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DRIVING TO EXCELLENCE
P. H. GLATFELTER COMPANY • 96 SOUTH GEORGE STREET • SUITE 520 • YORK, PA 17401 • WWW.GLATFELTER.COM
© 2013 G L AT F E LT E R
2 0 1 2 A N N U A L R E P O R T
GLATFELTER
Headquartered in York, PA, Glatfelter is a global manufacturer of specialty papers and fi ber-based
engineered materials, offering more than a century of experience, technical expertise and world-
class service. U.S. operations include facilities in Spring Grove, PA and Chillicothe and Fremont,
OH. International operations include facilities in Canada, Germany, France, the United Kingdom
and the Philippines, a representative 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.
DRIVING TO EXCELLENCE
Glatfelter PEOPLE are not satisfi ed with being good; we are driven to achieve excellence in all
four of our core business drivers: Specialization, Innovation, Continuous Improvement, and
Globalization. Our operating model is designed to achieve higher revenue and profi t from global
growth businesses, while leveraging the strong cash fl ow from mature product lines to fund our
initiatives. Throughout 2012, Glatfelter demonstrated the ability to continue building a sustainable,
successful company that benefi ts shareholders, customers, employees and communities where
we live and work.
1
2
4
8
CONT ENT S
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 2012 Annual Report on Form 10-K included herein
and in other fi lings with the SEC.
LOCATIONS
W OR L D HE A DQ U A R T ERS
IN T ER N AT ION A L OPER AT ING
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
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
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
Spring Grove, Pennsylvania
Gernsbach, Germany
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
Rolf-Hövelmann-Straße 10
16928 Pritzwalk
Germany
Church Road
Lydney, Gloucestershire
GL15 5EJ
United Kingdom
Gewerbepark Prignitz/Falkenhagen
Scaër, France
Lydney, United Kingdom
Moscow, Russia
Caerphilly, United Kingdom
Pontygwindy Industrial Estate
Caerphilly, Mid Glamorgan
CF83 3HU
United Kingdom
BP 2
29390 Scaër
France
13 2-ya Zvenigorodskaya Street
Building 41
Moscow, 123022
Russia
SALES OFFICES
ww
Net Sales
(in millions)
FINANCIAL HIGHLIGHTS
Adjusted
Earnings
Per Share(4)
NET SALES
(in millions)
3
0
6
,
1
5 $
5
4
,
1
$
8
7
5
,
1
$
4
6
2
,
1
$
4
8
1
,
1
$
ADJUSTED
EARNINGS
PER SHARE (4)
4
0
.
1
$
1
0
.
1
$
8
8
.
0
$
4
6
.
0
$
5
2
.
1
$
Cash Flow
from Operations
(in millions)
CASH FLOW
FROM OPERATIONS
(in millions)
8
6
1
$
4
6
1
$
0
4
1
$
3
1
1
$
3
5
$
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
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(4)
Balance sheet information
Total assets
Total debt
2012
2011
2010(1)
2009
2008
$1,577,788
$1,603,154
$1,455,331
$1,184,010
$1,263,850
213,649
206,193
186,247
269,764
177,782
14%
13%
9,815
59,379
3,950
42,694
13%
453
23%
898
54,434(2)
123,442(3)
1.36
1.25
0.93
1.01
1.17
0.88
2.70
0.64
14%
18,468
57,888
1.27
1.04
1,242,985
1,136,925
1,341,747
1,190,294
1,057,309
250,000
227,000
333,022
254,583
313,285
Shareholders’ equity
539,679
490,404
552,442
510,704
342,707
Cash dividends declared per common share
0.36
0.36
0.36
0.36
0.36
(1) The information set forth above for 2010 includes the fi nancial information for Concert Industries Corp. prospectively from the February 12, 2010 acquisition date.
(2) During 2010, net income included a $23.2 million tax benefi t from cellulosic biofuel production credits.
(3) During 2009, the Company recognized $107.8 million of alternative fuel mixture credits, all of which were recorded as a reduction to cost of products sold.
(4) 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 $0.11 and $0.13 in 2012 and 2011, respectively; charge for workforce
effi ciencies of $0.01 in 2011; acquisition and integration related costs aggregating $0.02, $0.24, $0.04, and $0.02 in 2011 through 2008, respectively; gains from timberland sales and other asset
sales of $0.12, $0.09, $0.02, $0.00, and $0.24, in 2012 through 2008, respectively; benefi t of cellulosic biofuel production credits of $0.09 and $0.50 in 2012 and 2010, respectively; alternative fuel
mixture credits of $2.09 in 2009; and shutdown, restructuring charges and asset writedowns of $(0.01) in 2008.
1
GLATFELTER AT A GLANCE
Specialty Papers
Composite Fibers
Advanced Airlaid Materialsrs
PROFITABILITY OVERVIEW
2012 PRODUCT SALES MIX
SPECIALTY PAPERS produces paper products for uses such
as multi-part forms, security papers, digital imaging, food-grade products,
mailing and high-quality book publishing, primarily in North America. Success in
this business segment is based on our ability to drive profi tability and cash fl ow
by optimizing our assets through our Continuous Improvement initiatives,
providing exceptional customer service and executing aggressive new product
NE T SALES
$894.8 Million or
56.7%
of Consolidated Net Sales
TONS SOLD
789,201
and business development.
3
.
7
6
$
4
.
8
5
$
3
.
7
5
$
9
.
5
5
$
2
.
9
4
$
0
.
4
3
$
8
.
0
4
$
1
.
6
3
$
9
.
2
3
$
9
.
5
2
$
0
.
5
2
$
9
.
1
2
$
Specialty Papers
Composite Fibers
Operating
Income
Operating
Income
Advanced Airlaid Materialsrs
* Advanced Airlaid was acquired in February 2010.
07
08
09
10
11
12
07
08
09
10
11
12
10*
11
12
0
.
8
1
$
4
.
3
1
$
4
.
4
$
Operating
Income
COMPOSITE FIBERS serves growing global markets’ needs for
higher-value-added applications such as single-serve coffee and tea products;
metallized products used in the labeling of beer bottles, inner liners and gift
wrap; composite laminates for furniture and fl ooring; and products for electrical
applications and energy storage. We have profi tably built this business by
expanding our capacity and investing in state-of-the-art technology, as well as
completing acquisitions that complement our existing portfolio and broaden our
product offerings.
3
.
7
6
$
NE T SALES
$436.7 Million or
9
4
3
.
.
.
8
5
$
7
5
$
5
5
$
2
.
9
4
$
27.7%
0
.
4
3
$
of Consolidated Net Sales
8
.
0
4
$
1
.
6
3
$
9
.
2
3
$
9
.
5
2
$
0
.
5
2
$
9
.
1
2
$
TONS SOLD
90,300
07
10
08
09
11
12
07
08
09
10
11
12
10*
11
12
Operating
Income
Operating
Income
* Advanced Airlaid was acquired in February 2010.
0
.
8
1
$
4
.
3
1
$
4
.
4
$
Operating
Income
Specialty Papers
Composite Fibers
Advanced Airlaid Materialsrs
ADVANCED AIRLAID MATERIALS produces highly
absorbent cellulose-based nonwoven materials for high-growth consumer
7
6
$
3
3
9
4
.
.
.
.
5
5
$
2
.
8
5
$
7
5
$
and industrial applications, such as personal hygiene and home care. This
9
4
$
business segment focuses on maintaining and expanding relationships with
4
3
$
0
.
9
.
5
2
$
NE T SALES
$246.3 Million or
8
.
0
4
$
1
.
9
15.6%
6
3
$
2
3
$
0
.
of Consolidated Net Sales
9
.
.
5
2
$
1
2
$
customers (many of whom are market-leading consumer product companies),
capitalizing on our product and process innovation capabilities, and extending
TONS SOLD
90,332
0
.
8
1
$
4
.
3
1
$
4
.
4
$
our geographic reach.
07
08
09
10
11
12
07
08
09
10
11
12
10*
11
12
Operating
Income
Operating
Income
Operating
Income
2
* Advanced Airlaid was acquired in February 2010.
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
2012 PRODUCT SALES MIX
42%
20%
17%
21%
Carbonless & Forms
Engineered Products
Composite Fibers
Book Publishing
Envelope & Converting
9%
10%
20%
61%
Food & Beverage
Metallized
Composite Laminates
Specialty Papers
Composite Fibers
Envelope & Converting
Advanced Airlaid Materials
Technical Specialties
42%
20%
17%
21%
Carbonless & Forms
Engineered Products
Book Publishing
Envelope & Converting
3%
4%
13%
80%
Feminine Hygiene
Home Care
Adult Incontinence
Other
Specialty Papers
42%
20%
17%
21%
Carbonless & Forms
Engineered Products
Book Publishing
9%
10%
20%
61%
Food & Beverage
Metallized
Composite Laminates
Technical Specialties
3%
4%
13%
80%
Feminine Hygiene
Home Care
Adult Incontinence
Other
9%
10%
20%
61%
Food & Beverage
Metallized
Advanced Airlaid Materials
Composite Laminates
Technical Specialties
3%
4%
13%
80%
Feminine Hygiene
Home Care
Adult Incontinence
Other
DEAR FELLOW SHAREHOLDERS
important step on its journey of “driving to excellence.“
We are gratifi ed to report that in 2012, Glatfelter took another
substantial free cash fl ow in the face of a challenging global
The company signifi cantly grew earnings and generated
economy. I want to express my deep appreciation to all Glatfelter
PEOPLE who helped us turn in another year of strong performance. We
remained focused on our growth drivers – specialization, innovation,
continuous improvement, and globalization – to ensure we sustained
our track record of improvement.
Glatfelter PEOPLE accelerated their pursuit of operational
excellence and consistent execution throughout the year. And while we
still have ample room to improve, the great progress we made helped
generate another robust year of earnings growth.
I am pleased to report that shareholders were rewarded with
a total return of 26.6% in 2012, which outperformed our major
peer group indices. In addition, Glatfelter joined the prestigious
S&P SmallCap 600 – refl ecting the market’s confi dence in our
transformation into a growing global specialty materials business.
❚ B US I N E SS U N I T O PE R AT I N G PR O FI T – U P 9%
The year was highlighted by continued improvement at our
Specialty Papers and Advanced Airlaid Materials business units, while
a “perfect storm” of challenges limited progress at Composite Fibers.
Overall, our business unit operating profi t rose 9% over 2011.
At Specialty Papers, operating profi t climbed 17% over the
previous year, with strong cash fl ow. Volumes were up by 1.2%,
outperforming a declining uncoated free sheet market for the
❚ 2012 – A S O LI D FI N AN CIAL PE R FO R M AN CE
eighth consecutive year. The combination of rigorous continuous
Glatfelter encountered substantially greater economic headwinds
improvement, new product and business development, and superior
as the year progressed. This created a more diffi cult operating
customer service enabled Specialty Papers to generate powerful
environment for some parts of our business, particularly those with
results. To off set any market weakness, we will continually pursue
exposure to Europe. Glatfelter PEOPLE surmounted these obstacles to
opportunities to keep our facilities running at capacity.
achieve a solid fi nancial performance and substantial year-over-year
Advanced Airlaid Materials made considerable progress and
improvement.
fi nished the year on a high note. In the fourth quarter, the business
Adjusted earnings per share were up 24% and operating income
unit recorded its best operating income and profi t margins since we
was up almost 9% versus 2011. These results increased our 5-year
acquired it in early 2010. For the full year, operating profi t was up 34%
compound annual growth rate to 17.3%, excluding the impact of our
and margins improved over 200 basis points. New product innovation
overfunded pension plan.
helped fuel Advanced Airlaid Materials’ accomplishments. The business
Free cash fl ow was a healthy $77 million. This was accomplished
unit successfully introduced a variety of new product platforms that
through good operating performance, eff ective working capital
off ered improved performance, lower basis weights, and compelling
management, and disciplined investment decisions. Our strong cash
value propositions for the adult hygiene market. In addition, the
fl ow also allowed us to fund growth investments, such as capacity
growth of its specialty wipes products accelerated in 2012, with sales
expansion at Composite Fibers, as well as return a competitive dividend
up 148%. Considerable opportunity remains for this business to
to our shareholders. Prudent capital allocation and earnings growth
improve performance and accelerate its growth trajectory. Advanced
drove our return on capital employed (ROCE) to 9.3% in 2012, achieving
Airlaid Materials clearly has established itself as the innovation leader in
returns that exceeded our weighted average cost of capital.
the market. It is well positioned for margin and profi tability expansion
Over the last two years, we’ve leveraged our improving cash
as global demand for personal care products continues to climb.
position to buy back 8% of our outstanding shares. We’ve also taken
Composite Fibers faced a host of challenges during the year,
advantage of the lower interest rate environment to restructure our
curtailing its results. Operating profi t dropped 12% and shipments
debt with a successful $250 million bond refi nancing. These actions
declined 3% from 2011. The business unit’s progress was hindered by
increased earnings per share by $0.22 in 2012.
4
DANTE C. PARRINI
Chairman and Chief Executive Offi cer
“I am pleased to report that shareholders were
rewarded with a total return of 26.6% in 2012,
which outperformed our major peer group indices.
In addition, Glatfelter joined the prestigious S&P
SmallCap 600 – refl ecting the market’s confi dence
in our transformation into a growing global
specialty materials business.”
deteriorating economic conditions in Europe. At year end, Composite
Fibers’ customers were destocking and aggressively managing
their inventories. This short-term weakness in demand increased
competitive intensity that pressured prices and margins. Foreign
currency exchange reduced operating profi t by $3.2 million. And
operating issues such as three machine upgrades, power outages at our
United Kingdom facilities, and a fi re at the Scaër, France, mill created
production disruptions.
We are confi dent the business unit will return to its previous
profi tability levels. Consumer buying patterns are moving in our favor.
We lead the growing global tea market, the popular single-serve coff ee
category is advancing at double-digit rates, and we’ve forged binding
customer relationships. Our optimism for this business is refl ected in
the mill upgrade at our Gernsbach, Germany, facility. This work will be
completed in 2013, and will increase our capacity to produce higher-
margin products.
All of our businesses benefi ted from vigorous continuous
improvement initiatives. Glatfelter PEOPLE are embracing this process
more holistically throughout the organization. These initiatives,
which ranged from operational improvements to business process
enhancements, yielded results substantially above 2011 and exceeded
our 2012 target.
5
2006 Net Sales: $986 million
2012 Net Sales: $1,578 million
INCREASING PARTICIPATION IN GLOBAL GROWTH MARKETS
30%
2006 Net Sales: $986 million
2012 Net Sales: $1,578 million
2006 Net Sales: $986 million
2012 Net Sales: $1,578 million
70%
43%
Glatfelter has signifi cantly
expanded its presence in
57%
2006 NET SALES
$986 MILLION
2012 NET SALES
$1,578 MILLION
30%
30%
30%
70%
70%
Specialty Papers
70%
43%
Composite Fibers
Advanced Airlaid Materials
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
Specialty Papers
Composite Fibers
43%
Advanced Airlaid Materials
43%43%43%43%
57%
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
global growth markets, with
approximately 43% of
net sales now coming from
growth businesses.
57%
57%
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
❚ 2013 – O PP O R T U N I T I E S FO R G R OW T H
Specialty Papers
I remain optimistic about Glatfelter’s future despite the present
Composite Fibers
•
Globalization: delivering strong free cash fl ow to fund
uncertainty and potential for volatility in our markets. While diffi cult
Advanced Airlaid Materials
key opportunities for geographic expansion that create
economic conditions will continue, particularly in Europe, our four core
shareholder value. These eff orts include investing in organic
business drivers provide signifi cant opportunities for organic growth
growth and targeted acquisitions that broaden capabilities
and margin expansion.
in our global growth businesses, participating in emerging
•
Specialization: executing our investment to increase
and developing markets, and adding scale to the business in
capacity in Composite Fibers, serving the growing tea,
a thoughtful and measured fashion.
single-serve coff ee and technical specialties markets with
I’m excited about our many opportunities to continue growing
high-value, higher-margin products.
operating profi t and free cash fl ow. My optimism is based on our
•
Innovation: partnering with customers to leverage our
leading market positions, the strong underlying demand for our
unique new product development capabilities. We continue
products, and the strength of our customer relationships, which make
to upgrade our business mix and portfolio with new product
us the industry’s supplier of choice. And our balance sheet enables us
and process innovation and expect to keep generating over
to identify opportunities that can add signifi cant shareholder value
50% of total revenue from products less than 5 years old.
while remaining true to our core value of fi nancial discipline.
•
Continuous improvement: employing this critical tool in a
volatile business environment to improve our operating cost
structure and create incremental capacity on existing assets.
We expect to generate benefi ts equal to approximately
2% of sales in 2013.
6
❚ D R I V I N G TO E XCE LLE N CE
Glatfelter Announces Agreement to Acquire
Nonwovens Manufacturer Dresden Papier
On March 13, 2013, Glatfelter announced a defi nitive
agreement to acquire Germany’s Dresden Papier GmbH,
which is the leading global supplier of nonwoven wallpaper
Throughout 2012, Glatfelter PEOPLE demonstrated the ability to
base materials. The transaction to acquire Dresden Papier
consistently deliver improved results and shareholder return – even
from Canada-based Fortress Paper is valued at €160 million
when faced with adversity. Our team is driving the strength of our
(U.S. $209 million).
operating model, which achieves higher revenue and profi t from global
We believe Dresden Papier will be an excellent addition
growth businesses while leveraging the strong cash fl ow from mature
to our industry-leading nonwovens product lines. Like many of
product lines to fund our initiatives.
our other lines of business do in their markets, Dresden holds
Staying centered on our vision, strategy, and core values, we took
a pre-eminent position in nonwoven wallpaper materials – as
an important step in building a sustainable company that benefi ts all
both the cost and quality leader because of its innovative
shareholders, customers, employees, and communities. Our company
products, proprietary manufacturing techniques, and long-
continues to invest in its people, processes, and tools to drive improved
standing customer relationships with some of the world’s largest
results throughout the entire business cycle.
wallpaper manufacturers. Nonwoven wallpaper off ers superior
Glatfelter PEOPLE are not satisfi ed with being good; they
performance and characteristics such as dry strip-ability, higher
strive to be great. They are driven to achieve excellence. In times of
tear resistance, and no material shrinkage or expansion when
risk and unpredictability, great companies use their adaptability,
wet, increasingly making it the product of choice for wallpaper
resourcefulness, and responsiveness to fi nd opportunity and success.
installers and design professionals.
We’re managing the business with a keen focus on execution,
This acquisition will broaden our relationship with leading
discipline, and a well-constructed plan. While our direction may be
producers of consumer and industrial products, and provide
modifi ed at times to meet changing conditions, our strategy is sound
additional operational leverage and growth opportunities for
and will yield important and meaningful results.
Glatfelter globally, particularly in large markets such as Russia
We’re inspired by the opportunities we see in 2013 and beyond
and China, and other developing markets in eastern Europe
to continue our record of sustained growth. The progress we have
and Asia. We expect that the nonwovens wallpaper segment
achieved in enhancing operating profi t and free cash fl ow positions us
will continue to grow at a compound annual growth rate of at
well to deliver strong returns that will benefi t all Glatfelter stakeholders.
least 10%.
Sincerely,
Dante C. Parrini
The transaction, which is subject to customary closing
conditions, including receipt of German and Ukrainian
regulatory approvals, is expected to close during the second
quarter. Upon closing, the acquired business will become part
of Glatfelter’s Composite Fibers Business Unit. We expect the
Chairman and Chief Executive Offi cer
acquisition to be immediately accretive to earnings per share
by approximately $0.25 on an annualized basis.
March 18, 2013
7
DIRECTORS AND OFFICERS
OF F ICERS A ND M A N A GEMEN T
Dante C. Parrini
Chairman and Chief Executive Offi cer
Debabrata Mukherjee
Vice President and General Manager
John R Blind
Division Vice President
Specialty Papers Business Unit
Printing & Carbonless Papers
Martin Rapp
Vice President and General Manager
Timothy R. Hess
Division Vice President
Composite Fibers Business Unit
Engineered & Converting Products
Mark A. Sullivan
Vice President
Global Supply Chain and
Information Technology
William T. Yanavitch II
Vice President
Human Resources and Administration
Kent K. Matsumoto
Interim General Counsel,
Assistant Secretary and
Chief Compliance Offi cer
Reinhard S. Schiebeler
Operations Director
Composite Fibers Business Unit
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
Dante C. Parrini
Chairman and Chief Executive Offi cer
Kevin M. Fogarty
President and Chief Executive Offi cer
Ronald J. Naples
Retired Chairman and
Kraton Performance Polymers, Inc.
Chief Executive Offi cer
Kathleen A. Dahlberg
Chief Executive Offi cer
2Unify LLC
Nicholas DeBenedictis
Chairman, Chief Executive Offi cer
and President
J. Robert Hall
Chief Executive Offi cer
Ardale Enterprises, LLC
Richard C. Ill
Chairman
Aqua America Corporation
Triumph Group, Inc.
CORPORATE INFORMATION
Quaker Chemical Corporation
Richard L. Smoot
Retired Regional Chairman
PNC Bank, NA
Philadelphia/South Jersey Markets
Lee C. Stewart
Financial Consultant
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: 717-225-2719
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 9, 2013, 9:00 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 ER A GEN 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: 717-225-2719
New York Stock Exchange
Computershare Investor Services
Email: ir@glatfelter.com
S T OCK S Y MBOL
GLT
P. O. Box 43078
Providence, RI 02940-3078
Toll-free: 877-832-7259
International: 312-360-5100
8
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Í
‘
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2012
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
to
96 South George Street, Suite 520
York, Pennsylvania 17401
(Address of principal executive offices)
(717) 225-4711
(Registrant’s telephone number, including area code)
Commission file number
Exact name of registrant as
specified in its charter
1-03560
P. H. Glatfelter Company
IRS Employer
Identification No.
23-0628360
State or other jurisdiction of
incorporation or organization
Pennsylvania
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.01 per share
Name of Each Exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ‘ No Í.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ 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 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 ‘
Accelerated filer Í
Non-accelerated filer ‘
(Do not check if a smaller reporting company).
Small reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes ‘ No Í.
Based on the closing price as of June 30, 2012, the aggregate market value of the Common Stock of the Registrant held by non-affiliates was $692.9 million.
Common Stock outstanding on February 28, 2013 totaled 42,824,288 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this Annual Report on Form 10-K:
Portions of the registrant’s Proxy Statement to be dated on or about April 3, 2013 are incorporated by reference into Part III.
P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2012
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
7
11
11
11
11
12
12
13
14
25
26
61
61
61
61
61
61
61
61
62
64
65
67
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) 225-2719, 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:
(cid:129) 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, casting,
release, transfer, playing card, postal, FDA-
compliant food and beverage applications, and
other niche specialty applications;
(cid:129) 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
(cid:129) 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 Materials business units are characterized
by attractive growth rates as the result of new and
emerging products and markets, changing end-user
preferences and evolving demographics. Specialty Papers
serves more mature market segments, many 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 is expected to represent an increasingly greater
proportion of total revenue. For 2012, these two business
units comprised 43% 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
2012
2011
2010
Net sales
Business unit
contribution
Specialty Papers
Composite Fibers
Advanced Airlaid
Materials
Total
$1,577,788
$1,603,154 $1,455,331
56.7%
27.7
54.6%
29.7
57.9%
28.8
15.6
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 hygiene products markets. To ensure we are best
positioned to serve these markets, we have made
investments to increase production capacity and intend to
make additional future investments.
In addition to leveraging our leading positions, our
focus on product innovation is a critical component of our
business strategy. During 2012, 2011 and 2010, we
invested $10.9 million, $11.7 million and $10.4 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; the generation of strong and
reliable cash flows; and strategic investments to improve
our returns on invested capital. 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 share
repurchase programs executed in 2011 and 2012. Under
the programs we have repurchased $54 million of our
common stock. These actions and our disciplined approach
to capital expenditures has resulted in the generation of
returns on invested capital that exceed our cost of capital.
Glatfelter 2012 Form 10-K
1
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.
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:
Short tons
2012
2011
2010
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
Total
789,201
90,300
90,332
779,647
93,317
87,951
764,670
90,350
72,833
969,833
960,915
927,853
Specialty Papers Our North America-based
Specialty Papers business unit focuses on producing papers
for the following markets:
(cid:129) Carbonless & forms papers for credit card
receipts, multi-part forms, security papers and
other end-user applications;
(cid:129) Book publishing papers for the production of
high quality hardbound books and other book
publishing needs;
(cid:129) Envelope and converting papers for the direct
mail market, shopping bags, and other converting
applications; and
(cid:129) Engineered products for digital imaging,
casting, release, transfer, playing card, postal,
FDA-compliant food and beverage applications,
and other niche specialty applications.
The market segments in which Specialty Papers
competes have undergone significant changes over the
past several years in response to capacity exceeding
demand. 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
2012
2011
2010
Carbonless & forms
Book publishing
Envelope & converting
Engineered products
Other
Total
$372,950
155,925
174,781
187,724
3,397
$368,582
166,506
170,380
166,660
2,950
$359,033
168,155
157,202
155,257
2,967
$894,777
$875,078
$842,614
2
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
assets to efficiently respond to changing customer
demands. In each of the past eight 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 shipping
volumes.
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 papers and business forms, 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 end-uses. While this
market is also declining, we have leveraged our customer
service capabilities to grow our market share in each of the
last several 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)
795,000
Pulpwood
Wood-and other pulps
2,327,250
721,600
This business unit’s pulp mills have a combined pulp
making capacity of 598,000 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, in 2012, it purchased approximately 22% 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 Independent System Operator (“ISO”)
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 of PJM, we provide capacity
to the grid and 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:
(cid:129) employing our new product and new business
development capabilities to meet changing
customer demands and ensure optimal utilization
of capacity;
(cid:129) leveraging our flexible operating platform to
optimize product mix by shifting production among
facilities to more closely match output with
changing demand trends;
(cid:129) aggressively employing methodologies to manage
pressures on margins presented by more mature
markets;
(cid:129) utilizing ongoing continuous improvement
methodologies to ensure operational efficiencies;
and
(cid:129) 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:
(cid:129) Food & Beverage paper primarily used for
single-serve coffee and tea products;
(cid:129) Metallized products used in the labeling of beer
bottles, packaging innerliners, gift wrap, self-
adhesive labels and other consumer product
applications;
(cid:129) Composite Laminates papers used in
production of decorative laminates, furniture, and
flooring applications; and
(cid:129) Technical Specialties a diverse line of paper
products used in batteries, adhesive tapes and
other highly-engineered applications.
We believe this business unit maintains a market
leadership position in the single-serve coffee and tea
markets, and the composite laminates market. Composite
Glatfelter 2012 Form 10-K
3
Fibers’ revenue composition by market consisted of the
following for the years indicated:
In thousands
2012
2011
2010
Food & beverage
Metallized
Composite laminates
Technical specialties and
other
Total
$265,423
87,720
44,613
$284,748
95,276
53,334
$242,882
88,753
50,801
38,984
42,671
36,781
$436,740
$476,029
$419,217
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 or
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 positions us
well to compete in these global markets.
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. Our abaca pulp production process, fulfilled by
our Philippine mill, 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.
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
28,100 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
30,200
26,270
Composite Fibers uses highly specialized inclined wire
paper machine technology and we believe we currently
maintain approximately 25% of the global inclined wire
capacity.
4
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, in 2012, it purchased 93% 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. In single-serve
coffee and tea products we compete with companies such
as Ahlstrom and Purico. In composite laminates, we
compete with PdM, a division of Schweitzer-Maudit,
Purico, MB Papeles and Oi feng. For metallized products,
competitors include AR Metallizing, Torras Papel Novelis,
Vaassen, and Wenzhou Protec Vacuum Metallizing Co. Ltd.
Our strategy in Composite Fibers is focused on:
(cid:129) capturing global growth in food & beverage,
technical specialties and composite laminates;
(cid:129) 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;
(cid:129) capitalizing on rapidly growing markets;
(cid:129) enhancing product mix across all of the business
unit’s markets by utilizing new product and new
business development capabilities;
(cid:129) implementing continuous improvement
methodologies to increase productivity, reduce
costs and expand capacity; and
(cid:129) ensuring readily available access to specialized raw
material requirements to support projected
growth.
As part of our commitment to realizing the growth
potential of certain of this business unit’s markets, we
announced a $50 million investment to expand our
inclined wire capacity by nearly 20%, or approximately
10,500 short tons, by converting a flat wire machine,
currently producing composite laminates, to a state-of-the-
art inclined wire machine. The project began in 2012 and
is expected to be completed in the second quarter of 2013.
Production of saleable products from the new machine is
scheduled to begin 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:
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)
107,000
Fluff pulp
73,250
(cid:129) feminine hygiene;
(cid:129) adult incontinence;
(cid:129) home care;
(cid:129) specialty wipes;
(cid:129) table top; and
(cid:129) food pads.
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
Home care
Wipes
Adult incontinence
Other
Total
2012
2011
2010
$197,792
14,527
13,562
6,959
13,442
$206,724
15,308
5,463
6,083
18,469
$157,660
13,691
–
6,167
15,981
$246,282
$252,047
$193,499
The feminine hygiene category accounted for 80% of
Advanced Airlaid Material’s revenue in 2012, sales of
which 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 Falkenhagen,
Brandenburg, Germany and Gatineau, Quebec, Canada.
The Falkenhagen location operates three multi-bonded
production lines and three proprietary single-lane
festooners. 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.
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.
Approximately 80% of this business unit’s revenue is
earned under contracts with pass-through provisions
directly related to the price of key input costs.
Advanced Airlaid Materials continues to be a
technology and product innovation leader in technically
demanding segments of the airlaid market, most notably
feminine hygiene. We believe that its facilities are among
the most modern and flexible airlaid facilities in the world,
allowing it to produce at industry leading operating rates.
Its proprietary single-lane rotary festooning technology,
developed in 2002, provides customers with a 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:
(cid:129) maintaining and expanding relationships with
customers that are market-leading consumer
product companies;
(cid:129) expanding geographic reach of markets served;
(cid:129) optimizing the use of existing production capacity;
(cid:129) employing continuous improvement methodologies
and initiatives to reduce costs, improve efficiencies
and create capacity; and
(cid:129) 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 22 including geographic
revenue and long-lived asset financial information.
Glatfelter 2012 Form 10-K
5
Balance Sheet We are focused on prudent
financial management and the maintenance of a
conservative capital structure and strong balance sheet.
This includes:
(cid:129) aggressively managing working capital to enhance
cash flow from operations;
(cid:129) making disciplined capital expenditure decisions;
and
(cid:129) monetizing the value of our timberland assets as
opportunities develop.
The success of these actions positions us with the
flexibility to pursue strategic opportunities that will benefit
our shareholders.
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
2012, 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. Capital expenditures
totaled $58.8 million, $64.5 million and $36.5 million, in
2012, 2011 and 2010, respectively. For 2013, capital
expenditures are estimated to be $90 million to $100
million. This includes $33.5 million of the $50 million
investment to expand capacity to serve Composite Fibers’
growth markets.
Environmental Matters We are subject to
various federal, state and local laws and regulations
intended to protect the environment as well as human
health and safety. At various times, we have incurred
significant costs to comply with these regulations and we
could incur additional costs as new regulations are
developed or regulatory priorities change. As a result of
new 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), we
anticipate that we could incur material capital and
operating costs. For example, on December 20, 2012, the
Administrator of the U. S. Environmental Protection Agency
signed 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 to understand the effect they may have on our
6
operations, 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
current estimates to implement viable options could result
in additional capital spending of approximately
$45 million. The amount ultimately incurred may be less
depending on our successful implementation of
appropriate available options. In addition, the timing of
any additional capital spending is uncertain, although we
currently expect to incur the expenditures generally in
2015 and 2016. 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 21.
Employees As of December 31, 2012, we
employed 4,258 people worldwide, of which
approximately 70% are unionized. The United
Steelworkers International Union and the Office and
Professional Employees International Union represents
approximately 1,600 hourly employees at our Chillicothe,
OH and Spring Grove, PA facilities under labor contracts
expiring in November 2015 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 The Corporate
Governance page of our corporate web site includes 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) 225-2719, 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. Approximately 17% of our net sales in 2012
were shipped to customers in western Europe, the demand
for which, in many cases, is dependent on economic
conditions in this area, and to the extent customers do
business outside of Europe, in other regions of the world.
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 environment 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. 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 82% 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 decisions by land owners to produce
alternative crops in lieu of those used to produce abaca
fiber.
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.
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:
(cid:129) the entry of new competitors into the markets we
serve, including foreign producers;
(cid:129) the willingness of commodity-based producers to
enter our markets when they are unable to
compete or when demand softens in their
traditional markets;
Glatfelter 2012 Form 10-K
7
(cid:129) the aggressiveness of our competitors’ pricing
strategies, which could force us to decrease prices
in order to maintain market share;
We are subject to substantial costs and
potential liability for environmental
matters.
(cid:129) our failure to anticipate and respond to changing
customer preferences;
(cid:129) the impact of electronic-based substitutes for
certain of our products such as carbonless and
forms, book publishing, and envelope papers;
(cid:129) the impact of replacement or disruptive
technologies;
(cid:129) changes in end-user preferences;
(cid:129) our inability to develop new, improved or
enhanced products; and
(cid:129) our inability to maintain the cost efficiency of our
facilities.
If we cannot effectively compete in the markets in
which we operate, our sales and operating results would
be adversely affected.
We may not be able to develop new
products acceptable to our customers.
Our business strategy is market focused and includes
investments in developing new products to meet the
changing needs of our customers and to maintain our
market share. Our success will depend, in part on our
ability to develop and introduce new and enhanced
products that keep pace with introductions by our
competitors and changing customer preferences. If we fail
to anticipate or respond adequately to these factors, we
may lose opportunities for business with both current and
potential customers. The success of our new product
offerings will depend on several factors, including our
ability to:
(cid:129) anticipate and properly identify our customers’
needs and industry trends;
(cid:129) price our products competitively;
(cid:129) develop and commercialize new products and
applications in a timely manner;
(cid:129) differentiate our products from our competitors’
products; and
(cid:129) invest efficiently in research and development
activities.
Our inability to develop new products could adversely
impact our business and ultimately harm our profitability.
8
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
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 the context set forth in more detail in Item 8 –
Financial Statements and Supplementary Data – Note 21.
The Advanced Airlaid Materials business
unit generates a substantial portion of its
revenue from one customer serving the
hygiene products market, the loss of which
could have a material adverse effect on our
results of operations.
Advanced Airlaid Materials generates the majority of
its net sales of hygiene 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 80% of Advanced
Airlaid Materials’ net sales in 2012 and sales are
concentrated within a small group of large customers. A
decline in sales of 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
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.
If we have a catastrophic loss or unforeseen
operational problem at certain of our facilities, we could
suffer significant lost production which could impair our
ability to satisfy customer demands.
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, operating results and financial condition.
In addition, we own and maintain four dams in York County,
Pennsylvania, that were built to ensure a steady supply of
water for the operation of our facility 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. Any sudden
failure of a dam, including as a result of natural disaster or act
of terrorism or sabotage, would endanger occupants and
residential, commercial and industrial structures, for which we
could 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, water clarity, 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, one of the world’s hazard belts. By virtue of its
geographic location, this mill is subject to, among similar types
of natural disasters discussed above, cyclones, typhoons, and
volcanic activity. Moreover, the area of Lanao del Norte has
been a target of suspected terrorist activities. 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 85% 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 products. 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.
Glatfelter 2012 Form 10-K
9
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 unique risks, in addition to the risks in our
domestic sales and operations, including differing protections of
intellectual property, trade barriers, labor unrest, exchange
controls, regional economic uncertainty, differing (and possibly
more stringent) labor regulation, risk of governmental
expropriation, domestic and foreign customs and tariffs,
differing regulatory environments, difficulty in managing
widespread operations and political instability. These factors
may adversely affect our future profits. Also, in some foreign
jurisdictions, we may be subject to laws limiting the right and
ability of entities organized or operating therein to pay
dividends or remit earnings to affiliated companies unless
specified conditions are met. Any such limitations would restrict
our flexibility in using funds generated in those jurisdictions.
Foreign currency exchange rate
fluctuations could adversely affect our
results of operations.
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.
10
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 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. During
2012, we amended our 2009 federal income tax return to
convert a portion of the alternative fuel mixture credits for
cellulosic biofuel production credits. 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; as well as substantially all of the
equipment used in our manufacturing and related operations.
Certain of our operations, particularly our metallized paper
production facility located in Caerphilly, Wales, office and
warehouse space in Moscow, Russia and our corporate offices
located in York, Pennsylvania are under lease agreements. All
of our properties, other than those that are leased, are free
from any material liens or encumbrances. We consider all of
our buildings to be in good structural condition and well
maintained and our properties to be suitable and adequate for
present operations.
ITEM 3
LEGAL PROCEEDINGS
We are involved in various lawsuits that we consider
to be ordinary and incidental to our business. The ultimate
outcome of these lawsuits cannot be predicted with
certainty; however, we do not expect such lawsuits,
individually or in the aggregate, will have a material
adverse effect on our consolidated financial position,
liquidity or results of operations.
For a discussion of commitments, legal proceedings
and related contingencies, see Item 8 – Financial
Statements and Supplementary Data – Note 21.
EXECUTIVE OFFICERS
The following table sets forth certain information
with respect to our executive officers and senior
management as of March 7, 2013.
Name
Age
Office with the Company
Dante C. Parrini
John P. Jacunski
Christopher W. Astley
Jonathan A. Bourget
David C. Elder
Debabrata Mukherjee
48
47
40
48
44
43
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
Manager, Specialty Papers
Business Unit
Martin Rapp
53
Vice President & General
Mark A. Sullivan
58
Manager, Composite Fibers
Business Unit
Vice President, Global Supply
Chain and Information
Technology
William T. Yanavitch II
52
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, he was Executive Vice President
and Chief Operating Officer, a position he held since
February 2005. Mr. Parrini joined us in 1997 and has
previously served as Senior Vice President and General
Manager, a position he held beginning in January 2003
and prior to that as Vice President responsible for Sales
and Marketing.
John P. Jacunski became Senior Vice President and
Chief Financial Officer in July 2006. From October 2003
until July 2006, he was Vice President and Corporate
Controller. Mr. Jacunski was previously Vice President and
Chief Financial Officer at WCI Steel, Inc. from June 1999 to
October 2003. Prior to joining WCI, Mr. Jacunski was with
KPMG, an international accounting and consulting firm,
where he served in various capacities.
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.
Glatfelter 2012 Form 10-K
11
Debabrata Mukherjee was appointed Vice
President & General Manager, Specialty Papers Business
Unit in April 2008. Dr. Mukherjee joined our Company in
1998 and since then has held various operational, sales
and technical leadership positions within the Specialty
Papers Business Unit. From March 2006 through March
2008, Dr. Mukherjee served as Division Vice President,
Engineered & Converting Products. From February 2004
through February 2006, Dr. Mukherjee served as Director,
Engineered Products. Prior to joining Glatfelter,
Dr. Mukherjee served in various capacities with Felix
Schoeller, a Germany 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 joined our Company in December
2003 and serves as Vice President, Global Supply Chain
and Information Technology. Previously, he was our Chief
Procurement Officer. Prior to joining Glatfelter, his
experience included 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
Common Stock Prices and Dividends Declared
Information
The following table shows the high and low prices of
our common stock traded on the New York Stock Exchange
under the symbol “GLT” and the dividend declared per
share for each quarter during the past two years:
Low
Quarter
High
Dividend
2012
2011
Fourth
Third
Second
First
Fourth
Third
Second
First
$18.58
18.25
16.47
16.36
$ 15.79
16.03
15.51
13.40
$15.31
15.43
14.25
14.12
$ 12.46
11.73
12.65
11.00
$0.09
0.09
0.09
0.09
$ 0.09
0.09
0.09
0.09
As of March 5, 2013, we had 1,282 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, 2012, we compare our stock
performance to the S&P Small Cap 600 Paper Products index
comprised of us, 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 following 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, 2007 and charts it through December 31, 2012.
$250
$200
$150
$100
$50
$0
12
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Glatfelter
Russell 2000
S&P SmallCap 600 Paper Products Index
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
2012
2011
2010 (3)
2009 (5)
2008
$1,577,788
7,000
$1,603,154
9,344
$1,455,331
10,653
$1,184,010
13,332
$1,263,850
9,364
Total revenue
1,584,788
1,612,498
1,465,984
1,197,342
1,273,214
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
–
–
–
–
856
$
$
9,815
59,379(1)
1.39
1.36
$
$
3,950
42,694(2) $
453
898
54,434(4) $ 123,442
$
0.94
0.93
$
1.19
1.17
2.70
2.70
$
$
18,468
57,888
1.28
1.27
$1,242,985
250,000
539,679
$1,136,925
227,000
490,404
$1,341,747
333,022
552,442
$1,190,294
254,583
510,704
$1,057,309
313,285
342,707
Cash dividends declared per common share
Depreciation, depletion and amortization
Capital expenditures
Shares outstanding
Net tons sold
Number of employees
0.36
69,500
58,752
42,784
969,833
4,258
0.36
69,313
64,491
42,650
960,915
4,274
0.36
65,839
36,491
45,976
927,853
4,337
0.36
61,256
26,257
45,706
818,905
3,546
0.36
60,611
52,469
45,434
829,354
3,633
(1) During 2012, we recorded after-tax charges totaling $4.8 million related to the write-off of unamortized deferred issuance costs and the early
redemption premium in connection with the refinancing of $200 million of bonds. In addition, net income includes a $4.0 million benefit from the
conversion of alternative fuel mixture credits for cellulosic biofuel production credits.
(2) 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 million of bonds.
(3)
The information set forth above for 2010 includes the financial information for Concert Industries Corp. prospectively from the February 12, 2010
acquisition date.
(4) During 2010, net income included a $23.2 million tax benefit from cellulosic biofuel production credits.
(5) During 2009, we recognized $107.8 million of alternative fuel mixture credits, all of which were recorded as a reduction to cost of products sold.
Glatfelter 2012 Form 10-K
13
ITEM 7 MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking Statements
This Annual
Report on Form 10-K includes forward-looking statements
within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements other than statements
of historical fact, including statements regarding industry
prospects and future consolidated financial position or
results of operations, made in this Report on Form 10-K
are forward looking. We use words such as “anticipates”,
“believes”, “expects”, “future”, “intends” and similar
expressions to identify forward-looking statements.
Forward-looking statements reflect management’s current
expectations and are inherently uncertain. Our actual
results may differ significantly from such expectations. The
following discussion includes forward-looking statements
regarding expectations of, among others, non-cash
pension expense, environmental costs, capital expenditures
and liquidity, all of which are inherently difficult to predict.
Although we make such statements based on assumptions
that we believe to be reasonable, there can be no
assurance that actual results will not differ materially from
our expectations. Accordingly, we identify the following
important factors, among others, which could cause our
results to differ from any results that might be projected,
forecasted or estimated in any such forward-looking
statements:
variations in demand for our products including the
impact of any unplanned market-related downtime,
or variations in product pricing;
viii.
ix.
x.
xi.
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;
xii.
the impact of unfavorable outcomes of audits by
various state, federal or international tax authorities;
xiii. enactment of adverse state, federal or foreign tax or
other legislation or changes in government policy or
regulation;
xiv. adverse results in litigation in the Fox River matter;
xv.
xvi.
xvii.
our ability to finance, consummate and integrate
acquisitions;
the cost, and successful design and construction, of
the Composite Fibers capacity expansion project; and
the incurrence of unforeseen costs associated with
the repair of equipment and clean-up of the Scäer
facility, our ability to supply this facility’s customers,
and the coverage provided by insurance.
changes in the cost or availability of raw materials we
use, in particular pulpwood, pulp, pulp substitutes,
caustic soda, and abaca fiber;
Introduction We manufacture a wide array of
specialty papers and fiber-based engineered materials. We
manage our company along three business units:
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, both domestic and
international, changes in industry production
capacity, including the construction of new mills or
new machines, 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;
(cid:129) Specialty Papers with revenue from the sale of
carbonless papers and forms, book publishing,
envelope & converting papers, and fiber-based
engineered products;
(cid:129) 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
(cid:129) 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.
i.
ii.
iii.
iv.
v.
vi.
vii.
14
Overview For the year ended December 31, 2012,
net income was $59.4 million, or $1.36 per diluted share,
compared with net income of $42.7 million, or $0.93 per
diluted share, in 2011. The amounts reported for 2012
include after-tax charges totaling $4.8 million incurred in
connection with the refinancing of $200 million fixed-rate
bonds for a new $250 million fixed-rate issuance, as well
as a $4.0 million benefit from the conversion of alternative
fuel mixture credits for cellulosic biofuel production credits.
Results for 2011 include after-tax charges totaling $7.5
million for costs incurred to redeem $100 million of fixed-
rate bonds, acquisition and integration expenses and work
force efficiency actions. Reported results for both years
included after-tax gains of $5.4 million and $4.2 million in
2012 and 2011, respectively, from the sales of timberlands
and, in 2011, the release of tax reserves related to prior
timberland sales. Unfavorable foreign currency translations
affected the comparison of reported results for 2012 with
2011 by $5.7 million.
From an operating perspective, our businesses
performed well during 2012 compared with 2011,
evidenced by a $9.9 million, or 8.9%, increase in business
unit operating income led by strong improvements from
Specialty Papers and Advanced Airlaid Materials.
Composite Fibers’ results were unfavorable in the
comparison by $4.7 million.
Specialty Papers’ operating income totaled $67.3
million and $57.3 million for 2012 and 2011, respectively.
Volumes shipped increased in the comparison to 2011 and
this unit’s profitability was further favorably impacted by
higher selling prices and slightly lower input costs partially
offset by higher spending for maintenance and other costs.
Our Composite Fibers business unit’s operating
income decreased to $36.1 million from $40.8 million in
2011. Volumes shipped decreased 3.2% compared to
2011 reflecting generally softer economic conditions in its
market segments. Unfavorable foreign currency
translations affected this unit’s operating income by $3.2
million.
Advanced Airlaid Materials’ operating income
increased $4.6 million, or 34.3%, largely reflecting lower
input costs and an increase in shipping volumes.
Unfavorable foreign currency translations affected this
unit’s operating income by $3.0 million.
During 2012, we generated significant operating
cash flow of $112.8 million, and although lower than
2011, this was largely due to the year over year impact of
receiving cash in 2011 compared with a net outflow of
cash in 2012 related to cellulosic biofuel production and
alternative fuel mixture credits.
RESULTS OF OPERATIONS
2012 versus 2011
The following table sets forth summarized
consolidated results of operations:
Year Ended December 31
In thousands, except per share
2012
2011
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
$1,577,788
213,649
101,874
59,379
1.36
$1,603,154
206,193
85,272
42,694
0.93
The consolidated results of operations for 2012 and
2011 include the following items not considered to be part
of our core business operations:
In thousands, except per share
2012
Early redemption of $200 million bonds
Conversion of alternative fuel mixture/
Cellulosic biofuel credits
Timberland sales and related
transaction costs
2011
Early redemption of $100 million bonds
Charge for workforce efficiencies
Acquisition and integration costs
Timberland sales and related
After-tax
Gain (loss)
Diluted EPS
$(4,784)
$(0.11)
4,020
5,388
$ (6,065)
(652)
(792)
0.09
0.12
(0.13)
(0.01)
(0.02)
transaction costs
4,160
0.09
During 2012, the aggregate effect of the unusual
items set forth above increased earnings by $4.6 million, or
$0.10 per diluted share. In 2011, the items set forth above
decreased earnings by $3.3 million, or $0.07 per diluted
share.
Business Units Results of individual business units
are presented based on our management accounting
practices and management structure. There is no
comprehensive, authoritative body of guidance for
management accounting equivalent to accounting
principles generally accepted in the United States of
America; therefore, the financial results of individual
business units are not necessarily comparable with similar
information for any other company. The management
accounting process uses assumptions and allocations to
measure performance of the business units. Methodologies
are refined from time to time as management accounting
practices are enhanced and businesses change. The costs
incurred by support areas not directly aligned with the
business unit are allocated primarily based on an estimated
utilization of support area services or are included in
“Other and Unallocated” in the Business Unit Performance
table.
Glatfelter 2012 Form 10-K
15
Total revenue
Cost of products sold
Gross profit (loss)
SG&A
Gains on dispositions of plant,
equipment and timberlands,
net
Total operating income (loss)
Non-operating expense
Income (loss) before
income taxes
Supplementary Data
Net tons sold (thousands)
Depreciation, depletion and
amortization
Capital expenditures
Management evaluates results of operations of the
business units before pension expense, alternative fuel
mixture credits, debt redemption costs, restructuring
related charges, certain corporate level costs, and the
effects of certain 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.
Business Unit Performance
Year ended December 31
In millions
Specialty Papers
Composite Fibers
Advanced Airlaid
Materials
Other and
Unallocated
Total
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Net sales
Energy and related sales, net
$894.8
7.0
$875.1
9.3
$436.7
–
$476.0
–
$246.3
–
$252.0
–
$
$
–
–
901.8
779.5
122.3
55.0
–
67.3
–
884.4
775.7
108.7
51.4
–
57.3
–
436.7
362.6
74.2
38.1
–
36.1
–
476.0
395.7
80.3
39.5
–
40.8
–
246.3
218.7
27.6
9.6
–
18.0
–
252.0
227.7
24.3
10.9
–
13.4
–
–
10.3
(10.4)
18.9
(9.8)
(19.5)
(22.9)
–
–
–
7.2
(7.2)
23.0
(4.0)
(26.2)
(34.4)
$1,577.8
7.0
1,584.8
1,371.1
213.6
121.6
$1,603.2
9.3
1,612.5
1,406.3
206.2
124.9
(9.8)
101.9
(22.9)
(4.0)
85.3
(34.4)
$ 67.3
$ 57.3
$ 36.1
$ 40.8
$ 18.0
$ 13.4
$(42.4)
$(60.7)
$
78.9
$
50.8
789.2
779.6
90.3
93.3
90.3
88.0
–
$ 37.4
23.1
$ 36.0
31.4
$ 23.5
31.4
$ 24.8
22.5
$ 8.7
3.9
$
8.5
10.6
$
–
0.3
–
–
–
969.8
960.9
$
69.5
58.8
$
69.3
64.5
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
Sales and Costs of Products Sold
In thousands
Net sales
Energy and related
sales – net
Total revenues
Costs of products sold
Gross profit
Gross profit as a
Year ended December 31
2011
2012
Change
$1,577,788
$1,603,154
$(25,366)
7,000
1,584,788
1,371,139
9,344
1,612,498
1,406,305
(2,344)
(27,710)
(35,166)
$ 213,649
$ 206,193
$ 7,456
percent of Net sales
13.5%
12.9%
The following table sets forth the contribution to
consolidated net sales by each business unit:
Percent of Total
Business Unit
Specialty Papers
Composite Fibers
Advanced Airlaid Material
Total
Year ended
December 31
2012
2011
56.7%
27.7
15.6
54.6%
29.7
15.7
100.0% 100.0%
16
Net sales for 2012 decreased $25.4 million, or 1.6%,
in the comparison to 2011 and totaled $1,577.8 million.
The translation of foreign currencies unfavorably impacted
net sales by $35.8 million more than offsetting a $3.5
million benefit from higher selling prices. Shipping volumes
were up slightly as higher shipping volumes in both
Specialty Papers and Advanced Airlaid Materials were
offset by softer demand in Composite Fibers related to the
weak European economy.
In the Specialty Papers business unit, net sales for
2012 increased $19.7 million, or 2.3%, to $894.8 million.
The increase was primarily due to a $6.5 million benefit
from higher selling prices and a 1.2% increase in shipping
volumes.
Specialty Papers’ operating income in 2012 of $67.3
million was $10.0 million higher than 2011 reflecting the
benefits from higher selling prices and shipping volumes,
and a $5.7 million benefit from lower raw material costs.
These factors were partially offset by higher maintenance
and other cost inflation as well as $2.3 million of lower
energy and related sales.
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 2012 and
2011:
In thousands
Energy sales
Costs to produce
Net
Renewable energy credits
Year ended December 31
2012
2011
$ 5,284
(4,187)
$10,992
(9,319)
1,097
5,903
1,673
7,671
Change
$(5,708)
5,132
(576)
(1,768)
Total
$ 7,000
$ 9,344
$(2,344)
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 were $436.7 million, a
decrease of $39.3 million, or 8.3%, primarily due to the
translation of foreign currencies which unfavorably
impacted the comparison by $24.4 million. Average selling
prices were essentially unchanged and total shipping
volumes were lower in the comparison by 3.2%.
Composite Fibers’ operating income in 2012 totaled
$36.1 million, a $4.7 million decrease compared to 2011
primarily due to lower shipping volumes and a $3.2 million
unfavorable effect from foreign currency translation.
On October 14, 2012, a fire was sustained by our
Scäer, France facility, one of several facilities within the
Composite Fibers business unit. The fire damaged the
electrical system primarily servicing one of two
papermaking machines at the facility as well as certain mill
infrastructure. All customer orders were fulfilled by
shipping products on hand or by utilizing assets at the
business unit’s other facilities. The total cost of the fire in
2012 was $3.9 million which was offset by expected
insurance recoveries, net of deductibles, of which $0.8
million was received in 2012 and the remainder is
expected to be received in 2013.
In Advanced Airlaid Materials, net sales declined $5.7
million in the comparison of 2012 to 2011. The decline in
net sales was due to the $11.5 million negative effect of
foreign currency translation and a $2.7 million impact of
lower selling prices. These factors were partially offset by
the benefit from a 2.6% increase in shipping volumes.
Operating income in this business unit increased $4.6
million in 2012 compared to 2011 led by a $8.3 million
benefit from lower raw material and energy costs in
addition to continuous improvement initiatives including
supply chain efficiencies, waste reduction and improved
throughput, and benefits from a new festooner. The
translation of foreign currencies negatively impacted
operating income by $3.0 million.
Pension Expense The following table summarizes
the amounts of pension expense recognized for 2012
compared to 2011:
In thousands
2012
2011
Change
Year ended December 31
Recorded as:
Costs of products sold
SG&A expense
Total
$ 9,148
2,467
$11,615
$ 6,735
3,645
$10,380
$ 2,413
(1,178)
$ 1,235
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 dependent on various actuarial assumptions and certain
other factors, including discount rates and the fair value of
our pension assets. Pension expense in 2013 is expected to
Glatfelter 2012 Form 10-K
17
be approximately $15.7 million due to lower discount rates
and the amortization of actuarial losses.
Gain on Sales of Plant, Equipment and
Timberlands, net During the years ended
December 31, 2012 and 2011, we completed the
following sales of assets:
Dollars in thousands
Acres
Proceeds
Gain
2012
Timberlands
Other
Total
2011
Timberlands
Other
Total
4,830
n/a
$ 9,494
778
$9,203
612
$10,272
$9,815
942
n/a
$ 3,821
670
$ 3,590
360
$ 4,491
$ 3,950
In connection with each of the asset sales set forth
above, we received cash proceeds.
Other and Unallocated The amount of net
operating expenses not allocated to a business unit and
reported as “Other and Unallocated” in our table of
Business Unit Performance, excluding gains from sales
of plant, equipment and timberlands, totaled $29.3 million
in 2012 compared with $30.2 million in 2011. The amount
reported for 2011 includes the $2.0 million one-time
pension settlement charge discussed earlier. Excluding the
one-time pension charge, net operating expenses not
allocated to a business unit increased $1.1 million primarily
due to higher professional services fees and other cost
inflation.
Non-operating income (expense) as presented in the
Business Unit Performance table includes $18.7
million of interest expense for 2012 and $31.8 million for
2011. In connection with debt refinancing or redemption
initiatives, the reported amounts include $1.9 million and
$5.9 million in 2012 and 2011, respectively, related to the
write-off of unamortized issuance costs and original issue
discount. Excluding these write-offs, interest expense
declined to $16.8 million in 2012 compared to $25.9
million in 2011, primarily reflecting the 2011 redemption
of $100 million of 7.125% notes.
Income taxes
In 2012, income tax expense
totaled $19.6 million on pre-tax income of $78.9 million.
The comparable amounts in 2011 were $8.2 million and
$50.8 million, respectively. 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.
18
In January 2013, the U.S. President signed legislation
that retroactively extended the federal research and
development tax credit for two years, from January 1, 2012
through December 31, 2013. As a result we expect that
our income tax provision for the first quarter of 2013 will
include a tax benefit of $1.2 million related to 2012
research and development credits.
Foreign Currency We own and operate
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 2012, Euro
functional currency operations generated approximately
25.3% of net sales and 24.2% of operating expenses and
British Pound Sterling operations represented 7.5% of net
sales and 7.6% 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, 2012
Favorable
(unfavorable)
$(35,818)
26,828
2,813
514
$ (5,663)
The above table only presents the financial reporting
impact of foreign currency translations assuming currency
exchange rates in 2012 were the same as 2011. It does
not present the impact of certain competitive advantages
or disadvantages of operating or competing in multi-
currency markets.
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
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.
2010 include the following items not considered to be part
of our core business operations:
In thousands, except per share
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
Business Unit Performance
After-tax
Gain (loss)
Diluted
EPS
$ (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
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
–
$
Total revenue
Cost of products sold
Gross profit
SG&A
Gains on dispositions of plant,
equipment and timberlands
Total operating income (loss)
Non-operating expense
Income (loss) before income
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
–
193.5
181.7
11.8
7.4
–
4.4
–
–
–
–
7.2
(7.2)
23.0
(4.0)
(26.2)
(34.4)
$
–
–
–
7.4
(7.4)
24.3
(0.5)
(31.2)
(31.1)
$1,603.2
9.3
1,612.5
1,406.3
206.2
124.9
$1,455.3
10.7
1,466.0
1,279.7
186.2
122.1
(4.0)
85.3
(34.4)
(0.5)
64.6
(31.1)
taxes
$ 57.3
$ 58.4
$ 40.8
$ 32.9
$ 13.4
$
4.4
$(60.7)
$(62.3)
$
50.8
$
33.5
Supplementary Data
Net tons sold (thousands)
Depreciation, depletion and
amortization
Capital expenditures
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.
Sales and Costs of Products Sold
The following table sets forth the contribution to
consolidated net sales by each business unit:
Year ended December 31
2011
2010
Change
In thousands
Net sales
Energy and related
sales – net
$1,603,154
$1,455,331
$147,823
Percent of Total
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%
Business Unit
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
Percent of total
2010
2011
54.6%
29.7
15.7
57.9%
28.8
13.3
100.0% 100.0%
Glatfelter 2012 Form 10-K
19
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 dependent on 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.
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
Total
Year ended December 31
2011
$10,992
(9,319)
1,673
7,671
2010
$ 14,296
(10,403)
3,893
6,760
Change
$(3,304)
1,084
(2,220)
911
$ 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.
20
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
164
n/a
$3,821
670
$3,590
360
$4,491
$3,950
$ 387
177
$ 373
80
$ 564
$ 453
In connection with each of the asset sales set forth
above, we received cash proceeds.
Other and Unallocated The amount of net
operating expenses not allocated to a business unit and
reported as “Other and Unallocated” in our table of
Business Unit Performance, excluding gains from sales
of plant, equipment and timberlands, totaled $30.2 million
in 2011 compared with $31.7 million in 2010.
Non-operating income (expense) includes $31.8
million of interest expense for 2011 and $25.5 million for
2010. For 2011, the amount includes $5.9 million related
to the write-off of unamortized issuance costs and original
issue discount in connection with the early redemption of
$100 million of bonds.
Non-operating income (expense) for 2011 also
includes a $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
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 above, 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.
Glatfelter 2012 Form 10-K
21
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and requires
significant expenditures for new or enhanced equipment,
to support our research and development efforts, for
environmental compliance matters including, but not
limited to, the Clean Air Act, 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 (used) by
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on
cash
Net cash provided (used)
Cash and cash equivalents at end of
Year ended December 31
2012
2011
$ 38,277
$ 95,788
112,846
(48,705)
(5,489)
140,307
(16,830)
(180,140)
750
(848)
59,402
(57,511)
period
$ 97,679
$ 38,277
At the end of the 2012, we had $97.7 million in cash
and cash equivalents and $344.8 million available under
our revolving credit agreement, which matures in
November 2016.
Operating cash flow declined in the year-over-year
comparison by $27.5 million primarily due to the use of
$6.7 million of cash in 2012, net of credits related to the
conversion of alternative fuel mixture credits for cellulosic
biofuel production credits. Comparatively, in 2011, we
received $17.8 million of cellulosic biofuel credits.
Net cash used by investing activities increased $31.9
million in comparison of 2012 to 2011, largely due to the
$43.2 million cash received in 2011 from proceeds under a
timberland installment note receivable. Capital
expenditures totaled $58.8 million in 2012 compared with
$64.5 million in 2011 and are expected to approximate
$90 million to $100 million in 2013, including $33.5
million to complete the $50 million investment to expand
capacity to serve Composite Fibers’ growth markets.
Net cash used by financing activities totaled $5.5
million in 2012 and $180.1 million in 2011, primarily
reflecting the net effects of debt repayments or refinancing
and common share repurchases. In 2012, as discussed
below, we issued $250.0 million of 5.375% bonds and
used the proceeds to repay all amounts outstanding under
our revolving credit agreement and to redeem $200.0
million of 7.125% notes together with a redemption
premium and consent fee of $5.1 million. In 2011, we
22
redeemed $100.0 million of 7.125% bonds and paid an
early redemption premium of $3.6 million, and repaid a
$36.7 million term loan in connection with the collection of
the installment note discussed above.
The following table sets forth our outstanding long-
term indebtedness:
In thousands
Revolving credit facility, due Nov. 2016
5.375% Notes, due Nov 2020
7.125% Notes, due May 2016
Total long-term debt
December 31
2012
2011
$
–
250,000
–
250,000
$ 27,000
–
200,000
227,000
Less current portion
–
–
Long-term debt, net of current
portion
$250,000
$227,000
Our revolving credit facility contains a number of
customary compliance covenants. In addition, the 5.375%
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, 2012, 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 – Note 15.
On October 3, 2012, we completed an offering of
$250.0 million aggregate principal amount of 5.375%
Senior Notes due 2020. The net proceeds from this offering
totaled approximately $245.1 million, after deducting the
commissions and other fees and expenses relating to the
offering.
Cash used for common share repurchases totaled
$5.7 million in 2012, and $48.0 million in 2011. The
amount for 2012 includes $1.2 million under a $50 million
program authorized in 2011. In May 2012, our Board of
Directors authorized a second share repurchase program
for up to $25.0 million, exclusive of commissions, of our
outstanding common stock. The following table
summarizes share repurchases made under this program
through December 31, 2012:
Authorized amount
Repurchases
Remaining authorization
shares
(thousands)
n/a
291,120
$25,000
(4,462)
$20,538
During 2012 and 2011, cash dividends paid on
common stock totaled $15.6 million and $16.6 million,
respectively. The decline was due to the impact of our
share repurchase programs. 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.
We are subject to various federal, state and local
laws and regulations intended to protect the environment
as well as human health and safety. At various times, we
have incurred significant costs to comply with these
regulations and we could incur additional costs as new
regulations are developed or regulatory priorities change.
As a result of new 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), we anticipate that we could incur material capital
and operating costs. For example, on December 20, 2012,
the Administrator of the U. S. Environmental Protection
Agency signed 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 to understand the effect they may
have on our operations, 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 current estimates to implement viable
options could result in additional capital spending of
approximately $45 million. The amount ultimately incurred
may be less depending on our successful implementation
of appropriate available options. In addition, the timing of
any additional capital spending is uncertain, although we
currently expect to incur the expenditures generally in
2015 and 2016. 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 21 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, 2012 and 2011, 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.
Contractual Obligations
The following table sets forth contractual obligations as of December 31, 2012:
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,
2013
$ 13
5
134
9
$161
2014 to
2015
2016 to
2017
2018 and
beyond
$ 27
6
68
17
$118
$27
4
2
14
$47
$290
6
0
36
$332
Total
$357
21
204
76
$658
(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
15, “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, 2012 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 7, “Income Taxes”, such amounts totaled $30.4 million at December 31, 2012.
Glatfelter 2012 Form 10-K
23
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.
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, if warranted, 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.
24
The following chart summarizes the more significant
assumption used in the actuarial valuation of our defined-
benefit plans for each of the past three years:
Pension plans
Weighted average discount rate
Expected long-term rate of return on plan
assets
Rate of compensation increase
Post-retirement medical
Weighted average discount rate
Health care cost trend rate assumed for next
year
Ultimate cost trend rate
Year that the ultimate cost trend rate is
2012
2011
2010
4.28% 5.09% 5.80%
8.50
4.00
8.50
4.00
8.50
4.00
3.58
4.45
5.10
7.68
4.50
7.90
4.50
8.10
4.50
reached
2028
2028
2021
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.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Dollars in thousands
Long-term debt
Average principal outstanding
At fixed interest rates – Bond
2013
Year Ended December 31
2015
2014
2016
At December 31, 2012
2017
Carrying Value
Fair Value
$250,000
$250,000
$250,000
$250,000
$250,000
$250,000
$260,340
At variable interest rates
–
–
–
–
–
–
–
$250,000
$260,340
Weighted-average interest rate
On fixed rate debt – Bond
On variable rate debt
5.375%
–
5.375%
–
5.375%
–
5.375%
–
5.375%
–
The table above presents the average principal
outstanding and related interest rates for the next five
years for debt outstanding as of December 31, 2012. 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, 2012, we had long-term debt outstanding
of $250.0 million, all of which was at fixed rates.
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 18.
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 2012, Euro functional currency
operations generated approximately 25.3% of net sales
and 24.2% of operating expenses and British
Pound Sterling operations represented 7.5% of net sales
and 7.6% of operating expenses.
Glatfelter 2012 Form 10-K
25
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, 2012, 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, 2012,
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, 2012, 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, 2012.
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.
26
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, 2012, 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
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, 2012, 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, 2012 of the Company and
our report dated March 7, 2013 expressed an unqualified
opinion on those financial statements and financial
statement schedule.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 7, 2013
Glatfelter 2012 Form 10-K
27
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, 2012 and 2011, and
the related consolidated statements of income,
comprehensive income, shareholders’ equity, and cash
flows for each of the three years in the period ended
December 31, 2012. 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, 2012 and 2011, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 2012, in
conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such
financial statement schedules, 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, 2012, 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 7, 2013 expressed an unqualified opinion on
the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 7, 2013
28
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 dispositions of plant, equipment and timberlands, net
Operating income
Non-operating income (expense)
Interest expense
Interest income
Other, net
Total other income (expense)
Income before income taxes
Income tax provision (benefit)
Net income
Earnings per share
Basic
Diluted
Weighted average shares outstanding
Basic
Diluted
Year ended December 31
2012
2011
2010
$1,577,788 $1,603,154
9,344
7,000
$1,455,331
10,653
1,584,788
1,371,139
1,612,498
1,406,305
1,465,984
1,279,737
213,649
121,590
(9,815)
101,874
(18,694)
460
(4,699)
(22,933)
78,941
19,562
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)
59,379 $
42,694
$
54,434
1.39 $
1.36
$
0.94
0.93
1.19
1.17
42,851
43,672
45,228
45,794
45,922
46,374
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Glatfelter 2012 Form 10-K
29
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands
Net income
Foreign currency translation adjustments
Net change in:
Deferred gains (losses) on cash flow hedges, net of taxes of $638, $(464) and $0,
respectively
Unrecognized retirement obligations, net of taxes of $3,914, $22,672, and
$(9,905), respectively
Other comprehensive income (loss)
Comprehensive income (loss)
Year ended December 31
2011
2010
2012
$59,379 $ 42,694
(10,160)
11,358
$ 54,434
(17,227)
(1,609)
1,185
–
(6,974)
(36,519)
15,865
2,775
(45,494)
(1,362)
$62,154 $ (2,800) $ 53,072
The accompanying notes are an integral part of these consolidated financial statements.
30
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts:
Assets
2012 – $2,858; 2011 – $2,861)
Inventories
Prepaid expenses and other current assets
Total current assets
Plant, equipment and timberlands, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
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, $0.01 par value; authorized – 120,000,000 shares; issued –
54,361,980 shares (including shares in treasury: 2012 – 11,578,028;
2011 – 11,711,536)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Less cost of common stock in treasury
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31
2012
2011
$
97,679
$
38,277
139,904
222,366
58,909
518,858
621,186
102,941
135,412
206,707
42,017
422,413
601,950
112,562
$1,242,985
$1,136,925
$ 133,389
3,905
125
113,489
$ 109,490
3,902
250
97,598
250,908
250,000
62,046
140,352
703,306
211,240
227,000
69,791
138,490
646,521
–
–
544
52,492
819,593
(163,966)
708,663
544
51,477
775,825
(166,741)
661,105
(168,984)
(170,701)
539,679
490,404
$1,242,985
$1,136,925
The accompanying notes are an integral part of these consolidated financial statements.
Glatfelter 2012 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 issue costs and original issue discount
Pension expense, net of unfunded benefits paid
Deferred income tax provision (benefit)
Gains on dispositions of plant, equipment and timberlands, net
Share-based compensation
Change in operating assets and liabilities
Accounts receivable
Inventories
Prepaid and other current assets
Accounts payable
Environmental matters
Accruals and other current liabilities
Cellulosic biofuel and alternative fuel mixture credits
Other
Net cash provided by operating activities
Investing activities
Expenditures for purchases of plant, equipment and timberlands
Proceeds from disposals of plant, equipment and timberlands, net
Proceeds from timberland installment sale note receivable
Acquisitions, net of cash acquired
Other
Net cash used by investing activities
Financing activities
Proceeds from note offerings
Repayments of note offerings
Net borrowings under (repayments of) revolving credit facility
Payments of note offering costs
Repayment of term loans
Net repayments of other short term debt
Repurchases of common stock
Payments of dividends
Proceeds from stock options exercised and other
Net cash (used) provided by financing activities
Effect of exchange rate changes on cash
Net increase (decrease) 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, net of amounts capitalized
Income taxes, net
Year ended December 31
2011
2012
2010
$ 59,379
$ 42,694
$ 54,434
69,500
3,177
10,427
(2,209)
(9,815)
6,520
(3,379)
(12,615)
(14,952)
6,953
(151)
15,134
(6,728)
(8,395)
112,846
(58,752)
10,272
–
–
(225)
(48,705)
69,313
8,838
2,127
333
(3,950)
5,762
3,771
(7,280)
2,115
13,606
(57)
(2,516)
17,833
(12,282)
140,307
(64,491)
4,491
43,170
–
–
(16,830)
250,000
(205,131)
(27,000)
(4,748)
–
–
(5,675)
(15,608)
2,673
(5,489)
750
59,402
38,277
$ 97,679
–
(103,563)
27,000
(1,672)
(36,695)
(798)
(48,033)
(16,611)
232
(180,140)
(848)
(57,511)
95,788
$ 38,277
65,839
2,758
8,637
(16,815)
(453)
5,767
(598)
(7,592)
(13,318)
21,064
(29)
(1,490)
54,880
(5,079)
168,005
(36,491)
564
–
(228,290)
–
(264,217)
95,000
–
–
(5,340)
(14,000)
(3,208)
–
(16,746)
3,975
59,681
(3,101)
(39,632)
135,420
$ 95,788
$ 14,400
44,657
$ 24,191
(8,344)
$ 23,193
(40,265)
The accompanying notes are an integral part of these consolidated financial statements.
32
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2012, 2011 and 2010
Accumulated
Other
Comprehensive
Loss
Capital in
Excess of
Par Value
Common
Stock
Retained
Earnings
Treasury
Stock
Total
Shareholders’
Equity
$ 544
$ 46,746
$ 711,765
54,434
$ (119,885) $ (128,466) $ 510,704
54,434
(1,362)
(1,362)
In thousands
Balance at January 1, 2010
Net income
Other comprehensive loss
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
(16,746)
(50)
3,962
(2,152)
(318)
(16)
(27)
53,072
(50)
(16,746)
3,962
(490)
1,642
163
185
1,662
1,960
179
212
Balance at December 31, 2010
544
48,145
749,453
(121,247)
(124,453)
552,442
Net income
Other comprehensive income
Comprehensive 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
42,694
(45,494)
(16,322)
42,694
(45,494)
(2,800)
90
(16,322)
3,633
(48,904)
–
1,967
164
134
(48,904)
215
2,108
177
156
90
3,633
(215)
(141)
(13)
(22)
Balance at December 31, 2011
544
51,477
775,825
(166,741)
(170,701)
490,404
Net income
Other comprehensive income
Comprehensive income
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
Employee stock options exercised – net
59,379
2,775
(15,611)
631
3,970
(1,433)
234
(2,387)
59,379
2,775
62,154
631
(15,611)
3,970
(5,675)
(337)
2,446
1,697
(5,675)
1,096
2,212
4,084
Balance at December 31, 2012
$544
$52,492 $819,593
$(163,966) $(168,984) $539,679
The accompanying notes are an integral part of the consolidated financial statements.
Glatfelter 2012 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; 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.
Plant, Equipment and Timberlands
For
financial reporting purposes, depreciation is computed
using the straight-line method over the estimated useful
lives of the respective assets.
34
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 or
more frequently if impairment indicators are present.
Impairment losses, if any, are recognized for the amount by
which the carrying value of the reporting unit exceeds its
fair value. The carrying value of a reporting unit is defined
using an enterprise premise which is generally determined
by the difference between the unit’s assets and operating
liabilities.
Asset Retirement Obligations
In accordance
with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) No. 410,
Asset Retirement and Environmental Obligations,
we accrue asset retirement obligations in the period in
which obligations relating to future asset retirements are
incurred and when a reasonable estimate of fair value can
be determined. Under these standards, costs are to be
accrued at estimated fair value, and a related long-lived
asset is capitalized. Over time, the liability is accreted to its
settlement value and the capitalized cost is depreciated
over the useful life of the related asset for which the
obligation exists. Upon settlement of the liability, we
recognize a gain or loss for any difference between the
settlement amount and the liability recorded.
Income Taxes
Income taxes are determined using
the asset and liability method of accounting for income
taxes in accordance with FASB ASC 740 Income Taxes
(“ASC 740”). Under ASC 740, tax expense includes U.S.
and international income taxes plus the provision for 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
allowances are recorded as sales deductions in the period
in which the related revenue is recognized.
Revenue from energy sales is recognized when
electricity is delivered to the customer. Certain costs
associated with the production of electricity, such as fuel,
labor, depreciation and maintenance are netted against
energy sales for presentation on the Consolidated
Statements of Income. Our fixed-price contract to sell
electricity generated in excess of our own use expired
March 31, 2010. Subsequent to the expiration, we now
sell excess power at market-rates.
Revenue from renewable energy credits is 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.
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.
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.
Glatfelter 2012 Form 10-K
35
Cash Flow Hedges
The effective portion of the
Recently Issued Accounting Pronouncements
gain or loss on those 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 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
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.
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. We have adopted this standard by
presenting a separate consecutive statement of
comprehensive income.
In February 2013, the FASB issued ASU 2013-02 –
”Comprehensive Income (Topic 220): Reporting
Amounts Reclassified Out of Accumulated Other
Comprehensive Income” which will require new
disclosures about items reclassified out of accumulated
other comprehensive income. The new standard is required
to be adopted in fiscal years, and interim periods within
those years, beginning after December 15, 2012. This
standard is not expected to have a material impact on us.
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. We adopted this standard in the third quarter
of 2012 and it did not have a material impact on us. This
update became effective for us beginning January 1, 2012.
3. ACQUISITIONS
Level 3 – Inputs that are both significant to the fair value
On February 12, 2010, we completed the acquisition
measurement and unobservable.
36
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 had operations
located in Gatineau, Quebec, Canada and Falkenhagen,
Brandenburg, Germany.
The following summarizes 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
Total purchase price
$
2,792
24,120
28,034
4,625
186,354
5,040
14,908
265,873
25,933
5,336
3,522
34,791
$231,082
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.
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
$246.3 million and $18.0 million, respectively, in 2012,
$252.0 million and $13.4 million, respectively, in 2011 and
$193.5 million and $4.4 million, respectively, in 2010.
The unaudited pro forma results for 2010 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
Pro forma
Net sales
Net income
Diluted earnings per share
Year ended
December 31
2010
$1,480,980
69,116
1.49
4.
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
2012
2011
2010
$ 5,284
(4,187)
$10,992
(9,319)
$ 14,296
(10,403)
Net energy sales
Renewable energy credits
1,097
5,903
1,673
7,671
3,893
6,760
Total energy and related sales,
net
$ 7,000
$ 9,344
$ 10,653
Glatfelter 2012 Form 10-K
37
5. GAIN ON DISPOSITIONS OF PLANT,
EQUIPMENT AND TIMBERLANDS
The provision/(benefit) for income taxes from
operations consisted of the following:
During 2012, 2011 and 2010, we completed the
following sales of assets:
Dollars in thousands
2012
Timberlands
Other
Total
2011
Timberlands
Other
Total
2010
Timberlands
Other
Acres
Proceeds
Gain
4,830
n/a
$ 9,494
778
$9,203
612
$10,272
$9,815
942
n/a
$ 3,821
670
$ 3,590
360
$ 4,491
$ 3,950
164
n/a
$
$
387
177
564
$ 373
80
$ 453
6.
EARNINGS PER SHARE
The following table sets forth the details of basic and
diluted earnings per share (EPS):
In thousands, except per share
Year ended Decmber 31,
2012
2011
2010
Net income
$59,379
$42,694 $54,434
Weighted average common shares
outstanding used in basic EPS
Common shares issuable upon
exercise of dilutive stock options
and PSAs / RSUs
Weighted average common shares
outstanding and common share
equivalents used in diluted EPS
Earnings per share
Basic
Diluted
42,851
45,228
45,922
821
566
452
43,672
45,794
46,374
$ 1.39
1.36
$
0.94 $
0.93
1.19
1.17
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
Year ended Decmber 31,
2010
2011
2012
Potential common shares
8
891
1,405
7.
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.
38
In thousands
Current taxes
Federal
State
Foreign
Deferred taxes and other
Federal
State
Foreign
Year Ended December 31
2011
2010
2012
$ 8,869
3,386
9,516
21,771
$ 6,943
(1,762)
2,637
$ (8,238)
(392)
4,540
7,818
(4,090)
(5,456)
(920)
4,167
(2,209)
(3,908)
(286)
4,527
(17,530)
(131)
846
333
(16,815)
Income tax provision/(benefit) $19,562
$ 8,151
$(20,905)
The amounts set forth above for total deferred taxes
and other included a deferred tax benefit of $2.3 million,
$1.5 million and $17.6 million in 2012, 2011 and 2010,
respectively. Other taxes totaled an expense of $0.1
million, $1.8 million, and $0.8 million in 2012, 2011 and
2010, 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
2011
2012
2010
$24,525
54,416
$ (991)
51,836
$ 2,384
31,145
Total pretax income
$78,941
$50,845
$33,529
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 provision/(benefit) 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
2010
2011
2012
35.0% 35.0% 35.0%
1.3
(3.9)
(0.8)
(0.5)
0.7
(6.8)
0.9
(2.0)
1.4
(4.9)
1.5
(7.8)
net
0.4
(11.6)
(12.4)
Cellulosic biofuel credit, net of
incremental state tax and
manufacturing deduction benefit
Adjustment for prior year estimates
Valuation allowance
Other
(6.1)
–
–
(0.6)
–
–
3.2
(3.4)
(69.3)
(6.8)
–
1.0
Provision/(benefit) for income taxes
24.8% 16.0% (62.3)%
The sources of deferred income taxes were as follows
At December 31, 2012 and 2011, unremitted earnings
at December 31:
In thousands
Reserves
Compensation
Post-retirement
benefits
Property
Pension
Inventories
Other
Tax carryforwards
Subtotal
Valuation
allowance
Total
2012
2011
Current
Asset
(Liability)
Non
current
Asset
(Liability)
Current
Asset
(Liability)
Non
current
Asset
(Liability)
$ 6,871
3,332
$ 8,095
5,034
$ 5,908 $ 10,595
5,064
3,481
1,285
–
508
1,447
204
5,218
22,642
(92,144)
(14,681)
–
975
43,409
1,325
–
342
125
(246)
3,313
18,467
(96,798)
(18,190)
–
1,985
47,294
18,865
(26,670)
14,248
(31,583)
(3,233)
(27,266)
(1,586)
(25,946)
$15,632
$(53,936) $12,662 $(57,529)
Current and non-current deferred tax assets and
liabilities are included in the following balance sheet
captions:
In thousands
Prepaid expenses and other current assets
Other long term assets
Other current liabilities
Deferred income taxes
December 31
2012
$16,319
8,110
687
62,046
2011
$12,662
12,262
–
69,791
At December 31, 2012 we had state and foreign tax
net operating loss (“NOL”) carryforwards of $68.7 million
and $247.9 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 2032.
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 $3.8 million which expire
between 2019 and 2032.
We have established a valuation allowance of $30.5
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. We recorded tax credits of
$0.4 million, $1.0 million and $2.6 million in 2012, 2011
and 2010, respectively, related to research and
development credits and the fuels tax credits.
of subsidiaries outside the United States deemed to be
permanently reinvested totaled $236.3 million and $197.4
million, respectively. Because the unremitted earnings of
subsidiaries are deemed to be permanently reinvested as of
December 31, 2012 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.
In 2012, we made the decision to convert a portion
of the previously utilized refundable alternative fuel
mixture credit, which was equal to $0.50 per gallon, to the
non refundable CBPC. The conversion to the CBPC resulted
in a net benefit for income taxes in 2012 of $4.0 million.
During 2012, we amended our 2009 federal income tax
return to claim the credit and this required us to return to
the Internal Revenue Service $14.1 million, net of credits
used to reduce estimated tax payments. We believe the
credits are fully recognizable based on the Company’s
projections and economic analysis performed. Our ability to
convert additional credits expires March 15, 2013.
As of December 31, 2012, 2011 and 2010, we had
$30.4 million, $29.7 million and $38.7 million of gross
unrecognized tax benefits, respectively. As of
December 31, 2012, if such benefits were to be
recognized, approximately $30.4 million would be
recorded as a component of income tax expense, thereby
affecting our effective tax rate.
Glatfelter 2012 Form 10-K
39
A reconciliation of the beginning and ending
balances of the total amounts of gross unrecognized tax
benefits is as follows:
decrease within the next twelve months by a range of zero
to $17.9 million. Substantially all of this range relates to
tax positions taken in the U.S., the U.K. and in Germany.
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 limitation
2012
$29.7
1.4
2011
2010
$38.7 $40.1
1.6
0. 8
(1.0)
(7.5)
(1.8)
–
–
1.9
(0.4)
(1.2)
–
–
1.1
(0.1)
(3.3)
3.2
(2.2)
1.9
–
(4.1)
Balance at December 31
$30.4
$29.7 $38.7
(1)
in connection with acquisition 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
2009 – 2012
2008 – 2012
2010 – 2012
2007, 2010 – 2012
2010 – 2012
2009 – 2012
2011 – 2012
N/A
2004, 2006, 2008, 2009
2007 – 2011
2008 – 2010
N/A
N/A
2010
(1)
includes provincial or similar local jurisdictions, as applicable.
The amount of income taxes we pay is subject to
ongoing audits by federal, state and foreign tax
authorities, which often result in proposed assessments.
Management performs a comprehensive review of its
global tax positions on a quarterly basis and accrues
amounts for uncertain tax positions. Based on these
reviews and the result of discussions and resolutions of
matters with certain tax authorities and the closure of tax
years subject to tax audit, reserves are adjusted as
necessary. However, future results may include favorable or
unfavorable adjustments to our estimated tax liabilities in
the period the assessments are determined or resolved or
as such statutes are closed. Due to potential for resolution
of federal, state and foreign examinations, and the
expiration of various statutes of limitation, it is reasonably
possible our gross unrecognized tax benefits balance may
40
We recognize interest and penalties related to
uncertain tax positions as income tax expense. We
recorded a benefit of $0.3 million during 2012, and in
total, as of December 31, 2012, had recognized a liability
for interest of $1.4 million. During 2011, we recorded a
benefit of $2.1 million, and in total, as of December 31,
2011 had recognized a liability for interest of $1.7 million.
During 2010, we accrued minimal interest expense and
had recognized a liability for interest of $3.8 million at
December 31, 2010. We did not record any penalties
associated with uncertain tax positions during 2012, 2011
or 2010.
8.
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, 2012, there were 1,708,079 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”).
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, which is equal to the closing price per
common share on the date of the award, 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
Balance January 1,
Granted
Forfeited
Shares delivered
2012
2011
2010
788,088
209,021
(52,800)
(96,630)
579,801
251,031
(28,254)
(14,490)
564,037
203,889
(37,368)
(150,757)
Balance December 31,
847,679
788,088
579,801
Dollars in thousands
Compensation expense
$2,576
$2,069
$1,708
The amount granted in 2012 and 2011 includes
161,083 and 98,187 PSAs, respectively, exclusive of
reinvested dividends. The weighted average grant fair
value per unit for awards in 2012, 2011 and 2010 was
$15.49, $12.47, and $13.24, respectively. As of
December 31, 2012, unrecognized compensation expense
for outstanding RSUs and PSAs totaled $4.0 million. The
weighted average remaining period over which the
expense will be recognized is 2.2 years.
Stock Only Stock Appreciation Rights
The following table sets forth information related to outstanding SOSARS:
SOSARS
Outstanding at January 1,
Granted
Exercised
Canceled / forfeited
Outstanding at December 31,
Exercisable at December 31,
Vested and expected to vest
SOSAR Grants
2012
2011
2010
Wtd Avg
Exercise Price
$12.35
15.58
12.06
14.31
12.93
12.30
Shares
2,298,288
364,114
(500,074)
(40,874)
2,121,454
1,469,537
2,055,599
Wtd Avg
Exercise Price
$12.28
12.56
–
11.82
12.35
12.45
Shares
2,061,877
345,290
–
(108,879)
2,298,288
1,554,852
2,076,341
Wtd Avg
Exercise Price
$11.84
13.77
–
11.81
12.28
12.78
Shares
1,762,020
470,520
–
(170,663)
2,061,877
1,135,281
2,059,524
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
Compensation expense (in thousands)
$
$
$
4.94
1,797
2.31%
1.02%
41.48%
6 yrs
1,448
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,
2012, the intrinsic value of SOSARs vested and expected to
vest totaled $9.4 million. The remaining weighted average
contractual life of outstanding SOSARs was 6.7 years as of
December 31, 2012.
Our LTIP also permits the issuance of nonqualified
stock options; however, we have not issued any options
since 2004. As of December 31, 2012, 22,500 stock
options were outstanding with a weighted average
exercise price of $11.29 per share. All options expire on
$
$
$
4.09
1,412
2.87%
2.55%
41.91%
6 yrs
1,564
$
$
$
4.65
2,179
2.61%
2.48%
42.34%
6 yrs
2,254
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, 2012,
the intrinsic value of outstanding stock options totaled
$0.1 million.
Glatfelter 2012 Form 10-K
41
9.
RETIREMENT PLANS AND OTHER POST-
RETIREMENT BENEFITS
Amounts recognized in the consolidated balance
sheets consist of the following as of December 31:
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. Claims are paid as reported.
Pension Benefits
Other Benefits
In millions
2012
2011
2012
Other long-term assets
Current liabilities
Other long-term liabilities
$ 53.7
(2.0)
(34.4)
$ 59.8
(1.8)
(30.0)
$
–
(4.2)
(58.8)
2011
$
–
(3.4)
(48.1)
Net amount recognized
$ 17.3
$ 28.0
$(63.0)
$(51.5)
The components of amounts recognized as
“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
2012
2011
2012
2011
$ 17.9
237.6
$ 14.9
234.0
$ (1.9)
12.6
($2.8)
9.2
The accumulated benefit obligation for all defined
benefit pension plans was $507.4 million and $451.7
million at December 31, 2012 and 2011, respectively.
The weighted-average assumptions used in
computing the benefit obligations above were as follows:
Pension Benefits
2011
2012
Other Benefits
2011
2012
Pension Benefits
2011
2012
Other Benefits
2012
2011
Discount rate – benefit obligation
Future compensation growth rate
4.28% 5.09% 3.58% 4.45%
4.00
4.00
–
–
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 3.50% to 4.51% for pension plans and
ranged from 3.02% to 3.69% for other benefit plans.
Information for pension plans with an accumulated
benefit obligation in excess of plan assets was as follows:
In millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2012
$36.4
32.0
–
2011
$31.8
27.9
–
In millions
Change in Benefit Obligation
Balance at beginning of year
Service cost
Interest cost
Plan amendments
Participant contributions
Actuarial (gain)/loss
Benefits paid
$470.2
11.3
23.0
5.5
–
46.7
(28.3)
$434.3
10.3
24.2
2.0
–
33.8
(34.4)
$ 56.8
2.8
2.4
–
1.4
4.2
(4.6)
$ 58.5
2.9
2.8
–
1.7
(4.4)
(4.7)
Balance at end of year
$528.4
$470.2
$ 63.0
$ 56.8
Change in Plan Assets
Fair value of plan assets at beginning
of year
Actual (loss) return on plan assets
Total contributions
Benefits paid
Intra plan transfers
Fair value of plan assets at end of
$498.2
68.1
1.8
(28.3)
5.9
$526.4
(2.6)
8.8
(34.4)
–
$ 5.3
0.6
4.6
(4.6)
(5.9)
$ 6.2
–
3.8
(4.7)
–
year
545.7
498.2
–
5.3
Funded status at end of year
$ 17.3
$ 28.0
$(63.0)
$(51.5)
The amount set forth for intra plan transfers
represents assets contributed to the pension plan from a
post-retirement medical plan sub-account previously
established pursuant to Section 420 of the Internal
Revenue Code. Benefits due under the post-retirement
medical plan continue to be paid for by us.
42
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
2012
2011
2010
$ 11.3
23.0
(42.2)
2.5
17.0
–
$ 10.3
24.2
(42.0)
2.6
13.3
2.0
$ 9.5
23.9
(40.3)
2.5
13.6
–
Total net periodic benefit cost
$ 11.6
$ 10.4
$ 9.2
The weighted-average assumptions used in
computing the net periodic benefit (income) cost
information above were as follows:
Year Ended December 31
2012
2011
2010
Pension Benefits
5.09%
Discount rate – benefit expense
Future compensation growth rate
4.00
Expected long-term rate of return on plan assets 8.50
Other Benefits
Discount rate – benefit expense
Expected long-term rate of return on plan assets 8.50
4.45%
5.81% 6.10%
4.00
8.50
4.00
8.50
5.12% 5.90%
8.50
8.50
Other Benefits
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost/(credit)
Amortization of actuarial loss
$ 2.8
2.4
(0.5)
(0.9)
0.7
$ 2.9
2.8
(0.5)
(1.2)
0.9
$ 2.9
3.4
(0.5)
(1.2)
1.5
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.
Total net periodic benefit cost
$ 4.5
$ 4.9
$ 6.1
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 $3.1 million and
$21.3 million, respectively. The comparable amounts of
expected amortization for other benefit plans are a credit
of $0.5 million and expense of $0.8 million, respectively.
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss) were as
follows:
In millions
Pension Benefits
Actuarial loss
Prior service cost
Amortization of prior service cost
Amortization of actuarial losses
Total recognized in other comprehensive loss
Total recognized in net periodic benefit cost and other
Year Ended
December 31
2012
2011
$ 20.6
5.5
(2.5)
(17.0)
6.6
$ 76.5
2.1
(2.6)
(13.3)
62.7
comprehensive loss
$ 18.2
$ 73.1
Other Benefits
Actuarial (gain) loss
Amortization of prior service cost
Amortization of actuarial losses
$ 4.0
0.9
(0.7)
Total recognized in other comprehensive (income) loss
4.2
$ (3.8)
1.2
(0.9)
(3.5)
Total recognized in net periodic benefit cost and other
comprehensive loss
$ 8.7
$ 1.4
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
2012
2011
7.68%
7.90%
4.50
2028
4.50
2028
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
$4.9
0.6
$4.4
0.5
Plan Assets All pension plan assets in the U.S. are
invested through a single master trust fund. The strategic
asset allocation for this trust fund is selected by
management, reflecting the results of comprehensive asset
and 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
Glatfelter 2012 Form 10-K
43
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
Diversification is achieved by:
39%
13
13
5
30
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 a
single security and 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.
44
The table below presents the fair values of our
benefit plan assets by level within the fair value hierarchy,
as described in Note 2:
In millions
Total
Level 1
Level 2
Level 3
Fair Value Measurements at December 31, 2012
Domestic Equity
Large cap
Small and mid cap
Other
International equity
REIT
Fixed income
Cash and equivalents
Total
$169.6
65.7
1.1
100.3
25.4
164.9
18.7
$545.7
$169.6
65.7
0.8
61.9
25.4
27.2
–
$350.6
$
–
–
0.3
38.4
–
137.7
18.7
$195.1
$–
–
–
–
–
–
–
$–
In millions
Total
Level 1
Level 2
Level 3
Fair Value Measurements at December 31, 2011
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
$–
–
–
–
–
–
–
$–
Cash Flow We were not required to make
contributions to our qualified pension plan in 2012 nor do
we expect to make any to this plan in 2013. Benefit
payments expected to be made in 2013 under our non-
qualified pension plans and other benefit plans are
summarized below:
In thousands
Nonqualified pension plans
Other benefit plans
$2,014
4,238
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
2013
2014
2015
2016
2017
2018 through 2022
Pension
Benefits
$ 32,465
32,135
32,179
31,977
31,986
156,439
Other
Benefits
$ 4,238
4,557
4,574
4,823
5,104
26,328
Defined Contribution Plans We maintain 401(k)
plans for certain hourly and salaried employees. Employees
may contribute up to 50% of their earnings, 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 out of
treasury. The expense associated with our 401(k) match
was $1.7 million, $1.3 million and $1.0 million in 2012,
2011 and 2010, respectively.
10.
INVENTORIES
Inventories, net of reserves were as follows:
In thousands
Raw materials
In-process and finished
Supplies
Total
2012
$ 61,084
102,331
58,951
$222,366
2011
$ 57,547
93,096
56,064
$206,707
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 $22.4 million and $22.1 million higher
than reported at December 31, 2012 and 2011,
respectively. During 2011, we liquidated certain LIFO
inventories, the effect of which did not have a significant
impact on results of operations.
basis. Customer relationships are amortized over periods
ranging from 3 years to 14 years and technology and
related intangible assets are amortized over periods
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
2013
2014
2015
2016
2017
2012
2011
$1,778
$1,858
1,314
1,314
1,314
852
699
The remaining weighted average useful life of
intangible assets was 8.2 years at December 31, 2012.
11. PLANT, EQUIPMENT AND TIMBERLANDS
13. 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
2012
2011
$ 194,541
1,158,245
122,425
(915,777)
$ 186,846
1,102,709
117,082
(850,255)
559,434
52,782
6,374
2,596
556,382
34,576
7,968
3,024
Total
$ 621,186
$ 601,950
12. GOODWILL AND INTANGIBLE ASSETS
The following table sets forth information with
respect to goodwill and other intangible assets which are
recorded in the caption “Other long-term assets” in the
accompanying consolidated balance sheets:
In thousands
Pension
Goodwill and intangibles
Other
Total
December 31
2012
2011
$ 53,734
24,902
24,305
$ 59,821
26,051
26,690
$102,941
$112,562
14. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
December 31
In thousands
2012
Accrued payroll and benefits
Other accrued compensation and retirement benefits
Income taxes payable
Accrued rebates
Other accrued expenses
$ 50,637
8,977
2,656
11,330
39,889
2011
$48,654
6,253
3,543
10,839
28,309
Total
$113,489
$97,598
In thousands
December 31
2012
2011
15. LONG-TERM DEBT
Goodwill – Composite Fibers
$16,601
$16,161
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
$ 6,155
$ 6,155
4,365
1,872
1,579
3,300
17,271
(8,970)
4,174
1,790
1,560
3,238
16,917
(7,027)
Net intangibles
$ 8,301
$ 9,890
The change in goodwill was due to foreign currency
translation adjustments. Other than non-amortizable
goodwill, intangible assets are amortized on a straight-line
Long-term debt is summarized as follows:
In thousands
Revolving credit facility, due Nov. 2016
5.375% Notes, due Nov 2020
7.125% Notes, due May 2016
Total long-term debt
Less current portion
December 31
2012
2011
$
–
250,000
–
250,000
–
$ 27,000
–
200,000
227,000
–
Long-term debt, net of current portion
$250,000
$227,000
On November 21, 2011, we entered into an
amendment to our revolving credit agreement with a
consortium of banks (the “Revolving Credit Facility”) which
increased the amount available for borrowing to $350
Glatfelter 2012 Form 10-K
45
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 Facility, 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 on (b) above.
The Revolving Credit Facility 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 Facility, 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 October 3, 2012, we completed a private
placement offering of $250.0 million aggregate principal
amount of 5.375% Senior Notes due 2020 (the “5.375%
Notes”). The 5.375% Notes are fully and unconditionally
guaranteed, jointly and severally, by PHG Tea Leaves, Inc.,
Mollanvick, Inc., The Glatfelter Pulp Wood Company, and
Glatfelter Holdings, LLC (the “Guarantors”). The net
proceeds from this offering totaled approximately $245.1
million, after deducting the commissions and other fees
and expenses relating to the offering and were used to
tender and call $200.0 million aggregate principal amount
of our outstanding 7.125% notes due November 2016,
plus the payment of the applicable redemption premium
and accrued interest. We used the remaining net proceeds
to repay amounts outstanding under our revolving credit
facility and for general corporate purposes. Pursuant to the
redemption provisions contained in the 7.125% Notes
46
Indenture, we redeemed all of the 7.125% Notes at
102.375% of par. The $4.8 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 totaled $1.9 million and is reported
under the caption “Interest expense” in the accompanying
consolidated statements of income.
Unamortized deferred debt issuance costs incurred in
connection with the offering of the 5.375% Notes totaled
$4.8 million and are reported under the caption “Other
assets” in the accompanying consolidated balance sheets.
The deferred costs are being amortized on a straight line
basis over the life of the 5.375% Notes.
Interest on the 5.375% Notes will be payable
semiannually in arrears on April 15 and October 15,
commencing on April 15, 2013.
The 5.375% Notes are redeemable, in whole or in
part, at anytime on or after October 15, 2016 at the
redemption prices specified in the applicable Indenture.
Prior to October 15, 2016, we may redeem some or all of
the Notes at a “make-whole” premium as specified in the
Indenture. These notes and the guarantees of the notes are
senior obligations of the Company and the Guarantors,
respectively, rank equally in right of payment with future
senior indebtedness of the Company and the Guarantors
and will mature on October 15, 2020.
The 5.375% 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, 2012, we met all of the requirements of our
debt covenants.
The following schedule sets forth the maturity of our
long-term debt during the indicated year.
In thousands
2013
2014
2015
2016
2017
Thereafter
$
–
–
–
–
–
$250,000
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, 2012 and 2011, we had $5.2
million and $4.6 million, respectively, of letters of credit
issued to us by certain financial institutions. The letters of
credit, which reduce amounts available under our revolving
credit facility, 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.
16. 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 be completed over the next four 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.
Following is a summary of the reserve for asset
retirement obligations for the periods indicated:
In thousands
Balance at Jan. 1,
Upward revision
Accretion
Payments
Balance at Dec. 31,
2012
2011
$ 9,679
–
458
(1,255)
$ 9,717
611
550
(1,199)
$ 8,882
$ 9,679
At December 31, 2012 and 2011, $3.6 million and
$1.5 million, respectively, is recorded in the accompanying
consolidated balance sheets under the caption “Other
current liabilities” and the balance is recorded under the
caption “Other long-term liabilities.”
17. 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:
2012
2011
In thousands
Fixed-rate
bonds
Variable rate
debt
Total
Carrying
Value
Fair Value
Carrying
Value
Fair
Value
$250,000 $260,340
$200,000 $204,000
–
–
27,000
27,000
$250,000 $260,340
$227,000 $231,000
As of December 31, 2012, we had $250.0 million of
5.375% fixed rate debt, and as of December 31, 2011, we
had $200.0 million of 7.125% fixed rate debt. These
bonds are publicly registered, but thinly traded.
Accordingly, the values set forth above are based on debt
instruments with similar characteristics (Level 2). The fair
value of financial derivatives is set forth below in
Footnote 18.
18. 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
other production 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
Glatfelter 2012 Form 10-K
47
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
Euro / U.S. dollar
U.S. dollar / Canadian dollar
2012
2011
Buy Notional
27,003
12,369
22,730
11,019
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.”
In thousands
Derivative
Sell / Buy
Euro / U.S. dollar
Euro / British Pound
Canadian dollar / U.S. dollar
U.S. dollar / Euro
Philippine peso / U.S. dollar
2012
2011
Sell Notional
13,000
4,000
2,000
2,000
–
25,500
–
–
150,000
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
48
indicated and the line items in the accompanying
consolidated balance sheet where the instruments are
recorded:
In thousands
2012
2011
2012
2011
Balance sheet caption
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
$107
$1,520
$751
–
$159
$338
$16
$15
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:
In thousands
2012
2011
2010
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
$2,183
311
$ 174 $
165
–
–
$ (696)
$(686) $(1,047)
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
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
Balance at Jan. 1
Deferred (loss) gains on cash flow hedges
Reclassified to earnings
Balance at Dec. 31
2012
2011
$ 1,649
(65)
(2,183)
$
–
1,823
(174)
$ (599)
$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.
19. SHAREHOLDERS’ EQUITY
The following table summarizes outstanding shares
of common stock:
Year Ended December 31,
In thousands
2012
2011
2010
Shares outstanding at beginning
of year
Shares repurchased
Treasury shares issued for:
Restricted stock awards
401(k) plan
Director compensation
Employee stock options
exercised
42,650
(374)
45,976
(3,505)
45,706
–
76
152
–
280
14
143
12
10
112
132
12
14
Shares outstanding at end of year
42,784
42,650
45,976
20. SHARE REPURCHASES
In May 2012, our Board of Directors authorized a
new share repurchase program for up to $25.0 million of
our outstanding common stock, exclusive of commissions.
The following table summarizes share repurchases through
December 31, 2012, made under this program:
Authorized amount
Repurchases
Remaining authorization
shares
(thousands)
n/a
291,120
$25,000
(4,462)
$20,538
In April 2011, our Board of Directors authorized a
share repurchase program for up to $50.0 million of our
outstanding common stock, exclusive of commissions, all
of which has been used, including 82,533 shares at a cost
of $1.2 million repurchased under this program in the first
quarter of 2012.
21. 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
2013
2014
2015
2016
2017
thereafter
Leases
Other
$4,928
3,373
2,798
2,329
2,078
5,595
$133,788
40,595
27,728
1,039
507
–
Other contractual obligations primarily represent
minimum purchase commitments under energy and pulp
wood supply contracts and other purchase obligations.
At December 31, 2012, required minimum annual
payments due under operating leases and other similar
contractual obligations aggregated $21.1 million and
$203.7 million, respectively.
Fox River – Neenah, Wisconsin
Background We have significant uncertainties
associated with environmental claims arising out of the
presence of polychlorinated biphenyls (“PCBs”) in
sediments in the lower Fox River, on which our former
Neenah facility was located, and in the Bay of Green Bay
Wisconsin (“Site”). The United States, the State of
Wisconsin, and two Indian tribes (collectively, the
“Governments”) seek to require (a) a cleanup of the Site
(“response actions”), (b) reimbursement of cleanup costs
(“response costs”), and (c) natural resource damages
(“NRDs”). They claim that we, together with seven other
entities that have been formally notified that they are
potentially responsible parties (“PRPs”) under CERCLA for
response costs or NRDs, are jointly and severally
responsible under the Comprehensive Environmental
Response, Compensation and Liability Act (“CERCLA” or
“Superfund”) for those response actions, response costs,
and NRDs, all of which may total in excess of $1 billion.
Glatfelter 2012 Form 10-K
49
The PRPs consist of us, 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, U.S. Paper Mills
Corp., and WTM I.
The Governments have identified manufacturing and
recycling of NCR®-brand carbonless copy paper as the
principal source of the PCBs in sediments at the Site. Our
predecessor, the Bergstrom Paper Company, and later we
operated a deinking paper mill in Neenah, Wisconsin, that
received NCR®-brand carbonless copy paper in its furnish,
and discharged PCBs to Little Lake Butte des Morts, an
impoundment of the river at the upstream end of the Site.
The United States Environmental Protection Agency
(“EPA”) has divided the lower Fox River and the Bay of
Green Bay site into five “operable units”, 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 this portion of this site.
We have resolved our liability for response actions
and response costs associated with the permanent cleanup
of Little Lake Butte des Morts through a consent decree,
and amendments, entered in United States v. P.H.
Glatfelter Co., No. 2:03-cv-949-LA (E.D. Wis.). Together
with WTM I Company and with assistance from Menasha
Corporation, we have completed that cleanup except for
on-going operation and maintenance.
In November 2007, the United States Environmental
Protection Agency (“EPA”) issued a unilateral
administrative order for remedial action (“UAO”) to us and
to seven other respondents directing us to implement the
cleanup of the Site downstream of Little Lake Butte des
Morts. Since that time, the district court has held that one
of the respondents, Appleton Papers Inc., is not liable for
this Site. In addition, the United States and the State of
Wisconsin have entered into a settlement with another
respondent, Georgia-Pacific LLP (“GP”), limiting GP’s
responsibility to the downstream-most three miles of the
river. Work has proceeded to implement the UAO, mostly
funded by NCR and its indemnitors.
In January 2008, two of the UAO respondents, NCR
Corporation and Appleton Papers Inc., brought two actions
consolidated under the caption Appleton Papers Inc. v.
George A. Whiting Paper Co., No. 2:08-cv-16-WCG
(E.D. Wis.)(“Whiting”), that ultimately involved us and
more than two dozen parties in litigation to allocate
50
among the parties the responsibility for response actions,
response costs, and NRDs for this Site. Most of the parties
responsible for relatively small discharges of PCBs settled
with the Governments, resolving their liability. As the result
of a series of rulings on summary judgment and after trial,
the Court has so far determined that (a) neither NCR nor
Appleton Papers may pursue any other party for
contribution, (b) NCR owes us and the other non-settling
parties “full contribution” for any amounts we may have to
pay on account of response actions or response costs
downstream of Little Lake Butte des Morts or NRDs, and
(c) NCR is not liable for response costs, response actions,
or NRDs in Little Lake Butte des Morts. A single issue
remains concerning set off of our insurance coverage
litigation settlement proceeds against our recovery from
NCR of $4.28 million in costs we incurred in the past.
Upon resolution of that issue, we anticipate entry of a final
judgment and appeals by NCR and others of those portions
of the rulings with which those parties disagree. Until the
Whiting Litigation judgment becomes final and is affirmed
on appeal, all past and future costs or damages incurred by
any person remain the subject of litigation against us.
In October 2010, the United States and the State of
Wisconsin sued us and thirteen other defendants to
recover an injunction requiring the UAO respondents to
complete the response actions required by the UAO and all
parties to reimburse past and future response costs
incurred by the Governments as well as to pay NRDs. That
case is captioned United States v. NCR Corp.,
No. 1:10-cv-910-WCG (E.D. Wis.) (“Government Action”).
To date, litigation of the Government Action has been
limited to the United States’ claim against the UAO
respondents for a mandatory injunction to require
implementation of the remaining work under the UAO,
that is, completion of the remedy in the 33 miles of the
river downstream of Little Lake Butte des Morts.
As the result of a series of summary judgment and
other rulings, the district court in the Government Action
has held that the remedy selected by the Governments and
ordered to be implemented by the UAO may be enforced.
The district court has further held that all the UAO
respondents other than Appleton Papers are jointly and
severally liable for the response actions called for by the
UAO, unless any of them can establish the defense of
divisibility or apportionment. We contend that discharges
to Little Lake Butte des Morts did not cause the need for
any of the clean up downstream, that the Site is therefore
divisible, and that we are therefore not liable for the
response actions the United States seeks.
The United States’ entitlement to injunctive relief, our
defense of divisibility (which we share with the other
parties responsible for discharges to Little Lake Butte des
Morts), and NCR’s defense of apportionment were tried to
the court in December 2012. Briefing is not yet complete,
and the court has yet to rule. The grant or denial of an
injunction will be immediately appealable. Other claims
will remain to adjudicate after the court rules on the claim
for an injunction.
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.” Much of that amount has already been
incurred. As described below, some of that amount is NRDs.
The parties implementing the response action under the
UAO in the downstream part of the river estimate the future
cost of work yet to be done at $360 million.
NRDs.
The Governments’ NRD assessment
documents claimed that we are jointly and severally
responsible for NRDs with a value between $176 million
and $333 million. The Governments 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 Little
Lake Butte des Morts. That issue was tried in December
2012. In addition, the district court has ruled that NCR
would owe us full contribution for any response actions,
response costs, or NRDs that we are ordered to do or to
pay in the Government Action.
Reserves for the Site. As of December 31, 2012,
our reserve for our claimed liability at the Site, including
our remediation and ongoing monitoring obligations in
Little Lake Butte des Morts, 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 $16.4 million. Of our total reserve for the Fox River,
$0.1 million is recorded in the accompanying condensed
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 I to implement the Little Lake Butte des Morts
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 I has filed a bankruptcy
petition in the Bankruptcy Court in Richmond; accordingly,
there can be no assurance that WTM I 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 Little Lake Butte
des Morts, including the existence of ample data that
indicate that PCBs did not leave Little Lake Butte des Morts
in concentrations that could have caused or contributed to
the need for additional cleanup downstream. Others,
including the EPA and other parties, 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 Appleton Papers 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 parties at the
Site, who are also potentially jointly and severally liable.
The existence and ability of other parties 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 responsible
parties and any known insurance, indemnity or cost
sharing agreements between responsible parties and third
Glatfelter 2012 Form 10-K
51
parties. In addition, our assessment is based upon the
magnitude, nature, location and circumstances associated
with the various discharges of PCBs to the river and the
relationship of those discharges to identified
contamination. We will continue to evaluate our exposure
and the level of our reserves, including, but not limited to,
our potential share of the costs and NRDs, if any,
associated with the Site.
The amount and timing of future expenditures for
environmental compliance, cleanup, remediation and
personal injury, NRDs and property damage liabilities
cannot be ascertained with any certainty due to, among
other things, the unknown extent and nature of any
contamination, the response actions that may ultimately be
required, the availability of remediation equipment, and
landfill space, and the number and financial resources of
any other PRPs.
Other Information.
The Governments have
published studies estimating the amount of PCBs
discharged by each identified potentially responsible
party’s (“PRP’s”) facility to the lower Fox River and Green
Bay. These reports estimate our Neenah mill’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 mill’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 rulings in the Whiting
Litigation and the Government Action, 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.
In the 1990s, we 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 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
52
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 records of decision,
discussions with the United States and other parties, as
well as legal counsel and engineering consultants. Based
on our analysis of the current records of decision and cost
estimates for work to be performed at the Site, we believe
that it is reasonably possible that our costs associated with
the Fox River matter may exceed our cost estimates and
the aggregate amounts accrued for the Fox River matter by
amounts that are insignificant or that could range up to
$275 million over an undeterminable period that could
range beyond 10 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 rulings
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 likely, while
adverse rulings on some issues in the Whiting Litigation
and the Government Action and 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 that requires
us either to perform directly or to contribute significant
amounts towards remedial action downstream of Little
Lake Butte des Morts or to NRDs, 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.
22. SEGMENT AND GEOGRAPHIC INFORMATION
The following tables set forth profitability and other information by business unit:
For the year ended December 31, 2012
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 expense
$894.8
7.0
901.8
779.5
122.3
55.0
–
67.3
–
$436.7
–
436.7
362.6
74.2
38.1
–
36.1
–
$246.3
–
246.3
218.7
27.6
9.6
–
18.0
–
$
–
–
–
10.3
(10.4)
18.9
(9.8)
(19.5)
(22.9)
Total
$1,577.8
7.0
1,584.8
1,371.1
213.6
121.6
(9.8)
101.9
(22.9)
Income (loss) before income taxes
$ 67.3
$ 36.1
$ 18.0
$(42.4)
$
78.9
Supplementary Data
Plant, equipment and timberlands, net
Depreciation, depletion and amortization
Capital expenditures
$247.9
37.4
23.1
$200.1
23.5
31.4
$172.9
8.7
3.9
$ 0.3
–
0.3
$ 621.2
69.5
58.8
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 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
–
$ 57.3
$250.2
36.0
31.4
$476.0
–
476.0
395.7
80.3
39.5
–
40.8
–
$ 40.8
$176.2
24.8
22.5
$252.0
–
252.0
227.7
24.3
10.9
–
13.4
–
$ 13.4
$175.6
8.5
10.6
$
–
–
–
7.2
(7.2)
23.0
(4.0)
(26.2)
(34.4)
(60.7)
$
–
–
–
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 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
Total
$1,603.2
9.3
1,612.5
1,406.3
206.2
124.9
(4.0)
85.3
(34.4)
$
50.8
$ 602.0
69.3
64.5
Total
$1,455.3
10.7
1,466.0
1,279.7
186.2
122.1
(0.5)
64.6
(31.1)
$
–
–
–
7.4
(7.4)
24.3
(0.5)
(31.2)
(31.1)
$(62.3)
$
33.5
$
–
–
–
$ 608.2
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.
Glatfelter 2012 Form 10-K
53
Results of individual business units are presented
Specialty Papers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2012
2011
2010
Carbonless & forms
Book publishing
Envelope & converting
Engineered products
Other
$372,950
155,925
174,781
187,724
3,397
$368,582
166,506
170,380
166,660
2,950
$359,033
168,155
157,202
155,257
2,967
Total
$894,777
$875,078
$842,614
Our Composite Fibers business unit serves customers
globally and focuses on higher value-added products in the
following markets:
(cid:129) Food & Beverage papers used for single-serve
coffee and tea products and other applications;
(cid:129) Metallized products used in the labeling of beer
bottles, packaging innerliners, gift wrap, self-
adhesive labels and other consumer products
applications;
(cid:129) Composite Laminates papers used in
production of decorative laminates, furniture and
flooring applications; and
(cid:129) Technical Specialties is a diverse line of paper
products used in batteries, adhesive tapes and
other highly engineered applications.
Composite Fibers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2012
2011
2010
Food & beverage
Metallized
Composite laminates
Technical specialties
and other
Total
$265,423
87,720
44,613
$284,748
95,276
53,334
$242,882
88,753
50,801
38,984
42,671
36,781
$436,740
$476,029
$419,217
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 certain 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.
Our Specialty Papers business unit focuses on
producing papers for the following markets:
(cid:129) Carbonless & forms papers for credit card
receipts, multi-part forms, security papers and
other end-user applications;
(cid:129) Book publishing papers for the production of
high quality hardbound books and other book
publishing needs;
(cid:129) Envelope and converting papers for the direct
mail market, shopping bags, and other converting
applications; and
(cid:129) Engineered products for digital imaging,
casting, release, transfer, playing card, postal,
FDA-compliant food and beverage applications,
and other niche specialty applications.
54
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:
(cid:129) feminine hygiene;
(cid:129) adult incontinence;
(cid:129) home care;
(cid:129) specialty wipes;
(cid:129) table top; and
(cid:129) food pads.
Advanced Airlaid Materials’ revenue composition by
market consisted of the following for the years indicated:
In thousands
2012
2011
2010
Feminine hygiene
Home care
Wipes
Adult incontinence
Other
$197,792
14,527
13,562
6,959
13,442
$206,724
15,308
5,463
6,083
18,469
$157,660
13,691
–
6,167
15,981
Total
$246,282
$252,047
$193,499
No individual customer accounted for more than
10% of our consolidated net sales in 2012, 2011 or 2010.
However, one customer accounted for the majority of
Advanced Airlaid Materials’ net sales in 2012, 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
2012
2011
2010
Plant,
Equipment and
Timberlands – Net
$248,185
191,559
59,131
83,796
38,515
Plant,
Equipment and
Timberlands – Net
$250,217
181,537
57,634
86,079
26,483
Net sales
$ 880,089
327,952
128,598
75,195
43,497
Net sales
$ 933,357
410,183
122,218
88,018
49,378
$621,186
$1,603,154
$601,950
$1,455,331
Plant,
Equipment and
Timberlands – Net
$251,318
198,585
55,672
80,177
22,418
$608,170
Net sales
$ 952,195
358,442
119,092
106,702
41,357
$1,577,788
Glatfelter 2012 Form 10-K
55
23. GUARANTOR FINANCIAL STATEMENTS
Our 5.375% 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 guarantees are subject to certain customary release provisions including i) the designation of such
subsidiary as an unrestricted or excluded subsidiary; (ii) in connection with any sale or disposition of the capital stock of the
subsidiary guarantor; and (iii) upon our exercise of our legal defeasance option or our covenant defeasance option, all of
which are more fully described in the Indenture, dated as of October 3, 2012 among us, the Guarantors and U.S. Bank
National Association, as Trustee, relating to the 5.375% Notes. The following presents our consolidating statements of
income, including comprehensive income, and cash flows for the years ended December 31, 2012, 2011 and 2010 and our
consolidating balance sheets as of December 31, 2012 and 2011. These financial statements reflect P. H. Glatfelter Company
(the parent), the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and
elimination entries necessary to combine such entities on a consolidated basis.
Condensed Consolidating Statement of Income for the
year ended December 31, 2012
Non
Guarantors
Adjustments/
Eliminations
Parent
Company
$894,777
7,000
901,777
794,364
107,413
71,228
(514)
Guarantors
$53,838
–
53,838
49,061
4,777
2,818
(9,276)
$683,022
–
683,022
581,544
101,478
47,544
(25)
36,699
11,235
53,959
(18,689)
(2,867)
40,332
18,776
55,475
(3,904)
59,379
2,775
–
6,831
749
7,580
18,815
6,585
12,230
3,243
(5)
(3,504)
1,283
(2,226)
51,733
16,889
34,844
3,920
$(53,849)
–
(53,849)
(53,830)
(19)
–
–
(19)
–
–
(47,063)
(47,063)
(47,082)
(8)
(47,074)
(7,163)
Consolidated
$1,577,788
7,000
1,584,788
1,371,139
213,649
121,590
(9,815)
101,874
(18,694)
460
(4,699)
(22,933)
78,941
19,562
59,379
2,775
$ 62,154
$15,473
$ 38,764
$(54,237)
$
62,154
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
Interest income
Other, net
Total other non-operating income (expense)
Income (loss) before income taxes
Income tax provision
(benefit)
Net income (loss)
Other comprehensive income
Comprehensive income
56
Parent
Company
$875,077
9,344
884,421
787,216
97,205
70,632
(348)
26,921
(30,741)
2,706
41,954
13,919
40,840
(1,854)
42,694
Parent
Company
$842,615
10,653
853,268
753,562
99,706
73,802
(123)
26,027
(24,306)
(657)
Condensed Consolidating Statement of Income for the
year ended December 31, 2011
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
Interest income
Other, net
Total other non-operating income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Other comprehensive income
Comprehensive income
Guarantors
Non
Guarantors
Adjustments/
Eliminations
$50,837
–
50,837
47,330
3,507
2,681
(3,590)
4,416
–
7,838
467
8,305
12,721
2,161
10,560
$728,077
–
728,077
622,841
105,236
51,558
(12)
53,690
(1,053)
(5,578)
1,447
(5,184)
48,506
9,369
39,137
Consolidated
$1,603,154
9,344
1,612,498
1,406,305
206,193
124,871
(3,950)
85,272
(31,794)
666
(3,299)
(34,427)
50,845
8,151
42,694
(45,494)
$(50,837)
–
(50,837)
(51,082)
245
–
–
245
–
(4,300)
(47,167)
(51,467)
(51,222)
(1,525)
(49,697)
8,626
(45,494)
(3,350)
(5,276)
$ (2,800)
$ 7,210
$ 33,861
$(41,071)
$
(2,800)
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
Interest income
Other, net
Total other non-operating income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Other comprehensive income
Comprehensive income
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
24,428
(1,218)
(535)
25,492
(28,942)
54,434
6,227
10,764
2,463
8,301
80,262
46,022
43
34,197
(1,241)
(4,665)
330
(5,576)
28,621
6,142
22,479
(172)
–
–
(172)
–
(1,315)
(29,861)
(31,176)
(31,348)
(568)
(30,708)
22,281
186,247
122,111
(453)
64,589
(25,547)
808
(6,321)
(31,060)
33,529
(20,905)
54,434
(1,362)
(1,362)
(6,875)
(15,406)
$ 53,072
$ 1,426
$
7,073
$ (8,499)
$
53,072
Glatfelter 2012 Form 10-K
57
Condensed Consolidating Balance Sheet as of December 31, 2012
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
$
43,748
204,961
241,969
787,348
$ 4,311
387,627
6,204
160,741
$ 49,620
214,568
373,013
45,133
$
–
(385,977)
–
(890,281)
$
97,679
421,179
621,186
102,941
$1,278,026
$558,883
$682,334
$(1,276,258) $1,242,985
$ 337,761
250,000
34,604
115,982
738,347
539,679
$ 6,041
–
3,691
10,602
20,334
538,549
$291,547
–
40,972
11,093
343,612
338,722
$ (384,441) $ 250,908
250,000
62,046
140,352
–
(17,221)
2,675
(398,987)
(877,271)
703,306
539,679
Total liabilities and shareholders’ equity
$1,278,026
$558,883
$682,334
$(1,276,258) $1,242,985
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
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
Total liabilities and shareholders’ equity
$1,186,467
$564,006
$656,228
$(1,269,776)
$1,136,925
58
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2012
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Expenditures for plant, equipment and timberlands
Proceeds from disposal plant, equipment and timberlands, net
Repayments from (advances of) intercompany loans, net and other
Other
Total investing activities
Financing activities
Net proceeds from indebtedness
Payments of note offering costs
Payment of dividends to shareholders
Repurchases of common stock
(Repayments) borrowings of intercompany loans, net
Proceeds from stock options exercised and other
Total financing activities
Effect of exchange rate on cash
Net increase in cash
Cash at the beginning of period
Cash at the end of period
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$ 26,385
$ 5,360
$ 81,101
$
–
$112,846
(23,064)
662
14,597
(225)
(399)
9,574
(4,518)
–
(8,030)
4,657
17,869
(4,748)
(15,608)
(5,675)
27,875
2,673
22,386
–
40,741
3,007
–
–
–
–
(8,600)
–
(8,600)
–
1,417
2,894
(35,289)
36
(514)
–
(35,767)
–
–
–
–
(28,840)
–
(28,840)
750
17,244
32,376
$ 43,748
$ 4,311
$ 49,620
$
–
–
(9,565)
–
(9,565)
–
–
–
–
9,565
–
9,565
–
–
–
–
(58,752)
10,272
–
(225)
(48,705)
17,869
(4,748)
(15,608)
(5,675)
–
2,673
(5,489)
750
59,402
38,277
$ 97,679
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2011
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Expenditures for plant, equipment and timberlands
Proceeds from disposal plant, equipment and timberlands, net
Proceeds from installment note receivable
Repayments from (advances of) intercompany loans, net
Intecompany capital contributed
Total investing activities
Financing activities
Net (repayments of) proceeds from indebtedness
Payments of note offering costs
Payment of dividends to shareholders
Repurchases of common stock
(Repayments) borrowings of intercompany loans, net
Intercompany capital received
Payment of inter-company dividend
Proceeds from stock options exercised and other
Total financing activities
Effect of exchange rate on cash
Net increase (decrease) in cash
Cash at the beginning of period
Cash at the end of period
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$ 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
(76,563)
(1,672)
(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)
(114,056)
(1,672)
(16,611)
(48,033)
–
–
–
232
(180,140)
(848)
(57,511)
95,788
$ 38,277
Glatfelter 2012 Form 10-K
59
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2010
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Expenditures for plant, equipment and timberlands
Proceeds from disposal plant, equipment and timberlands, net
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
Payments of note offering costs
Payment of dividends to shareholders
(Repayments) borrowings of intercompany loans, net
Intercompany capital received, net
Payment of inter-company dividend
Proceeds from stock options exercised and other
Total financing activities
Effect of exchange rate on cash
Net decrease in cash
Cash at the beginning of period
Cash at the end of period
24. QUARTERLY RESULTS (UNAUDITED)
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)
(175,020)
(130,597)
(233,771)
–
–
106,656
168,515
–
275,171
–
(3,208)
–
81,000
(5,340)
(16,746)
(40,292)
–
–
3,975
22,597
–
(15,017)
76,970
$ 61,953
$
–
(425)
143,520
(1,315)
–
141,780
–
(894)
985
91
–
147,373
24,995
–
–
169,160
(3,101)
(23,721)
57,465
–
(106,656)
(168,515)
1,315
–
(273,856)
–
–
–
–
$ 33,744
$
(36,491)
564
–
–
(228,290)
(264,217)
77,792
(5,340)
(16,746)
–
–
–
3,975
59,681
(3,101)
(39,632)
135,420
$ 95,788
In thousands,
except per share
First
Second
Third
Fourth
Net sales
Gross Profit
Net Income
Diluted earnings
per share
2012
$397,352
384,693
404,354
391,389
2011
2012
2011
2012
$396,771
397,985
416,493
391,905
$60,970
40,878
59,192
52,609
$60,167
37,500
54,916
53,610
$18,878
13,432
20,099
6,970
2011
$17,426
2,501
13,026
9,741
2012
$0.43
0.31
0.46
0.16
2011
$0.38
0.05
0.28
0.22
The information set forth above for net income and earnings per share includes the impact of the following, on an
Early Redemption
of Bonds
Alternative Fuel Mixture/
Cellulosic Biofuel Credits
Gains (losses) on Sales of Plant
Equipment and Timberlands
Acquitsition
Integration Costs
2012
$
–
–
–
(4,784)
2011
2012
2011
$
–
–
–
(6,065)
$
–
4,440
111
(309)
$–
–
–
–
2012
$
–
3,696
859
834
2011
2012
$1,718
(69)
245
2,266
$–
–
–
–
2011
$(275)
(518)
–
–
after-tax basis:
In thousands
First
Second
Third
Fourth
60
ITEM 9
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
ITEM 9A CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our chief executive officer and our chief financial
officer have, 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,
2012, concluded that, as of the evaluation date, our
disclosure controls and procedures were effective.
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
Securities and Exchange Commission that applies to our
chief executive officer, chief financial officer and our
principal accounting officer or controller, or persons
performing similar functions. A copy of the Code of
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.
Internal Control Over Financial Reporting
ITEM 11 EXECUTIVE COMPENSATION
Management’s report on the Company’s internal
control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) and the related report of
our independent registered public accounting firm are
included in Item 8 – Financial Statements and
Supplementary Data.
Changes in Internal Control over Financial
Reporting
There were no changes in our internal control over
financial reporting during the three months ended
December 31, 2012, that have materially affected or are
reasonably likely to materially affect our internal control
over financial reporting.
ITEM 9B OTHER INFORMATION
None.
PART III
The information required under this Item is
incorporated herein by reference to our Proxy Statement,
to be dated on or about April 3, 2013.
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 April 3, 2013.
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 April 3, 2013.
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND
AND CORPORATE GOVERNANCE
SERVICES
Directors
The information with respect to
directors required under this Item is incorporated herein by
reference to our Proxy Statement, to be dated on or about
April 3, 2013. Our board of directors has determined that,
based on the relevant experience of the members of the
Audit Committee, all members are audit committee
financial experts as this term is set forth in the
applicable regulations of the SEC.
The information required under this Item is
incorporated herein by reference to our Proxy Statement,
to be dated on or about April 3, 2013.
Our Chief Executive Officer has certified to the New
York Stock Exchange that he is not aware of any violations
by the Company of the NYSE corporate governance listing
standards.
Glatfelter 2012 Form 10-K
61
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, 2012, 2011 and 2010
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements for the Years Ended December 31, 2012, 2011 and 2010
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, 2012
i.
ii.
iii.
iv.
v.
vi.
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 October 3, 2012, by and among P. H. Glatfelter Company, the
Guarantors named therein and U.S. Bank National Association, as Trustee, relating to
5.375% Notes due 2020.
2(b)
3(b)
3.1
4.1
2009 Form 10-K
2007 Form 10-K
Form 8-K filed
January 20, 2012
Form 8-K filed
October 3, 2012
10
(a)
Amended Credit Agreement, dated as of November 21, 2011, by and among the Company,
10.1
Form 8-K filed
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.
November 23, 2011
P. H. Glatfelter Company Amended and Restated Management Incentive Plan, effective
10.1
Form 8-K filed
January 1, 2010**
May 6, 2010
P. H. Glatfelter Company Supplemental Executive Retirement Plan (amended and restated
effective January 1, 2010), filed herewith**
P. H. Glatfelter Company Supplemental Management Pension Plan (amended and restated
effective January 1, 2008), filed herewith**
P. H. Glatfelter Company Amended and Restated Long-Term Incentive Plan**
10.1
Form 8-K filed
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(t)
10.2
May 5, 2009
2006 Form 10-K
Form 8-K filed
May 5, 2009
10.3
Form 8-K filed
April 29, 2005
10.3
Form 8-K filed
May 5, 2009
Form of Performance Share Award Certificate, filed herewith**
P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of January 1,
2007, filed herewith**
Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company
10(j)
2008 Form 10-K
and certain employees, dated as of December 8, 2008 **
(A)
Schedule of Change in Control Employment Agreements, filed herewith. **
Non-Competition and Non-Solicitation Agreement by and between P. H. Glatfelter Company
and Dante C. Parrini, dated July 2, 2010. **
Summary of Non-Employee Director Compensation (effective January 1, 2005)**
10.1
10.1
Form 8-K filed
July 6, 2010
Form 8-K filed
December 20, 2004
Service Agreement, commencing on August 1, 2007, between the Registrant (through a wholly
10(r)
2006 Form 10-K
owned subsidiary) and Martin Rapp**
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(l)
(m)
(n)
(o)
62
Exhibit
Number
(p)
(q)
(r)
Description of Documents
Incorporated by Reference to
Exhibit
Filing
Retirement Pension Contract, dated October 31, 2007, between Registrant (through a
10(t)
2007 Form 10-K
wholly owned subsidiary) and Martin Rapp**
Guidelines for Executive Severance
Agreement between the State of Wisconsin and Certain Companies Concerning the Fox
River, dated as of January 31, 1997, among P. H. Glatfelter Company, Fort Howard
Corporation, NCR Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S.
Paper Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin
10.2
10(i)
Form 8-K filed
July 6, 2010
1996 Form 10-K
(s)
Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the
10.3(a)
(t)
(A)
(t)
(B)
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.)
Agreed Supplement to Consent Decree between United States of America and the State
of Wisconsin vs. P.H. Glatfelter Company and WTM I Company (f/k/a Wisconsin Tissue
Mills Inc.)
Second Agreed Supplement to Consent Decree between United States of America and the
State of Wisconsin vs. P.H. Glatfelter Company and WTM I Company (f/k/a Wisconsin
Tissue Mills Inc.)
June 30, 2010
Form 10-Q
10.3(b)
June 30, 2010
Form 10-Q
10.3(c)
June 30, 2010
Form 10-Q
(u)
Amended Consent Decree for Remedial Design and Remedial Action at Operable Unit 1
10.3(d)
of the Lower Fox River and Green Bay Site by and among the United States of America
and the State of Wisconsin v. P. H. Glatfelter and WTM I Company (f/k/a Wisconsin
Tissue Mills Inc.), certain Appendices have been intentionally omitted, copies of which
can be obtained free of charge from the Registrant)
June 30, 2010
Form 10-Q
(v)
Administrative Order for Remedial Action dated November 13, 2007; issued by the
10.2
Form 8-K filed
November 19, 2007
14
2003 Form 10-K
14
21
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
United States Environmental Protection Agency
Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter
Subsidiaries of the Registrant, filed herewith
Consent of Independent Registered Public Accounting Firm, filed herewith.
Certification of Dante C. Parrini, 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,
furnished 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, furnished herewith
XBRL Instance Document, furnished herewith
XBRL Taxonomy Extension Schema, furnished herewith
XBRL Extension Calculation Linkbase, furnished herewith
XBRL Extension Definition Linkbase, furnished herewith
XBRL Extension Label Linkbase, furnished herewith
XBRL Extension Presentation Linkbase, furnished herewith
** Management contract or compensatory plan
Glatfelter 2012 Form 10-K
63
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 7, 2013
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 7, 2013
/s/ Dante C. Parrini
Principal Executive Officer and Director
Dante C. Parrini
Chairman and Chief Executive Officer
March 7, 2013
/s/
John P. Jacunski
Principal Financial Officer
John P. Jacunski
Senior Vice President and Chief Financial Officer
March 7, 2013
/s/ David C. Elder
Chief Accounting Officer
David C. Elder
Vice President, Finance
March 7, 2013
/s/ Kathleen A. Dahlberg
Kathleen A. Dahlberg
March 7, 2013
/s/ Nicholas DeBenedictis
Nicholas DeBenedictis
March 7, 2013
/s/ Kevin M. Fogarty
Kevin M. Fogarty
March 7, 2013
/s/
J. Robert Hall
J. Robert Hall
March 7, 2013
/s/ Richard C. Ill
Richard C. Ill
March 7, 2013
/s/ Ronald J. Naples
Ronald J. Naples
March 7, 2013
/s/ Richard L. Smoot
Richard L. Smoot
March 7, 2013
/s/
Lee C. Stewart
Lee C. Stewart
64
Director
Director
Director
Director
Director
Director
Director
Director
CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002
I, Dante C. Parrini, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2012 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 7, 2013
By: /s/ Dante C. Parrini
Dante C. Parrini
Chairman and Chief Executive Officer
Glatfelter 2012 Form 10-K
65
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, 2012 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 7, 2013
By: /s/
John P. Jacunski
John P. Jacunski
Senior Vice President and Chief Financial Officer
66
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
For each of the three years ended December 31, 2012
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
2011
$3,118
149
(385)
(21)
$2,861
2012
$2,861
71
(91)
17
$2,858
2010
$2,888
1,269
(993)
(46)
$3,118
Sales Discounts and Deductions
2011
2012
2010
$ 2,831
3,661
(4,173)
(17)
$ 2,302
$ 2,845
4,080
(4,070)
(24)
$ 2,831
$ 2,789
3,593
(3,517)
(20)
$ 2,845
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.
Glatfelter 2012 Form 10-K
67
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GLATFELTER
Headquartered in York, PA, Glatfelter is a global manufacturer of specialty papers and fi ber-based
engineered materials, offering more than a century of experience, technical expertise and world-
class service. U.S. operations include facilities in Spring Grove, PA and Chillicothe and Fremont,
OH. International operations include facilities in Canada, Germany, France, the United Kingdom
and the Philippines, a representative 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.
DRIVING TO EXCELLENCE
Glatfelter PEOPLE are not satisfi ed with being good; we are driven to achieve excellence in all
four of our core business drivers: Specialization, Innovation, Continuous Improvement, and
Globalization. Our operating model is designed to achieve higher revenue and profi t from global
growth businesses, while leveraging the strong cash fl ow from mature product lines to fund our
initiatives. Throughout 2012, Glatfelter demonstrated the ability to continue building a sustainable,
successful company that benefi ts shareholders, customers, employees and communities where
we live and work.
1
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CONT ENT S
Financial Highlights
Glatfelter at a Glance
Letter to Our Shareholders
Form 10-K
Directory of Locations
Directors and Offi cers and Corporate Information
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 2012 Annual Report on Form 10-K included herein
and in other fi lings with the SEC.
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
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DRIVING TO EXCELLENCE
P. H. GLATFELTER COMPANY • 96 SOUTH GEORGE STREET • SUITE 520 • YORK, PA 17401 • WWW.GLATFELTER.COM
© 2013 G L AT F E LT E R
2 0 1 2 A N N U A L R E P O R T