated with the various
discharges of PCBs to the river and the relationship of
those discharges to identified contamination. We will
continue to evaluate our exposure and the level of our
reserves, including, but not limited to, our potential share
of the costs and NRDs, if any, associated with the Site.
The amount and timing of future expenditures for
environmental compliance, cleanup, remediation and per-
sonal injury, NRDs and property damage liabilities cannot
be ascertained with any certainty due to, among other
things, the unknown extent and nature of any contami-
nation, the response actions that may ultimately be
required, the availability of remediation equipment, and
landfill space, and the number and financial resources of
any other PRPs.
Other Information.
The Governments have pub-
lished studies estimating the amount of PCBs discharged
by each identified PRP’s facility to the lower Fox River
and Green Bay. These reports estimate the Neenah
Facility’s share of the mass of PCBs discharged to be as
high as 27%. We do not believe the discharge mass
estimates used in these studies are accurate because
(a) the studies themselves disclose that they are not
accurate and (b) the PCB mass estimates contained in
the studies are based on assumptions that are unsup-
ported by existing data on the Site. We believe that the
Neenah Facility’s volumetric contribution of PCB mass is
significantly lower than the estimates set forth in these
studies.
In any event, based upon the court’s December 16,
2009, and March 1, 2011, rulings in the Whiting Litiga-
tion, as well as certain other procedural orders, we
continue to believe that an allocation in proportion to
mass of PCBs discharged would not constitute an equita-
ble allocation of the potential liability for the contamina-
tion at the Fox River. We contend that other factors, such
as the location of contamination, the location of
Glatfelter 2010 Annual Report
47
discharge, and a party’s role in causing discharge, must
be considered in order for the allocation to be equitable.
We previously entered into interim cost-sharing
agreements with six of the other PRPs, which provided
for those PRPs to share certain costs relating to scientific
studies of PCBs discharged at the Site (“Interim Cost
Sharing Agreements”). These Interim Cost Sharing 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.
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 costs associated with the
Fox River matter may exceed our cost estimates and the
aggregate amounts accrued for the Fox River matter by
amounts that are insignificant or that could range up to
$265 million over an undeterminable period that could
range beyond 15 years. We believe that the likelihood of
an outcome in the upper end of the monetary range is
significantly less than other possible outcomes within the
range and that the possibility of an outcome in excess of
the upper end of the monetary range is remote. The two
summary judgments in our favor in the Whiting Litiga-
tion, if sustained on appeal, suggest that outcomes in
the upper end of the monetary range have become
somewhat less probable, while increases in cost estimates
for some of the work may make an outcome in the upper
end of the range more likely.
Summary. Our current assessment is that we will
be able to manage this environmental matter without a
long-term, material adverse impact on the Company. This
matter could, however, at any particular time or for any
particular year or years, have a material adverse effect
on our consolidated financial position, liquidity and/or
results of operations or could result in a default under
our loan covenants. Moreover, there can be no assurance
that our reserves will be adequate to provide for future
obligations related to this matter, that our share of costs
and/or damages will not exceed our available resources,
or that such obligations will not have a long-term,
48
material adverse effect on our consolidated financial
position, liquidity or results of operations. Should a court
grant the United States or the State of Wisconsin relief
which requires us either to perform directly or to contrib-
ute significant amounts towards remedial action down-
stream of OU1 or to natural resource damages, those
developments could have a material adverse effect on
our consolidated financial position, liquidity and results of
operations and might result in a default under our loan
covenants.
Ecusta Environmental Matters Beginning in
April 2003, government authorities, including the North
Carolina Department of Environment and Natural
Resources (“NCDENR”), initiated discussions with us and
other parties regarding, among other environmental
issues, certain landfill closure liabilities associated with
our former Ecusta mill and its properties (the “Ecusta
Property”). The discussions focused on NCDENR’s desire
to establish a plan and secure financial resources to close
three landfills located at the Ecusta Property and to
address other environmental matters at the facility. 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.
21.
SEGMENT AND GEOGRAPHIC INFORMATION
The following tables set forth profitability and other information by business unit:
For the Year Ended December 31, 2010
In millions
Specialty Papers
Composite Fibers
Advanced Airlaid
Materials
Other and
Unallocated
Net sales
Energy and related sales, net
Total revenue
Cost of products sold
Gross profit
SG&A
Gains on dispositions of plant, equipment and timberlands, net
Total operating income (loss)
Non-operating income (expense)
Income (loss) before income taxes
Supplementary Data
Plant, equipment and timberlands, net
Capital expenditures
Depreciation, depletion and amortization
$842.6
10.7
853.3
740.2
113.1
54.7
–
58.4
–
$419.2
–
419.2
350.5
68.7
35.8
–
32.9
–
$193.5
–
193.5
181.7
11.8
7.4
–
4.4
–
$
–
–
–
7.4
(7.4)
24.3
(0.5)
(31.2)
(31.1)
Total
$1,455.3
10.7
1,466.0
1,279.7
186.2
122.1
(0.5)
64.6
(31.1)
$ 58.4
$ 32.9
$
4.4
$(62.3)
$
33.5
$251.3
24.1
34.9
$181.6
8.2
23.7
$175.3
4.2
7.2
$
–
–
–
$ 608.2
36.5
65.8
For the Year Ended December 31, 2009
In millions
Specialty Papers
Composite Fibers
Advanced Airlaid
Materials
Other and
Unallocated
Net sales
Energy and related sales, net
Total revenue
Cost of products sold
Gross profit
SG&A
Gains on dispositions of plant, equipment and timberlands, net
Total operating income (loss)
Non-operating income (expense)
Income (loss) before income taxes
Supplementary Data
Plant, equipment and timberlands, net
Capital expenditures
Depreciation, depletion and amortization
$791.9
13.3
805.2
693.9
111.3
55.4
–
55.9
–
$392.1
–
392.1
334.4
57.7
35.8
–
21.9
–
$ 55.9
$ 21.9
$262.8
14.2
37.5
$207.8
12.1
23.7
$–
–
–
–
–
–
–
–
–
$–
$–
–
–
For the Year Ended December 31, 2008
In millions
Specialty Papers
Composite Fibers
Advanced Airlaid
Materials
Other and
Unallocated
Net sales
Energy and related sales, net
Total revenue
Cost of products sold
Gross profit
SG&A
Reversal of shutdown and restructuring charges
Gains on dispositions of plant, equipment and timberlands, net
Total operating income (loss)
Non-operating income (expense)
Income (loss) before income taxes
Supplementary Data
Plant, equipment and timberlands, net
Capital expenditures
Depreciation, depletion and amortization
$833.9
9.4
843.3
739.5
103.8
54.6
–
–
49.2
–
$430.0
–
430.0
366.8
63.2
38.2
–
–
25.0
–
$ 49.2
$ 25.0
$284.7
20.9
35.0
$208.9
31.6
25.6
$–
–
–
–
–
–
–
–
–
$ -
$–
–
Total
$1,184.0
13.3
1,197.3
927.6
269.8
110.3
(0.9)
160.4
(17.3)
$
–
–
–
(100.7)
100.7
19.1
(0.9)
82.6
(17.3)
$ 65.3
$ 143.1
$
–
–
–
$ 470.6
26.3
61.3
Total
$1,263.9
9.4
1,273.2
1,095.4
177.8
97.9
(0.9)
(18.5)
99.2
(18.2)
$
–
–
–
(10.8)
10.8
5.1
(0.9)
(18.5)
25.1
(18.2)
$ 6.9
$
81.0
$
–
–
–
$ 493.6
52.5
60.6
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to
rounding.
Glatfelter 2010 Annual Report
49
Results of individual business units are presented
based on our management accounting practices and
management structure. There is no comprehensive,
authoritative body of guidance for management 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 the Company’s performance is evaluated inter-
nally and by the Company’s Board of Directors.
Our 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-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, FDA-
compliant food and beverage applications, and
other niche specialty applications.
Specialty Papers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
Carbonless & forms
Book publishing
Envelope & converting
Engineered products
Other
Total
2010
2009
2008
$359,033
168,155
157,202
155,257
2,967
$320,088
176,646
146,812
143,490
4,879
$338,067
201,040
138,293
149,372
7,127
$842,614
$791,915
$833,899
Our Composite Fibers business unit serves cus-
tomers globally and focuses on higher-value-added prod-
ucts in the following markets:
(cid:129) Food & Beverage paper used for tea bags and
single serve coffee products;
(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.
Composite Fibers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2010
2009
2008
Food & beverage
Metallized
Composite laminates
Technical specialties and other
Total
$242,882
88,753
50,801
36,781
$233,899
81,388
46,442
30,366
$252,545
85,719
58,705
32,983
$419,217
$392,095
$429,952
50
On February 12, 2010, we acquired Concert Indus-
tries Corp., which we now operate as the Advanced
Airlaid Materials business unit. Founded in 1993 and
based in Gatineau, Quebec, Canada, Concert is a leading
global supplier of highly absorbent cellulose-based airlaid
non-woven materials used to manufacture a diverse
range of consumer and industrial products for growing
global end-use markets. These products include:
In thousands
Feminine hygiene
Adult incontinence
Home care
Food pads
Other
Total
2010
$157,691
6,146
17,902
8,200
3,560
$193,499
(cid:129) feminine hygiene;
(cid:129) adult incontinence;
(cid:129) home care such as specialty wipes;
(cid:129) table top and towels; and
(cid:129) food pads and other.
No individual customer accounted for more than
10% of our consolidated net sales in 2010, 2009 or
2008. However, one customer accounted for the majority
of Advanced Airlaid Materials net sales in 2010.
Our net sales to external customers and location of net plant, equipment and timberlands are summarized below.
Net sales are attributed to countries based upon origin of shipment.
In thousands
United States
Germany
United Kingdom
Canada
Other
Total
2010
Plant,
Equipment and
Timberlands – Net
$251,318
198,585
55,672
80,177
22,418
2009
Plant,
Equipment and
Timberlands – Net
$262,807
124,881
60,104
–
22,840
Net sales
$ 824,833
191,660
125,047
–
42,470
Net sales
$ 880,089
327,952
128,598
75,195
43,497
2008
Plant,
Equipment and
Timberlands – Net
$284,689
131,304
53,054
–
24,517
Net sales
$ 869,325
216,011
134,212
–
44,302
$1,455,331
$608,170
$1,184,010
$470,632
$1,263,850
$493,564
Glatfelter 2010 Annual Report
51
22. GUARANTOR FINANCIAL STATEMENTS
Our Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-
owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., The Glatfelter Pulp Wood Company, and Glatfelter
Holdings, LLC.
The following presents our consolidating statements of income and cash flow for the years ended December 31,
2010, 2009 and 2008 and our consolidating balance sheets as of December 31, 2010 and 2009. These financial
statements reflect P. H. Glatfelter Company (the parent), the guarantor subsidiaries (on a combined basis), the non-
guarantor subsidiaries (on a combined basis) and elimination entries necessary to combine such entities on a consolidated
basis. We have reclassified certain interest income amounts in 2008 of $4.9 million in total from Other – net, to Interest
Expense, net, to conform to the 2010 and 2009 presentation. This reclassification had no effect on the reported amounts
of Interest Income, Interest Expense, or Other – net for any period presented in our accompanying consolidated statement
of operations.
Condensed Consolidating Statement of Income for the
year ended December 31, 2010
In thousands
Net sales
Energy and related 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
Other non-operating income (expense)
Interest expense, net
Other – net
Total other income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Parent
Company
$842,615
10,653
853,268
753,562
99,706
73,802
(123)
26,027
(24,963)
24,428
(535)
25,492
(28,942)
$54,434
Guarantors
$49,919
–
49,919
43,468
6,451
2,287
(373)
4,537
7,445
(1,218)
6,227
10,764
2,463
$8,301
Non
Guarantors
Adjustments/
Eliminations
$612,716
–
612,716
532,454
$(49,919)
–
(49,919)
(49,747)
Consolidated
$1,455,331
10,653
1,465,984
1,279,737
80,262
46,022
43
34,197
(5,906)
330
(5,576)
28,621
6,142
(172)
–
–
(172)
(1,315)
(29,861)
(31,176)
(31,348)
(568)
186,247
122,111
(453)
64,589
(24,739)
(6,321)
(31,060)
33,529
(20,905)
$22,479
$(30,780)
$54,434
Condensed Consolidating Statement of Income for the
year ended December 31, 2009
In thousands
Net sales
Energy and related 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
Other non-operating income (expense)
Interest expense, net
Other – net
Total other income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
52
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
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)
Other non-operating income (expense)
Interest expense, net
Other – net
Total other income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
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
(1,293)
17,729
16,436
74,523
16,635
(12,518)
(1,402)
11,116
29,049
11,486
$429,950
–
429,950
367,005
62,945
39,562
–
–
23,383
(5,810)
(1,779)
(7,589)
15,794
4,211
$(45,640)
–
(45,640)
(45,446)
(194)
–
–
–
(194)
(23,600)
(14,546)
(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
(18,185)
2
(18,183)
81,026
23,138
$57,888
Condensed Consolidating Balance Sheet as of December 31, 2010
In thousands
Assets
Current 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
$61,953
230,957
244,157
773,254
$91
380,986
7,161
167,877
$33,744
203,048
356,836
103,250
$–
(408,089)
16
(813,494)
$95,788
406,902
608,170
230,887
$1,310,321
$556,115
$696,878
$(1,221,567)
$1,341,747
$277,343
295,529
70,575
114,432
757,879
552,442
$3,672
–
14,836
13,210
31,718
524,397
$336,679
36,695
42,204
9,999
425,577
271,301
$(404,548)
–
(32,697)
11,376
(425,869)
(795,698)
$213,146
332,224
94,918
149,017
789,305
552,442
Total liabilities and shareholders’ equity
$1,310,321
$556,115
$696,878
$(1,221,567)
$1,341,747
Glatfelter 2010 Annual Report
53
Condensed Consolidating Balance Sheet as of December 31, 2009
In thousands
Assets
Current 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
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2010
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
Acquisitions, net of cash acquired
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
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
$(6,114)
$106,448
$68,986
$(1,315)
$168,005
(23,367)
124
(8,257)
–
(695)
387
(105,294)
–
(12,429)
53
6,895
(228,290)
(31,500)
(105,602)
(233,771)
75,660
(16,746)
(40,292)
–
3,975
22,597
(15,017)
76,970
$61,953
–
–
(425)
(1,315)
–
(1,740)
(894)
985
$91
(3,208)
–
147,373
–
–
144,165
(3,101)
(23,721)
57,465
$33,744
–
–
106,656
–
106,656
–
–
(106,656)
1,315
–
(105,341)
–
–
$–
(36,491)
564
–
(228,290)
(264,217)
72,452
(16,746)
–
–
3,975
59,681
(3,101)
(39,632)
135,420
95,788
54
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
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
Glatfelter 2010 Annual Report
55
23. QUARTERLY RESULTS (UNAUDITED)
In thousands,
except per share
Net sales
2010
2009
First
Second
Third
Fourth
$337,275
362,781
379,097
376,178
$291,552
278,979
312,358
301,121
Gross Profit
Net Income (loss)
2010
$44,216
35,460
55,740
50,831
2009
$43,314
59,001
82,465
84,984
2010
$ (374)
103
39,437
15,268
2009
$11,538
19,870
45,994
46,040
Diluted
Earnings (loss)
Per Share
2010
$(0.01)
–
0.85
0.33
2009
$0.25
0.43
1.00
1.00
The information set forth above includes the following, on an after-tax basis:
In thousands
First
Second
Third
Fourth
Alternative Fuel
Mixture/Cellulosic Biofuel
Credits
Gains (losses) on Sales
of Plant, Equipment and
Timberlands
Acquisition Integration
Costs/Foreign currency
Hedge Loss
2010
$
–
–
23,100
84
2009
$
–
30,418
32,890
32,456
2010
$
–
99
–
964
2009
$ 378
(441)
(5)
65
2010
$(9,078)
(915)
(407)
(345)
2009
$–
–
–
(1,768)
56
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 9A CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our chief executive officer and our chief financial
officer, after evaluating the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)), as of December 31,
2010, have concluded that, as of the evaluation date,
our disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
Management’s report on the Company’s internal
control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) and the related report
of our independent registered public accounting firm are
included in Item 8 – Financial Statements and Supple-
mentary Data.
Changes in Internal Control over Financial
Reporting
There were no changes in our internal control over
financial reporting during the three months ended
December 31, 2010, that have materially affected or are
reasonably likely to materially affect our internal control
over financial reporting
ITEM 9B OTHER INFORMATION
None.
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 30, 2011. Our board of directors has
determined that, based on the relevant experience of the
members of the Audit Committee, all members are audit
committee financial experts as this term is set forth in
the applicable regulations of the SEC.
Executive Officers of the Registrant The
information with respect to the executive officers required
under this Item incorporated herein by reference to
“Executive Officers” as set forth in Part I, page 12 of this
report.
We have adopted a Code of Business Ethics for the
CEO and Senior Financial Officers in compliance with
applicable rules of the Securities and Exchange 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 30, 2011.
ITEM 12 SECURITYOWNERSHIP OF CERTAIN BEN-
EFICIAL OWNERS AND MANAGEMENT
The information required under this Item is incorpo-
rated herein by reference to our Proxy Statement, to be
dated on or about March 30, 2011.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required under this Item is incorpo-
rated herein by reference to our Proxy Statement, to be
dated on or about March 30, 2011.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND
SERVICES
The information required under this Item is incorpo-
rated herein by reference to our Proxy Statement, to be
dated on or about March 30, 2011.
Our Chief Executive Officer has certified to the New
York Stock Exchange that he is not aware of any
violations by the Company of the NYSE corporate gover-
nance listing standards.
Glatfelter 2010 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, 2010, 2009 and 2008
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2010, 2009 and 2008
Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008
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, 2010
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
2(a)
2009 Form 10-K
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.
Articles of Incorporation, as amended through December 20, 2007 (restated for the purpose of
filing on EDGAR)
By-Laws as amended through March 3, 2011
Indenture, dated as of February 5, 2010 by and between the Company, Guarantors named
therein and HSBC Bank USA, National Association, as trustee relating to 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
2(b)
3(b)
3.2
4.1
4.1
4.3
Registration Rights Agreement, dated February 5, 2010, among the Company, the Guarantors
4.2
named therein and the Initial Purchasers
P. H. Glatfelter Company Amended and Restated Management Incentive Plan, effective
January 1, 2010**
P. H. Glatfelter Company Supplemental Executive Retirement Plan, as amended and restated
effective April 23, 1998 and further amended December 20, 2000**
P. H. Glatfelter Company Supplemental Management Pension Plan, effective as of April 23,
1998**
P. H. Glatfelter Company Amended and Restated Long-Term Incentive Plan**
3
(b)
(a)
(b)
4.1
(a)
4.2
10
(b)
(c)
(a)
(b)
(c)
(d)
(e)
(A)
Form of Top Management Restricted Stock Unit Award Certificate.**
(e)
(B)
Form of Non-Employee Director Restricted Stock Unit Award Certificate**
10.1
10(c)
10(f)
10.1
10.2
10.3
(f)
(g)
(h)
(h)
(i)
(j)
P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of April 22,
10(h)
1998**
Change in Control Employment Agreement by and between P.H. Glatfelter Company and
George H. Glatfelter II, dated as of December 8, 2008
Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company
(A)
and certain employees, dated as of December 8, 2008**
Schedule of Change in Control Employment Agreements**
Guidelines for Executive Severance**
Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River,
dated as of January 31, 1997, among P. H. Glatfelter Company, Fort Howard Corporation,
NCR Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper Mills,
Wisconsin Tissue Mills Inc. and the State of Wisconsin
10(i)
10(j)
10(j)A
10.2
10(i)
(k)
Non-Competition and Non-Solicitation Agreement by and between P. H. Glatfelter Company and
10.1
Dante C. Parrini, dated July 2, 2010.**
58
2009 Form 10-K
2007 Form 10-K
March 3, 2011
Form 8-K
February 5, 2010
Form 8-K
May 3, 2006
Form 8-K
September 22, 2006
Form S-4/A
February 5, 2010
Form 8-K
May 5, 2010
Form 8-K
2000 Form 10-K**
1998 Form 10-K**
May 5, 2009
Form 8-K
May 5, 2009
Form 8-K
April 27, 2005
Form 8-K
1998 Form 10-K**
2008 Form 10-K
2008 Form 10-K
2008 Form 10-K
July 6, 2010
Form 8-K
1996 Form 10-K
July 2, 2010
Form 8-K
Exhibit
Number
Description of Documents
Incorporated by Reference to
Exhibit
Filing
(l)
Credit Agreement, dated as of April 29, 2010, by and among the Company, certain of the
10.1
Company’s subsidiaries as borrowers, certain of the Company’s subsidiaries as guarantors,
the banks party thereto, PNC Bank, National Association, as agent for the banks under the
Credit Agreement, PNC Capital Markets LLC and Citizens Bank of Pennsylvania, as joint
arrangers and bookrunners, Citizens Bank of Pennsylvania, as syndication agent.
(m)
Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox
10.3(a)
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.)
(m)
(A) Agreed Supplement to Consent Decree between United States of America and the State of
10.3(b)
(m)
(B)
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
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.)
Amended Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the
Lower Fox River and Green Bay Site by and among the United States of America and the
State of Wisconsin v. P. H. Glatfelter and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.),
certain Appendices have been intentionally omitted, copies of which can be obtained free of
charge from the Registrant)
10.3(c)
10.3(d)
Administrative Order for Remedial Action dated November 13, 2007; issued by the United
10.2
States Environmental Protection Agency
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**
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(r)
10(t)
10.3
10(t)
10.1
(w)
Term Loan Agreement dated January 15, 2008, among GPW Virginia Timberlands LLC, certain
10.2
14
21
23
31.1
31.2
32.1
32.2
lenders party thereto and SunTrust Bank, in its capacity as agent for such lenders
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 Dante C. Parrini, President and Chief Executive Officer of Glatfelter, pursuant to
14
Section 302 (a) of the Sarbanes-Oxley Act Of 2002, filed herewith
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 Dante C. Parrini, President and Chief Executive Officer of Glatfelter, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, filed herewith
Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, filed
herewith
** Management contract or compensatory plan
June 30, 2010
Form 10-Q
June 30, 2010
Form 10-Q
June 30, 2010
Form 10-Q
June 30, 2010
Form 10-Q
June 30, 2010
Form 10-Q
Nov 19, 2007
Form 8-K
2006 Form 10-K
2007 Form 10-K
May 5, 2009
Form 8-K
2006 Form 10-K
Sept. 30, 2007
Form 10-Q
June 30, 2010
Form 10-Q
2003 Form 10-K
Glatfelter 2010 Annual Report
59
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 11, 2011
P. H. GLATFELTER COMPANY
(Registrant)
By /s/ Dante C. Parrini
Dante C. Parrini
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated:
Date
Signature
Capacity
March 11, 2011
/s/ Dante C. Parrini
Dante C. Parrini
President and Chief Executive Officer
Principal Executive Officer and Director
March 11, 2011
John P. Jacunski
/s/
John P. Jacunski
Senior Vice President and Chief Financial Officer
Principal Financial Officer
March 11, 2011
/s/ David C. Elder
David C. Elder
Vice President and Corporate Controller
Controller and Chief Accounting Officer
March 11, 2011
/s/ George H. Glatfelter II
George H. Glatfelter II
Chairman of the Board
March 11, 2011
Kathleen A. Dahlberg
/s/
Kathleen A. Dahlberg
March 11, 2011
/s/ Nicholas DeBenedictis
Nicholas DeBenedictis
March 11, 2011
Richard C. Ill
/s/
Richard C. Ill
March 11, 2011
J. Robert Hall
/s/
J. Robert Hall
March 11, 2011
Ronald J. Naples
/s/
Ronald J. Naples
March 11, 2011
Richard L. Smoot
/s/
Richard L. Smoot
March 11, 2011
Lee C. Stewart
/s/
Lee C. Stewart
60
Director
Director
Director
Director
Director
Director
Director
CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Dante C. Parrini, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2010 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 11, 2011
By: /s/ Dante C. Parrini
Dante C. Parrini
President and Chief Executive Officer
Glatfelter 2010 Annual Report
61
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, 2010 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 11, 2011
By: /s/
John P. Jacunski
John P. Jacunski
Senior Vice President and Chief Financial Officer
62
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Schedule II
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
For each of the three years ended December 31, 2010
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
2010
$2,888
1,269
(993)
(46)
$3,118
2009
$2,633
506
(306)
55
$2,888
2008
$3,117
(36)
(296)
(152)
$2,633
2010
$2,789
3,593
(3,517)
(20)
$2,845
2009
$3,369
3,575
(4,197)
42
$2,789
2008
$4,345
6,620
(6,045)
(1,551)
$3,369
The provision for doubtful accounts is included in selling, general and administrative expense and the provision for
sales discounts and deductions is deducted from sales. The related allowances are deducted from accounts receivable.
(a) Relates primarily to changes in currency exchange rates and, in 2008, a change in presentation of certain customer rebates.
Glatfelter 2010 Annual Report
63
SaleS OfficeS
Spring Grove, Pennsylvania
Falkenhagen, Germany
Scaër, France
lOcatiOnS
228 South Main Street
Spring Grove, PA 17362
Chillicothe, Ohio
232 East Eighth Street
Chillicothe, OH 45601
Gainesville, Georgia
200 Broad Street, Suite 206
Gainesville, GA 30501
Gatineau, Canada
1680 rue Atmec
Gatineau, QC J8P 7G7
Canada
Gernsbach, Germany
Hördener Straße 5
76593 Gernsbach
Germany
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
232 East Eighth Street
Chillicothe, OH 45601
Fremont Facility
2275 Commerce Drive
Fremont, OH 43420
Glatfelter Pulp Wood Company
228 South Main Street
Spring Grove, PA 17362
Gewerbepark Prignitz/Falkenhagen
BP 2
Am Lehmberg 10
16928 Pritzwalk
Germany
29390 Scaër
France
Hong Kong
Lydney, United Kingdom
P.O. Box No. 13158
Church Road
Lydney, Gloucestershire
GL15 5EJ
United Kingdom
Central Post Office, Hong Kong
Moscow, Russia
Chechersky proezd, 24
Moscow, 117042
Caerphilly, United Kingdom
Russia
Pontygwindy Industrial Estate
Caerphilly, Mid Glamorgan
CF83 3HU
United Kingdom
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 Office
Century Financial Tower, A205
No. 1 Suhua Road
Suzhou-SIP, Jiangsu 215021
China
Hong Kong
P.O. Box No. 13158
Central Post Office, Hong Kong
Glatfelter Russia, LLC
Chechersky proezd, 24
Moscow, 117042
Russia
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