P . H . G L A T F E L T E R C O M P A N Y
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2016 Annual Report
FSC® C132107
© 2017 GLATFELTER
Glatfelter is a global supplier of specialty papers and fiber-based engineered
materials, offering innovation, world-class service and over a century and a half
of technical expertise. Headquartered in York, PA, the company employs over
4,300 people and serves customers in over 100 countries. U.S. operations include
facilities in Pennsylvania and Ohio. International operations include facilities in
Canada, Germany, France, the United Kingdom and the Philippines, and sales and
distribution offices in China and Russia. Glatfelter’s sales approximate $1.6 billion
annually and its common stock is traded on the New York Stock Exchange under the
ticker symbol GLT. Additional information may be found at www.glatfelter.com.
FORWARD-LOOKING STATEMENTS
Certain statements made in this annual report which pertain to future financial and business performance and conditions and other financial
and business matters are “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are subject to numerous
risks, uncertainties and other unpredictable or uncontrollable factors which may cause actual results or performance to differ materially from
the Company’s expectations. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those
expressed in the forward-looking statements are detailed on page 16 of the accompanying 2015 Annual Report on Form 10-K included
herein and in other filings with the SEC.
W O R L D H E A D Q U A R T E R S
I N T E R N AT I O N A L O P E R AT I N G
S A L E S O F F I C E - O N LY
L O C AT I O N S
L O C AT I O N S
L O C A T I O N S
U . S . O P E R AT I N G L O C AT I O N S
P. H. Glatfelter Company
96 South George Street
Suite 520
York, PA 17401
U.S.A.
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
Fort Smith Facility
8201 Chad Colley Boulevard
Fort Smith, AR 72916
(production to begin late 2017)
Gainesville, Georgia
200 Broad Street
Suite 206
Gainesville, GA 30501
U.S.A.
Moscow, Russia
13 2-ya Zvenigorodskaya Street
Building 41 (Floor 9)
Moscow, 123022
Russia
O T H E R L O C AT I O N S
China
Room 501
Building 24 of Times Square
Suzhou Industrial Park
215028 Suzhou
People’s Republic of China
Gernsbach Facility*
Hördener Straße 5
76593 Gernsbach
Germany
Dresden Facility*
Bergstraße 76
01099 Dresden
Germany
Ober-Schmitten Facility*
Rhönstraße 13
Ober-Schmitten
63667 Nidda
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 Office
Dear Fellow Shareholders,
It is my pleasure to report that Glatfelter delivered
a solid year in 2016, achieving substantial operating
improvements across the company and producing 3%
earnings growth. Throughout the year, Glatfelter PEOPLE
maintained a sharp focus on operational excellence,
continuous improvement, and value creation to overcome
significant market challenges.
We conducted business in a slow-growth global economy
and faced overcapacity and intensifying competition
in some of our key markets. Despite these headwinds,
Glatfelter made significant progress toward fulfilling
our vision of becoming the global supplier of choice in
specialty papers and engineered materials.
• Advanced Airlaid Materials continued its growth
with record operating profit climbing 24% over 2015.
Our exciting new specialty wipes product line experienced
a 12% sales increase. Continuous improvement initiatives
propelled the Canadian mill to record production.
Dante C. Parrini Chairman and Chief Executive Officer
Construction of the new facility in Arkansas, which
• A strong safety effort drove the majority of our
will significantly expand the business unit’s capacity, is
facilities to achieve industry top quartile performance.
proceeding on budget and on time for completion in
We are striving to become a safety leader and achieve
late 2017.
our goal of working injury-free, every day.
• Specialty Papers improved operations and
achieved record pulp production. Operating profit
Glatfelter introduced exciting new products,
leveraged our market-leading positions, and conducted
grew 25% over the previous year, and the business unit
an aggressive continuous improvement effort that
outperformed the uncoated free sheet market for the
generated $23 million in cost savings. The result was an
12th year in a row.
improvement in our financial performance.
• Composite Fibers was adversely impacted by
lower selling prices, customer inventory reductions, and
geopolitical disruptions. These combined to create a
difficult market environment that depressed operating
profits. Despite these headwinds, the business unit
improved productivity and drove strong growth in
attractive market niches such as technical specialties and
composite laminates, delivering 16% EBITDA margins.
• The multi-year environmental compliance projects
in Specialty Papers were completed on schedule –
enabling us to meet new Clean Air Act regulations while
substantially reducing Glatfelter’s carbon footprint.
• Adjusted earnings grew 3% to $1.38 per share.
• Glatfelter’s share price rose 29.6% versus 2015.
• We increased the dividend by 4%, the fourth
consecutive year we have done so.
While capital expenditures of $160 million reduced
cash flows, our balance sheet maintained the flexibility
and strength to continue to execute our growth strategy.
1
L O O K I N G A H E A D
C L O S I N G T H O U G H T S
As we chart the course for 2017 and beyond, Glatfelter
The coming year will be a critical transition period as
will pursue a dual track execution plan.
Glatfelter prepares for an exciting new cycle of growth.
The first track ensures we build a competitive cost
structure while maintaining our leading market positions.
Glatfelter will proactively manage cost and continuous
In 2018 and 2019, we anticipate:
• The Arkansas facility will augment an exciting
segment of our engineered materials business and begin
improvement to mitigate the impact of market
generating operating profits
overcapacity and lower selling prices. For example,
Composite Fibers will implement a cost optimization
program in 2017 that will save $10 million. In addition,
aggressive new product development for both the
industrial market, such as electrical papers, and the
consumer sector, such as dispersible wipes and inkjet
papers, will help drive growth.
The second track involves investment for growth.
While we anticipate a return to growth in Composite
Fibers and continued growth in Advanced Airlaid
Materials, we are exploring strategic acquisitions. Our
primary focus is in adjacent product sectors that leverage
our existing capabilities, increase our exposure to global
megatrends, and provide access to higher-growth
markets. Opportunities that meet these criteria are being
evaluated in the hygiene and personal care, electrical and
energy storage, and filtration sectors, among others.
Glatfelter also is making internal investments that will
expand our participation in rapidly growing markets. For
example, when the Arkansas facility enters production
in early 2018, it will add 22,000 tons of capacity to our
personal care product lines. And customer commitments
for a majority of this capacity are already in place.
• Capital spending will recede to more normalized
levels, restoring cash flows and strengthening our
balance sheet
• Continuous improvement initiatives will provide a
more competitive cost structure
• Continuing investments in our people and
processes will improve asset reliability, productivity and
organizational efficiency
• An expanded engineered products platform will
address growing niche markets
• And the business cycle may begin to rebound,
increasing demand for our high-value products
By focusing our efforts on flawless execution,
targeted growth investment, and a superior customer
experience, I am confident we will succeed in building the
premier engineered materials company.
I want to thank all company shareholders for their
support, loyalty, and patience. Much progress was
achieved during the year – and more work remains to
be done. We firmly believe that Glatfelter’s greatest
accomplishments are yet to come.
We expect 2017 will bring increased volumes at our
Sincerely,
Advanced Airlaid Materials and Composite Fibers business
units as we leverage our leading market positions and
expand our product offerings, and Specialty Papers is
positioned to again outperform the uncoated free sheet
Dante C. Parrini
market. We will drive hard to implement our continuous
Chairman and Chief Executive Officer
improvement and cost reduction initiatives to combat the
sluggish economic environment, excess capacity in key
markets, and currency translation impact that will create
some headwinds for the business.
March 17, 2017
2
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, 2016
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
96 South George Street, Suite 520
York, Pennsylvania 17401
(Address of principal executive offices)
(717) 225-4711
(Registrant's telephone number, including area code)
Commission file number
1-03560
Exact name of registrant as
specified in its charter
P. H. Glatfelter Company
IRS Employer
Identification No.
23-0628360
State or other jurisdiction of
incorporation or organization
Pennsylvania
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.01 per share
Name of Each Exchange on which
registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No .
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 .
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes No ☐.
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 No ☐.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated
filer ☐ Accelerated filer ☐ 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 .
Based on the closing price as of June 30, 2016, the aggregate market value of the Common Stock of the Registrant held by non-affiliates was $839.8 million.
Common Stock outstanding on February 21, 2017 totaled 43,558,387 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 30, 2017 are incorporated by reference to Part III.
P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2016
Table of Contents
Page
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Properties
Legal Proceedings
Executive Officers
Item 4 Mine Safety Disclosures
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
Stock Performance Graph
Item 6
Item 7 Management's Discussion and Analysis of
Selected Financial Data
Financial Condition and Results of
Operations
Results of Operations
Liquidity and Capital Resources
Critical Accounting Policies and Estimates
Item 7A Quantitative and Qualitative Disclosures
about Market Risk
Item 8
Financial Statements and Supplementary
Data
Report of Independent Registered Public
Accountants
Statements of Income
Statements of Comprehensive Income
Balance Sheets
Statements of Cash Flows
Statements of Shareholders’ Equity
Notes to Consolidated Financial
Statements
1. Organization
2. Accounting Policies
3. Acquisitions
4. Energy and Related Sales, Net
5. Gain on Dispositions of Plant,
Equipment and Timberlands
6. Asset Impairment Charges
7. Earnings Per Share
8. Accumulated Other Comprehensive
Income
9. Income Taxes
1
6
11
11
11
11
12
12
12
13
13
14
15
23
24
26
27
28
30
31
32
33
34
35
35
37
38
38
38
38
39
40
10. Stock-Based Compensation
11. Retirement Plans and Other Post-
Retirement Benefits
12. Inventories
13. Plant, Equipment and Timberlands
14. Goodwill and Intangible Assets
15. Other Long-Term Assets
16. Other Current Liabilities
17. Long-Term Debt
18. Fair Value of Financial Instruments
19. Financial Derivatives and Hedging
Activities
20. Shareholders’ Equity
21. Commitments, Contingencies and
Legal Proceedings
22. Segment and Geographic Information
23. Condensed Consolidating Financial
Statements
24. Quarterly Results (Unaudited)
Item 9 Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosures
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate
Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions,
and Director Independence
Item 14 Principal Accountant Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
Signatures
Schedule II
Page
42
43
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51
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PART I
P. H. Glatfelter Company makes regular filings
with the Securities and Exchange Commission (“SEC”),
including this Annual Report on Form 10-K, as well as
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’s 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. We are headquartered in York,
Pennsylvania, and we own and operate manufacturing
facilities in, Pennsylvania, Ohio, Canada, Germany, the
United Kingdom, France, and the Philippines and we have
sales and distribution offices in Russia and China. We are
constructing a new manufacturing facility in Arkansas
which is expected to be operational by the end of 2017.
Exclusive of Arkansas, our ten manufacturing facilities
have a combined production capacity of approximately
1.1 million tons of specialty papers and airlaid products
used in a wide array of applications.
Strategy Our strategy is focused on growing,
organically and by acquisition, in our key global growth
markets including single-serve coffee and tea products,
nonwoven wall cover materials, electrical products,
hygiene and wipes products, and other technical
engineered materials. We partner with leading consumer
product companies and other market leaders to provide
innovative solutions delivering outstanding performance
to meet market requirements. Over the past several years,
we have made investments to increase production
capacity and improve our technical capabilities to ensure
we are best positioned to serve the market demands and
grow our revenue. We are committed to growing in our
key markets and expect to make additional investments to
support our customers and satisfy market demands.
Consistent with this strategy, we are investing
approximately $80 million to build a new advanced
airlaid facility in Arkansas to service the North America
market. Production at the new facility is expected to begin
in late 2017 with annual production capacity of
approximately 22,000 short tons. The investment
increases our total global airlaid materials capacity to
approximately 129,000 short tons.
New product development and new business
development are critical components of our business.
During 2016, 2015 and 2014, we invested $10.3 million,
$10.4 million and $12.3 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.
In addition, our business strategy includes
expanding product margins and generating strong free
cash flows driven by delivering on cost reduction and
continuous improvement initiatives and by making
strategic investments designed to improve our returns on
invested capital.
Acquisitions Over the past several years, we have
completed a number of acquisitions that have diversified
our revenue, expanded our geographic footprint and
enhanced our asset base. Our acquisition strategy is
focused on targeting investments in adjacent or closely
related markets and which complement our long-term
strategy of driving growth in core markets. Since 2006,
we have successfully completed six acquisitions
demonstrating our ability to establish leading market
positions through the successful acquisition and
integration of complementary businesses.
Business Units We manage our company as three
separate business units: Composite Fibers; Advanced
Airlaid Materials; and Specialty Papers. 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
Net sales
Business unit
contribution
Composite Fibers
Advanced Airlaid
Materials
Specialty Papers
Total
2016
$1,604,797
2015
$1,661,084
2014
$1,802,415
32.2%
32.6%
34.3%
15.2
52.6
100.0%
14.7
52.7
100.0%
15.6
50.1
100.0%
Net tons sold by each business unit for the past
three years were as follows:
Short tons
Composite Fibers
Advanced Airlaid
Materials
Specialty Papers
Total
2016
151,766
2015
153,766
2014
157,336
99,037
794,318
1,045,121
95,957
802,188
1,051,911
99,667
802,878
1,059,881
Composite Fibers Our Composite Fibers business
unit serves customers globally and focuses on higher
value-added products in the following markets:
Food & Beverage filtration paper primarily
used for single-serve coffee and tea products;
Wallcovering base materials used by the
world’s largest wallpaper manufacturers;
GLATFELTER 2016 FORM 10-K
1
Metallized products used in labels, packaging
liners, gift wrap, and other consumer product
applications;
Composite Laminates paper used in
production of decorative laminates, furniture,
and flooring applications; and
Technical Specialties a diverse line of special
paper products used in applications such as
electrical energy storage, transport and
transmission, wipes, and other highly-
engineered fiber-based applications.
We believe Composite Fibers maintains a market
leadership position in the single-serve coffee and tea
markets, nonwoven wallcover base material and many
others of the products it produces. This business unit’s
revenue composition by market consisted of the following
for the years indicated:
In thousands
Food & beverage
Wallcovering
Metallized
Composite laminates
Technical specialties
and other
Total
2016
$ 258,463
90,767
61,059
35,107
2015
$ 274,865
91,620
68,397
34,897
2014
$ 296,304
149,957
80,839
38,159
71,558
$ 516,954
71,689
$ 541,468
52,592
$ 617,851
A significant portion of this business unit’s revenue
is transacted in currencies other than the U.S. dollar and
therefore the comparison from period to period reflects
the impact of changes in currency exchange rates.
Changes in exchange rates unfavorably affected the
comparison of 2016 to 2015 by $11.1 million and by
$75.8 million in the comparison of 2015 to 2014.
We believe many of the markets served by
Composite Fibers present attractive growth opportunities
due to evolving consumer preferences, new or emerging
geographic markets, and increased market share through
superior products and quality. We also believe growth
opportunities exist as a result of new product innovations.
Many of this business’ papers are extremely lightweight,
technically sophisticated, require specialized fibers, and
require specifically designed papermaking equipment and
production processes. Our proven capability to produce
these demanding products and our focus on customer
relationships 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. Sufficient quantities of abaca pulp and its
source abaca fiber are required to support growth in this
business unit. Abaca pulp, a specialized pulp with limited
sources of availability, is produced by our Philippine mill,
which provides a unique advantage to our Composite
Fibers business unit. In the event the supply of abaca fiber
becomes constrained or when production demands exceed
the capacity of the Philippines mill, alternative sources
2
and/or substitute fibers are used to meet customer
demands.
The Composite Fibers business unit is comprised of
five paper making facilities (Germany, France and
England), two metallizing operations (Wales and
Germany) and a pulp mill (the Philippines). The
combined attributes of the facilities are summarized as
follows:
Production
Capacity
(short tons)
155,500 lightweight
and other paper
28,000 metallized
18,000 abaca pulp
Principal Raw
Material
(“PRM”)
Estimated Annual
Quantity of PRM
(short tons)
Abaca pulp
Wood pulp
Synthetic fiber
Base stock
Abaca fiber
14,500
93,000
22,000
28,000
25,800
Composite Fibers’ lightweight products are
produced using highly specialized inclined wire paper
machine technology. We believe we currently maintain
approximately 25% of the global inclined wire capacity.
In addition to critical raw materials, Composite
Fibers’ production cost is influenced by energy prices,
particularly natural gas. The business unit generates all of
its steam needed for production by burning natural gas.
However, in 2016, it purchased approximately 75% of its
electricity needs the cost of which is influenced by the
natural gas markets.
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
Single serve coffee & tea
Nonwoven wallcovering
Composite laminates
Metallized
Competitor
Ahlstrom, Purico, MB Papeles
and Zhejiang Kan
Technocell, Neu Kaliss, and
Goznak
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:
capitalizing on growing global markets in food
& beverage, electrical products and consumer
products;
optimizing capacity utilization provided by the
investment in state-of-the-art inclined wire
technology to support consistent growth of key
markets;
enhancing product mix across all markets by
utilizing new product and new business
development capabilities;
maximize continuous improvement
methodologies to increase productivity, reduce
costs and expand capacity; and
ensuring readily available access to specialized
raw material requirements to support projected
growth.
Advanced Airlaid Materials Our Advanced Airlaid
Materials business unit is a leading global supplier of
highly absorbent cellulose-based airlaid nonwoven
materials primarily used to manufacture consumer
products for growing global end-user markets. The
markets served by Advanced Airlaid Materials include:
feminine hygiene;
specialty wipes;
adult incontinence;
home care; and
other consumer products.
Advanced Airlaid Materials serves customers who
are industry leading consumer product companies as well
as private label converters. We believe this business unit
holds leading market share positions in many of the
markets it serves. Advanced Airlaid Materials has
developed long-term customer relationships through
superior quality, customer service, and a reputation for
quickly bringing product and process innovations to
market.
Advanced Airlaid Materials’ revenue composition
by market consisted of the following for the years
indicated:
In thousands
Feminine hygiene
Specialty wipes
Adult incontinence
Home care
Other
Total
2016
$ 173,902
25,206
12,281
12,630
20,243
$ 244,262
2015
$ 182,048
22,950
10,720
13,345
15,526
$ 244,589
2014
$ 216,836
16,002
17,586
15,401
15,848
$ 281,673
A significant portion of this business unit’s revenue
is transacted in currencies other than the U.S. dollar and
therefore the comparison from period to period reflects
the impact of changes in currency exchange rates.
Changes in exchange rates unfavorably affected the
comparison of 2015 to 2014 by $25.1 million. The effect
of currency changes was not material in 2016 compared
with 2015.
The feminine hygiene category accounted for 71%
of Advanced Airlaid Material’s revenue in 2016. The
majority of sales of this product are to a small group of
large, leading global consumer products companies.
These markets are considered to be more growth oriented
due to population growth in certain geographic regions
and changing consumer preferences. 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,
Germany and Gatineau, 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.
In addition, we are building a new production facility in
Fort Smith, Arkansas which is expected to be operational
in late 2017 with an annual capacity of approximately
22,000 short tons and will primarily serve the growing
demand for wipes and hygiene airlaid products in North
America.
The business unit’s two existing 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
81,000
In addition to the cost of critical raw materials, our
cost to produce is impacted by energy. Advanced Airlaid
Materials purchases substantially all of the electricity and
natural gas used in its operations. Approximately 90% of
this business unit’s revenue is earned under contracts with
pass-through provisions directly related to the cost of key
raw materials.
Advanced Airlaid Materials continues to be a
technology and product innovation leader in technically
demanding segments of the airlaid market. This business
unit’s airlaid material production employs multi-bonded and
thermal-bonded airlaid technologies as opposed to other
methods such as hydrogen-bonding. 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 festooning
technology provides converting and product packaging
which supports efficiency optimization by the customers
converting processes. This business unit’s in-house technical
expertise, combined with significant capital investment
requirements and rigorous customer expectations creates
large barriers to entry for new competitors.
The following summarizes this business unit’s key
competitors:
Market segment
Airlaid products
Competitor
Georgia-Pacific LLC, Fitesa,
McAirlaid's GmbH, Domtar
GLATFELTER 2016 FORM 10-K
3
The global markets served by this business unit are
characterized by attractive growth opportunities. To take
advantage of this, our strategy is focused on:
maintaining and expanding relationships with
customers that are market-leading consumer
product companies as well as companies
distributing through private label arrangements;
capitalizing on our product and process
innovation capabilities;
expanding geographic reach of markets served;
optimizing the use of existing production
capacity; and
employing continuous improvement
methodologies and initiatives to reduce costs,
improve efficiencies and create additional
capacity.
Specialty Papers Our North America-based
Specialty Papers business unit focuses on producing
papers for the following markets:
Carbonless & non-carbonless forms papers
for credit card receipts, multi-part forms,
security papers and other end-user applications;
Engineered products for high speed ink jet
printing, office specialty products, greeting
cards, and other niche specialty applications;
Envelope and converting papers primarily
utilized for transactional and direct mail
envelopes; and
Book publishing papers for the production of
high-quality hardbound books and other book
publishing needs.
This business unit produces both commodity
products and higher-value-added specialty products.
Specialty Papers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
2016
$ 319,648
Carbonless & forms
Engineered products
189,463
Envelope & converting 173,362
157,541
Book publishing
3,568
Other
$ 843,582
Total
2015
$ 349,831
190,943
178,067
152,647
3,538
$ 875,026
2014
$ 376,959
194,189
183,194
144,744
3,805
$ 902,891
Many of the market segments served by Specialty
Papers are characterized by declining demand resulting in
an industry with excess capacity, lower operating rates and
pricing pressure. As a result, over the past several years,
certain producers have closed, reduced or repurposed
production capacity in an attempt to bring supply balance
to the market. In addition, foreign producers have created
additional imbalance by shipping product to the U.S. when
market pricing is favorable or the U.S. dollar is stronger.
Maintaining the supply and demand balance will require
4
the industry to continually remove capacity sufficient to
match declining demand.
Despite our exposure to these declining markets, in
each of the past twelve years, we have outperformed the
broader uncoated free sheet market in terms of shipping
volume. We have been successful at maintaining this
business unit’s shipments by leveraging the flexibility of
our assets base to respond to new product and new
business development opportunities, efficiently
responding to changing customer demands and delivering
superior customer service.
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,
business forms, and other value-added specialty
engineered products. Specialty Papers envelope papers
market is also declining, however we have leveraged our
customer service capabilities and geographic locations to
grow our market share in each of the last several years.
Specialty Papers’ highly technical engineered
products include high speed ink jet printing papers, office
specialty products, greeting cards, packaging, casting,
release, transfer, playing card, postal, FDA-compliant
food and other niche specialty applications. Such products
comprise an array of distinct business niches that are in a
continuous state of evolution. Many of these products are
utilized for demanding, specialized customer and end-user
applications. Some of our products are new and higher
growth while others are more mature and further along in
the product life cycle. Because many of these products are
technically complex and involve substantial customer-
supplier development collaboration, they typically
command higher per ton prices and generally exhibit
greater pricing stability relative to commodity grade paper
products.
The Specialty Papers business unit operates two
integrated pulp and paper making facilities with the
following combined attributes:
Uncoated Production
Capacity
(short tons)
815,000
Principal Raw
Material
(“PRM”)
Pulpwood
Wood- and
other pulps
Estimated Annual
Quantity of PRM
(short tons)
2,340,000
730,000
This business unit’s pulp mills have a combined pulp
making capacity of 620,000 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 four uncoated
paper machines as well as an off-line blade coater and a
specialty coater which together provide annual production
capacity for coated paper of approximately 65,000 tons.
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 across the Ohio operations’
facilities provide annual coated capacity of approximately
126,000 tons.
In addition to critical raw materials, the cost to
produce Specialty Papers’ products is influenced by
energy. In 2016, the business unit generated all of its steam
needed for production and generated more power than it
consumes at the Spring Grove, PA facility, and it purchased
approximately 25% of its electricity needed for the
Chillicothe, OH mill. In connection with the conversion of
the fuel source for its boilers from coal beginning in the
fourth quarter of 2016, for the Chillicothe, OH mill and the
first quarter of 2017, for the Spring Grove, PA mill, both
facilities’ source of fuel is now predominantly natural gas.
In Specialty Papers’ markets, competition is
product line specific due to the necessity for technical
expertise and specialized manufacturing for certain
products. The following chart summarizes key
competitors by market segment:
Market segment
Carbonless paper and forms
Engineered products
Envelope & converting
Book publishing
Competitor
Appvion, Inc., and to a lesser
extent, Fibria Celulose, Koehler
Paper, Mitsubishi Paper,
Nekoosa Coated Products and
Asia Pulp and Paper Co.
Specialty papers divisions of
International Paper, Domtar
Corp., Packaging Corp, and
Sappi Limited, among others.
Domtar and International Paper
Domtar Corp., North Pacific
Paper (NORPAC), Resolute
Forest 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:
new product and new business development
capabilities to ensure optimal utilization of our
capacity and to maximize margins;
leveraging our flexible operating platform to
optimize product mix by shifting production
among the machines in our system to more
closely match output with changing demand
trends;
driving operational excellence by utilizing
ongoing continuous improvement
methodologies to ensure efficiencies and asset
reliability; and
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 24 including
geographic revenue and long-lived asset financial
information.
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 2016,
2015 and 2014.
Capital Expenditures Our business is capital
intensive and requires significant expenditures for
equipment enhancements to support growth strategies,
research and development initiatives, environmental
compliance and for normal upgrades or replacements.
Capital expenditures totaled $160.2 million, $99.9 million
and $66.0 million in 2016, 2015 and 2014, respectively.
For 2017, capital expenditures are estimated as follows:
In millions
Low
High
Normal capital expenditures
Major Projects
Airlaid capacity expansion
Specialty Papers' environmental
compliance projects
Total
$
$
70 – $
45 –
10 –
125 – $
80
50
10
140
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.
We have incurred material capital costs to comply
with 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). In order to comply with these rules, during 2015
and 2016 we completed process modifications on boilers at
two of our facilities. We converted or replaced five coal-
fired boilers to natural gas and upgraded site infrastructure
to accommodate the new boilers, including connecting to a
gas supply. The cost of these projects totaled approximately
$113 million.
We are a defendant in the Fox River environmental
site, a complex and significant matter. For a more
GLATFELTER 2016 FORM 10-K
5
complete discussion of this matter and our exposure to
potential additional costs, see Item 8 – Financial
Statements and Supplementary Data – Note 21.
Employees As of December 31, 2016, we
employed 4,346 people worldwide, of which
approximately 67% are unionized. The United
Steelworkers International Union and the Office and
Professional Employees International Union represents
approximately 1,440 hourly employees at our Chillicothe,
OH and Spring Grove, PA facilities. We have separate
labor agreements covering the Ohio and Pennsylvania
operations. The three year agreement covering the Ohio
operations expires in August 2019 and an agreement
covering the Pennsylvania operations expired in February
2017 and is currently under negotiations. We consider the
overall relationship with our employees to be satisfactory.
Other Available Information The Corporate
Governance page of our website includes the Company’s
Governance Principles, Code of Business Conduct, and
biographies of our Board of Directors and Executive
Officers. In addition, the website includes charters of 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 a weak global economic
environment or downturns in the target markets that
we serve.
Adverse global economic conditions could impact
our target markets resulting in decreased demand for our
products. Our results could be adversely affected if
economic conditions weaken. In the event of significant
currency weakening in the countries into which our
products are sold, demand for or pricing of our products
could be adversely impacted. 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. As a result, we may be forced to take
machine downtime to curtail production to match
demand. The economic environment may also cause
6
customer insolvencies which may result in their inability
to satisfy their financial obligations to us. These
conditions are beyond our control and may have a
significant impact on our sales and results of operations.
Approximately $73.8 million of our revenue in 2016
was earned from customers located in Ukraine, Russia and
members of the Commonwealth of Independent States
(also known as “CIS”). Uncertain geo-political conditions,
this region’s economic environment and weak currencies
have caused and may continue to cause weak demand for
our products and volatility in our customers buying
patterns.
Approximately 28% of our net sales in 2016 were
shipped to customers in Europe, the demand for which is
dependent on economic conditions in this area, or to the
extent such customers do business outside of Europe, in
other regions of the world. Uncertain economic conditions
in this region may cause weakness in demand for our
products as well as volatility in our customers buying
patterns.
Our airlaid materials capacity expansion project
may not be successful due to unanticipated costs,
unforeseen delays in production of commercially
saleable products or softness in the demand for airlaid
products.
We are investing approximately $80 million to
construct a new airlaid production facility in Fort Smith,
Arkansas, to allow us to better meet the growing demands
for airlaid materials. The success of our $80 million
investment to expand capacity for airlaid materials is
dependent on a variety of factors including, among others:
i.
ii.
iii.
iv.
v.
our ability to complete the project, in all
material respects, within budget and on
schedule;
availability and costs of a qualified
workforce;
qualification, and acceptance by,
customers of products produced;
demand for airlaid materials and market
growth rates; and
technological changes and innovations.
If we incur significant unforeseen costs or delays or
if we are unable to produce commercially acceptable
airlaid materials to meet growing demands, our results of
operations and/or financial position may be adversely
affected.
Foreign currency exchange rate fluctuations could
adversely affect our results of operations.
A significant proportion of our revenue and earnings is
generated from operations outside of the United States. In
addition, we own and operate manufacturing facilities in
Canada, Germany, France, the United Kingdom and the
Philippines. A significant portion of our business is
transacted in currencies other than the U.S. dollar including
the euro, British pound, Canadian dollars and Philippine
peso, among others. Our euro denominated revenue exceeds
euro expenses by an estimated €130 million. With respect to
the British pound, Canadian dollar and Philippine peso, we
have greater outflows than inflows of these currencies,
although to a lesser degree than the euro. As a result, we are
exposed to changes in currency exchange rates and such
changes could be significant.
Economic weakness, the potential inability of
certain European countries to continue to service their
sovereign debt obligations, actions of this region’s central
banks and disunity within the European Union
memberships has caused, and could continue to cause, the
value of the euro to weaken. As a result, our operating
results could be negatively impacted. 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. For example,
approximately $73.8 million of our revenue in 2016 was
earned from shipments to customers located in Ukraine,
Russia and members of the CIS. Although these sales are
denominated in euros, a significant weakening of the
customers’ local currencies has and may continue to
adversely affect our revenue, our customers’ credit risk and
our results of operation.
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, as well as access to reliable and abundant
supply of water to support many of our production
facilities.
Our Specialty Papers’ locations are vertically
integrated manufacturing facilities that can generate
approximately 85% of their annual pulp requirements.
Our Philippine mill purchases abaca fiber to
produce abaca pulp, a key material used to manufacture
paper for single-serve coffee, tea and technical specialty
products at Composite Fibers’ facilities. At certain times,
the supply of abaca fiber has been constrained or the
quality diminished 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. These factors have contributed to
volatility in fiber prices or limited available supply.
Our Advanced Airlaid Materials business unit
requires access to sufficient quantities of fluff pulp, the
supply of which is subject to availability of certain
softwoods. Softwood availability can be limited by many
factors, including weather in regions where softwoods are
abundant.
The cost of many of our production materials,
including petroleum based chemicals and freight charges,
are influenced by the cost of oil. In addition, we recently
completed the conversion of Specialty Papers’ boilers to
burn natural gas as opposed to coal. Natural gas is now
the principal source of fuel for each of our facilities
worldwide.
Government rules, regulations and policies have an
impact on the cost of certain energy sources, particularly
for our European operations. In Europe, we currently
benefit from a number of government sponsored
programs related to, among others, green energy or
renewable energy initiatives designed to mitigate the cost
of electricity to larger industrial consumers of power. Any
reduction in the extent of government sponsored
incentives may adversely affect the cost ultimately borne
by our operations. Furthermore, the European
Commission is investigating certain energy programs in
Germany from which we benefit as to whether the
programs comply with European Union rules on state aid.
The outcome of these investigations could require us to
return certain benefits previously earned or reduce such
benefits in the future and could impact our results of
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 if existing agreements
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.
Specialty Papers The primary geographic market
for our Specialty Papers business unit is the United States,
which has been adversely affected by declining demand
for uncoated free sheet, industry capacity exceeding
demand, and increased imports from foreign competitors.
As a result, the industry has historically taken steps to
reduce capacity, although the timing of the reductions is
uncertain. 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
GLATFELTER 2016 FORM 10-K
7
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.
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 effect on our operating and financial results.
Some of the other factors that may adversely affect
our ability to compete in Specialty Papers’ markets
include:
•
•
•
•
•
•
•
•
•
•
•
the entry of new competitors into the markets
we serve;
the prevalence of imported product,
particularly uncoated free sheet, into the U.S.;
the willingness of commodity-based producers
to enter our markets when they are unable to
compete or when demand softens in their
traditional markets;
the aggressiveness of our competitors’ pricing
strategies, which could force us to decrease
prices in order to maintain market share;
our failure to anticipate and respond to
changing customer preferences;
the impact of electronic-based substitutes for
certain of our products such as carbonless and
forms, book publishing, and envelope papers;
the impact of replacement or disruptive
technologies;
changes in end-user preferences;
our inability to develop new, improved or
enhanced products;
our inability to maintain the cost efficiency of
our facilities; and
the cost of regulatory environmental
compliance requirements.
Composite Fibers and Advanced Airlaid Materials
The global markets in which we compete, although
growing, are not as large as the markets for Specialty
Papers. As a result, our ability to compete is more
sensitive to, and may be adversely impacted by, the
following:
•
the entry of new competitors into the markets
we serve;
8
•
•
•
the aggressiveness of our competitors’ pricing
strategies, which could force us to decrease
prices in order to maintain market share;
our failure to anticipate and respond to
changing customer preferences; and
technological advances or changes that impact
production or cost competiveness of our
products.
The impact of any significant changes may result in
our inability to effectively compete in the markets in
which we operate, and as a result our sales and operating
results would be adversely affected.
We may not be able to develop new products
acceptable to our existing or potential customers.
Our business strategy is market focused and
includes investments in developing new products to meet
the changing needs of our customers, serve new
customers and to maintain our market share. Our success
will depend, in part, on our ability to develop and
introduce new and enhanced products that keep pace with
introductions by our competitors and changing customer
preferences. If we fail to anticipate or respond adequately
to these factors, we may lose opportunities for business
with both current and potential customers. The success of
our new product offerings will depend on several factors,
including our ability to:
•
•
•
•
•
anticipate and properly identify our customers'
needs and industry trends;
develop and commercialize new products and
applications in a timely manner;
price our products competitively;
differentiate our products from our competitors'
products; and
invest efficiently in research and development
activities.
Our inability to develop new products or new
business opportunities 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. To comply with
environmental laws and regulations, we have incurred,
and will continue to incur, substantial capital and
operating expenditures. The Clean Air Act, and similar
regulations, has imposed significant compliance costs and
required significant capital expenditures. Compliance
with the Clean Air Act resulted in significant process
modifications to the boilers at two of our facilities.
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.
We have exposure to potential liability for
remediation and other costs related to the presence of
polychlorinated biphenyls (PCBs) in the lower Fox River
on which our former Neenah, Wisconsin mill was located.
As more fully discussed in Item 8 – Financial Statements
and Supplementary Data – Note 21, in 2016 and 2015, we
increased our reserve for potential liabilities by $40.0
million and $10 million, respectively. The increase
recorded in 2016 was based on our current evaluation of
recent developments, particularly a proposed consent
decree between two other defendants and the government
agencies. We have financial reserves for this matter but
we cannot be certain that those reserves will be adequate
to provide for future obligations related to this matter, that
our share of costs and/or damages will not exceed our
available resources, or that such obligations will not have
a long-term, material adverse effect on our consolidated
financial position, liquidity or results of operations.
Our environmental issues are complex and should
be reviewed in the context set forth in more detail in
Item 8 – Financial Statements and Supplementary Data –
Note 21.
The Advanced Airlaid Materials business unit
generates a substantial portion of its revenue from
one customer serving the hygiene products market,
the loss of which could have a material adverse effect
on our results of operations.
The majority of Advanced Airlaid Materials’ sales
of hygiene products are to one customer. In addition, sales
to the feminine hygiene market accounted for 71% of
Advanced Airlaid Materials’ net sales in 2016 and sales
are concentrated within a small group of large customers.
The loss of the large customer or a decline in sales of
hygiene products could have a material adverse effect on
this business’s operating results. Our ability to effectively
compete could be affected by technological production
alternatives which could provide substitute products into
this market segment. Customers in the airlaid nonwoven
fabric material market, including the hygiene market, may
also switch to less expensive products, change preferences
or otherwise reduce demand for Advanced Airlaid
Material’s products, thus reducing the size of the markets
in which it currently sells its products. Any of the
foregoing could have a material adverse effect on our
financial performance and business prospects.
Our operations may be impaired and we may be
exposed to potential losses and liability as a result of
natural disasters, acts of terrorism or sabotage or
similar events.
If we have a catastrophic loss or unforeseen
operational problem at any 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 two 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 or may
substantially exceed the limits of our insurance 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 sensitive to
drought conditions or other natural or manmade
interruptions to 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
production facilities 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.
GLATFELTER 2016 FORM 10-K
9
affiliated companies unless specified conditions are met.
Any such limitations would restrict our flexibility in using
funds generated in those jurisdictions.
We are subject to cyber-security risks related to
unauthorized or malicious access to sensitive
customer, vendor, company or employee information
as well as to the technology that supports our
operations and other business processes.
Our business operations rely upon secure systems for
mill operations, and data capture, processing, storage and
reporting. Although we maintain appropriate data security
and controls, our information technology systems, and
those of our third party providers, could become subject to
cyber attacks. Systems such as ours are inherently exposed
to cyber-security risks and potential attacks. The result of
such attacks could result in a breach of data security and
controls. Such a breach of our network, systems,
applications or data could result in operational disruptions
or damage or information misappropriation including, but
not limited to, interruption to systems availability, denial of
access to and misuse of applications required by our
customers to conduct business with us, denial of access to
the applications we use to plan our operations, procure
materials, manufacture and ship products and account for
orders, theft of intellectual knowhow and trade secrets, and
inappropriate disclosure of confidential company,
employee, customer or vendor information, could stem
from such incidents.
Any of these operational disruptions and/or
misappropriation of information could adversely affect our
results of operations, create negative publicity and could
have a material effect on our business.
We operate in and are subject to taxation from
numerous U.S. and foreign jurisdictions.
The multinational nature of our business subjects us
to taxation in the U.S and numerous foreign jurisdictions.
Due to economic and political conditions, tax rates in
various jurisdictions may be subject to significant change.
Our effective tax rates could be affected by changes in tax
laws or their interpretation or changes in the mix of
earnings in jurisdictions with differing statutory tax rates,
changes in the valuation of deferred tax assets and
liabilities. For example, the European Commission has
opened formal investigations to examine whether decisions
by the tax authorities in certain European countries comply
with European Union rules on state aid. The outcome of the
European Commission’s investigations could require
changes to existing tax rulings that, in turn, could have an
impact on our income taxes and results of operations.
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
similar types of natural disasters discussed above,
cyclones, typhoons, and volcanic activity. Moreover, the
area of Lanao del Norte has been a target of suspected
terrorist activities. Our pulp mill in Mindanao is located in
a rural portion of the island and is susceptible to attacks
and/or power interruptions. The Mindanao mill supplies
the abaca pulp used by our Composite Fibers business
unit to manufacture 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 affect our ability to meet
customer demands for our products and 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, if at all, from alternative sources at a
reasonable price. Further, there is no assurance the
performance of such alternative materials will satisfy
customer performance requirements. 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 organized or
operating therein to pay dividends or remit earnings to
10
In the event any of the above risk factors impact our
business in a material way or in combination during the
same period, we may be unable to generate sufficient
cash flow to simultaneously fund our operations,
finance capital expenditures, satisfy obligations and
make dividend payments on our common stock.
In addition to debt service obligations, our business
is capital intensive and requires significant expenditures
to support growth strategies, research and development
initiatives, environmental compliance, and for normal
upgrades or replacements. We expect to meet all of our
near and long-term cash needs from a combination of
operating cash flow, cash and cash equivalents,
availability under our existing credit facility or other long-
term debt. If we are unable to generate sufficient cash
flow from these sources, we could be unable to fund our
operations, finance capital expenditures, satisfy 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
Arkansas; 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 are under lease arrangements including our
metallized paper production facility located in Caerphilly,
Wales, office and warehouse space in Moscow, Russia,
Souzou, China and our corporate offices in York,
Pennsylvania. All of our properties, other than those that
are leased, are free from any material liens or
encumbrances. We consider all of our buildings to be in
good structural condition and well maintained and our
properties to be suitable and adequate for present
operations.
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, except with respect to
the Fox River matter referred to below, 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.
We are one of several defendants in a significant
environmental matter relating to contamination in the Fox
River and Bay of Green Bay in Wisconsin. For a discussion
this matter, see Item 8 – Financial Statements and
Supplementary Data – Note 23.
EXECUTIVE OFFICERS
The following table sets forth certain information with
respect to our executive officers and senior management
as of February 24, 2017
Name
Dante C. Parrini
John P. Jacunski
Age Office with the Company
52 Chairman and Chief Executive Officer
51 Executive Vice President,
Chief Financial Officer
Christopher W. Astley
44 Senior Vice President & Business Unit
President, Advanced Airlaid
Materials
Timothy R. Hess
50 Senior Vice President & Business Unit
President, Specialty Papers
Martin Rapp
57 Senior Vice President & Business Unit
William T. Yanavitch II
President, Composite Fibers
56 Senior Vice President, Human
Resources and Administration
David C. Elder
48 Vice President, Finance
Samuel L. Hillard
35 Vice President, Corporate Development
& Strategy
Kent K. Matsumoto
57 Vice President, General Counsel and
Corporate Secretary
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
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.
From April 2016 through January 2017, Mr. Jacunski also
served as President of the Specialty Papers business unit.
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 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 was named Senior Vice
President & Business Unit President, Advanced Airlaid
Materials in January 2015. He joined us in August 2010
as Vice President, Corporate Strategy and was promoted
to Senior Vice President 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.
GLATFELTER 2016 FORM 10-K
11
Timothy R. Hess was named Senior Vice President
& Business Unit President, Specialty Papers in January
2017. Prior to this, Tim served as Vice President Sales &
Marketing, Specialty Papers since 2014, and he was the
General Manager – Engineered & Converting Products
Division from 2008 - 2014. Since joining our company in
1994, Mr. Hess has held various technical, manufacturing,
sales and business development positions within
Glatfelter.
Martin Rapp serves as Senior Vice President &
Business Unit President, Composite Fibers. Mr. Rapp
joined us in August 2006 and has led the Composite
Fibers business unit since that time. Prior to this, he was
Vice President and General Manager of Avery
Dennison’s Roll Materials Business in Central and
Eastern Europe since August 2002.
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
working for us he was with Dentsply International and
Gould Pumps Inc. in various leadership capacities. Mr.
Yanavitch will be retiring from Glatfelter effective March
31, 2017.
David C. Elder was named Vice President, Finance
in December 2011 and serves 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.
Samuel L. Hillard joined us in March 2016 as Vice
President, Corporate Development & Strategy. Prior to
joining us, Mr. Hillard was Vice President – Business
Development for Dover Corporation from July 2014 until
2016 where he was responsible for strategy and mergers
& acquisitions within the Fluids Business Segment. From
February 2011 to 2014, he served as Vice President –
Business Development for SPX Corporation where he
was responsible for all M&A related strategy activity
within the Flow Technology Segment. Additionally, he
previously worked for Blackstone in their M&A group.
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 also served as interim General
Counsel from March 2013 to October 2013. From July
2008 until February 2012, he was Associate General
Counsel for Wolters Kluwer.
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
2016
2015
Fourth
Third
Second
First
Fourth
Third
Second
First
High
Low
Dividend
$25.49
23.43
23.81
20.94
$20.09
22.47
27.40
27.58
$17.50
19.16
18.50
14.09
$16.28
16.56
21.81
22.18
$0.125
0.125
0.125
0.125
$0.12
0.12
0.12
0.12
As of February 24, 2017, we had 1,024
shareholders of record.
12
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative 5-
year total return of our common stock with the cumulative
total returns of both a peer group and a broad market
index. 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., and Schweitzer-Mauduit
International. 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, 2011 and charts it through December 31,
2016.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
$250
$200
$150
$100
$50
$0
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Glatfelter
Russell 2000
S&P SmallCap 600 Paper Products Index
ITEM 6 SELECTED FINANCIAL DATA
As of or for the year ended December 31
Dollars in thousands, except per share
Net sales
Energy and related sales, net
Total revenue
(Losses) gains on dispositions of plant,
equipment
and timberlands, net
Net income
Earnings per share
Basic
Diluted
Total assets
Total debt
2016
$1,604,797
6,141
1,610,938
2015
$1,661,084
5,664
1,666,748
2014
$1,802,415
7,927
1,810,342
(1)
2013
$1,722,615
3,153
1,725,768
2012
$1,577,788
7,000
1,584,788
(216)
21,554
0.49
0.49
$
$
21,113
64,575
1.49
1.47
$
$
$
$
4,861
1,726
9,815
69,246 $
67,158
$
1.60
1.57
1.56
1.52
$
$
59,379
1.39
1.36
$1,521,259
372,608
$1,500,416 (2) $1,557,710 (2) $1,674,010 (2) $1,238,187 (2)
245,202 (2)
437,925 (2)
400,818 (2)
360,662 (2)
Shareholders’ equity
Cash dividends declared per common
share
Depreciation, depletion and
amortization
Capital expenditures
Net tons sold
Number of employees
653,826
663,247
649,109
684,476
539,679
0.50
0.48
0.44
0.40
0.36
65,826
160,158
1,045,121
4,346
63,236
99,889
1,051,911
4,375
70,555
66,046
1,059,881
4,516
68,196
103,047
1,029,819
4,403
69,500
58,752
969,833
4,258
(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) The amounts set forth for Total assets and Total debt as of December 31, 2015, 2014, 2013 and 2012 has been restated to retroactively adopt
Accounting Standards Number 2015-03, Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs.
GLATFELTER 2016 FORM 10-K
13
ITEM 7 MANAGEMENT'S DISCUSSION AND
ix. disruptions in production and/or increased costs due
to labor disputes;
x.
xi.
the impact of exposure to volatile market-based
pricing for sales of excess electricity;
the gain or loss of significant customers and/or on-
going viability of such customers;
xii. 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;
xiii. adverse results in litigation in the Fox River matter;
xiv. the impact of war and terrorism;
xv. the impact of unfavorable outcomes of audits by
various state, federal or international tax authorities
or changes in pre-tax income and its impact on the
valuation of deferred tax assets;
xvi. enactment of adverse state, federal or foreign tax or
other legislation or changes in government policy or
regulation; and
xvii. our ability to finance, consummate and integrate
future acquisitions.
Introduction We manufacture a wide array of
specialty papers and fiber-based engineered materials. We
manage our company along three business units:
•
•
•
Composite Fibers with revenue from the sale of
single-serve tea and coffee filtration papers,
nonwoven wallcovering base materials, metallized
products, composite laminate papers, and many
technically special papers including substrates for
electrical applications;
Advanced Airlaid Materials with revenue from the
sale of airlaid nonwoven fabric-like materials used in
feminine hygiene and adult incontinence products,
specialty wipes, home care products and other airlaid
applications; and
Specialty Papers with revenue from the sale of
papers for carbonless and other forms, envelopes,
book publishing, and engineered products such as
papers for high-speed ink jet printing, office specialty
products, greeting cards, packaging, casting, release,
transfer, playing card, postal, FDA-compliant food,
and other niche specialty applications.
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.
variations in demand for our products including the
impact of unplanned market-related downtime,
variations in product pricing, or product substitution;
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;
iii.
risks associated with our international operations,
including local economic and political environments
and fluctuations in currency exchange rates;
iv. geopolitical events, including Russia, Ukraine and
Philippines;
v.
our ability to develop new, high value-added
products;
vi. changes in the cost or availability of raw materials we
use, in particular pulpwood, pulp, pulp substitutes,
caustic soda, and abaca fiber;
vii. changes in energy-related costs and commodity raw
materials with an energy component;
viii. the impact of unplanned production interruption;
14
RESULTS OF OPERATIONS
2016 versus 2015
Overview Net income for the year ended December
31, 2016 was $21.6 million, or $0.49 per diluted share
compared with $64.6 million, or $1.47 per diluted share in
2015. The GAAP-based results reflect the impact of
significant unusual and non-recurring items including,
among others, a $40.0 million charge to earnings to
increase our reserve in the Fox River environmental
matter, a pension settlement charge, and costs related to
our environmental compliance initiative and a capacity
expansion project. Excluding these items from reported
results, adjusted earnings, a non-GAAP measure, was
$60.7 million, or $1.38 per diluted share for 2016,
compared with $58.9 million, or $1.34 per diluted share, a
year ago.
We generated $116.1 million of cash flow from
operations in 2016 compared with $133.7 million in 2015.
During 2016, capital expenditures totaled $160.9 million
primarily related to the environmental compliance project
for Specialty Papers and a capacity expansion project for
Advanced Airlaid Materials. We also returned additional
cash to our shareholders in the form of a 4% increase in
the quarterly dividend beginning with the 2016 first
quarter dividend payment. This was the fourth
consecutive year in which the dividend was increased.
The following table sets forth summarized
consolidated results of operations:
Year ended
December 31
In thousands, except per share
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
2016
$ 1,604,797
218,603
27,693
21,554
0.49
2015
$ 1,661,084
202,965
96,372
64,575
1.47
Operating income from our business units increased
$6.3 million in the year-over-year comparison. The
Advanced Airlaid Materials and Specialty Papers
businesses reported higher operating income in the
comparison, driven by improved operations and lower
input costs, partially offset by lower selling prices.
However, Composite Fibers’ results were affected by
excess capacity in the market, lower selling prices and
changes in foreign exchange. Our continuous
improvement initiatives and cost control actions during
2016 resulted in approximately $22.7 million of benefits
on a consolidated basis.
In addition to the results reported in accordance with
GAAP, we evaluate our performance using adjusted
earnings and adjusted earnings per diluted share. We
disclose this information to allow investors to evaluate
our performance exclusive of certain items that impact the
comparability of results from period to period and we
believe it is helpful in understanding underlying operating
trends and cash flow generation. Adjusted earnings
consists of net income determined in accordance with
GAAP adjusted to exclude the impact of the following:
Fox River environmental matter. This adjustment
reflects charges incurred to increase our reserve for
estimated costs related to government oversight,
remediation activity and long term monitoring and
maintenance at the Fox River site. These costs are
irregular in timing and as such may not be indicative of
our past or future performance.
Pension settlement charge. This adjustment reflects
the one-time charge incurred during 2016 in connection
with the settlement of certain pension liabilities as part of
a voluntary offer to vested terminated participants. Our
qualified pension plan is overfunded and this action did
not require us to contribute any cash.
Specialty Papers environmental compliance. These
adjustments reflect non-capitalized, one-time costs
incurred by the business unit directly related to the
compliance with the U.S. EPA Best Available Retrofit
Technology rule and the Boiler Maximum Achievable
Control Technology rule. This adjustment includes costs
incurred during the transition period in which the newly
installed equipment was brought on-line.
Airlaid capacity expansion costs. These adjustments
reflect non-capitalized, one-time costs incurred related to
the start-up of a new airlaid production facility in Ft.
Smith, Arkansas.
Cost optimization actions. This adjustment reflects
charges incurred in connection with initiatives to optimize
the cost structure of certain business units in response to
changes in business conditions. The costs are primarily
related to headcount reduction efforts, asset write-offs and
certain contract termination costs.
Asset impairment charges. This adjustment
represents a non-cash charge required to adjust to its
estimated fair value the carrying value of a trade name
intangible asset. Charges of this nature are irregular in
timing and as such may not be indicative of our past and
future performance.
Timberland sales and related costs. These
adjustments exclude gains from the sales of timberlands
as these items are not considered to be part of our core
business, ongoing results of operations or cash flows.
These adjustments are irregular in timing and amount and
may significantly impact our operating performance. As
such, these items may not be indicative of past and future
performance of the Company and therefore are excluded
for comparability purposes.
Acquisition and integration related costs. These
adjustments include costs directly related to the
consummation of the acquisition process and those related
to integrating businesses previously acquired. These costs
are irregular in timing and as such may not be indicative
of our past and future performance.
Adjusted earnings and adjusted earnings per diluted
share are considered measures not calculated in
accordance with GAAP, and therefore are non-GAAP
measures. The non-GAAP financial information should
not be considered in isolation from, or as a substitute for,
GLATFELTER 2016 FORM 10-K
15
measures of financial performance prepared in accordance
with GAAP. The following table sets forth the
reconciliation of net income to adjusted earnings for the
years ended December 31, 2016 and 2015:
In thousands, except per share
Net income
Adjustments (pre-tax)
Fox River environmental matter
Pension settlement charge
Specialty Papers' environmental compliance
Airlaid capacity expansion costs
Cost optimization actions
Asset impairment charge
Timberland sales and related costs
Acquisition and integration related costs
Total adjustments (pre-tax)
Income taxes (1) (2)
Total after-tax adjustments
Adjusted earnings
Year ended December 31
2016
2015
Amount
Diluted EPS
Amount
$
21,554
$
0.49
$
64,575
Diluted EPS
1.47
$
40,000
7,306
8,348
2,661
3,534
-
-
-
61,849
(22,719 )
39,130
60,684
$
$
0.89
1.38
$
10,000
-
-
50
2,461
1,201
(20,867 )
178
(6,977 )
1,328
(5,649 )
58,926
$
(0.13 )
1.34
(1) Tax effect for adjustments calculated primarily based on the tax rate of the jurisdiction in which each adjustment originated.
(2)
Includes release of $1.4 million of tax reserves on timberland sales in 2015.
Business Unit Performance
Year ended December 31
Dollars in millions
Net sales
Energy and related sales, net
Total revenue
Cost of products sold
Gross profit (loss)
SG&A
Loss (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
Composite Fibers
2015
2016
$ 541.5
$ 517.0
—
—
541.5
517.0
434.4
416.4
107.1
100.6
45.7
46.3
Advanced Airlaid
Materials
2016
$ 244.3
—
244.3
209.5
34.8
8.4
2015
$ 244.6
—
244.6
215.7
28.9
7.6
Specialty Papers
2015
2016
$ 875.0
$ 843.6
5.7
6.1
880.7
849.7
804.5
752.6
76.2
97.1
43.3
55.9
Other and
Unallocated
Total
2016
$ —
—
—
13.9
(13.9)
80.1
2015
$ —
—
—
9.2
(9.2)
31.0
2016
$ 1,604.8
6.1
1,610.9
1,392.3
218.6
190.7
2015
$ 1,661.1
5.7
1,666.7
1,463.8
203.0
127.7
—
54.3
—
—
61.4
—
—
26.4
—
—
21.3
—
—
41.2
—
—
32.9
—
0.2
(94.2)
(16.9)
(21.1)
(19.1)
(17.8)
0.2
27.7
(16.9)
(21.1)
96.4
(17.8)
$ 54.3
$ 61.4
$ 26.4
$ 21.3
$ 41.2
$ 32.9
$ (111.1)
$ (36.9)
$
10.8
$
78.6
151.8
153.8
99.0
96.0
794.3
802.2
—
—
1,045.1
1,051.9
$ 27.8
18.8
$ 26.2
26.8
$
9.0
36.8
$
8.8
7.8
$ 26.3
99.0
$ 26.0
63.5
$
$
2.7
5.6
2.2
1.8
$
65.8
160.2
$
63.2
99.9
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
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.
16
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.” In the evaluation of business unit results,
management does not use any measures of total assets.
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.
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 percent
of Net sales
Year ended
December 31
2016
$1,604,797
2015
$1,661,084
Change
$ (56,287)
6,141
1,610,938
1,392,335
$ 218,603
5,664
1,666,748
1,463,783
$ 202,965
477
(55,810)
(71,448)
$ 15,638
13.6%
12.2%
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
2016
2015
32.2%
15.2
52.6
100.0%
32.6%
14.7
52.7
100.0%
Net sales on a consolidated basis totaled $1,604.8
million and $1,661.1 million in 2016 and 2015,
respectively. The $56.3 million decrease was primarily
driven by $30.8 million of lower selling prices and $11.5
million of unfavorable currency translation. Shipping
volumes decreased 0.6%.
Composite Fibers’ net sales decreased $24.5
million, or 4.5%, primarily due to $7.2 million of lower
selling prices and $11.1 million of unfavorable currency
translation. Shipping volumes in this business unit
decreased 1.3%.
Composite Fibers’ operating income for the year
ended December 31, 2016 decreased $7.1 million to $54.3
million compared to the year-ago period. The primary
drivers are summarized in the following chart (in
millions):
Advanced Airlaid Materials’ net sales decreased
$0.3 million in the year-over-year comparison as the
impact from higher shipping volumes was substantially
offset by $8.5 million of lower selling prices, from the
contractual pass through of lower raw material costs.
Shipping volumes increased 3.1% primarily due to higher
shipments of hygiene, wipes and other consumer
application products.
Advanced Airlaid Materials’ operating income
totaled $26.4 million, an increase of $5.1 million, or
23.9% compared to the same period a year ago. The
primary drivers are summarized in the following chart (in
millions):
$9.0
$0.1
$26.4
$21.3
$(8.5)
$3.2
$1.3
2015
Operating
Income
Selling
Price
Volume &
Mix
Operations
& Other
RM &
Energy
Costs
FX
2016
Operating
Income
Specialty Papers’ net sales decreased $31.4 million,
or 3.6% due to a $15.1 million impact from lower selling
prices. Shipping volumes decreased 1.0%. The business
unit again outperformed the broader uncoated freesheet
market which declined 1.9%.
Operating income totaled $41.2 million, an increase
of $8.3 million compared to the year ended December 31,
2015. The primary drivers are summarized in the
following chart (in millions):
$32.9
$(15.1)
$16.3
$0.5
$41.2
$61.4
$(7.2)
$0.5
$(0.2)
$4.3
$(4.5)
$54.3
$5.8
$0.8
2015
Operating
Income
Selling
Price
Volume &
Mix
Operations &
Other
RM &
Energy Costs
FX
2016
Operating
Income
2015
Operating
Income
Selling
Price
Volume
& Mix
Operations &
Other
RM &
Energy
Costs
Net Power
Sales and
RECs
2016
Operating
Income
GLATFELTER 2016 FORM 10-K
17
The following table summarizes Energy and related
sales activity for 2016 and 2015:
In thousands
Energy sales
Costs to produce
Net
Renewable energy credits
Total
Year ended
December 31
2016
2015
$
$
3,613
(3,972)
(359)
6,500
6,141
$
$
Change
(1,702)
456
(1,246)
1,723
477
5,315
$
(4,428)
887
4,777
5,664
$
We sell excess power generated by the Spring Grove,
PA facility. Renewable energy credits (“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 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 additional sales of RECs in future periods.
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, totaled $94.2 million in the year ended
December 31, 2016 compared with $19.1 million in the
year ended December 31, 2015. The amounts reported as
“Other and Unallocated” include charges of $40.0 million
and $10.0 million recorded in 2016 and 2015,
respectively, to increase our reserve for potential costs
related to the Fox River environmental matter. These
charges are not allocated to a business unit and are
recorded in the accompanying consolidated statements of
income under the caption “Selling, general and
administrative expenses.” This matter is more fully
discussed in Item 8, Financial Statements and
Supplementary Data, Note 21. In addition, the comparison
reflects $21.1 million of lower gains in 2016 than 2015
from sales of timberlands. The remaining increase in
Other and unallocated costs is due to the environmental
compliance and capacity expansion projects, a pension
settlement charge discussed below and a charge for cost
optimization actions.
18
Pension Expense During 2016, pension expense
totaled $12.8 million inclusive of a one-time pension
settlement charge of $7.3 million related to the settlement
of $24.2 million of benefits in connection with a
voluntary program offered to deferred vested terminated
participants. The following table summarizes the amounts
of normal pension expense recognized, excluding the
pension settlement charge, for the periods indicated:
In thousands
Recorded as:
Costs of products sold
SG&A expense
Total
Year ended
December 31
2016
2015
Change
$
$
2,346
3,149
5,495
$
$
7,043 $
2,038
9,081 $
(4,697)
1,111
(3,586)
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 for the full year of
2017 is expected to be approximately $5.3 million
compared with $5.5 million, excluding the settlement
charge in 2016.
Gain on Sales of Plant, Equipment and
Timberlands, net During each of the past three years,
we completed the following sales of assets:
Dollars in thousands
2016
Other
Total
2015
Timberlands
Other
Total
2014
Timberlands
Other
Total
Acres Proceeds
Gain
(loss)
n/a $
$
$
70
70 $
(216)
(216)
15,628 $ 23,917 $20,867
246
$ 24,459 $21,113
n/a
542
2,753 $
n/a
$
5,062 $ 4,855
6
5,072 $ 4,861
10
Income taxes For the year ended December 31,
2016, we recorded a $10.7 million benefit from income
taxes on pretax income of $10.8 million. The comparable
amounts in 2015 were a provision of $14.0 million and
pretax income of $78.6 million. Tax expense in 2016
includes a benefit of $14.9 million on the increase in our
reserve for the Fox River matter and benefits of $4.1
million primarily due to investment tax credits, release of
reserves related to the completion of tax audits and statute
closures and due to changes in statutory tax rates. The
effective tax rate in each period reflects a greater
proportion of earnings generated in lower tax foreign
jurisdictions relative to the U.S. As a result of an expected
U.S. pretax loss in 2017 primarily due to one-time start-
up related costs and depreciation of the significant
investment for environmental compliance, we will likely
record a valuation allowance against a portion of our
deferred tax assets generated in the U.S. in 2017, thereby
adversely impacting our effective tax rate.
Foreign Currency We own and operate facilities in
Canada, Germany, France, the United Kingdom and the
Philippines. The functional currency of our Canadian
operations is the U.S. dollar. However, in Germany and
France it is the Euro, in the UK, it is the British Pound
Sterling, and in the Philippines the functional currency is
the Peso. On an annual basis, our euro denominated
revenue exceeds euro expenses by an estimated €130
million. For 2016 compared to 2015 the average currency
exchange rate of the euro to U.S. dollar was essentially
unchanged in the year over year comparison, although the
British pound sterling to the dollar declined
approximately 17%. With respect to the British pound
sterling, Canadian dollar, and Philippine peso, we have
differing amounts of inflows and outflows of these
currencies, although to a lesser degree than the euro. As a
result, we are exposed to changes in currency exchange
rates and such changes could be significant. 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 for the year ended
December 31, 2016.
In thousands
Net sales
Costs of products sold
SG&A expenses
Income taxes and other
Net income
Year ended
December 31, 2016
Favorable
(unfavorable)
$
(11,502)
5,762
1,284
550
(3,906)
$
The above table only presents the financial reporting
impact of foreign currency translations assuming currency
exchange rates in 2016 were the same as 2015. It does not
present the impact of certain competitive advantages or
disadvantages of operating or competing in multi-
currency markets.
2015 versus 2014
Overview Net income for 2015 was $64.6
million, or $1.47 per diluted share, compared with $69.2
million, or $1.57 per diluted share, in 2014. On an
adjusted earnings basis, a non-GAAP measure that
excludes non-core business items discussed below,
earnings per share were $1.34 compared with $1.55 in
2014. The year-over-year comparison of results of
operations reflects the adverse impact of i) the stronger
U.S. dollar on our euro-denominated businesses; ii)
weaker demand and pricing for nonwoven wallcover
products primarily due to economic conditions in Russia
and Ukraine; iii) pricing pressures in our Specialty Papers
business; and iv) weaker demand for certain Advanced
Airlaid Materials’ products in the first half of 2015.
During 2015, we implemented cost reduction and
continuous improvement initiatives that generated $31
million of savings. Our workforce was reduced by 3.1%.
We generated $133.7 million of cash flow from
operations compared with $99.6 million in 2014. We also
returned additional cash to our shareholders in the form of
a 9% increase in the quarterly dividend beginning with
the 2015 first quarter dividend payment. This was the
third consecutive year in which the dividend was
increased.
On October 1, 2014, we completed the acquisition
of Spezialpapierfabrik Oberschmitten GmbH (“SPO”) for
$8.0 million in cash. SPO’s results are reported as part of
the Composite Fibers business unit prospectively from the
acquisition date. It primarily produces highly technical
papers for use in a wide range of capacitors used in
consumer and industrial products; insulation papers for
cables and transformers; and materials for industrial
power inverters, electromagnetic current filters and
electric rail traction.
The following table sets forth summarized results of
operations:
Year ended
December 31
In thousands, except per share
Net sales
Gross profit
Operating income
Net income
Earnings per diluted share
2015
$ 1,661,084
202,965
96,372
64,575
1.47
2014
$ 1,802,415
235,154
106,780
69,246
1.57
Net sales on a consolidated basis for year ended
December 31, 2015 were $1,661.1 million compared with
$1,802.4 million for 2014. On a constant currency basis,
net sales declined $40.3 million, or 2.2 percent. Shipping
volumes declined less than one percent.
The following table sets forth the reconciliation of
net income to adjusted earnings for the years ended
December 31, 2015 and 2014.
GLATFELTER 2016 FORM 10-K
19
In thousands, except per share
Net income
Adjustments (pre-tax)
Fox River environmental matter
Airlaid capacity expansion costs
Cost optimization actions
Asset impairment charge
Timberland sales and related costs
Acquisition and integration related costs
Total adjustments (pre-tax)
Income taxes (1) (2)
Total after-tax adjustments
Adjusted earnings
Year ended December 31
2015
2014
Amount
Diluted EPS
Amount
$
64,575
$
1.47
$
69,246
Diluted EPS
1.57
$
10,000
50
2,461
1,201
(20,867 )
178
(6,977 )
1,328
(5,649 )
58,926
$
$
(0.13 )
1.34
$
-
-
516
3,262
(4,855 )
1,056
(21 )
(756 )
(777 )
68,469
$
(0.02 )
1.55
(1) Tax effect for adjustments calculated based on the tax rate of the jurisdiction in which each adjustment originated.
(2)
Includes release of $1.4 million of tax reserves on timberland sales in 2015.
Business Unit Performance
Year ended December 31
Dollars in millions
Net sales
Energy and related sales, net
Total revenue
Cost of products sold
Gross profit (loss)
SG&A
Gains on dispositions of plant,
Composite Fibers
2014
2015
$ 617.9
$ 541.5
—
—
617.9
541.5
498.0
434.4
119.9
107.1
51.6
45.7
Advanced Airlaid
Materials
2015
$ 244.6
—
244.6
215.7
28.9
7.6
2014
$ 281.7
—
281.7
247.6
34.1
8.8
Specialty Papers
2014
2015
$ 902.9
$ 875.0
7.9
5.7
910.8
880.7
821.8
804.5
89.0
76.2
50.4
43.3
Other and
Unallocated
Total
2015
$ —
—
—
9.2
(9.2)
31.0
2014
$ —
—
—
7.8
(7.8)
22.4
2015
$ 1,661.1
5.7
1,666.8
1,463.8
203.0
127.7
2014
$ 1,802.4
7.9
1,810.3
1,575.2
235.2
133.2
equipment and timberlands, net
Total operating income (loss)
Non-operating expense
—
61.4
—
—
68.3
—
—
21.3
—
—
25.3
—
—
32.9
—
—
38.6
—
(21.1)
(19.1)
(17.8)
(4.9)
(25.3)
(19.4)
(21.1)
96.4
(17.8)
(4.9)
106.8
(19.4)
Income (loss) before
income taxes
Supplementary Data
Net tons sold (thousands)
Depreciation, depletion and
amortization
Capital expenditures
$ 61.4
$ 68.3
$ 21.3
$ 25.3
$ 32.9
$ 38.6
$ (36.9)
$ (44.7)
$
78.6
$
87.4
153.8
157.3
96.0
99.7
802.2
802.9
—
—
1,051.9
1,059.9
$ 26.2
26.8
$ 29.7
23.9
$
$
8.8
7.8
9.1
7.6
$ 26.0
63.5
$ 29.9
32.1
$
$
2.2
1.8
$
1.9
2.4
$
63.2
99.9
70.6
66.0
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
Sales and Costs of Products Sold
In thousands
Net sales
Energy and related
sales, net
Total revenues
Costs of products sold
Gross profit
Gross profit as a percent
of Net sales
Year ended
December 31
2015
$1,661,084
2014
$1,802,415
Change
$(141,331)
5,664
1,666,748
1,463,783
$ 202,965
7,927
1,810,342
1,575,188
$ 235,154
(2,263)
(143,594)
(111,405)
$ (32,189)
12.2%
13.0%
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
2015
2014
32.6%
14.7
52.7
100.0%
34.3%
15.6
50.1
100.0%
Net sales declined by $141.3 million and totaled
$1,661.1 million and $1,802.4 million, in 2015 and 2014,
respectively. Currency translation unfavorably impacted
the year-over-year comparison by $101.0 million
reflecting a significantly stronger U.S. dollar.
20
Composite Fibers’ net sales declined $76.4
million, or 12.4%, due to $75.8 million of unfavorable
currency translation and $10.2 million from lower selling
prices. Shipping volumes declined 2.2% due to a 19.8%
decline in wallcover products which more than offset
solid gains in all other segments. The weakness in sales to
the wallcover segment is directly related to economic
conditions in Russia and Ukraine, a region that
historically had accounted for approximately 50% of sales
of this business unit’s wallcover products.
Composite Fibers’ operating income for 2015
decreased $6.9 million to $61.4 million. The primary
drivers are summarized in the following chart (in
millions):
$68.3
$(10.2)
$6.8
$(2.5)
$7.3
$(8.2)
$61.4
general wage cost inflation, $2.6 million of market related
downtime as well as lost production associated with
machine upgrades.
Specialty Papers’ net sales declined $27.9
million, or 3.1% primarily due to $11.3 million from
lower selling prices, slightly lower shipping volumes and
unfavorable mix changes.
This business unit’s operating income totaled $32.9
million in 2015, a $5.7 million decline from $38.6 million
a year ago. The primary drivers are summarized in the
following chart (in millions):
$38.6
$(11.3)
$14.8
$(2.3)
$32.9
$(2.1)
$(4.8)
2014
Operating
Income
Selling
Price
Volume & Mix
Operations &
Other
RM & Energy
Costs
FX
2015
Operating
Income
Advanced Airlaid Materials’ net sales decreased
$37.1 million due to $25.1 million of unfavorable
currency translation and a 3.7% decline in shipping
volumes.
Advanced Airlaid Materials’ operating income for
2015 declined $4.0 million compared to 2014. The
primary drivers are summarized in the following chart (in
millions):
$25.3
$0.0
$(1.8)
$(5.2)
$3.6
$(0.7)
$21.3
2014
Operating
Income
Selling
Price
Volume &
Mix
Operations
& Other
RM &
Energy Costs
FX
2015
Operating
Income
The adverse impact from lower shipping volumes
reflects softer market demand in the first half of the year.
The amount set forth for “Operations & other” includes
2014
Operating
Income
Selling
Price
Volume
& Mix
Operations &
Other
RM &
Energy
Costs
Net Power
Sales and
RECs
2015
Operating
Income
The following table summarizes Energy and
related sales for 2015 and 2014:
Year ended
December 31
In thousands
Energy sales
Costs to produce
Net
Renewable energy credits
Total
2015
$
$
5,315
(4,428)
887
4,777
5,664
$
$
2014
11,886
$
(6,204)
5,682
2,245
7,927
Change
(6,571)
1,776
(4,795)
2,532
(2,263)
$
We sell excess power generated by the Spring
Grove, PA facility. Renewable energy credits (“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 illiquid market.
The extent and value of future revenues from REC sales is
dependent on many factors outside of management’s
control.
Energy and related sales decreased $2.3 million in
the comparison as severe weather conditions in early 2014
resulted in higher selling prices for excess power and a
boiler outage in the first quarter of 2015 reduced power
sales.
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 $40.2 million in
GLATFELTER 2016 FORM 10-K
21
Income taxes For 2015, we recorded a provision
for income taxes of $14.0 million on pretax income of
$78.6 million. The comparable amounts in 2014 were an
income tax provision of $18.1 million on $87.4 million of
pretax income. The lower effective rate in 2015 is largely
driven by a greater proportion of earnings generated in
lower tax foreign jurisdictions relative to the U.S. due, in
part, to a $10.0 million increase in our reserve for the Fox
River matter. Income tax expense in 2014 includes a $4.2
million benefit from the reduction of deferred tax
liabilities and release of valuation allowances related to
the restructuring of non-U.S. legal entities.
Foreign Currency For the year ended December
31, 2015, the average currency exchange rate declined to
1.11 U.S. dollars to 1.00 euro compared with 1.33 to 1.00
for 2014. With respect to the British pound sterling,
Canadian dollar, and Philippine peso, we have greater
outflows than inflows of these currencies, although to a
lesser degree. As a result, particularly with respect to the
euro, we are exposed to changes in currency exchange
rates and such changes could be significant. 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 for 2016:
In thousands
Net sales
Costs of products sold
SG&A expenses
Income taxes and other
Net income
Year ended
December 31, 2015
Favorable
(unfavorable)
$
(104,996)
84,156
8,436
2,565
(9,839)
$
The above table only presents the financial
reporting impact of foreign currency translations
assuming currency exchange rates in 2015 were the same
as 2014. It does not include the impact of certain
competitive advantages or disadvantages of operating or
competing in multi-currency markets.
2015 compared with $30.2 million in 2014. The increase
was primarily due to a $10.0 charge to increase our
reserve for the Fox River environmental matter as well as
related legal costs which were partially offset by benefits
from corporate cost reduction initiatives.
Asset impairment charges During 2015 and 2014,
in connection with our annual test of potential impairment
of indefinite lived intangible assets, we recorded a non-
cash asset impairment charge of $1.2 million and $3.3
million, respectively, related to a trade name intangible
asset acquired in connection with our Composite Fibers
business unit’s 2013 Dresden acquisition. The charges
were due to changes in the estimated fair value of the
trade name, primarily driven by lower forecasted revenues
associated with the business, an increase in discount rates
related to Dresden’s business in Russia and Ukraine and
this region’s political and economic instability. The
charges are expenses not allocated to a business unit and
are recorded in the accompanying consolidated statements
of income under the caption “Selling, general and
administrative expenses.”
Pension Expense Pension expenses are not
allocated to a business unit. The following table
summarizes the amounts of pension expense recognized
for the periods indicated:
In thousands
Recorded as:
Costs of products sold
SG&A expense
Total
Year ended
December 31
2015
2014
Change
$
$
7,043
2,038
9,081
$
$
6,605 $
55
6,660 $
438
1,983
2,421
The amount of pension expense recognized each
year is dependent on various actuarial assumptions and
certain other factors, including discount rates, mortality,
and the fair value of our pension assets.
22
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 including the capacity expansion project for
Advanced Airlaid Materials. In addition, we have
mandatory debt service requirements of both principal
and interest. The following table summarizes cash flow
information for each of the periods presented:
In thousands
Cash and cash equivalents at beginning
of period
Cash provided (used) by
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net cash provided (used)
Cash and cash equivalents at end of
period
Year ended
December 31
2016
2015
$ 105,304
$ 99,837
116,110
(160,888)
(3,019)
(2,063)
(49,860)
133,743
(77,254)
(48,016)
(3,006)
5,467
$ 55,444
$ 105,304
At December 31, 2016, we had $55.4 million in cash
and cash equivalents held by both domestic and foreign
subsidiaries. Unremitted earnings of our foreign
subsidiaries are deemed to be indefinitely reinvested;
however, as of December 31, 2016, the majority of our
cash and cash equivalents is either held by domestic
entities or is available for use domestically. In addition to
our cash and cash equivalents, $176.6 million is available
under our revolving credit agreement, which matures in
March 2020.
Cash provided by operating activities totaled $116.1
million in the year ended December 31, 2016 compared
with $133.7 million a year ago. The decrease in cash from
operations primarily reflects lower earnings and the
reduction in one-time benefits in payables due to
improved payment terms with suppliers partially offset by
improvement in the timing of customer collections.
Net cash used by investing activities increased by
$83.6 million in the year-over-year comparison primarily
due to capital expenditures for Specialty Papers’
environmental compliance and Advanced Airlaid
Materials’ capacity expansion projects which totaled
$100.2 million in 2016 compared to $27.0 million in
2015. Capital expenditures are expected to total between
$125 million and $140 million for 2017 including
approximately $10 million for the Specialty Papers’
environmental compliance projects and $45 million to
$50 million for the Airlaid capacity expansion.
Net cash used by financing activities totaled $3.0
million in the year ended December 31, 2016 compared
with a use of $48.0 million in 2015. The decrease in cash
used by financing activities primarily reflects additional
term loan borrowings and receipt of $5.6 million of
government grants primarily related to our Specialty
Papers’ environmental compliance and Airlaid capacity
expansion projects in 2016.
The following table sets forth our outstanding long-
term indebtedness:
December 31
In thousands
Revolving credit facility, due Mar. 2020 $
5.375% Notes, due Oct. 2020
2.40% Term Loan, due Jun. 2022
2.05% Term Loan, due Mar. 2023
1.30% Term Loan, due Jun. 2023
1.55% Term Loan, due Sep. 2025
Total long-term debt
2016
61,595
250,000
8,282
35,163
9,788
10,333
375,161
$
Less current portion
Unamortized deferred issuance costs
(8,961)
(2,553)
2015
58,792
250,000
10,109
42,130
—
2,839
363,870
(7,366)
(3,208)
Long-term debt, net of current portion $ 363,647
$ 353,296
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, 2016, the leverage ratio, as calculated in
accordance with the definition in our amended credit
agreement, was 2.2x, 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 of December 31, 2016, we met all of the requirements
of our debt covenants. The significant terms of the debt
instruments are more fully discussed in Item 8 - Financial
Statements and Supplementary Data – Note 17.
Financing activities includes cash used for common
stock dividends which reflects a 4% increase in our
quarterly cash dividend rate in 2016. In the year ended
December 31, 2016, we used $21.6 million of cash for
dividends on our common stock compared with $20.4
million in 2015. Our Board of Directors determines what, if
any, dividends will be paid to our shareholders. Dividend
payment decisions are based upon then-existing factors and
conditions and, therefore, historical trends of dividend
payments are not necessarily indicative of future payments.
We are subject to various federal, state and local laws
and regulations intended to protect the environment as well
as human health and safety. At various times, we have
incurred significant costs to comply with these regulations
and we could incur additional costs as new regulations are
developed or regulatory priorities change. We have
incurred material capital costs to comply with new air
quality regulations including the U.S. EPA Best Available
GLATFELTER 2016 FORM 10-K
23
Retrofit Technology rule (BART; otherwise known as the
Regional Haze Rule) and the Boiler Maximum Achievable
Control Technology rule (Boiler MACT). These rules
required process modifications and/or installation of air
pollution controls on boilers at two of our facilities. We
converted or replaced five coal-fired boilers to natural gas
and upgraded site infrastructure to accommodate the new
boilers, including connecting to gas pipelines. Net of
government grants, the total cost of these projects is
estimated at $105 million, of which approximately $99.2
million has been incurred through the end 2016.
As more fully discussed in Item 8 - Financial
Statements and Supplementary Data – Note 21 –
Commitments, Contingencies and Legal Proceedings
(“Note 21”), we are involved in the Lower Fox River in
Wisconsin (the “Fox River”), an EPA Superfund site for
which we remain potentially liable for certain response
costs and long-term monitoring and maintenance related
matters. During 2016 and 2015, we used $4.3 million and
$9.1 million, respectively, for remediation activities. Based
on the recent developments more fully discussed in Note
21, it is conceivable the resolution of this matter may
require us to spend in excess of $25 million in 2017.
Although we are unable to determine with any degree of
certainty the amount we may be required to spend, the
recent developments provide greater clarity to the extent of
such amounts.
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. However, as discussed in Note 21, an
unfavorable outcome of the Fox River 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, 2016 and 2015, 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
consolidated balance sheets included herein in Item 8 –
Financial Statements.
1
Contractual Obligations The following table sets forth contractual obligations as of December 31, 2016:
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,
Total
2017
2018 to 2019
2020 to 2021
$
$
433 $
23
125
56
637 $
25 $
5
88
5
123 $
51 $
7
29
11
98 $
342 $
4
6
12
364 $
2022 and
beyond
15
7
2
28
52
(1)
(2)
(3)
(4)
(5)
Represents principal and interest payments due on long-term debt, the significant terms of which are discussed in Item 8 – Financial Statements and
Supplementary Data, Note 17, “Long-term Debt.” The amounts set forth above include expected interest payments of $58 million over the term of
the underlying debt instruments based contractual rates or current market rates in the case of variable rate instruments. See Item 8 – Financial
Statements, Note 17, “Long-Term Debt”.
Represents rental agreements for various land, buildings, vehicles, and computer and office equipment.
Represents open purchase order commitments and other obligations, primarily for raw material and energy supply contracts. 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, 2016.
Primarily represents expected benefits to be paid pursuant to retirement medical plans and nonqualified pension plans.
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 and Supplementary Data, Note 9, “Income Taxes”, such amounts totaled $14 million at December 31, 2016.
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-employment 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. Goodwill and non-amortizing tradename
24
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.
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-Employment
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:
2014
2016
2015
Pension plans
Weighted average
discount rate for benefit
expense
for benefit obligation
Expected long-term rate of
return on plan assets(1)
Rate of compensation
increase(2)
Post-employment
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 reached
4.65%
4.43%
4.21%
4.65%
5.20%
4.21%
7.75%
8.00%
8.00%
3.50%
3.50%
4.00%
4.38%
4.18%
3.89%
4.38%
4.52%
3.89%
6.50%
4.50%
6.80%
4.50%
7.65%
4.50%
2037
2037
2028
(1)
(2)
For 2017, the expected long-term rate of return on plan assets
was reduced to 7.25%.
For 2017, the assumed rate of compensation increase was
reduced to 3.00%.
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. 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.
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
consolidated balance sheets, as well as operating loss and
tax credit carry forwards. These deferred tax assets and
liabilities are measured using enacted tax rates and laws
that will be in effect when such amounts are expected to
reverse or be utilized. We regularly review our deferred
tax assets for recoverability based on historical taxable
income, projected future taxable income, the expected
timing of the reversals of existing temporary differences
and tax planning strategies. If we are unable to generate
sufficient future taxable income, or if there is a material
change in the actual effective tax rates or time period
within which the underlying temporary differences
become taxable or deductible, we could be required to
increase the valuation allowance against our deferred tax
assets, which may result in a substantial increase in our
effective tax rate and a material adverse impact on our
reported results.
Significant judgment is required in determining our
worldwide provision for income taxes and recording the
related assets and liabilities. In the ordinary course of our
business, there are many transactions and calculations
where the ultimate tax determination is less than certain.
We and our subsidiaries are examined by various Federal,
State and foreign tax authorities. We regularly assess the
potential outcomes of these examinations and any future
examinations for the current or prior years in determining
the adequacy of our provision for income taxes. We
continually assess the likelihood and amount of potential
adjustments and adjust the income tax provision, the
current liability and deferred taxes in the period in which
the facts that give rise to a revision become known. Other
significant accounting policies, not involving the same
level of uncertainties as those discussed above, are
nevertheless important to an understanding of the
Consolidated Financial Statements. Refer to Item 8 –
GLATFELTER 2016 FORM 10-K
25
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
Year Ended December 31
December 31, 2016
2017
2018
2019
2020
2021
Carrying Value
Fair Value
At fixed interest rates – Bond
At fixed interest rates – Term Loans
At variable interest rates
$250,000
59,247
61,595
$250,000
49,963
61,595
$250,000
40,034
61,595
$218,750
30,105
53,896
$
-
20,176
-
$
$
250,000
63,566
61,595
375,161
$ 256,563
66,110
61,595
$ 384,268
Weighted-average interest rate
On fixed rate debt – Bond
On fixed rate debt – Term Loans
On variable rate debt
5.375%
1.89%
2.06%
5.375%
1.89%
2.06%
5.375%
1.88%
2.06%
5.375%
1.86%
2.06%
5.375%
1.82%
2.06%
The table above presents the average principal
outstanding and related interest rates for the next five
years for debt outstanding as of December 31, 2016. 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, 2016, we had $372.6 million of long-term
debt, net of deferred debt issuance costs. Approximately
16.5% of our debt was at variable interest rates. The fixed
rate Term Loans and the variable rate debt are all euro-
based borrowings and thus the value of which is also
subject to currency risk. Variable-rate debt outstanding
represents borrowings under our revolving credit
agreement that accrues interest based on one month
LIBOR plus a margin. At December 31, 2016, the interest
rate paid was 2.06%. A hypothetical 100 basis point
increase or decrease in the interest rate on variable rate
debt would increase or decrease annual interest expense
by $0.6 million.
As part of our overall risk management practices,
we enter into financial derivatives primarily designed to
either i) hedge 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. Our euro denominated revenue exceeds euro
expenses by an estimated €130 million. With respect to
the British Pound Sterling, Canadian dollar, and
Philippine Peso, we have greater outflows than inflows of
these currencies, although to a lesser degree. As a result,
particularly with respect to the euro, we are exposed to
changes in currency exchange rates and such changes
could be significant.
26
ITEM 8
FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
MANAGEMENT’S REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
Management of P. H. Glatfelter Company (the
“Company”) is responsible for establishing and
maintaining adequate internal control over financial
reporting. The Company’s internal control over financial
reporting is a process designed under the supervision of
the chief executive and chief financial officer 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, 2016, 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 (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO). Management has determined that the
Company’s internal control over financial reporting as of
December 31, 2016, 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, 2016, has been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report appearing herein,
which expresses an unqualified opinion on the
effectiveness of the Company’s internal control over
financial reporting as of December 31, 2016.
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 2016 FORM 10-K
27
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of P. H.
Glatfelter Company
We have audited the internal control over financial
reporting of P. H. Glatfelter Company and subsidiaries
(the "Company") as of December 31, 2016, based on
criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
The Company's management is responsible for
maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express
an opinion on the Company's internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial
reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the
design and operating effectiveness of internal control
based on the assessed risk, and performing such other
procedures as we considered necessary in the
circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company's internal control over financial
reporting is a process designed by, or under the
supervision of, the company's principal executive and
principal financial officers, or persons performing similar
functions, and effected by the company's board of
directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. A company's internal control over
financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted
accounting principles, and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets
that could have a material effect on the financial
statements.
Because of the inherent limitations of internal
control over financial reporting, including the possibility
of collusion or improper management override of
controls, material misstatements due to error or fraud may
not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods
are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2016, based on the criteria
established in Internal Control — Integrated Framework
(2013) 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, 2016 of the Company and
our report dated February 24, 2017 expressed an
unqualified opinion on those consolidated financial
statements and financial statement schedule.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 24, 2017
28
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of P. H.
Glatfelter Company
We have audited the accompanying consolidated
balance sheets of P. H. Glatfelter Company and
subsidiaries (the "Company") as of December 31, 2016
and 2015, 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, 2016. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
consolidated financial statements and financial statement
schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion
on the consolidated 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, 2016 and 2015, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 2016, 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, 2016, based
on the criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission
and our report dated February 24, 2017 expressed an
unqualified opinion on the Company's internal control
over financial reporting.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 24, 2017
GLATFELTER 2016 FORM 10-K
29
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31
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
Losses (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 (benefit)
Net income
Earnings per share
Basic
Diluted
Cash dividends declared per common share
Weighted average shares outstanding
Basic
Diluted
2016
1,604,797
6,141
1,610,938
1,392,335
218,603
190,694
216
27,693
(15,822)
206
(1,271)
(16,887)
10,806
(10,748)
21,554
0.49
0.49
0.50
$
$
$
$
2015
1,661,084
5,664
1,666,748
1,463,783
202,965
127,706
(21,113)
96,372
(17,464)
283
(615)
(17,796)
78,576
14,001
64,575
1.49
1.47
0.48
$
$
$
$
$
$
$
$
2014
1,802,415
7,927
1,810,342
1,575,188
235,154
133,235
(4,861)
106,780
(18,921)
159
(635)
(19,397)
87,383
18,137
69,246
1.60
1.57
0.44
43,558
44,129
43,397
43,942
43,201
44,066
The accompanying notes are an integral part of these consolidated financial statements.
30
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 $(335), $880 and $(1,281),
respectively
Unrecognized retirement obligations, net of
taxes of $(7,247), $(2,920) and $20,730,
respectively
Other comprehensive loss
Comprehensive income (loss)
2016
2015
2014
Year ended December 31
$
21,554
$
64,575
$
69,246
(27,407)
(38,817)
(49,365)
1,725
(2,581)
3,297
11,562
(14,120)
7,434
$
5,782
(35,616)
28,959
$
(33,445)
(79,513)
(10,267)
$
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2016 FORM 10-K
31
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
Assets
Cash and cash equivalents
Accounts receivable (less allowance for doubtful
accounts: 2016 - $1,719; 2015 - $2,239)
Inventories
Prepaid expenses and other current assets
Total current assets
Plant, equipment and timberlands, net
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities and Shareholders' Equity
Current portion of long-term debt
Accounts payable
Dividends payable
Environmental liabilities
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity
Common stock, $0.01 par value; authorized - 120,000,000;
issued - 54,361,980 (including treasury
shares: 2016 - 10,812,341; 2015 - 10,941,944)
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
2016
2015
$
55,444
$
105,304
152,989
249,669
36,157
494,259
775,898
73,094
56,259
121,749
1,521,259
8,961
164,345
5,455
25,000
119,250
323,011
363,647
54,995
125,780
867,433
—
544
57,917
962,884
(204,606)
816,739
(162,913)
653,826
1,521,259
$
$
$
167,199
247,214
32,650
552,367
698,864
76,056
63,057
110,072
1,500,416
7,366
172,735
5,231
12,544
106,444
304,320
353,296
76,458
103,095
837,169
—
544
54,912
963,143
(190,486)
828,113
(164,866)
663,247
1,500,416
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
32
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
Charge for impairment of intangible asset
Deferred income tax benefit
Losses (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
Accruals and other current liabilities
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
Acquisition, net of cash acquired
Other
Net cash used by investing activities
Financing activities
Net borrowings under (repayments of) revolving
credit facility
Payments of borrowing costs
Proceeds from term loans
Repayment of term loans
Repurchases of common stock
Payments of dividends
Proceeds from government grants
Payments related to share-based compensation
awards and other
Net cash 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
2016
2015
2014
$
21,554
$
64,575
$
69,246
65,826
1,153
11,180
—
(22,055)
216
5,889
8,372
(10,778)
(2,430)
(8,174)
43,195
2,162
116,110
(160,158)
70
—
(800)
(160,888)
2,891
(136)
19,428
(8,205)
—
(21,589)
5,582
(990)
(3,019)
(2,063)
(49,860)
105,304
55,444
14,569
14,020
$
$
63,236
70,555
1,184
7,383
1,200
(1,902)
(21,113)
7,244
(13,312)
(8,054)
5,506
26,042
(2,186)
3,940
133,743
(99,889)
24,459
(224)
(1,600)
(77,254)
(22,294)
(1,329)
2,873
(5,229)
—
(20,443)
421
(2,015)
(48,016)
(3,006)
5,467
99,837
105,304
16,256
15,849
$
$
1,315
5,173
3,262
(9,419)
(4,861)
7,859
(5,404)
(21,456)
(3,521)
(4,175)
(12,802)
3,805
99,577
(66,046)
5,072
(8,015)
(600)
(69,589)
(30,720)
–
12,592
–
(12,180)
(18,696)
—
(1,877)
(50,881)
(2,152)
(23,045)
122,882
99,837
17,643
24,139
$
$
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2016 FORM 10-K
33
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2016, 2015 and 2014
In thousands
Balance at January 1, 2014
Net income
Other comprehensive loss
Comprehensive loss
Tax effect on exercise of stock awards
Cash dividends declared ($0.44 per share)
Share-based compensation expense
Repurchase of common shares
Delivery of treasury shares
RSUs
401 (k) plans
Employee stock options exercised — net
Balance at December 31, 2014
Net income
Other comprehensive loss
Comprehensive income
Tax effect on exercise of stock awards
Cash dividends declared ($0.48 per share)
Share-based compensation expense
Delivery of treasury shares
RSUs and PSAs
401 (k) plans
Employee stock options exercised — net
Balance at December 31, 2015
Net income
Other comprehensive loss
Comprehensive income
Tax effect on exercise of stock awards
Cash dividends declared ($0.50 per share)
Share-based compensation expense
Delivery of treasury shares
RSUs and PSAs
Employee stock options exercised — net
Balance at December 31, 2016
Common
Stock
$
544
Capital in
Excess of
Par Value
53,940
$
(14)
4,738
(4,121)
1,318
(1,519)
54,342
843
4,403
(5,078)
838
(436)
54,912
58
5,889
(2,375)
(567)
57,917
544
544
$
544
$
Accumulated
Other
Comprehensive
Loss
$
(75,357)
(79,513)
Treasury
Stock
$ (163,980)
Retained
Earnings
869,329
69,246
$
(19,107)
(12,180)
2,363
1,775
1,647
(170,375)
3,102
2,010
397
(164,866)
919,468
(154,870)
64,575
(20,900)
(35,616)
963,143
(190,486)
21,554
(21,813)
(14,120)
$
962,884
$
(204,606)
1,624
329
$ (162,913)
$
Total
Shareholders’
Equity
$
684,476
69,246
(79,513)
(10,267)
(14)
(19,107)
4,738
(12,180)
(1,758)
3,093
128
649,109
64,575
(35,616)
28,959
843
(20,900)
4,403
(1,976)
2,848
(39)
663,247
21,554
(14,120)
7,434
58
(21,813)
5,889
(751)
(238)
653,826
The accompanying notes are an integral part of the consolidated financial statements.
34
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,
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, and sales and
distribution offices in Russia and China. 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
15 – 45 Years
5 – 40 Years
3 – 25 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 the amount by which
the carrying value exceeds the estimated fair value.
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.
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.
GLATFELTER 2016 FORM 10-K
35
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.
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.
Investment tax credits are accounted for by the flow-
through method, which results in recognition of the
benefit in the year in which the credit become available.
Treasury Stock Common stock purchased for
treasury is recorded at cost. At the date of subsequent
reissue, the treasury stock account is reduced by the cost
of such stock on the weighted-average cost basis.
Foreign Currency Translation Foreign currency
translation gains and losses and the effect of exchange
rate changes on transactions designated as hedges of net
foreign investments are included as a component of other
comprehensive income (loss). Transaction gains and
losses are included in income in the period in which they
occur.
Revenue Recognition We recognize revenue on
product sales when the customer takes title and assumes
the risks and rewards of ownership. Estimated costs for
sales incentives, discounts and sales returns and
allowances are recorded as sales deductions in the period
in which the related revenue is recognized.
Revenue from energy sales is recognized when
electricity is delivered to the customer. Certain costs
associated with the production of electricity, such as fuel,
labor, depreciation and maintenance are netted against
energy sales for presentation on the consolidated
statements of income.
Revenue from renewable energy credits is recorded
under the caption “Energy and related sales, net” in the
36
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. 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.
Cash Flow Hedges The effective portion of the 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.
Recently Issued Accounting Pronouncements In
March 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-09, Compensation – Stock Compensation (Topic
718) Improvements to Employee Share-Based Payment
Accounting designed to simplify certain aspects of
accounting for share-based awards. The new ASU
requires entities to recognize as a component of income
tax expense all excess tax benefits or deficiencies arising
from the difference between compensation costs
recognized and the intrinsic value at the time an option is
exercised or, in the case of restricted stock and similar
awards, the fair value upon vesting of an award.
Previously such differences were recognized in additional
paid in capital as part of an “APIC pool.” In addition, the
ASU also requires entities to exclude excess tax benefits
and tax deficiencies from the calculation of common
share equivalents for purposes of calculating earnings per
share. The new standard is required to be adopted, either
prospectively or retrospectively, in the first quarter of
2017. We do not believe the adoption of this standard will
have a material impact on our reported results of
operations or financial position.
In February 2016, the FASB issued ASU No. 2016-
02, Leases (Topic 842). This ASU will require
organizations that lease assets to recognize on the balance
sheet the assets and liabilities for the rights and
obligations created by those leases. The new guidance
will be effective for annual periods beginning after
December 15, 2018, and interim periods therein. Early
adoption is permitted. We are in the process of assessing
the impact this standard will have on us and expect to
follow a modified retrospective method provided for
under the standard.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers which clarifies
the principles for recognizing revenue and develops a
common revenue standard for GAAP and International
Financial Reporting Standards. The new standard is
required to be adopted retrospectively for fiscal years
beginning after December 15, 2017 and early adoption is
permitted only for reporting periods beginning after
December 31, 2016. We are in the process of evaluating
the impact this standard may have, if any, on our reported
results of operations or financial position. Based on our
initial assessment, we do not expect this ASU will have a
significant impact on the timing or amount of revenue
recognition.
In June 2016, the FASB issued ASU No. 2016-13
Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments
that changes the impairment model for most financial
instruments, including trade receivables from an incurred
loss method to a new forward-looking approach, based on
expected losses. Under the new guidance, an allowance is
recognized based on an estimate of expected credit losses.
This standard is effective for us in the first quarter of
2020 and must be adopted using a modified retrospective
transition approach. We are currently assessing the impact
this standard may have on our results of operations and
financial position.
3.
ACQUISITIONS
On October 1, 2014, we completed the acquisition
of all of the outstanding equity of Spezialpapierfabrik
Oberschmitten GmbH (“SPO”) from FINSPO
Beteiligungs-GmbH for $8.0 million. SPO had annual
sales of approximately $33 million in 2014. SPO, located
near Frankfurt, Germany, primarily produces highly
technical papers for a wide range of capacitors used in
consumer and industrial products; insulation papers for
cables and transformers; and materials for industrial
power inverters, electromagnetic current filters and
electric rail traction. SPO also produces glassine products,
which are used in cosmetics packaging, food packaging,
and pharmaceutical dosage bags. SPO is operated as part
of the Composite Fibers business unit, and complements
our technical specialties products.
GLATFELTER 2016 FORM 10-K
37
acquisition. The charges were due to changes in the
estimated fair value of the trade name, primarily driven by
lower forecasted revenues associated with the business, an
increase in discount rates related to Dresden’s business in
Russia and Ukraine and this region’s political and
economic instability. The fair value of the asset was
estimated using a discounted cash flow model under a
relief from royalty method. The significant assumptions
used included projected financial performance and
discount rates, which resulted in a Level 3 fair value
classification.
The charge is recorded in the accompanying
consolidated statements of income under the caption
“Selling, general and administrative expenses.” For
additional information on Goodwill and Intangible Assets,
see Note 14.
7.
EARNINGS PER SHARE
The following table sets forth the details of basic
and diluted earnings per share (EPS):
In thousands, except per share
Net income
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
Year ended December 31
2016 2015 2014
$21,554 $64,575 $69,246
43,558 43,397 43,201
571
545
865
44,129 43,942 44,066
$
0.49 $
0.49
1.49 $
1.47
1.60
1.57
The following table sets forth the potential common
shares outstanding for stock options that were not
included in the computation of diluted EPS for the period
indicated, because their effect would be anti-dilutive:
In thousands
Potential common shares
Year ended December 31
2015 2014
2016
277
678
596
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 of the past three years:
In thousands
Energy sales
Costs to produce
Net
$
Renewable energy credits
$
Total
Year ended December 31
2015
2016
3,613
(3,972)
(359)
6,500
6,141
$
$
5,315 $
(4,428)
887
4,777
5,664 $
2014
11,886
(6,204)
5,682
2,245
7,927
5.
GAIN ON DISPOSITIONS OF PLANT,
EQUIPMENT AND TIMBERLANDS
During 2016, 2015 and 2014, we completed the
following sales of assets:
Dollars in thousands
2016
Other
Total
2015
Timberlands
Other
Total
2014
Timberlands
Other
Total
Acres Proceeds
Gain
(loss)
n/a
$
70
70 $
(216)
(216)
15,628 $ 23,917 $20,867
246
$ 24,459 $21,113
n/a
542
2,753 $
n/a
$
5,062 $ 4,855
6
5,072 $ 4,861
10
6.
ASSET IMPAIRMENT CHARGES
During 2015 and 2014, in connection with our
annual test of potential impairment of indefinite lived
intangible assets, we recorded $1.2 million and $3.3
million, respectively, of non-cash asset impairment
charges. No such charges were recorded in 2016. The
trade name intangible asset was acquired in connection
with our Composite Fibers business unit’s 2013 Dresden
38
8.
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, 2016, 2015 and 2014.
In thousands
Balance at January 1, 2016
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, 2016
Balance at January 1, 2015
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, 2015
Balance at January 1, 2014
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, 2014
Currency
translation
adjustments
Unrealized
gain
(loss) on cash
flow hedges
Change in
pensions
Change in
other
postretirement
defined benefit
plans
Total
$
(73,041)
$
(225)
$
(120,714)
$
3,494
$
(190,486)
(27,407)
—
(27,407)
(100,448)
(34,224)
(38,817)
—
(38,817)
(73,041)
15,141
(49,365)
—
$
$
$
$
1,247
478
1,725
1,500
2,356
1,620
(4,201)
(2,581)
(225)
(941)
2,826
471
$
$
$
$
(4,334)
14,392
10,058
(110,656)
(120,260)
(12,995)
12,541
(454)
(120,714)
(89,547)
$
$
$
$
2,086
(582)
1,504
4,998
(2,742)
6,266
(30)
6,236
3,494
(10)
$
$
$
$
(28,408)
14,288
(14,120)
(204,606)
(154,870)
(43,926)
8,310
(35,616)
(190,486)
(75,357)
(40,266)
(2,803)
(89,608)
9,553
71
10,095
(49,365)
(34,224)
$
3,297
2,356
$
(30,713)
(120,260)
$
(2,732)
(2,742)
$
(79,513)
(154,870)
$
$
$
$
$
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
Tax expense (benefit)
Net of tax
Retirement plan obligations (Note 11)
Amortization of deferred benefit pension plan items
Prior service costs
Actuarial losses
Settlement recognition
Tax expense (benefit)
Net of tax
Amortization of deferred benefit other plan items
Prior service costs
Actuarial losses
Tax expense (benefit)
Net of tax
Total reclassifications, net of tax
$
Year ended December 31
2015
2016
2014
$
551 $
(73)
478
(5,752) $
1,551
(4,201)
2,026
672
9,798
3,373
7,306
23,175
(8,783)
14,392
(150)
(32)
(621)
(134)
(937)
355
(582)
14,288 $
2,300
762
12,745
4,388
—
20,195
(7,654)
12,541
(230)
(50)
190
41
(49)
19
(30)
8,310 $
Line Item in Statements of Income
Costs of products sold
Income tax provision
Costs of products sold
Selling, general and administrative
Costs of products sold
Selling, general and administrative
Selling, general and administrative
Income tax provision
Costs of products sold
Selling, general and administrative
Costs of products sold
Selling, general and administrative
Income tax provision
655
(184)
471
2,503
830
8,965
3,086
—
15,384
(5,831)
9,553
(237)
(51)
331
71
114
(43)
71
10,095
GLATFELTER 2016 FORM 10-K
39
9.
INCOME TAXES
Income taxes are recognized for the amount of taxes
payable or refundable for the current year and deferred
tax liabilities and assets for the future tax consequences of
events that have been recognized in our consolidated
financial statements or tax returns. The effects of income
taxes are measured based on enacted tax laws and rates.
The provision for income taxes from operations
consisted of the following:
In thousands
Current taxes
Federal
State
Foreign
Deferred taxes and
other
Federal
State
Foreign
Income tax provision
(benefit)
Year ended December 31
2015
2014
2016
$
2,216
(1,112)
10,203
11,307
$
5,047
(1,680)
12,536
15,903
$
3,291
238
24,027
27,556
(24,411)
(1,723)
4,079
(22,055)
(7,287)
564
4,821
(1,902)
(3,975)
(147)
(5,297)
(9,419)
$ (10,748)
$ 14,001
$ 18,137
The following are the domestic and foreign
components of pretax income (loss) from operations:
In thousands
United States
Foreign
Total pretax income
Year ended December 31
2015
2014
2016
$ (63,315)
74,121
$ 10,806
$
2,382
76,194
$ 78,576
$
4,637
82,746
$ 87,383
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
2015
2016
2014
Federal income tax
provision at statutory rate
State income taxes,
net of federal income tax
benefit
Foreign income tax rate
differential
Rate changes due to
enacted legislation
Tax effect of credits
Provision for (resolution of )
tax matters
Permanent differences on
non-U.S. earnings
Valuation allowance
Other
Actual tax rate
35.0%
35.0%
35.0%
(15.0)
(96.3)
(6.7)
(30.3)
2.8
0.3
(8.6)
–
(1.9)
(2.1)
0.2
(5.0)
(2.2)
(2.0)
1.3
-
7.1
3.9
(99.5)%
(4.4)
0.4
(0.9)
17.8%
(2.8)
(2.7)
(1.0)
20.8%
40
The sources of deferred income taxes were as
follows at December 31:
$
In thousands
Reserves
Environmental
Compensation
Post-retirement benefits
Research & development expenses
Inventories
Other
Tax carryforwards
Deferred tax assets
Valuation allowance
Net deferred tax assets
Property
Intangible assets
Pension
Deferred tax liabilities
Net deferred tax liabilities
$
2016
4,625
20,868
8,950
18,318
6,949
1,464
993
14,438
76,605
(4,066)
72,539
(81,837)
(16,561)
(29,041)
(127,439)
(54,900)
2015
4,720
7,211
8,250
19,476
8,925
3,445
605
8,413
61,045
(3,773)
57,272
(84,009)
(17,748)
(26,885)
(128,642)
(71,370)
$
$
Non-current deferred tax assets and liabilities are
included in the following balance sheet captions:
December 31
In thousands
Other assets
2016
$
95
$
Deferred income taxes
54,995
2015
5,088
76,458
At December 31, 2016 we had federal, state and
foreign tax net operating loss (“NOL”) carryforwards of
$15.5 million, $77.8 million and $4.8 million,
respectively. These NOL carryforwards are available to
offset future taxable income, if any. The federal NOL
carryforward expires in 2036, state NOLs expire at
various times and in various amounts beginning in 2017
and through 2036. Certain foreign NOL carryforwards
begin to expire after 2019.
The state and foreign NOL carryforwards and
federal tax credits 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 federal tax credit
carryforwards totaling $2.9 million which begin to expire
in 2035, state tax credit carryforwards totaling $0.2
million, which begin to expire in 2017, and foreign
investment tax credits of $0.8 million which begin to
expire after 2030.
As of December 31, 2016 and 2015, we had a
valuation allowance of $4.1 million and $3.8 million,
respectively, against net deferred tax assets, primarily due
to uncertainty regarding the ability to utilize state and
foreign tax NOL carryforwards and certain state tax
credits. In assessing the need for a valuation allowance,
management considers all available positive and negative
evidence in its analysis. Based on this analysis, we
recorded a valuation allowance for the portion of deferred
tax assets where the weight of available evidence
indicated it is more likely than not that the deferred tax
assets will not be realized.
Tax credits and other incentives reduce tax expense
in the year the credits are claimed. We recorded tax
credits of $1.1 million, $1.5 million and $1.8 million in
2016, 2015 and 2014, respectively, related to research and
development credits and fuels tax credits. We also
recognized $2.2 million related to investment tax credits
in 2016.
At December 31, 2016 and 2015, unremitted
earnings of subsidiaries outside the United States deemed
to be indefinitely reinvested totaled $399.9 million and
$338.6 million, respectively. Because the unremitted
earnings of subsidiaries are deemed to be indefinitely
reinvested as of December 31, 2016 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
determine the amount of additional taxes that have not
been provided.
As of December 31, 2016, 2015 and 2014, we had
$14.2 million, $12.2 million and $14.9 million of gross
unrecognized tax benefits, respectively. As of December
31, 2016, if such benefits were to be recognized,
approximately $11.3 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
2016
2015
2014
$
12.2
$
14.9
$
14.9
Increases in tax positions
for prior years
Decreases in tax positions
for prior years
Acquisition related:
Purchase Accounting
Increases in tax positions
for current year
Settlements
Lapse in statutes of
limitation
Balance at December 31
$
2.0
-
0.7
(1.4)
(4.3)
(0.5)
-
1.9
(0.2)
-
1.9
-
0.3
3.4
(1.3)
(0.3)
14.2
$
(0.3)
12.2
(2.6)
14.9
$
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
Open Tax Years
Examinations
not yet
initiated
Examination
in progress
2013 - 2016
2012 - 2016
N/A
2014
N/A
2010 - 2016
2012 - 2016 2011 - 2013
2014 - 2016 2011 - 2012
2015 - 2016
N/A
Philippines
2015 -2016 2013, 2014
includes provincial or similar local jurisdictions, as applicable.
(1)
The amount of income taxes we pay is subject to
ongoing audits by federal, state and foreign tax
authorities, which often result in proposed assessments.
Management performs a comprehensive review of its
global tax positions on a quarterly basis and accrues
amounts for uncertain tax positions. Based on these
reviews and the result of discussions and resolutions of
matters with certain tax authorities and the closure of tax
years subject to tax audit, reserves are adjusted as
necessary. However, future results may include favorable
or unfavorable adjustments to our estimated tax liabilities
in the period the assessments are determined or resolved
or as such statutes are closed. Due to potential for
resolution of federal, state and foreign examinations, and
the expiration of various statutes of limitation, it is
reasonably possible our gross unrecognized tax benefits
balance may decrease within the next twelve months by a
range of zero to $0.9 million. Substantially all of this
range relates to tax positions taken in the United Kingdom
and in the U.S.
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,
2015
2014
2016
$
$
0.5
(0.1)
–
0.6
–
–
$
0.6
–
–
GLATFELTER 2016 FORM 10-K
41
10.
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. As
of December 31, 2016, there were 611,699 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
Awards of
Performance Share Awards (“PSAs”)
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, multi-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 at January 1,
Granted
Forfeited
Shares delivered
Balance at December 31,
2016
674,523
302,722
(148,232)
(149,975)
679,038
2015
888,942
164,666
(92,183)
(286,902)
674,523
2014
1,001,814
178,882
(47,379)
(244,375)
888,942
Compensation expense
$
3,154
$
1,758
$
2,652
2016
2015
2014
The amount granted in 2016, 2015 and 2014
includes 199,693, 105,017 and 101,743 PSAs,
respectively, exclusive of reinvested dividends. The
performance period for the 2014 PSAs concluded on
December 31, 2016 and, based on actual performance
relative to target, no shares underlying the PSA were
issued to participants. The weighted average grant date
fair value per unit for awards in 2016, 2015 and 2014 was
$18.08, $24.62 and $28.89, respectively. As of December
31, 2016, unrecognized compensation expense for
outstanding RSUs and PSAs totaled $5.4 million. The
weighted average remaining period over which the
expense will be recognized is 2.1 years.
42
Stock Only Stock Appreciation Rights
The following table sets forth information related to outstanding
SOSARS:
2016
2015
2014
SOSARS
Outstanding at January 1,
Granted
Exercised
Canceled / forfeited
Outstanding at December 31,
Exercisable at December 31,
Vested and expected to vest
Shares
2,199,742
743,925
(61,190)
(145,861)
2,736,616
1,740,591
2,725,611
Wtd Avg
Exercise Price
17.82
17.54
10.70
22.80
17.64
16.19
$
$
Shares
1,864,707
423,590
(70,347)
(18,208)
2,199,742
1,504,599
2,178,708
$
Wtd Avg
Exercise Price
$
16.20
24.62
14.12
25.41
17.82
14.48
Wtd Avg
Exercise Price
13.91
$
29.78
13.99
19.36
16.20
12.94
$
Shares
1,977,133
281,881
(364,465)
(29,842)
1,864,707
1,285,998
1,754,295
SOSAR Grants
Weighted average grant date
fair value per share
Aggregate grant date
fair value (in thousands)
Black-Scholes assumptions
Dividend yield
Risk free rate of return
Volatility
Expected life
Compensation expense
(in thousands)
$
$
4.07
3,013
2.85%
1.34%
31.97%
6
$
$
7.46
3,134
$
$
9.81
2,764
1.94%
1.64%
36.38%
6
1.48%
1.74%
37.59%
6
$
2,735
$
2,645
$
2,086
Under terms of the SOSAR, the recipients receive
the right to receive a payment in the form of shares of
common stock equal to the difference, if any, in the fair
market value of one share of common stock at the time of
exercising the SOSAR and the exercise price. The
SOSARs vest ratably over a three year period. As of
December 31, 2016, the intrinsic value of SOSARs vested
and expected to vest totaled $18.9 million and the
remaining weighted average contractual life of
outstanding SOSARs was 5.2 years.
11. RETIREMENT PLANS AND OTHER POST-
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 and 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.
GLATFELTER 2016 FORM 10-K
43
Amounts recognized in the consolidated balance
sheets consist of the following as of December 31:
In millions
Other assets
Current liabilities
Other long-term
liabilities
Net amount
recognized
Pension Benefits
2016
96.7
$
(2.0)
2015
89.1 $
(2.1)
Other Benefits
2016
2015
-
- $
(3.2)
(3.2)
$
(36.0)
(34.0)
(44.7)
(47.7)
$
58.7
$
53.0 $
(47.9) $ (50.9)
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
2016
2015
Other Benefits
2016
2015
$
14.8 $
165.9
12.0
185.0
$
(0.6) $
(7.4)
(0.8)
(4.8)
The accumulated benefit obligation for all defined
benefit pension plans was $537.6 million and $526.7
million at December 31, 2016 and 2015, respectively.
The weighted-average assumptions used in
computing the benefit obligations above were as follows:
Pension Benefits
2016
2015
Other Benefits
2016
2015
Discount rate –
benefit
obligation
Future
compensation
growth rate
4.43%
4.65%
4.18% 4.38%
3.00
3.50
–
–
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, 2016 ranged from 1.90% to 4.55% for
pension plans and from 4.02% to 4.21% for other benefit
plans.
Information for pension plans with an accumulated
benefit obligation in excess of plan assets was as follows:
In millions
Projected benefit obligation
Accumulated benefit
obligation
Fair value of plan assets
2016
2015
$
37.9
$
34.6
–
36.1
33.1
–
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.
In millions
2016
2015
2016
2015
Pension Benefits
Other Benefits
Change in
Benefit
Obligation
Balance at
beginning of
year
Service cost
Interest cost
Plan amendments
Participant
contributions
Actuarial
(gain)/loss
Benefits paid
One-time
settlement
Effect of currency
rate changes
Balance at end
of year
$
541.9
10.5
24.5
5.5
$ 577.6 $
11.6
23.3
-
51.0 $ 59.8
1.4
1.1
2.0
2.0
-
-
-
-
1.0
1.2
17.0
(22.9)
(34.8)
(34.8)
(3.4)
(3.8)
(10.1)
(3.3)
(24.2)
-
(0.3)
(1.0)
-
-
-
-
$
552.0
$ 541.9 $
47.9 $ 51.0
Change in
Plan Assets
Fair value of plan
assets at
beginning of year $
Actual return
on plan assets
Total contributions
Benefits paid
One-time
settlement
Fair value of plan
assets at end
of year
Funded status at
end of year
$
$
594.9
$ 638.0 $
- $
-
60.8
2.1
(22.9)
(10.3)
2.0
(34.8)
-
3.8
(3.8)
-
3.3
(3.3)
(24.2)
-
-
610.7
594.9
-
-
-
58.7
$
53.0 $
(47.9) $ (51.0)
In 2016, the we recorded a pension settlement
charge of $7.3 million and settled $24.2 million of
benefits in connection with a voluntary program offered
to deferred vested terminated participants.
44
Net periodic benefit cost includes the following
The weighted-average assumptions used in
components:
In millions
Pension Benefits
Service cost
Interest cost
Expected return on plan
assets
Amortization of prior
service cost
Amortization of
actuarial loss
One-time settlement
charge
Total net periodic
benefit cost
Other Benefits
Service cost
Interest cost
Amortization of prior
service cost/(credit)
Amortization of
actuarial loss
Total net periodic
benefit cost
Year Ended December 31
2015
2014
2016
$
$
10.5
24.5
11.6 $
23.3
10.4
24.8
(45.4)
(46.0)
(43.9)
2.7
13.2
7.3
3.1
3.3
17.1
12.1
—
$
12.8
$
9.1 $
$
$
1.1
2.0
1.4 $
2.0
(0.2)
(0.3)
(0.3)
(0.8)
0.2
$
2.1
$
3.3 $
0.4
4.1
—
6.7
1.5
2.5
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 $2.8 million and
$11.3 million, respectively. The comparable amounts of
expected amortization for other benefit plans are a credit
of $0.2 million and $0.6 million, respectively.
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss) were as
follows:
In millions
Pension Benefits
Actuarial loss
Plan amendments
Recognized prior service cost
Recognized actuarial losses
Total recognized in other
comprehensive loss
Total recognized in net periodic
benefit cost and other
comprehensive loss
Other Benefits
Actuarial (gain) loss
Amortization of prior service cost
Amortization of actuarial losses
Total recognized in other
comprehensive (income) loss
Total recognized in net periodic
benefit cost and other
comprehensive (income) loss
Year Ended December 31
2016
2015
$
1.4 $
5.5
(2.7)
(20.5)
21.5
—
(3.1)
(17.1)
(16.3)
1.3
$
(3.5) $
10.4
$
(3.4) $
0.2
0.8
(10.1)
0.3
(0.2)
(2.4)
(10.0)
$
(0.3) $
(6.7)
computing the net periodic benefit cost information above
were as follows:
Year Ended December 31
2016
2015
2014
Pension Benefits
Discount rate – benefit expense
Future compensation growth rate 3.50
Expected long-term rate of return
on plan assets
7.75
4.65% 4.21% 5.20%
4.00
4.00
8.00
8.00
Other Benefits
Discount rate – benefit expense
4.38% 3.89% 4.52%
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
2016
2015
6.50%
6.80%
4.50
2037
4.50
2037
Assumed health care cost trend rates have a
significant effect on the amounts reported for health care
plans. A one percentage-point change in assumed health
care cost trend rates would have the following effects:
In millions
Effect on:
One Percentage Point
Increase
Decrease
Post-retirement benefit obligation
Total of service and interest
cost components
$
3.8
$
(3.4)
0.3
(0.3)
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
GLATFELTER 2016 FORM 10-K
45
In millions
Domestic Equity
Large cap
Small and mid
cap
International
equity
REIT
Fixed income
Cash and
equivalents
Total
December 31, 2015
Total
Level 1 Level 2 Level 3
$
175.1 $
58.4 $
116.7 $
68.7
68.7
-
79.8
31.9
222.4
42.2
31.9
32.3
37.6
-
190.1
17.0
594.9 $
-
233.5 $
17.0
361.4 $
$
-
-
-
-
-
-
-
Cash Flow We were not required to make
contributions to our qualified pension plan in 2016 nor do
we expect to make any to this plan in 2017. Benefit
payments expected to be made in 2017 under our non-
qualified pension plans and other benefit plans are
summarized below:
In thousands
Nonqualified pension plans
Other benefit plans
$
1,991
3,212
The following benefit payments under all pension and
other benefit plans, and giving effect to expected future
service, as appropriate, are expected to be paid:
$
In thousands
2017
2018
2019
2020
2021
2022 through 2026
Pension
Benefits
$
Other Benefits
3,212
3,548
4,013
4,389
4,488
21,009
36,885
37,033
36,520
36,871
36,871
184,679
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. Through November 2015,
we matched a portion of the employee’s contribution,
subject to certain limitations, in the form of shares of
Glatfelter common stock out of treasury. Company
matches are now made in cash. The expense associated
with our 401(k) match was $2.0 million, $2.1 million and
$2.0 million in 2016, 2015 and 2014, respectively.
solvency of the Plan over time and thereby meet its
distribution objectives. 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 targeted range of investment
allocations of Plan assets is as follows:
Domestic Equity
International equity
Real Estate Investment
Trusts (REIT)
Fixed income, cash
and cash equivalents
Range
35%
8
-
-
2
55
-
-
45%
14
6
35
Diversification of plan assets is achieved by:
i.
ii.
placing restrictions on the percentage of equity
investments in any one company, percentage of
investment in any one industry, limiting the
amount of assets placed with any one manager;
and
setting targets for duration of fixed income
securities, maintaining a certain level of credit
quality, and limiting the amount of investment
in a single security and in non-investment
grade paper.
A formal asset allocation review is done
periodically to ensure that the Plan has an appropriate
asset allocation based on the Plan’s projected benefit
obligations. The target return for each equity and fixed
income manager will be one that places the manager’s
performance in the top 40% of its peers and, on a gross
basis, exceeds that of the manager’s respective benchmark
index. The target return for cash and cash equivalents is a
return that at least equals that of the 90-day T-bills.
The Investment Policy statement lists specific
categories of securities or activities that are prohibited
including options, futures, commodities, hedge funds,
limited partnerships, and our stock.
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
Domestic Equity
Large cap
Small and mid
cap
International
equity
REIT
Fixed income
Cash and
equivalents
Total
December 31, 2016
Total
Level 1 Level 2 Level 3
$
201.9 $
7.1 $
194.8 $
50.9
50.9
-
79.5
27.9
237.7
38.8
27.9
28.5
40.7
-
209.2
12.8
610.7 $
-
153.2 $
12.8
457.5 $
$
-
-
-
-
-
-
-
46
12.
INVENTORIES
Inventories, net of reserves were as follows:
In thousands
Raw materials
In-process and finished
Supplies
Total
December 31
2016
66,359
112,507
70,803
249,669
$
$
2015
60,098
115,874
71,242
247,214
$
$
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 $21.3 million and $28.2 million higher
than reported at December 31, 2016 and 2015,
respectively.
13. PLANT, EQUIPMENT AND TIMBERLANDS
Plant, equipment and timberlands at December 31
were as follows:
In thousands
Land and buildings
Machinery and equipment
Furniture, fixtures, and other
Accumulated depreciation
Construction in progress
Asset retirement obligation, net
Timberlands, less depletion
Total
2016
192,877
1,335,669
142,110
(1,036,825)
633,831
137,665
—
4,402
775,898
$
$
2015
205,338
1,305,067
135,355
(1,009,331)
636,429
58,657
579
3,199
698,864
$
$
As of December 31, 2016 and 2015, we had $24.3
million and $13.4 million, respectively, of accrued capital
expenditures.
14. GOODWILL AND INTANGIBLE ASSETS
The following table sets forth information with
respect to goodwill and other intangible assets:
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:
2017
2018
2019
2020
2021
2016
2015
2014
$
4,852
$
5,340
$
6,136
4,464
4,464
4,464
4,336
3,973
The remaining weighted average useful life of
intangible assets was 13.1 years at December 31, 2016.
15. OTHER LONG-TERM ASSETS
Other long-term assets consist of the following:
In thousands
Pension
Other
Total
December 31
2016
96,699
25,050
121,749
$
$
2015
89,093
20,979
110,072
$
$
16. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
In thousands
Accrued payroll and benefits
Other accrued compensation
and retirement benefits
Income taxes payable
Accrued rebates
Other accrued expenses
Total
$
17. LONG-TERM DEBT
December 31
2016
2015
$
48,306
$
35,079
6,828
211
14,329
49,576
119,250
$
6,866
2,921
18,248
43,330
106,444
December 31
Long-term debt is summarized as follows:
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
2016
73,094
6,155
4,195
35,874
32,310
1,377
2,638
82,549
(26,290)
56,259
$
$
$
2015
76,056
6,155
4,332
37,625
33,618
1,403
2,725
85,858
(22,801)
63,057
$
$
$
The change in goodwill was due to 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
December 31
In thousands
Revolving credit facility, due Mar. 2020 $
5.375% Notes, due Oct. 2020
2.40% Term Loan, due Jun. 2022
2.05% Term Loan, due Mar. 2023
1.30% Term Loan, due Jun. 2023
1.55% Term Loan, due Sep. 2025
Total long-term debt
2016
61,595
250,000
8,282
35,163
9,788
10,333
375,161
$
Less current portion
Unamortized deferred issuance costs
(8,961)
(2,553)
2015
58,792
250,000
10,109
42,130
-
2,839
363,870
(7,366)
(3,208)
Long-term debt, net of current portion $ 363,647
$ 353,296
The amount set forth for Long-term debt, net of
current portion as of December 31, 2015, has been
restated to retroactively adopt ASU No. 2015-03, Interest
- Imputation of Interest (Subtopic 835-30) Simplifying the
Presentation of Debt Issuance Costs. This ASU required
debt issuance costs to be presented as a direct deduction
from the carrying value of the related debt instrument
GLATFELTER 2016 FORM 10-K
47
rather than as a deferred asset except for costs associated
with a revolving line of credit.
Notes is payable semiannually in arrears on April 15 and
October 15.
On March 12, 2015, we amended our revolving
credit agreement with a consortium of banks (the
“Revolving Credit Facility”) which increased the amount
available for borrowing to $400 million, extended the
maturity of the facility to March 12, 2020, and instituted a
revised interest rate pricing grid. On February 1, 2017, the
Revolving Credit Agreement was further amended to,
among other things, change the definition of earnings
before interest, taxes, depreciation and amortization
(“EBITDA”) for purposes of calculating covenant
compliance.
For all US dollar denominated borrowings under
the Revolving Credit Facility, the borrowing rate is, at our
option, either, (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; or iii) the daily Euro-rate plus 100
basis points plus an applicable spread over either i), ii) or
iii) ranging from 12.5 basis points to 100 basis points
based on the Company’s leverage ratio and its corporate
credit ratings determined by Standard & Poor’s Rating
Services and Moody’s Investor Service, Inc. (the
“Corporate Credit Rating”); or (b) the daily Euro-rate plus
an applicable margin ranging from 112.5 basis points to
200 basis points based on the Company’s leverage ratio
and 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 EBITDA ratio (the “leverage ratio”); and ii) a
consolidated EBITDA to interest expense ratio. The most
restrictive of our covenants is a maximum leverage ratio
of 3.5x. As of December 31, 2016, the leverage ratio, as
calculated in accordance with the definition in our
amended credit agreement was 2.2x. 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, which are now publically
registered, are fully and unconditionally guaranteed,
jointly and severally, by PHG Tea Leaves, Inc.,
Mollanvick, Inc., Glatfelter Composite Fibers N. A., Inc.,
Glatfelter Advanced Materials N.A., Inc., and Glatfelter
Holdings, LLC (the “Guarantors”). Interest on the 5.375%
48
The 5.375% Notes are redeemable, in whole or in
part, at any time on or after October 15, 2016 at the
redemption prices specified in the applicable Indenture.
These Notes and the guarantees of the notes are senior
obligations of the Company and the Guarantors,
respectively, rank equally in right of payment with future
senior indebtedness of the Company and the Guarantors
and will mature on October 15, 2020.
The 5.375% Notes contain 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, 2016, we met all of the
requirements of our debt covenants.
Glatfelter Gernsbach GmbH & Co. KG
(“Gernsbach”), a wholly-owned subsidiary of ours,
entered into a series of borrowing agreements with IKB
Deutsche Industriebank AG, Düsseldorf (“IKB”) as
summarized below:
Amounts in thousands
Borrowing date
Apr. 11, 2013
Sep. 4, 2014
Oct. 10, 2015
May 4, 2016
Apr. 26, 2016
Original
Principal
Interest
Rate
Maturity
€
42,700
10,000
2,608
7,195
10,000
2.05%
2.40%
1.55%
1.55%
1.30%
Mar. 2023
Jun. 2022
Sep. 2025
Sep. 2025
Jun. 2023
Each of the borrowings require quarterly
repayments of principal and interest and provide for
representations, warranties and covenants customary for
financings of these types. The financial covenants
contained in each of the IKB loans, 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 Revolving Credit
Agreement.
Aggregated unamortized deferred debt issuance
costs incurred in connection with all of our outstanding
debt totaled $4.2 million at December 31, 2016. 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
$1.2 million in 2016.
The following schedule sets forth the amortization
of our term loan agreements together with the maturity of
our other long-term debt during the indicated year.
In thousands
$
2017
2018
2019
2020
2021
Thereafter
8,961
9,930
9,930
321,525
9,930
14,885
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, 2016 and 2015, we had $5.1
million and $5.3 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.
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:
2016
2015
In thousands
Variable rate debt
Fixed-rate bonds
2.40% Term loan
2.05% Term loan
1.30% Term Loan
1.55% Term loan
Total
Carrying
Value
Carrying
Value
61,595 $ 61,595 $
Fair
Value
Fair
Value
$
58,792 $ 58,792
250,000 256,563 250,000 250,938
10,109 10,535
42,130 42,886
-
2,524
$ 375,161 $384,268 $ 363,870 $365,675
8,282
8,877
35,163 37,089
9,788 10,062
10,333 10,082
-
2,839
As of December 31, 2016 and 2015, 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."
Derivatives Designated as Hedging Instruments -
Cash Flow Hedges We use currency forward contracts as
cash flow hedges to manage our exposure to fluctuations
in the currency exchange rates on certain forecasted
production costs or capital expenditures expected to be
incurred over a maximum of nineteen 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,
certain production costs or capital expenditures 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 sheets. With
respect to hedges of forecasted raw material purchases or
production costs, the amount deferred is subsequently
reclassified into costs of products sold in the period that
inventory produced using the hedged transaction affects
earnings. For hedged capital expenditures, deferred gains
or losses are reclassified and included in the historical
cost of the capital asset and subsequently affect earnings
as depreciation is recognized. The ineffective portion of
the change in fair value of the derivative is recognized
directly to earnings and reflected in the accompanying
consolidated statements 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 - sell notional
Euro / British Pound
Sell/Buy - buy notional
Euro / Philippine Peso
British Pound / Philippine Peso
Euro / U.S. Dollar
U.S. Dollar / Canadian Dollar
U.S. Dollar / Euro
December 31
2016
2015
10,373
10,527
699,279
557,025
43,951
35,290
15,379
758,634
542,063
51,433
34,649
—
These contracts have maturities of nineteen months
or less.
GLATFELTER 2016 FORM 10-K
49
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 consolidated statements of
income under the caption “Other, net.”
In thousands
Derivative
Sell/Buy - sell notional
U.S. Dollar / Euro
U.S. Dollar / British Pound
Euro / British Pound
British Pound / Euro
Sell/Buy - buy notional
Euro / U.S. Dollar
British Pound / Euro
December 31
2016
2015
—
10,500
—
2,500
3,500
18,500
—
10,000
—
3,500
12,500
13,500
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 sheets where the instruments are
recorded:
In thousands
2016
2015
2016
2015
December 31
December 31
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
$ 2,625
$
955
$ 1,493
$ 1,545
$
60
$
68
$
104
$
49
The amounts set forth in the table above represent
the net asset or liability giving effect to rights of offset
with each counterparty.
50
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
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
Year ended December 31
2016 2015 2014
$
(551) $ 5,752
$
(655)
(166)
(152)
184
$
806
$
599
$ 1,599
The impact of activity not designated as hedging
was substantially all offset by the remeasurement of the
underlying on-balance sheet item.
The fair value hierarchy consists of three broad
levels, which gives the highest priority to unadjusted
quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). The three levels of the fair
value hierarchy are described in Note 2.
The fair values of the foreign exchange forward
contracts are considered to be Level 2. Foreign currency
forward contracts are valued using foreign currency
forward and interest rate curves. The fair value of each
contract is determined by comparing the contract rate to
the forward rate and discounting to present value.
Contracts in a gain position are recorded in the
accompanying consolidated balance sheets under the
caption “Prepaid expenses 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) gains
on cash flow hedges
Reclassified to earnings
Balance at December 31,
2016
2015
(178)
$
3,282
1,509
551
1,882
$
2,292
(5,752)
(178)
$
$
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 to eighteen months and the amount ultimately
recognized will vary depending on actual market rates.
Credit risk related to derivative activity arises in the
event a counterparty fails to meet its obligations to us.
This exposure is generally limited to the amounts, if any,
by which the counterparty’s obligations exceed our
obligation to them. Our policy is to enter into contracts
only with financial institutions which meet certain
minimum credit ratings.
20.
SHAREHOLDERS’ EQUITY
The following table summarizes outstanding shares
of common stock:
In thousands
Shares outstanding at
beginning of year
Shares repurchased
Treasury shares issued
for:
Restricted stock awards
401(k) plan
Employee stock options
exercised
Shares outstanding at end
of year
Year ended December 31
2015
2014
2016
43,420
—
43,054
—
43,130
(464)
108
—
22
206
134
26
162
116
110
43,550
43,420
43,054
21. COMMITMENTS, CONTINGENCIES AND
LEGAL PROCEEDINGS
Contractual Commitments The following table
summarizes the minimum annual payments due on
noncancelable operating leases and other similar
contractual obligations having initial or remaining terms
in excess of one year:
In thousands
2017
2018
2019
2020
2021
Thereafter
$
Leases
Other
$
5,298
3,706
3,030
2,472
1,896
7,270
87,831
23,584
5,193
3,115
2,961
1,890
Other contractual obligations primarily represent
minimum purchase commitments under energy supply
contracts and other purchase obligations.
At December 31, 2016, required minimum annual
payments due under operating leases and other similar
contractual obligations aggregated $23.7 million and
$124.6 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”). Since the early
1990s, the United States, the State of Wisconsin and two
Indian tribes (collectively, the “Governments”) have
pursued a cleanup of a 39-mile stretch of river from Little
Lake Butte des Morts into Green Bay and natural resource
damages (“NRDs”).
The Site has been subject to certain studies,
demonstration projects and interim cleanups. The
permanent cleanup, known as a “remedial action” under
the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”), consists of
sediment dredging, installation of engineered caps and
placement of sand covers in various areas in the bed of
the river.
The United States originally notified several entities
that they were potentially responsible parties (“PRPs”);
however, after giving effect to settlements reached with
the Governments, the remaining PRPs exposed to
continuing obligations to implement the remainder of the
cleanup consist of us, Georgia Pacific Consumer
Products, L.P. (“Georgia Pacific”) and NCR Corporation
(“NCR”). In addition to the government claims, Appvion
retains a claim against us and Georgia Pacific.
The United States Environmental Protection
Agency (“EPA”) has divided the Site into five “operable
units”, including the most upstream portion of the Site on
which our facility was located (“OU1”) and four
downstream reaches of the river and bay (“OU2-5”).
We and WTM I Company, one of the PRPs,
implemented the remedial action in OU1 under a consent
decree with the Governments; Menasha Corporation made
a financial contribution to that work. That project began
in 2004 and the work is complete, other than on-going
monitoring and maintenance.
For OU2-5, work has proceeded primarily under a
Unilateral Administrative Order (“UAO”) issued in
November 2007 by the EPA to us and seven other
respondents. The majority of that work to date has been
funded or conducted by parties other than us, although
before the UAO, we contributed to a project in that area
and we have conducted about $13.4 million of cleanup
work under the UAO in 2015 and 2016. The cleanup is
expected to continue through 2018. However, as
discussed below, under a proposed consent decree
between the United States, Wisconsin, NCR and Appvion,
Inc. (“Appvion”), we would not be responsible for any
additional cleanup at the Site.
Litigation and Settlement. In 2008, in an
allocation action, NCR and Appvion sued us and many
other defendants in an effort to allocate among the liable
parties the costs of cleaning up this Site and compensating
the Governments for their costs and the natural resource
trustees for NRDs. This case has been called the “Whiting
litigation.” After several summary judgment rulings and a
trial, the trial court entered judgment in the Whiting
Litigation allocating to NCR 100% of the costs of (a) the
OU2-5 cleanup, (b) NRDs, (c) past and future costs
incurred by the Governments in OU2-5, and (d) past and
GLATFELTER 2016 FORM 10-K
51
future costs incurred by any of the other parties net of an
appropriate equitable adjustment for insurance recoveries.
On appeal, the United States Court of Appeals for
the Seventh Circuit affirmed the district court’s ruling,
holding that if knowledge and fault were the only
equitable factors governing allocation of costs and NRDs
at the Site, NCR would owe 100% of all costs and
damages in OU2-5, but would not have a share of costs in
OU1 -- which is upstream of the outfall of the facilities
for which NCR is responsible -- solely as an “arranger for
disposal” of PCB-containing waste paper by recycling it
at our mill. However, the court of appeals vacated the
judgment and remanded the case for the district court’s
further consideration of whether any other equitable
factors might cause the district court to alter its allocation.
In 2010, in an enforcement action, the
Governments sued us and other defendants for (a) an
injunction to require implementation of the cleanup
ordered by the 2007 UAO, (b) recovery of the
Governments’ past and future costs of response, (c)
recovery of NRDs, and (d) recovery of a declaration of
liability for the Site. After appeals, the Governments did
not obtain an injunction and they withdrew their claims
for NRDs. The Governments obtained a declaration of our
liability to comply with the 2007 UAO. The
Governments’ costs claims remained pending.
On January 17, 2017, the United States filed a
consent decree with the federal district court among the
United States, Wisconsin, NCR, and Appvion under
which NCR would agree to complete the remaining
cleanup and both NCR and Appvion would agree not to
seek to recover from us or anyone else any amounts they
have spent or will spend, and we and others would be
barred from seeking claims against NCR or Appvion. If
the proposed consent decree is approved by the district
court and if it were to withstand any appeal, then we
would only face exposure to: (i) government past
oversight costs, (ii) government future oversight costs,
(iii) long term monitoring and maintenance, and (iv)
depending on the reason, a further remedy if necessary in
the event the currently ordered remedy fails, over 30 or
more years, to achieve its objectives. Under the proposed
consent decree, we would be liable for all past and future
costs incurred by the Governments in addition to long
term monitoring and maintenance with respect to OU1
through OU4a. As the result of earlier settlements,
Georgia Pacific is only jointly liable with us to the
Governments for monitoring and maintenance costs
incurred in the most downstream three miles of the river
(“OU4b”) and the bay of Green Bay (“OU5”). In addition,
we and Georgia Pacific have claims against each other to
reallocate the costs that we have each incurred or will
incur. In connection with the filing of the proposed
consent decree, NCR and Appvion filed a request to stay
the trial scheduled to commence in April 2017. The courts
granted the stay.
52
Cost estimates. The January 17, 2017, proposed
consent decree states that all parties combined have spent
more than approximately $1 billion to date towards
remedial actions and NRDs, of which we have
contributed approximately $65 million. In addition, work
to complete the remaining site remedy under the UAO is
anticipated to cost approximately $200 million. If the
consent decree were entered, we would no longer be
exposed to reallocation of any of those amounts other
than the portion contributed by Georgia Pacific, which
Georgia Pacific claims to be about $145 million.
Under the proposed consent decree, we would
remain responsible for the Governments’ unreimbursed
past costs, which although they are in dispute, are
represented to total approximately $34 million and the
governments future costs. Furthermore, we, along with
Georgia Pacific, would be responsible for long term
monitoring and maintenance required pursuant to the
Lower Fox River 100% Remedial Design Report dated
December 2009 – Long Term Monitoring Plan (the
“Plan”). The Plan requires long term monitoring of each
of OU1 through OU5 over a period of 30 years. The
monitoring activities consist of, among others, testing fish
tissue, sampling water quality and sediment, and
inspections of the engineered caps. Each operable unit is
required to be monitored; however, in the event the
consent decree is entered by the court, we believe the cost
of portions of the plan would be subject to allocation
between us and Georgia Pacific. Although we are unable
to determine with certainty the timing of cash
expenditures for the above matters, they are reasonably
likely to extend over a period of at least 30 years.
Reserves for the Site. As the result of the
proposed consent decree, and assuming it is ultimately
approved and stands on appeal, our assessment of the
range of probable outcomes for this matter has changed.
The higher end of our range of our exposure is now
lower; however, the lower end of the range is higher. We
increased our reserve by $40.0 million as of December
31, 2016, to reflect our analysis of the range of potential
outcomes in this matter and our current estimate of the
most likely scenario. Our reserve is set forth below:
In thousands
Balance at January 1,
Payments
Accruals
Balance at December 31,
Year ended
December 31
2016
2015
$
$
17,105
(4,317)
40,000
52,788
$
$
16,223
(9,118)
10,000
17,105
The payments set forth above represent cash paid
towards completion of remediation activities in
connection with the 2016 and 2015 Work Plan. Of our
total reserve for the Fox River, $25.0 million is recorded
in the accompanying December 31, 2016 consolidated
balance sheet under the caption “Environmental
liabilities” and the remaining $27.8 million is recorded
under the caption “Other long term liabilities.”
Range of Reasonably Possible Outcomes. Based
on our analysis of all available information, including but
not limited to decisions of the courts, official documents
such as records of decision, discussions with legal
counsel, cost estimates for future monitoring and
maintenance and other post-remediation costs to be
performed at the Site, and substantially dependent on
whether the January 17, 2017, consent decree is entered
and the resolution of the allocation issues between
Georgia Pacific and us, we believe it is reasonably
possible that our costs associated with the Fox River
matter could exceed the aggregate amounts accrued by
amounts ranging from insignificant to $40 million. We
believe the likelihood of an outcome in the upper end of
the monetary range is less than other possible outcomes
within the range and the possibility of an outcome in
excess of the upper end of the monetary range is remote.
However, in the event the consent decree is not entered,
the ultimate resolution of this matter would likely resort
to extensive litigation involving various matters,
including allocation of remedial action and related costs.
In such a scenario, although we should ultimately bear a
very small share, it is reasonably possible that our costs
associated with the Fox River matter could exceed the
aggregate amounts accrued by amounts ranging from
insignificant to $150 million.
Summary. Our current assessment is 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 our
reserves will be adequate to provide for future obligations
related to this matter, or our share of costs and/or
damages will not exceed our available resources, or those
obligations will not 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. If the proposed consent decree is not approved
and a court grants relief requiring us individually either to
perform directly or to contribute significant amounts
towards remedial action downstream of OU1 those
developments could have a material adverse effect on our
consolidated financial position, liquidity and results of
operations and might result in a default under our loan
covenants.
22.
SEGMENT AND GEOGRAPHIC INFORMATION
The following tables set forth profitability and other information by business unit:
For the year ended December 31, 2016
In millions
Net sales
Energy and related sales, net
Total revenue
Cost of products sold
Gross profit
SG&A
Loss 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
517.0
—
517.0
416.4
100.6
46.3
—
54.3
—
54.3
235.1
27.8
18.8
Advanced
Airlaid
Materials
$
244.3
—
244.3
209.5
34.8
8.4
—
26.4
—
26.4
179.3
9.0
36.8
$
$
$
$
$
Specialty
Papers
843.6
6.1
849.7
752.6
97.1
55.9
—
41.2
—
41.2
352.9
26.3
99.0
Other and
Unallocated
—
$
—
—
13.8
(13.8)
80.1
0.2
(94.1)
(16.9)
(111.0)
8.6
2.7
5.6
$
$
$
$
$
Total
1,604.8
6.1
1,610.9
1,392.3
218.7
190.7
0.2
27.8
(16.9)
10.9
775.9
65.8
160.2
GLATFELTER 2016 FORM 10-K
53
For the year ended December 31, 2015
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, 2014
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
541.5
—
541.5
434.4
107.1
45.7
—
61.4
—
61.4
258.1
26.2
26.8
Composite
Fibers
617.9
—
617.9
498.0
119.9
51.6
—
68.3
—
68.3
277.8
29.7
23.9
Advanced
Airlaid
Materials
$
244.6
—
244.6
215.7
28.9
7.6
—
21.3
—
21.3
153.5
8.8
7.8
$
$
Advanced
Airlaid
Materials
$
281.7
—
281.7
247.6
34.1
8.8
—
25.3
—
25.3
163.6
9.1
7.6
$
$
$
$
$
$
$
$
Specialty
Papers
875.0
5.7
880.7
804.5
76.2
43.3
—
32.9
—
32.9
281.6
26.0
63.5
Specialty
Papers
902.9
7.9
910.8
821.8
89.0
50.4
—
38.6
—
38.6
250.1
29.9
32.1
Other and
Unallocated
—
$
—
—
9.2
(9.2)
31.0
$
$
(21.1)
(19.1)
(17.8)
(36.9)
5.7
2.2
1.8
Other and
Unallocated
—
$
—
—
7.8
(7.8)
22.4
$
$
(4.9)
(25.3)
(19.4)
(44.7)
6.1
1.9
2.4
$
$
$
$
$
$
Total
1,661.1
5.7
1,666.7
1,463.8
203.0
127.7
(21.1)
96.4
(17.8)
78.6
698.9
63.2
99.9
Total
1,802.4
7.9
1,810.3
1,575.2
235.1
133.2
(4.9)
106.8
(19.4)
87.4
697.6
70.6
66.0
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
54
Results of individual business units are presented
based on our management accounting practices and
management structure. There is no comprehensive,
authoritative body of guidance for management
accounting equivalent to accounting principles generally
accepted in the United States of America; therefore, the
financial results of individual business units are not
necessarily comparable with similar information for any
other company. The management accounting process uses
assumptions and allocations to measure performance of
the business units. Methodologies are refined from time to
time as management accounting practices are enhanced
and businesses change. The costs incurred by support
areas not directly aligned with the business unit are
allocated primarily based on an estimated utilization of
support area services.
Management evaluates results of operations of the
business units before pension 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.” In the evaluation of business unit results,
management does not use any measures of total assets.
This presentation is aligned with the management and
operating structure of our company. It is also on this basis
that the Company’s performance is evaluated internally
and by the Company’s Board of Directors.
Our Composite Fibers business unit serves customers
globally and focuses on higher value-added products in
the following markets:
Food & Beverage filtration paper primarily
used for single-serve coffee and tea products;
Wallcovering base materials used by the
world’s largest wallpaper manufacturers;
Metallized products used in labels, packaging
liners, gift wrap, and other consumer product
applications;
Composite Laminate paper used in production
of decorative laminates, furniture, and flooring
applications; and
Technical Specialties a diverse line of special
paper products used in applications such as
electrical energy storage, transport and
transmission, wipes, and other highly-
engineered fiber-based applications.
Composite Fibers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
Food & beverage
Wallcovering
Metallized
Composite laminates
Technical specialties and
other
Total
2016
2014
2015
$ 258,463 $ 274,865 $ 296,304
91,620 149,957
80,839
68,397
38,159
34,897
90,767
61,059
35,107
71,558
52,592
$ 516,954 $ 541,468 $ 617,851
71,689
The Advanced Airlaid Materials business unit is a
leading global supplier of highly absorbent cellulose-
based airlaid nonwoven materials primarily used to
manufacture consumer products for growing global end-
user markets. These products include:
feminine hygiene;
specialty wipes;
adult incontinence;
home care; and
other consumer products.
Advanced Airlaid Materials’ revenue composition by
market consisted of the following for the years indicated:
In thousands
Feminine hygiene
Specialty wipes
Adult incontinence
Home care
Other
Total
2014
2016
2015
$ 173,902 $ 182,048 $ 216,836
16,002
17,586
15,401
15,848
$ 244,262 $ 244,589 $ 281,673
25,206
12,281
12,630
20,243
22,950
10,720
13,345
15,526
Our Specialty Papers business unit focuses on
producing papers for the following markets:
Carbonless & non-carbonless forms papers
for credit card receipts, multi-part forms,
security papers and other end-user applications;
Engineered products for high speed ink jet
printing, office specialty products, greeting
cards, and other niche specialty applications;
Envelope and converting papers primarily
utilized for transactional and direct mail
envelopes; and
Book publishing papers for the production of
high quality hardbound books and other book
publishing needs.
Specialty Papers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
Carbonless & forms
Engineered products
Envelope & converting
Book publishing
Other
Total
2014
2016
2015
$ 319,648 $ 349,831 $ 376,959
189,463 190,943 194,189
173,362 178,067 183,194
157,541 152,647 144,744
3,805
$ 843,582 $ 875,026 $ 902,891
3,568
3,538
GLATFELTER 2016 FORM 10-K
55
No individual customer accounted for more than
10% of our consolidated net sales in 2016, 2015 and
2014. However, one customer accounted for the majority
of Advanced Airlaid Materials’ net sales in each of the
past three years ended December 31, 2016.
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.
2016
2015
2014
In thousands
United States
Germany
United Kingdom
Canada
Other
Total
Net sales
918,567
427,520
78,759
115,902
64,049
1,604,797
$
$
$
$
Plant,
Equipment and
Timberlands –
Net
391,977
220,380
51,903
79,727
31,911
775,898
Plant,
Equipment and
Timberlands –
Net
287,447
232,340
62,931
81,201
34,945
698,864
Net sales
959,730
444,009
86,442
118,568
52,335
1,661,084
$
$
$
$
Plant,
Equipment and
Timberlands –
Net
256,251
257,311
62,617
82,774
38,655
697,608
Net sales
980,933
529,003
103,219
129,401
59,859
1,802,415
$
$
$
$
23. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Our 5.375% Notes issued by P. H. Glatfelter Company (the “Parent”) 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.,
Glatfelter Composite Fibers N. A., Inc., Glatfelter Advance Materials N.A., 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 and the First Supplemental Indenture dated as of October 27,
2015, among us, the Guarantors and US Bank National Association, as Trustee, relating to the 5.375% Notes.
The following presents our condensed consolidating statements of income, including comprehensive income and cash
flows for the years ended December 31, 2016, 2015 and 2014 and our condensed consolidating balance sheets as of
December 31, 2016 and 2015.
Condensed Consolidating Statement of Income for the
year ended December 31, 2016
In thousands
Net sales
Energy and related sales, net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative
expenses
Loss on dispositions of plant
equipment and timberlands, net
Operating income (loss)
Other non-operating
income (expense)
Interest expense
Interest income
Equity in earnings of subsidiaries
Other, net
Total other non-operating
income (expense)
Income (loss) before income taxes
Income tax provision (benefit)
Net income
Other comprehensive loss
Comprehensive income
56
$
Parent
Company
843,582
6,141
849,723
763,109
86,614
Guarantors
75,000
$
—
75,000
70,991
4,009
$
Non
Guarantors
755,860
—
755,860
627,880
127,980
Adjustments/
Eliminations
(69,645)
$
—
(69,645)
(69,645)
—
Consolidated
1,604,797
$
6,141
1,610,938
1,392,335
218,603
133,387
(156)
57,463
—
4,165
39
70,478
—
—
—
190,694
216
27,693
177
(46,950)
(17,436)
687
61,007
(2,312)
41,946
(5,004)
(26,558)
21,554
(14,120)
7,434
$
$
(41)
4,177
58,347
(3,966)
58,517
62,682
1,675
61,007
(25,916)
35,091
$
(3,060)
57
—
5,007
2,004
72,482
14,135
58,347
(25,176)
33,171
$
4,715
(4,715)
(119,354)
—
(119,354)
(119,354)
—
(119,354)
51,092
(68,262)
$
(15,822)
206
—
(1,271)
(16,887)
10,806
(10,748)
21,554
(14,120)
7,434
In thousands
Net sales
Energy and related sales, net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative
expenses
Gain on dispositions of plant
equipment and timberlands, net
Operating income
Other non-operating
income (expense)
Interest expense
Interest income
Equity in earnings of subsidiaries
Other, net
Total other non-operating
income (expense)
Income before income taxes
Income tax provision (benefit)
Net income
Other comprehensive income (loss)
Comprehensive income
In thousands
Net sales
Energy and related sales, net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative
expenses
Gain on dispositions of plant
equipment and timberlands, net
Operating income
Other non-operating
income (expense)
Interest expense
Interest income
Equity in earnings of subsidiaries
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)
Condensed Consolidating Statement of Income for the
year ended December 31, 2015
$
Parent
Company
875,026
5,664
880,690
811,329
69,361
Guarantors
84,704
$
—
84,704
80,455
4,249
$
Non
Guarantors
779,380
—
779,380
650,025
129,355
Adjustments/
Eliminations
(78,026)
$
—
(78,026)
(78,026)
—
Consolidated
1,661,084
$
5,664
1,666,748
1,463,783
202,965
71,751
821
55,134
(19,720)
17,330
(1,183)
4,611
(210)
74,431
—
—
—
(18,147)
673
61,946
(3,389)
41,083
58,413
(6,162)
64,575
(35,616)
28,959
$
—
37,127
24,737
(1,471)
60,393
65,004
2,922
62,082
(41,010)
21,072
$
(36,859)
26
—
4,245
(32,588)
41,843
17,241
24,602
29,680
54,282
$
37,542
(37,543)
(86,683)
—
(86,684)
(86,684)
—
(86,684)
11,330
(75,354)
$
$
127,706
(21,113)
96,372
(17,464)
283
—
(615)
(17,796)
78,576
14,001
64,575
(35,616)
28,959
Condensed Consolidating Statement of Income for the
year ended December 31, 2014
$
Parent
Company
902,892
7,927
910,819
830,710
80,109
Guarantors
78,077
$
—
78,077
74,414
3,663
$
Non
Guarantors
897,363
—
897,363
745,981
151,382
Adjustments/
Eliminations
(75,917)
$
—
(75,917)
(75,917)
—
Consolidated
1,802,415
$
7,927
1,810,342
1,575,188
235,154
67,086
1,765
64,384
(3,545)
16,568
(1,316)
3,214
—
86,998
—
—
—
(19,105)
638
67,590
(1,366)
47,757
64,325
(4,921)
69,246
(79,513)
(10,267)
$
—
102,241
(34,265)
317
68,293
71,507
3,916
67,591
(40,704)
26,887
$
(102,571)
36
—
414
(102,121)
(15,123)
19,142
(34,265)
28,840
(5,425)
$
102,755
(102,756)
(33,325)
—
(33,326)
(33,326)
—
(33,326)
11,864
(21,462)
$
$
133,235
(4,861)
106,780
(18,921)
159
—
(635)
(19,397)
87,383
18,137
69,246
(79,513)
(10,267)
GLATFELTER 2016 FORM 10-K
57
Condensed Consolidating Balance Sheet as of December 31, 2016
In thousands
Assets
Cash and cash equivalents
Other current assets
Plant, equipment and timberlands, net
Investments in subsidiaries
Other assets
Total assets
Liabilities and Shareholders' Equity
Current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$
5,082
206,002
360,521
789,565
123,010
$ 1,484,180
$
426,628
283,686
10,221
109,819
830,354
653,826
$ 1,484,180
$
$
$
$
1,461
256,289
31,455
540,029
—
829,234
26,085
14,000
(729)
313
39,669
789,565
829,234
$
$
$
$
48,901
242,187
383,922
—
128,092
803,102
135,961
65,961
45,503
15,648
263,073
540,029
803,102
$
—
(265,663)
—
(1,329,594)
—
$ (1,595,257)
$
55,444
438,815
775,898
—
251,102
$ 1,521,259
$
(265,663)
—
—
—
(265,663)
(1,329,594)
$ (1,595,257)
$
323,011
363,647
54,995
125,780
867,433
653,826
$ 1,521,259
Condensed Consolidating Balance Sheet as of December 31, 2015
In thousands
Assets
Cash and cash equivalents
Other current assets
Plant, equipment and timberlands, net
Investments in subsidiaries
Other assets
Total assets
Liabilities and Shareholders' Equity
Current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$
59,130
199,690
286,334
737,450
106,586
$ 1,389,190
$
363,037
247,075
28,561
87,270
725,943
663,247
$ 1,389,190
$
$
$
$
465
238,515
1,114
507,116
—
747,210
9,725
—
(79)
—
9,646
737,564
747,210
$
$
$
$
45,709
239,367
411,416
—
142,599
839,091
162,081
106,221
47,976
15,825
332,103
506,988
839,091
$
—
(230,509)
—
(1,244,566)
—
$ (1,475,075)
$
105,304
447,063
698,864
—
249,185
$ 1,500,416
$
(230,523)
—
—
—
(230,523)
(1,244,552)
$ (1,475,075)
$
304,320
353,296
76,458
103,095
837,169
663,247
$ 1,500,416
58
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2016
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Expenditures for purchases of plant, equipment and timberlands
Proceeds from disposals of plant, equipment and timberlands, net
Repayments from intercompany loans
Advances of intercompany loans
Intercompany capital contributed
Other
Total investing activities
Financing activities
Net long-term borrowings
Payments of borrowing costs
Payment of dividends to shareholders
Repayments of intercompany loans
Borrowings of intercompany loans
Intercompany capital (returned) received
Payment of intercompany dividend
Proceeds from government grants
Payments related to 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
$
33,109
$
1,275
$
81,726
$
—
$
116,110
(104,595)
41
—
—
(17,000)
(800)
(122,354)
36,000
(136)
(21,589)
—
18,330
—
—
3,582
(990)
35,197
—
(54,048)
59,130
5,082
$
(30,682)
—
15,601
(18,330)
(500)
—
(33,911)
14,000
—
—
—
—
17,000
632
2,000
—
33,632
—
996
465
1,461
$
(24,881)
29
—
—
—
—
(24,852)
(35,886)
—
—
(15,601)
—
500
(632)
—
—
(51,619)
(2,063)
3,192
45,709
48,901
$
—
—
(15,601)
18,330
17,500
—
20,229
—
—
—
15,601
(18,330)
(17,500)
-
—
—
(20,229)
—
—
—
—
$
(160,158)
70
—
—
—
(800)
(160,888)
14,114
(136)
(21,589)
—
—
—
—
5,582
(990)
(3,019)
(2,063)
(49,860)
105,304
55,444
$
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2015
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Expenditures for purchases of plant, equipment and timberlands
Proceeds from disposals of plant, equipment and timberlands, net
Repayments from intercompany loans
Advances of intercompany loans
Intercompany capital (contributed) returned
Acquisitions, net of cash acquired
Other
Total investing activities
Financing activities
Net repayments of indebtedness
Payments of borrowing costs
Payment of dividends to shareholders
Repayments of intercompany loans
Borrowings of intercompany loans
Intercompany capital (returned) received
Proceeds from government grants
Payments related to share-based compensation awards and other
Total financing activities
Effect of exchange rate on cash
Net decrease in cash
Cash at the beginning of period
Cash at the end of period
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$
34,391
$
627
$
98,725
$
—
$
133,743
(65,265)
22,741
—
—
10,100
—
(1,600)
(34,024)
—
(1,329)
(20,443)
(9,158)
49,230
—
421
(2,166)
16,555
—
16,922
42,208
59,130
$
(109)
1,213
57,855
(49,230)
(300)
—
—
9,429
—
—
—
—
—
(10,100)
—
—
(10,100)
—
(44)
509
465
$
(34,515)
505
—
—
—
(224)
—
(34,234)
(24,650)
—
—
(48,697)
—
300
—
151
(72,896)
(3,006)
(11,411)
57,120
45,709
$
—
—
(57,855)
49,230
(9,800)
—
—
(18,425)
—
—
—
57,855
(49,230)
9,800
—
—
18,425
—
—
—
—
$
(99,889)
24,459
—
—
—
(224)
(1,600)
(77,254)
(24,650)
(1,329)
(20,443)
—
—
—
421
(2,015)
(48,016)
(3,006)
5,467
99,837
105,304
$
GLATFELTER 2016 FORM 10-K
59
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2014
In thousands
Net cash provided (used) by
Operating activities
Investing activities
Expenditures for plant, equipment and timberlands
Proceeds from disposal plant, equipment and timberlands, net
Repayments from intercompany loans
Advances of intercompany loans
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
Repurchases of common stock
Repayments of intercompany loans
Borrowings of intercompany loans
Payments related to 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
24. QUARTERLY RESULTS (UNAUDITED)
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$
36,240
$
4,159
$
59,178
$
—
$
99,577
(34,518)
3,707
—
(12,671)
—
(600)
(44,082)
—
—
(18,696)
(12,180)
—
26,340
(1,630)
(6,166)
—
(14,008)
56,216
42,208
$
—
1,355
20,840
(26,340)
—
—
(4,145)
—
—
—
—
—
—
—
—
—
14
495
509
$
(31,528)
10
—
—
(8,015)
—
(39,533)
(18,128)
—
—
—
(20,840)
12,671
(247)
(26,544)
(2,152)
(9,051)
66,171
57,120
$
—
—
(20,840)
39,011
—
—
18,171
—
—
—
—
20,840
(39,011)
—
(18,171)
—
—
—
—
$
(66,046)
5,072
—
—
(8,015)
(600)
(69,589)
(18,128)
—
(18,696)
(12,180)
—
—
(1,877)
(50,881)
(2,152)
(23,045)
122,882
99,837
$
In thousands,
except per share
First
Second
Third
Fourth
Net sales
Gross profit
Net income (loss)
2016
$ 402,218
406,413
405,301
390,865
2015
$ 417,469
410,803
419,960
412,852
$
2016
57,843
42,723
61,170
56,867
$
2015
52,108
32,833
59,908
58,116
$
2016
16,168
1,965
19,601
(16,180)
$
2015
13,925
2,848
13,504
34,298
Earnings (loss)
per share
2016
2015
$
0.37
0.04
0.44
(0.37)
$
0.32
0.06
0.31
0.78
60
ITEM 9
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
ITEM 9A CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our chief executive officer and our chief financial
officer have, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)), as of
December 31, 2016, concluded that, as of the evaluation
date, our disclosure controls and procedures were
effective.
Executive Officers of the Registrant The
information with respect to the executive officers required
under this Item incorporated herein by reference to
“Executive Officers” as set forth in Part I, page 11 of this
report.
We have adopted a Code of Business Ethics for the
CEO and Senior Financial Officers (the “Code of
Business Ethics”) in compliance with applicable rules of
the Securities and Exchange Commission that applies to
our chief executive officer, chief financial officer and our
principal accounting officer or controller, or persons
performing similar functions. A copy of the Code of
Business Ethics is filed as an exhibit to this Annual
Report on Form 10-K and is available on our website, free
of charge, at www.glatfelter.com.
Internal Control Over Financial Reporting
ITEM 11 EXECUTIVE COMPENSATION
Management’s report on the Company’s internal
control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) and the related report
of our independent registered public accounting firm are
included in Item 8 – Financial Statements and
Supplementary Data.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over
financial reporting during the three months ended
December 31, 2016, that have materially affected or are
reasonably likely to materially affect our internal control
over financial reporting.
ITEM 9B OTHER INFORMATION
None.
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
Directors The information with respect to directors
required under this Item is incorporated herein by
reference to our Proxy Statement, to be dated on or about
March 30, 2017. Our board of directors has determined
that, based on the relevant experience of the members of
the Audit Committee, two of the four 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 30, 2017.
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 30, 2017.
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 30, 2017.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND
SERVICES
The information required under this Item is
incorporated herein by reference to our Proxy Statement,
to be dated on or about March 30, 2017.
Our Chief Executive Officer has certified to the
New York Stock Exchange that he is not aware of any
violations by the Company of the NYSE corporate
governance listing standards.
GLATFELTER 2016 FORM 10-K
61
PART IV
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
1.
Our Consolidated Financial Statements as follows are included in Part II, Item 8:
Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014
i.
ii.
iii. Consolidated Balance Sheets as of December 31, 2016 and 2015
iv. Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014
v.
vi. Notes to Consolidated Financial Statements
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2016, 2015 and 2014
2.
i.
Financial Statement Schedules (Consolidated) included in Part IV:
Schedule II -Valuation and Qualifying Accounts - For each of the three years ended December 31, 2016
(b) Exhibit Index
Exhibit
Number
Description of Documents
Incorporated by Reference to
Exhibit
2.1
Filing
Form 10-Q filed
May 9, 2013
Share Purchase Agreement, dated March 13, 2013, by and among Glatfelter Gernsbach GmbH & Co. KG.
(as purchaser), P 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).
Articles of Incorporation, as amended through December 20, 2007 (restated for the purpose of filing on
3(b)
EDGAR).
Amended and Restated By-Laws of P. H. Glatfelter Company, as amended, dated December 15, 2016, filed
herewith
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.
First Supplemental Indenture dated as of October 27, 2015 by and among P. H. Glatfelter Company, the
4.1
4.2
Subsidiary Guarantors named therein and US Bank National Association, as Trustee.
Second Amended and Restated Credit Agreement, dated as of March 12, 2015, by and among the Company,
10.1
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 HSBC Bank USA, N.A., as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank,
N.A. and HSBC Bank USA, N.A., as co-syndication agents, and Cobank, ACB, Bank of America, N.A.
and Manufacturers and Traders Trust Company, as co-documentation agents.
First Amendment to Second Amended and Restated Credit Agreement, dated as of February 1, 2017, by and
among P. H. Glatfelter Company, the Lenders party thereto, and PNC Bank, National Association, in its
capacity as administrative agent for the Lenders.
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.
P. H. Glatfelter Company Amended and Restated Long-Term Incentive Plan, as amended and restated
effective February 26, 2015**
P. H. Glatfelter Company Amended and Restated 2005 Management Incentive Plan, effective January 1,
2015**
P. H. Glatfelter Company Supplemental Long Term Disability Plan, dated February 25, 2014, between the
registrant and certain employees**
P. H. Glatfelter Company Supplemental Executive Retirement Plan (amended and restated effective
January 1, 2010)**
P. H. Glatfelter Company Supplemental Management Pension Plan (amended and restated effective
January 1, 2008)**
Form of Top Management Restricted Stock Unit Award Certificate**
Form of Non-Employee Director Restricted Stock Unit Award Certificate**
Form of Stock-Only Stock Appreciation Right Award Certificate (form effective February 26, 2014)**
Form of Performance Share Award Certificate (form effective February 26, 2014)**
Form of Restricted Stock Unit Award Certificate, form effective as of December 13, 2013**
Restricted Stock Unit Award Certificate, dated as of December 13, 2013, for Dante C. Parrini**
10.1
10.1
10.2
10.4
10.1
10.1
10(c)
10(d)
10.2
10.3
10.3
10.2
10.(l)
10.1
Non-Competition and Non-Solicitation Agreement by and between P. H. Glatfelter Company and Dante C.
10.1
Parrini, dated July 2, 2010. **
Form 10-K filed
March 13, 2008
Form 8-K filed
October 3, 2012
Form 10-K filed
February 26, 2016
Form 8-K filed
March 16, 2015
Form 8-K filed on
February 6, 2017
Form 10-Q filed
May 9, 2013
Form 10-Q filed
May 9, 2013
Form 10-K filed
February 27, 2015
Form 8-K filed
May 8, 2015
Form 10-Q filed
May 2, 2014
Form 10-K filed
March 8, 2013
Form 10-K filed
March 8, 2013
Form 8-K filed
May 5, 2009
Form 8-K filed
April 29, 2005
Form 10-Q filed
May 2, 2014
Form 10-Q filed
May 2, 2014
Form 10-K filed
March 3, 2014
Form 8-K filed
December 17, 2013
Form 8-K filed
July 6, 2010
2.1
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
62
Exhibit
Number
10.17
10.18
10.19
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.25
10.25
Description of Documents
Incorporated by Reference to
Exhibit
Filing
Retention agreement between P. H. Glatfelter Company and Timothy R. Hess, dated January 7, 2017, filed
herewith**
Restricted Stock Unit Award Certificate for Timothy R. Hess, dated as of January 6, 2017, filed herewith **
Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company and certain
employees, form effective as of August 5, 2013**
(A)Schedule of Change in Control Employment Agreements, filed herewith**
10(q)
Form 10-K filed
March 3, 2014
Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company and certain
10(j)
10.1
10(k)
10(r)
10(t)
10.2
10(i)
Form 10-K filed
March 13, 2009
Form 8-K filed
December 20, 2004
Form 10-K filed
March 8, 2013
Form 10-K filed
March 16, 2007
Form 10-K filed
March 13, 2008
Form 8-K filed
July 6, 2010
Form 10-K filed
March 28, 1997
10.3(a)
Form 10-Q filed
August 6, 2010
Form 10-Q filed
August 6, 2010
Form 10-Q filed
August 6, 2010
Form 10-Q filed
August 6, 2010
10.3(d)
10.2
14
Form 8-K filed
November 19, 2007
Form 10-K filed
March 15, 2004
employees, form effective as of December 8, 2008**
Summary of Non-Employee Director Compensation (effective January 1, 2005)**
P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of January 1, 2007**
Service Agreement, commencing on August 1, 2006, between the Registrant (through a wholly owned
subsidiary) and Martin Rapp**
Retirement Pension Contract, dated October 31, 2007, between Registrant (through a wholly owned
subsidiary) and Martin Rapp**
Guidelines for Executive Severance**
Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated as of
January 31, 1997, among P. H. Glatfelter Company, Fort Howard Corporation, NCR Corporation,
Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper Mills, Wisconsin Tissue Mills Inc. and
the State of Wisconsin
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.)
10.25
(A)Agreed Supplement to Consent Decree between United States of America and the State of Wisconsin vs. P. H.
10.3(b)
10.25
(B)Second Agreed Supplement to Consent Decree between United States of America and the State of Wisconsin
10.3(c)
Glatfelter Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
10.26
10.27
14
21
23
31.1
31.2
32.1
32.2
vs. P. H. Glatfelter Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
(C)Amended Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox
River and Green Bay Site by and among the United States of America and the State of Wisconsin v. P.
H. Glatfelter and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.) (certain Appendices have been
intentionally omitted, copies of which can be obtained free of charge from the Registrant)
Administrative Order for Remedial Action dated November 13, 2007, issued by the United States
Environmental Protection Agency
Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter
Subsidiaries of the Registrant, filed herewith
Consent of Independent Registered Public Accounting Firm, filed herewith
Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section
302(a) of the Sarbanes-Oxley Act Of 2002, filed herewith
Certification of John P. Jacunski, Executive 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, Executive 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 2016 FORM 10-K
63
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
February 24, 2017
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
/s/ Dante C. Parrini
Dante C. Parrini
Chairman and Chief Executive Officer
/s/ John P. Jacunski
John P. Jacunski
Executive Vice President and
Chief Financial Officer
/s/ David C. Elder
David C. Elder
Vice President, Finance
/s/ Bruce Brown
Bruce Brown
/s/ Kathleen A. Dahlberg
Kathleen A. Dahlberg
/s/ Nicholas DeBenedictis
Nicholas DeBenedictis
/s/ Kevin M. Fogarty
Kevin M. Fogarty
/s/ J. Robert Hall
J. Robert Hall
/s/ Richard C. Ill
Richard C. Ill
/s/ Ronald J. Naples
Ronald J. Naples
/s/ Lee C. Stewart
Lee C. Stewart
Principal Executive Officer and Director
Principal Financial Officer
Chief Accounting Officer
Director
Director
Director
Director
Director
Director
Director
Director
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
64
Schedule II
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
For each of the three years ended December 31, 2016
Valuation and Qualifying Accounts
In thousands
Balance, beginning of year
Provision
Write-offs, recoveries and
discounts allowed
Other (a)
Balance, end of year
$
$
2016
Doubtful Accounts
2015
2,239
$
2,703 $
32
(497)
(55)
7
(275)
(196)
1,719
$
2,239 $
Allowance for
2014
2016
2015
2014
Sales Discounts and Deductions
2,725 $
1,061
(946)
(137)
2,703 $
1,593
$
1,809 $
4,283
(4,368)
(46)
3,856
(3,649)
(423)
1,462
$
1,593 $
1,810
4,356
(4,719)
362
1,809
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 2016 FORM 10-K
65
D I R E C T O R S A N D O F F I C E R S
O F F I C E R S A N D M A N A G E M E N T
Dante C. Parrini
William T. Yanavitch II
Reinhard S. Schiebeler
Chairman and Chief Executive Officer
Senior Vice President, Human Resources
Vice President, Operations &
John P. Jacunski
Executive Vice President and
Chief Financial Officer
and Administration
Supply Chain, Composite Fibers
Eileen L. Beck
Ramesh Shettigar
Vice President, Human Resources
Vice President & Treasurer
Christopher W. Astley
David C. Elder
Senior Vice President & Business Unit
Vice President, Finance
John A. Stachowiak
Vice President, Internal Audit
President, Advanced Airlaid Materials
Samuel L. Hillard
Amy R. Wannemacher
Timothy R. Hess
Vice President, Corporate Development
Vice President, Tax
Senior Vice President & Business Unit
& Strategy
President, Specialty Papers
Martin Rapp
Kent K. Matsumoto
Vice President, General Counsel &
Senior Vice President & Business Unit
Corporate Secretary
President, Composite Fibers
Joseph J. Zakutney
Vice President and Chief Information Officer
D I R E C T O R S
Dante C. Parrini
Nicholas DeBenedictis
Richard C. Ill
Chairman and Chief Executive Officer
Retired Chairman and Chief Executive Officer
Retired Chairman and Chief Executive Officer
Bruce Brown
Aqua America, Inc.
Retired Chief Technology Officer
Kevin M. Fogarty
Procter & Gamble
President and Chief Executive Officer
Triumph Group, Inc.
Ronald J. Naples
Chairman Emeritus
Kathleen A. Dahlberg
Chief Executive Officer
G.G.I., Inc.
Kraton Performance Polymers, Inc.
Quaker Chemical Corporation
J. Robert Hall
Chief Executive Officer
Ole Smoky Distillery
Lee C. Stewart
Private Financial Consultant
C O R P O R A T E I N F O R M A T I O N
W O R L D H E A D Q U A R T E R S
P. H . G L AT F E LT E R C O M PA N Y
96 South George Street
Suite 520
York, PA 17401
phone: 717-225-2719
fax: 717-846-7208
www.glatfelter.com
S T O C K E XC H A N G E
A N D S Y M B O L
New York Stock Exchange
GLT
A N N U A L M E E T I N G
O F S H A R E H O L D E R S
May 4, 2017, 9:00 a.m. Eastern
York County Heritage Trust,
Historical Society Museum
250 East Market Street, York, PA
T R A N S F E R AG E N T,
D I V I D E N D D I S B U R S I N G
AG E N T A N D R E G I S T R A R
I N F O R M AT I O N S O U R C E S
For the latest quarterly business results or
other information, visit www.glatfelter.com
Computershare
P. O. Box 30170
College Station, TX 77842-3170
Private Couriers/Registered Mail:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
Shareholder website
www.computershare.com/investor
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
Shareholder online inquiries
https://www-us.computershare.com/investor/Contact
toll-free: 877-832-7259
international: 201-680-6578
Glatfelter is a global supplier of specialty papers and fiber-based engineered
materials, offering innovation, world-class service and over a century and a half
of technical expertise. Headquartered in York, PA, the company employs over
4,300 people and serves customers in over 100 countries. U.S. operations include
facilities in Pennsylvania and Ohio. International operations include facilities in
Canada, Germany, France, the United Kingdom and the Philippines, and sales and
distribution offices in China and Russia. Glatfelter’s sales approximate $1.6 billion
annually and its common stock is traded on the New York Stock Exchange under the
ticker symbol GLT. Additional information may be found at www.glatfelter.com.
FORWARD-LOOKING STATEMENTS
Certain statements made in this annual report which pertain to future financial and business performance and conditions and other financial
and business matters are “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are subject to numerous
risks, uncertainties and other unpredictable or uncontrollable factors which may cause actual results or performance to differ materially from
the Company’s expectations. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those
expressed in the forward-looking statements are detailed on page 16 of the accompanying 2015 Annual Report on Form 10-K included
herein and in other filings with the SEC.
L O C A T I O N S
W O R L D H E A D Q U A R T E R S
P. H. Glatfelter Company
96 South George Street
Suite 520
York, PA 17401
U.S.A.
U . S . O P E R AT I N G L O C AT I O N S
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
Fort Smith Facility
8201 Chad Colley Boulevard
Fort Smith, AR 72916
(production to begin late 2017)
I N T E R N AT I O N A L O P E R AT I N G
L O C AT I O N S
S A L E S O F F I C E - O N LY
L O C AT I O N S
Gainesville, Georgia
200 Broad Street
Suite 206
Gainesville, GA 30501
U.S.A.
Moscow, Russia
13 2-ya Zvenigorodskaya Street
Building 41 (Floor 9)
Moscow, 123022
Russia
O T H E R L O C AT I O N S
China
Room 501
Building 24 of Times Square
Suzhou Industrial Park
215028 Suzhou
People’s Republic of China
Gernsbach Facility*
Hördener Straße 5
76593 Gernsbach
Germany
Dresden Facility*
Bergstraße 76
01099 Dresden
Germany
Ober-Schmitten Facility*
Rhönstraße 13
Ober-Schmitten
63667 Nidda
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 Office
P . H . G L A T F E L T E R C O M P A N Y
9 6 S O U T H G E O R G E S T R E E T , S U I T E 5 2 0
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2016 Annual Report
FSC® C132107
© 20 17 GLATFELTER