2013 ANNUAL REPORT
STRATEGY IN MOTION
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STRATEGY IN MOTION
Glatfelter’s continued success is a result of our clear and focused strategy: grow revenues and achieve higher
profi ts from our global fi ber-based engineered materials businesses while leveraging the strong cash fl ow
from mature product lines to fund our initiatives. During 2013, we put this strategy in motion, working
to build upon our foundation of success and grow our organization into an enterprise that is competing in fast-
growing, dynamic markets around the world. We are well positioned to deliver the results you have come to
expect from Glatfelter and create new value for all of our stakeholders.
GLATFELTER
Celebrating its 150th anniversary in 2014, Glatfelter is a global supplier of specialty papers and fi ber-based
engineered materials, offering innovation, technical expertise and world-class service. Headquartered in York,
PA, 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 $1.7 billion annually and its
common stock is traded on the New York Stock Exchange under the ticker symbol GLT. Additional information
may be found at www.glatfelter.com.
CONTENTS
1
Financial Highlights
2 Letter to Our Shareholders
6 Strategy in Motion
8 Directors and Offi cers
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 differ materially from the
Company’s expectations. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements are
detailed on page 15 of the accompanying 2013 Annual Report on Form 10-K included herein and in other fi lings with the SEC.
36418.indd 2
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FINANCIAL HIGHLIGHTS
NET SALES
(in millions)
3
2
7
,
1
8 $
7
5
,
1
$
3
0
6
,
1
5 $
5
4
,
1
$
4
8
1
,
1
$
0
4
.
1
$
5
2
.
1
$
ADJUSTED
EARNINGS
PER SHARE (2)
1
0
.
1
$
8
8
.
0
$
4
6
.
0
$
CASH FLOW
FROM OPERATIONS
(in millions)
4
6
1
$
8
6
1
$
4
7
1
$
0
4
1
$
3
1
1
$
09
10
11
12
13
09
10
11
12
13
09
10
11
12
13
SELECTED CONSOLIDATED FINANCIAL DATA (1) (In thousands, except per share data)
As of or for the year ended December 31,
2013
2012
2011
2010
2009
Net sales
Gross profi t
Gross profi t %
$1,722,615
$1,577,788
$1,603,154
$1,455,331
$1,184,010
218,660
213,649
206,193
186,247
269,764
13%
14%
13%
13%
23%
Gains on dispositions of plant, equipment
and timberlands, net
Net income
Earnings per share
Diluted EPS
Adjusted EPS(2)
Balance sheet information
Total assets
Total debt
1,726
67,158
9,815
59,379
3,950
42,694
453
898
54,434
123,442
1.52
1.40
1.36
1.25
0.93
1.01
1.17
0.88
2.70
0.64
1,678,410
1,242,985
1,136,925
1,341,747
1,190,294
442,325
250,000
227,000
333,022
254,583
Shareholders’ equity
684,476
539,679
490,404
552,442
510,704
Cash dividends declared per common share
0.40
0.36
0.36
0.36
0.36
(1) Please see page 14 of our 2013 Annual Report on Form 10-K for additional information related to the data set forth above.
(2) 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: benefi ts from cellulosic biofuel production/alternative fuel mixture credits of $0.23, $0.09, $0.50 and $2.09 in 2013,
2012, 2010 and 2009, respectively; gains from timberland sales and other asset sales of $0.04, $0.12, $0.09 and $0.02 in 2013 through 2010, respectively; acquisition and integration related costs of
$0.14, $0.02, $0.24, and $0.04 in 2013 and 2011 through 2009, respectively; debt redemption costs of $0.11 and $0.13 in 2012 and 2011, respectively; international legal entity restructuring costs
of $0.01 in 2013; and a charge for workforce effi ciencies of $0.01 in 2011.
GLATFELTER 2013 ANNUAL REPORT 1
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DEAR FELLOW SHAREHOLDERS
Dante C . Parrini Chairman and Chief Executive Offi cer
I AM PLEASED TO REPORT THAT GLATFELTER ACHIEVED RECORD REVENUE AND
SUBSTANTIAL GAINS IN PROFITABILITY AND CASH FLOW DURING 2013.
More importantly, we put our
unusual operating environment. We
strategy in motion to build a global,
overcame fl oods at two facilities, fi res at
multicultural enterprise that can compete
two others, and fi ber supply shortages
in a faster-growing, more dynamic world
caused by the worst typhoon in Philippine
economy. Our strategy: grow revenues
history. In addition, short-term operating
and achieve higher profi ts from our
disruptions hindered performance and
global fi ber-based engineered materials
limited profi tability in the second half of
businesses while leveraging the strong
the year.
cash fl ow from mature product lines to
Despite these challenges, we
fund our initiatives.
experienced higher sales and market
I want to thank all Glatfelter PEOPLE
share gains in all of our business units.
who helped advance our strategy through
These accomplishments supported strong
determined execution, great attention
fi nancial results and considerable year-
to customer care, and the pursuit of
over-year improvement. Adjusted earnings
operational excellence. Their dedication
grew 13% over 2012 on revenues that
and perseverance enabled us to make
signifi cant progress despite a most
2
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rose 9%. Our share price was up 58%
and operating profi t climbed 73%,
at end of year, and our three-year total
from $36 million in 2012 to $62 million
shareholder return of 142% outperformed
in 2013. The business unit successfully
all of our benchmark indices and peer
completed a $50 million expansion that
groups. Strong cash fl ows enabled us
gives us more capacity to serve thriving
to increase the dividend for the fi rst time
global markets.
in 20 years and maintain our return on
We leveraged our strong balance
capital employed (ROCE) at a level
sheet to acquire Dresden Papier, the
well above our weighted average cost
leading global supplier of nonwoven
of capital.
wall cover base materials. Operating
We realized this performance while
as part of Composite Fibers, Dresden
continuing to make investments in our
provides entrée into a growing market
people, processes, and new products –
that strengthens our fi ber-based
key elements for sustaining our growth.
engineered materials portfolio. The
ACHIEVING A STRATEGIC
INFLECTION POINT
The success of our strategy was clearly
exemplifi ed in 2013 when, for the fi rst
time, more than 50% of Glatfelter’s
earnings came from our global growth
businesses – Composite Fibers and
Advanced Airlaid Materials. Glatfelter’s
global scale, innovation, quality, and
service leadership drove growth in key
markets such as single-serve coffee, tea,
technical specialties, and personal hygiene.
These business units hold the largest share
positions and strongest relationships with
market-leading customers, factors that
bode well for continued organic growth.
Composite Fibers reported another
strong year of sales and profi tability as
robust markets readily consumed our
high-value products. Margins improved
transaction prompted a step-change
improvement in our market capitalization
and share price. It exemplifi ed how
we can successfully identify, acquire,
and integrate niche specialty businesses
that add exceptional value for
our shareholders.
Advanced Airlaid Materials
continued its steady progress, despite
fi res at its Gatineau and Falkenhagen mills
that cost almost $2 million. Thankfully,
no one was hurt and the mills promptly
restored operations in an impressive
fashion. In the face of these challenges,
the business unit’s revenue was up 9%
and operating profi t increased 19%
over 2012. Our results were fueled
by healthy market growth and the
introduction of next-generation products.
Today, customers view Glatfelter as the
pre-eminent worldwide airlaid supplier
to the personal care segment.
“The success of our strategy was clearly
exemplified in 2013 when, for the first time,
more than 50% of Glatfelter’s earnings came
from our global growth businesses – Composite
Fibers and Advanced Airlaid Materials.”
Specialty Papers endured the bottom
of the market cycle in 2013, contending
with reduced customer demand, lower
product pricing, and declining industry
operating rates. The business unit also
experienced unplanned downtime
and asset reliability issues that created
additional cost penalties. These factors
drove down operating profi t by 41%
versus 2012. However, Specialty Papers
made solid progress in new product and
new business development, helping us
grow market share and allowing us to
outperform the uncoated free-sheet
market for the ninth consecutive year.
Much of Glatfelter’s progress was
driven by an intense focus on continuous
improvement, which has become an
integral part of the company’s operating
DNA. Successful initiatives ranged from
the “Managing for Daily Improvement”
program, which is focused on shop fl oor
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GLATFELTER 2013 ANNUAL REPORT 3
excellence, to the “LEAD at Glatfelter”
will help meet the added demand for
Our four growth drivers play
management development program. Our
nonwoven wall coverings that is climbing
an essential role in powering our
continuous improvement efforts met their
at 10% per year.
operating model.
target savings of 2% to 3% of sales and
Advanced Airlaid Materials is
We are pursuing opportunities that
should generate substantial value in the
solidifying its leadership in the personal
will expand and strengthen our global
years ahead.
care segment by making steady operating
footprint. For example, we’re converting
2014 – OUR EXPECTATIONS
We anticipate a somewhat improved
economic environment in 2014,
characterized by modest growth. With
compelling products, distinctive value
propositions and strong customer
relationships, plus additional capacity, we
are well positioned to execute our strategy
in both growing and mature markets.
Composite Fibers will benefi t from
3% to 7% growth rates in the tea,
single-serve coffee, and technical specialty
markets, plus 12 months of Dresden
results. Dresden’s capacity improvements
improvements and targeted capacity
our Chinese representative’s offi ce to
expansion investments. It is strongly
a sales and distribution operation to
positioned for success in a segment
fulfi ll the country’s growing appetite for
growing 5% per year.
nonwoven wall covering, personal care,
The market environment is fi rming at
and tea products. In addition, the Dresden
Specialty Papers and the building blocks
acquisition raises our visibility in Eastern
are in place for improved performance.
Europe, and establishes another growth
U.S. capacity closures were announced
platform in the Asia-Pacifi c region.
by competitors during 2013 that will
We’re accelerating our quest for
remove 9% of the industry’s production.
specialization in fi ber-based engineered
This will substantially impact the pricing
materials – continuing to push for higher
environment and should enhance the
levels of innovation. Approximately 50%
business unit’s capability to generate
of our total revenue comes from products
higher earnings and cash fl ow. In addition,
less than fi ve years old. Our new business
we are aggressively resolving Specialty
Papers’ pulp production problems.
4
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and product development efforts will
EXCITING OPPORTUNITIES
limited performance. And a strong balance
accelerate as leading customers demand
IN OUR 150TH YEAR
sheet allows investment for growth in
more from their key strategic suppliers.
In 2014, Glatfelter commemorates
smart and thoughtful ways.
That means fi lling out existing product
its 150th anniversary. We see more
As we celebrate our 150th year, our
lines and creating next-generation
opportunities to generate sustainable
strategy is in motion – and it’s working.
technologies for core products.
value than ever before. Our confi dence
We’re committed to sustaining the solid
We will escalate our quest for
is high, driven by Glatfelter’s promising
record of profi table growth achieved
continuous improvement by pushing our
fundamentals. Specialty Papers will have
in recent years. Glatfelter PEOPLE are
goal toward 3% of revenue. We must
higher operating rates and a better pricing
striving for excellence as we seek new
continually challenge ourselves to operate
environment; Composite Fibers will have
opportunities around the world. We know
more productively and effi ciently.
greater capacity to meet growing demand,
that journey is only beginning, and we’re
And we will leverage our strong
plus a full year of Dresden results; and
confi dent in our capabilities – to increase
balance sheet by exploring new
Advanced Airlaid Materials has the
profi tability, strengthen cash fl ows,
acquisitions that match our strategy
potential for a record year.
and create new value that benefi ts
and return profi le. By making careful
We hold leading positions in our
all stakeholders.
investments, we can extend our product
product categories, and have customers
lines or access new geographic markets
that view us as a high-integrity, value-
Sincerely,
in ways that build signifi cant and
added supplier. We’re focusing on the
immediate value.
things we can control and emphasizing
consistent day-to-day execution to solve
Dante C. Parrini
the short-term operating issues that have
Chairman and Chief Executive Offi cer
March 17, 2014
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GLATFELTER 2013 ANNUAL REPORT 5
ince the mid-2000s, Glatfelter has been following through on its strategy to build upon its legacy
operations and evolve into a specialty materials business aligned with global growth markets. As
a result, the Company has been able to grow revenues and achieve higher profi ts from its global
fi ber-based engineered materials businesses while leveraging the strong cash fl ow from mature
product lines to fund strategic initiatives.
Glatfelter is well positioned for continued success. The Company is made up of three business units –
Composite Fibers, Advanced Airlaid Materials and Specialty Papers – all of which hold leading market share
positions in their key product lines.
THE COMPOSITE FIBERS business has grown steadily and recently completed a
capacity expansion project to meet growing demand in the single-serve coffee, tea and technical
specialties products markets. This business also entered the nonwoven wall covering market,
which is growing at approximately 10% annually, with the 2013 acquisition of Dresden Papier.
THE ADVANCED AIRLAID MATERIALS business, which is primarily focused on
the feminine hygiene, home care and adult incontinence markets, is driving profi table growth
through strategic customer relationships and the development of new products.
SPECIALT Y PAPERS , Glatfelter’s legacy business, is positioned to capitalize on reduced
industry production capacity and an improved pricing environment in 2014. Specialty Papers
continues to outperform the broader uncoated free sheet market and to generate substantial
free cash fl ow.
THE EVOLUTION
OF GLATFELTER
2006
2007
2010
Acquisition of tea and coffee
Metallized Products, LTD plant
Concert Industries acquisition
fi ltration paper facility in Lydney, UK
acquisition in Caerphilly, UK
creates Advanced Airlaid
Acquisition of specialty papers mill
Net sales reached $1 billion
in Chillicothe, OH
for fi rst time in Company history
Materials business
6
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STRATEGY
ENHANCES
BUSINESS MIX
Glatfelter continues to increase its position in global growth markets, with approximately
50% of net sales and 64% of adjusted EBITDA coming from growth businesses. And for the
12th consecutive year in 2013, we met our goal of having more than 50% of the Company’s
sales revenue generated from products less than fi ve years old – an indication that our efforts
to enhance the business mix are being well received by our customers and markets.
NET SALES
ADJUSTED EBITDA*
2006
2013 PRO-FORMA**
2006
2013 PRO-FORMA**
30%
$986
MILLION
70%
50%
$1,779
MILLION
50%
40%
$88.4
MILLION
60%
64%
$191.2
MILLION
36%
BUILDING
FINANCIAL
STRENGTH
AND FLEXIBILITY
The success of our strategy is also refl ected in our fi nancial results. The Company ended 2013
with record net sales of $1.7 billion, and extended its trend of strong adjusted EPS growth
with a fi ve-year CAGR of 14%. Operating profi t in our growth businesses also continued to
expand, with Composite Fibers up 73% and Advanced Airlaid Materials up 19% for the year.
Generating consistent free cash fl ow and maintaining
ADJUSTED EPS
ample liquidity remain essential priorities to enable
us to continue executing our strategy. We plan to use
these funds to invest in growth initiatives, and we are
also committed to returning value to shareholders
via share repurchases and dividends – as evidenced
by our 11% dividend increase in the fi rst quarter of
2013 and 10% increase in early 2014.
0
4
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1
$
5
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1
$
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1
$
1
8
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0
$
4
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0
$
1
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1
$
8
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0
$
5
5
.
0
$
06
07
08
09
10
11
12
13
Specialty Papers
Composite Fibers
Advanced Airlaid Materials
* Adjusted EBITDA represents
EBITDA adjusted to exclude
pension expense and those
non-recurring items excluded
from EPS to determine
adjusted EPS.
** Pro-forma sales and EBITDA
give effect to the April 30,
2013 Dresden acquisition
as if it had occurred as of
January 1, 2013.
Glatfelter is well positioned to build upon record 2013 revenues of $1.7 billion,
accelerate earnings growth, generate substantial free cash fl ow, and make targeted
strategic investments to capitalize on the Company’s leading positions in growing
markets such as tea, single-serve coffee, feminine hygiene and nonwoven wall covering.
2011
2012
2013
Dante C. Parrini becomes
New airlaid festooning line
$50 million capacity expansion
Chairman and Chief Executive Offi cer
opened at Gatineau facility
for Composite Fibers completed
2014
Glatfelter
celebrates
150th year
Acquisition of Dresden
Papier to enter nonwoven
wall covering market
GLATFELTER 2013 ANNUAL REPORT 7
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DIRECTORS AND OFFICERS
OFFICERS AND MANAGEMENT
Dante C. Parrini
Jonathan A. Bourget
Mark A. Sullivan
Chairman and Chief Executive Offi cer
Vice President and General Manager
Vice President
Advanced Airlaid Materials Business Unit
Global Supply Chain and
John P. Jacunski
Executive Vice President and
Chief Financial Offi cer
David C. Elder
Vice President, Finance
Christopher W. Astley
Brian E. Janki
Senior Vice President
Corporate Strategy
Vice President and General Manager
Specialty Papers Business Unit
Martin Rapp
Kent K. Matsumoto
Senior Vice President and General Manager
Vice President, General Counsel and
Composite Fibers Business Unit
Corporate Secretary
Information Technology
John R Blind
Division Vice President
Printing & Carbonless Papers
Timothy R. Hess
Division Vice President
Engineered & Converting Products
Reinhard S. Schiebeler
Operations Director
Composite Fibers Business Unit
William T. Yanavitch II
Senior Vice President
Human Resources and Administration
DIRECTORS
Dante C. Parrini
Kevin M. Fogarty
Ronald J. Naples
Chairman and Chief Executive Offi cer
President and Chief Executive Offi cer
Chairman Emeritus
Kathleen A. Dahlberg
Chief Executive Offi cer
G.G.I., Inc. (formerly 2Unify LLC)
Nicholas DeBenedictis
Chairman, Chief Executive Offi cer
and President
Aqua America, Inc.
Kraton Performance Polymers, Inc.
Quaker Chemical Corporation
J. Robert Hall
Managing Director
Centerview Capital
Richard C. Ill
Chairman
Triumph Group, Inc.
Richard L. Smoot
Retired Regional Chairman
PNC Bank, NA
Philadelphia/South Jersey Markets
Lee C. Stewart
Financial Consultant
CORPORATE INFORMATION
WORLD HEADQUARTERS
P. H. Glatfelter Company
96 South George Street
Suite 520
York, PA 17401
phone: 717-225-2719
fax: 717-846-7208
www.glatfelter.com
STOCK EXCHANGE
New York Stock Exchange
STOCK SYMBOL
GLT
INFORMATION SOURCES
For the latest quarterly business
results or other information, visit
www.glatfelter.com or contact:
Investor Relations
P. H. Glatfelter Company
96 South George Street
Suite 520
York, PA 17401
phone: 717-225-2719
e-mail: ir@glatfelter.com
ANNUAL MEETING
OF SHAREHOLDERS
May 1, 2014 9:00 a.m. EDT
York County Heritage Trust,
Historical Society Museum
250 East Market Street, York, PA
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
AND REGISTRAR
Computershare Investor Services
P. O. Box 43078
Providence, RI 02940-3078
Private Couriers/Registered Mail:
Computershare Trust Company N.A
250 Royall Street
Canton, MA 02021
toll-free: 877-832-7259
international: 312-360-5100
8
36418.indd 10
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2013
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
to
Í
‘
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
Name of Each Exchange on which registered
Common Stock, par value $.01 per share
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ‘ No Í.
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. Í Large
accelerated filer ‘ Accelerated filer ‘ Non-accelerated filer ‘ Small reporting company (Do not check if a smaller reporting company).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes ‘ No Í.
Based on the closing price as of June 30, 2013, the aggregate market value of the Common Stock of the Registrant held by non-affiliates was
$1,066 million.
Common Stock outstanding on February 25, 2014 totaled 43,146,528 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 March 29, 2014 are incorporated by reference to Part III.
6418_fin.pdf March 15, 2014 pg 1
6418_fin.pdf March 15, 2014 pg 2
P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2013
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
Exhibits, Financial Statement Schedules
Page
1
7
11
11
11
12
13
13
14
15
26
27
64
64
64
64
64
64
64
64
65
68
69
71
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
SIGNATURES
CERTIFICATIONS
SCHEDULE II
6418_fin.pdf March 15, 2014 pg 3
6418_fin.pdf March 15, 2014 pg 4
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.
Acquisitions Over the past several years, we have
completed several acquisitions that have diversified our
revenue, expanded our geographic footprint and enhanced
our asset base. Most recently, on April 30, 2013 we
completed the $211 million acquisition of Dresden Papier
GmbH (“Dresden”), a leading supplier of non-woven wall
covering products with 2013 revenues of $158.6 million.
Products Our three business units manufacture a
wide array of specialty papers and fiber-based engineered
materials including:
(cid:129) Composite Fibers primarily consists of single-
serve coffee and tea filtration papers, nonwoven
wall covering materials, metallized and self
adhesive labeling papers, composite laminates,
and technical specialties such as battery pasting
papers, among others;
(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; and
(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.
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 2013, these two business
units comprised 48.5% 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
2013
2012
2011
Net sales
Business unit
contribution
Composite Fibers
Advanced Airlaid
Materials
Specialty Papers
Total
$1,722,615
$1,577,788 $1,603,154
32.9%
27.7%
29.7%
15.6
51.5
15.6%
56.7%
15.7%
54.6%
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,
non-woven wall covering materials 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
investments in the future.
In addition to leveraging our leading positions, our
focus on product innovation is a critical component of our
business strategy. During 2013, 2012 and 2011, we
invested $12.2 million, $10.9 million and $11.7 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
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6418_fin.pdf March 15, 2014 pg 5
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 $211 million Dresden
acquisition, a $50 million investment to expand capacity in
Composite Fibers, share repurchase programs and a 11%
increase in our common share dividend. 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.
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 five
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) Composite Fibers;
(ii) Advanced Airlaid Materials; and (iii) Specialty Papers.
Net tons sold by each business unit for the past three years
were as follows:
Short tons
2013
2012
2011
Composite Fibers
Advanced Airlaid Materials
Specialty Papers
Total
133,570
96,098
800,151
90,300
90,332
789,201
93,317
87,951
779,647
1,029,819
969,833
960,915
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) Non-woven wall covering base materials used
by the world’s largest wallpaper manufacturers;
(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 special
paper products used in batteries, adhesive tapes
and other highly-engineered applications.
During 2013, we completed the acquisition of
Dresden a leading global supplier of nonwoven wallpaper
base materials, and is a major supplier to most of the
2
world’s largest wallpaper manufacturers. Dresden has a
preeminent position in nonwoven wallpaper materials – as
both the cost and quality leader because of its innovative
products, proprietary manufacturing techniques, and long-
standing customer relationships. It produces products with
superior performance and characteristics such as dry strip-
ability, higher tear resistance, and no material shrinkage or
expansion when wet. As a result, nonwovens are
increasingly the product of choice for wallpaper installers
and design professionals in Europe, with significant growth
potential in Asia. The acquisition of Dresden added
another industry-leading nonwovens product line to our
Composite Fibers business, and broadened our relationship
with leading producers of consumer and industrial
products.
We believe this business unit maintains a market
leadership position in the single-serve coffee and tea
markets and nonwoven wallpaper materials markets.
Composite Fibers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2013
2012
2011
Food & beverage
Wall covering
Metallized
Composite laminates
Technical specialties and
other
Total
$302,738
97,698
83,949
39,296
$265,423
–
87,720
44,613
$284,748
–
95,276
53,334
42,679
38,984
42,671
$566,360
$436,740
$476,029
We believe many of the market segments served by
Composite Fibers, particularly single-serve coffee and tea
and nonwoven wallpaper materials, 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 business’
papers are technically sophisticated and, in the case of
single serve-coffee and tea products, 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, wood pulp and
synthetic fibers. 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
6418_fin.pdf March 15, 2014 pg 6
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), a non-woven wall cover base mill (Germany),
metallizing operations (Wales and Germany) and a pulp
mill (the Philippines) with the following combined
attributes:
Production
Capacity
(short tons)
140,900 lightweight
28,100 metallized
16,500 abaca pulp
Principal Raw
Material
(“PRM”)
Abaca pulp
Wood pulp
Synthetic fiber
Base stock
Abaca fiber
Estimated Annual
Quantity of PRM
(short tons)
18,400
89,600
25,925
30,200
25,120
Composite Fibers’ lightweight products are produced
using highly specialized inclined wire paper machine
technology and we believe we currently maintain
approximately 25% of the global inclined wire capacity.
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 2013, it purchased 75% 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. The following
chart summarizes key competitors by market segment:
Market segment
Competitor
Single serve coffee & tea
Nonwoven wallcovering
Composite laminates
Metallized
Ahlstrom and Purico
Ahlstrom, Technocell, Neu Kaliss
and Neenah Paper
PdM, a division of Schweitzer-
Maudit, Purico, MB Papeles and
Oi feng
AR Metallizing, Torras Papel
Novelis, Vaassen, Galileo
Nanotech, and Wenzhou Protec
Vacuum Metallizing Co.
Our strategy in Composite Fibers is focused on:
(cid:129) Capitalizing on rapidly growing global markets in
food & beverage, nonwoven wall covering
materials, and technical specialties;
(cid:129) maximizing capacity utilization provided by the
investment in state-of-the-art inclined wire
technology to support consistent growth of key
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, in 2013
we completed 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 to a
state-of-the-art inclined wire machine. Production of
saleable products from the new machine began in the
second quarter of 2013.
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:
(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 serves 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.
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6418_fin.pdf March 15, 2014 pg 7
Advanced Airlaid Materials’ revenue composition by
market consisted of the following for the years indicated:
In thousands
Feminine hygiene
Wipes
Home care
Adult incontinence
Other
Total
2013
2012
2011
$219,222
15,186
14,857
5,046
14,085
$197,792
13,562
14,527
6,959
13,442
$206,724
5,463
15,308
6,083
18,469
$268,396
$246,282
$252,047
The feminine hygiene category accounted for 82% of
Advanced Airlaid Material’s revenue in 2013. Sales of this
product 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 two proprietary single-
lane festooners.
The business unit’s two facilities operate with the following
combined attributes:
Airlaid Production
Capacity (short tons)
Principal Raw
Material (“PRM”)
Estimated Annual
Quantity of PRM
(short tons)
107,000
Fluff pulp
73,900
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 raw material 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
provides customers with a product packaged for efficient
use. This business unit’s in-house technical expertise,
4
combined with significant capital investment requirements
and rigorous customer expectations creates large barriers
to entry for new competitors.
The following summarizes this business unit’s key
competitors:
Market segment
Airlaid products
Competitor
Georgia-Pacific LLC, Duni AB,
Petropar SA, McAirlaid’s GmbH
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.
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 primarily
utilized for transactional and direct mail
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 continue to undergo significant changes in
response to capacity exceeding demand. As a result,
certain larger competitors have announced plans to close
production facilities in an attempt to influence the supply/
demand imbalance.
6418_fin.pdf March 15, 2014 pg 8
This business unit produces both commodity products
The Specialty Papers business unit operates two
and higher-value-added specialty products. Specialty
Papers’ revenue composition by market consisted of the
following for the years indicated:
In thousands
2013
2012
2011
Carbonless & forms
Engineered products
Envelope & converting
Book publishing
Other
Total
$369,618
184,913
175,928
153,054
4,346
$372,950
187,724
174,781
155,925
3,397
$368,582
166,660
170,380
166,506
2,950
$887,859
$894,777
$875,078
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 nine years, our flexible asset
base, new product development capabilities and superior
customer service offerings have 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.
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)
810,000
Pulpwood
Wood-and other pulps
2,293,867
704,869
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 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.
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 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 2013, it purchased approximately 30% of its
electricity needed for the Chillicothe, OH mill. The facilities’
source of fuel is primarily coal and, to a lesser extent,
natural gas.
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In Special Papers’ markets, competition is product
line specific due to, in certain instances, the necessity for
technical expertise and specialized manufacturing. The
following chart summarizes key competitors by market
segment:
Market segment
Carbonless paper
Engineered products
Competitor
Appvion, Inc., and to a lesser
extent, Fibria Celulose (formerly
Votorantim Celulose e Papel) and
Asia Pulp and Paper Co.
Specialty papers divisions of
International Paper, Domtar
Corp., Boise Inc., NewPage Corp.
and Sappi Limited, among others.
Envelope & converting
Domtar and International Papers
Book publishing
Domtar Corp. and North Pacific
Paper (NORPAC), and others
Customer 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.
Additional financial information for each of our
business units is included in Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results
of Operations and in Item 8 – Financial Statements and
Supplementary Data, Note 23 including geographic
revenue and long-lived asset financial information.
Balance Sheet We are focused on prudent
financial management and maintaining a strong balance
sheet. This includes:
(cid:129) aggressively managing working capital to enhance
cash flow from operations;
6
(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
2013, 2012 and 2011.
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 $103.0 million, $58.8 million and $64.5 million, in
2013, 2012 and 2011, respectively. For 2014 capital
expenditures are estimated to be $80 million to $90
million.
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. Recently issued rules will require process
modifications and/or installation of air pollution controls
on power boilers at two of our facilities. We are currently
reviewing options available to comply with 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 estimate
to implement viable options could result in capital
spending of between $50 million to $90 million depending
on the solutions available to comply with the
regulations. However, the amount of capital spending
6418_fin.pdf March 15, 2014 pg 10
ultimately incurred may differ, and the difference could be
material, depending on the option chosen. In addition, the
timing of any additional capital spending is uncertain,
although we currently expect to incur the majority of
expenditures generally between 2014 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 22.
Employees As of December 31, 2013, we
employed 4,403 people worldwide, of which
approximately 68% are unionized. The United
Steelworkers International Union and the Office and
Professional Employees International Union represents
approximately 1,580 hourly employees at our Chillicothe,
OH and Spring Grove, PA facilities under labor contracts
expiring in November 2015 for Chillicothe and, with
respect to Spring Grove, which was renewed in January
2014 for a three year period. 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 20% of our net sales in 2013
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.
In addition, approximately $125 million of our revenue is
earned from shipments to customers located in the
Ukraine, Russia and members of the Commonwealth of
Independent States (also known as “CIS”).
Our results could be adversely affected if economic
conditions weaken or fail to improve or in the event of
significant currency devaluations in the countries into
which are products are sold. 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.
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6418_fin.pdf March 15, 2014 pg 11
Our Philippine mill purchases abaca fiber to produce
abaca pulp, which Composite Fibers uses to manufacture
paper for single-serve coffee, tea and technical specialty
products at our Gernsbach, Scaër and Lydney facilities. At
certain times 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.
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.
Our Advanced Airlaid Materials business unit requires
Some of the other factors that may adversely affect
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.
Government rules, regulations and policies have an
impact on the cost of certain energy sources, particularly
for our European operations. We currently benefit from a
number of government sponsored programs designed to
mitigate the cost of electricity to larger industrial
consumers of power related to initiatives such as “green
energy” or “renewable energy sources.” As the political
environment changes, any reduction in the extent of
government sponsored incentives may adversely affect the
cost ultimately borne by our operations.
Although we have contractual cost pass-through
arrangements with certain Advanced Airlaid Materials’
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.
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;
(cid:129) the aggressiveness of our competitors’ pricing
strategies, which could force us to decrease prices
in order to maintain market share;
(cid:129) our failure to anticipate and respond to changing
customer preferences;
(cid:129) the impact of 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;
(cid:129) our inability to maintain the cost efficiency of our
facilities; and
(cid:129) the cost of regulatory environmental compliance
requirements.
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.
The global industries in which we compete has been
Our business strategy is market focused and includes
adversely affected by capacity exceeding the demand for
products and by declining uncoated free sheet demand. As
a result, the industry has taken steps to reduce capacity.
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
8
6418_fin.pdf March 15, 2014 pg 12
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.
We are subject to substantial costs and
potential liability for environmental
matters.
We are subject to various environmental laws and
regulations that govern our operations, including
discharges into the environment, and the handling and
disposal of hazardous substances and wastes. We are also
subject to laws and regulations that impose liability and
clean-up responsibility for releases of hazardous
substances into the environment. The Clean Air Act, and
similar regulations, will 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.
See Item 1 – Environmental Matters for an additional
discussion of expected costs to comply with environmental
regulations.
Despite favorable rulings in the pending Fox River
litigation, we continue to have potential 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 22.
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 83% of
Advanced Airlaid Materials’ net sales in 2013 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.
GLATFELTER 2013 FORM 10-K
9
6418_fin.pdf March 15, 2014 pg 13
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, hurricanes,
typhoons, 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
10
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
90% 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.
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
6418_fin.pdf March 15, 2014 pg 14
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.
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.
As we diversify our business and expand our global
In addition to debt service obligations, our business is
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. In the event that one or more European
countries were to replace the euro with another currency,
business may be adversely affected until stable exchange
rates are established.
Our ability to maintain our products’ price
competitiveness is reliant, in part, on the relative strength
of the currency in which the product is denominated
compared to the currency of the market into which it is
sold and the functional currency of our competitors.
Changes in the rate of exchange of foreign currencies in
relation to the U.S. dollar, and other currencies, may
adversely impact our results of operations and our ability
to offer products in certain markets at acceptable prices.
Approximately $125 million of our revenue is earned from
shipments to customers located in the Ukraine, Russia and
members of the CIS. Although these sales are denominated
in euros, a significant devaluation of the customers’ local
currencies could adversely affect our customers’ credit risk
and our revenue and results of operation.
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.
GLATFELTER 2013 FORM 10-K
11
6418_fin.pdf March 15, 2014 pg 15
For a discussion of commitments, legal proceedings
and related contingencies, see Item 8 – Financial
Statements and Supplementary Data – Note 22.
EXECUTIVE OFFICERS
The following table sets forth certain information
with respect to our executive officers and senior
management as of March 3, 2014.
Name
Age
Office with the Company
Dante C. Parrini
John P. Jacunski
Christopher W. Astley
Jonathan A. Bourget
David C. Elder
Brian E. Janki
Kent K. Matsumoto
Martin Rapp
Mark A. Sullivan
49
48
41
49
45
41
54
54
59
Chairman and Chief Executive
Officer
Executive Vice President and Chief
Financial Officer
Senior Vice President, Corporate
Strategy
Vice President & General
Manager, Advanced Airlaid
Materials Business Unit
Vice President, Finance
Vice President & General
Manager, Specialty Papers
Business Unit
Vice President, General Counsel
and Corporate Secretary
Senior Vice President & General
Manager, Composite Fibers
Business Unit
Vice President, Global Supply
Chain and Information
Technology
William T. Yanavitch II
53
Senior 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 was promoted to Executive Vice
President and Chief Financial Officer in February 2014. He
joined us in October 2003 and served as Vice President
and Corporate Controller. In July 2006 he was promoted to
Senior Vice President and Chief Financial Officer.
Mr. Jacunski was previously Vice President and Chief
12
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
and was promoted to Senior Vice President, Corporate
Strategy in February 2014. Prior to joining us, he was an
entrepreneur leading a privately held business from 2004
until 2010. Prior to that Mr. Astley held positions with
Accenture, a global management consulting firm, and The
Coca-Cola Company.
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.
Brian E. Janki joined our Company in August 2013
as Vice President & General Manager, Specialty Papers
Business Unit. Prior to this, Mr. Janki was employed by
Greif as their Vice President & General Manager, Rigid
Industrial Packaging & Services. During his twelve years
with Greif, Mr. Janki held leadership positions including
profit/loss responsibilities for two business units, global
responsibility for supply chain and sourcing, and
transformational assignments including global oversight of
the implementation of the Greif Business System.
Kent K. Matsumoto was appointed Vice President,
General Counsel and Corporate Secretary in October 2013.
Mr. Matsumoto joined us in June 2012 as Assistant
General Counsel and served as interim General Counsel
since March 2013. From July 2008 until February 2012 he
was Associate General Counsel for Wolters Kluwer. He has
over 28 years of experience in a variety of corporate and
divisional leadership assignments with other companies,
including Wolters Kluwer, Mayne Pharma, and Alpharma.
Martin Rapp joined us in August 2006 and was
promoted in February 2014 to Senior Vice President and
General Manager, Composite Fibers Business Unit, the unit
6418_fin.pdf March 15, 2014 pg 16
As of February 26, 2014, we had 1,198 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, 2013, we compare our stock
performance to the S&P Small Cap 600 Paper Products
index comprised of us, 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 in the
peer group (including reinvestment of dividends) was $100
on December 31, 2008 and charts it through
December 31, 2013.
$600
$500
$400
$300
$200
$100
$0
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Glatfelter
Russell 2000
S&P SmallCap 600 Paper Products Index
he has led since joining our company. 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 promoted to Senior
Vice President Human Resources and Administration in
February 2014. Since joining us in July 2000, he has served
as Vice President, Human Resources. 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:
Quarter
2013
2012
Fourth
Third
Second
First
Fourth
Third
Second
First
High
Low
Dividend
$29.25
28.21
26.44
23.66
$ 18.58
18.25
16.47
16.36
$25.01
25.13
21.53
17.11
$ 15.31
15.43
14.25
14.12
$0.10
0.10
0.10
0.10
$ 0.09
0.09
0.09
0.09
GLATFELTER 2013 FORM 10-K
13
6418_fin.pdf March 15, 2014 pg 17
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
2013 (1)
2012
2011
2010 (4)
2009
$1,722,615
3,153
$1,577,788
7,000
$1,603,154
9,344
$1,455,331
10,653
$1,184,010
13,332
Total revenue
1,725,768
1,584,788
1,612,498
1,465,984
1,197,342
Gains on dispositions of plant, equipment
and timberlands, net
Net income
Earnings per share
Basic
Diluted
Total assets
Total debt
Shareholders’ equity
Cash dividends declared per common share
Depreciation, depletion and amortization
Capital expenditures
Shares outstanding
Net tons sold
Number of employees
1,726
67,158
9,815
59,379(2)
3,950
42,694(3)
453
54,434(5)
898
123,442(6)
1.56
1.52
1.39
1.36
0.94
0.93
1.19
1.17
2.70
2.70
$1,678,410
442,325
684,476
$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
0.40
68,196
103,047
43,130
1,029,819
4,403
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
(1) On April 30, 2013, we acquired Dresden Papier GmbH, the results of which are included prospectively from the acquisition date, including $101.8
million of net sales and $18.3 million of operating income.
(2) 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.
(3) 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.
(4)
The information set forth above for 2010 includes the financial information for Concert Industries Corp. prospectively from the February 12, 2010
acquisition date.
(5) During 2010, net income included a $23.2 million tax benefit from cellulosic biofuel production credits.
(6) During 2009, we recognized $107.8 million of alternative fuel mixture credits, all of which were recorded as a reduction to cost of products sold.
14
6418_fin.pdf March 15, 2014 pg 18
ITEM 7 MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking Statements
This Annual
Report on Form 10-K includes forward-looking statements
within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements other than statements
of historical fact, including statements regarding industry
prospects and future consolidated financial position or
results of operations, made in this Report on Form 10-K
are forward looking. We use words such as “anticipates”,
“believes”, “expects”, “future”, “intends” and similar
expressions to identify forward-looking statements.
Forward-looking statements reflect management’s current
expectations and are inherently uncertain. Our actual
results may differ significantly from such expectations. The
following discussion includes forward-looking statements
regarding expectations of, among others, non-cash
pension expense, environmental costs, capital expenditures
and liquidity, all of which are inherently difficult to predict.
Although we make such statements based on assumptions
that we believe to be reasonable, there can be no
assurance that actual results will not differ materially from
our expectations. Accordingly, we identify the following
important factors, among others, which could cause our
results to differ from any results that might be projected,
forecasted or estimated in any such forward-looking
statements:
i.
ii.
iii.
iv.
v.
vi.
variations in demand for our products including the
impact of any unplanned market-related downtime,
or variations in product pricing;
changes in the cost or availability of raw materials we
use, in particular pulpwood, pulp, pulp substitutes,
caustic soda, and abaca fiber;
changes in energy-related costs and commodity raw
materials with an energy component;
our ability to develop new, high value-added
products;
the impact of exposure to volatile market-based
pricing for sales of excess electricity;
the impact of competition, 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;
vii.
viii.
ix.
x.
xi.
xii.
xiii.
the gain or loss of significant customers and/or on-
going viability of such customers;
cost and other effects of environmental compliance,
cleanup, damages, remediation or restoration, or
personal injury or property damages related thereto,
such as the costs of natural resource restoration or
damages related to the presence of polychlorinated
biphenyls (“PCBs”) in the lower Fox River on which
our former Neenah mill was located;
adverse results in litigation in the Fox River matter;
risks associated with our international operations,
including local economic and political environments
and fluctuations in currency exchange rates;
geopolitical events, including war and terrorism;
disruptions in production and/or increased costs due
to labor disputes;
the impact of unfavorable outcomes of audits by
various state, federal or international tax authorities;
xiv. enactment of adverse state, federal or foreign tax or
other legislation or changes in government policy or
regulation; and
xv.
our ability to finance, consummate and integrate
acquisitions;
Introduction We manufacture a wide array of
specialty papers and fiber-based engineered materials and
we manage our company along three business units:
(cid:129) Composite Fibers with revenue from the sale of
single-serve coffee and tea filtration papers, non-
woven wall covering, metallized papers, composite
laminates, and other technical specialty papers;
(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, food pads,
napkins, tablecloths, and baby wipes; and
(cid:129) Specialty Papers with revenue from the sale of
carbonless papers, forms, book publishing,
envelope & converting papers, and fiber-based
engineered products.
GLATFELTER 2013 FORM 10-K
15
6418_fin.pdf March 15, 2014 pg 19
Advanced Airlaid Materials’ operating income
increased to $21.5 million compared with $18.0 million in
2012 primarily due to increased shipping volumes.
Specialty Papers’ operating income declined to $39.7
million from $67.3 million in 2012. Although shipping
volumes increased 1.4%, this unit’s profitability was
unfavorably impacted by operational disruptions and lower
selling prices.
In addition to the impact of including Dresden, the
consolidated results of operations for 2013 and 2012
include the following significant unusual items:
In thousands, except per share
2013
Acquisition and integration costs
International legal entity restructuring
costs
Alternative fuel mixture/ Cellulosic
biofuel credits
Timberland sales and related costs
2012
Early redemption of $200 million bonds
Alternative fuel mixture/ Cellulosic
biofuel credits
Timberland sales and related costs
After-tax
Gain (loss)
Diluted EPS
$ (6,079)
$(0.14)
(630)
(0.01)
10,316
1,725
0.23
0.04
$ (4,784)
$ (0.11)
4,020
5,388
0.09
0.12
The above items increased earnings by $5.3 million,
or $0.12 per diluted share, in 2013. Comparatively, in
2012 earnings benefited by $4.6 million or $0.10 per
diluted share from the items set forth above.
RESULTS OF OPERATIONS
2013 versus 2012
Overview The following table sets forth
summarized results of operations:
Year ended December 31
In thousands, except per share
2013
2012
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
$1,722,615
218,660
86,519
67,158
1.52
$1,577,788
213,649
101,874
59,379
1.36
Net income increased 13.1% in the year over year
comparison and totaled $67.2 million in 2013, or $1.52
per diluted share. In 2012 net income was $59.4 million,
or $1.36 per diluted share The year over year comparison
reflects benefits from a significant acquisition in 2013,
solid performance from our two growth businesses and a
favorable tax rate.
Effective April 30, 2013, we completed the
acquisition of Dresden Papier GmbH (“Dresden”) for $211
million, net of cash acquired. Our reported results for 2013
include $101.8 million of net sales and $18.3 million of
operating income from Dresden representing its results
prospectively from the acquisition date. Such results are
reported as part of the Composite Fibers business unit.
Our growth-oriented fiber-based engineered
materials businesses reported improved results evidenced
by an $29.8 million increase in operating income.
However, total operating income from all of our business
units increased $2.2 million reflecting the impact of a
lower contribution from Specialty Papers. Overall, total net
sales increased $144.8 million, or 9.2% and shipping
volumes increased 6.2% in the year-over-year comparison
Composite Fibers’ operating income increased to
$62.4 million from $36.1 million in 2012 primarily due to
the inclusion of Dresden, higher selling prices and an
improved mix. Excluding Dresden, shipping volumes were
essentially unchanged.
16
6418_fin.pdf March 15, 2014 pg 20
Business Units
Results of individual business units
are presented based on our management accounting
practices and management structure. There is no
comprehensive, authoritative body of guidance for
management accounting equivalent to accounting
principles generally accepted in the United States of
America; therefore, the financial results of individual
business units are not necessarily comparable with similar
information for any other company. The management
accounting process uses assumptions and allocations to
measure performance of the business units. Methodologies
are refined from time to time as management accounting
practices are enhanced and businesses change. The costs
incurred by support areas not directly aligned with the
business unit are allocated primarily based on an estimated
utilization of support area services or are included in “Other
and Unallocated” in the Business Unit Performance table.
Management evaluates results of operations of the
business units before pension expense, certain corporate level
costs, and the effects of certain gains or losses not considered
to be related to the core business operations. 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
Composite Fibers
Advanced Airlaid
Materials
Specialty Papers
Other and
Unallocated
Total
Net sales
Energy and related sales, net
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
2013
$566.4
–
566.4
456.5
109.8
47.4
2012
$436.7
–
436.7
362.6
74.2
38.1
2013
$268.4
–
268.4
238.0
30.4
8.9
2012
$246.3
–
246.3
218.7
27.6
9.6
2013
$887.9
3.2
891.0
799.3
91.7
52.0
2012
$894.8
7.0
901.8
779.5
122.3
55.0
–
62.4
–
–
36.1
–
–
21.5
–
–
18.0
–
–
39.7
–
–
67.3
–
2013
2012
2013
2012
$
–
–
$
–
–
–
13.3
(13.3)
25.5
(1.7)
(37.1)
(17.3)
–
10.3
(10.4)
18.9
(9.8)
(19.5)
(22.9)
$1,722.6
3.2
1,725.8
1,507.1
218.7
133.9
$1,577.8
7.0
1,584.8
1,371.1
213.6
121.6
(1.7)
86.5
(17.3)
(9.8)
101.9
(22.9)
$ 62.4
$ 36.1
$ 21.5
$ 18.0
$ 39.7
$ 67.3
$(54.4)
$(42.4)
$
69.2
$
78.9
133.6
90.3
96.1
90.3
800.2
789.2
$ 24.8
56.9
$ 23.5
31.4
$ 8.9
6.7
$
8.7
3.9
$ 33.2
33.8
$ 37.4
23.1
–
1.3
5.7
–
1,029.8
969.8
–
0.3
$
68.2
103.0
$
69.5
58.8
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to
rounding.
On April 30, 2013, we completed the acquisition of Dresden for $211 million. Dresden’s results are included prospectively from
the acquisition date as part of the Composite Fibers business unit. For additional information related to this acquisition, refer to Note
3 – Acquisition.
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
2012
2013
Change
$1,722,615
$1,577,788
$144,827
3,153
1,725,768
1,507,108
$ 218,660
7,000
1,584,788
1,371,139
$ 213,649
(3,847)
140,980
135,969
5,011
$
percent of Net sales
12.7%
13.5%
The following table sets forth the contribution to
consolidated net sales by each business unit:
Percent of Total
Business Unit
Composite Fibers
Advanced Airlaid Material
Specialty Papers
Total
Year ended
December 31
2013
2012
32.9%
15.6
51.5
27.7%
15.6
56.7
100.0% 100.0%
GLATFELTER 2013 FORM 10-K
17
6418_fin.pdf March 15, 2014 pg 21
During 2013, our growth oriented businesses
generated approximately 48.5%, or $834.8 million, of our
consolidated net sales compared with 43.3% in 2012,
reflecting strategic initiatives to invest in growth
businesses. Consolidated net sales for 2013 increased
$144.8 million, or 9.2%, in the comparison to 2012 and
totaled $1,722.6 million. The increase was primarily due to
the Dresden acquisition and $13.6 million from the
favorable impact of foreign currencies. Lower selling prices,
primarily in Specialty Papers, adversely affected the
comparison by $9.4 million. Shipping volumes increased
6.2% in the year over year comparison, or 1.8% excluding
the Dresden acquisition.
In Composite Fibers, net sales were $566.4 million,
an increase of $129.7 million, or 29.7%. The Dresden
acquisition accounted for $101.8 million of the increase.
On an organic basis, shipping volumes were essentially
unchanged with a favorable mix. Higher selling prices and
the translation of foreign currencies benefited the
comparison by $2.9 million and $8.7 million, respectively.
Composite Fibers’ operating income in 2013
increased $26.3 million, of which Dresden represented
$18.3 million. The remaining increase was primarily due to
improved mix of products and higher selling prices. Foreign
currency translation favorably impacted operating income
by $0.6 million compared with the prior year.
In Advanced Airlaid Materials, net sales increased
$22.1 million, or 9.0%, in 2013 compared to 2012. The
increase in net sales was due to a 6.4% increase in
shipping volumes, a $4.9 million benefit from favorable
impact of foreign currency exchange partially offset by $2.3
million of lower selling prices.
Operating income in this business unit increased $3.5
million in 2013 compared to 2012 led by a $5.7 million
benefit from the increase in shipping volumes. The
translation of foreign currencies favorably impacted
operating income by $2.2 million.
In the Specialty Papers business unit, net sales for
2013 decreased by $6.9 million, or 0.8%, to $887.9
million. The decrease was primarily due to $10.0 million
from lower selling prices partially offset by a 1.4% increase
in shipping volumes.
Specialty Papers’ operating income in 2013 of $39.7
million was $27.6 million lower than 2012 primarily due to
lower selling prices, operational interruptions that
adversely affected pulp mill production and $3.8 million
from lower energy and related sales.
18
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 2013 and
2012:
In thousands
Energy sales
Costs to produce
Net
Renewable energy credits
Year ended December 31
2013
2012
$ 8,189
(6,784)
$ 5,284
(4,187)
1,405
1,748
1,097
5,903
Change
$ 2,905
(2,597)
308
(4,155)
Total
$ 3,153
$ 7,000
$(3,847)
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.
Pension Expense The following table summarizes
the amounts of pension expense recognized for 2013
compared to 2012:
In thousands
2013
2012
Change
Year ended December 31
Recorded as:
Costs of products sold
SG&A expense
Total
$12,368
1,849
$14,217
$ 9,148
2,467
$11,615
$3,220
(618)
$2,602
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 2014 is expected to
be approximately $6.2 million. The decrease is primarily
due to higher discount rates and the impact of amortizing
deferred actuarial gains from higher returns on assets in
2013.
Gain on Sales of Plant, Equipment and
Timberlands, net During the years ended
December 31, 2013 and 2012, we completed the
following sales of assets:
Dollars in thousands
Acres
Proceeds
Gain
2013
Timberlands
Other
Total
2012
Timberlands
Other
Total
876
n/a
$ 1,445
502
$1,410
316
$ 1,947
$1,726
4,830
n/a
$ 9,494
778
$ 9,203
612
$10,272
$ 9,815
6418_fin.pdf March 15, 2014 pg 22
In connection with each of the asset sales set forth
above, we received cash proceeds.
In thousands
Net sales
Costs of products sold
SG&A expenses
Income taxes and other
Net income
Year ended
December 31, 2013
Favorable
(unfavorable)
$13,555
(9,723)
(987)
(84)
$ 2,761
The above table only presents the financial reporting
impact of foreign currency translations assuming currency
exchange rates in 2013 were the same as 2012. It does
not present the impact of certain competitive advantages
or disadvantages of operating or competing in multi-
currency markets.
2012 versus 2011
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 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.
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.
GLATFELTER 2013 FORM 10-K
19
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 $38.8 million
in 2013 compared with $29.3 million in 2012. The
increase is primarily due to acquisition and integration
expenses, legal entity restructuring related costs and
higher pension expense.
Non-operating income (expense) as presented in the
Business Unit Performance table includes $18.0 million
and $18.7 million of interest expense for 2013 and 2012,
respectively. The amount reported for 2012 includes a $1.9
million charge related to the write-off of unamortized
issuance costs in connection with the refinancing or our
long-term bonds. Excluding the 2012 write-off, interest
expense increased $1.2 million primarily reflecting the
financing of the Dresden acquisition.
Income taxes
In 2013, income tax expense
totaled $2.0 million on pre-tax income of $69.2 million.
The comparable amounts in 2012 were $19.6 million and
$78.9 million, respectively. Tax expense in 2013 benefited
from a greater proportion of earnings generated in lower
tax foreign jurisdictions relative to the U.S. and by an
aggregate of $16.3 million from cellulosic biofuel
production credits, research and development credits,
reduction in reserves due to the lapse of statutes of
limitation and changes in international statutory rates.
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 2013, Euro
functional currency operations generated approximately
31.0% of net sales and 29.1% of operating expenses and
British Pound Sterling operations represented 6.2% of net
sales and 5.8% of operating expenses. The translation of
the results from international operations into U.S. dollars is
subject to changes in foreign currency exchange rates. The
table below summarizes the translation impact on reported
results that changes in currency exchange rates had on our
non-U.S. based operations from the conversion of these
operation’s results:
6418_fin.pdf March 15, 2014 pg 23
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 transaction costs
After-tax
Gain (loss)
Diluted
EPS
$(4,784)
$(0.11)
4,020
5,388
(6,065)
(652)
(792)
4,160
0.09
0.12
(0.13)
(0.01)
(0.02)
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.
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.
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.
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.
The following table sets forth summarized
consolidated results of operations:
In thousands, except
per share
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
Year ended December 31
2012
2011
$1,577,788
213,649
101,874
59,379
1.36
$1,603,154
206,193
85,272
42,694
0.93
Business Unit Performance
In millions
Composite Fibers
Advanced Airlaid
Materials
Specialty Papers
Other and
Unallocated
Total
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Year ended December 31
Net sales
Energy and related sales, net
$436.7
–
$476.0
–
$246.3
–
$252.0
–
$894.8
7.0
$875.1
9.3
Total revenue
Cost of products sold
Gross profit (loss)
SG&A
Gains on dispositions of plant,
equipment and timberlands
Total operating income (loss)
Non-operating expense
Income (loss) before income
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
–
901.8
779.5
122.3
55.0
–
67.3
–
884.4
775.7
108.7
51.4
–
57.3
–
–
–
–
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
(9.8)
101.9
(22.9)
$1,603.2
9.3
1,612.5
1,406.3
206.2
124.9
(4.0)
85.3
(34.4)
taxes
$ 36.1
$ 40.8
$ 18.0
$ 13.4
$ 67.3
$ 57.3
$(42.4)
$(60.7)
$
78.9
$
50.8
Supplementary Data
Net tons sold
Depreciation, depletion and
amortization
Capital expenditures
90.3
93.3
90.3
88.0
789.2
779.6
$ 23.5
31.4
$ 24.8
22.5
$
8.7
3.9
$
8.5
10.6
$ 37.4
23.1
$ 36.0
31.4
–
–
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.
20
6418_fin.pdf March 15, 2014 pg 24
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
Composite Fibers
Advanced Airlaid Material
Specialty Papers
Total
Year ended December 31
2012
2011
27.7%
15.6
56.7
29.7%
15.7
54.6
100.0%
100.0%
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
partially offset by softer demand in Composite Fibers
related to the weak European economy.
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 approximately 3%.
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.
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.
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)
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
GLATFELTER 2013 FORM 10-K
21
6418_fin.pdf March 15, 2014 pg 25
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.
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.
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
$ (5,664)
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.
22
6418_fin.pdf March 15, 2014 pg 26
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
Year ended December 31
2013
2012
$ 97,679
$ 38,277
173,635
(312,436)
163,175
829
25,203
112,846
(48,705)
(5,489)
750
59,402
Cash and cash equivalents at end of
period
$ 122,882
$ 97,679
At the end of the 2013, we had $122.9 million in
cash and cash equivalents held by both domestic and
foreign subsidiaries. Although unremitted earnings of our
foreign subsidiaries is deemed to be permanently
reinvested, substantially all of the cash and cash
equivalents is available for use domestically.
In addition to our cash and cash equivalents, as of
December 31, 2013, $211.3 million is available under our
revolving credit agreement, which matures in November
2016.
Cash flow provided from operating activities
increased in the year-over-year comparison by $60.8
million primarily due to a reduction in cash used for
working capital lower cash income tax payments and
higher net income.
Net cash used by investing activities increased $263.7
million in the comparison of 2013 to 2012. In 2013, we
spent $210.9 million to acquire Dresden. In addition, in
2013 capital expenditures totaled $103.0 million, an
increase of $44.3 million primarily reflecting the investment
completed in 2013 to expand capacity to serve Composite
Fibers’ growth markets. Capital expenditures in 2014 are
expected to be approximately $80 million to $90 million.
Net cash provided by financing activities totaled
$163.2 million in 2013 reflecting additional borrowings
used to finance the Dresden acquisition.
In 2013 our Board of Directors authorized an 11%
increase in our quarterly cash dividend. In 2013, we used
$17.0 million of cash for dividends on our common stock
compared with $15.6 million in 2012. In February 2014,
we announced an additional 10% increase in our dividend.
The Board of Directors determines what, if any, dividends
will be paid to our shareholders. Dividend payment
decisions are based upon then-existing factors and
conditions and, therefore, historical trends of dividend
payments are not necessarily indicative of future payments.
In 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.
The following table sets forth our outstanding long-
term indebtedness:
In thousands
Revolving credit facility, due Nov. 2016
5.375% Notes, due Oct. 2020
2.05% Term Loan, due Mar. 2023
Total long-term debt
Less current portion
Long-term debt, net of current
portion
2013
$133,540
250,000
58,785
442,325
–
2012
$
–
250,000
–
250,000
–
$442,325
$250,000
Our revolving credit facility contains a number of
customary compliance covenants, the most restrictive of
which is a maximum leverage ratio of 3.5x. As of
December 31, 2013, the leverage ratio, as calculated in
accordance with the definition in our credit agreement,
was 2.2x, well within the limits set forth in our credit
agreement. Based on our expectations of future results of
operations and capital needs, we do not believe the debt
covenants will impact our operations or limit our ability to
undertake financings that may be necessary to meet our
capital needs.
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 discussed above, as of
December 31, 2013, 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 16.
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
GLATFELTER 2013 FORM 10-K
23
6418_fin.pdf March 15, 2014 pg 27
program authorized in 2011. In May 2012, our Board of
Directors authorized a second, two-year 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, 2013:
Authorized amount
Repurchases
Remaining authorization
shares
(thousands)
n/a
291,120
$25,000
(4,462)
$20,538
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. Recently issued rules will require
process modifications and/or installation of air pollution
controls on power boilers at two of our facilities. We are
currently reviewing options available to comply with 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 estimate to implement viable options could result
in capital spending of between $50 million to $90 million
depending on the solutions available to comply with the
regulations. However, the amount of capital spending
ultimately incurred may differ, and the difference could be
material, depending on the option chosen. In addition, the
timing of any additional capital spending is uncertain,
although we currently expect to incur the majority of
expenditures generally between 2014 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 22 for a
summary of significant environmental matters.
We expect to meet all of our near and long-term cash
needs from a combination of operating cash flow, cash
and cash equivalents, and our existing credit facilities.
However, an unfavorable outcome of various
environmental matters could have a material adverse
impact on our consolidated financial position, liquidity and/
or results of operations.
Off-Balance-Sheet Arrangements As of
December 31, 2013 and 2012, 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, 2013:
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,
2014
$ 17
7
72
9
$105
2015 to
2016
$180
7
44
17
2017 to
2018
$43
2
–
14
2019 and
beyond
$306
–
–
38
$248
$59
$344
Total
$546
16
116
78
$756
Represents principal and interest payments due on long-term debt, the significant terms of which are discussed in Item 8 – Financial Statements, Note 16,
“Long-term Debt.” The amounts set forth above include expected interest payments of $104.6 million over the term of the underlying debt instruments
based contractual rates or current market rates in the case of variable rate instruments.
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, and forward purchases 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, 2013.
Primarily represents expected benefits to be paid pursuant to retirement medical plans and nonqualified pension plans and the expected costs of asset
retirement obligations.
Since we are unable to reasonably estimate the timing of ultimate payment, the amounts set forth above do not include any payments that may be
made related to uncertain tax positions, including potential interest, accounted for in accordance with ASC 740-10-20. As discussed in more detail in
Item 8 – Financial Statements, Note 8, “Income Taxes”, such amounts totaled $14.9 million at December 31, 2013.
(1)
(2)
(3)
(4)
(5)
24
6418_fin.pdf March 15, 2014 pg 28
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 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, future
compensation growth rates and mortality 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.
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
for benefit expense
for benefit obligation
Expected long-term rate of
on plan assets (1)
Rate of compensation increase
Post-retirement medical
Weighted average discount rate
for benefit expense
for benefit obligation
Health care cost trend rate
assumed for next year
Ultimate cost trend rate
Year that the ultimate cost trend rate is
2013
2012
2011
4.28% 5.09% 5.81%
4.28
5.20
5.09
8.50
4.00
8.50
4.00
8.50
4.00
3.58
4.45
5.12
4.52
3.58
4.45
7.46
4.50
7.68
4.50
7.90
4.50
reached
2028
2028
2028
(1)
For 2014, the expected long-term rate of return on pension plan
assets was reduced to 8.00%.
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
GLATFELTER 2013 FORM 10-K
25
6418_fin.pdf March 15, 2014 pg 29
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
At fixed interest rates – Term Loan
At variable interest rates
Weighted-average interest rate
On fixed rate debt – Bond
On fixed rate debt – Term Loan
On variable rate debt
Year Ended December 31
2014
2015
2016
2017
2018
At December 30, 2013
Carrying
Value
Fair Value
$250,000
58,785
$250,000
57,683
$250,000
51,437
$250,000
44,089
$250,000
36,741
$250,000
58,785
$254,533
57,952
133,540
133,540
116,848
–
–
133,540
133,540
$442,325
$446,025
5.375%
2.05%
1.93%
5.375%
2.05%
1.93%
5.375%
2.05%
1.93%
5.375%
2.05%
1.93%
5.375%
2.05%
1.93%
The table above presents the average principal
outstanding and related interest rates for the next five
years for debt outstanding as of December 31, 2013. 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, 2013, we had long-term debt outstanding
of $442.3 million, of which 30.2% is at variable interest
rates. Variable-rate debt outstanding consists of
borrowings under our revolving credit agreement that
accrues interest based on one month LIBOR plus a margin.
At December 31, 2013, the weighted-average interest rate
paid on variable rate debt was approximately 1.93%. A
hypothetical 100 basis point increase or decrease in the
interest rate on variable rate debt would increase or
decrease annual interest expense by $1.3 million.
26
As part of our overall risk management practices, we
enter into financial derivatives primarily designed to either
i) hedge foreign currency risks associated with forecasted
transactions – “cash flow hedges”; or ii) mitigate the
impact that changes in currency exchange rates have on
intercompany financing transactions and foreign currency
denominated receivables and payables – “foreign currency
hedges.” For a more complete discussion of this activity,
refer to Item 8 – Financial Statements and Supplementary
Data – Note 19.
We are subject to certain risks associated with
changes in foreign currency exchange rates to the extent
our operations are conducted in currencies other than the
U.S. dollar. During 2013, Euro functional currency
operations generated approximately 31.0% of net sales
and 29.1% of operating expenses and British
Pound Sterling operations represented 6.2% of net sales
and 5.8% of operating expenses.
6418_fin.pdf March 15, 2014 pg 30
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, 2013, 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 (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO). We excluded from our assessment, as permitted
under the applicable SEC rules, regulations and related
interpretations, the internal control over financial reporting
of Dresden Papier GmbH, which was acquired on April 30,
2013, and whose assets constitute 17.8% of total assets,
and which represented 5.9% of total net sales, of the
consolidated financial statement amounts as of and for the
year ended December 31, 2013. Management has
determined that the Company’s internal control over
financial reporting as of December 31, 2013, 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, 2013, 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, 2013.
The Company’s management, including the chief
executive officer and chief financial officer, does not expect
that our internal control over financial reporting will
prevent or detect all errors and all frauds. A control system,
no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control
system’s objectives will be met. The design of a control
system must reflect the fact that there are resource
constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that
all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations
include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or
more people, or by management override of the controls.
The design of any system of controls is based, in part, on
certain assumptions about the likelihood of future events,
and there can be no assurance that any design will
succeed in achieving its stated goals under all potential
future conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over
time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance
with policies or procedures.
GLATFELTER 2013 FORM 10-K
27
6418_fin.pdf March 15, 2014 pg 31
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 and subsidiaries (the
“Company”) as of December 31, 2013, based on criteria
established in Internal Control – Integrated
Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. As
described in Management’s Report on Internal Control
over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at
Dresden Papier GmbH. (“Dresden”), which was acquired
on April 30, 2013 and whose assets constitute 17.8% of
total assets, and which represented 5.9% of total net
sales, of the consolidated financial statement amounts as
of and for the year ended December 31, 2013.
Accordingly, our audit did not include the internal control
over financial reporting at Dresden. 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
28
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, 2013, based on the criteria
established in Internal Control – Integrated
Framework (1992) 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, 2013 of the Company and
our report dated March 3, 2014 expressed an unqualified
opinion on those financial statements and financial
statement schedule.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 3, 2014
6418_fin.pdf March 15, 2014 pg 32
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, 2013
and 2012, 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, 2013. 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, 2013 and 2012, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 2013, in
conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over
financial reporting as of December 31, 2013, based on the
criteria established in Internal Control – Integrated
Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission
and our report dated March 3, 2014 expressed an
unqualified opinion on the Company’s internal control over
financial reporting.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 3, 2014
GLATFELTER 2013 FORM 10-K
29
6418_fin.pdf March 15, 2014 pg 33
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 non-operating expense
Income before income taxes
Income tax provision
Net income
Earnings per share
Basic
Diluted
Cash dividends declared per common share
Weighted average shares outstanding
Basic
Diluted
Year ended December 31
2013
2012
2011
$1,722,615 $1,577,788
7,000
3,153
$1,603,154
9,344
1,725,768
1,507,108
1,584,788
1,371,139
1,612,498
1,406,305
218,660
133,867
(1,726)
86,519
(17,965)
310
337
(17,318)
69,201
2,043
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
67,158 $
59,379
$
42,694
1.56 $
1.52
0.40 $
1.39
1.36
0.36
$
$
0.94
0.93
0.36
43,158
44,299
42,851
43,672
45,228
45,794
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
30
6418_fin.pdf March 15, 2014 pg 34
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 $178, $638 and
$(464), respectively
Unrecognized retirement obligations, net of taxes of $(45,118), $3,914 and
$22,672, respectively
Other comprehensive income (loss)
Comprehensive income (loss)
Year ended December 31
2012
2013
2011
$ 67,158 $59,379
$ 42,694
14,826
11,358
(10,160)
(517)
(1,609)
1,185
74,300
(6,974)
(36,519)
88,609
2,775
$155,767 $62,154
(45,494)
$ (2,800)
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2013 FORM 10-K
31
6418_fin.pdf March 15, 2014 pg 35
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
Assets
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts:
2013 – $2,725; 2012 – $2,858)
Inventories
Prepaid expenses and other current assets
Total current assets
Plant, equipment and timberlands, net
Goodwill
Intangible assets
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
(including treasury shares: 2013 – 11,234,039; 2012 – 11,578,028)
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
2013
2012
$ 122,882
$
97,679
167,830
236,310
59,560
586,582
139,904
222,366
58,909
518,858
723,340
95,948
96,081
176,459
$1,678,410
621,186
16,601
8,301
78,039
$1,242,985
$ 161,242
4,363
125
122,637
$ 133,389
3,905
125
113,489
288,367
442,325
141,020
122,222
993,934
–
250,908
250,000
62,046
140,352
703,306
–
544
53,940
869,329
(75,357)
848,456
544
52,492
819,593
(163,966)
708,663
(163,980)
(168,984)
684,476
539,679
$1,678,410
$1,242,985
The accompanying notes are an integral part of these consolidated financial statements.
32
6418_fin.pdf March 15, 2014 pg 36
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 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 liabilities
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
Acquisition, 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 borrowing costs
Repayment of term loans
Repayment of short term debt
Proceeds from term loan
Repurchases of common stock
Payments of dividends
(Payments) proceeds from share-based compensation awards and other
Net cash provided (used) 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 for:
Interest, net of amounts capitalized
Income taxes, net
Year ended December 31
2012
2013
2011
$ 67,158
$ 59,379
$ 42,694
68,196
1,305
12,787
(11,485)
(1,726)
7,337
(777)
2,704
7,965
24,822
(510)
(6,708)
9,848
(7,281)
173,635
(103,047)
1,947
–
(210,911)
(425)
(312,436)
–
–
126,139
(419)
–
–
56,091
–
(16,965)
(1,671)
163,175
829
25,203
97,679
$ 122,882
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
$ 17,231
15,588
$ 14,400
44,657
$ 24,191
(8,344)
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2013 FORM 10-K
33
6418_fin.pdf March 15, 2014 pg 37
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2013, 2012 and 2011
In thousands
Balance at January 1, 2011
Net income
Other comprehensive loss
Comprehensive loss
Tax effect on exercise of stock awards
Cash dividends declared ($0.36 per share)
Share-based compensation expense
Repurchase of common shares
Delivery of treasury shares
RSUs
401 (k) plans
Director compensation
Employee stock options exercised – net
Common
Stock
$ 544
Capital in
Excess of
Par Value
$ 48,145
Retained
Earnings
$ 749,453
42,694
Accumulated
Other
Comprehensive
Loss
$(121,247)
(45,494)
Treasury
Stock
Total
Shareholders’
Equity
$ (124,453) $ 552,442
42,694
(45,494)
(16,322)
90
3,633
(215)
(141)
(13)
(22)
(2,800)
90
(16,322)
3,633
(48,904)
–
1,967
164
134
(48,904)
215
2,108
177
156
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 exercise of stock awards
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
Net income
Other comprehensive income
Comprehensive income
Tax effect on exercise of stock awards
Cash dividends declared ($0.40 per share)
Share-based compensation expense
Delivery of treasury shares
RSUs
401 (k) plans
Employee stock options exercised – net
67,158
88,609
(17,422)
1,451
4,473
(1,763)
1,099
(3,812)
67,158
88,609
155,767
1,451
(17,422)
4,473
(529)
2,890
(1,833)
1,234
1,791
1,979
Balance at December 31, 2013
$544
$53,940 $869,329
$ (75,357) $(163,980) $684,476
The accompanying notes are an integral part of the consolidated financial statements.
34
6418_fin.pdf March 15, 2014 pg 38
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, Falkenhagen and Heidenau,
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.
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 and non-amortizing tradename
intangible assets are 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.
GLATFELTER 2013 FORM 10-K
35
6418_fin.pdf March 15, 2014 pg 39
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.
36
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.
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.
6418_fin.pdf March 15, 2014 pg 40
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.
Level 3 – Inputs that are both significant to the fair value
measurement and unobservable.
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 became
effective for us beginning January 1, 2013. This standard
did not have a material impact on us.
In July 2013, the FASB issued ASU 2013-11 (Income
Taxes (Topic 740): Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit
Carryforward Exists), which provides that an
unrecognized tax benefit, or a portion of an unrecognized
tax benefit, should be presented in the financial statements
as a reduction to a deferred tax asset for a net operating
loss carryforward, a similar tax loss, or a tax credit
carryforward, except to the extent a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward
is not available, in which case the unrecognized tax benefit
should be presented in the financial statements as a
liability This update is effective for fiscal years, and interim
periods within those years, beginning after December 15,
2013, with early adoption permitted. We believe that our
implementation of this guidance will have no material
impact on our consolidated financial statements.
3. ACQUISITIONS
On April 30, 2013, we completed the acquisition of
all outstanding shares of Dresden Papier GmbH
(“Dresden”) from Fortress Paper Ltd. for $211 million, net
of cash acquired. Dresden, based in Heidenau, Germany, is
the leading global supplier of nonwoven wallpaper base
materials, and is a major supplier to most of the world’s
largest wallpaper manufacturers. Dresden’s revenues for
the full year 2013 were $158.6 million and it employed
approximately 146 people at its state-of-the-art, 72,800
short-ton-capacity manufacturing facility. We financed the
acquisition through a combination of cash on hand and
borrowings under our Revolving Credit Facility.
GLATFELTER 2013 FORM 10-K
37
6418_fin.pdf March 15, 2014 pg 41
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 relationships, technological know-how
and trade name.
Acquired property, plant and equipment are
preliminarily being depreciated on a straight-line basis with
estimated remaining lives ranging from 5 years to 30 years.
Intangible assets are being amortized on a straight-line
basis over an average estimated remaining life of 17 years
reflecting the expected future value.
In connection with the Dresden acquisition we
recorded $74.9 million of goodwill and $87.6 million of
intangible assets. The goodwill arising from the acquisition
largely relates to strategic benefits, product and market
diversification, assembled workforce, and similar factors.
For tax purposes, none of the goodwill is deductible.
Intangible assets consist of $9.8 million of non-amortizing
tradename, and the remainder consists of technology and
customer relationships.
Our results of operations include the results of
Dresden prospectively since the acquisition was completed
on April 30, 2013. All such results reported herein are
included as part of the Composite Fibers business unit.
Revenue and operating income of Dresden included in our
consolidated results of operations for 2013 totaled $101.8
million and $18.3 million, respectively.
The table below summarizes pro forma financial
information as if the acquisition and related financing
transaction occurred as of January 1, 2011:
In thousands, except per share
2013
2012
2011
Year ended December 31
Pro forma
Net sales
Net income
Diluted earnings per share
$1,779,434 $1,727,538 $1,749,342
56,789
1.24
80,381
1.82
79,075
1.81
During 2013, we incurred legal, professional and
advisory costs directly related to the Dresden acquisition
totaling $3.2 million. For purposes of presenting the above
pro forma financial information, such costs have been
eliminated. All such costs are presented under the caption
“Selling, general and administrative expenses” in the
accompanying condensed consolidated statements of
income. In addition, the pro forma financial information
excludes $1.1 million of charges to costs of products sold
The acquisition of Dresden adds another industry-
leading nonwovens product line to our Composite Fibers
business, and broadens our relationship with leading
producers of consumer and industrial products. This
acquisition also provides additional operational leverage
and growth opportunities for Glatfelter globally,
particularly in large markets such as Russia and China, and
other developing markets in eastern Europe and Asia.
Dresden now operates as part of our Composite
Fibers business unit, which manufactures fiber-based
products for growing global niche markets, including
filtration papers for tea and single serve coffee
applications, metallized papers, composite laminates, and
technical specialties.
The share purchase agreement provides for, among
other terms, indemnification provisions for claims that may
arise, including among others, uncertain tax positions and
other third party claims. The preliminary allocation of the
purchase price to assets acquired and liabilities assumed is
as follows:
In thousands
Assets
Cash and cash equivalents
Accounts receivable
Inventory
Prepaid and other current assets
Plant, equipment and timberlands
Intangible assets
Goodwill
Total assets
Liabilities
Accounts payable
Deferred tax liabilities
Other long term liabilities
Total liabilities
Total
less cash acquired
As originally
presented
Cumulative
adjustments Adjusted
$ 12,227
23,870
13,864
6,674
60,951
87,596
76,256
281,438
$
–
–
–
1,386
–
–
(1,386)
$ 12,227
23,870
13,864
8,060
60,951
87,596
74,870
–
281,438
20,360
36,120
1,820
58,300
223,138
(12,227)
(107)
–
107
–
–
–
–
20,253
36,120
1,927
58,300
223,138
(12,227)
$210,911
Total purchase price
$210,911
$
The adjustments set forth above primarily relate to
the recognition of additional indemnification receivable
from the seller associated with certain tax matters. Such
adjustments did not impact previously reported results of
operations, earnings per share, or cash flows.
The preliminary purchase price allocation set forth
above is based on all information available to us at the
present time and is subject to change. In the event new
information, primarily related to an on-going tax audit for
periods prior to the acquisition, becomes available, the
measurement of the amounts of an indemnification
receivable reflected above under the caption “Prepaid and
other current assets” may be affected.
38
6418_fin.pdf March 15, 2014 pg 42
related to the write up of inventory to fair value and $2.0
million of integration related costs. This unaudited pro
forma financial information above is not necessarily
indicative of what the operating results would have been
had the acquisition been completed at the beginning of
the respective period nor is it indicative of future results.
4.
ENERGY AND RELATED SALES, NET
We sell excess power generated by the Spring Grove,
PA facility. 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
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 December 31
2013
2012
2011
Net income
$67,158
$59,379 $42,694
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
43,158
42,851
45,228
1,141
821
566
44,299
43,672
45,794
$ 1.56
1.52
$
1.39 $
1.36
0.94
0.93
2013
2012
2011
$ 8,189
(6,784)
$ 5,284
(4,187)
$10,992
(9,319)
1,405
1,748
1,097
5,903
1,673
7,671
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:
Potential common shares
7
8
891
Year ended December 31
2011
2012
2013
of the past three years:
In thousands
Energy sales
Costs to produce
Net energy sales
Renewable energy credits
Total energy and related sales,
net
$ 3,153
$ 7,000
$ 9,344
5. GAIN ON DISPOSITIONS OF PLANT,
EQUIPMENT AND TIMBERLANDS
During 2013, 2012 and 2011, we completed the
following sales of assets:
Dollars in thousands
Acres
Proceeds
Gain
2013
Timberlands
Other
Total
2012
Timberlands
Other
Total
2011
Timberlands
Other
Total
876
n/a
$ 1,445
502
$1,410
316
$ 1,947
$1,726
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
GLATFELTER 2013 FORM 10-K
39
6418_fin.pdf March 15, 2014 pg 43
7. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the three
years ended December 31, 2013, 2012 and 2011.
in thousands
Balance at January 1, 2011
Other comprehensive income before reclassifications (net of tax)
Amounts reclassified from accumulated other comprehensive income
(net of tax)
Net current period other comprehensive income (loss)
Balance at December 31, 2011
Other comprehensive income before reclassifications (net of tax)
Amounts reclassified from accumulated other comprehensive income
(net of tax)
Net current period other comprehensive income (loss)
Balance at December 31, 2012
Other comprehensive income before reclassifications (net of tax)
Amounts reclassified from accumulated other comprehensive income
(net of tax)
Currency
Translation
Adjustments
Unrealized
gain (loss)
on cash
flow hedges
Pension
Plans
Other
postretirement
benefit plans
Total
$
(883)
(10,160)
$
–
1,308
$(114,333)
(48,452)
$(6,031)
2,361
$(121,247)
(54,943)
–
(123)
9,783
(211)
9,449
(10,160)
(11,043)
11,358
–
11,358
315
1,185
1,185
(38,669)
(153,002)
2,150
(45,494)
(3,881)
(166,741)
(39)
(18,657)
(244)
(7,582)
(1,570)
(1,609)
12,099
(6,558)
(172)
(416)
10,357
2,775
(424)
(159,560)
(4,297)
(163,966)
14,826
(1,198)
54,906
4,187
72,721
Net current period other comprehensive income (loss)
14,826
(517)
70,013
–
681
15,107
100
4,287
15,888
88,609
Balance at December 31, 2013
$15,141
$ (941) $ (89,547)
$
(10) $ (75,357)
The following table sets forth the amounts reclassified from accumulated other comprehensive income (losses) for the
years indicated.
In thousands
Description
Cash flow hedges (Note 19)
(Gains) losses on cash flow hedges
Year ended December 31
2013
2012
2011
Line Item in Statements of Income
$
945
(264)
$ (2,183)
613
$ (174) Costs of products sold
51
Income tax provision
Net of tax
681
(1,570)
(123)
Retirement plan obligations (Note 10)
Amortization of deferred benefit pension
plan items Prior service costs
Actuarial losses
2,470
649
16,399
4,699
2,025
430
13,764
3,256
2,113
453
10,925
2,342
Costs of products sold
Selling, general and administrative
Costs of products sold
Selling, general and administrative
24,217
(9,110)
19,475
(7,376)
15,833
(6,050)
Income tax provision
Amortization of deferred benefit other
plan items Prior service costs
Actuarial losses
Net of tax
15,107
12,099
9,783
(384)
(96)
494
147
161
(61)
100
(760)
(177)
511
149
(277)
105
(172)
(1,005) Costs of products sold
Selling, general and administrative
Costs of products sold
Selling, general and administrative
Income tax provision
(216)
725
155
(341)
130
(211)
Net of tax
Total reclassifications, net of tax
$15,888
$10,357
$ 9,449
40
6418_fin.pdf March 15, 2014 pg 44
8.
INCOME TAXES
Income taxes are recognized for the amount of taxes
payable or refundable for the current year and deferred tax
liabilities and assets for the future tax consequences of
events that have been recognized in our consolidated
financial statements or tax returns. The effects of income
taxes are measured based on enacted tax laws and rates.
The provision for income taxes from operations
consisted of the following:
In thousands
Current taxes
Federal
State
Foreign
Deferred taxes and other
Federal
State
Foreign
Year Ended December 31
2013
2012
2011
$
625
(4,365)
17,268
13,528
(10,973)
(474)
(38)
(11,485)
$ 8,869
3,386
9,516
$ 6,943
(1,762)
2,637
21,771
7,818
(5,456)
(920)
4,167
(2,209)
(3,908)
(286)
4,527
333
Income tax provision
$ 2,043
$19,562
$ 8,151
The amounts set forth above for total deferred taxes
and other included a deferred tax benefit of $15.1 million,
$2.3 million and $1.5 million in 2013, 2012 and 2011,
respectively. Other taxes totaled an expense of $3.6
million, $0.1 million and $1.8 million in 2013, 2012 and
2011, 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
2012
2013
2011
$ (3,052)
72,253
$24,525
54,416
$ (991)
51,836
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 is as follows:
Year Ended December 31
2012
2013
2011
Federal income tax provision at
statutory rate
35.0% 35.0% 35.0%
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,
0.5
(5.4)
(0.6)
(4.4)
1.3
(3.9)
(0.8)
(0.5)
0.7
(6.8)
0.9
(2.0)
net
(22.7)
0.4
(11.6)
Cellulosic biofuel credit, net of
incremental state tax and
manufacturing deduction benefit
Valuation allowance
Other
–
–
0.6
(6.1)
–
(0.6)
–
3.2
(3.4)
Provision for income taxes
3.0% 24.8% 16.0%
The sources of deferred income taxes were as follows
at December 31:
2013
2012
Current
Asset
(Liability)
Non
current
Asset
(Liability)
Current
Asset
(Liability)
Non
current
Asset
(Liability)
$ 5,001
3,111
$
7,919
5,000
$ 6,871 $ 8,095
5,034
3,332
1,070
–
–
802
1,491
893
10,322
19,819
(98,889)
(28,918)
(51,148)
–
2,377
16,922
1,285
–
–
508
1,447
204
5,218
22,642
(92,144)
(1,603)
(14,681)
–
2,578
43,409
22,690
(126,918)
18,865
(26,670)
In thousands
Reserves
Compensation
Post-retirement
benefits
Property
Intangible Assets
Pension
Inventories
Other
Tax carryforwards
Subtotal
Valuation
allowance
(1,255)
(4,905)
(3,233)
(27,266)
Total pretax income
$69,201
$78,941
$50,845
Total
$21,435
$(131,823)
$15,632 $(53,936)
GLATFELTER 2013 FORM 10-K
41
6418_fin.pdf March 15, 2014 pg 45
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
2013
2012
$ 21,447
9,197
12
141,020
$16,319
8,110
687
62,046
At December 31, 2013 we had state and foreign tax
net operating loss (“NOL”) carryforwards of $92.1 million
and $32.7 million, respectively. These NOL carryforwards
are available to offset future taxable income, if any. The
state NOL carryforwards expire between 2014 and 2033;
certain foreign NOL carryforwards expire between 2014
and 2033.
The state and foreign NOL carryforwards on the
income tax returns filed included unrecognized tax benefits
taken in prior years. The NOLs for which a deferred tax
asset is recognized for financial statement purposes in
accordance with ASC 740 are presented net of these
unrecognized tax benefits.
In addition, we had 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 2033.
As of December 31, 2013 and 2012, we had a
valuation allowance of $6.2 million and $30.5 million,
respectively, against net deferred tax assets, primarily due
to uncertainty regarding the ability to utilize state and
foreign tax NOL carryforwards and certain deferred foreign
tax credits. The change in the valuation allowance was
primarily due to the expiration of fully reserved NOLs.
Tax credits and other incentives reduce tax expense in
the year the credits are claimed. We recorded tax credits of
$3.0 million, $0.4 million and $1.0 million in 2013, 2012
and 2011, respectively, related to research and
development credits and the fuels tax credits.
At December 31, 2013 and 2012, unremitted
earnings of subsidiaries outside the United States deemed
to be permanently reinvested totaled $288.8 million and
$236.3 million, respectively. Because the unremitted
earnings of subsidiaries are deemed to be permanently
reinvested as of December 31, 2013 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. It is not practicable to
42
determine the amount of additional taxes that have not
been provided.
As of December 31, 2013, 2012 and 2011, we had
$14.9 million, $30.4 million and $29.7 million of gross
unrecognized tax benefits, respectively. As of
December 31, 2013, if such benefits were to be
recognized, approximately $14.9 million would be
recorded as a component of income tax expense, thereby
affecting our effective tax rate.
A reconciliation of the beginning and ending
balances of the total amounts of gross unrecognized tax
benefits is as follows:
In millions
Balance at January 1
2013
$ 30.4
2012
$29.7
2011
$38.7
Increases in tax positions for prior
years
0.2
1.4
0. 8
Decreases in tax positions for prior
years
Acquisition related:
Purchase Accounting(1)
Increases in tax positions for
current year
Settlements
Lapse in statutes of limitation
(4.9)
(1.0)
(7.5)
1.3
–
–
1.7
–
(13.8)
1.9
(0.4)
(1.2)
1.1
(0.1)
(3.3)
Balance at December 31
$ 14.9
$30.4
$29.7
(1)
in connection with acquisition accounting for the Dresden
transaction, we recorded a $1.3 million reserve for an uncertain tax
position and at the same time recorded a receivable from the seller
due to an indemnification agreement.
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
2010 – 2013
2009 – 2013
2010 – 2013
2012 – 2013
2010, 2013
2010 – 2013
2012 – 2013
N/A
N/A
2007, 2009
2007 – 2012
2011 – 2012
N/A
2010 – 2011
(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
6418_fin.pdf March 15, 2014 pg 46
reviews and the result of discussions and resolutions of
matters with certain tax authorities and the closure of tax
years subject to tax audit, reserves are adjusted as
necessary. However, future results may include favorable or
unfavorable adjustments to our estimated tax liabilities in
the period the assessments are determined or resolved or
as such statutes are closed. Due to potential for resolution
of federal, state and foreign examinations, and the
expiration of various statutes of limitation, it is reasonably
possible our gross unrecognized tax benefits balance may
decrease within the next twelve months by a range of zero
to $5.4 million. Substantially all of this range relates to tax
positions taken in the U.S. and in Germany.
We recognize interest and penalties related to
uncertain tax positions as income tax expense. The
following table summarizes information related to interest
and penalties on uncertain tax positions:
In millions
Accrued interest payable
Interest expense (income)
Penalties
As of or for the year ended
December 31,
2013
$ 0.6
(0.8)
–
2012
$ 1.4
(0.3)
–
2011
$ 1.7
(2.1)
–
9.
STOCK-BASED COMPENSATION
The P. H. Glatfelter Amended and Restated Long
Term Incentive Plan (the “LTIP”) provides for the issuance
of Glatfelter common stock to eligible participants in the
form of restricted stock units, restricted stock awards, non-
qualified stock options, performance shares, incentive
stock options and performance units. In May 2013, our
shareholders approved an increase of 1,030,000 in the
number shares authorized to be issued under the LTIP.
As of December 31, 2013, there were 2,179,443
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 generally based on the passage of time, generally
on a graded scale over a three, four, and five-year period.
Beginning in March of 2011, PSAs were issued annually to
members of senior management and each respective grant
cliff vests each December 31, 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 currently held in treasury.
The following table summarizes RSU and PSA activity
during the past three years:
Units
Balance January 1,
Granted
Forfeited
Shares delivered
2013
2012
2011
847,679
315,196
(47,831)
(113,230)
788,088
209,021
(52,800)
(96,630)
579,801
251,031
(28,254)
(14,490)
Balance December 31,
1,001,814
847,679
788,088
Dollars in thousands
2013
2012
2011
Compensation expense
$
2,882
$
2,576
$
2,069
The amount granted in 2013, 2012 and 2011
includes 183,910, 161,083 and 98,187 PSAs, respectively,
exclusive of reinvested dividends. The performance period
for the 2011 PSAs concluded on December 31, 2013 and,
based on actual performance relative to target,
approximately 78% of the award were issued to
participants in 2014. The weighted average grant date fair
value per unit for awards in 2013, 2012 and 2011 was
$22.34, $15.49, and $12.47, respectively. As of
December 31, 2013, unrecognized compensation expense
for outstanding RSUs and PSAs totaled $7.1 million. The
weighted average remaining period over which the
expense will be recognized is 2.9 years.
GLATFELTER 2013 FORM 10-K
43
6418_fin.pdf March 15, 2014 pg 47
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
2013
2012
2011
Wtd Avg
Exercise Price
$12.93
18.51
12.63
16.28
13.91
12.58
Shares
2,121,454
368,687
(435,562)
(77,446)
1,977,133
1,330,816
1,863,244
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
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)
$
$
$
5.74
2,103
2.16%
1.01%
39.58%
6 yrs
1,591
$
$
$
4.94
1,797
2.31%
1.02%
41.48%
6 yrs
1,448
$
$
$
4.09
1,412
2.87%
2.55%
41.91%
6 yrs
1,564
Under terms of the SOSAR, the recipients received the
10. RETIREMENT PLANS AND OTHER POST-
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,
2013, the intrinsic value of SOSARs vested and expected to
vest totaled $25.8 million. The remaining weighted
average contractual life of outstanding SOSARs was 6.5
years as of December 31, 2013.
Our LTIP also permits the issuance of nonqualified
stock options; however, we have not issued any options
since 2004. As of December 31, 2013, 10,000 stock
options were outstanding with a weighted average
exercise price of $11.29 per share. All options expire on
the earlier of termination or, in some instances, a defined
period subsequent to termination of employment, or ten
years from the date of grant. The exercise price represents
the quoted market price of Glatfelter common stock on the
date of grant, or the average quoted market prices of
Glatfelter common stock on the first day before and after
the date of grant for which quoted market price
information was available if such information was not
available on the date of grant. As of December 31, 2013,
the intrinsic value of outstanding stock options totaled
$0.2 million.
RETIREMENT BENEFITS
We provide non-contributory retirement benefits
under both funded and unfunded plans to all U.S.
employees and to certain non-U.S. employees.
Participation in benefits under the plans are based upon
the employees’ date of hire and the covered group in
which that employee falls. U.S. benefits are based on
either a unit-benefit formula for bargained hourly
employees, or a final average pay formula or cash balance
formula for salaried 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.
44
6418_fin.pdf March 15, 2014 pg 48
In millions
Change in Benefit Obligation
Balance at beginning of year
Service cost
Interest cost
Plan amendments
Participant contributions
Actuarial (gain)/loss
Benefits paid
Pension Benefits
2012
2013
Other Benefits
2013
2012
$528.4
11.6
21.8
–
–
(43.6)
(30.5)
$470.2
11.3
23.0
5.5
–
46.7
(28.3)
$ 63.0
2.9
2.1
–
1.4
(10.5)
(4.1)
$ 56.8
2.8
2.4
–
1.4
4.2
(4.6)
Balance at end of year
$487.7
$528.4
$ 54.8
$ 63.0
The discount rates set forth above were estimated
based on the modeling of expected cash flows for each of
our benefit plans and selecting a portfolio of high-quality
debt instruments with maturities matching the respective
cash flows of each plan. The resulting discount rates as of
December 31, 2013 ranged from 3.60% to 5.36% for
pension plans and from 3.95% to 4.64% for other benefit
plans.
Information for pension plans with an accumulated
benefit obligation in excess of plan assets was as follows:
$545.7
84.2
1.8
(30.5)
–
$498.2
68.1
1.8
(28.3)
5.9
$
–
–
4.1
(4.1)
–
$ 5.3
0.6
4.6
(4.6)
(5.9)
In millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2013
$35.4
31.6
–
2012
$36.4
32.0
–
Change in Plan Assets
Fair value of plan assets at
beginning of year
Actual return on plan assets
Total contributions
Benefits paid
Intra plan transfers
Fair value of plan assets at end
of year
601.2
545.7
–
–
Net periodic benefit cost includes the following
Funded status at end of year
$113.5
$ 17.3
$(54.8)
$(63.0)
components:
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.
Amounts recognized in the consolidated balance
sheets consist of the following as of December 31:
In millions
Other long-term assets
Current liabilities
Other long-term liabilities
Pension Benefits
Other Benefits
2013
2012
2013
$148.9
(2.3)
(33.1)
$ 53.7
(2.0)
(34.4)
$
–
(4.0)
(50.8)
2012
$
–
(4.2)
(58.8)
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
2013
2012
2011
$ 11.6
21.8
(43.4)
3.1
21.1
–
$ 11.3
23.0
(42.2)
2.5
17.0
–
$ 10.3
24.2
(42.0)
2.6
13.3
2.0
Total net periodic benefit cost
$ 14.2
$ 11.6
$ 10.4
Other Benefits
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost/(credit)
Amortization of actuarial loss
$ 2.9
2.1
–
(0.5)
0.6
$ 2.8
2.4
(0.5)
(0.9)
0.7
$ 2.9
2.8
(0.5)
(1.2)
0.9
Net amount recognized
$113.5
$ 17.3
$(54.8)
$(63.0)
Total net periodic benefit cost
$ 5.1
$ 4.5
$ 4.9
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
2013
2012
2013
2012
$ 14.8
131.9
$ 17.9
237.6
$(1.4)
1.4
$ (1.9)
12.6
The accumulated benefit obligation for all defined
benefit pension plans was $471.1 million and $507.4
million at December 31, 2013 and 2012, respectively.
The weighted-average assumptions used in
computing the benefit obligations above were as follows:
Pension Benefits
2012
2013
Other Benefits
2012
2013
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 loss for our
defined benefit pension plans that will be amortized from
accumulated other comprehensive income (loss) into our
results of operations as a component of net periodic
benefit cost over the next fiscal year are $2.9 million and
$11.9 million, respectively. The comparable amounts of
expected amortization for other benefit plans are a credit
of $0.3 million and expense of $0.5 million, respectively.
5.20% 4.28% 4.52% 3.58%
4.00
4.00
–
–
Discount rate – benefit obligation
Future compensation growth rate
6418_fin.pdf March 15, 2014 pg 49
GLATFELTER 2013 FORM 10-K
45
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
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 during 2013 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
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss) were as
follows:
In millions
Pension Benefits
Actuarial (gain) loss
Prior service cost
Amortization of prior service cost
Amortization of actuarial losses
Year Ended
December 31
2013
2012
$ (84.7)
–
(3.1)
(21.1)
$ 20.6
5.5
(2.5)
(17.0)
6.6
Total recognized in other comprehensive (income) loss
(108.9)
Total recognized in net periodic benefit cost and other
comprehensive (income) loss
$ (94.7)
$ 18.2
Other Benefits
Actuarial (gain) loss
Amortization of prior service cost
Amortization of actuarial losses
$ (10.5)
0.5
(0.6)
Total recognized in other comprehensive (income) loss
(10.6)
$ 4.0
0.9
(0.7)
4.2
Total recognized in net periodic benefit cost and other
comprehensive (income) loss
$
(5.5)
$ 8.7
The weighted-average assumptions used in
computing the net periodic benefit (income) cost
information above were as follows:
Year Ended December 31
2013
2012
2011
Pension Benefits
4.28%
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
3.58%
–
5.09% 5.81%
4.00
8.50
4.00
8.50
4.45% 5.12%
8.50
8.50
To develop the expected long-term rate of return
assumption, we considered the historical returns and the
future expected returns for each asset class, as well as the
target asset allocation of the pension portfolio.
Assumed health care cost trend rates used to determine
benefit obligations at December 31 were as follows:
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate rate
2013
2012
7.46%
7.68%
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
$4.5
0.6
$(4.0)
(0.5)
46
6418_fin.pdf March 15, 2014 pg 50
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 following benefit payments under all pension and
other benefit plans, and giving effect to expected future
service, as appropriate, are expected to be paid:
The Investment Policy statement lists specific
categories of securities or activities that are prohibited
including options, futures, commodities, hedge funds,
limited partnerships, and our stock.
The table below presents the fair values of our
benefit plan assets by level within the fair value hierarchy,
as described in Note 2:
In millions
Total
Level 1
Level 2
Level 3
Fair Value Measurements at December 31, 2013
Domestic equity
Large cap
Small and mid cap
International equity
REIT
Fixed income
Cash and equivalents
Total
In millions
Domestic equity
Large cap
Small and mid cap
Other
International equity
REIT
Fixed income
Cash and equivalents
$204.6
68.1
114.3
25.9
171.6
16.7
$601.2
$204.6
68.1
73.7
25.9
40.4
–
$412.7
$
–
–
40.6
–
131.2
16.7
$188.5
$–
–
–
–
–
–
$–
Fair Value Measurements at December 31, 2012
Total
Level 1
Level 2
Level 3
$169.6
65.7
1.1
100.3
25.4
164.9
18.7
$169.6
65.7
0.8
61.9
25.4
27.2
–
$
–
–
0.3
38.4
–
137.7
18.7
$–
–
–
–
–
–
–
$–
Total
$ 545.7
$ 350.6
$ 195.1
Cash Flow We were not required to make
contributions to our qualified pension plan in 2013 nor do
we expect to make any to this plan in 2014. Benefit
payments expected to be made in 2014 under our non-
qualified pension plans and other benefit plans are
summarized below:
In thousands
Nonqualified pension plans
Other benefit plans
$2,257
4,032
6418_fin.pdf March 15, 2014 pg 51
In thousands
2014
2015
2016
2017
2018
2019 through 2023
Pension
Benefits
$ 33,920
33,961
34,060
34,265
33,928
179,439
Other
Benefits
$ 4,032
4,006
4,287
4,736
4,994
27,542
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 $1.9 million, $1.7 million and $1.3 million in 2013,
2012 and 2011, respectively.
11.
INVENTORIES
Inventories, net of reserves were as follows:
In thousands
Raw materials
In-process and finished
Supplies
Total
December 31
2013
2012
$ 59,440
109,578
67,292
$ 61,084
102,331
58,951
$236,310
$222,366
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 $24.5 million and $22.4 million higher
than reported at December 31, 2013 and 2012,
respectively.
12. PLANT, EQUIPMENT AND TIMBERLANDS
Plant, equipment and timberlands at December 31
were as follows:
In thousands
Land and buildings
Machinery and equipment
Furniture, fixtures, and other
Accumulated depreciation
Construction in progress
Asset retirement obligation, net
Timberlands, less depletion
2013
2012
$ 206,891
1,279,264
159,674
(976,645)
$ 194,541
1,158,245
122,425
(915,777)
669,184
47,271
4,748
2,137
559,434
52,782
6,374
2,596
Total
$ 723,340
$ 621,186
As of December 31, 2013 and 2012 we had
$11.9 million and $21.7 million, respectively, of accrued
capital expenditures.
GLATFELTER 2013 FORM 10-K
47
13. GOODWILL AND INTANGIBLE ASSETS
15. OTHER CURRENT LIABILITIES
The following table sets forth information with
Other current liabilities consist of the following:
respect to goodwill and other intangible assets:
December 31
In thousands
Accrued payroll and benefits
Other accrued compensation and retirement
benefits
Income taxes payable
Accrued rebates
Other accrued expenses
Total
December 31
2013
2012
$ 41,492
$ 50,637
8,372
6,546
20,208
46,019
8,977
2,656
11,330
39,889
$122,637
$113,489
16. LONG-TERM DEBT
Long-term debt is summarized as follows:
In thousands
Revolving credit facility, due Nov. 2016
5.375% Notes, due Oct. 2020
2.05% Term Loan, due Mar. 2023
Total long-term debt
Less current portion
2013
2012
$133,540
250,000
58,785
442,325
–
$
–
250,000
–
250,000
–
Long-term debt, net of current portion
$442,325
$250,000
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 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 (the “leverage ratio”);
In thousands
Goodwill – Composite Fibers
Specialty Papers
Customer relationships
Composite Fibers
Tradename
Technology and related
Customer relationships and related
Advanced Airlaid Materials
Technology and related
Customer relationships and related
Total intangibles
Accumulated amortization
Net intangibles
2013
2012
$ 95,948
$16,601
$
6,155
$ 6,155
10,325
46,038
42,251
1,623
3,445
—
4,365
1,872
1,579
3,300
109,837
(13,756)
17,271
(8,970)
$ 96,081
$ 8,301
In connection with the Dresden acquisition, we
recorded $74.9 million of goodwill and $87.6 million of
intangible assets, all of which are presented above within
Composite Fibers. The remainder of the change in goodwill
was due to foreign currency translation adjustments. Other
than non-amortizable goodwill and tradename, intangible
assets are amortized on a straight-line basis. Customer
relationships are amortized over periods ranging from 10
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:
2014
2015
2016
2017
2018
2013
2012
$4,511
$1,778
6,106
6,106
5,645
5,491
5,491
The remaining weighted average useful life of
intangible assets was 15.7 years at December 31, 2013.
14. OTHER LONG-TERM ASSETS
Other long-term assets consist of the following:
In thousands
Pension
Other
Total
2013
$148,849
27,610
2012
$53,734
24,305
$176,459
$78,039
48
6418_fin.pdf March 15, 2014 pg 52
ii) a consolidated EBITDA to interest expense ratio; and iii)
beginning December 31, 2015, a minimum liquidity ratio.
The most restrictive of our covenants is a maximum
leverage ratio of 3.5x. As of December 31, 2013, the
leverage ratio, as calculated in accordance with the
definition in our credit agreement, was 2.2x, well within
the limits set forth in our credit agreement. 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., 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 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.
Interest on the 5.375% Notes will be payable
semiannually in arrears on April 15 and October 15,
commencing on April 15, 2013.
senior indebtedness of the Company and the Guarantors
and will mature on October 15, 2020.
The 5.375% Notes contain various covenants
customary to indebtedness of this nature including
limitations on i) the amount of indebtedness that may be
incurred; ii) certain restricted payments including common
stock dividends; iii) distributions from certain subsidiaries;
iv) sales of assets; v) transactions amongst subsidiaries;
and vi) incurrence of liens on assets. 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
Revolving Credit Agreement at maturity or a default under
the Revolving Credit Agreement that accelerates the debt
outstanding thereunder. As of December 31, 2013, we met
all of the requirements of our debt covenants.
On April 11, 2013, Glatfelter Gernsbach GmbH & Co.
KG (“Gernsbach”), a wholly-owned subsidiary of ours,
entered into an agreement with IKB Deutsche
Industriebank AG, Düsseldorf (“IKB”), pursuant to which
Gernsbach borrowed from IKB approximately €42.7 million
(or $57.6 million) aggregate principal amount (the “IKB
Loan”).
The IKB Loan, guaranteed in full by us, is repayable in
32 quarterly installments beginning on June 30, 2015 and
ending on March 31, 2023 and will bear interest at a rate
of 2.05% per annum. Interest on the IKB Loan or portion
thereof is payable quarterly in each year of the term of the
loan with interest accruing from the date the loan or
portion thereof is drawn.
The IKB Loan provides for representations, warranties
and covenants customary for financings of this type. The
financial covenants contained in the IBK Loan, which relate
to the minimum ratio of consolidated EBITDA to
consolidated interest expense and the maximum ratio of
consolidated total net debt to consolidated adjusted
EBITDA, will be calculated by reference to our Amended
and Restated Credit Agreement, dated November 21,
2011.
The 5.375% Notes are redeemable, in whole or in
Aggregated unamortized deferred debt issuance costs
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
incurred in connection with all of our outstanding debt
totaled $6.4 million at December 31, 2013 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 underlying instruments. Amortization expense
related to deferred debt issuance costs totaled $1.3 million
in 2013.
GLATFELTER 2013 FORM 10-K
49
6418_fin.pdf March 15, 2014 pg 53
During 2013, we recognized a $1.3 million gain
related to the progress of closure activities for a portion of
the lagoons required to be retired. The gain is reflected in
the accompanying consolidated statements of income
under the caption “costs of products sold.”
The following table summarizes the line items in the
accompanying condensed consolidated balance sheets
where the asset retirement obligations are recorded:
In millions
Other current liabilities
Other long-term liabilities
Total
December 31
2013
2012
$0.9
4.1
$5.0
$3.6
5.3
$8.9
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts reported on the consolidated balance
sheets for cash and cash equivalents, accounts receivable
and short-term debt approximate fair value. The following
table sets forth the carrying value and fair value of long-
term debt as of December 31:
2013
2012
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$250,000 $254,533 $250,000
–
–
58,785
133,540
57,952
133,540
$260,340
–
–
In thousands
Fixed-rate bonds
2.05% Term loan
Variable rate debt
Total
$442,325 $446,025 $250,000
$260,340
As of December 31, 2013 and 2012, we had $250.0
million of 5.375% fixed rate bonds. These bonds are
publicly registered, but thinly traded. Accordingly, the
values set forth above for the bonds, as well as our other
debt instruments, are based on observable inputs and
other relevant market data (Level 2). The fair value of
financial derivatives is set forth below in Note 19.
19. FINANCIAL DERIVATIVES AND HEDGING
ACTIVITIES
As part of our overall risk management practices, we
enter into financial derivatives primarily designed to either
i) hedge foreign currency risks associated with forecasted
transactions – “cash flow hedges”; or ii) mitigate the
impact that changes in currency exchange rates have on
intercompany financing transactions and foreign currency
denominated receivables and payables – “foreign currency
hedges.”
The following schedule sets forth the maturity of our
long-term debt during the indicated year.
In thousands
2014
2015
2016
2017
2018
Thereafter
$
–
5,511
140,888
7,348
7,348
281,230
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, 2013 and 2012, 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.
17. ASSET RETIREMENT OBLIGATION
During 2008, we recorded $11.5 million, net present
value, of asset retirement obligations related to the legal
requirement to close several lagoons at the Spring Grove,
PA facility. Historically, lagoons were used to dispose of
residual waste material. Closure of the lagoons, which is
expected to be completed in 2016, 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, was accrued with a corresponding
increase in the carrying value of the property, equipment
and timberlands caption on the consolidated balance
sheet. The amount capitalized is being amortized as a
charge to operations on the straight-line basis in relation
to the expected closure period.
Following is a summary of the reserve for asset
retirement obligations for the periods indicated:
In thousands
Balance at January 1,
Accretion
Payments
Gain
2013
2012
$ 8,882
229
(2,824)
(1,255)
$ 9,679
458
(1,255)
–
Balance at December 31,
$ 5,032
$ 8,882
50
6418_fin.pdf March 15, 2014 pg 54
In 2011, we
Derivatives Designated as Hedging
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
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
2013
2012
Buy Notional
27,105
13,077
27,003
12,369
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
Euro / British Pound
Canadian dollar / U.S. dollar
U.S. dollar / Euro
U.S. dollar / British Pound
2013
2012
Sell (Buy) Notional
9,000
(8,000)
5,000
2,000
2,000
6,000
13,000
–
4,000
2,000
2,000
–
These contracts have maturities of one month from
the date originally entered into.
Fair Value Measurements
The following table summarizes the fair values of
derivative instruments as of December 31 for the year
indicated and the line items in the accompanying
consolidated balance sheet where the instruments are
recorded:
In thousands
2013
2012
2013
2012
Balance sheet caption
Designated as
hedging:
Forward foreign currency
exchange contracts
Not designated as
hedging:
Forward foreign currency
exchange contracts
Prepaid Expenses
and Other
Current Assets
Other Current
Liabilities
$ –
$107
$1,163
$751
$36
$159
$46
$
16
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
2013
2012
2011
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
$(945)
38
$2,183
311
$ 174
165
$(455)
$ (696) $(686)
GLATFELTER 2013 FORM 10-K
51
6418_fin.pdf March 15, 2014 pg 55
The impact of activity not designated as hedging was
20. SHAREHOLDERS’ EQUITY
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 January 1,
Deferred losses on cash flow hedges
Reclassified to earnings
Balance at December 31,
2013
2012
$ (599)
(1,642)
945
$ 1,649
(65)
(2,183)
$(1,296)
$ (599)
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.
The following table summarizes outstanding shares
of common stock:
In thousands
2013
2012
2011
Year Ended December 31,
Shares outstanding at beginning
of year
Shares repurchased
Treasury shares issued for:
Restricted stock awards
401(k) plan
Director compensation
Employee stock options
exercised
42,784
–
42,650
(374)
45,976
(3,505)
86
123
–
137
76
152
–
280
14
143
12
10
Shares outstanding at end of year
43,130
42,784
42,650
21. SHARE REPURCHASES
In May 2012, our Board of Directors authorized a
two-year 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, 2013, 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 was used.
22. COMMITMENTS, CONTINGENCIES AND LEGAL
PROCEEDINGS
Contractual Commitments
The following table
summarizes the minimum annual payments due on
noncancelable operating leases and other similar
contractual obligations having initial or remaining terms in
excess of one year:
In thousands
2014
2015
2016
2017
2018
Thereafter
Leases
Other
$6,648
4,481
2,560
1,654
755
162
$71,816
23,245
20,959
103
95
95
Other contractual obligations primarily represent
minimum purchase commitments under energy supply
contracts and other purchase obligations.
52
6418_fin.pdf March 15, 2014 pg 56
At December 31, 2013, required minimum annual
payments due under operating leases and other similar
contractual obligations aggregated $16.3 million and
$116.3 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 (collectively, the “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.
The PRPs consist of us, Appvion, Inc. (formerly known
as Appleton Papers Inc.), 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
(“NCR”), U.S. Paper Mills Corp., and WTM I Company.
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. This mill
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 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 the 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 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, Appvion, 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 and
Appleton Papers Inc. (now known as Appvion), 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 Litigation”),
that ultimately involved us and more than two dozen
parties in litigation to allocate 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. On June 27, 2013,
the district court entered a final judgment that (a) neither
NCR nor Appvion 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 on account
of NRDs, (c) NCR is not liable for response costs, response
actions, or NRDs in Little Lake Butte des Morts, and
(d) NCR owes us reimbursement of $4.28 million in costs
we incurred in the past. NCR and Appvion have appealed
that judgment. We have filed a cross-appeal of that
judgment (as have several other defendants), challenging
those portions of the judgment with which we disagree,
including the ruling that NCR is not liable for response
costs, response actions, or NRDs in Little Lake Butte des
Morts. Until the Whiting Litigation judgment 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
GLATFELTER 2013 FORM 10-K
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6418_fin.pdf March 15, 2014 pg 57
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. Following
a trial in December 2012, on May 1, 2013, the district
court granted that injunction (“May 2013 Order”). The
May 2013 Order directs the Company “jointly and
severally” along with three other defendants that are also
enjoined (NCR, WTM I Company, and Menasha
Corporation) to comply with the UAO. An accompanying
declaratory judgment declares the Company and those
three defendants jointly and severally liable with three
additional defendants (Georgia-Pacific, LLP, U.S. Paper
Mills, Inc., and CBC Coatings, Inc.) that have entered into
agreements with the United States governing those
parties’ compliance with the UAO. The district court has
denied NCR’s motion to require us to contribute to
compliance with the injunction. We have appealed the
May 2013 Order, as have NCR, WTM I, and Menasha.
Estimates of the Site remediation
Cost estimates.
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 response
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 cost of work
done in 2013 and the future cost of work yet to be done
totals approximately $360 million. The Governments seek
to have that work done at a rate estimated to cost
approximately $70 million each year from 2013 through
2016, and at lower rates afterward.
The Governments’ NRD assessment documents
NRDs.
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
54
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. The May 2013 Order does not
determine whether liability for NRDs would be joint and
several. Moreover, we believe that the Natural Resource
Trustees may not legally pursue this claim at this late date,
as the limitations period for NRD claims is three years from
discovery.
Reserves for the Site. As of December 31, 2013, our
reserve for the Site, including our remediation and ongoing
monitoring obligations in Little Lake Butte des Morts, our
share of remediation of the rest of the Site, 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 $16.3 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 do not believe that we will be allocated a
significant percentage share of liability in any final
equitable allocation of the response costs and NRDs. 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 the
determination in the Whiting Litigation that NCR owes us
“full contribution” for response costs and NRDs that we
may become obligated to pay except in OU1, 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
6418_fin.pdf March 15, 2014 pg 58
sharing agreements between responsible parties and third
parties. In addition, our assessment is based upon the
magnitude, nature, location and circumstances associated
with the various discharges of PCBs to the river and the
relationship of those discharges to identified
contamination. We will continue to evaluate our exposure
and the level of our reserves, including, but not limited to,
our potential share of the costs and NRDs, if any,
associated with the Site.
The amount and timing of future expenditures for
environmental compliance, cleanup, remediation and
personal injury, NRDs and property damage liabilities
cannot be ascertained with any certainty due to, among
other things, the unknown extent and nature of any
contamination, the response actions that may ultimately be
required, the availability of remediation equipment and
landfill space, and the number and financial resources of
any other PRPs.
Other Information.
The Governments have published
studies estimating the amount of PCBs discharged by each
identified 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%. The district court in its
May 2013 Order found the discharge mass estimates used
in these studies not to be accurate. 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. The trial court in the Government Action has
found that the Neenah mill discharged an unknown
amount of PCBs.
In any event, based upon the rulings in the Whiting
Litigation and the Government Action, neither of which
endorsed an equitable allocation in proportion to the mass
of PCBs discharged, 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
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 decisions of the courts, 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. The Company also
believes that the effect of reading the Whiting Litigation
decisions together with the May 2013 Order requires the
ongoing compliance with the UAO to be funded by NCR,
or to the extent that the Company is required to provide
any such funding, that NCR will be required to reimburse
the Company. There can be no assurance, however, that
the May 2013 Order will not have a material adverse effect
on the Company’s consolidated financial position, liquidity
or results of operation.
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
GLATFELTER 2013 FORM 10-K
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6418_fin.pdf March 15, 2014 pg 59
damages will not exceed our available resources, or that
those 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 individually 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.
23. SEGMENT AND GEOGRAPHIC INFORMATION
The following tables set forth profitability and other information by business unit:
For the year ended December 31, 2013
In millions
Net sales
Energy and related sales, net
Total revenue
Cost of products sold
Gross profit
SG&A
Gains on dispositions of plant, equipment and timberlands, net
Total operating income (loss)
Non-operating expense
Income (loss) before income taxes
Supplementary Data
Plant, equipment and timberlands, net
Depreciation, depletion and amortization
Capital expenditures
For the year ended December 31, 2012
In millions
Net sales
Energy and related sales, net
Total revenue
Cost of products sold
Gross profit
SG&A
Gains on dispositions of plant, equipment and timberlands, net
Total operating income (loss)
Non-operating expense
Income (loss) before income taxes
Supplementary Data
Plant, equipment and timberlands, net
Depreciation, depletion and amortization
Capital expenditures
Composite
Fibers
$566.4
–
566.4
456.5
109.8
47.4
–
62.4
–
Advanced
Airlaid
Materials
$268.4
–
268.4
238.0
30.4
8.9
–
21.5
–
Specialty
Papers
$887.9
3.2
891.0
799.3
91.7
52.0
–
39.7
–
Other and
Unallocated
$
–
–
–
13.3
(13.3)
25.5
(1.7)
(37.1)
(17.3)
Total
$1,722.6
3.2
1,725.8
1,507.1
218.7
133.9
(1.7)
86.5
(17.3)
$ 62.4
$ 21.5
$ 39.7
$(54.4)
$
69.2
$300.0
24.8
56.9
$175.1
8.9
6.7
$242.6
33.2
34.3
$ 5.6
1.3
5.1
$ 723.3
68.2
103.0
Composite
Fibers
$436.7
–
436.7
362.6
74.2
38.1
–
36.1
–
Advanced
Airlaid
Materials
$246.3
–
246.3
218.7
27.6
9.6
–
18.0
–
Specialty
Papers
$894.8
7.0
901.8
779.5
122.3
55.0
–
67.3
–
Other and
Unallocated
$
–
–
–
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)
$ 36.1
$ 18.0
$ 67.3
$(42.4)
$
78.9
$200.1
23.5
31.4
$172.9
8.7
3.9
$247.9
37.4
23.1
$ 0.3
–
0.3
$ 621.2
69.5
58.8
56
6418_fin.pdf March 15, 2014 pg 60
For the year ended December 31, 2011
In millions
Composite
Fibers
Advanced Airlaid
Materials
Specialty Papers
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
$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
$875.1
9.3
884.4
775.7
108.7
51.4
–
57.3
–
$
–
–
–
7.2
(7.2)
23.0
(4.0)
(26.2)
(34.4)
Total
$1,603.2
9.3
1,612.5
1,406.3
206.2
124.9
(4.0)
85.3
(34.4)
$ 57.3
$(60.7)
$
50.8
$250.2
36.0
31.4
$
–
–
–
$ 602.0
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.
Our Composite Fibers business unit serves customers
globally and focuses on higher value-added products in the
following markets:
Results of individual business units are presented
(cid:129) Food & Beverage paper primarily used for
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.
single-serve coffee and tea products;
(cid:129) Non-woven wall covering base materials used
by the world’s largest wallpaper manufacturers;
(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; and
(cid:129) Technical Specialties a diverse line of special
paper products used in batteries, adhesive tapes
and other highly-engineered applications.
Composite Fibers’ revenue composition by market
Management evaluates results of operations of the
consisted of the following for the years indicated:
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.
In thousands
2013
2012
2011
Food & beverage
Wall covering
Metallized
Composite laminates
Technical specialties and
$302,738
97,698
83,949
39,296
$265,423
–
87,720
44,613
$284,748
–
95,276
53,334
other
Total
42,679
38,984
42,671
$566,360
$436,740
$476,029
GLATFELTER 2013 FORM 10-K
57
6418_fin.pdf March 15, 2014 pg 61
The Advanced Airlaid Materials 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) specialty wipes; home care;
(cid:129) adult incontinence; table top; and
(cid:129) food pads.
(cid:129) Engineered products for digital imaging,
casting, release, transfer, playing card, postal,
FDA-compliant food and beverage applications,
and other niche specialty applications;
(cid:129) Envelope and converting papers primarily
utilized for transactional and the direct mail
applications; and
(cid:129) Book publishing papers for the production of
high quality hardbound books and other book
publishing needs.
Advanced Airlaid Materials’ revenue composition by
market consisted of the following for the years indicated:
Specialty Papers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2013
2012
2011
In thousands
2013
2012
2011
Feminine hygiene
Wipes
Home care
Adult incontinence
Other
$219,222
15,186
14,857
5,046
14,085
$197,792
13,562
14,527
6,959
13,442
$206,724
5,463
15,308
6,083
18,469
Carbonless & forms
Engineered products
Envelope & converting
Book publishing
Other
$369,618
184,913
175,928
153,054
4,346
$372,950
187,724
174,781
155,925
3,397
$368,582
166,660
170,380
166,506
2,950
Total
$268,396
$246,282
$252,047
Total
$887,859
$894,777
$875,078
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;
No individual customer accounted for more than
10% of our consolidated net sales in 2013, 2012 or 2011.
However, one customer accounted for the majority of
Advanced Airlaid Materials’ net sales in 2013, 2012 and
2011.
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
2013
2012
2011
Plant,
Equipment and
Timberlands–Net
$248,306
287,880
63,650
83,033
40,471
Plant,
Equipment and
Timberlands–Net
$248,185
191,559
59,131
83,796
38,515
Net sales
$ 933,357
410,183
122,218
88,018
49,378
Net sales
$ 952,195
358,442
119,092
106,702
41,357
$723,340
$1,577,788
$621,186
$1,603,154
Plant,
Equipment and
Timberlands–Net
$250,217
181,537
57,634
86,079
26,483
$601,950
Net sales
$ 968,833
483,859
107,082
113,414
49,427
$1,722,615
58
6418_fin.pdf March 15, 2014 pg 62
24. CONDENSED CONSOLIDATING 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., 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 US 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, 2013, 2012 and 2011 and our consolidating balance sheets as of
December 31, 2013 and 2012. 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. Effective December 31, 2013, Glatfelter Pulpwood Company, previously a
guarantor, was merged with and into the parent. Accordingly, all condensed consolidating financial statements have been
restated to give effect to this merger as of the earliest period presented. In addition, the amounts of intercompany investing
and financing activities previously presented net for the years ended December 2012 and 2011 have been presented on a
gross basis to conform to the current year’s presentation.
Condensed Consolidating Statement of Income for the
year ended December 31, 2013
Guarantors
Non
Guarantors
Adjustments/
Eliminations
$834,756
–
$
Parent
Company
$887,859
3,153
891,012
812,298
78,714
69,614
(1,390)
10,490
(15,456)
(2,808)
56,843
38,579
49,069
(18,089)
67,158
88,609
$
16
–
16
15
1
718
(319)
(398)
–
8,662
104
8,766
8,368
453
7,915
6,883
Consolidated
$1,722,615
3,153
1,725,768
1,507,108
218,660
133,867
(1,726)
86,519
(17,965)
310
337
(17,318)
69,201
2,043
67,158
88,609
(16)
–
(16)
(24)
8
–
–
8
(1)
–
(58,412)
(58,413)
(58,405)
4
(58,409)
(11,106)
834,756
694,819
139,937
63,535
(17)
76,419
(2,508)
(5,544)
1,802
(6,250)
70,169
19,675
50,494
4,223
$155,767
$14,798
$ 54,717
$(69,515)
$ 155,767
GLATFELTER 2013 FORM 10-K
59
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 (loss)
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 (loss)
Comprehensive income (loss)
6418_fin.pdf March 15, 2014 pg 63
Condensed Consolidating Statement of Income for the
year ended December 31, 2012
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 (loss)
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
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Guarantors
Non
Guarantors
Adjustments/
Eliminations
$683,022
–
$
Parent
Company
$894,777
7,000
901,777
789,589
112,188
73,877
(9,790)
48,101
(18,689)
(3,170)
34,223
12,364
60,465
1,086
59,379
2,775
$
14
–
14
13
1
169
–
(168)
–
7,134
477
7,611
7,443
1,587
5,856
3,243
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
(25)
–
(25)
(7)
(18)
–
–
(18)
–
–
(40,682)
(40,682)
(40,700)
–
(40,700)
(7,163)
683,022
581,544
101,478
47,544
(25)
53,959
(5)
(3,504)
1,283
(2,226)
51,733
16,889
34,844
3,920
$ 62,154
$9,099
$ 38,764
$(47,863)
$
62,154
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 (losses) on dispositions of plant, equipment and timberlands, net
Operating income (loss)
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 (loss)
Comprehensive income (loss)
Parent
Company
$875,077
9,344
884,421
783,464
100,957
73,263
(4,018)
31,712
(30,741)
(558)
25,359
(5,940)
25,772
(16,922)
42,694
(45,494)
Guarantors
Non
Guarantors
Adjustments/
Eliminations
$
–
–
–
–
–
50
80
$728,077
–
$
728,077
622,841
105,236
51,558
(12)
(130)
53,690
–
–
–
–
–
–
–
–
–
7,802
(657)
7,145
7,015
16,085
(9,070)
(3,350)
(1,053)
(5,578)
1,447
(5,184)
48,506
9,369
39,137
(5,276)
–
(1,000)
(29,448)
(30,448)
(30,448)
(381)
(30,067)
8,626
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)
$ (2,800)
$(12,420)
$ 33,861
$(21,441)
$
(2,800)
60
6418_fin.pdf March 15, 2014 pg 64
Condensed Consolidating Balance Sheet as of December 31, 2013
In thousands
Assets
Cash and cash equivalents
Other current assets
Plant, equipment and timberlands, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Shareholders’ equity
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$
56,216
208,814
247,243
973,748
$
501
327,152
1,054
236,411
$
66,165
253,779
475,043
214,301
$
— $ 122,882
463,700
723,340
368,488
(326,045)
—
(1,055,972)
$1,486,021
$565,118
$1,009,288
$(1,382,017) $1,678,410
$ 375,535
250,000
70,989
105,021
$ 2,855
—
(283)
—
$ 247,855
513,120
78,633
13,792
$ (337,878) $ 288,367
442,325
141,020
122,222
(320,795)
(8,319)
3,409
801,545
684,476
2,572
562,546
853,400
155,888
(663,583)
(718,434)
993,934
684,476
Total liabilities and shareholders’ equity
$1,486,021
$565,118
$1,009,288
$(1,382,017) $1,678,410
Condensed Consolidating Balance Sheet as of December 31, 2012
In thousands
Assets
Cash and cash equivalents
Other current assets
Plant, equipment and timberlands, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Shareholders’ equity
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$
43,781
200,137
247,095
806,254
$
4,278
395,145
1,078
150,304
$ 49,620
214,568
373,013
45,133
$
— $
(388,671)
—
(898,750)
97,679
421,179
621,186
102,941
$1,297,267
$550,805
$682,334
$(1,287,421)
$1,242,985
$ 344,741
250,000
36,262
126,585
$
1,864
—
2,033
—
757,588
539,679
3,897
546,908
$291,547
—
40,972
11,093
343,612
338,722
$ (387,244)
—
(17,221)
2,674
$ 250,908
250,000
62,046
140,352
(401,791)
(885,630)
703,306
539,679
Total liabilities and shareholders’ equity
$1,297,267
$550,805
$682,334
$(1,287,421)
$1,242,985
GLATFELTER 2013 FORM 10-K
61
6418_fin.pdf March 15, 2014 pg 65
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2013
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Expenditures for plant, equipment and timberlands
Proceeds from disposals of plant, equipment and timberlands, net
Repayments from intercompany loans
Advances of intercompany loans
Intercompany capital contributed
Acquisitions, net of cash acquired
Other
Total investing activities
Financing activities
Net proceeds from indebtedness
Payments of note offering costs
Payment of dividends to shareholders
Repayments of intercompany loans
Borrowings of intercompany loans
Intercompany capital received
Payments for share–based compensation awards 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
$ 55,507
$ 4,974
$ 113,154
$
–
$ 173,635
(39,496)
1,435
–
–
–
–
(425)
(38,486)
–
(160)
(16,965)
(1,100)
15,310
–
(1,671)
(4,586)
–
12,435
43,781
–
333
18,223
(27,216)
(91)
–
–
(63,551)
179
–
–
–
(210,911)
–
–
–
(18,223)
27,216
91
–
–
(103,047)
1,947
–
–
–
(210,911)
(425)
(8,751)
(274,283)
9,084
(312,436)
–
–
–
–
–
–
–
(3,777)
4,278
182,230
(259)
–
(17,123)
11,906
91
–
176,845
829
16,545
49,620
–
–
–
18,223
(27,216)
(91)
–
(9,084)
–
–
–
–
182,230
(419)
(16,965)
–
–
–
(1,671)
163,175
829
25,203
97,679
$ 122,882
$ 56,216
$
501
$ 66,165
$
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 disposals of plant, equipment and timberlands, net
Repayments from intercompany loans
Advances of intercompany loans
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 of intercompany loans
Borrowings of intercompany loans
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
62
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$ 25,787
$ 5,958
$ 81,101
$
–
$112,846
(23,463)
10,236
6,088
(91)
(225)
–
–
29,343
(34,375)
–
(7,455)
(5,032)
17,869
(4,748)
(15,608)
(5,675)
–
27,875
2,673
22,386
–
40,718
3,063
–
–
–
–
–
514
–
514
–
1,440
2,838
(35,289)
36
–
(514)
–
(35,767)
–
–
–
–
(35,431)
6,591
–
(28,840)
750
17,244
32,376
$ 43,781
$ 4,278
$ 49,620
$
–
–
(35,431)
34,980
–
(451)
–
–
–
–
35,431
(34,980)
–
451
–
–
–
–
(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
6418_fin.pdf March 15, 2014 pg 66
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 disposals of plant, equipment and timberlands, net
Proceeds from installment note receivable
Repayments from intercompany loans
Advances of intercompany loans
Intercompany 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 of intercompany loans
Borrowings of intercompany loans
Intercompany capital received
Payment of intercompany 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
25. QUARTERLY RESULTS (UNAUDITED)
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$ 81,008
$ (6,816)
$ 67,115
$ (1,000)
$ 140,307
(31,363)
4,448
–
15,539
(10,388)
(25,000)
–
–
–
64,198
(70,197)
(16,000)
(33,128)
43
43,170
–
(7,600)
–
(46,764)
(21,999)
2,485
(76,563)
(1,672)
(16,611)
(48,033)
(16,300)
65,775
–
–
232
(93,172)
–
(58,928)
61,991
–
–
–
–
–
7,600
25,000
(1,000)
–
31,600
–
2,785
53
(37,493)
–
–
–
(63,437)
14,810
16,000
–
–
(70,120)
(848)
(1,368)
33,744
$ 3,063
$ 2,838
$ 32,376
$
–
–
–
(79,737)
88,185
41,000
49,448
–
–
–
–
79,737
(88,185)
(41,000)
1,000
–
(48,448)
–
–
–
–
(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
In thousands,
except per share
First
Second
Third
Fourth
Net sales
Gross Profit
Net Income
Diluted earnings per
share
2013
$405,189
425,967
456,648
434,811
2012
2013
2012
2013
$397,352
384,693
404,354
391,389
$57,375
40,840
66,039
54,406
$60,970
40,878
59,192
52,609
$15,629
933
34,119
16,477
2012
$18,878
13,432
20,099
6,970
2013
$0.36
0.02
0.77
0.37
2012
$0.43
0.31
0.46
0.16
The information set forth above for net income and earnings per share includes the impact of the following, on an
after-tax basis:
Early Redemption of Bonds
Alternative Fuel Mixture/
Cellulosic Biofuel Credits
Gains on Sales of Plant
Equipment and Timberlands
Acquitsition Integration
Costs
In thousands
2013
First
Second
Third
Fourth
$–
–
–
–
2012
$
–
–
–
(4,784)
2013
$
–
–
9,866
450
2012
$
–
4,440
111
(309)
2013
$ 282
–
142
1,301
2012
2013
2012
$
–
3,696
859
834
$(1,761)
(3,969)
(154)
(194)
$–
–
–
–
GLATFELTER 2013 FORM 10-K
63
6418_fin.pdf March 15, 2014 pg 67
ITEM 9
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
Executive Officers of the Registrant
The
information with respect to the executive officers
required under this Item incorporated herein by
reference to “Executive Officers” as set forth in
Part I, page 12 of this report.
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,
2013, concluded that, as of the evaluation date, our
disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
Management’s report on the Company’s internal
control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) and the related report of
our independent registered public accounting firm are
included in Item 8 – Financial Statements and
Supplementary Data.
Changes in Internal Control over Financial
Reporting
There were no changes in our internal control over
financial reporting during the three months ended
December 31, 2013, that have materially affected or are
reasonably likely to materially affect our internal control
over financial reporting.
ITEM 9B OTHER INFORMATION
None.
PART III
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.
ITEM 11 EXECUTIVE COMPENSATION
The information required under this Item is
incorporated herein by reference to our Proxy Statement,
to be dated on or about March 29, 2014.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT
The information required under this Item is
incorporated herein by reference to our Proxy Statement,
to be dated on or about March 29, 2014.
ITEM 13 CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
The information required under this Item is
incorporated herein by reference to our Proxy Statement,
to be dated on or about March 29, 2014.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS
SERVICES
AND CORPORATE GOVERNANCE
Directors
The information with respect to
directors required under this Item is incorporated herein by
reference to our Proxy Statement, to be dated on or about
March 29, 2014. 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 March 29, 2014.
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.
64
6418_fin.pdf March 15, 2014 pg 68
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, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Balance Sheets as of December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2013, 2012 and 2011
Notes to Consolidated Financial Statements for the Years Ended December 31, 2013, 2012 and 2011
Financial Statement Schedules (Consolidated) are included in Part IV:
Schedule II -Valuation and Qualifying Accounts – For each of the three years in the ended December 31, 2013
i.
ii.
iii.
iv.
v.
vi.
i.
(b) Exhibit Index
Exhibit
Number
2
(a)
3
4
(a)
(b)
(a)
10
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Description of Documents
Incorporated by Reference to
Share Purchase Agreement, dated March 13, 2013, by and among Glatfelter Gernsbach GmbH & Co. KG.
(as purchaser), H. Glatfelter Company (as purchaser guarantor), Fortress Security Papers AG (as vendor)
and Fortress Paper Ltd. (as vendor guarantor) (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).
Exhibit
2.1
Filing
Form 10-Q filed
May 9, 2013
Articles of Incorporation, as amended through December 20, 2007 (restated for the purpose of filing on
3(b)
Form 10-K filed
EDGAR).
By-Laws as amended through December 12, 2013.
Indenture, dated as of October 3, 2012, by and among P. H. Glatfelter Company, the Subsidiary Guarantors
named therein and U.S. Bank National Association, as Trustee, relating to 5.375% Senior Notes due
2020.
Amended and Restated Credit Agreement, dated as of November 21, 2011, by and among the Company,
certain of its subsidiaries as borrowers and certain of its subsidiaries as guarantors and PNC Bank,
National Association, as administrative agent, PNC Capital Markets LLC, J.P. Morgan Securities LLC and
RBS Citizens, N.A. as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A. and
Citizens Bank of Pennsylvania, as co-syndication agents, and certain other banks as lenders.
3.1
4.1
March 13, 2008
Form 8-K filed
December 17, 2013
Form 8-K filed
October 3, 2012
10.1
Form 8-K filed
November 23, 2011
Loan Agreement, dated April 11, 2013, by and among Glatfelter Gernsbach GmbH & Co. KG. and IKB
Deutsche Industriebank AG, Düsseldorf
Guaranty, dated April 17, 2013, executed by P. H. Glatfelter Company (as Guarantor) in favor of IKB
Deutsche Industriebank AG.
10.1
10.2
Form 10-Q filed
May 9, 2013
Form 10-Q filed
May 9, 2013
P. H. Glatfelter Company Amended and Restated 2005 Management Incentive Plan, effective January 1,
10.1
Form 8-K filed
2010**
May 6, 2010
P. H. Glatfelter Company Supplemental Executive Retirement Plan (amended and restated effective January
10(c)
Form 10-K filed
1, 2010)**
March 8, 2013
P. H. Glatfelter Company Supplemental Management Pension Plan (amended and restated effective January
10(d)
Form 10-K filed
1, 2008)**
March 8, 2013
P. H. Glatfelter Company Amended and Restated Long-Term Incentive Plan, as amended and restated
10.1
Form 8-K filed
effective May 9, 2013**
Form of Top Management Restricted Stock Unit Award Certificate**
Form of Non-Employee Director Restricted Stock Unit Award Certificate**
May 13, 2013
10.2
Form 8-K filed
May 5, 2009
10.3
Form 8-K filed
April 29, 2005
GLATFELTER 2013 FORM 10-K
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6418_fin.pdf March 15, 2014 pg 69
Exhibit
Number
(j)
(k)
(l)
(m)
(n)
(o)
(p)
Description of Documents
Incorporated by Reference to
Form of Stock-Only Stock Appreciation Right Award Certificate**
Form of Performance Share Award Certificate**
Exhibit
Filing
10.3
Form 8-K filed
May 5, 2009
10(j)
Form 10-K filed
March 8, 2013
Form of Restricted Stock Unit Award Certificate, form effective as of December 13, 2013, filed herewith**
Restricted Stock Unit Award Certificate, dated as of December 13, 2013, for Dante C. Parrini**
10.1
Form 8-K filed
Non-Competition and Non-Solicitation Agreement by and between P. H. Glatfelter Company and Dante C.
10.1
Parrini, dated July 2, 2010. **
December 17,
2013
Form 8-K filed
July 6, 2010
Restricted Stock Unit Award Certificate, dated as of July 2, 2010, for Dante C. Parrini, filed herewith**
Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company and certain
10(j)
Form 10-K filed
employees, form effective as of December 8, 2008 **
(p) (A)
Schedule of Change in Control Employment Agreements**
March 13, 2009
10(l) A
Form 10-K filed
March 8, 2013
(q)
Form of Change in Control Employment Agreement by and between P.H. Glatfelter Company and certain
employees, form effective as of August 5, 2013, filed herewith**
(q) (A)
Schedule of Change in Control Employment Agreements, filed herewith**
(r)
(s)
(t)
(u)
(v)
Summary of Non-Employee Director Compensation (effective January 1, 2005)**
10.1
Form 8-K filed
December 20, 2004
P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of January 1, 2007**
10(k)
Form 10-K filed
March 8, 2013
Service Agreement, commencing on August 1, 2006, between the Registrant (through a wholly owned
10(r)
Form 10-K filed
subsidiary) and Martin Rapp**
March 16, 2007
Retirement Pension Contract, dated October 31, 2007, between Registrant (through a wholly owned
10(t)
Form 10-K filed
subsidiary) and Martin Rapp**
Guidelines for Executive Severance**
March 13, 2008
10.2
Form 8-K filed
July 6, 2010
(w)
Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated as of
10(i)
Form 10-K filed
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
March 28, 1997
(x)
Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox River and
Green Bay Site between the United States of America and the State of Wisconsin v. P. H. Glatfelter
Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
10.3(a)
Form 10-Q filed
August 6, 2010
(x) (A) Agreed Supplement to Consent Decree between United States of America and the State of Wisconsin vs.
10.3(b)
Form 10-Q filed
P.H. Glatfelter Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
August 6, 2010
(x) (B)
Second Agreed Supplement to Consent Decree between United States of America and the State of Wisconsin
10.3(c)
Form 10-Q filed
vs. P.H. Glatfelter Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
August 6, 2010
(x) (C) Amended Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox
10.3(d)
Form 10-Q filed
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)
August 6, 2010
(y)
Administrative Order for Remedial Action dated November 13, 2007, issued by the United States
10.2
Form 8-K filed
Environmental Protection Agency
14
Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter
November 19, 2007
14
Form 10-K filed
March 15, 2004
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Exhibit
Number
21
23
31.1
31.2
32.1
32.2
Description of Documents
Incorporated by Reference to
Exhibit
Filing
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
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document, Filed herewith
XBRL Taxonomy Extension Schema, Filed herewith
XBRL Extension Calculation Linkbase, Filed herewith
XBRL Extension Definition Linkbase, Filed herewith
XBRL Extension Label Linkbase, Filed herewith
XBRL Extension Presentation Linkbase, Filed herewith
** Management contract or compensatory plan
GLATFELTER 2013 FORM 10-K
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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 3, 2014
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 3, 2014
/s/ Dante C. Parrini
Principal Executive Officer and Director
Dante C. Parrini
Chairman and Chief Executive Officer
March 3, 2014
/s/
John P. Jacunski
Principal Financial Officer
John P. Jacunski
Senior Vice President and Chief Financial Officer
March 3, 2014
/s/ David C. Elder
Chief Accounting Officer
David C. Elder
Vice President, Finance
March 3, 2014
/s/ Kathleen A. Dahlberg
Kathleen A. Dahlberg
March 3, 2014
/s/ Nicholas DeBenedictis
Nicholas DeBenedictis
March 3, 2014
/s/ Kevin M. Fogarty
Kevin M. Fogarty
March 3, 2014
/s/
J. Robert Hall
J. Robert Hall
March 3, 2014
/s/ Richard C. Ill
March 3, 2014
Richard C. Ill
/s/ Ronald J. Naples
Ronald J. Naples
March 3, 2014
/s/ Richard L. Smoot
Richard L. Smoot
March 3, 2014
/s/
Lee C. Stewart
Lee C. Stewart
68
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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, 2013 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 3, 2014
By: /s/ Dante C. Parrini
Dante C. Parrini
Chairman and Chief Executive Officer
GLATFELTER 2013 FORM 10-K
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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, 2013 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 3, 2014
By: /s/
John P. Jacunski
John P. Jacunski
Senior Vice President and Chief Financial Officer
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P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
For each of the three years ended December 31, 2013
Valuation and Qualifying Accounts
In thousands
Doubtful Accounts
Schedule II
Allowance for
Balance, beginning of year
Provision
Write-offs, recoveries and discounts allowed
Other (a)
Balance, end of year
2013
$ 2,858
945
(1,119)
41
$ 2,725
2012
2011
$2,861
71
(91)
17
$3,118
149
(385)
(21)
Sales Discounts and Deductions
2012
2011
2013
$ 2,302
5,526
(6,148)
130
$ 2,831
3,661
(4,173)
(17)
$ 2,845
4,080
(4,070)
(24)
$2,858
$2,861
$ 1,810
$ 2,302
$ 2,831
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 2013 FORM 10-K
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6418_fin.pdf March 15, 2014 pg 76
LOCATIONS
WORLD HEADQUARTERS
P. H. Glatfelter Company
96 South George Street
Suite 520
York, PA 17401
U.S.A.
U.S. OPERATING LOCATIONS
Spring Grove Facility*
228 South Main Street
Spring Grove, PA 17362
Chillicothe Facility*
232 East Eighth Street
Chillicothe, OH 45601
Fremont Facility
2275 Commerce Drive
Fremont, OH 43420
INTERNATIONAL OPERATING
LOCATIONS
SALES OFFICE-ONLY
LOCATIONS
Gernsbach Facility*
Hördener Straße 5
76593 Gernsbach
Germany
Gainesville, Georgia
200 Broad Street, Suite 206
Gainesville, GA 30501
Moscow, Russia
Dresden Facility*
13 2-ya Zvenigorodskaya Street
Building 41
Moscow, 123022
Russia
OTHER LOCATIONS
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
Bergstraße 76
01099 Dresden
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
* Also a Sales Offi ce
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P. H. GLATFELTER COMPANY
96 SOUTH GEORGE STREET
SUITE 520
YORK, PA 17401
WWW.GLATFELTER.COM
36418.indd 12
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© 2 0 14 GLATFELTER