PERFORMING
2 0 11 A N N U A L R E P O R T
Headquartered in York, PA, Glatfelter is a global manufacturer of specialty papers
and fi ber-based engineered materials, off ering 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
offi ce in China, and a sales and distribution offi ce in Russia. Glatfelter’s sales
approximate $1.6 billion annually and its common stock is traded on the New York
Stock Exchange under the ticker symbol GLT.
We are driven to perform. We made substantial progress in 2011 and recognize the
many opportunities available to us in 2012 and beyond. Our Specialty Papers business
is steadily outperforming the market and generating strong cash fl ow, while our
Composite Fibers and Advanced Airlaid Materials business units are accelerating
our expansion and diversifi cation into higher-margin growth markets globally.
We are…
PERFORMING
1
2
4
8
CONTENTS
Financial Highlights
Glatfelter at a Glance
Letter to Our Shareholders
Directors and Offi cers and Corporate Information
Form 10-K
Directory of Locations
FORWARD-LOOKING STATEMENTS
Certain statements made in this annual report which pertain to future fi nancial and business performance and conditions and other fi nancial and business
matters are “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995.
These statements are based on management’s current expectations and are subject to numerous risks, uncertainties and other unpredictable or uncontrollable
factors which may cause actual results or performance to diff er materially from the Company’s expectations. Some of the risks, uncertainties and other factors
that could cause actual results to diff er materially from those expressed in the forward-looking statements are detailed on page 14 of the accompanying 2011
Annual Report on Form 10-K included herein.
SELECTED CONSOLIDATED
FINANCIAL DATA (In thousands, except per share data)
As of or for the year ended December 31,
Net sales
Gross profi t
Gross profi t %
Gains on dispositions of plant, equipment and
timberlands, net
Net income
Earnings per share
Diluted EPS
Adjusted EPS***
Balance sheet information:
Total assets
Total debt
Shareholders’ equity
Cash dividends declared per common share
3
0
6
,
1
5 $
5
4
,
1
$
NE T SALES
(in millions)
4
6
2
,
1
$
4
8
1
,
1
$
8
4
1
,
1
$
2011
2010
2009
2008
2007
$1,603,154
$1,455,331
$1,184,010
$1,263,850
$1,148,323
206,193
186,247
269,764*
177,782
156,312
13%
3,950
13%
453
23%
898
14%
14%
18,468
78,685
42,694
54,434**
123,442
57,888
63,472
0.93
1.01
1.17
0.88
2.70
0.64
1.27
1.04
1.40
0.81
1,136,925
1,341,747
1,190,294
1,057,309
1,287,067
333,022
254,583
313,285
313,185
552,442
510,704
342,707
476,068
0.36
0.36
0.36
0.36
227,000
490,404
0.36
ADJUSTED
E ARNINGS
PER SHARE * * *
1
0
.
1
8 $
8
.
0
$
4
0
.
1
$
1
8
.
0
$
4
6
.
0
$
CASH FLOW
FROM OPER ATIONS
(in millions)
9
.
3
6
1
$
0
.
8
6
1
$
3
.
0
4
1
$
3
.
0
0
1
$
4
.
3
5
$
07
08
09
10
11
07
08
09
10
11
07
08
09
10
11
*Includes $107.8 million of alternative fuel mixture credits.
**During 2010, net income included a $23.2 million tax benefi t from cellulosic biofuel production credits.
***Adjusted earnings per share is a non-GAAP fi nancial measure as it excludes the impact of certain items. It is used by the Company to evaluate the performance of its core business operations. Adjusted
earnings per share excludes the following items, all on an after-tax per share basis: debt redemption costs of $0.13 in 2011; charge for workforce effi ciencies of $0.01 in 2011; acquisition and integration related
costs aggregating $0.02, $0.24, $0.04, $0.02, and $0.03 in 2011 through 2007, respectively; gains from timberland sales and other asset sales of $0.09, $0.02, $0.00, $0.24, and $0.97 in 2011 through 2007,
respectively; benefi t of cellulosic biofuel production credits of $0.50 in 2010; alternative fuel mixture credits of $2.09 in 2009; shutdown, restructuring charges and asset writedowns of $(0.01) in 2008; and
reserves for environmental matters of $0.35 in 2007.
1
A
AT A GLANCE
AT A GLANCE
Specialty
Papers’ shipments outperformed
the broader uncoated free sheet
market for the 7th consecutive year
and generated substantial free
cash fl ow.
Our Specialty Papers business unit focuses on producing papers
for the following markets primarily in North America:
• CARBONLESS & FORMS: papers for multi-part forms, credit card
receipts, 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, greeting card, FDA-compliant food
and beverage applications, and other niche specialty applications
Composite
Fibers continued to build on
its leading market positions in
single-serve coffee and tea products
worldwide, growing shipping
volumes by 9%.
Our Composite Fibers business unit serves customers globally and
focuses on higher-value-added products in the following markets:
• FOOD & BEVERAGE: papers primarily used for single-serve coff ee
and tea products and other applications
• METALLIZED: products used in the labeling of beer bottles,
self-adhesive labels, innerliners, gift wrap and other consumer
product applications
• COMPOSITE LAMINATES: papers used in the production of
decorative laminates, furniture and fl ooring applications
• TECHNICAL SPECIALTIES: diverse line of paper products used in
batteries, medical masks and other highly engineered applications
Advanced Airlaid
Materials continued to benefi t
from continuous improvement and
pricing initiatives as operating income
increased 205% from 2010.
Our Advanced Airlaid Materials business unit focuses on producing
highly absorbent cellulose-based airlaid non-woven materials for
high-growth consumer and industrial applications and markets,
including:
• FEMININE HYGIENE
• ADULT INCONTINENCE
• HOME CARE such as specialty wipes
• FOOD PADS
• TABLETOP AND TOWELS
2
NE T SALES
$875M
TONS SOLD
779,600
AVER AGE PRICE
$1,122/ton
OPER ATING INCOME
$57.3M
GROSS MARGIN
12.4%
NE T SALES
$476M
TONS SOLD
93,300
AVER AGE PRICE
$5,101/ton
OPER ATING INCOME
$40.8M
GROSS MARGIN
16.9%
NE T SALES
$252M
TONS SOLD
88,000
AVER AGE PRICE
$2,866/ton
OPER ATING INCOME
$13.4M
GROSS MARGIN
9.6%
2011 PRODUCT SALES MIX
43%
19%
19%
19%
Carbonless & Forms
Book Publishing
Envelope & Converting
Engineered Products
9%
11%
20%
60%
Food & Beverage
Metallized
Composite Laminates
Technical Specialties
6% 4%
2%
6%
82%
Feminine Hygiene
Home Care
Food Pads
Adult Incontinence
Other
3
I am pleased to report that Glatfelter completed a very
successful year in 2011. But fi rst, as I refl ect on the period,
I want to express my sincere gratitude to our board, to Glatfelter
PEOPLE, and to our stakeholders, who collectively have enabled
the organization to achieve our goal of performing.
Entering the year, the company
businesses compared to 30% of net sales
was fi nancially strong, well positioned
and 40% of EBITDA just 5 years ago.
for growth, and aligned on the four core
Adjusted earnings per share reached
drivers of our strategy – globalization,
$1.01, up 15% versus 2010, with a 5-year
specialization, innovation, and
compound annual growth rate of 13%.
continuous improvement. By centering
In addition, we have dramatically
our eff orts on these drivers, our business
improved cash fl ow to an average of
units pursued a higher level of sustained,
$81 million per year over the last 3 years
profi table growth and produced strong
(excluding special credits). This enabled
year-over-year improvements.
us to complete a $50 million share
2 0 1 1 — A Y E A R O F P R O G R E S S
Our emphasis on performing
across all parts of our business drove
substantially improved fi nancial results.
Glatfelter achieved record revenue of
$1.6 billion, up 10% over 2010. The
Composite Fibers and Advanced Airlaid
Materials business units continued to
bolster our exposure to higher-margin
growth markets. Forty-fi ve percent of
net sales and nearly 50% of earnings
(EBITDA) now come from these growth
repurchase program in early January 2012,
reducing our number of outstanding
shares by 8%. We also refi nanced some
of our debt late in 2011, signifi cantly
cutting interest expense. These actions
are expected to make meaningful
contributions to our earnings per share
in 2012, and will ensure the fi nancial
fl exibility to grow our existing business
and explore new opportunities.
Over the last 8 years, we’ve enhanced
our returns on invested capital. In 2004,
Dante C. Parrini
Chairman and Chief Executive Offi cer
4
our return on capital employed (ROCE)
uses our carbonless capsule process for
helped Glatfelter generate 37% of its sales
was 3.7%. With disciplined capital
a variety of unique applications. This
outside of North America, with growth
allocation and earnings growth, our ROCE
technology can encapsulate fragrances,
driven by European, Middle East and
in 2011 fi nished nearly 500 basis points
providing greater stability and effi cacy.
African markets. Continuous improvement
higher than 2004, making great strides
It also can embed chemicals in textiles
initiatives also helped realize considerable
toward achieving returns that will exceed
to help wick away perspiration and
margin expansion.
our cost of capital.
retain heat. G-Force exemplifi es how
The Composite Fibers business
Total shareholder return for 2011
we extended established assets and
recorded a 24% increase in operating
was 18.2%, surpassing all of the major
know-how to create high-margin,
income over 2010, with volume growing
indices and positioning Glatfelter as one
niche opportunities in new specialty
in high-value niche markets such as
of the highest performing companies in
applications. In 2011, this culture of
tea and single-serve coff ee. Embracing
our peer group.
innovation allowed us to generate 54%
innovation, the unit developed
O P E R AT I O N S A C H I E V E D
S O L I D G A I N S
Solid gains were reported across all
of our operations, despite a highly volatile
global environment.
At our Specialty Papers business,
net sales increased from higher selling
prices, continuous improvement eff orts
achieved greater operating effi ciencies,
and the unit generated strong free cash
fl ow. In addition, lower SG&A spending
contributed almost $3 million to year-
over-year results.
New product and business
development, combined with our fl exible
asset base, enabled us to outperform the
broader North American uncoated free
sheet market for the seventh year in a
of our total revenue from products less
technologies to embed logos or patterns
than 5 years old.
on beverage fi lter papers. These unique
Our growing Composite Fibers and
capabilities provided new branding and
Advanced Airlaid Materials businesses
marketing applications that off ered highly
accelerated their globalization with
diff erentiated products welcomed
important sales gains. Their success
by the industry.
%
5
.
8
*
%
6
.
7
%
3
.
8
%
6
.
8
RE T URN
ON CAPITAL
EMPLOYED
%
3
% 6
6
.
.
5
%
3
.
4
%
7
.
3
Return on capital employed
has improved dramatically
since 2004. Glatfelter is
committed to achieving
returns that exceed its cost
of capital.
row – plus operate our facilities at or near
04
05
06
07
08
09
10
11
capacity. In addition, the unit introduced
the exciting G-Force product line, which
* 2009 impacted by global recession and transition from net pension income (2004-2008) to net pension expense
(2009-2011). Return on capital employed based on after-tax earnings from operations excluding unusual items.
5
“Total shareholder return for 2011 was 18.2%,
surpassing all of the major indices and positioning
Glatfelter as one of the highest performing
companies in our peer group.”
Advanced Airlaid Materials achieved
from sovereign debt issues in Europe and
a 205% increase in operating income
continuing unrest in the Middle East
versus 2010 by leveraging opportunities in
will undoubtedly impact energy prices.
the feminine and adult hygiene markets.
Our North American Specialty Papers
The unit developed new lighter-weight
business, which represents 55% of our
products with longer, more absorbent
revenues, faces ongoing structural
cores. This innovation yielded cost savings
weakness. And while our pension plan is
without compromising performance,
fully funded, discount rates have dropped
making Glatfelter the supplier of choice.
and we anticipate higher noncash pension
Continuous improvement activities
expense in 2012 versus 2011.
included supply-chain synergies,
Despite these challenges, we are
waste reduction, and higher machine
optimistic about the company’s prospects.
output that elevated the unit’s
With the ability to capitalize on various
operating performance.
pathways to growth, Glatfelter can
Overall, the company surpassed
leverage its multidimensional strategy to
its continuous improvement target of
uncover many opportunities in attractive
1% of revenue – signifi cantly contributing
markets around the world.
to our bottom line and providing a
First, our growth businesses have
catalyst for margin growth.
strong fundamentals and leading
coff ee and global tea markets. A recently
completed expansion of our festooning
line in Gatineau, Canada, increases our
presence in the growing feminine and
adult hygiene market. We’re rigorously
employing innovation and continuous
improvement to drive margin expansion.
And we are targeting acquisitions
that will complement our existing
businesses and broaden our product
and technology portfolios.
At the same time, we’re carefully
managing the remainder of our business
to enhance cash fl ow and profi tability.
Our fl exible Specialty Paper assets are
being optimized to provide exceptional
customer service and execute aggressive
new product and business development.
These eff orts will help off set weakness in
the North American uncoated free sheet
market and provide the opportunity to
keep our facilities running at capacity.
Glatfelter’s strong cash fl ow profi le
will provide ample liquidity, allowing us
to fund growth initiatives and strategic
investments as well as dividends. We
remain intensely focused on total
shareholder return and long-term market
capitalization growth, which in turn
will build shareholder value in the
positions that will allow us to organically
expand their global footprints. For
example, we plan to invest $50 million in
our Composite Fibers business to increase
capacity in the burgeoning single-serve
coming years.
T H E L O O K A H E A D — S U S TA I N E D
G R O W T H A N D P R O F I TA B I L I T Y
As we assess the year ahead, it’s
clear we will encounter headwinds that
pose some risk. Uncertainty remains
6
D R I V E N T O P E R F O R M
By staying true to our vision, strategy
and Core Values, we have created a model
wherein the Specialty Papers portfolio
outperforms the market and generates
strong cash fl ow while our growing
Composite Fibers and Advanced Airlaid
Materials businesses accelerate global
expansion and diversifi cation. This model
will be powered by improving day-to-day
execution by all Glatfelter PEOPLE.
We are delivering what shareholders
expect from a responsible management
team – not growing for growth’s sake,
but striving to improve profi tability
and increasing cash fl ow to ensure that
investment returns exceed our cost
of capital.
While we may confront challenges
and encounter bumps in the road, we are
committed to our strategy and will remain
on course. Glatfelter created substantial
momentum in 2011 that inspires us to
achieve even greater performance in
the year ahead.
Sincerely,
Dante C. Parrini
Chairman and Chief Executive Offi cer
March 9, 2012
7
DIRECTORS AND OFFICERS
OF F ICERS A ND M A N A GEMEN T
Dante C. Parrini
Chairman and Chief Executive Offi cer
Janis C. Jesse
Vice President
William T. Yanavitch II
Vice President
John P. Jacunski
Senior Vice President and
Chief Financial Offi cer
Christopher W. Astley
Vice President
Corporate Strategy
Jonathan A. Bourget
Vice President and General Manager
Advanced Airlaid Materials Business Unit
David C. Elder
Vice President
Finance
DIR EC T ORS
Information Technology
Human Resources and Administration
Michael L. Korniczky
Vice President, General Counsel and
John R Blind
Division Vice President
Corporate Secretary
Printing & Carbonless Papers
Debabrata Mukherjee
Vice President and General Manager
Timothy R. Hess
Division Vice President
Specialty Papers Business Unit
Engineered & Converting Products
Martin Rapp
Vice President and General Manager
Reinhard S. Schiebeler
Operations Director
Composite Fibers Business Unit
Composite Fibers Business Unit
Mark A. Sullivan
Vice President
Global Supply Chain
Dante C. Parrini
Chairman and Chief Executive Offi cer
Kevin M. Fogarty
President and Chief Executive Offi cer
Ronald J. Naples
Retired Chairman and
Kathleen A. Dahlberg
Chief Executive Offi cer
2Unify LLC
Nicholas DeBenedictis
Chairman and Chief Executive Offi cer
Aqua America Corporation
Kraton Performance Polymers, Inc.
Chief Executive Offi cer
J. Robert Hall
Chief Executive Offi cer
Ardale Enterprises, LLC
Richard C. Ill
Chairman and Chief Executive Offi cer
Triumph Group, Inc.
Quaker Chemical Corporation
Richard L. Smoot
Retired Regional Chairman
PNC Bank, NA
Philadelphia/South Jersey Markets
Lee C. Stewart
Financial Consultant
CORPORATE INFORMATION
W OR L D HE A DQ U A R T ERS
P. H. Glatfelter Company
96 South George Street
Suite 520
York, PA 17401
ph: 717-225-4711
fax: 717-846-7208
www.glatfelter.com
S T OCK E X CH A NGE
A NNU A L MEE T ING
OF SH A R EHOL DERS
May 8, 2012, 10:00 a.m. EDT,
York County Heritage Trust,
Historical Society Museum,
INF OR M AT ION SOURCES
For the latest quarterly business results
or other information,
visit www.glatfelter.com or contact:
Investor Relations
250 East Market Street, York, PA
P. H. Glatfelter Company
T R A NSF E R A GE N T,
DI V IDEND DISBURSING A GEN T
A ND R EGIS T R A R
96 South George Street
Suite 520
York, PA 17401
ph: 717-225-4711
New York Stock Exchange
Computershare (formerly BNY Mellon
Email: ir@glatfelter.com
S T OCK S Y MBOL
GLT
Shareowner Services)
480 Washington Boulevard
Jersey City, NJ 07310-1900
Toll-free: 877-832-7259
8
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2011
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 520
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 Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Yes ‘ No Í.
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
Yes ‘ No Í.
Í
‘
Act.
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 Í No ‘.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes Í No ‘.
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. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting
company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ‘
Small reporting company ‘
Accelerated filer Í
Non-accelerated filer ‘
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Based on the closing price as of June 30, 2011, the aggregate market value of the Common Stock of the Registrant held by non-affiliates
Yes ‘ No Í.
was $699.6 million.
Common Stock outstanding on February 29, 2012 totaled 42,622,256 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this Annual Report on Form 10-K:
Proxy Statement to be dated on or about March 29, 2012 (Part III).
P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
December 31, 2011
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Executive Officers
Mine Safety Disclosures
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
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
Exhibits, Financial Statement Schedules
SIGNATURES
CERTIFICATIONS
SCHEDULE II
Page
1
6
10
10
11
11
12
12
13
14
26
27
64
64
64
64
64
64
64
64
65
67
68
70
PART I
We make regular filings with the Securities and
Exchange Commission (SEC), including this Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, and
Current Reports on Form 8-K. These filings are available
free of charge on our website, www.glatfelter.com, and
the SEC website at www.sec.gov. We also provide copies
of our SEC filings at no charge upon request to Investor
Relations at (717) 225-2724, ir@glatfelter.com, or by mail
to Investor Relations, 96 South George Street, Suite 520,
York, PA, 17401. In this filing, unless the context indicates
otherwise, the terms “we,” “us,” “our,” “the Company,”
or “Glatfelter” refer to P. H. Glatfelter Company and
subsidiaries.
ITEM 1
BUSINESS
Overview Glatfelter began operations in 1864,
and we believe we are one of the world’s leading
manufacturers of specialty papers and fiber-based
engineered materials. Headquartered in York,
Pennsylvania, we own and operate manufacturing facilities
located in Pennsylvania, Ohio, Canada, Germany, the
United Kingdom, France, and the Philippines.
Products Our three business units manufacture a
wide array of specialty papers and fiber-based engineered
materials including:
• Specialty Papers with revenues from the sale of
papers for carbonless and other forms, book
publishing, envelopes, and engineered products
such as papers for digital imaging, transfer,
casting, release, postal, playing card,
FDA-compliant food and beverage applications,
and other niche specialty applications;
• Composite Fibers primarily consists of single-
serve coffee and tea filtration papers, metallized
and self adhesive labeling papers, composite
laminates used for decorative furniture and
flooring applications, and technical specialties such
as battery pasting papers, among others; and
• Advanced Airlaid Materials with revenue from
the sale of airlaid non-woven fabric-like materials
used in feminine hygiene and adult incontinence
products, cleaning pads and wipes, food pads,
napkins, tablecloths, and baby wipes.
The markets served by the Composite Fibers and
Advance Airlaid business units are characterized by
attractive growth rates as the result of new and emerging
products, changing end-user customer preferences and
evolving demographics. Specialty Papers serves more
mature market segments, some of which are in decline.
As a result of our strategy to diversify sources of
revenue and invest in growth businesses, revenue generated
from Composite Fibers and Advanced Airlaid Materials
represents an increasingly greater proportion of total
revenue. For 2011, these business units comprised 45% of
consolidated revenue compared with 30% in 2006.
Consolidated net sales and the relative net sales
contribution of each of our business units for the past
three years are summarized below:
Dollars in thousands
2011
2010
2009
Net sales
Business unit
contribution
Specialty Papers
Composite Fibers
Advanced Airlaid
Materials
Total
$1,603,154
$1,455,331 $1,184,010
54.6%
29.7
57.9%
28.8
66.9%
33.1
15.7
13.3
–
100.0%
100.0%
100.0%
Our strategies are focused on growing revenues, in
part, by leveraging leading positions in key global growth
markets including the single-serve coffee and tea markets
and the feminine hygiene and adult incontinence markets.
To ensure we are best positioned to serve these markets,
we have made investments to increase production capacity
and service offerings and intend to make additional future
investments.
Product innovation is a critical component of our
business strategy. During 2011, 2010 and 2009, we
invested $11.7 million, $10.4 million and $8.0 million,
respectively, in new product development activities. In each
of the past three years, in excess of 50% of net sales were
generated from products developed, enhanced or improved
within the past five years.
Other key elements to our success include margin
expansion, driven by cost reduction and continuous
improvement initiatives, and the generation of strong and
reliable cash flows. The strength of our balance sheet and
generation of cash flows has allowed us to pursue strategic
actions such as the $50 million investment to expand
capacity in Composite Fibers and the $50 million share
repurchase program approved and executed in 2011. We
have a demonstrated ability to establish leading market
positions through the successful acquisition and
integration of complementary businesses. Since 2006, we
have successfully completed and integrated four
acquisitions. Our acquisition strategy complements our
long-term strategy of driving growth in our markets.
Glatfelter 2011 Form 10-K
1
Our Business Units We manage our company as
three distinct business units: (i) Specialty Papers
(ii) Composite Fibers; and (iii) Advanced Airlaid Materials.
Net tons sold by each business unit for the past three years
were as follows:
assets to efficiently respond to changing customer demands.
In each of the past seven years, our flexible asset base, new
product development capabilities and superior customer
service offerings allowed us to outperform the broader
uncoated free sheet market in terms of volumes shipped.
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
Total
2011
2010
2009
779,647
93,317
87,951
764,670
90,350
72,833
738,841
80,064
–
960,915
927,853
818,905
A discussion of each unit follows:
Specialty Papers Our North America-based
Specialty Papers business unit focuses on producing papers
for the following markets:
• Carbonless & forms papers for credit card
receipts, multi-part forms, security papers and
other end-user applications;
• Book publishing papers for the production of
high quality hardbound books and other book
publishing needs;
• Envelope and converting papers for the direct
mail market, shopping bags, and other converting
applications; and
• Engineered products for digital imaging,
transfer, casting, release, postal, playing card,
FDA-compliant food and beverage applications,
and other niche specialty applications.
The market segments in which Specialty Papers
competes have undergone significant and rapid
consolidation over the past several years resulting in fewer
producers. This business unit produces both commodity
products (comprised of envelopes and certain forms) and
higher-value-added specialty products.
Specialty Papers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2011
2010
2009
Carbonless & forms
Book publishing
Envelope & converting
Engineered products
Other
Total
$368,582
166,506
170,380
166,660
2,950
$359,033
168,155
157,202
155,257
2,967
$320,088
176,646
146,812
143,490
4,879
$875,078
$842,614
$791,915
Although many of the markets served by Specialty
Papers are mature and, in many instances, declining, we
have been successful at maintaining this unit’s shipments
through new product and new business development
initiatives while leveraging the flexibility of our operating
2
We believe we are one of the leading suppliers of
carbonless and book publishing papers in the United
States. Although the markets for these products are
declining, we have been successful in executing our
strategy to replace this lost volume with products such as
envelope and converting papers, and other value-added
specialty products. Specialty Papers also produces paper
that is converted into specialized envelopes in a wide array
of colors, finishes and capabilities. While this market is
also declining, we have leveraged our customer service
capabilities to grow our market share in each of the last
three years.
Specialty Papers’ highly technical engineered
products include those designed for multiple end uses,
such as papers for pressure-sensitive postage stamps,
greeting and playing cards, conical cups, digital imaging
applications and for release paper applications. Such
products comprise an array of distinct business niches that
are in a continuous state of evolution. Many of these
products are utilized for demanding, specialized customer
and end-user applications. Some of our products are new
and higher growth while others are more mature and
further along in the product life cycle. Because many of
these products are technically complex and involve
substantial customer-supplier development collaboration,
they typically command higher per ton prices and generally
exhibit greater pricing stability relative to commodity grade
paper products.
The Specialty Papers business unit operates two
integrated pulp and paper making facilities with the
following combined attributes:
Uncoated Production
Capacity (short tons)
Principal Raw
Material (“PRM”)
Estimated Annual
Quantity of PRM
(short tons)
784,600
Pulpwood
Wood- and other pulps
2,347,000
703,300
The pulp mills within this business unit have a
combined pulp making capacity of 586,000 tons of
bleached pulp per year. The principal raw material used to
produce each facility’s pulp is pulpwood, including both
hardwoods and softwoods. Pulpwood is obtained from a
variety of locations including the states of Pennsylvania,
Maryland, Delaware, New Jersey, New York, West Virginia,
Virginia, Kentucky, Ohio and Tennessee. To protect our
sources of pulpwood, we actively promote conservation
and forest management among suppliers and woodland
owners. In addition to critical raw materials, the cost to
produce Specialty Papers’ products is influenced by energy
costs. Although the business unit generates all of its steam
needed for production at both facilities and generates
more power than it consumes at the Spring Grove, PA
facility, it purchases approximately 18% of its electricity
needed for the Chillicothe, OH mill. The facilities’ source of
fuel is primarily coal and, to a lesser extent, natural gas.
Since becoming a member of PJM Interconnection, a
federally regulated regional transmission organization that
coordinates the movement and ensures reliability of
wholesale electricity in its region, excess electricity
generated by Spring Grove is sold to the high-voltage
electricity grid. As a member, we are committed to
providing capacity to the 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.
The Spring Grove facility includes five uncoated paper
machines as well as an off-line combi-blade coater and a
Specialty Coater (“S-Coater”), which together provide
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.
The Chillicothe facility operates four paper machines
producing uncoated and carbonless paper. Two of the
machines have built-in coating capability which along with
three additional coaters at the facility provide annual
coated capacity of 130,000 tons.
In the carbonless paper market, we compete with
Appleton Papers and, to a lesser extent, foreign importers
including Fibria Celulose (formerly Votorantim Celulose e
Papel) and Asia Pulp and Paper Co. We believe we are one
of the leading producers of book publishing papers and
compete in these markets with Domtar Corp. and North
Pacific Paper (NORPAC), among others. In the envelope
sector we compete with International Paper, Domtar Corp.,
Boise Inc. and Evergreen Packaging, among others. In our
Specialty Papers’ engineered products markets, competition
is product line specific as the necessity for technical expertise
and specialized manufacturing equipment limits the number
of companies offering multiple product lines. We compete
with specialty divisions of large companies such as
International Paper, Domtar Corp., Boise Inc., NewPage
Corp. and Sappi Limited, among others. 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.
To be successful in the market environment in which
Specialty Papers operates, our strategy is focused on:
• employing our new product and new business
development capabilities to meet changing
customer demands and ensure optimal utilization
of capacity;
• aggressively employing methodologies to manage
pressures on margins presented by more mature
markets;
• leveraging our flexible operating platform to
optimize product mix by shifting production among
facilities to more closely match output with
changing demand trends;
• utilizing ongoing continuous improvement
methodologies to ensure operational efficiencies;
and
• maintaining superior customer service.
Composite Fibers Our Composite Fibers
business unit, based in Gernsbach, Germany, serves
customers globally and focuses on higher value-added
products in the following markets:
• Food & Beverage paper primarily used for
single-serve coffee and tea products and other
applications;
• 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
production of decorative laminates, furniture and
flooring applications; and
• Technical Specialties 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 single-serve coffee and tea
markets, as well as the composite laminates market, and
we have the second largest market share globally for
metallized products. Composite Fibers’ revenue
composition by market consisted of the following for the
years indicated:
In thousands
2011
2010
2009
Food & beverage
Metallized
Composite laminates
Technical specialties and
other
Total
$284,748
95,276
53,334
$242,882
88,753
50,801
$233,899
81,388
46,442
42,671
36,781
30,366
$476,029
$419,217
$392,095
Glatfelter 2011 Form 10-K
3
We believe many of the market segments served by
Composite Fibers, particularly single-serve coffee and tea,
present attractive growth opportunities by capitalizing on
evolving consumer preferences, expanding into new
emerging geographic markets and by gaining market share
through quality product and service offerings. Many of this
unit’s papers are technically sophisticated and most, except
for metallized papers, are extremely lightweight and
require specialized fibers. Our engineering capabilities,
specifically designed papermaking equipment, use of
specialized fibers and customer orientation position us well
to compete in these global markets.
The Composite Fibers business unit is comprised of
three paper making facilities (Germany, France and
England), metallizing operations (Wales and Germany) and
a pulp mill (the Philippines) with the following combined
attributes:
Production
Capacity
(short tons)
68,400 lightweight
27,550 metallized
15,300 abaca pulp
Principal Raw
Material (“PRM”)
Abaca pulp
Wood pulp
Synthetic fiber
Base stock
Abaca fiber
Estimated Annual
Quantity of PRM
(short tons)
18,100
46,000
12,800
30,100
20,900
Composite Fibers uses highly specialized inclined wire
paper machine technology and we believe we currently
maintain approximately 25% of the global inclined wire
capacity.
The primary raw materials used in the production of
our lightweight papers are abaca pulp and wood pulp.
Abaca pulp is a specialized pulp with limited sources of
availability. This abaca pulp production process provides a
unique advantage by supplying a key raw material used by
our Composite Fibers business unit. Sufficient quantities of
abaca pulp and the source fiber are required to support
growth in this business unit. In the event the supply of
abaca fiber becomes constrained or when production
demands exceed the capacity of the Philippines mill,
alternative sources and/or substitute fibers are used to
meet customer demands.
In addition to critical raw materials, the cost to
produce Composite Fibers’ products is influenced by energy
costs. Although the business unit generates all of its steam
needed for production, it purchases approximately 89% of
its electricity.
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
4
have leading market positions for paper used in single-
serve coffee and tea products and compete with
companies such as Ahlstrom and Purico. In composite
laminates we compete with PdM, a division of Schweitzer-
Maudit, Purico and MB Papeles and for metallized
products, competitors include Vacumet, AR Metallizing,
Amsterdam Metallized Products, and Wenzhou Protec
Vacuum Metallizing Co. Ltd.
Our strategy in Composite Fibers is focused on:
• capturing global growth in food & beverage,
technical specialties and composite laminates;
• expanding value-added production capacity by
investing in state-of-the-art inclined wire
technology to better ensure our capacity supports
consistent growth of markets;
• capitalizing on rapidly growing markets;
• enhancing product mix across all of the business
unit’s markets by utilizing new product and new
business development capabilities;
• implementing continuous improvement
methodologies to increase productivity, reduce
costs and expand capacity; and
• ensuring readily available access to specialized raw
material requirements to support projected
growth.
The recently announced $50 million investment to
expand our inclined wire capacity by nearly 20%, or
approximately 10,500 short tons, by converting a flat wire
machine to a state-of-the-art inclined wire machine
demonstrates our commitment to realizing the growth
presented in this business unit’s markets. The project is
expected to be completed in the first quarter of 2013 and
the new machine is expected to begin production in the
second quarter of 2013. We expect to achieve a 15% to
20% after-tax return on this investment within three years.
Advanced Airlaid Materials was formed in
connection with our February 2010 acquisition of Concert
Industries Corp. (“Concert”). Advanced Airlaid Materials is a
leading global supplier of highly absorbent cellulose-based
airlaid non-woven materials used to manufacture consumer
and industrial products for growing global end-user markets.
These products include, but are not limited to:
• feminine hygiene;
• adult incontinence;
• home care such as specialty wipes;
• table top and towels; and
• food pads and other.
Advanced Airlaid Materials affords us the opportunity
to grow with customers who are industry leading consumer
product companies for feminine hygiene and adult
incontinence products. Advanced Airlaid Materials holds
leading market share positions in many of 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.
Advanced Airlaid Materials’ revenue composition by
market consisted of the following for the years indicated:
In thousands
Feminine hygiene
Adult incontinence
Home care
Food pads
Other
Total
2011
2010
$206,724
6,083
24,492
9,526
5,222
$157,691
6,146
17,902
8,200
3,560
$252,047
$193,499
Sales for the feminine hygiene category accounted for
82% of Advanced Airlaid Material’s revenue in 2011. Sales
in this market segment are to a small group of large,
leading global consumer products companies. This market
is considered to be more growth oriented driven by
population growth in certain geographic regions, consumer
preferences and suppliers’ ability to provide innovative
products. In developing regions, demand is also influenced
by increases in disposable income and cultural preferences.
The Advanced Airlaid Materials business unit
operates state-of-the-art facilities in Gatineau, Quebec,
Canada and Falkenhagen, Brandenburg, Germany. The
Gatineau location consists of two airlaid production lines
employing multi-bonded and thermal-bonded airlaid
technologies and, with the recently completed investment,
two proprietary single-lane festooners. The Falkenhagen
location operates three multi-bonded production lines and
three proprietary single-lane festooners.
The business unit’s two facilities operate with the
following combined attributes:
Airlaid Production
Capacity (short tons)
Principal Raw
Material (“PRM”)
Estimated Annual
Quantity of PRM
(short tons)
102,300
Fluff pulp
72,000
In addition to the cost of critical raw materials, the
cost to produce multi-bonded and thermal-bonded airlaid
materials is impacted by energy costs. Advanced Airlaid
Materials purchases all of its electricity and natural gas.
feminine hygiene. We believe that its facilities are among the
most modern and flexible airlaid facilities in the world, which
allows it to produce at industry leading operating rates. Its
proprietary single-lane rotary festooning technology,
developed in 2002, provides customers with product
packaged for efficient use. This business unit’s in-house
technical expertise, combined with significant capital
investment requirements and rigorous customer expectations
creates large barriers to entry for new competitors.
The airlaid industry is made up of several producers,
including Buckeye Technologies Inc., Georgia-Pacific LLC,
Duni AB, Petropar SA, McAirlaid’s Vliestoffe GmbH & Co.
KG, and us.
The markets served by this business unit are
characterized by attractive growth opportunities. To take
advantage of this, our strategy is focused on:
• maintaining and expanding relationships with
customers that are market-leading consumer
product companies;
• expanding geographic reach of markets served;
• optimizing the use of existing production capacity;
• employing continuous improvement methodologies
and initiatives to reduce costs and improve
efficiencies; and
• capitalizing on our product and process innovation
capabilities.
Additional financial information for each of our
business units is included in Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results
of Operations and in Item 8 – Financial Statements and
Supplementary Data, Note 23 including geographic
revenue and long-lived asset financial information.
Balance Sheet We are focused on prudent
financial management and the maintenance of a
conservative capital structure and strong balance sheet.
This includes:
• aggressively managing working capital to enhance
cash flow from operations;
• making disciplined capital expenditure decisions;
and
• monetizing the value of our timberland assets as
opportunities warrant.
Advanced Airlaid Materials continues to be a
technology and product innovation leader in technically
demanding segments of the airlaid market, most notably
The success of these actions positions us with the
flexibility to pursue strategic opportunities that will benefit
our shareholders.
Glatfelter 2011 Form 10-K
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
2011 and 2010.
Capital Expenditures Our business is capital
intensive and requires extensive expenditures for new and
enhanced equipment. These capital investments are
necessary to support growth strategies, research and
development initiatives, environmental compliance, and for
normal upgrades or replacements. For 2012, capital
expenditures are estimated to be $95 million to $105
million. This includes $30 million to $35 million of the $50
million investment to expand capacity to serve Composite
Fibers’ growth markets.
Environmental Matters We are subject to laws
and regulations designed to protect the environment as
well as human health and safety. We have, at various
times, incurred significant costs to comply with these
regulations, as new regulations are developed or
regulatory priorities change. Currently, we anticipate that
we could incur material capital and operating costs to
comply with several air quality regulations including the
U.S. EPA Best Available Retrofit Technology rule (BART;
otherwise known as the Regional Haze Rule) and the Boiler
Maximum Achievable Control Technology rule (Boiler
MACT). For example, on March 21, 2011, the U. S.
Environmental Protection Agency issued new rules which
could require process modifications and/or installation of
air pollution controls on power boilers at two of our U.S.-
based facilities. We are currently reviewing these rules, and
challenges to them filed by others in the court system, to
understand the effect they may have on our operations if
we are required to comply with the rules in their current
form. We are also evaluating options that may be available
to us, such as reducing or curtailing boiler usage or
modifying the types of boilers operated or fuel consumed.
The cost of compliance is likely to be significant. Our initial
estimates to implement viable options could result in
additional capital spending in excess of $30 million,
however, the amount ultimately incurred may be less
depending on the outcome of challenges to current rules or
on our successful implementation of appropriate available
options. In addition, the timing of any additional capital
spending is uncertain. Enactment of new environmental
laws or regulations or changes in existing laws or
regulations could significantly change our estimates. For a
discussion of other environmental matters, see Item 8 –
Financial Statements and Supplementary Data – Note 22.
6
Employees As of December 31, 2011, we
employed 4,274 people worldwide, of which approximately
70% are unionized. The United Steelworkers International
Union and the Office and Professional Employees
International Union represents the 1,600 hourly employees
at our Chillicothe, OH and Spring Grove, PA facilities under
labor contracts expiring in August 2012 and January 2014,
respectively. Hourly employees at each of our international
locations are represented by various unions or works
councils. We consider the overall relationship with our
employees to be satisfactory.
Other Available Information 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. In addition, the website
includes the charters for the Audit, Compensation, Finance
and Nominating and Corporate Governance Committees of
the Board of Directors. The Corporate Governance page
also includes the 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 contacting Investor
Relations at (717) 225-2724, ir@glatfelter.com or by mail
to 96 South George Street, Suite 520, York, PA, 17401.
ITEM 1A RISK FACTORS
Our business and financial performance
may be adversely affected by the global
economic environment or downturns in the
target markets that we serve.
Adverse global economic conditions could impact our
target markets resulting in decreased demand for our
products. Our results could be adversely affected if
economic conditions weaken or fail to improve. Also, there
may be periods during which demand for our products is
insufficient to enable us to operate our production facilities
in an economical manner. The economic impact may cause
customer insolvencies which may result in their inability to
satisfy their financial obligations to us. These conditions
are beyond our ability to control and may have a
significant impact on our sales and results of operations.
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 pulp prices and our
products’ 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 prices and our products’ 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, synthetic fibers and certain other raw
materials. Our Spring Grove and Chillicothe locations are
vertically integrated manufacturing facilities that generate
approximately 85% of their annual pulp requirements.
Our Philippine mill purchases abaca fiber to produce
abaca pulp, which we use to manufacture our paper for
single-serve coffee, tea and technical specialty products at
our Gernsbach, Scaër and Lydney facilities. At certain times
in the past, the supply of abaca fiber has been constrained
due to factors such as weather related damage to the
source crop as well as selection by land owners of
alternative uses of land in lieu of fiber producing activities.
Our Advanced Airlaid Materials business unit requires
access to sufficient quantities of fluff pulp, the supply of
which is subject to availability of certain softwoods.
Softwood availability can be limited by many factors,
including weather in regions where softwoods are
abundant.
The cost of many of our production materials,
including petroleum based chemicals, and freight charges,
are influenced by the cost of oil. In addition, coal is a
principal source of fuel for both the Spring Grove and
Chillicothe facilities and natural gas is used as a source of
fuel for our Chillicothe facility, and the Composite Fibers
and Advanced Airlaid Materials business units’ facilities. In
addition, our vendors’ liquidity may be impacted by the
economy creating supply shortages.
Although we have contractual cost pass-through
arrangements with certain customers, we may not be able
to fully pass increased raw materials or energy costs on to
all customers if the market will not bear the higher price or
where existing agreements with our customers limit price
increases. If price adjustments significantly trail increases in
raw materials or energy prices our operating results could
be adversely affected.
Our industry is highly competitive and
increased competition could reduce our
sales and profitability.
In the past, global industries in which we compete
have been adversely affected by capacity exceeding the
demand for products and by declining uncoated free sheet
demand. As a result, steps have been taken to reduce
underperforming capacity. However, slowing demand or
increased competition could force us to lower our prices or
to offer additional services at a higher cost to us, which
could reduce our gross margins and net income. The greater
financial resources of certain of our competitors may enable
them to commit larger amounts of capital in response to
changing market conditions. Certain competitors may also
have the ability to develop product or service innovations
that could put us at a competitive disadvantage.
Some of the factors that may adversely affect our
ability to compete in the markets in which we participate
include:
• the entry of new competitors into the markets we
serve, including foreign producers;
• the willingness of commodity-based producers to
enter our markets when they are unable to
compete or when demand softens in their
traditional markets;
• the aggressiveness of our competitors’ pricing
strategies, which could force us to decrease prices
in order to maintain market share;
• our failure to anticipate and respond to changing
customer preferences;
• the impact of electronic-based substitutes for
certain of our products such as carbonless and
forms, book publishing, and envelope;
• the impact of replacement or disruptive
technologies;
• changes in end-user preferences;
• our inability to develop new, improved or
enhanced products; and
• our inability to maintain the cost efficiency of our
facilities.
If we cannot effectively compete in the markets in
which we operate, our sales and operating results would
be adversely affected.
Glatfelter 2011 Form 10-K
7
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 part on our
ability to develop and introduce new and enhanced
products that keep pace with introductions by our
competitors and changing customer preferences. If we fail
to anticipate or respond adequately to these factors, we
may lose opportunities for business with both current and
potential customers. The success of our new product
offerings will depend on several factors, including our
ability to:
• anticipate and properly identify our customers’
needs and industry trends;
• price our products competitively;
• develop and commercialize new products and
applications in a timely manner;
• differentiate our products from our competitors’
products; and
• invest efficiently in research and development
activities.
Our inability to develop new products could adversely
impact our business and ultimately harm our profitability.
We are subject to substantial costs and
potential liability for environmental
matters.
We are subject to various environmental laws and
regulations that govern our operations, including
discharges into the environment, and the handling and
disposal of hazardous substances and wastes. We are also
subject to laws and regulations that impose liability and
clean-up responsibility for releases of hazardous
substances into the environment. The Clean Air Act, and
similar regulations, could impose significant compliance
costs or require significant capital expenditures. To comply
with environmental laws and regulations, we have
incurred, and will continue to incur, substantial capital and
operating expenditures. We anticipate that environmental
regulation of our operations will continue to become more
burdensome and that capital and operating expenditures
necessary to comply with environmental regulations will
continue, and perhaps increase, in the future. Because
environmental regulations are not consistent worldwide,
our ability to compete globally may be adversely affected
by capital and operating expenditures required for
8
environmental compliance. In addition, we may incur
obligations to remove or mitigate any adverse effects on
the environment, such as air and water quality, resulting
from mills we operate or have operated. Potential
obligations include compensation for the restoration of
natural resources, personal injury and property damages.
Despite favorable rulings in the pending Fox River
litigation, we continue to have exposure to liability for
remediation and other costs related to the presence of
polychlorinated biphenyls in the lower Fox River on which
our former Neenah, Wisconsin mill was located. There can
be no assurance that we will not be required to ultimately
pay material amounts to resolve our liability in the Fox River
matter. We have financial reserves for environmental
matters, including the Fox River site, but we cannot be
certain that those reserves will be adequate to provide for
future obligations related to these matters, that our share of
costs and/or damages for these matters will not exceed our
available resources, or that such obligations will not have a
long-term, material adverse effect on our consolidated
financial position, liquidity or results of operations.
Our environmental issues are complex and should be
reviewed in context; please see a more detailed discussion
of these matters in Item 8 – Financial Statements and
Supplementary Data – Note 22.
The Advanced Airlaid Materials business
unit generates a substantial portion of its
revenue from one customer serving the
feminine hygiene and home care product
markets, 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 and home care products
from one customer. The loss of this significant customer
could have a material adverse effect on their operating
results. In addition, sales in the feminine hygiene market
accounted for 82% of Advanced Airlaid Materials’ net
sales in 2011 and sales are concentrated within a small
group of large customers. A decline in sales of feminine
hygiene products could have a material adverse effect on
this unit’s operating results. Customers in the airlaid
non-woven fabric material market, including the feminine
hygiene market, may also switch to less expensive
products, change preferences 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 have a material adverse effect
on our financial performance and business prospects.
Our operations may be impaired and we
may be exposed to potential losses and
liability as a result of natural disasters, acts
of terrorism or sabotage or similar events.
Natural disasters, such as earthquakes, flooding or
fire, and acts of terrorism or sabotage affecting our
operating activities and major facilities could materially
and adversely affect our operations, our operating results
and financial condition. In particular, we own and operate
four dams in York County, Pennsylvania, that were built to
ensure a steady supply of water for the operation of our
paper mill in Spring Grove which is a primary
manufacturing location for our envelope papers and
engineered products. Each of these dams is classified as
“high hazard” by the Commonwealth of Pennsylvania
because they are located in close proximity to inhabited
areas and sudden failure would endanger occupants or
residential, commercial or industrial structures. Failure or
breach of any of the dams, including as a result of natural
disaster or act of terrorism or sabotage, could cause
significant personal injuries and damage to residential and
commercial property downstream for which we may be
liable. The failure of a dam could also be extremely
disruptive and result in damage to or the shutdown of our
Spring Grove mill. Any losses or liabilities incurred due to
the failure of one of our dams may not be fully covered by
our insurance policies or may substantially exceed the
limits of our policies, and could materially and adversely
affect our operating results and financial condition.
In addition, many of our papermaking operations
require a reliable and abundant supply of water. Such mills
rely on a local water body or water source for their water
needs and, therefore, are particularly impacted by drought
conditions or other natural or manmade interruptions to its
water supplies. At various times and for differing periods,
each of our mills has had to modify operations due to
water shortages or low flow conditions in its principal
water supplies. Any interruption or curtailment of
operations at any of our paper mills due to drought or low
flow conditions at the principal water source or another
cause could materially and adversely affect our operating
results and financial condition.
Our pulp mill in Lanao del Norte on the Island of
Mindanao in the Republic of the Philippines is located
along the Pacific Rim in the world’s hazard belt. By virtue
of its geographic location, this mill is subject to, among
other types of natural disasters, floods, droughts, cyclones,
typhoons, earthquakes, windstorms and volcanic activity.
Moreover, the area of Lanao del Norte has been a target of
terrorist activities, including bombings, by suspected
members of the al-Qaeda-linked Islamist groups in the
Philippines, such as the Abu Sayyaf and the Rajah
Solaiman Group and other Islamic militant groups, most
notably the Moro Islamic Liberation Front. The most
common bomb targets in Lanao del Norte to date have
been power transmission towers. Our pulp mill in
Mindanao is located in a rural portion of the island and is
susceptible to attacks or power interruptions. The
Mindanao mill supplies approximately 80% of the abaca
pulp that is used by our Composite Fibers business unit to
manufacture our paper for single serve coffee and tea
products and certain technical specialties. Any interruption,
loss or extended curtailment of operations at our
Mindanao mill could materially affect our operating results
and financial condition.
We have operations in a potentially
politically and economically unstable
location.
Our pulp mill in the Philippines is located in a region
that is unstable and subject to political unrest. As
discussed above, our Philippine pulp mill produces abaca
pulp, a significant raw material used by our Composite
Fibers business unit, and is currently our main provider of
abaca pulp. There are limited suitable alternative sources
of readily available abaca pulp in the world. In the event of
a disruption in supply from our Philippine mill, there is no
guarantee that we could obtain adequate amounts of
abaca pulp from alternative sources at a reasonable price
or at all. As a consequence, any civil disturbance, unrest,
political instability or other event that causes a disruption
in supply could limit the availability of abaca pulp and
would increase our cost of obtaining abaca pulp. Such
occurrences could adversely impact our sales volumes,
revenues and operating results.
Our international operations pose certain
risks that may adversely impact sales and
earnings.
We have significant operations and assets located in
Canada, Germany, France, the United Kingdom, and the
Philippines. Our international sales and operations are
subject to a number of special risks, in addition to the risks
in our domestic sales and operations, including differing
protections of intellectual property, trade barriers, labor
unrest, exchange controls, regional economic uncertainty,
differing (and possibly more stringent) labor regulation,
risk of governmental expropriation, domestic and foreign
customs and tariffs, differing regulatory environments,
difficulty in managing widespread operations and political
instability. These factors may adversely affect our future
Glatfelter 2011 Form 10-K
9
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.
As we diversify our business and expand our global
footprint, an increasing proportion of our revenue is
generated outside of the United States. We also own and
operate manufacturing facilities in Canada, Germany,
France, the United Kingdom and the Philippines. Currently,
the majority of our business is transacted in U.S. dollars;
however, an increasing portion of business is transacted in
Euros, British Pound Sterling, Canadian dollars or
Philippine Peso. With respect to the Euro, we generate
substantially greater cash inflow in this currency than we
do outflow. However, with respect to the British
Pound Sterling, Canadian dollar, and Philippine Peso, we
have greater outflows than inflows of these currencies. As
a result of these positions, we are exposed to changes in
currency exchange rates. Uncertainty with respect to the
ability of certain European countries to continue to service
their sovereign debt obligations and actions proposed to
restructure such obligations may cause the value of the
euro to fluctuate further. In the event that one or more
European countries were to replace the euro with another
currency, business may be adversely affected until stable
exchange rates are established.
Our ability to maintain our products’ price
competitiveness is reliant, in part, on the relative strength
of the currency in which the product is denominated
compared to the currency of the market into which it is
sold and the functional currency of our competitors.
Changes in the rate of exchange of foreign currencies in
relation to the U.S. dollar, and other currencies, may
adversely impact our results of operations and our ability
to offer products in certain markets at acceptable prices.
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
10
fuel mixtures to produce energy to operate their businesses
on or prior to December 31, 2009. During 2009, we
registered two of our facilities with the IRS as alternative
fuel mixers based on their use of black liquor as an
alternative fuel source. For the year ended December 31,
2009, we had substantial alternative fuel mixture credits
relating to these facilities. Our results of operations in
2009 included, on a pre-tax basis, $107.8 million of
alternative fuel mixture credits all of which has been used
or realized in cash. In the event that the IRS audits our tax
return for the year ended December 31, 2009, the IRS may
conclude that some or all of the credits claimed are subject
to federal income taxes, which would subject us to
additional tax liabilities and could have a material adverse
effect on our results of operations and financial position.
In the event any of the above risk factors
impact our business in a material way or in
combination during the same period, we
may be unable to generate sufficient cash
flow to simultaneously fund our
operations, finance capital expenditures,
satisfy obligations and make dividend
payments on our common stock.
In addition to debt service obligations, our business is
capital intensive and requires significant expenditures to
support growth strategies, research and development
initiatives, environmental compliance, and for normal
upgrades or replacements. We expect to meet all of our
near and long-term cash needs from a combination of
operating cash flow, cash and cash equivalents, our
existing credit facility and other long-term debt. If we are
unable to generate sufficient cash flow from these sources,
we could be unable to meet our near and long-term cash
needs or make dividend payments.
ITEM 1B UNRESOLVED STAFF COMMENTS
None.
ITEM 2
PROPERTIES
We own substantially all of the land and buildings
comprising our manufacturing facilities located in
Pennsylvania; Ohio; Canada; the United Kingdom;
Germany; France; and the Philippines. Substantially all of
the equipment used in our manufacturing and related
operations is also owned. Our metallized paper production
facility located in Caerphilly, Wales leases the building and
land associated with its operations. We also lease office
and warehouse space in Moscow, Russia, as well as our
corporate offices located in York, Pennsylvania. All of our
properties, other than those that are leased, are free from
any material liens or encumbrances. We consider all of our
buildings to be in good structural condition and well
maintained and our properties to be suitable and adequate
for present operations.
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.
ITEM 3
LEGAL PROCEEDINGS
We are involved in various lawsuits that we consider
to be ordinary and incidental to our business. The ultimate
outcome of these lawsuits cannot be predicted with
certainty; however, we do not expect such lawsuits,
individually or in the aggregate, will have a material
adverse effect on our consolidated financial position,
liquidity or results of operations.
For a discussion of commitments, legal proceedings
and related contingencies, see Item 8 – Financial
Statements and Supplementary Data – Note 22.
EXECUTIVE OFFICERS
The following table sets forth certain information
with respect to our executive officers and senior
management as of March 9, 2012.
Name
Age
Office with the Company
Dante C. Parrini
John P. Jacunski
Christopher W. Astley
Jonathan A. Bourget
David C. Elder
Michael L. Korniczky
Debabrata Mukherjee
Martin Rapp
Mark A. Sullivan
William T. Yanavitch II
47
46
39
47
43
46
42
52
57
51
Chairman and Chief Executive
Officer
Senior Vice President and Chief
Financial Officer
Vice President, Corporate Strategy
Vice President & General Manager,
Advanced Airlaid Materials
Business Unit
Vice President, Finance
Vice President, General Counsel
and Corporate 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 organizational
meeting of the Board of Directors held immediately after
the annual meeting of shareholders.
Dante C. Parrini became Chief Executive Officer
effective January 1, 2011 and Chairman of the Board in
May 2011. Prior to this appointment, he was Executive
Vice President and Chief Operating Officer, a position he
John P. Jacunski became Senior Vice President and
Chief Financial Officer in July 2006. From October 2003
until July 2006, he was Vice President and Corporate
Controller. Mr. Jacunski was previously Vice President and
Chief Financial Officer at WCI Steel, Inc. from June 1999 to
October 2003. Prior to joining WCI, Mr. Jacunski was with
KPMG, an international accounting and consulting firm,
where he served in various capacities.
Christopher W. Astley joined us in August 2010 as
Vice President – Corporate Strategy. He has over fifteen
years experience as an advisor and practitioner leading
critical strategic and tactical corporate initiatives for
natural resource companies, with a focus since 1999 on
the pulp, paper, and packaging industries. Mr. Astley
previously held positions with Accenture, a global
management consulting firm, and The Coca-Cola
Company, as well as successfully leading a privately held
business for several years.
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 responsibility, including
General Manager Specialties Division in Europe, with Alcoa
Inc.
David C. Elder was promoted to Vice President,
Finance in December 2011 and continues as our Chief
Accounting Officer. Prior to his promotion, he was our Vice
President, Corporate Controller, a position held since
joining Glatfelter in January 2006. Mr. Elder was previously
Corporate Controller for YORK International Corporation
and prior to that he was the Director, Financial Planning
and Analysis for that company.
Michael L. Korniczky joined us in January 2012 as
Vice President, General Counsel and Corporate Secretary.
Prior to joining us, Mr. Korniczky was Chief Administrative
Officer, General Counsel and Secretary for Graham
Packaging Company Inc. since March 2007 and was
previously Assistant General Counsel at Crown Holdings,
Inc. from 1998 to 2007.
Debabrata Mukherjee was appointed Vice
President & General Manager, Specialty Papers Business
Unit in April 2008. Dr. Mukherjee joined our Company in
1998 and since then has held various operational, sales
Glatfelter 2011 Form 10-K
11
and technical leadership positions within the Specialty
Papers Business Unit. From March 2006 through March
2008, Dr. Mukherjee served as Division Vice President,
Engineered & Converting Products. From February 2004
through February 2006, Dr. Mukherjee served as Director,
Engineered Products. Prior to joining Glatfelter,
Dr. Mukherjee served in various capacities with Felix
Schoeller, a German based global specialty paper
manufacturer.
Martin Rapp joined Glatfelter in August 2006 and
serves as Vice President and General Manager –
Composite Fibers Business Unit. Prior to this, Mr. Rapp was
Vice President and General Manager of Avery Dennison’s
Roll Materials Business in Central and Eastern Europe since
August 2002.
Mark A. Sullivan was appointed Vice President,
Global Supply Chain in February 2005. Mr. Sullivan joined
our company in December 2003 as Chief Procurement
Officer. His experience includes a broad array of operations
and supply chain management responsibilities during
twenty years with the DuPont Company.
William T. Yanavitch II was appointed Vice
President, Human Resources and Administration in May
2005. Mr. Yanavitch briefly worked with Constellation
Energy in Human Resources from February 2005 – May
2005. He served as our Vice President Human Resources
from July 2000 until January 2005. Prior to joining us he
worked for Dentsply International and Gould Pumps Inc. in
various leadership capacities.
ITEM 4 MINE SAFETY DISCLOSURES
Not Applicable
PART II
ITEM 5 MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY
SECURITIES
under the symbol “GLT” and the dividend declared per
share for each quarter during the past two years.
Quarter
2011
2010
Fourth
Third
Second
First
Fourth
Third
Second
First
High
Low
Dividend
$15.79
16.03
15.51
13.40
$12.46
11.73
12.65
11.00
$13.37
12.65
15.49
15.05
$11.62
10.08
10.62
12.32
$0.09
0.09
0.09
0.09
$0.09
0.09
0.09
0.09
As of March 7, 2012, we had 1,367 shareholders of
record.
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, 2011, we compare our stock
performance to the S&P Small Cap 600 Paper Products
index comprised of Buckeye Technologies Inc., Clearwater
Paper Corp., Kapstone Paper & Packaging Corp., Neenah
Paper Inc., Schweitzer-Mauduit International and Wausau
Paper Corp. In addition, the chart includes a comparison to
the Russell 2000, which we believe is an appropriate
benchmark index for stocks such as ours.
The graph assumes that the value of the investment
in our common stock, in each index, and the peer group
(including reinvestment of dividends) was $100 on
December 31, 2006 and charts it through December 31,
2011.
$200
$150
$100
$50
Common Stock Prices and Dividends Declared
$0
12/06
12/07
12/08
12/09
12/10
12/11
Information
The following table shows the high and low prices of
our common stock traded on the New York Stock Exchange
Glatfelter Co.
Russell 2000
S&P SmallCap 600 Paper Products
12
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
Earnings per share
Basic
Diluted
Total assets
Total debt
Shareholders’ equity
Cash dividends declared per common share
Depreciation, depletion and amortization
Capital expenditures
Shares outstanding
Net tons sold
Number of employees
2011
2010 (2)
2009 (4)
2008
2007
$1,603,154
9,344
$1,455,331
10,653
$1,184,010
13,332
$1,263,850
9,364
$1,148,323
9,445
1,612,498
1,465,984
1,197,342
1,273,214
1,157,768
$
$
–
–
–
856
(35)
3,950
42,694(1)
$
453
898
54,434(3) $ 123,442
$
18,468
57,888
$
78,685
63,472(5)
0.94
0.93
1,136,925
227,000
490,404
0.36
69,313
64,491
42,650
960,915
4,274
$
1.19
1.17
$1,341,747
333,022
552,442
0.36
65,839
36,491
45,976
927,853
4,337
$
2.70
2.70
$1,190,294
254,583
510,704
0.36
61,256
26,257
45,706
818,905
3,546
$
1.28
1.27
$1,057,309
313,285
342,707
0.36
60,611
52,469
45,434
829,354
3,633
$
1.41
1.40
$1,287,067
313,185
476,068
0.36
56,001
28,960
45,141
799,512
3,854
(1)
(2)
(3)
(4)
(5)
During 2011, we recorded after-tax charges totaling $6.1 million related to the write-off of unamortized deferred issuance costs and original issue
discount and the redemption premium in connection with the early redemption of $100.0 million of bonds.
The information set forth above for 2010 includes the financial information for Concert Industries Corp. prospectively from the February 12, 2010
acquisition date.
During 2010, net income included a $23.2 million tax benefit from cellulosic biofuel production credits.
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.
During 2007, we recorded a $16.0 million after-tax charge to increase our reserve for the Fox River environmental matter.
Glatfelter 2011 Form 10-K
13
ITEM 7 MANAGEMENT’S DISCUSSION AND
viii.
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Annual
Report on Form 10-K includes forward-looking statements
within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements other than statements
of historical fact, including statements regarding industry
prospects and future consolidated financial position or
results of operations, made in this Report on Form 10-K
are forward looking. We use words such as “anticipates”,
“believes”, “expects”, “future”, “intends” and similar
expressions to identify forward-looking statements.
Forward-looking statements reflect management’s current
expectations and are inherently uncertain. Our actual
results may differ significantly from such expectations. The
following discussion includes forward-looking statements
regarding expectations of, among others, non-cash
pension expense, environmental costs, capital expenditures
and liquidity, all of which are inherently difficult to predict.
Although we make such statements based on assumptions
that we believe to be reasonable, there can be no
assurance that actual results will not differ materially from
our expectations. Accordingly, we identify the following
important factors, among others, which could cause our
results to differ from any results that might be projected,
forecasted or estimated in any such forward-looking
statements:
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, 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 productivity
increases;
the gain or loss of significant customers and/or
on-going viability of such customers;
i.
ii.
iii.
iv.
v.
vi.
vii.
14
cost and other effects of environmental compliance,
cleanup, damages, remediation or restoration, or
personal injury or property damages related thereto,
such as the costs of natural resource restoration or
damages related to the presence of polychlorinated
biphenyls (“PCBs”) in the lower Fox River on which
our former Neenah mill was located;
risks associated with our international operations,
including local economic and political environments
and fluctuations in currency exchange rates;
geopolitical events, including war and terrorism;
disruptions in production and/or increased costs due
to labor disputes;
the impact of unfavorable outcomes of audits by
various state, federal or international tax authorities;
ix.
x.
xi.
xii.
xiii. enactment of adverse state, federal or foreign tax or
other legislation or changes in government policy or
regulation;
xiv. adverse results in litigation in the Fox River matter;
xv.
xvi.
our ability to finance, consummate and integrate
acquisitions; and
the cost, and successful design and construction, of
the Composite Fibers capacity expansion project.
Introduction We manufacture a wide array of
specialty papers and fiber-based engineered materials. We
manage our company along three business units:
• Specialty Papers with revenue from the sale of
carbonless papers and forms, book publishing,
envelope & converting papers, and fiber-based
engineered products;
• Composite Fibers with revenue from the sale of
single-serve coffee and tea filtration papers,
metallized papers, composite laminates used for
decorative furniture and flooring applications, and
other technical specialty papers; and
• Advanced Airlaid Materials with revenue from
the sale of airlaid non-woven fabric like materials
used in feminine hygiene products, adult
incontinence products, cleaning pads, wipes, food
pads, napkins, tablecloths, and baby wipes.
Overview For the year ended December 31, 2011,
net income was $42.7 million, or $0.93 per diluted share,
compared with net income of $54.4 million, or $1.17 per
diluted share, in 2010. The amounts reported for 2011
include after-tax charges totaling $7.5 million for costs
incurred to redeem $100.0 million of fixed-rate bonds,
acquisition and integration expenses and work force
efficiency actions. In addition, 2011 net income includes
$4.2 million in gains from timberland sales and the release
of tax reserves on prior timberland sales.
On February 12, 2010, we completed the acquisition
of Concert Industries Corp. (“Concert”), a manufacturer of
highly absorbent cellulose-based airlaid non-woven
materials. 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 2010 results also 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. In addition, our results in 2010
benefited from $23.2 million of tax credits from cellulosic
biofuel production tax credits and $1.1 million of after-tax
gains from sales of timberlands.
Operationally, our results were favorably affected by
higher volumes shipped associated with improving demand
in many of the markets served by our businesses, the
inclusion of Advanced Airlaid Materials for a full year and
the benefits of profit improvement initiatives in this
business unit. Higher average selling prices nearly offset
the adverse affect of rising input costs, particularly
purchased pulp.
Specialty Papers’ operating income totaled $57.3
million and $58.4 million for 2011 and 2010, respectively.
This unit’s profitability was adversely impacted by rising
input costs that more than offset benefits from higher
volumes shipped, higher average selling prices and cost
reduction initiatives.
Our Composite Fibers business unit’s operating
income increased to $40.8 million from $32.9 million in
2010. Volumes shipped during 2011 increased 3.2%
compared to 2010 and the mix of products sold was
favorable primarily due to growth in single-serve coffee
products. In addition, production and waste efficiency
improved.
Advanced Airlaid Materials’ operating income totaled
$13.4 million in 2011 compared with $4.4 million of 2010
reflecting higher selling prices and volumes shipped, as
well as profit improvement initiatives implemented to
improve production and reduce waste.
RESULTS OF OPERATIONS
2011 versus 2010
The following table sets forth summarized
consolidated results of operations:
Year Ended December 31
In thousands, except per share
2011
2010
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
$1,603,154
206,193
85,272
42,694
0.93
$1,455,331
186,247
64,589
54,434
1.17
The consolidated results of operations for 2011 and
2010 include the following items not considered to be part
of our core business operations:
In thousands, except per share
Income (loss) Diluted EPS
After-tax
2011
Early redemption of $100 million bonds
Charge for workforce efficiencies
Acquisition and integration costs
Timberland sales and related
transaction costs
2010
Cellulosic biofuel/alternative fuel
mixture credits
Acquisition and integration costs
Foreign currency hedge on acquisition
price
Timberland sales and related
transaction costs
$(6,065)
(652)
(792)
$(0.13)
(0.01)
(0.02)
4,160
0.09
$23,184
(9,073)
$ 0.50
(0.20)
(1,673)
(0.04)
1,063
0.02
During 2011, the aggregate effect of the unusual
items set forth above decreased earnings by $3.3 million,
or $0.07 per diluted share. In 2010, the items set forth
above increased earnings by $13.5 million, or $0.28 per
diluted share in 2010.
Business Units Results of individual business units
are presented based on our management accounting
practices and management structure. There is no
comprehensive, authoritative body of guidance for
management accounting equivalent to accounting principles
generally accepted in the United States of America;
therefore, the financial results of individual business units
are not necessarily comparable with similar information for
any other company. The management accounting process
uses assumptions and allocations to measure performance
of the business units. Methodologies are refined from time
to time as management accounting practices are enhanced
and businesses change. The costs incurred by support areas
not directly aligned with the business unit are allocated
Glatfelter 2011 Form 10-K
15
Total revenue
Cost of products sold
Gross profit
SG&A
Gains on dispositions of plant,
equipment and timberlands
Total operating income (loss)
Other non-operating income
(expense)
Income (loss) before
income taxes
Supplementary Data
Net tons sold
Depreciation, depletion and
amortization
Capital expenditures
primarily based on an estimated utilization of support area
services or are included in “Other and Unallocated” in the
Business Unit Performance table.
Management evaluates results of operations of the
business units before pension income or expense,
alternative fuel mixture credits, debt redemption costs,
restructuring related charges, 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 businesses, the
profitability of business units and the extent of cash flow
generated from these core operations. Such amounts are
presented under the caption “Other and Unallocated.”
This presentation is aligned with the management and
operating structure of our company. It is also on this basis
that the Company’s performance is evaluated internally
and by the Company’s Board of Directors.
Dollars in millions
Specialty Papers
Composite Fibers
Year ended December 31
Advanced Airlaid
Materials
Other and
Unallocated
Total
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
Net sales
Energy and related sales, net
$875.1
9.3
$842.6
10.7
$476.0
–
$419.2
–
$252.0
–
$193.5
–
$
884.4
775.7
108.7
51.4
–
57.3
853.3
740.2
113.1
54.7
–
58.4
476.0
395.7
80.3
39.5
–
40.8
419.2
350.5
68.7
35.8
–
32.9
252.0
227.7
24.3
10.9
–
13.4
–
–
–
7.2
$
–
–
–
7.4
$1,603.2
9.3
1,612.5
1,406.3
(7.2)
23.0
(7.4)
24.3
206.2
124.9
$1,455.3
10.7
1,466.0
1,279.7
186.2
122.1
193.5
181.7
11.8
7.4
–
4.4
(4.0)
(0.5)
(26.2)
(31.2)
(4.0)
85.3
(0.5)
64.6
–
–
–
–
–
–
(34.4)
(31.1)
(34.4)
(31.1)
$ 57.3
$ 58.4
$ 40.8
$ 32.9
$ 13.4
$
4.4
$(60.7)
$(62.3) $
50.8
$
33.5
779.6
764.7
93.3
90.4
88.0
72.8
$ 36.0
31.4
$ 34.9
24.1
$ 24.8
22.5
$ 23.7
8.2
$ 8.5
10.6
$
7.2
4.2
$
–
–
–
–
–
–
$
960.9
927.9
$
69.3
64.5
$
65.8
36.5
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
The following table sets forth the contribution to
consolidated net sales by each business unit:
Business Unit
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
Percent of total
2011
2010
54.6%
29.7
15.7
57.9%
28.8
13.3
100.0% 100.0%
Sales and Costs of Products Sold
In thousands
Net sales
Energy and related sales
– net
Year Ended December 31
2010
2011
Change
$1,603,154
$1,455,331 $147,823
9,344
10,653
(1,309)
Total revenues
Costs of products sold
1,612,498
1,406,305
1,465,984
1,279,737
146,514
126,568
Gross profit
$ 206,193
$ 186,247 $ 19,946
Total
Gross profit as a percent
of Net sales
12.9%
12.8%
16
Net sales for 2011 were $1,603.2 million, a 10.2%
increase compared with $1,455.3 million for 2010,
reflecting stronger business activity in the our Composite
Fibers and Advanced Airlaid Materials business units
together with more favorable selling prices in all
businesses. Advanced Airlaid Materials business unit is
included for a full year in 2011 compared with only
prospectively from the February 12, 2010 acquisition date
in the prior year amounts.
In the Specialty Papers business unit, net sales for
2011 increased $32.5 million, or 3.9%, to $875.1 million.
The increase was primarily due to a $27.3 million benefit
from higher selling prices and a 2.0% increase in volumes
shipped.
Specialty Papers’ operating profit for 2011 declined
by $1.1 million compared with 2010 primarily due to
pressure on margins as higher input costs of $28.4 million
offset benefits of higher selling prices. Net energy revenue
declined in the comparison of 2011 to 2010 by
$1.3 million.
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 2011 and 2010:
In thousands
Energy sales
Costs to produce
Net
Renewable energy credits
2011
2010
$10,992
(9,319)
$ 14,296
(10,403)
1,673
7,671
3,893
6,760
Change
$(3,304)
1,084
(2,220)
911
Total
$ 9,344
$ 10,653
$(1,309)
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.
In Composite Fibers, net sales for 2011 were $476.0
million, an increase of $56.8 million, or 13.5%, from 2010.
The improvement primarily reflects growth in food &
beverage market segment, particularly single-serve coffee
products. Volumes shipped increased 3.3%, and on a
constant currency basis, average selling prices benefitted
the comparison by $13.0 million, and the translation of
foreign currencies favorably affected net sales by
approximately $17.0 million.
Composite Fibers’ operating profit increased $7.9
million, or 24.0%, in the year over year comparison. The
improved performance was driven by higher selling prices
as well as improved operating rates, efficiency gains
related to continuous improvement initiatives and the
impact of an improved mix of products sold. The
combination of these factors more than offset the $10.0
million negative impact of higher input costs, primarily
related to woodpulp, synthetic fibers and energy. Foreign
currency translation unfavorably impacted operating
income by $0.5 million.
In Advanced Airlaid Materials, net sales were $252.0
million, an increase of $58.5 million, due to including a full
period’s results in 2011, higher selling prices and improved
demand. The results for 2010 were included prospectively
from the February 12, 2010 acquisition date. Higher selling
prices benefited the comparison by $12.3 million but were
offset by $12.1 million of higher input costs. Operating
income increased $9.0 million primarily due to higher
volumes shipped, increased selling prices, improved
operating efficiencies and a benefit in the comparison of a
non-recurring $1.4 million charge in 2010 to cost of
products sold for the write up of acquired inventory to fair
value. Foreign currency translation unfavorably impacted
operating income by $0.4 million.
Pension Expense The following table summarizes
the amounts of pension expense recognized for 2011
compared to 2010:
Year Ended December 31
In thousands
2011
2010
Change
Recorded as:
Costs of products sold
SG&A expense
Total
$ 6,735
3,645
$10,380
$7,056
2,185
$9,241
$ (321)
1,460
$1,139
The amount set forth above for pension expense
recorded as selling, general and administrative (“SG&A”)
expense in 2011 includes a $2.0 million one-time pension
settlement charge recorded in connection with the
retirement of our former Chief Executive Officer.
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.
Pension expense in 2012 is expected to be higher than
2011 due to lower discount rates and the amortization of
actuarial losses primarily related to lower returns on
pension assets.
Glatfelter 2011 Form 10-K
17
Selling, General & Administrative SG&A
expenses increased $2.8 million in the year-to-year
comparison and totaled $124.9 million for 2011. The
increase was primarily due to legal and professional fees
and the inclusion of Advanced Airlaid Materials for a full
year in 2011 compared with only prospectively from the
February acquisition date in 2010.
Gain on Sales of Plant, Equipment and
Timberlands, net During the years ended
December 31, 2011 and 2010, we completed the
following sales of assets:
Dollars in thousands
Acres
Proceeds
Gain
2011
Timberlands
Other
Total
2010
Timberlands
Other
Total
942
n/a
$3,821
670
$3,590
360
$4,491
$3,950
164
n/a
$ 387
177
$ 373
80
$ 564
$ 453
In connection with each of the asset sales set forth
above, we received cash proceeds.
Interest expense Interest expense totaled $31.8
million for 2011, a $6.2 million increase compared with
2010. The increase was primarily due to the write-off of
unamortized deferred debt issuance costs and the
remaining balance of the original issue discount
aggregating $5.9 million in connection with the early
redemption of $100 million of bonds. As a result of the
debt redemption and amendments to our revolving credit
agreement, interest expense is expected to be lower in
2012 than 2011.
For the
Other nonoperating income (expense)
year ended December 31, 2011, consolidated other non
operating expense, net totaled $3.3 million and primarily
includes the $3.6 million redemption premium incurred in
connection with the bond retirement discussed above. In
2010, other non operating expense, net totaled $6.3
million and represented a $3.4 million loss on a series of
forward foreign currency contracts to hedge the Concert
acquisition’s Canadian dollar purchase price. 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
18
under the caption “Other – net” in the accompanying
consolidated statements of income to eliminate the
receivable from the seller. We also recognized a $2.5
million tax benefit for this same item to eliminate the tax
reserve previously established resulting in no net impact to
earnings during 2010.
Income taxes
In 2011, income tax expense
totaled $8.2 million on pre-tax income of $50.8 million.
Tax expense in 2011 includes a net $5.2 million income
tax benefit realized in connection with the resolution of
certain foreign tax audits, and expiration of statutes of
limitation, partially offset by an increase in the valuation
allowance on certain net operating loss carryforwards. For
2010, we recorded income tax benefits of $20.9 million on
$33.5 million of pretax income. The benefit in 2010 was
due to $23.2 million of cellulosic biofuel credits, net,
recorded as an income tax benefit in 2010 as discussed
further below. We also recorded the $2.5 million tax
benefit discussed in the previous paragraph, as well as a
$6.4 million adjustment to reduce tax liabilities resulting
from the expiration of statutes of limitations on uncertain
tax positions and other factors.
Foreign Currency
In 2011, we owned and
operated manufacturing facilities in Canada, Germany,
France, the United Kingdom and the Philippines. The
functional currency in Canada is the U.S. dollar, in Germany
and France the Euro, in the UK it is the British
Pound Sterling, and in the Philippines it is the Peso. During
2011, Euro functional currency operations generated
approximately 28.7% of our sales and 27.2% of operating
expenses and British Pound Sterling operations represented
7.6% of net sales and 7.4% 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, 2011
Favorable
(unfavorable)
$ 23,625
(22,380)
(2,117)
(352)
$ (1,224)
The above table only presents the financial reporting
impact of foreign currency translations assuming currency
exchange rates in 2011 were the same as 2010. It does
not present the impact of certain competitive advantages
or disadvantages of operating or competing in multi-
currency markets.
2010 versus 2009
The following table sets forth summarized
consolidated results of operations:
Year Ended December 31
In thousands, except per share
2010
2009
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
$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/alternative fuel
mixture credits
Acquisition and integration costs
Foreign currency hedge on acquisition
price
Timberland sales and related
transaction costs
2009
After-tax
Income (loss)
Diluted EPS
$23,184
(9,073)
$ 0.50
(0.20)
(1,673)
(0.04)
1,063
0.02
Alternative fuel mixture credits
Acquisition related costs
$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.
Year ended December 31
Advanced Airlaid
Materials
Other and
Unallocated
Total
2009
2010
2009
2010
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
Total operating income (loss)
Other non-operating income (expense)
Specialty Papers
2009
2010
Composite Fibers
2009
2010
$842.6
10.7
853.3
740.2
113.1
54.7
–
58.4
–
$791.9
13.3
805.2
693.9
111.3
55.4
–
55.9
–
$419.2
–
419.2
350.5
68.7
35.8
–
32.9
–
$392.1
–
392.1
334.4
57.7
35.8
–
21.9
–
2010
$193.5
–
193.5
181.7
11.8
7.4
–
4.4
–
Income (loss) before income taxes
$ 58.4
$ 55.9
$ 32.9
$ 21.9
$ 4.4
Supplementary Data
Net tons sold
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
$
$–
–
–
–
–
7.4
(7.4)
24.3
(0.5)
(31.2)
(31.1)
$
–
–
$1,455.3
10.7
–
(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)
2009
$1,184.0
13.3
1,197.3
927.6
269.8
110.3
(0.9)
160.4
(17.3)
$(62.3)
$ 65.3
$
33.5
$ 143.1
$
–
–
–
$
–
–
–
$
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
Year Ended December 31
The following table sets forth the contribution to
consolidated net sales by each business unit:
In thousands
2010
2009
Change
Net sales
Energy and related sales –
net
$1,455,331
$1,184,010 $271,321
10,653
13,332
(2,679)
Total revenues
Costs of products sold (1)
1,465,984
1,279,737
1,197,342
927,578
268,642
352,159
Business Unit
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
$ 186,247
$ 269,764 $ (83,517)
Total
Gross profit
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.
Percent of total
2009
2010
57.9%
28.8
13.3
66.9%
33.1
–
100.0% 100.0%
Net sales for 2010 were $1,445.3 million, a 22.9%
increase compared with $1,184.0 million for 2009,
reflecting stronger business activity in the our Specialty
Papers and Composite Fibers business units and the
inclusion of Concert, operated and reported as Advanced
Glatfelter 2011 Form 10-K
19
Airlaid Materials business unit, prospectively since the
February 12, 2010 acquisition date.
continuous improvement initiatives more than offset the
adverse effect of foreign currency translation adjustments.
In the Specialty Papers business unit, net sales for
2010 increased $50.7 million, or 6.4%, to $842.6 million.
The increase was primarily due to higher volumes shipped
and a $24.0 million benefit from higher selling prices.
Specialty Papers’ operating profit for 2010 improved
by $2.5 million compared with 2009 primarily due to
higher selling prices, a 3.5% increase in volumes shipped
and the lack of market related downtime. These favorable
factors were partially offset by higher input costs, primarily
pulp. In addition, higher maintenance costs largely
associated with the annual mill outages and with
unplanned production interruptions adversely impacted the
year over year comparison.
We sell excess power generated by the Spring Grove, PA
facility. In addition, two of our facilities are registered
generators of renewable energy credits (“RECs”). The
following table summarizes this activity for 2010 and 2009:
In thousands
Energy sales
Costs to produce
Net
Renewable energy credits
2010
2009
$ 14,296
(10,403)
$ 20,128
(11,883)
3,893
6,760
8,245
5,087
Change
$(5,832)
1,480
(4,352)
1,673
Total
$ 10,653
$ 13,332
$(2,679)
RECs represent sales of certified credits earned
related to burning renewable sources of energy such as
black liquor and wood waste. We sell RECs into an
emerging and somewhat illiquid market. The extent and
value of future revenues from REC sales is dependent on
many factors outside of management’s control. Therefore,
we may not be able to generate consistent amounts of
sales of RECs in future periods.
In Composite Fibers, net sales for 2010 were $419.2
million, an increase of $27.1 million, or 6.9%, from 2009. The
improvement reflects strengthening demand in each of its
product lines as volumes shipped increased 12.9%. On a
constant currency basis, average selling prices were lower by
$1.0 million, and the translation of foreign currencies
unfavorably affected net sales by approximately $15.0 million.
Composite Fibers’ operating profit increased $11.0
million, or 50.2%, in the year-over-year comparison. The
improved performance was driven by the $10.8 million
combined benefit from improved demand in markets served
resulting in higher shipments and the elimination of market
driven downtime. In addition, the production efficiencies from
20
Results for Advanced Airlaid Materials are included
from February 12, 2010, the date of the Concert
acquisition. This business unit’s results were unfavorably
affected by rising input costs that outpaced the timing of
increases in selling prices. In addition, results were
adversely impacted by operating inefficiencies and by $1.4
million as a result of charging cost of products sold for the
write-up of acquired inventory to fair value.
Alternative Fuel Mixture Credits
The U.S.
Internal Revenue Code provided a tax credit for companies
that use alternative fuel mixtures to produce energy to
operate their businesses. The credit, equal to $0.50 per
gallon of alternative fuel contained in the mixture, is
refundable to the taxpayer. On May 11, 2009, we were
notified by the Internal Revenue Service that our
application to be registered as an alternative fuel mixer
was approved. During 2009, we mixed and burned eligible
alternative fuels, and earned $107.8 million of alternative
fuel mixture credits. We record all alternative fuel mixture
credits as a reduction to cost of goods sold.
According to the Internal Revenue Code, the tax
credit expired on December 31, 2009.
Pension Expense The following table summarizes the
amounts of pension expense recognized for 2010
compared to 2009:
In thousands
2010
2009
Change
Year Ended December 31
Recorded as:
Costs of products sold
SG&A expense
Total
$7,056
2,185
$9,241
$4,936
2,097
$7,033
$2,120
88
$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 & Administrative SG&A
expenses increased $11.9 million in the year-to-year
comparison and totaled $122.1 million for 2010. The
increase was substantially all related to legal and
professional fees related to the Concert acquisition, costs
to integrate the acquired entities and the inclusion of its
operations prospectively from the date of acquisition.
Gain on Sales of Plant, Equipment and
Timberlands, net
During the years ended December 31,
2010 and 2009, we completed the following sales of assets:
positions and other factors. The tax provision in 2009
included a $27.1 million benefit from nontaxable
alternative fuel mixture credit.
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.
For the
Other nonoperating income (expense)
year ended December 31, 2010, other non operating
expense, net totaled $6.3 million. In connection with the
Concert acquisition, we entered into a series of forward
foreign currency contracts to hedge the acquisition’s
Canadian dollar purchase price. All contracts were settled
for cash during the first quarter of 2010 and resulted in a
$3.4 million loss, net of realized currency translation gains,
which is presented under the caption “Other – net” in the
accompanying consolidated statements of income. In
addition, in connection with purchase accounting for the
Concert transaction, we recorded a $2.5 million reserve for
tax risks, inclusive of accrued interest, existing at the time
of the acquisition and at the same time recorded a $2.5
million receivable from the seller due to an indemnification
agreement. During the fourth quarter, a tax ruling was
issued that eliminated this tax risk and as a result we
recognized an expense of $2.5 million which is presented
under the caption “Other – net” in the accompanying
consolidated statements of income to eliminate the
receivable from the seller. We also recognized a $2.5
million tax benefit for this same item to eliminate the tax
reserve previously established resulting in no net impact to
earnings during 2010.
Income taxes
For 2010, we recorded income tax
benefits of $20.9 million on $33.5 million of pretax
income. The comparable amounts in the same period of
2009 were income tax expense of $19.7 million on $143.1
million of pretax income. The benefit in 2010 was due to
$23.2 million of cellulosic biofuel credits, net, recorded as
an income tax benefit in 2010 as discussed further below.
We also recorded the $2.5 million tax benefit discussed in
the previous paragraph, as well as a $6.4 million
adjustment to reduce tax liabilities resulting from the
expiration of statutes of limitations on uncertain tax
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 memorandum
which concluded that black liquor sold or used in a
taxpayer’s trade or business during calendar year 2009,
qualifies for the cellulosic biofuel producer credit
(“CBPC”). Accordingly, each gallon of black liquor we
produced during calendar year 2009 qualifies for a
non-refundable CBPC of $1.01 per gallon.
In connection with the filing of our 2009 income tax
return, we claimed $23.2 million, net of taxes, of CBPC,
and as a result we received $17.8 million of a cash tax
refund subsequent to the end of 2010. The CBPC claimed
is attributable to black liquor produced and burned from
January 1, 2009 through February 19, 2009, after which
we began mixing black liquor and diesel fuel to qualify for
alternative fuel mixture credits.
In October 2010, the IRS issued further guidance
concluding that both the alternative fuel mixture credit and
the cellulosic biofuel production credit can be claimed in
the same year, but only for different volumes of black
liquor.
With respect to CBPC, although we do not intend to
claim any additional credits, we could amend our 2009
federal tax return and claim additional credits. If we were
to elect to do so, we would be required to return cash
already received from alternative fuel mixture credits, since
we can only claim either the alternative fuel mixture credit
or CBPC. The ability to realize the value of any additional
CBPC depends on future taxable income. We continue to
evaluate opportunities, if any, to claim additional CBPC
from qualifying activities based on the results of our
ongoing operations.
Foreign Currency
In 2010, we owned and
operated manufacturing facilities in Canada, Germany,
France, the United Kingdom and the Philippines. The
functional currency in Canada is the U.S. dollar, in
Germany and France the Euro, in the UK it is the British
Pound Sterling, and in the Philippines it is the Peso. During
2010, Euro functional currency operations generated
approximately 25.5% of our sales and 24.6% of operating
expenses and British Pound Sterling operations represented
Glatfelter 2011 Form 10-K
21
8.8% of net sales and 8.7% of operating expenses. The
translation of the results from international operations into
U.S. dollars is subject to changes in foreign currency
exchange rates. The table below summarizes the
translation impact on reported results that changes in
currency exchange rates had on our non-U.S. based
operations from the conversion of these operation’s
results:
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 assuming currency
exchange rates in 2010 were the same as 2009. It does
not present the impact of certain competitive advantages
or disadvantages of operating or competing in multi-
currency markets.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and requires
significant expenditures for new or enhanced equipment,
for environmental compliance matters including, but not
limited to, the Clean Air Act, to support our research and
development efforts and to support our business strategy.
In addition, we have mandatory debt service requirements
of both principal and interest. The following table
summarizes cash flow information for each of the years
presented:
In thousands
Cash and cash equivalents at
beginning of period
Cash provided by (used for)
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on
cash
Net cash used
Year Ended December 31
2011
2010
$ 95,788
$ 135,420
140,307
(16,830)
(180,140)
(848)
(57,511)
168,005
(264,217)
59,681
(3,101)
(39,632)
Operating cash flow declined in 2011 by $27.7
million primarily due to $37.0 million less cash received
from alternative fuel mixture and cellulosic biofuel credits.
These unfavorable factors were offset by improved working
capital usage and increased operating profit.
Cash used by investing activities declined in
comparison to prior year due to the use, net of cash
acquired, of $228.3 million to acquire Concert Industries.
Capital expenditures increased $28.0 million in the
comparison and totaled $64.5 million 2011. Capital
expenditures are expected to approximate $95 million to
$105 million in 2012 including the rebuild of a
papermaking machine in Germany. In 2011, investing
activities also includes the cash received from the collection
of a $43.2 million installment note receivable.
Net cash used by financing activities in 2011 totaled
$180.1 million due to the early redemption of $100.0
million of bonds and an early redemption premium of $3.6
million, $48.0 million for the repurchase of common stock,
the repayment of a $36.7 million term loan in connection
with the collection of the installment note discussed above,
and dividends paid on our common stock. These actions
were completed using available cash on hand as well as
$27.0 million borrowing under our revolving credit
agreement. In 2010, financing activities provided net cash
of $59.7 million, 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, repaid a $14.0 million remaining balance on a term
loan and paid dividends on common stock.
The following table sets forth our outstanding long-
term indebtedness:
In thousands
December 31
2011
2010
Revolving credit facility, due May 2014
Revolving credit facility, due Nov. 2016
7 1⁄8% Notes, due May 2016
7 1⁄8% Notes, due May 2016 – net of
original issue discount
Term Loan, due January 2013
n/a
$ 27,000
200,000
–
–
$
–
200,000
95,529
36,695
Total long-term debt
Less current portion
227,000
332,224
–
–
Cash and cash equivalents at end of
Long-term debt, excluding current
period
$ 38,277
$ 95,788
portion
$227,000
$332,224
At the end of the 2011, we had $38.3 million in cash
During the fourth quarter of 2011, we completed a
and cash equivalents and $318.4 million available under
our revolving credit agreement, which matures in
November 2016.
number of transactions that affected our outstanding debt:
i) We amended our revolving credit agreement increasing
the amount available from $225 million to $350 million,
22
extended the facility’s maturity from May 2014 to
November 2016 and agreed to a more favorable pricing
grid; ii) we redeemed early $100 million of our 7 1⁄ 8%
Notes at a 3.6% premium to par using, in part, borrowings
under the revolving credit agreement; and iii) completed a
series of actions related to the November 2007 sale of
timberlands the effect of which was the receipt in full of a
$43.2 million note receivable and satisfaction in full of the
$36.7 million Term Loan owed by us.
Our revolving credit facility contains a number of
customary compliance covenants. In addition, the 7 1⁄ 8%
Notes contain cross default provisions that could result in
all such notes becoming due and payable in the event of a
failure to repay debt outstanding under the credit
agreement at maturity, or a default under the credit
agreement, that accelerates the debt outstanding
thereunder. As of December 31, 2011, we met all of the
requirements of our debt covenants. The significant terms
of the debt instruments are more fully discussed in
Item 8 – Financial Statements and Supplementary
Data – Note 16.
During 2011 and 2010, cash dividends paid on
common stock totaled $16.6 million and $16.7 million,
respectively. Our Board of Directors determines what, if
any, dividends will be paid to our shareholders. Dividend
payment decisions are based upon then-existing factors
and conditions and, therefore, historical trends of dividend
payments are not necessarily indicative of future payments.
In April 2011, our Board of Directors authorized a
share repurchase program for up to $50.0 million of our
outstanding common stock. The following table
summarizes share repurchases made under this program
through December 31, 2011:
Authorized amount
Repurchases(1)
Remaining authorization
shares
(thousands)
n/a
3,505,485
$ 50,000
(48,799)
$ 1,201
(1) Amounts reflect trades entered into through December 31, 2011.
Cash spent on settled transactions, excluding commissions, totaled
$47.9 million.
In January 2012, we completed additional share
repurchases fully utilizing the authorized amount.
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 cost to comply with these regulations, as
new regulations are developed or regulatory priorities
change. Currently, we anticipate that we could incur
material capital and operating costs to comply with several
air quality regulations including the U.S. EPA Best Available
Retrofit Technology rule (BART; otherwise known as the
Regional Haze Rule) and the Boiler Maximum Achievable
Control Technology rule (Boiler MACT). For example, on
March 21, 2011, the U. S. Environmental Protection Agency
issued new rules which could require process modifications
and/or installation of air pollution controls on power boilers
at two of our facilities. We are currently reviewing these
rules, and challenges to them filed by others in the court
system, to understand the effect they may have on our
operations if we are required to comply with the rules in
their current form. We are also evaluating options that may
be available to us, such as reducing or curtailing boiler
usage or modifying the types of boilers operated or fuel
consumed. The cost of compliance is likely to be significant.
Our initial estimates to implement viable options could result
in additional capital spending in excess of $30 million,
however, the amount ultimately incurred may be less
depending on the outcome of challenges to current rules or
on our successful implementation of appropriate available
options. In addition, the timing of any additional capital
spending is uncertain. Enactment of new environmental laws
or regulations or changes in existing laws or regulations
could significantly change our estimates.
In addition, we may incur obligations to remove or
mitigate any adverse effects on the environment resulting
from our operations, including the restoration of natural
resources and liability for personal injury and for damages
to property and natural resources. See Item 8 – Financial
Statements and Supplementary Data – Note 22 for a
summary of significant environmental matters.
We expect to meet all of our near and long-term cash
needs from a combination of operating cash flow, cash and
cash equivalents, and our existing credit facilities. However, 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, 2011 and 2010, we had not entered into
any off-balance-sheet arrangements. Financial derivative
instruments to which we are a party and guarantees of
indebtedness, which solely consist of obligations of
subsidiaries and a partnership, are reflected in the
condensed consolidated balance sheets included herein in
Item 8 – Financial Statements and Supplementary Data.
Glatfelter 2011 Form 10-K
23
Contractual Obligations
The following table sets forth contractual obligations as of December 31, 2011:
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
$ 15
4
77
7
$103
2013 to
2014
2015 to
2016
2017 and
beyond
$30
6
44
16
$96
$255
4
1
18
$278
$ –
6
–
35
$41
Total
$300
20
122
76
$518
(1)
(2)
(3)
(4)
(5)
Represents principal and interest payments due on long-term debt, the significant terms of which are discussed in Item 8 – Financial Statements,
Note 16, “Long-term Debt.”
Represents rental agreements for various land, buildings, vehicles, and computer and office equipment.
Represents open purchase order commitments and other obligations, primarily for raw material forward purchases and pulpwood contracts with
minimum annual purchase obligations. In certain situations, prices are subject to variations based on market prices. In such situations, the information
above is based on prices in effect at December 31, 2011 or expectations based on historical experience and/or current market conditions.
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.
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 $29.7 million at December 31, 2011.
Critical Accounting Policies and Estimates
The preceding discussion and analysis of our consolidated
financial position and results of operations is based upon
our consolidated financial statements, which have been
prepared in accordance with accounting principles
generally accepted in the United States of America. The
preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and
liabilities. On an on-going basis, we evaluate our
estimates, including those related to inventories, long-lived
assets, pension and post-retirement obligations,
environmental liabilities and income taxes. We base our
estimates on historical experience and on various other
assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
We believe the following represent the most
significant and subjective estimates used in the preparation
of our consolidated financial statements.
Inventory Reserves We maintain reserves for
excess and obsolete inventories to reflect our inventory at
the lower of its stated cost or market value. Our estimate
for excess and obsolete inventory is based upon our
assumptions about future demand and market conditions.
If actual conditions are less favorable than those we have
projected, we may need to increase our reserves for excess
24
and obsolete inventories. Any increases in our reserves will
adversely impact our results of operations. The
establishment of a reserve for excess and obsolete
inventory establishes a new cost basis in the inventory.
Such reserves are not reduced until the product is sold. If
we are able to sell such inventory, any related reserves
would be reversed in the period of sale.
Long-lived Assets We evaluate the recoverability
of our long-lived assets, including plant, equipment,
timberlands, goodwill and other intangible assets
periodically or whenever events or changes in
circumstances indicate that the carrying amounts may not
be recoverable. Our evaluations include considerations of a
variety of qualitative factors and 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 net periodic benefit
expense, which will result in changes to the recorded benefit
plan assets and liabilities.
Environmental Liabilities We maintain accruals
for losses associated with environmental obligations when
it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated based
on existing legislation and remediation technologies. These
accruals are adjusted periodically as assessment and
remediation actions continue and/or further legal or
technical information develops. Such undiscounted
liabilities are exclusive of any insurance or other claims
against third parties. Recoveries of environmental
remediation costs from other parties, including insurance
carriers, are recorded as assets when their receipt is
assured beyond a reasonable doubt.
Income Taxes We record the estimated future tax
effects of temporary differences between the tax bases of
assets and liabilities and amounts reported in our balance
sheets, as well as operating loss and tax credit carry
forwards. These deferred tax assets and liabilities are
measured using enacted tax rates and laws that will be in
effect when such amounts are expected to reverse or be
utilized. We regularly review our deferred tax assets for
recoverability based on historical taxable income, projected
future taxable income, the expected timing of the reversals
of existing temporary differences and tax planning
strategies. If we are unable to generate sufficient future
taxable income, or if there is a material change in the
actual effective tax rates or time period within which the
underlying temporary differences become taxable or
deductible, we could be required to increase the valuation
allowance against our deferred tax assets, which may
result in a substantial increase in our effective tax rate and
a material adverse impact on our reported results.
Significant judgment is required in determining our
worldwide provision for income taxes and recording the
related assets and liabilities. In the ordinary course of our
business, there are many transactions and calculations
where the ultimate tax determination is less than certain.
We and our subsidiaries are examined by various Federal,
State and foreign tax authorities. We regularly assess the
potential outcomes of these examinations and any future
examinations for the current or prior years in determining
the adequacy of our provision for income taxes. We
continually assess the likelihood and amount of potential
adjustments and adjust the income tax provision, the
current liability and deferred taxes in the period in which
the facts that give rise to a revision become known.
Other significant accounting policies, not involving
the same level of uncertainties as those discussed above,
are nevertheless important to an understanding of the
Consolidated Financial Statements. Refer to Item 8 –
Financial Statements and Supplementary Data – Notes to
Consolidated Financial Statements for additional
accounting policies.
Glatfelter 2011 Form 10-K
25
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dollars in thousands
Long-term debt
Average principal outstanding
At fixed interest rates
2012
Year Ended December 31
2014
2013
2015
2016
At December 31, 2011
Carrying Value Fair Value
$200,000
$200,000
$200,000
$200,000
$76,923
$200,000
$204,000
At variable interest rates
27,000
27,000
27,000
27,000
22,846
27,000
27,000
$227,000
$231,000
Weighted-average interest rate
Fixed interest rate debt
Variable interest rate debt
7.13%
2.04
7.13%
2.04
7.13%
2.04
7.13%
2.04
7.13%
2.04
The table above presents the average principal
outstanding and related interest rates for the next five
years for debt outstanding as of December 31, 2011. Fair
values included herein have been determined based upon
rates currently available to us for debt with similar terms
and remaining maturities.
Our market risk exposure primarily results from
changes in interest rates and currency exchange rates. At
December 31, 2011, we had long-term debt outstanding
of $227.0 million, of which $27.0 million or 11.9% was at
variable interest rates. Variable-rate debt outstanding
represents borrowings under our revolving credit
agreement that accrues interest based on one month
LIBOR plus a margin. At December 31, 2011, the
weighted-average interest rate paid was approximately
2.04%. A hypothetical 100 basis point increase or
decrease in the interest rate on variable rate debt would
increase or decrease annual interest expense by $0.3
million.
As part of our overall risk management practices, we
enter into financial derivatives primarily designed to either
i) hedge foreign currency risks associated with forecasted
transactions – “cash flow hedges”; or ii) mitigate the
impact that changes in currency exchange rates have on
intercompany financing transactions and foreign currency
denominated receivables and payables – “foreign currency
hedges.” For a more complete discussion of this activity,
refer to Item 8 – Financial Statements and Supplementary
Data – Note 19.
We are subject to certain risks associated with
changes in foreign currency exchange rates to the extent
our operations are conducted in currencies other than the
U.S. dollar. During 2011, Euro functional currency
operations generated approximately 28.7% of our sales
and 27.2% of operating expenses and British
Pound Sterling operations represented 7.6% of net sales
and 7.4% of operating expenses.
26
ITEM 8 FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Management of P. H. Glatfelter Company (the
“Company”) is responsible for establishing and
maintaining adequate internal control over financial
reporting. The Company’s internal control over financial
reporting is a process designed under the supervision of
the chief executive and chief financial officers to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company’s financial
statements for external reporting purposes in accordance
with accounting principles generally accepted in the United
States.
As of December 31, 2011, management conducted
an assessment of the effectiveness of the Company’s
internal control over financial reporting based on the
framework established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Management has determined that the Company’s internal
control over financial reporting as of December 31, 2011,
is effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
Company’s financial statements for external reporting
purposes in accordance with accounting principles
generally accepted in the United States.
The Company’s internal control over financial
reporting includes policies and procedures that pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect transactions and dispositions of
assets; provide reasonable assurances that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles
generally accepted in the United States, and that receipts
and expenditures are being made only in accordance with
authorizations of management; and provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on our
financial statements.
The Company’s internal control over financial
reporting as of December 31, 2011, has been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their reports appearing
herein, which expresses an unqualified opinion on the
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2011.
The Company’s management, including the chief
executive officer and chief financial officer, does not expect
that our internal control over financial reporting will
prevent or detect all errors and all frauds. A control system,
no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control
system’s objectives will be met. The design of a control
system must reflect the fact that there are resource
constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that
all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations
include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or
more people, or by management override of the controls.
The design of any system of controls is based, in part, on
certain assumptions about the likelihood of future events,
and there can be no assurance that any design will
succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over
time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance
with policies or procedures.
Glatfelter 2011 Form 10-K
27
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted
accounting principles, and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of the inherent limitations of internal control
over financial reporting, including the possibility of
collusion or improper management override of controls,
material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections
of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are
subject to the risk that the controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2011, based on the criteria
established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial
statements and financial statement schedule as of and for
the year ended December 31, 2011 of the Company and
our report dated March 9, 2012 expressed an unqualified
opinion on those financial statements and financial
statement schedule.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 9, 2012
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 December 31, 2011, based on the criteria
established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial
reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the
design and operating effectiveness of internal control
based on the assessed risk, and performing such other
procedures as we considered necessary in the
circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting
is a process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and
effected by the company’s board of directors,
management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial
reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are
28
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders of
P. H. Glatfelter Company
We have audited the accompanying consolidated
balance sheets of P.H. Glatfelter Company and subsidiaries
(the “Company”) as of December 31, 2011 and 2010, and
the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2011. Our audits
also included the financial statement schedule listed in the
Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on
the financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing
the accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of P. H. Glatfelter Company and
subsidiaries as of December 31, 2011 and 2010, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 2011, in
conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over
financial reporting as of December 31, 2011, based on the
criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report
dated March 9, 2012 expressed an unqualified opinion on
the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 9, 2012
Glatfelter 2011 Form 10-K
29
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
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
Year Ended December 31
2010
2011
2009
$1,603,154 $1,455,331
10,653
9,344
$1,184,010
13,332
1,612,498
1,406,305
1,465,984
1,279,737
1,197,342
927,578
206,193
124,871
(3,950)
85,272
(31,794)
666
(3,299)
(34,427)
50,845
8,151
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
$
42,694 $
54,434
$ 123,442
45,228
45,794
45,922
46,374
45,678
45,774
$
0.94 $
0.93
$
1.19
1.17
2.70
2.70
The accompanying notes are an integral part of the consolidated financial statements.
30
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except par values
Current assets
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts:
Assets
2011 – $2,861; 2010 – $3,118)
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
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: 2011 – 11,711,536;
2010 – 8,385,772)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Less cost of common stock in treasury
Total shareholders’ equity
December 31
2011
2010
$
38,277
$
95,788
135,412
206,707
42,017
422,413
601,950
112,562
141,208
201,077
64,617
502,690
608,170
230,887
$1,136,925
$1,341,747
$
–
109,490
3,902
250
97,598
211,240
227,000
69,791
138,490
646,521
$
798
98,594
4,190
248
109,316
213,146
332,224
94,918
149,017
789,305
–
–
544
51,477
775,825
(166,741)
661,105
(170,701)
490,404
544
48,145
749,453
(121,247)
676,895
(124,453)
552,442
Total liabilities and shareholders’ equity
$1,136,925
$1,341,747
The accompanying notes are an integral part of the consolidated financial statements.
Glatfelter 2011 Form 10-K
31
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, net of unfunded benefits paid
Deferred income taxes
Gains on dispositions of plant, equipment and timberlands, net
Share-based compensation
Cellulosic biofuel and alternative fuel mixture credits
Change in operating assets and liabilities
Accounts receivable
Inventories
Prepaid expenses 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 (used) provided by investing activities
Financing activities
(Repayment of) proceeds from $100 million 7 1⁄ 8% note offering
Payments of credit facility and note offering costs
Net borrowings under (repayments of) revolving credit facility
Repayments of $100 million term loan facility
Net repayments of other short-term debt
Repayment of Term Loan due January 2013
Repayment of Term Loan due March 2013
Repurchases of common stock
Payment of dividends
Proceeds and excess tax benefits from stock options exercised and
proceeds from government grants
Net cash (used) provided 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
2011
2010
2009
$ 42,694
$ 54,434
$123,442
69,313
8,838
2,127
333
(3,950)
5,762
17,833
3,771
(7,280)
2,115
13,606
(57)
(2,516)
(12,282)
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
140,307
168,005
163,868
(64,491)
4,491
43,170
–
(36,491)
564
–
(228,290)
(26,257)
951
37,850
–
(16,830)
(264,217)
12,544
(103,563)
(1,672)
27,000
–
(798)
(36,695)
–
(48,033)
(16,611)
232
(180,140)
(848)
(57,511)
95,788
95,000
(5,340)
–
(14,000)
(3,208)
–
–
–
(16,746)
3,975
59,681
(3,101)
(39,632)
135,420
–
–
(6,725)
(16,000)
(2,008)
–
(34,000)
–
(16,596)
–
(75,329)
2,103
103,186
32,234
$ 38,277
$ 95,788
$135,420
$ 24,191
(8,344)
$ 23,193
(40,265)
$ 17,338
16,634
The accompanying notes are an integral part of the consolidated financial statements.
32
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2011, 2010 and 2009
In thousands
Balance at January 1, 2009
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
Balance at December 31, 2009
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
Balance at December 31, 2010
Comprehensive income
Net income
Foreign currency translation adjustments
Deferred gains on cash flow hedges, net of tax
Change in benefit plans’ net funded status, net of taxes of
$22,672
Other comprehensive income (loss)
Comprehensive income (loss)
Tax effect on employee stock options exercised
Cash dividends declared ($0.36 per share)
Share-based compensation expense
Repurchase of common shares
Delivery of treasury shares
RSUs
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
$ 45,806
$ 605,001
$ (176,133)
$ (132,511)
$ 342,707
123,442
(16,678)
11,941
44,307
56,248
3,502
(1,483)
(995)
(84)
123,442
56,248
179,690
(16,678)
3,502
(203)
1,522
164
1,280
2,517
248
544
46,746
711,765
(119,885)
(128,466)
510,704
(17,227)
15,865
(1,362)
54,434
(16,746)
(50)
3,962
(2,152)
(318)
(16)
(27)
54,434
(1,362)
53,072
(50)
(16,746)
3,962
(490)
1,642
163
185
1,662
1,960
179
212
544
48,145
749,453
(121,247)
(124,453)
552,442
42,694
42,694
(10,160)
1,185
(36,519)
(45,494)
(45,494)
(2,800)
90
(16,322)
3,633
(48,904)
–
1,967
164
134
(48,904)
215
2,108
177
156
(16,322)
90
3,633
(215)
(141)
(13)
(22)
Balance at December 31, 2011
$544
$51,477
$775,825
$(166,741)
$(170,701)
$490,404
The accompanying notes are an integral part of the consolidated financial statements.
Glatfelter 2011 Form 10-K
33
P. H. GLATFELTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
P. H. Glatfelter Company and subsidiaries
(“Glatfelter”) is a manufacturer of specialty papers and
fiber-based engineered materials. Headquartered in York,
Pennsylvania, our manufacturing facilities are located in
Spring Grove, Pennsylvania; Chillicothe and Freemont,
Ohio; Gatineau, Quebec, Canada; Gloucestershire (Lydney),
England; Caerphilly, Wales; Gernsbach and Falkenhagen,
Germany; Scaër, France; and the Philippines. Our products
are marketed worldwide, either through wholesale paper
merchants, brokers and agents, or directly to customers.
2. ACCOUNTING POLICIES
Principles of Consolidation The consolidated
financial statements include the accounts of Glatfelter and
its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated.
Accounting Estimates
The preparation of
financial statements in conformity with accounting
principles generally accepted in the United States of
America requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingencies as of the
balance sheet date and the reported amounts of revenues
and expenses during the reporting period. Management
believes the estimates and assumptions used in the
preparation of these consolidated financial statements are
reasonable, based upon currently available facts and
known circumstances, but recognizes that actual results
may differ from those estimates and assumptions.
Cash and Cash Equivalents We classify all
highly liquid instruments with an original maturity of three
months or less at the time of purchase as cash equivalents.
Inventories
Inventories are stated at the lower of
cost or market. Raw materials, in-process and finished
inventories of our U.S. manufacturing operations are
valued using the last-in, first-out (LIFO) method, and the
supplies inventories are valued principally using the
average-cost method. Inventories at our foreign operations
are valued using the average cost method.
34
For financial
Plant, Equipment and Timberlands
reporting purposes, depreciation is computed using the
straight-line method over the estimated useful lives of the
respective assets.
The range of estimated service lives used to calculate
financial reporting depreciation for principal items of plant
and equipment are as follows:
Buildings
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
undiscounted cash flows is less than the carrying value of
the asset, the asset’s fair value is estimated and an
impairment loss is recognized for any deficiencies.
Goodwill is reviewed, on a discounted cash flow basis,
during the third quarter of each year for impairment.
Impairment losses, if any, are recognized for the amount by
which the carrying value of the reporting unit exceeds its
fair value. The carrying value of a reporting unit is defined
using an enterprise premise which is generally determined
by the difference between the unit’s assets and operating
liabilities.
Asset Retirement Obligations
In accordance
with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) No. 410,
Asset Retirement and Environmental Obligations,
we accrue asset retirement obligations in the period in
which obligations relating to future asset retirements are
incurred and when a reasonable estimate of fair value can
be determined. Under these standards, costs are to be
accrued at estimated fair value, and a related long-lived
asset is capitalized. Over time, the liability is accreted to its
settlement value and the capitalized cost is depreciated
over the useful life of the related asset for which the
obligation exists. Upon settlement of the liability, we
recognize a gain or loss for any difference between the
settlement amount and the liability recorded.
allowances are recorded as sales deductions in the period
in which the related revenue is recognized.
Income Taxes
Income taxes are determined using
the asset and liability method of accounting for income
taxes in accordance with FASB ASC 740 Income Taxes
(“ASC 740”). Under ASC 740, tax expense includes U.S.
and international income taxes plus the provision for U.S.
taxes on undistributed earnings of international
subsidiaries not deemed to be permanently invested. Tax
credits and other incentives reduce tax expense in the year
the credits are claimed. Certain items of income and
expense are not reported in tax returns and financial
statements in the same year. The tax effect of such
temporary differences is reported in deferred income taxes.
Deferred tax assets are recognized if it is more likely than
not that the assets will be realized in future years. We
establish a valuation allowance for deferred tax assets for
which realization is not more likely than not.
Income tax contingencies are accounted for in
accordance with FASB ASC 740-10-20 Income Taxes.
Significant judgment is required in determining our
worldwide provision for income taxes and recording the
related assets and liabilities. In the ordinary course of our
business, there are many transactions and calculations
where the ultimate tax determination is less than certain.
We and our subsidiaries are examined by various Federal,
State, and foreign tax authorities. We regularly assess the
potential outcomes of these examinations and any future
examinations for the current or prior years in determining
the adequacy of our provision for income taxes. We
continually assess the likelihood and amount of potential
adjustments and record any necessary adjustments in the
period in which the facts that give rise to a revision
become known.
Treasury Stock Common stock purchased for
treasury is recorded at cost. At the date of subsequent
reissue, the treasury stock account is reduced by the cost of
such stock on the weighted-average cost basis.
Foreign Currency Translation Foreign currency
translation gains and losses and the effect of exchange
rate changes on transactions designated as hedges of net
foreign investments are included as a component of other
comprehensive income (loss). Transaction gains and losses
are included in income in the period in which they occur.
Revenue Recognition We recognize revenue on
product sales when the customer takes title and assumes
the risks and rewards of ownership. Estimated costs for
sales incentives, discounts and sales returns and
Revenue from energy sales is recognized when
electricity is delivered to the customer. Certain costs
associated with the production of electricity, such as fuel,
labor, depreciation and maintenance are netted against
energy sales for presentation on the Consolidated
Statements of Income. Our fixed-price contract to sell
electricity generated in excess of our own use expired
March 31, 2010. Subsequent to the expiration, we now
sell excess power at market-rates.
Revenue from renewable energy credits is recorded
under the caption “Energy and related sales” in the
Consolidated Statements of Income and is recognized
when all risks, rights and rewards to the certificate are
transferred to the counterparty.
Environmental Liabilities Accruals for losses
associated with environmental obligations are recorded
when it is probable that a liability has been incurred and
the amount of the liability can be reasonably estimated
based on existing legislation and remediation technologies.
Costs related to environmental remediation are charged to
expense. These accruals are adjusted periodically as
assessment and remediation actions continue and/or
further legal or technical information develops. Such
undiscounted liabilities are exclusive of any insurance or
other claims against third parties. Environmental costs are
capitalized if the costs extend the life of the asset, increase
its capacity and/or mitigate or prevent contamination from
future operations. Recoveries of environmental remediation
costs from other parties, including insurance carriers, are
recorded as assets when their receipt is assured beyond a
reasonable doubt.
Accumulated Other Comprehensive Income
The amounts reported on the consolidated Statement of
Shareholders’ Equity for Accumulated Other
Comprehensive Loss at December 31, 2011 consisted of a
loss of $157.9 million from additional defined benefit
liabilities, net of tax, $10.0 million of losses from foreign
currency translation adjustments and $1.2 million of
unrealized gains on cash flow hedges, net of tax.
Earnings Per Share Basic earnings per share is
computed by dividing net income by the weighted-average
common shares outstanding during the respective periods.
Diluted earnings per share is computed by dividing net
income by the weighted-average common shares and
common share equivalents outstanding during the period.
The dilutive effect of common share equivalents is
considered in the diluted earnings per share computation
using the treasury stock method.
Glatfelter 2011 Form 10-K
35
Financial Derivatives and Hedging
Activities We use financial derivatives to manage
exposure to changes in foreign currencies. In accordance
with FASB ASC 815 Derivatives and Hedging (“ASC
815”), we record all derivatives on the balance sheet at
fair value. The accounting for changes in the fair value of
derivatives depends on the intended use of the derivative,
whether we have elected to designate a derivative in a
hedging relationship and apply hedge accounting, and
whether the hedging relationship has satisfied the criteria
necessary to apply hedge accounting.
Cash Flow Hedges
The effective portion of the
gain or loss on derivative instruments designated and
qualifying as a hedge of the exposure to variability in
expected future cash flows related to forecasted
transactions is deferred and reported as a component of
accumulated other comprehensive income (loss). Deferred
gains or losses are reclassified to our results of operations
at the time the hedged forecasted transaction is recorded
in our results of operations. The effectiveness of cash flow
hedges is assessed at inception and quarterly thereafter. If
the instrument becomes ineffective or it becomes probable
that the originally – forecasted transaction will not occur,
the related change in fair value of the derivative instrument
is also reclassified from accumulated other comprehensive
income (loss) and recognized in earnings.
Fair Value of Financial Instruments Under the
accounting for fair value measurements and disclosures, a
fair value hierarchy was established that prioritizes the
inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or
liabilities (level 1 measurements) and the lowest priority to
unobservable inputs (level 3 measurements). A financial
instrument’s level within the fair value hierarchy is based
on the lowest level of any input that is significant to the
fair value measurement.
The fair value hierarchy consists of three broad levels,
which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs
(Level 3). The three levels of the fair value hierarchy are
described below:
Level 1 – Unadjusted quoted prices in active markets that
are accessible at the measurement date for
identical, unrestricted assets or liabilities.
Level 2 – Inputs other than quoted prices included within
Level 1 that are observable for the asset or
liability, either directly or indirectly, including
36
quoted prices for similar assets or liabilities in
active markets; quoted prices for identical or
similar assets or liabilities in markets that are not
active; inputs other than quoted prices that are
observable for the asset or liability (e.g., interest
rates); and inputs that are derived principally
from or corroborated by observable market data
by correlation or other means.
Level 3 – Inputs that are both significant to the fair value
measurement and unobservable.
Recently Issued Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards
Update (“ASU”) No. 2011-05, “Presentation of
Comprehensive Income.” This ASU is designed to
improve the comparability and transparency of other
comprehensive income components. The guidance provides
an option to present total comprehensive income, the
components of net income and the components of other
comprehensive income in a single continuous statement or
two separate but consecutive statements. This ASU
eliminates the option to present other comprehensive
income components as part of the statement of changes in
shareholders’ equity. The provisions of this ASU will be
applied retrospectively for interim and annual periods
beginning after December 15, 2011. Early application is
permitted. We are currently evaluating the requirements of
this update and have not yet determined which
presentation option we will elect.
In September 2011, the FASB updated FASB ASC
350, Intangibles – Goodwill and Other to provide an
entity the option, when evaluating goodwill and other
assets for possible impairment, to first assess qualitative
factors to determine whether the existence of events or
circumstances leads to a determination that it is more likely
than not that the fair value of a reporting unit is less than
its carrying amount. If, after completing this assessment,
an entity determines it is not more likely than not that the
fair value of a reporting unit is less than its carrying
amount, then performing the two-step impairment test is
unnecessary. The amendments are effective for annual and
interim goodwill impairment test performed for fiscal years
beginning after December 15, 2011. We are currently
evaluating the requirements of this update but do not
anticipate it will have a material impact on our
consolidated financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04, “Fair Value
Measurement (Topic 820): Amendments to Achieve
Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRS,” which
provides common requirements for measuring fair value
and disclosing information about fair value measurements
in accordance with U.S. GAAP and International Financial
Reporting Standards. We are required to adopt this
guidance beginning with our quarterly financial statements
for the quarter ending March 31, 2012 and we do not
expect it to have a material impact on our consolidated
financial statements.
3. ACQUISITIONS
On February 12, 2010, we completed the acquisition
of all the issued and outstanding stock of Concert
Industries Corp. (“Concert”), a manufacturer of highly
absorbent cellulose based airlaid non-woven materials, for
cash totaling $231.1 million based on the currency
exchange rates on the closing date, and net of post-closing
working capital adjustments. Concert has operations
located in Gatineau, Quebec, Canada and Falkenhagen,
Brandenburg, Germany. Annual revenues totaled $203.0
million in 2009.
Concert manufactures highly absorbent cellulose
based airlaid non-woven materials used in products such
as feminine hygiene and adult incontinence products,
pre-moistened cleaning wipes, food pads, napkins,
tablecloths, and baby wipes. The acquisition of Concert
affords us the opportunity to grow with our customers who
are the industry leaders in feminine hygiene and adult
incontinence products. We believe that our acquisition of
Concert provides us with an industry-leading global
business that sells highly specialized, engineered fiber-
based materials to niche markets with substantial barriers
to entry.
The share purchase agreement provides for, among
other terms, indemnification provisions for claims that may
arise, including among others, uncertain tax positions and
other third party claims.
During 2010, we and the sellers reached agreement
on post-closing 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 determined that
certain adjustments were required to be made to the
February 12, 2010 original allocation of the purchase price
to assets acquired and liabilities assumed. The adjustments
included $0.6 million recorded in 2011 to reduce the fair
value of acquired accounts receivable.
The following summarizes the impact of the
adjustments recorded since the original estimated purchase
price allocation together with the final purchase price
allocation:
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
As originally
presented
Cumulative
Adjustments
Final
$
2,792
24,703
28,034
$
– $
(583)
–
2,792
24,120
28,034
5,941
(1,316)
4,625
177,253
3,138
20,738
262,599
25,322
1,267
212
26,801
9,101
1,902
186,354
5,040
(5,830)
14,908
3,274
265,873
611
4,069
3,310
7,990
25,933
5,336
3,522
34,791
Total purchase price
$235,798
$(4,716) $231,082
The adjustments set forth above did not materially
impact previously reported results of operations, earnings
per share, or cash flows and, therefore, were not
retrospectively reflected in the condensed consolidated
financial statements.
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 customer sales contracts and relationships.
Deferred tax assets reflect the estimated value of future tax
deductions acquired in the transaction.
Acquired property plant and equipment are being
depreciated on a straight-line basis with estimated
remaining lives ranging from 5 years to 40 years.
Intangible assets are being amortized on a straight-line
basis over an estimated remaining life of 11 to 20 years
reflecting the expected economic life.
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
the caption “Selling, general and administrative expenses”
Glatfelter 2011 Form 10-K
37
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, was 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 recorded all alternative
fuel mixture credits as a reduction to cost of goods sold in
2009.
The alternative fuel mixture credit expired on
December 31, 2009. For information related to the
Cellulosic Biofuel Credit, see Note 8 – Income Taxes.
5.
ENERGY AND RELATED SALES, NET
We sell excess power generated by the Spring Grove,
PA facility. Prior to the March 31, 2010 expiration of a
long-term contract, all sales were at a fixed price.
Subsequently, we sell excess power at prevailing market
rates. We also sell renewable energy credits generated by
the Spring Grove, PA and Chillicothe, OH facilities
representing sales of certified credits earned related to
burning renewable sources of energy such as black liquor
and wood waste.
The following table summarizes this activity for each
of the past three years:
In thousands
Energy sales
Costs to produce
Net energy sales
Renewable energy credits
Total energy and related
2011
2010
2009
$10,992
(9,319)
$ 14,296
(10,403)
$ 20,128
(11,883)
1,673
7,671
3,893
6,760
8,245
5,087
sales, net
$ 9,344
$ 10,653
$ 13,332
in the accompanying consolidated statements of income.
Deferred financing fees incurred in connection with issuing
debt related to the acquisition totaled $3.0 million. The
unamortized fees are recorded in the accompanying
consolidated balance sheet under the caption “Other
assets”.
In addition, in connection with the Concert
acquisition, we entered into a series of forward foreign
currency contracts to hedge the acquisition’s Canadian
dollar purchase price. All contracts were settled for cash
during the first quarter of 2010 and resulted in a $3.4
million loss, net of realized currency translation gains,
which is presented under the caption “Other – net” in the
accompanying condensed consolidated statements of
income.
Our results of operations for 2010 include the results
of Concert prospectively from the February 12, 2010 date
of acquisition. All such results are reported herein as the
Advanced Airlaid Materials business unit, a new reportable
segment. Revenue and operating income of this operation
included in our consolidated statements of income totaled
$252.0 million and $13.4 million, respectively in 2011 and
$193.5 million and $4.4 million, respectively, for 2010.
The unaudited pro-forma results presented below
include the effects of the acquisition as if it had been
consummated as of January 1, 2009. The pro forma results
include the amortization associated with the acquired
intangible assets and interest expense associated with debt
used to fund the acquisition, as well as fair value
adjustments for plant, equipment and timberlands. To
better reflect the combined operating results, material
non-recurring charges directly attributable to the
acquisition have been excluded. The unaudited pro forma
financial information below is not necessarily indicative of
either future results of operations or results that might
have been achieved.
In thousands, except per share
Year ended December 31
2009
2010
Pro forma
Net sales
Net income
Diluted earnings per share
$1,480,980
69,116
1.49
$1,388,120
135,713
2.96
For purposes of presenting the above pro forma
financial information, non-recurring legal, professional and
transaction costs directly related to the acquisition have
been eliminated. This pro forma financial information is not
necessarily indicative of what the operating results would
have been had the acquisition been completed at the
beginning of the respective period nor is it indicative of
future results.
38
6. GAIN ON DISPOSITIONS OF PLANT,
EQUIPMENT AND TIMBERLANDS
During 2011, 2010 and 2009, we completed the
following sales of assets:
Dollars in thousands
Acres
Proceeds
Gain
2011
Timberlands
Other
Total
2010
Timberlands
Other
Total
2009
Timberlands
Other
Total
942
n/a
$3,821
670
$3,590
360
$4,491
$3,950
164
n/a
$ 387
177
$ 373
80
$ 564
$ 453
319
n/a
$ 951
—
$ 906
(8)
$ 951
$ 898
7.
EARNINGS PER SHARE
The following table sets forth the details of basic and
diluted earnings per share (EPS):
In thousands, except per share
2011
2010
2009
Net income
$42,694 $54,434 $123,442
Weighted average common shares
outstanding used in basic EPS
Common shares issuable upon
exercise of dilutive stock options,
restricted stock awards and
performance awards
Weighted average common shares
outstanding and common share
equivalents used in diluted EPS
Basic EPS
Diluted EPS
45,228
45,922
45,678
566
452
96
45,794
46,374
45,774
$ 0.94 $
0.93
1.19 $
1.17
2.70
2.70
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
2011
891
2010
1,405
2009
2,215
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 provision/(benefit) for income taxes from
operations consisted of the following:
In thousands
Current taxes
Federal
State
Foreign
Deferred taxes and other
Federal
State
Foreign
Year Ended December 31
2010
2009
2011
$ 6,943
(1,762)
2,637
$ (8,238)
(392)
4,540
$ 29,848
4,050
8,787
7,818
(4,090)
42,685
(3,908)
(286)
4,527
(17,530)
(131)
846
(23,943)
3,760
(2,798)
333
(16,815)
(22,981)
Income tax provision/(benefit) $ 8,151
$(20,905)
$ 19,704
The amounts set forth above for total deferred taxes
and other included a deferred tax benefit of $1.5 million in
2011, a deferred tax benefit of $17.6 million in 2010 and
$23.0 million in 2009. Other taxes totaled an expense of
$1.8 million, $0.8 million, and $0.0 million in 2011, 2010
and 2009, respectively, associated with the deferred tax
impact of uncertain tax positions.
The following are the domestic and foreign
components of pretax income from operations:
In thousands
United States
Foreign
Year Ended December 31
2010
2009
2011
$ (991)
51,836
$ 2,384
31,145
$122,657
20,489
Total pretax income
$50,845
$33,529
$143,146
Glatfelter 2011 Form 10-K
39
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,
Year Ended December 31
2009
2010
2011
35.0% 35.0% 35.0%
0.7
(6.8)
0.9
(2.0)
1.4
(4.9)
1.5
(7.8)
0.7
(0.5)
(0.3)
(1.8)
net
(11.6)
(12.4)
8.0
Cellulosic biofuel credit, net of
incremental state tax and
manufacturing deduction benefit
Adjustment for prior year estimates
Alternative fuel mixture credits
Valuation allowance
Other
–
–
–
3.2
(3.4)
(69.3)
(6.8)
–
–
1.0
–
–
(26.4)
–
(0.9)
Provision/(benefit) for income taxes
16.0% (62.3)% 13.8%
The sources of deferred income taxes were as follows
at December 31:
2011
2010
Current
Asset
(Liability)
Non
current
Asset
(Liability)
Current
Asset
(Liability)
Non-current
Asset
(Liability)
$ 5,908
3,481
$ 10,595
5,064
$ 5,628
3,850
$ 10,422
4,070
1,325
–
342
–
125
(246)
3,313
18,467
(96,798)
(18,190)
–
–
1,985
47,294
1,807
692
449
–
348
78
8,002
14,248
(31,583)
20,854
18,225
(98,012)
(43,428)
(14,030)
–
5,617
57,547
(59,589)
In thousands
Reserves
Compensation
Post-retirement
benefits
Property
Pension
Installment sales
Inventories
Other
Tax carryfwds
Subtotal
Valuation
allowance
(1,586)
(25,946)
(2,925)
(22,895)
Total
$12,662
$(57,529) $17,929
$(82,484)
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
Deferred income taxes
December 31
2011
$12,662
12,262
69,791
2010
$17,929
12,434
94,918
At December 31, 2011, we had state and foreign tax
net operating loss (“NOL”) carryforwards of $76.2 million
40
and $258.1 million, respectively. These NOL carryforwards
are available to offset future taxable income, if any. The
state NOL carryforwards expire between 2014 and 2031;
certain foreign NOL carryforwards expire between 2013
and 2031.
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
investment tax credits of $4.0 million which expire
between 2019 and 2031.
We have established a valuation allowance of $27.5
million against the net deferred tax assets, primarily due to
the uncertainty regarding the ability to utilize state and
foreign tax NOL carryforwards and certain deferred foreign
tax credits.
Tax credits and other incentives reduce tax expense in
the year the credits are claimed. In 2011, we recorded tax
credits of $1.0 million related to research and development
credits and the fuels tax credits. Similar tax credits of $2.6
million were recorded in both 2010 and 2009.
At December 31, 2011 and 2010, unremitted
earnings of subsidiaries outside the United States deemed
to be permanently reinvested totaled $197.4 million and
$160.8 million, respectively. Because the unremitted
earnings of subsidiaries are deemed to be permanently
reinvested as of December 31, 2011, and because we have
no need for or plans to repatriate such earnings, no
deferred tax liability has been recognized in our
consolidated financial statements. The determination of
additional taxes that have not been provided is not
practicable.
In March 2010, our application to be registered as a
cellulosic biofuel producer was approved by the Internal
Revenue Service. The U.S. Internal Revenue Code provides
a non refundable tax credit equal to $1.01 per gallon for
taxpayers that produce cellulosic biofuel. In a
memorandum issued in July 2010, the Internal Revenue
Service issued guidance concluding that black liquor sold
or used before January 1, 2010, qualifies for the cellulosic
biofuel producer credit (“CBPC”) and no further
certification of eligibility was needed.
In connection with the filing of our 2009 income tax
return, we claimed $23.2 million, net of taxes, of CBPC.
The CBPC claimed is attributable to black liquor produced
and burned from January 1, 2009 through February 19,
2009, after which we began mixing black liquor and diesel
fuel to qualify for alternative fuel mixture credits.
With respect to CBPC, although we do not intend to
The amount of income taxes we pay is subject 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, 2011, 2010 and 2009, we had
$29.7 million, $38.7 million and $40.1 million of gross
unrecognized tax benefits, respectively. As of
December 31, 2011, if such benefits were to be
recognized, approximately $29.7 million would be
recorded as a component of income tax expense, thereby
affecting our effective tax rate.
A reconciliation of the beginning and ending
balances of the total amounts of gross unrecognized tax
benefits is as follows:
In millions
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 statutes of limitations
2011
2010
2009
$38.7
0. 8
(7.5)
$40.1 $29.2
0.7
–
1.6
(1.8)
–
–
1.1
(0.1)
(3.3)
3.2
(2.2)
1.9
–
(4.1)
–
–
11.2
(0.8)
(0.2)
Balance at December 31
$29.7
$38.7 $40.1
(1)
in connection with purchase accounting for the Concert transaction,
we recorded a $2.2 million reserve for an uncertain tax position and
at the same time recorded a receivable from the seller due to an
indemnification agreement. Prior to the end of 2010, a tax ruling
was issued that eliminated this tax risk resulting in the elimination of
both items.
We, or one of our subsidiaries, file income tax returns
with the United States Internal Revenue Service, as well as
various state and foreign authorities. The following table
summarizes tax years that remain subject to examination
by major jurisdiction:
Jurisdiction
United States
Federal
State
Canada(1)
Germany(1)
France
United Kingdom
Philippines
Open Tax Years
Examinations not yet
initiated
Examination in
progress
2008 – 2011
2005 – 2011
2007 – 2011
2007 – 2011
2009 – 2011
2008 – 2011
2010 – 2011
N/A
2004, 2006, 2008, 2009
2006 – 2009
2004 – 2009
N/A
N/A
2009
(1)
includes provincial or similar local jurisdictions, as applicable.
ongoing audits by federal, state and foreign tax
authorities, which often result in proposed assessments.
Management performs a comprehensive review of its
global tax positions on a quarterly basis and accrues
amounts for uncertain tax positions. Based on these
reviews and the result of discussions and resolutions of
matters with certain tax authorities and the closure of tax
years subject to tax audit, reserves are adjusted as
necessary. However, future results may include favorable or
unfavorable adjustments to our estimated tax liabilities in
the period the assessments are determined or resolved or
as such statutes are closed. Due to potential for resolution
of federal, state and foreign examinations, and the
expiration of various statutes of limitation, it is reasonably
possible our gross unrecognized tax benefits balance may
decrease within the next twelve months by a range of zero
to $5.2 million. Substantially all of this range relates to tax
positions taken in the U.S., the U.K. and in Germany.
We recognize interest and penalties related to
uncertain tax positions as income tax expense. We
recorded a benefit of $2.1 million during 2011, and in
total, as of December 31, 2011, had recognized a liability
for interest of $1.7 million. During 2010, we accrued
minimal interest, and in total, as of December 31, 2010
had recognized a liability for interest of $3.8 million.
During 2009, we accrued interest of $1.1 million and had
recognized a liability for interest of $3.8 million at
December 31, 2009. We did not record any penalties
associated with uncertain tax positions during 2011, 2010
or 2009.
9.
STOCK-BASED COMPENSATION
On April 29, 2009, our shareholders approved the
P. H. Glatfelter Amended and Restated Long Term
Incentive Plan (the “LTIP”) authorizing, 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, 2011, there were 2,202,444 shares of
common stock available for future issuance under the LTIP.
Since the approval of the LTIP, we have issued to
eligible participants restricted stock units, performance
share awards and stock only stock appreciation rights
(“SOSARs”).
Glatfelter 2011 Form 10-K
41
Restricted Stock Units (“RSUs”) and
Performance Share Awards (“PSAs”) Awards of
RSUs and PSAs are made under our LTIP. The vesting of
RSUs is based solely on the passage of time, generally on a
graded scale over a three, four, and five-year period. PSAs
were first issued in March 2011 to members of senior
management and cliff vest December 31, 2013, assuming
the achievement of predetermined, three-year cumulative
performance targets. The performance measures include a
minimum, target and maximum performance level
providing the grantees an opportunity to receive more or
less shares than targeted depending on actual financial
performance. For both RSUs and PSAs, the grant date fair
value of the awards is used to determine the amount of
expense to be recognized over the applicable service
period. Settlement of RSUs and PSAs will be made in
shares of our common stock.
The following table summarizes RSU and PSA activity
during the past three years:
Units
2011
2010
2009
Outstanding at Jan. 1,
Granted
Forfeited
Restriction lapsed/shares
579,801
251,031
(28,254)
564,037
203,889
(37,368)
486,988
205,360
(8,700)
delivered
(14,490)
(150,757)
(119,611)
Outstanding at Dec. 31,
788,088
579,801
564,037
Dollars in thousands
Compensation expense
$ 2,069
$
1,708
$
1,622
The amount granted in 2011 includes 98,187 PSAs.
The weighted average grant fair value per unit for awards
in 2011, 2010 and 2009 was $12.47, $13.24 and $10.11,
respectively. As of December 31, 2011, unrecognized
compensation expense for outstanding RSUs and PSAs
totaled $3.9 million. The weighted average remaining
period over which the expense will be recognized is 3.1
years.
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
2011
2010
2009
Shares
2,061,877
345,290
–
(169,703)
2,237,464
1,494,028
2,015,517
Wtd Avg
Exercise Price
$12.28
12.56
–
12.41
12.31
12.41
$ 4.09
1,412
2.87%
2.55
41.91
6 yrs
Shares
1,762,020
470,520
–
(170,663)
2,061,877
1,135,281
2,059,524
Shares
718,810
1,043,210
–
–
1,762,020
390,575
1,676,227
Wtd Avg
Exercise Price
$11.84
13.77
–
11.81
12.28
12.78
$ 4.65
2,179
2.61%
2.48
42.34
6yrs
Wtd Avg
Exercise Price
$14.63
9.91
–
–
$11.84
14.89
$ 2.83
2,957
3.63%
2.26
40.59
6yrs
Compensation expense (in thousands)
$
1,564
$
2,254
$
1,880
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 exercise price. The SOSARs
vest ratably over a three year period. As of December 31,
2011, the intrinsic value of SOSARs vested and expected to
vest totaled $3.5 million. The remaining weighted average
contractual life of outstanding SOSARs was 7.1 years as of
December 31, 2011.
Our LTIP also permits the issuance of nonqualified
stock options; however, we have not issued any options
since 2004. As of December 31, 2011, 171,920 stock
42
options were outstanding with a weighted average
exercise price of $13.57 per share. All options expire on
the earlier of termination or, in some instances, a defined
period subsequent to termination of employment, or ten
years from the date of grant. The exercise price represents
the quoted market price of Glatfelter common stock on the
date of grant, or the average quoted market prices of
Glatfelter common stock on the first day before and after
the date of grant for which quoted market price
information was available if such information was not
available on the date of grant. As of December 31, 2011,
the intrinsic value of outstanding stock options totaled
$0.1 million.
10. RETIREMENT PLANS AND OTHER POST-
The components of amounts recognized as
RETIREMENT BENEFITS
We provide non-contributory retirement benefits
under both funded and unfunded plans to all U.S.
employees and to certain non-U.S. employees. U.S.
benefits are based on either a final average pay formula or
a cash balance formula for salaried employees, and on a
unit-benefit formula for bargained hourly employees.
Non-U.S. benefits are based, in the case of certain plans,
on average salary and years of service and, in the case of
other plans, on a fixed amount for each year of service.
U.S. plan provisions and funding meet the requirements of
the Employee Retirement Income Security Act of 1974. We
use a December 31-measurement date for all of our
defined benefit plans.
We also provide certain health care benefits to
eligible U.S.-based retired employees and exclude all
salaried employees hired after January 1, 2008. These
benefits include a comprehensive medical plan for retirees
prior to age 65 and fixed supplemental premium payments
to certain retirees over age 65 to help defray the costs of
Medicare. The plan is partially funded and claims are paid
as reported.
In millions
2011
2010
2011
2010
Pension Benefits
Other Benefits
Change in Benefit Obligation
Balance at beginning
of year
Service cost
Interest cost
Plan amendments
Participant contributions
Actuarial (gain)/loss
Benefits paid
$434.3
10.3
24.2
2.0
–
33.8
(34.4)
$406.1
9.5
23.9
1.2
–
17.9
(24.3)
$ 58.5
2.9
2.8
–
1.7
(4.4)
(4.7)
$ 62.6
2.9
3.4
–
1.0
(5.7)
(5.7)
Balance at end of year
$470.2
$434.3
$ 56.8
$ 58.5
Change in Plan Assets
Fair value of plan assets
at beginning of year
Actual (loss) return on
plan assets
Total contributions
Benefits paid
Fair value of plan assets
at end of year
Funded status at end
of year
$526.4
$485.7
$ 6.2
$ 6.3
(2.6)
8.8
(34.4)
63.2
1.8
(24.3)
–
3.8
(4.7)
0.9
3.7
(4.7)
498.2
526.4
5.3
6.2
$ 28.0
$ 92.1
$(51.5)
$(52.3)
Amounts recognized in the consolidated balance
sheets consist of the following as of December 31:
Pension Benefits
Other Benefits
In millions
2011
2010
2011
Other long-term assets
Current liabilities
Other long-term liabilities
$ 59.8
(1.8)
(30.0)
$129.2
(8.6)
(28.5)
$
–
(3.4)
(48.1)
2010
$
–
(3.9)
(48.4)
Net amount recognized
$ 28.0
$ 92.1
$(51.5)
$(52.3)
“Accumulated other comprehensive income” consist of the
following on a pre-tax basis:
In millions
Prior service cost/(credit)
Net actuarial loss
Pension Benefits
Other Benefits
2011
$ 14.9
234.0
2010
2011
$ 15.5
170.8
$(2.8)
9.2
2010
$ (4.2)
14.1
The accumulated benefit obligation for all defined
benefit pension plans was $451.7 million and $417.1
million at December 31, 2011 and 2010, respectively.
The weighted-average assumptions used in
computing the benefit obligations above were as follows:
Pension Benefits
2010
2011
Other Benefits
2011
2010
Discount rate – benefit obligation 5.09%
Future compensation growth rate
4.0
5.80%
4.0
4.45%
–
5.10%
–
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 4.97% to 6.07% for the pension plans and
for other benefit plans ranged from 4.65% to 5.22%.
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
2011
$31.8
27.9
–
2010
$37.1
32.0
–
Net periodic benefit cost (income) includes the
following components:
In millions
Pension Benefits
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial loss
One-time settlement charge
Year Ended December 31
2011
2010
2009
$ 10.3
24.2
(42.0)
2.6
13.3
2.0
$ 9.5
23.9
(40.3)
2.5
13.6
–
$ 8.6
23.4
(39.8)
2.2
12.6
–
Total net periodic benefit cost
$ 10.4
$ 9.2
$ 7.0
Other Benefits
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost/(credit)
Amortization of actuarial loss
$ 2.9
2.8
(0.5)
(1.2)
0.9
$ 2.9
3.4
(0.5)
(1.2)
1.5
$ 2.6
3.5
(0.5)
(1.2)
2.1
Total net periodic benefit cost
$ 4.9
$ 6.1
$ 6.5
Glatfelter 2011 Form 10-K
43
In connection with the December 31, 2010
retirement of our former chief executive officer and the
lump-sum distribution in July 2011 of accrued pension
benefits due to him, we recorded a $2.0 million one-time
pension settlement charge in 2011.
The prior service cost and actuarial net (gain) loss for
our defined benefit pension plans that will be amortized
from accumulated other comprehensive income (loss) into
our results of operations as a component of net periodic
benefit cost over the next fiscal year are $2.5 million and
$17.6 million, respectively. The comparable amounts of
expected amortization for other benefit plans are a credit
of $0.9 million and expense of $0.7 million, respectively.
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
Year Ended
December 31
2011
2010
$ 76.5
2.1
(2.6)
(13.3)
$ (4.5)
1.2
(2.5)
(13.6)
62.7
(19.4)
$ 73.1
$(10.2)
$ (3.8)
1.2
(0.9)
$ (6.0)
1.2
(1.5)
(3.5)
(6.3)
and other comprehensive loss
$ 1.4
$ (0.2)
The weighted-average assumptions used in
computing 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
2011
2010
2009
5.81%
4.0
8.5
5.12
8.5
6.10% 6.25%
4.0
8.5
4.0
8.5
5.90
8.5
6.25%
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.
44
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
2011
2010
7.90%
8.10%
4.5
2028
4.5
2021
Assumed health care cost trend rates have a
significant effect on the amounts reported for health care
plans. A one percentage-point change in assumed health
care cost trend rates would have the following effects:
In millions
Effect on:
One Percentage Point
increase
decrease
Post-retirement benefit obligation
Total of service and interest cost components
$3.6
0.5
$(3.2)
(0.4)
Plan Assets All pension plan assets in the U.S. are
invested through a single master trust fund. The strategic
asset allocation for this trust fund is selected by
management, reflecting the results of comprehensive asset
liability modeling. The general principles guiding U.S.
pension asset investment policies are those embodied in
the Employee Retirement Income Security Act of 1974
(ERISA). These principles include discharging our
investment responsibilities for the exclusive benefit of plan
participants and in accordance with the “prudent expert”
standard and other ERISA rules and regulations. We
establish strategic asset allocation percentage targets and
appropriate benchmarks for significant asset classes with
the aim of achieving a prudent balance between return
and risk.
Investments and decisions will be made solely in the
interest of the Plan’s participants and beneficiaries, and for
the exclusive purpose of providing benefits accrued
thereunder. The primary goal of the Plan is to ensure the
solvency of the Plan over time and thereby meet its
distribution objectives. Plan assets will be diversified. All
investments in the Plan will be made in accordance with
ERISA and other applicable statutes.
Risk is minimized by diversification by asset class, by
style of each manager and by sector and industry limits
when applicable. The target allocation for the Plan assets
are:
Domestic Equity
Large cap
Small and mid cap
International equity
Real Estate Investment Trusts (REIT)
Fixed income, cash and cash equivalents
39%
13
13
5
30
Diversification is achieved by:
i. placing restrictions on the percentage of
equity investments in any one company,
percentage of investment in any one
industry, limiting the amount of assets placed
with any one manager; and
ii. setting targets for duration of fixed income
securities, maintaining a certain level of
credit quality, and limiting the amount of
investment in non-investment grade paper.
A formal asset allocation review is done periodically
to ensure that the Plan has an appropriate asset allocation
based on the Plan’s projected benefit obligations. The
target return for each equity and fixed income manager
will be one that places the manager’s performance in the
top 40% of its peers and on a gross basis, exceeds that of
the manager’s respective benchmark index. The target
return for cash and cash equivalents is a return that at
least equals that of the 90-day T-bills.
The Investment Policy statement lists specific
categories of securities or activities that are prohibited
including options, futures, commodities, hedge funds,
limited partnerships, and our stock.
The table below presents the fair values of our
benefit plan assets by level within the fair value hierarchy,
as described in Note 2:
Fair Value Measurements at December 31,
2011
In millions
Total
Level 1
Level 2
Level 3
Domestic Equity
Large cap
Small and mid cap
Other
International equity
REIT
Fixed income
Cash and equivalents
Total
$164.5
57.7
0.6
79.7
26.4
157.3
17.3
$503.5
$164.5
57.7
0.5
48.3
26.4
83.4
–
$380.8
$
–
–
0.1
31.4
–
73.9
17.3
$122.7
$–
–
–
–
–
–
–
$–
Fair Value Measurements at December 31,
2010
In millions
Total
Level 1
Level 2
Level 3
Domestic Equity
Large cap
Small and mid cap
International equity
REIT
Fixed income
Cash and equivalents
Total
$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
$–
–
–
–
–
–
$–
Cash Flow We were not required to make
contributions to our qualified pension plan in 2011 nor do
we expect to make any to this plan in 2012. Benefit
payments expected to be made in 2012 under our
non-qualified pension plans and other benefit plans are
summarized below:
In thousands
Nonqualified pension plans
Other benefit plans
$1,812
4,269
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
2012
2013
2014
2015
2016
2017 through 2021
Pension Benefits
Other Benefits
$ 29,451
29,684
29,973
30,263
30,417
153,495
$ 4,269
4,244
4,617
4,648
4,822
24,708
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
$1.3 million, $1.0 million and $0.9 million in 2011, 2010
and 2009, respectively.
11.
INVENTORIES
Inventories, net of reserves were as follows:
In thousands
Raw materials
In-process and finished
Supplies
Total
2011
$ 57,547
93,096
56,064
2010
$ 52,538
94,118
54,421
$206,707
$201,077
We value all of our U.S. inventories, excluding
supplies, on the LIFO method. If we had valued these
inventories using the first-in, first-out method, inventories
would have been $22.1 million and $20.2 million higher
than reported at December 31, 2011 and 2010,
respectively. During 2011 and 2010, we liquidated certain
LIFO inventories, the effect of which did not have a
significant impact on results of operations.
Glatfelter 2011 Form 10-K
45
12. PLANT, EQUIPMENT AND TIMBERLANDS
14. OTHER LONG-TERM ASSETS
Plant, equipment and timberlands at December 31
Other long-term assets consist of the following:
were as follows:
In thousands
Land and buildings
Machinery and equipment
Furniture, fixtures, and other
Accumulated depreciation
Construction in progress
Asset retirement obligation, net
Timberlands, less depletion
2011
2010
$ 186,846
1,102,709
117,082
(850,255)
$ 185,469
1,080,065
109,168
(807,441)
556,382
34,576
7,968
3,024
567,261
30,904
8,829
1,176
Total
$ 601,950
$ 608,170
In thousands
Pension
Installment note receivable
Goodwill and intangibles
Other
Total
December 31
2011
2010
$ 59,821
–
26,051
26,690
$129,207
43,183
28,330
30,167
$112,562
$230,887
15. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
13. GOODWILL AND INTANGIBLE ASSETS
In thousands
December 31
2011
2010
The following table sets forth information with
respect to goodwill and other intangible assets which are
recorded in the caption “Other long-term assets” in the
accompanying consolidated balance sheets:
In thousands
December 31
2011
2010
Accrued payroll and benefits
Other accrued compensation and retirement benefits
Income taxes payable
Accrued rebates
Other accrued expenses
$48,654
6,253
3,543
10,839
28,309
$ 47,205
13,491
2,192
16,086
30,342
Total
$97,598
$109,316
Goodwill – Composite Fibers
$16,161
$16,483
16. LONG-TERM DEBT
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
$ 6,155
$ 6,155
4,174
1,790
1,560
3,238
4,194
1,799
1,594
3,350
16,917
(7,027)
17,092
(5,245)
$ 9,890
$11,847
The decrease in goodwill was due to foreign currency
translation adjustments. Other than non-amortizable
goodwill, intangible assets are amortized on a straight-line
basis. Customer relationships are amortized over periods
ranging from 3 years to 14 years and technology and
related intangible assets are amortized over period ranging
from 14 years to 20 years. The following table sets forth
information pertaining to amortization of intangible assets:
In thousands
Aggregate amortization expense:
Estimated amortization expense:
2012
2013
2014
2015
2016
2011
2010
$1,858
$1,763
1,816
1,346
1,346
1,346
884
The remaining weighted average useful life of
intangible assets was 9.5 years at December 31, 2011.
46
Long-term debt is summarized as follows:
In thousands
December 31
2011
2010
Revolving credit facility, due May 2014
Revolving credit facility, due Nov. 2016
7 1⁄ 8% Notes, due May 2016
7 1⁄ 8% Notes, due May 2016 – net of original issue
n/a
$ 27,000
200,000
discount
Term Loan, due January 2013
Total long-term debt
Less current portion
–
–
227,000
–
$
–
–
200,000
95,529
36,695
332,224
–
Long-term debt, excluding current portion
$227,000
$332,224
On November 21, 2011, we entered into an
amendment to our revolving credit agreement with a
consortium of banks (the “Revolving Credit Agreement”)
which increased the amount available for borrowing to
$350 million, extended the maturity of the facility to
November 21, 2016, and instituted a lower interest rate
pricing grid.
For all U.S. dollar denominated borrowings under the
Revolving Credit Agreement, the borrowing rate is, at our
option, (a) the bank’s base rate which is equal to the
greater of i) the prime rate; ii) the federal funds rate plus
50 basis points plus an applicable spread ranging from 25
basis points to 125 basis points based on our corporate
credit ratings determined by Standard & Poor’s Rating
Services and Moody’s Investor Service, Inc. (the “Corporate
Credit Rating”); or iii) the daily Euro-rate plus 100 basis
points; or (b) the daily Euro-rate plus an applicable margin
ranging from 125 basis points to 225 basis points based
on the Corporate Credit Rating. For non-US dollar
denominated borrowings, interest is based (b) above.
The Revolving Credit Agreement contains a number
of customary covenants for financings of this type that,
among other things, restrict our ability to dispose of or
create liens on assets, incur additional indebtedness, repay
other indebtedness, limits certain intercompany financing
arrangements, make acquisitions and engage in mergers or
consolidations. We are also required to comply with
specified financial tests and ratios including: i) maximum
net debt to earnings before interest, taxes, depreciation
and amortization (“EBITDA”) ratio; ii) a consolidated
EBITDA to interest expense ratio; and iii) beginning
December 31, 2015, a minimum liquidity ratio. A breach of
these requirements would give rise to certain remedies
under the Revolving Credit Agreement, among which are
the termination of the agreement and accelerated
repayment of the outstanding borrowings plus accrued and
unpaid interest under the credit facility.
On April 28, 2006 we completed an offering of
$200.0 million aggregate principal amount of our 7 1⁄ 8%
Senior Notes due 2016 (“7 1⁄ 8% Notes”). Net proceeds
from this offering totaled approximately $196.4 million,
after deducting the commissions and other fees and
expenses relating to the offering. The proceeds were
primarily used to redeem $150.0 million aggregate
principal amount of our then outstanding notes plus the
payment of applicable redemption premium and accrued
interest.
On February 5, 2010, we issued $100 million in
aggregate principal amount of 7 1⁄ 8% Notes due 2016. 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. Pursuant to the optional redemption provisions
contained in the Indenture, we elected to redeem all of
these notes on December 21, 2011 at 103.563% of par
using, in part, borrowings under the Revolving Credit
Agreement. The $3.6 million redemption premium is
reported under the caption “other non-operating
expenses – other-net” in the accompanying consolidated
statements of income. The write-off of the related
unamortized deferred financing fees and original issue
discount totaled $5.9 million and are reported under the
caption “Interest expense” in the accompanying
consolidated statements of income.
Interest on the 7 1⁄ 8% Notes accrues at the rate of
7 1⁄ 8% per annum and is payable semiannually in arrears
on May 1 and November 1.
The 7 1⁄ 8% 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
Revolving Credit Agreement at maturity or a default under
the Revolving Credit Agreement that accelerates the debt
outstanding thereunder. As of December 31, 2011, we met
all of the requirements of our debt covenants.
In November 2007, we sold approximately 26,000
acres of timberland. In connection with that transaction,
we formed GPW Virginia Timberlands LLC (“GPW
Virginia”) as an indirect, wholly owned and bankruptcy-
remote subsidiary of ours. GPW Virginia received as
consideration for the timberland sold in that transaction a
$43.2 million, interest-bearing note that matures in 2027
from the buyer, Glawson Investments Corp. (“Glawson”),
a Georgia corporation, and GIC Investments LLC, a
Delaware limited liability company owned by Glawson. The
Glawson note receivable was fully secured by a letter of
credit issued by The Royal Bank of Scotland plc. In January
2008, GPW Virginia monetized the Glawson note
receivable by entering into a $36.7 million term loan
agreement (the “2008 Term Loan”) with a financial
institution. The 2008 Term Loan was 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 principal amount of the 2008 Term Loan was due on
January 15, 2013.
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.
On October 7, 2011, the credit rating of The Royal
Bank of Scotland, the letter of credit issuer behind the
Glawson Note, fell below the required minimum level. To
avoid the occurrence of an event of default associated with
the credit downgrade, on December 5, 2011, we, Glawson
and SunTrust, as trustee, agreed to collapse the
transaction, the effect of which was: i) the acceleration of
Glatfelter 2011 Form 10-K
47
the maturity date of the Glawson Note to December 5,
2011; (ii) satisfaction in full of the $43.2 million Glawson
Note owed to us; and iii) the satisfaction in full of the
$36.7 million indebtedness owed by us to SunTrust under
the Term Loan Agreement. As a result, we received net
proceeds of approximately $6.2 million, after accrued
interest.
The following schedule sets forth the maturity of our
long-term debt during the indicated year.
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
2011
2010
$(9,717)
(611)
1,199
(550)
$(11,292)
–
2,179
(604)
$(9,679)
$ (9,717)
In thousands
2012
2013
2014
2015
2016
Of the total liability at the end of 2011 and 2010,
$1.5 million is recorded in the accompanying consolidated
balance sheets under the caption “Other current liabilities”
and $8.2 million is recorded under the caption “Other
long-term liabilities.”
$–
–
–
–
227,000
P. H. Glatfelter Company guarantees all debt
obligations of its subsidiaries. All such obligations are
recorded in these consolidated financial statements.
As of December 31, 2011 and 2010, we had $4.6
million and $5.4 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, 2011, primarily provide financial assurances
for the benefit of certain state workers compensation
insurance agencies in conjunction with our self-insurance
program. We bear the credit risk on this amount to the
extent that we do not comply with the provisions of certain
agreements. No amounts are outstanding under the letters
of credit.
17. ASSET RETIREMENT OBLIGATION
During 2008, we recorded $11.5 million, net present
value, of asset retirement obligations related to the legal
requirement to close several lagoons at the Spring Grove,
PA facility. Historically, lagoons were used to dispose of
residual waste material. Closure of the lagoons, which is
expected to completed over the next five years, will be
accomplished by filling the lagoons, installing a
non-permeable liner which will be covered with soil to
construct the required cap over the lagoons. The amount
referred to above, in addition to upward revisions, were
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.
48
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts reported on the consolidated balance
sheets for cash and cash equivalents, accounts receivable
and short-term debt approximate fair value. The following
table sets forth the carrying value and fair value of long-
term debt as of December 31:
2011
2010
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$200,000 $204,000
$295,529 $304,115
27,000
27,000
36,695
37,780
$227,000 $231,000
$332,224 $341,895
In thousands
Fixed-rate
Bonds
Variable rate
debt
Total
As of December 31, 2011, we had $200.0 million of
7 1⁄ 8% fixed rate debt, and as of December 31, 2010, we
had $300.0 million of this debt, $100.0 million of which
was recorded net of unamortized original issue discount.
These bonds are publicly registered, but thinly traded.
Accordingly, the values set forth above are based on debt
instruments with similar characteristics. The fair value of
financial derivatives is set forth below in Footnote 19.
19. FINANCIAL DERIVATIVES AND HEDGING
ACTIVITIES
As part of our overall risk management practices, we
enter into financial derivatives primarily designed to either
i) hedge foreign currency risks associated with forecasted
transactions – “cash flow hedges”; or ii) mitigate the
impact that changes in currency exchange rates have on
intercompany financing transactions and foreign currency
denominated receivables and payables – “foreign currency
hedges.”
Derivatives Designated as Hedging
In 2011, we
Instruments – Cash Flow Hedges
began to use currency forward contracts as cash flow
hedges to manage our exposure to fluctuations in the
currency exchange rates on certain forecasted production
costs expected to be incurred over a maximum of twelve
months. Currency forward contracts involve fixing the
EUR-USD exchange rate or USD-CAD for delivery of a
specified amount of foreign currency on a specified date.
We designate certain currency forward contracts as
cash flow hedges of forecasted raw material purchases or
certain production labor costs with exposure to changes in
foreign currency exchange rates. The effective portion of
changes in the fair value of derivatives designated and that
qualify as cash flow hedges of foreign exchange risk is
deferred as a component of accumulated other
comprehensive income in the accompanying consolidated
balance sheet and is subsequently reclassified into cost of
products sold in the period that inventory produced using
the hedged transaction affects earnings. The ineffective
portion of the change in fair value of the derivative is
recognized directly to earnings and reflected in the
accompanying consolidated statement of income as
non-operating income (expense) under the caption “Other
– net.”
We had the following outstanding derivatives that
were used to hedge foreign exchange risks associated with
forecasted transactions and designated as hedging
instruments:
In thousands
Derivative
Sell / Buy
December 31,
2011
2010
Buy Notional
In thousands
Derivative
Sell / Buy
December 31,
2011
2010
Sell Notional
Euro / U.S. dollar
Euro / British Pound
Philippine peso / U.S. dollar
25,500
–
150,000
57,000
3,000
247,000
These contracts have maturities of one month from
the date originally entered into.
Fair Value Measurements
The following table summarizes the fair values of
derivative instruments as of December 31 for the year
indicated and the line items in the accompanying
consolidated balance sheet where the instruments are
recorded:
In thousands
Designated as hedging:
Forward foreign currency
exchange contracts
Not designated as hedging:
Forward foreign currency
exchange contracts
Prepaid and
Other Current
Assets
Other Current
Liabilities
2011
2010
2011
2010
$1,520
$–
$–
$–
$ 338
$–
$15
$581
The amounts set forth in the table above represent
the net asset or liability giving effect to rights of offset with
each counterparty.
The following table summarizes the amount of
income or loss from derivative instruments recognized in
our results of operations for the periods indicated and the
line items in the accompanying consolidated statements of
income where the results are recorded:
Euro / U.S. dollar
U.S. dollar / Canadian dollar
22,730
11,019
–
–
In thousands
2011
2010
2009
Gains (losses)
These contracts have maturities of twelve months or
less.
Derivatives Not Designated as Hedging
Instruments – Foreign Currency Hedges We
also enter into forward foreign exchange contracts to
mitigate the impact changes in currency exchange rates
have on balance sheet monetary assets and liabilities.
None of these contracts are designated as hedges for
financial accounting purposes and, accordingly, changes in
value of the foreign exchange forward contracts and in the
offsetting underlying on-balance-sheet transactions are
reflected in the accompanying statement of operations
under the caption “Other – net.”
Designated as hedging:
Forward foreign currency exchange
contracts:
Effective portion – cost of products
sold
Ineffective portion – other – net
Not designated as hedging:
Forward foreign currency exchange
contracts:
Other – net
$ 174
165
$
– $
–
–
–
$(686)
$(1,047) $(400)
The impact of activity not designated as hedging was
substantially all offset by the remeasurement of the
underlying on-balance sheet item.
The fair value hierarchy consists of three broad levels,
which gives the highest priority to unadjusted quoted
Glatfelter 2011 Form 10-K
49
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs
(Level 3). The three levels of the fair value hierarchy are
described in Note 2.
The fair values of the foreign exchange forward
contracts are considered to be Level 2. Foreign currency
forward contracts are valued using foreign currency
forward and interest rate curves. The fair value of each
contract is determined by comparing the contract rate to
the forward rate and discounting to present value.
Contracts in a gain position are recorded in the
consolidated balance sheet under the caption “Prepaid
and other current assets” and the value of contracts in a
loss position is recorded under the caption “Other current
liabilities.”
A rollforward of fair value amounts recorded as a
component of accumulated other comprehensive income is
as follows:
In thousands
2011
2010
Balance at January 1,
Deferred gains on cash flow hedges
Reclassified to earnings
Balance at December 31,
$
–
1,823
(174)
$1,649
$–
–
–
$–
We expect substantially all of the amounts recorded
as a component of accumulated other comprehensive
income will be realized in results of operations within the
next twelve months and the amount ultimately recognized
will vary depending on actual market rates.
Credit risk related to derivative activity arises in the
event a counterparty fails to meet its obligations to us. 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 contracts only with
financial institutions which meet certain minimum credit
ratings.
20. SHAREHOLDERS’ EQUITY
The following table summarizes outstanding shares
of common stock:
21. SHARE REPURCHASES
In April 2011, our Board of Directors authorized a
share repurchase program for up to $50.0 million of our
outstanding common stock. The following table
summarizes share repurchases through December 31,
2011, made under this program:
Authorized amount
Repurchases(1)
Remaining authorization
shares
(thousands)
n/a
3,505,485
$ 50,000
(48,799)
$ 1,201
(1) Amounts reflect trades entered into through December 31, 2011.
Cash spent on settled transactions, excluding commissions, totaled
$47.9 million.
In January 2012, we completed additional share
repurchases fully utilizing the authorized amount.
22. COMMITMENTS, CONTINGENCIES AND LEGAL
PROCEEDINGS
Contractual Commitments
The following table
summarizes the minimum annual payments due on
noncancelable operating leases and other similar
contractual obligations having initial or remaining terms in
excess of one year:
In thousands
2012
2013
2014
2015
2016
Thereafter
Leases
Other
$4,425
3,360
2,454
1,948
1,646
6,466
$77,096
27,157
16,390
721
428
7
Other contractual obligations primarily represent
minimum purchase commitments under energy and pulp
wood supply contracts and other purchase obligations.
At December 31, 2011, required minimum annual
payments due under operating leases and other similar
contractual obligations aggregated $20.3 million and
$121.8 million, respectively.
Year Ended December 31,
Fox River – Neenah, Wisconsin
In thousands
2011
2010
2009
Shares outstanding at beginning
of year
Shares repurchased
Treasury shares issued for:
Restricted stock awards
401(k) plan
Director compensation
Employee stock options
exercised
45,976
(3,505)
45,706
–
45,434
–
14
143
12
10
112
132
12
14
86
169
17
–
Shares outstanding at end of year
42,650
45,976
45,706
Background We have significant uncertainties
associated with environmental claims arising out of the
presence of polychlorinated biphenyls (“PCBs”) in
sediments in the lower Fox River and in the Bay of Green
Bay Wisconsin (“Site”). As part of our 1979 acquisition of
the Bergstrom Paper Company, we acquired a facility
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
50
1954 to the late 1970s. We believe that any PCBs that the
Neenah Facility may have discharged into the lower Fox
River resulted from the presence of PCBs in NCR®-brand
carbonless copy paper in the wastepaper that was recycled
at the Neenah Facility. We closed the Neenah Facility in
June 2006.
The United States, the State of Wisconsin and various
state and federal governmental agencies (collectively, the
“Governments”), as well as other entities (including local
Native American tribes), have found PCBs in sediments in
the bed of the Fox River, apparently from a number of
sources at municipal and industrial facilities along the
upstream and downstream portions of the Site. The
Governments have identified manufacturing and recycling
of NCR®-brand carbonless copy paper as the principal
source of that contamination.
The United States Environmental Protection Agency
(“EPA”) has divided the lower Fox River and the Bay of
Green Bay site into five “operable units” (the “OUs”),
including the most upstream (“OU1”) and four
downstream reaches of the river and bay (“OU2-5”). OU1
extends from primarily Lake Winnebago to the dam at
Appleton, and is comprised of Little Lake Butte des Morts.
The Neenah Facility discharged its wastewater into OU1.
Our liabilities, if any, for this contamination primarily
arise under the federal Comprehensive Environmental,
Response, Compensation and Liability Act (“CERCLA” or
“Superfund”), pursuant to which the Governments have
sought to recover “response actions” or “response costs,”
which are the costs of studying and cleaning up
contamination. Other agencies and natural resource
trustee agencies (collectively, the “Trustees”) have sought
to recover natural resource damages (“NRDs”), including
natural resource damage assessment costs.
We are one of eight entities that have been formally
notified that they are potentially responsible parties
(“PRPs”) under CERCLA for response costs or NRDs.
Others, including the United States and the State of
Wisconsin, may also be liable for some or all of the costs of
NRD at this Site.
We are engaged in litigation to allocate costs and
NRDs among the parties responsible for this site. The
Governments have sought to recover response actions,
response costs, and NRDs from us through three principal
enforcement actions.
OU1 CD. On October 1, 2003, the United States
and the State of Wisconsin commenced an action
captioned United States v. P.H. Glatfelter Co. against
us and WTM I Co. in the United States District Court for
the Eastern District of Wisconsin and simultaneously
lodged a consent decree (“OU1 CD”) that the court
entered on April 12, 2004. Under that OU1 CD, and an
amendment dated August 2008, we and WTM I, with a
limited fixed contribution from Menasha Corp. and funds
provided by the United States from an agreement with
others, have implemented the remedy for OU1. We have
also resolved claims for all Governmental response costs in
OU1 after July 2003 and made a payment on NRDs. That
remedy is complete. We have continuing operation and
maintenance obligations that we expect to fund from
contributions we and WTM I have already made to an
escrow account for OU1 under the OU1 CD.
OU2-5 UAO.
In November 2007, the United
States Environmental Protection Agency (“EPA”) issued an
administrative order for remedial action (“UAO”) to
Appleton Papers Inc. (“API”), CBC Coating, Inc. (formerly
known as Riverside Paper Corporation), Georgia-Pacific
Consumer Products, L.P. (formerly known as Fort James
Operating Company), Menasha Corporation, NCR
Corporation, Glatfelter, U.S. Paper Mills Corp., and WTM I
Company (“WTM”) directing those respondents to
implement the remedy in OU2-5. Shortly following
issuance of the UAO, API and NCR commenced litigation
against us and others, as described below. Accordingly, we
have no vehicle for complying with the UAO’s overall
requirements other than answering a judgment in the
litigation, and we have so informed EPA, but, to minimize
disruptions, have paid certain de minimis amounts to
EPA for oversight costs under the UAO.
Government Action. On October 14, 2010, the
United States and the State of Wisconsin filed an action in
the United States District Court for the Eastern District of
Wisconsin captioned United States v. NCR Corp. (the
“Government Action”) against 12 parties, including us.
The Government Action seeks to recover from each of the
defendants, jointly and severally, all of the governments’
past costs of response, which approximates $17 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. On March 29,
2011, the United States filed a motion for a preliminary
injunction against NCR and API to require NCR and API to
implement work in 2011 at a rate described as “full-scale
sediment remediation.” On July 5, 2011, that motion was
denied; in the course of that ruling, the court found that
the governments were not likely to show that API was
liable under CERCLA at all. The governments have since
filed a renewed motion against NCR alone, which was
again denied. API has moved for summary judgment on
Glatfelter 2011 Form 10-K
51
the ground that it is not liable at all, and that motion has
been denied. The United States has now sought to begin
active litigation of this case against the recipients of the
UAO other than Georgia-Pacific (which has settled),
including us.
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”). The case involves allocation
claims among the two plaintiffs and 28 defendants
including us. We and other defendants counterclaimed
against NCR and API. Some of the claims have since been
resolved as described below.
Claims against governments.
The Whiting
Litigation involves claims by certain parties against federal
agencies who are responsible parties for this site. In the
Government Action many defendants, including us,
asserted counterclaims against the United States and the
State of Wisconsin.
Settlements. Certain parties have resolved their
liability to the United States affording them contribution
protection. These settlements are embodied in consent
decrees. Notably, we entered into the OU1 CD. Also, in a
case captioned United States v. George A. Whiting
Paper Co., the district court entered two consent decrees
under which 13 de minimis defendants in the Whiting
Litigation settled with the United States and Wisconsin.
The Court of Appeals for the Seventh Circuit denied an
appeal of these settlements by NCR and API on May 4,
2011. Further, Georgia-Pacific Consumer Products LP, has
entered into a consent decree resolving its liability for
NRDs and a separate consent decree in the Government
Action that resolves all of its liabilities except for the
downstream portion of the OU4 remedy. Finally, the
United States has lodged a consent decree that would
resolve the liability of itself and two municipalities and has
moved for entry of that decree. We oppose entry of that
consent decree, which the district court must approve. The
United States or the State of Wisconsin may enter into
settlements with us or with other parties that would affect
our ultimate obligations because settling parties may
become unavailable to pay any share other than their
settlement amount, depending upon the terms of the
settlement and the court’s order entering any consent
decree.
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.
Cost estimates.
Estimates of the Site remediation
change over time as we, or others, gain additional data
and experience at the Site. In addition, disagreement exists
over the likely costs for some of this work. Based upon
estimates made by the Governments and independent
estimates commissioned by various potentially responsible
parties, we have no reason to disagree with the
Governments’ assertion that total past and future costs
and NRDs at this site may exceed $1 billion and that $1.5
billion is a reasonable “outside estimate.”
NRDs. Of that amount, the Trustees’ assessment
documents claimed that we are jointly and severally
responsible for NRDs with a value between $176 million
and $333 million. They now claim that this range should
be inflated to 2009 dollars and then certain unreimbursed
past assessment costs should be added, so that the range
of their claim would be $287 million to $423 million. We
deny liability for most of these NRDs and believe that even
if anyone is liable, that we are not jointly and severally
liable for the full amount. Moreover, we believe that the
Trustees may not legally pursue this claim at this late date,
as the limitations period for NRD claims is three years from
discovery.
Allocation and Divisibility. We contend that we
are not jointly and severally liable for costs or damages
arising from the presence of PCBs downstream of OU1. In
addition, we contend that NCR or other sources of
NCR®-brand carbonless copy paper that our Neenah Mill
recycled bear most, if not all, of the responsibility for costs
and damages arising from the presence of PCBs in OU1
and downstream.
Cleanup Decisions.
The extent of our exposure
depends, in large part, on the decisions made by EPA and
On December 16, 2009, the court granted motions
for summary judgment in our favor in the Whiting
52
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 February 28, 2011, the district court granted
our summary judgment motions on those counterclaims in
part and denied them in part. 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. On September 30,
2011, the court clarified its ruling with respect to NRDs
and natural resource damage assessment costs, holding
that NCR and API owe full 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.
The remaining issues on our pending counterclaims under
the Superfund statute were litigated at a trial which began
February 21, 2012. We expect the court to determine the
precise amounts due us on our counterclaims with respect
to costs and damages we have already paid.
Reserves for the Site. As of December 31, 2011,
our reserve for our claimed liability at the Site, including
our remediation and ongoing monitoring obligations at
OU1, our claimed liability for the remediation of the rest of
the Site, our claimed liability for NRDs associated with PCB
contamination at the Site and all pending, threatened or
asserted and unasserted claims against us relating to PCB
contamination at the Site totaled $16.6 million. Of our
total reserve for the Fox River, $0.3 million is recorded in
the accompanying consolidated balance sheets under the
caption “Environmental liabilities” and the remainder is
recorded under the caption “Other long term liabilities.”
Although we believe that amounts already funded by
us and WTM to implement the OU1 remedy are adequate
and no payments have been required since January 2009,
there can be no assurance that these amounts will in fact
suffice. WTM has filed a bankruptcy petition in the
Bankruptcy Court in Richmond; accordingly, there can be
no assurance that WTM will be able to fulfill its obligation
to pay half of any additional costs, if required.
We believe that we have strong defenses to liability
for further remediation downstream of OU1, including the
existence of ample data that indicate that PCBs did not
leave OU1 in concentrations that could have caused or
contributed to the need for additional cleanup
downstream. Others, including the EPA and other PRPs,
disagree with us and, as a result, the EPA has issued a
UAO to us and to others to perform the additional
remedial work, and filed the Government Action seeking,
in part, the same relief. NCR and API commenced the
Whiting Litigation and joined us and others as defendants,
but, to this point, have not prevailed.
Even if we are not successful in establishing that we
have no further remediation liability, we do not believe
that we would be allocated a significant percentage share
of liability in any equitable allocation of the remediation
costs and natural resource damages. The accompanying
consolidated financial statements do not include reserves
for defense costs for the Whiting Litigation, the
Government Action, or any future defense costs related to
our involvement at the Site, which could be significant.
In setting our reserve for the Site, we have assessed
our legal defenses, including our successful defenses to the
allegations made in the Whiting Litigation, and assumed
that we will not bear the entire cost of remediation or
damages to the exclusion of other known PRPs at the Site,
who are also potentially jointly and severally liable. The
existence and ability of other PRPs to participate has also
been taken into account in setting our reserve, and is
generally based on our evaluation of recent publicly
available financial information on certain of the PRPs and
any known insurance, indemnity or cost sharing
agreements between PRPs and third parties. In addition,
our assessment is based upon the magnitude, nature,
location and circumstances associated with the various
discharges of PCBs to the river and the relationship of
those discharges to identified contamination. We will
continue to evaluate our exposure and the level of our
reserves, including, but not limited to, our potential share
of the costs and NRDs, if any, associated with the Site.
The amount and timing of future expenditures for
environmental compliance, cleanup, remediation and
personal injury, NRDs and property damage liabilities
cannot be ascertained with any certainty due to, among
other things, the unknown extent and nature of any
contamination, the response actions that may ultimately be
Glatfelter 2011 Form 10-K
53
required, the availability of remediation equipment, and
landfill space, and the number and financial resources of
any other PRPs.
Other Information.
The Governments have
published studies estimating the amount of PCBs
discharged by each identified PRP’s facility to the lower Fox
River and Green Bay. These reports estimate the Neenah
Facility’s share of the mass of PCBs discharged to be as
high as 27%. We do not believe the discharge mass
estimates used in these studies are accurate because
(a) the studies themselves disclose that they are not
accurate and (b) the PCB mass estimates contained in the
studies are based on assumptions that are unsupported by
existing data on the Site. We believe that the Neenah
Facility’s absolute and relative 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 February 28, 2011, rulings in the Whiting
Litigation, as well as certain other procedural orders, we
continue to believe that an allocation in proportion to mass
of PCBs discharged would not constitute an equitable
allocation of the potential liability for the contamination at
the Fox River. We contend that other factors, such as the
location of contamination, the location of discharge, and a
party’s role in causing discharge, must be considered in
order for the allocation to be equitable.
We previously entered into interim cost-sharing
agreements with six of the other PRPs, which provided for
those PRPs to share certain costs relating to scientific
studies of PCBs discharged at the Site (“Interim Cost
Sharing Agreements”). These Interim Cost Sharing
Agreements do not establish the final allocation of
remediation costs incurred at the Site. Based upon our
evaluation of the Court’s December 16, 2009, and
February 28, 2011 rulings in the Whiting Litigation as well
as the volume, nature and location of the various
discharges of PCBs at the Site and the relationship of those
discharges to identified contamination, we believe our
allocable share of liability at the Site is less than our share
of costs under the Interim Cost Sharing Agreements.
Range of Reasonably Possible Outcomes. Our
analysis of the range of reasonably possible outcomes is
derived from all available information, including but not
limited to official documents such as RODs, discussions
with the United States and other PRPs, as well as legal
counsel and engineering consultants. Based on our
analysis of the current RODs and cost estimates for work to
be performed at the Site, we believe that it is reasonably
possible that our costs associated with the Fox River
54
matter may exceed our cost estimates and the aggregate
amounts accrued for the Fox River matter by amounts that
are insignificant or that could range up to $265 million
over an undeterminable period that could range beyond
15 years. We believe that the likelihood of an outcome in
the upper end of the monetary range is significantly less
than other possible outcomes within the range and that
the possibility of an outcome in excess of the upper end of
the monetary range is remote. The two summary
judgments in our favor in the Whiting Litigation, if
sustained on appeal, suggest that outcomes in the upper
end of the monetary range have become somewhat less
probable, while increases in cost estimates for some of the
work may make an outcome in the upper end of the range
more likely.
Summary. Our current assessment is that we will
be able to manage this environmental matter without a
long-term, material adverse impact on the Company. This
matter could, however, at any particular time or for any
particular year or years, have a material adverse effect on
our consolidated financial position, liquidity and/or results
of operations or could result in a default under our debt
covenants. Moreover, there can be no assurance that our
reserves will be adequate to provide for future obligations
related to this matter, that our share of costs and/or
damages will not exceed our available resources, or that
such obligations will not have a long-term, material
adverse effect on our consolidated financial position,
liquidity or results of operations. Should a court grant the
United States or the State of Wisconsin relief which
requires us either to perform directly or to contribute
significant amounts towards remedial action downstream
of OU1 or to natural resource damages, those
developments could have a material adverse effect on our
consolidated financial position, liquidity and results of
operations and might result in a default under our loan
covenants.
Ecusta Environmental Matters
Beginning
in April 2003, government authorities, including the North
Carolina Department of Environment and Natural
Resources (“NCDENR”), initiated discussions with us and
other parties regarding, among other environmental issues,
certain landfill closure liabilities associated with our former
Ecusta mill and its properties (the “Ecusta Property”). The
discussions focused on NCDENR’s desire to establish a
plan and secure financial resources to close three landfills
located at the Ecusta Property and to address other
environmental matters at the facility. During the third
quarter of 2003, the discussions ended with NCDENR’s
conclusion to hold us responsible for the closure of three
landfills. Accordingly, in 2003 we established reserves
totaling approximately $7.6 million representing estimated
landfill closure costs. During 2009, we completed the
closure of the last of those three landfills (collectively, the
“Landfill Closure and Post-Closure Obligations”). All
Landfill Closures have been completed in accordance with
plans submitted and approved by NCDENR. We continue
to satisfy any Post-Closure Obligations, the financial
impact of which are not material to our consolidated
financial position or results of operations.
In September 2005, we established an additional
$2.7 million reserve for potential environmental liabilities
associated with the Ecusta Property relating to: (i) mercury
releases from the Electro-Chemical Building;
(ii) contamination in and operation of the aeration and
stabilization basin (the “ASB”), which is part of the Ecusta
Property’s wastewater treatment system; (iii) a previously
closed ash landfill (“Brown #1 Landfill”); and (iv)
contamination in the vicinity of a former caustic building.
On January 25, 2008, we entered into a series of
agreements with, among others, Davidson River Village,
LLC (“DRV”)- the current owner of the Ecusta Property
pursuant to which we transferred potential liabilities for
certain environmental matters at the Ecusta Property to
DRV (the “DRV Transaction”). In connection with the DRV
Transaction, DRV assumed, and indemnified us for, liability
arising from environmental matters and conditions at the
Ecusta Property with certain exceptions, including the
Landfill Closure and Post-Closure Obligations and
investigation and remediation (if necessary) of any
pollutants that may have migrated from the Ecusta
Property to the Davidson and French Broad Rivers (the
“River Areas”), which liabilities were retained by us.
During 2011, the plan for remediation of the mercury
releases described above was completed and accepted by
the environmental agencies.
Glatfelter 2011 Form 10-K
55
23. SEGMENT AND GEOGRAPHIC INFORMATION
The following tables set forth profitability and other information by business unit:
For the year ended December 31, 2011
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
Depreciation, depletion and amortization
Capital expenditures
$875.1
9.3
884.4
775.7
108.7
51.4
–
57.3
–
$476.0
–
476.0
395.7
80.3
39.5
–
40.8
–
$252.0
–
252.0
227.7
24.3
10.9
–
13.4
–
$
–
–
–
7.2
(7.2)
23.0
(4.0)
(26.2)
(34.4)
Total
$1,603.2
9.3
1,612.5
1,406.3
206.2
124.9
(4.0)
85.3
(34.4)
$ 57.3
$ 40.8
$ 13.4
$(60.7)
$
50.8
$250.2
36.0
31.4
$176.2
24.8
22.5
$175.6
8.5
10.6
$ 602.0
69.3
64.5
–
–
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
Depreciation, depletion and amortization
Capital expenditures
$ 842.6
10.7
853.3
740.2
113.1
54.7
–
58.4
–
$ 58.4
$ 251.3
34.9
24.1
$ 419.2
–
419.2
350.5
68.7
35.8
–
32.9
–
$ 32.9
$ 181.6
23.7
8.2
$ 193.5
–
193.5
181.7
11.8
7.4
–
4.4
–
4.4
$
$ 175.3
7.2
4.2
$
–
–
–
7.4
(7.4)
24.3
(0.5)
(31.2)
(31.1)
$ (62.3)
$
–
–
–
Total
$ 1,455.3
10.7
1,466.0
1,279.7
186.2
122.1
(0.5)
64.6
(31.1)
33.5
608.2
65.8
36.5
$
$
56
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
Depreciation, depletion and amortization
Capital expenditures
$791.9
13.3
805.2
693.9
111.3
55.4
–
55.9
–
$ 55.9
$262.8
37.5
14.2
$392.1
–
392.1
334.4
57.7
35.8
–
21.9
–
$ 21.9
$207.8
23.7
12.1
$–
–
–
–
–
–
–
–
–
$–
$–
–
–
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
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.
Results of individual business units are presented
based on our management accounting practices and
management structure. There is no comprehensive,
authoritative body of guidance for management
accounting equivalent to accounting principles generally
accepted in the United States of America; therefore, the
financial results of individual business units are not
necessarily comparable with similar information for any
other company. The management accounting process uses
assumptions and allocations to measure performance of
the business units. Methodologies are refined from time to
time as management accounting practices are enhanced
and businesses change. The costs incurred by support
areas not directly aligned with the business unit are
allocated primarily based on an estimated utilization of
support area services.
Management evaluates results of operations of the
business units before pension income or expense,
alternative fuel mixture credits, debt redemption costs,
restructuring related charges, certain corporate level costs,
and the effects of asset dispositions. Management believes
that this is a more meaningful representation of the
operating performance of its core papermaking businesses,
the profitability of business units and the extent of cash
flow generated from these core operations. Such amounts
are presented under the caption “Other and Unallocated.”
This presentation is aligned with the management and
operating structure of our company. It is also on this basis
that the Company’s performance is evaluated internally
and by the Company’s Board of Directors.
Our Specialty Papers business unit focuses on
producing papers for the following markets:
• Carbonless & forms papers for credit card
receipts, multi-part forms, security papers and
other end-user applications;
• Book publishing papers for the production of
high quality hardbound books and other book
publishing needs;
• Envelope and converting papers for the direct
mail market, shopping bags, and other converting
applications; and
• Engineered products for digital imaging,
transfer, casting, release, postal, playing card,
FDA-compliant food and beverage applications,
and other niche specialty applications.
Specialty Papers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2011
2010
2009
Carbonless & forms
Book publishing
Envelope & converting
Engineered products
Other
$368,582
166,506
170,380
166,660
2,950
$359,033
168,155
157,202
155,257
2,967
$320,088
176,646
146,812
143,490
4,879
Total
$875,078
$842,614
$791,915
Glatfelter 2011 Form 10-K
57
Our Composite Fibers business unit serves customers
globally and focuses on higher value-added products in the
following markets:
• Food & Beverage papers used for single-serve
coffee and tea products and other applications;
• Metallized products used in the labeling of beer
bottles, innerliners, gift wrap, self-adhesive labels
and other consumer products applications;
• Composite Laminates papers used in
production of decorative laminates, furniture and
flooring applications; and
• Technical Specialties is a diverse line of paper
products used in batteries, medical masks and
other highly engineered applications.
Composite Fibers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2011
2010
2009
Food & beverage
Metallized
Composite laminates
Technical specialties
and other
Total
$284,748
95,276
53,334
$242,882
88,753
50,801
$233,899
81,388
46,442
42,671
36,781
30,366
$476,029
$419,217
$392,095
On February 12, 2010, we acquired Concert
Industries Corp., which we now operate as the Advanced
Airlaid Materials business unit. This business unit 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-user markets. These products include:
• feminine hygiene;
• adult incontinence;
• home care such as specialty wipes;
• table top and towels; and
• food pads and other.
In thousands
Feminine hygiene
Adult Incontinence
Home care
Food pads
Other
2011
2010
2009
$206,724
6,083
24,492
9,526
5,222
$157,691
6,146
17,902
8,200
3,560
–
–
–
–
–
–
Total
$252,047
$193,499
No individual customer accounted for more than
10% of our consolidated net sales in 2011, 2010 or 2009.
However, one customer accounted for the majority of
Advanced Airlaid Materials’ net sales in 2011 and 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
2011
2010
2009
Plant,
Equipment and
Timberlands – Net
$250,217
181,537
57,634
86,079
26,483
Plant,
Equipment and
Timberlands – Net
$251,318
198,585
55,672
80,177
22,418
Net sales
$ 824,833
191,660
125,047
–
42,470
Net sales
$ 880,089
327,952
128,598
75,195
43,497
$601,950
$1,455,331
$608,170
$1,184,010
Plant,
Equipment and
Timberlands – Net
$262,807
124,881
60,104
–
22,840
$470,632
Net sales
$ 933,357
410,183
122,218
88,018
49,378
$1,603,154
58
24. GUARANTOR FINANCIAL STATEMENTS
Our 7 1⁄ 8% 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 flows for the years ended December 31, 2011,
2010 and 2009 and our consolidating balance sheets as of December 31, 2011 and 2010. 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.
Correction to classification of Condensed Consolidating Statement of Cash Flows – For the presentation
of the condensed consolidating statement of cash flows for the year ended December 31, 2010 included herein, we have
corrected the classification of certain intercompany financing transactions to correctly classify $144 million of net
intercompany capital transfers between the Parent Company and wholly-owned guarantor and non-guarantor subsidiaries
which were made in connection with the Concert acquisition. For the Parent Company, the correction reclassified the
transfers from operating cash activities to investing activities made by the Parent to the Guarantors of $120 million and to
the non-Guarantors of $24 million. Similar reclassifications were made to the Guarantors’ and non-Guarantors’ amounts to
reflect the receipt of this net capital contribution as a financing activity. For the condensed consolidating statement of cash
flows for the year ended December 31, 2009 included herein, we corrected the classification to transfer from operating cash
activities to investing activities a $19 million intercompany sale of a subsidiary from a guarantor to a non-guarantor. These
reclassifications had no effect on the total cash flows of the Parent, Guarantors, or non Guarantors, or on the reported
amounts of cash flows for any period presented in our accompanying consolidated statement of cash flows.
Condensed Consolidating Statement of Income for the
year ended December 31, 2011
In thousands
Net sales
Energy sales – net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative expenses
Gains on dispositions of plant, equipment and timberlands, net
Operating income (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)
Parent
Company
$875,077
9,344
884,421
787,216
Guarantors
$50,837
–
50,837
47,330
97,205
70,632
(348)
26,921
(28,035)
41,954
13,919
40,840
(1,854)
3,507
2,681
(3,590)
4,416
7,838
467
8,305
12,721
2,161
Non
Guarantors
Adjustments/
Eliminations
$728,077
–
728,077
622,841
105,236
51,558
(12)
53,690
$(50,837)
–
(50,837)
(51,082)
245
–
–
245
(6,631)
1,447
(5,184)
48,506
9,369
(4,300)
(47,167)
(51,467)
(51,222)
(1,525)
Consolidated
$1,603,154
9,344
1,612,498
1,406,305
206,193
124,871
(3,950)
85,272
(31,128)
(3,299)
(34,427)
50,845
8,151
$ 42,694
$10,560
$ 39,137
$(49,697)
$
42,694
Glatfelter 2011 Form 10-K
59
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)
Guarantors
Non
Guarantors
Adjustments/
Eliminations
$49,919
–
49,919
43,468
$612,716
–
612,716
532,454
$(49,919)
–
(49,919)
(49,747)
Consolidated
$1,455,331
10,653
1,465,984
1,279,737
6,451
2,287
(373)
4,537
7,445
(1,218)
6,227
10,764
2,463
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)
$ 54,434
$ 8,301
$ 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)
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
60
Condensed Consolidating Balance Sheet as of December 31, 2011
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
Total liabilities and shareholders’ equity
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$
3,007
203,173
243,554
736,733
$ 2,894
378,519
6,648
175,945
$ 32,376
223,494
351,748
48,610
$
–
(421,050)
–
(848,726)
$
38,277
384,136
601,950
112,562
$1,186,467
$564,006
$656,228
$(1,269,776)
$1,136,925
$ 310,814
227,000
42,252
115,997
696,063
490,404
$ 31,328
–
4,079
10,059
45,466
518,540
$293,283
–
39,511
9,415
342,209
314,019
$ (424,185)
–
(16,051)
3,019
$ 211,240
227,000
69,791
138,490
(437,217)
(832,559)
646,521
490,404
$1,186,467
$564,006
$656,228
$(1,269,776)
$1,136,925
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
$ 213,146
332,224
94,918
149,017
(425,869)
(795,698)
789,305
552,442
Total liabilities and shareholders’ equity
$1,310,321
$556,115
$696,878
$(1,221,567)
$1,341,747
Glatfelter 2011 Form 10-K
61
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2011
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
Intercompany capital contributed
Total investing activities
Financing activities
Net (repayments of) proceeds from indebtedness
Payment of dividends to shareholders
Repurchases of common stock
(Repayments) borrowings of intercompany loans, net
Intercompany capital received
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
$ 75,787
$ 1,705
$ 67,115
$ (4,300)
$ 140,307
(31,239)
627
–
(11,924)
–
(124)
3,821
–
(6,974)
(16,000)
(33,128)
43
43,170
(7,600)
–
(42,536)
(19,277)
2,485
(78,235)
(16,611)
(48,033)
50,450
–
–
232
(92,197)
–
(58,946)
61,953
–
–
–
24,675
–
(4,300)
–
20,375
–
2,803
91
(37,493)
–
–
(48,627)
16,000
–
–
(70,120)
(848)
(1,368)
33,744
$ 3,007
$ 2,894
$ 32,376
$
–
–
–
26,498
16,000
42,498
–
–
–
(26,498)
(16,000)
4,300
–
(38,198)
–
–
–
–
(64,491)
4,491
43,170
–
–
(16,830)
(115,728)
(16,611)
(48,033)
–
–
–
232
(180,140)
(848)
(57,511)
95,788
$ 38,277
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
Intercompany capital contributed, 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
Intercompany capital received, 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
62
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$ 137,406
$ (12,077)
$
43,991
$
(1,315)
$ 168,005
(23,367)
124
(8,257)
(143,520)
–
(695)
387
(105,294)
(24,995)
–
(12,429)
53
6,895
–
(228,290)
–
–
106,656
168,515
0
(36,491)
564
–
–
(228,290)
(175,020)
(130,597)
(233,771)
275,171
(264,217)
75,660
(16,746)
(40,292)
–
–
3,975
22,597
–
(15,017)
76,970
–
–
(425)
143,520
(1,315)
–
141,780
–
(894)
985
(3,208)
–
147,373
24,995
–
–
169,160
(3,101)
(23,721)
57,465
$
61,953
$
91
$
33,744
$
–
–
(106,656)
(168,515)
1,315
–
(273,856)
–
–
–
–
72,452
(16,746)
–
–
–
3,975
59,681
(3,101)
(39,632)
135,420
$
95,788
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
Proceeds from sale of (investment in) subsidiary
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
25. QUARTERLY RESULTS (UNAUDITED)
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$102,891
$(1,138)
$ 65,340
$(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
–
18,672
(9,394)
10,092
–
–
(5,500)
(3,225)
(8,725)
–
229
756
985
(12,080)
–
37,850
(18,672)
–
7,098
(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
In thousands,
except per share
Net sales
Gross Profit
Net Income (loss)
2011
2010
2011
2010
2011
2010
First
Second
Third
Fourth
$396,771
397,985
416,493
391,905
$337,275
362,781
379,097
376,178
$60,167
37,500
54,916
53,610
$44,216
35,460
55,740
50,831
$17,426
2,501
13,026
9,741
$ (374)
103
39,437
15,268
Diluted
Earnings (loss)
Per Share
2011
$0.38
0.05
0.28
0.22
2010
$(0.01)
–
0.85
0.33
The information set forth above for net income (loss) and earnings (loss) per share includes the impact of the following,
on an after-tax basis:
Early Redemption
of Bonds
Workforce
Efficiency Charge
Cellulosic
Biofuel
Credits
Gains (losses) on Sales
of Plant, Equipment and
Timberlands
In thousands
2011
2010
2011
2010
2011
2010
2011
First
Second
Third
Fourth
$
–
–
–
(6,065)
$
–
–
–
–
$
–
–
–
(652)
$
–
–
–
–
$ –
–
–
–
$
–
–
23,100
84
$1,718
(69)
245
2,266
2010
$ –
99
–
964
Acquisition Integration
Costs Foreign currency
Hedge Loss
2011
2010
$(275)
(518)
–
–
$(9,078)
(915)
(407)
(345)
Glatfelter 2011 Form 10-K
63
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 offi-
cer, 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, 2011, 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, 2011, 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 29, 2012. 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 appli-
cable regulations of the SEC.
64
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 11 of this
report.
We have adopted a Code of Business Ethics for the
CEO and Senior Financial Officers (the “Code of Business
Ethics”) in compliance with applicable rules of the Secu-
rities and Exchange Commission that applies to our chief
executive officer, chief financial officer and our principal
accounting officer or controller, or persons performing sim-
ilar functions. A copy of the Code of Business Ethics is filed
as an exhibit to this Annual Report on Form 10-K and is
available on our website, free of charge, at
www.glatfelter.com.
ITEM 11 EXECUTIVE COMPENSATION
The information required under this Item is
incorporated herein by reference to our Proxy Statement, to
be dated on or about March 29, 2012.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT
The information required under this Item is
incorporated herein by reference to our Proxy Statement, to
be dated on or about March 29, 2012.
ITEM 13 CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
The information required under this Item is
incorporated herein by reference to our Proxy Statement, to
be dated on or about March 29, 2012.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND
SERVICES
The information required under this Item is
incorporated herein by reference to our Proxy Statement, to
be dated on or about March 29, 2012.
Our Chief Executive Officer has certified to the New
York Stock Exchange that he is not aware of any violations
by the Company of the NYSE corporate governance listing
standards.
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, 2011, 2010 and 2009
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements for the Years Ended December 31, 2011, 2010 and 2009
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, 2011
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).
Amendment to the Share Purchase Agreement, dated February 12, 2010.
Articles of Incorporation, as amended through December 20, 2007 (restated for the purpose of filing
on EDGAR)
By-Laws as amended through January 20, 2012.
3
(b)
(a)
(b)
4
(a)
Indenture, dated as of April 28, 2006, by and between the Company and SunTrust Bank, as trustee
relating to 7 1⁄8 Notes due 2016
(b)
First Supplemental Indenture, dated as of September 22, 2006, among Glatfelter Holdings, LLC,
Glatfelter Holdings II, LLC, the Existing Subsidiary Guarantors named therein and SunTrust Bank
relating to 7 1⁄8 Notes due 2016
Amended Credit Agreement, dated as of November 21, 2011, by and among the Company, certain of
its subsidiaries as borrowers and certain of its subsidiaries as guarantors and PNC Bank, National
Association, as administrative agent, PNC Capital Markets LLC, J.P. Morgan Securities LLC and
RBS Citizens, N.A. as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A.
and Citizens Bank of Pennsylvania, as co-syndication agents, and certain other banks as lenders.
P. H. Glatfelter Company Amended and Restated Management Incentive Plan, effective January 1,
2010**
2(b)
3(b)
3.1
4.1
4.3
10.1
2009 Form 10-K
2007 Form 10-K
January 20, 2012
Form 8-K
May 3, 2006
Form 8-K
September 22, 2006
Form S-4/A
Nov. 23, 2011
Form 8-K
10.1
May 5, 2010
Form 8-K
P. H. Glatfelter Company Supplemental Executive Retirement Plan, as amended and restated effective
10(c)
2000 Form 10-K**
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**
Form of 2007 Top Management Restricted Stock Unit Award Certificate**
Form of Top Management Restricted Stock Unit Award Certificate**
Form of Non-Employee Director Restricted Stock Unit Award Certificate**
Form of Stock-Only Stock Appreciation Right Award Certificate**
10(f)
10.1
10(t)
10.2
10.3
10.3
P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of April 22, 1998**
Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company and
10(h)
10(j)
certain employees, dated as of December 8, 2008 **
(A)
Schedule of Change in Control Employment Agreements filed herewith. **
Non-Competition and Non-Solicitation Agreement by and between P. H. Glatfelter Company and
10.1
Dante C. Parrini, dated July 2, 2010. **
Summary of Non-Employee Director Compensation (effective January 1, 2007)**
Service Agreement, commencing on August 1, 2007, between the Registrant (through a wholly
10(r)
owned subsidiary) and Martin Rapp**
1998 Form 10-K**
May 5,2009
Form 8-K
2006 Form 10-K
May 5, 2009
Form 8-K
April 27, 2005
Form 8-K
May 5, 2009
Form 8-K
1998 Form 10-K**
2008 Form 10-K
July 2, 2010
Form 8-K
Dec. 15, 2004
Form 8-K
2006 Form 10-K
Glatfelter 2011 Form 10-K
65
10
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(k)
(l)
(m)
(n)
Exhibit
Number
(o)
(p)
(q)
(r)
Description of Documents
Incorporated by Reference to
Exhibit
Filing
Retirement Pension Contract, dated October 31, 2008, between Registrant (through a wholly
10(t)
2007 Form 10-K
owned subsidiary) and Martin Rapp**
Guidelines for Executive Severance
10.2
Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated
10(i)
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
July 6, 2010
Form 8-K
1996 Form 10-K
Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox River
and Green Bay site by and among the United States of America and the State of Wisconsin v. P.
H. Glatfelter Company and WTMI Company (f/k/a Wisconsin Tissue Mills, Inc.)
10.3(a)
June 30, 2010
Form 10-Q
(s)
(A)
Agreed Supplement to Consent Decree between United States of America and the State of
(s)
(B)
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.)
10.3(b)
10.3(c)
(t)
Amended Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the
10.3(d)
June 30, 2010
Form 10-Q
June 30, 2010
Form 10-Q
June 30, 2010
Form 10-Q
10.2
10.1
Nov 19, 2007
Form 8-K
Sept. 30, 2007
Form 10-Q
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)
Administrative Order for Remedial Action dated November 13, 2007; issued by the United States
Environmental Protection Agency
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
Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter, filed herewith
Subsidiaries of the Registrant, filed herewith
Consent of Independent Registered Public Accounting Firm, filed herewith.
Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to
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, Chairman and Chief Executive Officer of Glatfelter, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, filed herewith
Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, filed
herewith
(u)
(v)
14
21
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
XBRL Instance Document, filed herewith
XBRL Taxonomy Extension Schema, filed herewith
XBRL Extension Calculation Linkbase , filed herewith
XBRL Extension Label Linkbase, filed herewith
XBRL Extension Presentation Linkbase, filed herewith
** Management contract or compensatory plan
66
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 9, 2012
P. H. GLATFELTER COMPANY
(Registrant)
By /s/ Dante C. Parrini
Dante C. Parrini
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated:
Date
Signature
Capacity
March 9, 2012
/s/ Dante C. Parrini
Principal Executive Officer and Director
Dante C. Parrini
Chairman and Chief Executive Officer
March 9, 2012
/s/
John P. Jacunski
Principal Financial Officer
John P. Jacunski
Senior Vice President and Chief Financial Officer
March 9, 2012
/s/ David C. Elder
Chief Accounting Officer
David C. Elder
Vice President, Finance
March 9, 2012
/s/ Kathleen A. Dahlberg
March 9, 2012
Kathleen A. Dahlberg
/s/ Nicholas DeBenedictis
Nicholas DeBenedictis
March 9, 2012
*
Kevin M. Fogarty
March 9, 2012
/s/
J. Robert Hall
March 9, 2012
J. Robert Hall
/s/ Richard C. Ill
Richard C. Ill
March 9, 2012
/s/ Ronald J. Naples
Ronald J. Naples
March 9, 2012
/s/ Richard L. Smoot
Richard L. Smoot
March 9, 2012
/s/
Lee C. Stewart
Lee C. Stewart
Director
Director
Director
Director
Director
Director
Director
Director
* Mr. Fogarty was elected to the Registrant’s Board of Directors after the period covered by this Annual Report on Form 10-K.
Glatfelter 2011 Form 10-K
67
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, 2011 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 9, 2012
By: /s/ Dante C. Parrini
Dante C. Parrini
Chairman and Chief Executive Officer
68
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, 2011 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 9, 2012
By: /s/
John P. Jacunski
John P. Jacunski
Senior Vice President and Chief Financial Officer
Glatfelter 2011 Form 10-K
69
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
For each of the three years ended December 31, 2011
Valuation and Qualifying Accounts
Allowance for
Schedule II
In thousands
Balance, beginning of year
Provision
Write-offs, recoveries and discounts allowed
Other (a)
Balance, end of year
Doubtful Accounts
2010
$2,888
1,269
(993)
(46)
$3,118
2011
$3,118
149
(385)
(21)
$2,861
2009
$2,633
506
(306)
55
$2,888
Sales Discounts and Deductions
2010
2011
2009
$ 2,845
4,080
(4,070)
(24)
$ 2,831
$ 2,789
3,593
(3,517)
(20)
$ 2,845
$ 3,369
3,575
(4,197)
42
$ 2,789
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.
70
LOCATIONS
W OR L D HE A DQ U A R T ERS
P. H. Glatfelter Company
96 South George Street
Suite 520
York, PA 17401
U.S.A.
U.S. OPER AT ING L OC AT IONS
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
IN T ER N AT ION A L OPER AT ING
L OC AT IONS
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
SALES OFFICES
Spring Grove, Pennsylvania
Gernsbach, Germany
Falkenhagen Facility
Gewerbepark Prignitz/Falkenhagen
Rolf-Hövelmann-Straße 10
16928 Pritzwalk
Germany
Newtech Pulp Facility
Bo. Maria Cristina
9217 Balo-I, Lanao del Norte
Philippines
O T HER L OC AT IONS
China Representative Offi ce
Century Financial Tower, A205
No. 1 Suhua Road
Suzhou-SIP, Jiangsu 215021
China
Hong Kong
P.O. Box No. 13158
Central Post Offi ce, Hong Kong
Caerphilly, United Kingdom
Pontygwindy Industrial Estate
Caerphilly, Mid Glamorgan
CF83 3HU
United Kingdom
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
Hördener Straße 5
76593 Gernsbach
Germany
Falkenhagen, Germany
Gewerbepark Prignitz/Falkenhagen
Scaër, France
Rolf-Hövelmann-Straße 10
16928 Pritzwalk
Germany
BP 2
29390 Scaër
France
Lydney, United Kingdom
Moscow, Russia
Church Road
Lydney, Gloucestershire
GL15 5EJ
United Kingdom
13 2-ya Zvenigorodskaya Street
Building 41
Moscow, 123022
Russia
P. H. GL AT F ELT ER COMPA N Y • 96 SOU T H GEORGE S T R EE T • SUI T E 520 • Y OR K , PA 174 0 1 • W W W.GL AT F ELT ER .COM
© 2012 G L AT F E LT E R