P
.
H
.
G
L
A
T
F
E
L
T
E
R
C
O
M
P
A
N
Y
2
0
1
7
A
N
N
U
A
L
R
E
P
O
R
T
2 0 1 7 A N N U A L R E P O R T
Glatfelter is a global supplier of specialty papers and engineered materials, offering
innovation, world-class service and over a century and a half of technical expertise.
Headquartered in York, PA, the company employs approximately 4,200 people
and serves customers in over 100 countries. U.S. operations include facilities in
Arkansas, 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 performance or business 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
management’s expectations. Some of the risks, uncertainties and other factors that could cause actual results to differ materially from those
expressed in the forward-looking statements are detailed on page 15 of the accompanying 2017 Annual Report on Form 10-K included
herein and in other filings with the SEC.
Dear Shareholders,
Glatfelter’s 2017 performance is best characterized by the
sharply diverging trajectories of our Engineered Materials
and Specialty Papers businesses. While Composite Fibers
and Advanced Airlaid Materials turned in strong results,
Specialty Papers experienced exceptionally challenging
market conditions that reduced its operating profit by
approximately $26 million versus 2016.
Our strategy has focused on driving growth in our
Engineered Materials businesses through innovation
and by making investments to expand capacity and
capabilities to maximize shareholder return. As Glatfelter
entered 2017, we anticipated the leading customer
positions, innovative new products and healthy market
fundamentals of these businesses would lead to strong
growth. These business units fulfilled our expectations
and drove strong earnings growth and margins to
Dante C. Parrini, Chairman and Chief Executive Officer
record levels. While our Engineered Materials businesses
While continuing to produce high-quality,
represented 50% of Glatfelter’s revenues in 2017, they
generated three-quarters of our adjusted EBITDA.
• Composite Fibers’ 2017 operating profit of
$62.3 million rose 15% versus the prior year. Solid
growth across all product lines delivered a 9%
increase in shipping volume. EBITDA margins climbed
to record levels due to lean manufacturing execution
and continuous improvement initiatives. The business
technically sophisticated products, Glatfelter PEOPLE
across our company showed resilience, commitment,
and passion for operational excellence by reducing
costs, embracing continuous improvement, and
completing a multi-year capital improvement program
tied to the company’s growth and sustainability efforts.
However, the solid progress we made could not
overshadow the stark contrast that emerged between
unit also successfully executed a cost optimization
our business units’ results.
program that generated $10 million in savings,
positioning the business for improved margins.
We expected that Specialty Papers would face
a difficult year. But the uncoated free-sheet market
• Advanced Airlaid Materials achieved record operating
deteriorated even more than envisioned as prices plunged
profit of $30 million, up 14% over 2016. EBITDA
margins also reached record levels. The business
unit experienced strong demand for its feminine
hygiene products, while shipments of wipes and
to an 11-year low. The business unit’s operating profit
declined to $15.4 million, 63% lower than the previous
year. Despite aggressive cost reduction and a paper
machine closure, Specialty Papers could not overcome the
adult incontinence products were each up 14% over
very difficult competitive environment.
the previous year. The new Fort Smith, Arkansas,
facility was substantially completed and we began
shipping commercial goods during the first quarter
of 2018. We also installed a new modern business
Our safety improvement journey continued with most
of Glatfelter’s facilities meeting or exceeding their annual
goals. Several mills reported outstanding performance
and set new records as we strove to ensure that all
system at the Gatineau and Fort Smith facilities, and
Glatfelter PEOPLE work injury-free, every day.
Falkenhagen will be online by the end of 2018. We
expect this new global platform to transform the way
we operate and lead to profitable growth.
1
The strong performances of the Engineered
rates of 2% to 8%. The new Fort Smith facility adds
Materials businesses, plus the considerable progress we
20% to the capacity of Advanced Airlaid Materials,
made in cost reduction, operating excellence and new
and shipping volumes are expected to increase 10% to
product innovation, were not enough to overcome the
15% in 2018 as the facility ramps up production. And
competitive intensity in Specialty Papers’ markets. As
demand for Composite Fibers’ products is expected to
a result, our 2017 net sales declined 1% and adjusted
remain robust.
earnings per share declined 16% to $1.16.
With a period of heavy capital investment behind
We increased the dividend by 4% over 2016 to $0.52
us, we expect improved cash flows and liquidity in
annually – the fifth year in a row it has been raised. We
2018. With a solid balance sheet and improving cash
also maintained the strength of our balance sheet –
flows, we are well positioned to continue to pursue
retaining the financial flexibility to invest in our people,
opportunities to enhance our organic growth with
processes and technology while pursuing strategic
acquisitions that improve our market position and drive
growth opportunities.
competitive advantage.
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
With Glatfelter’s Engineered Materials businesses
Glatfelter’s 2017 performance continued to demonstrate
now contributing the vast majority of our EBITDA,
that our global Engineered Materials businesses have
Specialty Papers has become less core to the success
become the company’s engines of growth. The strategy
of the company. After careful study and analysis, we
of targeting resources solely to accelerate their expansion
have concluded that Glatfelter should focus its
and considering strategic alternatives for Specialty Papers
investments and resources solely on accelerating
will be critical to our future success. These actions are
the growth of the Composite Fibers and Advanced
designed to make Glatfelter a more focused company,
Airlaid Materials businesses.
where we invest capital and resources in growth
On February 6, 2018, we announced that the
company would undertake a review of strategic
alternatives for Specialty Papers, including the potential
sale of the business unit. Specialty Papers’ hard work,
exceptional customer service and commitment to
opportunities that leverage our innovative products and
hard-fought positions of market leadership. Glatfelter’s
board and management team firmly believe this is the
best path to build a more profitable and competitive
company that drives future shareholder value creation.
continuous improvement have distinguished it among
I want to thank all shareholders for their allegiance
industry peers. We believe the business unit will benefit
and support as we chart the best course for our company.
from stewardship whose singular goal is investing in its
We are excited about the opportunities that lie ahead
many strengths and attributes.
as we evolve our business to become a leading global
Short term, we will continue to focus Specialty
Papers on delivering superior customer service, product
innovation and cost optimization to enhance profitability
and cash flows. The outlook for the business unit’s
markets should improve in 2018 as the industry shutters
10% of its capacity and pricing begins to rebound.
engineered materials company.
Sincerely,
The outlook for 2018 and beyond is bright for our
Dante C. Parrini
Engineered Materials businesses as their markets are
expected to continue to grow with long-term growth
Chairman and Chief Executive Officer
March 15, 2018
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, 2017
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, 2017, the aggregate market value of the Common Stock of the Registrant held by non-affiliates was $833.7 million.
Emerging growth company (cid:255)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:255)
Common Stock outstanding on February 20, 2018 totaled 43,688,575 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, 2018 are incorporated by reference to Part III.
P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2017
Table of Contents
Page
PART I
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Properties
Item 3 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. Energy and Related Sales, Net
4. Gain on Dispositions of Plant,
Equipment and Timberlands
5. Asset Impairment Charges
6. Earnings Per Share
7. Accumulated Other Comprehensive
Income
Income Taxes
8.
1
6
12
12
12
12
13
13
13
14
14
15
16
24
26
27
28
29
31
32
33
34
35
36
36
39
39
39
40
40
41
9. Stock-Based Compensation
10. Retirement Plans and Other Post-
Retirement Benefits
11. Inventories
12. Plant, Equipment and Timberlands
13. Goodwill and Intangible Assets
14. Other Long-Term Assets
15. Other Current Liabilities
16. Long-Term Debt
17. Fair Value of Financial Instruments
18. Financial Derivatives and Hedging
Activities
19. Shareholders’ Equity
20. Commitments, Contingencies and
Legal Proceedings
21. Segment and Geographic Information
22. Condensed Consolidating Financial
Statements
23. 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
44
45
49
49
49
49
50
50
51
51
53
53
57
59
63
64
64
64
64
64
64
64
64
65
67
68
PART I
P. H. Glatfelter Company makes regular filings
with the Securities and Exchange Commission (“SEC”),
including this Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K.
These filings are available, free of charge, on our website,
www.glatfelter.com, and the SEC’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 engineered
materials. We are headquartered in York, Pennsylvania,
and we own and operate manufacturing facilities in
Arkansas, Pennsylvania, Ohio, Canada, Germany, the
United Kingdom, France, and the Philippines. In addition
to many of our manufacturing locations, we have sales
and distribution offices in the U.S., Russia and China. Our
13 manufacturing facilities have a combined production
capacity of approximately 1.0 million tons of engineered
materials and specialty papers products used in a wide
array of applications. We manage our company as three
separate business units: Composite Fibers; Advanced
Airlaid Materials; and Specialty Papers.
Strategy Our strategy is focused on
Expanding our
engineered materials
businesses
• Target investments to
increase capacity
• Drive innovations to create
competitive advantage and
market-leading positions
• Pursue strategic acquisitions
Drive continuous
improvement and cost
optimization initiatives
• Implement global business
system transformation
• Manage cost structure to
increase margins
Maintaining a healthy
balance sheet and
financial flexibility
• Flexibility to fund organic and
inorganic growth
opportunites
• Disciplined capital spending
The following charts depict Net sales and Adjusted
EBITDA (earnings before interest, taxes, depreciation and
amortization) by business unit for the year ended
December 31, 2017.
Net sales
Adjusted EBITDA
16%
34%
51%
22%
50%
26%
Composite Fibers
Advanced Airlaid
Specialty Papers
Over the past few years, we have shifted more of
our focus to developing our engineered materials
businesses (Composite Fibers and Advanced Airlaid
Materials). We have expanded our position in growing
global markets with approximately half of our net sales
and three-quarters of Adjusted EBITDA coming from
these two businesses. This expansion counterbalances the
decline of demand in certain markets served by Specialty
Papers.
In our growth businesses, 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 will make
appropriate investments to support our customers and
satisfy market demands. For example, we invested
approximately $85 million to build a new advanced
airlaid facility in Arkansas to service the North America
market. The new facility will provide approximately
22,000 short tons of capacity with commercial shipments
anticipated to begin in the first quarter of 2018. 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 2017, 2016 and 2015, we invested $10.3 million,
$10.3 million and $10.4 million, respectively, in new
product development activities.
We are committed to ensuring our cost structure is
competitive and to maintaining our leading market
positions, expanding product margins and generating
strong free cash flows driven by delivering on cost
reduction and continuous improvement initiatives. In
2017, we implemented significant cost optimization
initiatives in both Composite Fibers and Specialty Papers.
Combined, the actions are delivering meaningful results.
Our investment in a global business system
transformation will unify our processes and systems to
GLATFELTER 2017 FORM 10-K
1
improve our cost structure, facilitate global growth,
empower employees, enable compliance and improve the
customer experience. Advanced Airlaid Materials
successfully completed implementation of a new
manufacturing and business systems in North America
during the fourth quarter of 2017 with implementation at
our European site to follow in 2018.
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
2017
$1,591,297
2016
$1,604,797
2015
$1,661,084
34.2%
32.2%
32.6%
16.1
49.7
100.0%
15.2
52.6
100.0%
14.7
52.7
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
2017
165,775
102,110
764,437
1,032,322
2016
151,766
2015
153,766
99,037
794,318
1,045,121
95,957
802,188
1,051,911
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;
•
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;
2
• Composite Laminates paper used in
production of decorative laminates, furniture,
and flooring applications; and
• Metallized products used in labels, packaging
liners, gift wrap, and other consumer product
applications.
We believe Composite Fibers maintains a market
leadership position in the single-serve coffee and tea
markets, wallcover base material and many products it
produces. This business unit’s revenue composition by
market consisted of the following for the years indicated:
In thousands
Food & beverage
Wallcovering
Technical specialties
Composite laminates
Metallized
Total
2017
$ 268,474
103,011
76,991
38,696
57,088
$ 544,260
2016
$ 258,463
90,767
71,558
35,107
61,059
$ 516,954
2015
$ 274,865
91,620
71,689
34,897
68,397
$ 541,468
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 favorably affected the
comparison of 2017 to 2016 by $2.0 million and
unfavorably affected the comparison of 2016 to 2015 by
$11.1 million.
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 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
24,000 metallized
18,000 abaca pulp
Principal Raw
Material
(“PRM”)
Abaca pulp
Wood pulp
Synthetic fiber
Base stock
Abaca fiber
Estimated Annual
Quantity of PRM
(short tons)
15,300
96,300
24,400
23,900
22,700
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.
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 important to support growth in this
business unit. Abaca pulp, a specialized pulp with limited
sources of availability, is produced by our Philippine mill,
providing 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
and/or substitute fibers are used to meet customer
demands.
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 2017 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
Wallcovering
Composite laminates
Metallized
Competitor
Ahlstrom, Purico, Miquel y
Costas and Zhejiang Kan
Technocell, Neu Kaliss, Goznak,
Kämmerer and Ahlstrom
Schweitzer-Maudit, Purico,
Miquel y Costas 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, wallcover, electrical products and
consumer products;
• making targeted investments to create
incremental capacity to serve growth markets;
•
leveraging innovation resources to drive new
product and new business development;
• 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
2017
$ 179,670
29,519
14,425
13,029
19,458
$ 256,101
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
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 2017 to 2016 by $2.8 million. The effect of
currency changes was minimal in 2016 compared with
2015.
The feminine hygiene category accounted for 70%
of Advanced Airlaid Material’s revenue in 2017. 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
GLATFELTER 2017 FORM 10-K
3
location consists of two airlaid production lines
employing multi-bonded and thermal-bonded airlaid
technologies and two proprietary single-lane festooners.
In addition, a new production facility in Fort Smith,
Arkansas with an annual capacity of approximately
22,000 short tons, will primarily serve the growing
demand for wipes and hygiene airlaid products in North
America.
The business unit’s three facilities operate with the
following combined attributes:
Airlaid Production
Capacity (short tons)
Principal Raw
Material
(“PRM”)
Estimated
Annual
Quantity of
PRM
(short tons)
129,000
Fluff pulp
98,560
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
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;
4
•
•
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
Carbonless & forms
Engineered products
Envelope & converting
Book publishing
Other
Total
2017
$ 292,071
189,930
154,291
152,576
2,067
$ 790,935
2016
$ 319,648
189,463
173,362
157,541
3,568
$ 843,582
2015
$ 349,831
190,943
178,067
152,647
3,538
$ 875,026
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. In addition, foreign producers create
additional imbalance by shipping product to the U.S. when
market pricing is favorable. In response, we and other
producers have closed, reduced or repurposed production
capacity in an attempt to bring supply balance to the
market. In the third quarter of 2017, we permanently shut
down a machine which represented approximately 10% of
Specialty Papers’ annual production. Maintaining the
supply and demand balance will require the industry to
continually remove capacity sufficient to match declining
demand.
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 offset, in
large part, this lost volume with products such as
envelope papers, business forms, and other value-added
specialty engineered products.
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)
735,000
Principal Raw
Material
(“PRM”)
Pulpwood
Wood- and
other pulps
Estimated Annual
Quantity of PRM
(short tons)
2,340,000
665,515
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. Annual production capacity for coated
paper is approximately 65,000 tons. The Chillicothe facility
operates three 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 2017, 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 35% of its electricity needed for the
Chillicothe, OH mill. The primary fuel source for both
facilities is natural gas following the conversion of their
boilers from coal.
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, Georgia Pacific, Fibria
Celulose, Koehler Paper,
Mitsubishi Paper, Nekoosa
Coated Products, Packaging
Corp and Asia Pulp and Paper
Co.
Specialty papers divisions of
International Paper, Domtar
Corp., Packaging Corp, and
Sappi Limited, among others.
Domtar, International Paper,
Georgia Pacific and Packaging
Corp
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, including geographic revenue and amounts
of long-lived asset, 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 21.
Concentration of Customers For each of the past
three years, no single customer represented more than
GLATFELTER 2017 FORM 10-K
5
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
2017, 2016 and 2015.
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.
During the past two years, we incurred significant
expenditures related to Specialty Papers’ environmental
compliance project and for Advanced Airlaid Materials’
capacity expansion project. Capital expenditures totaled
$132.3 million, $160.2 million and $99.9 million in 2017,
2016 and 2015, respectively. The previously mentioned
projects are substantially complete and capital
expenditures in 2018 are estimated to total $67 million to
$72 million.
Environmental Matters We are subject to
various federal, state and local laws and regulations
intended to protect the environment as well as human
health and safety. At various times, we have incurred
significant costs to comply with these regulations and we
could incur additional costs as new regulations are
developed or regulatory priorities change.
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).
We are a defendant in the Fox River environmental
site, a complex and significant matter. For a more
complete discussion of this matter and our exposure to
potential additional costs, see Item 8 – Financial
Statements and Supplementary Data – Note 20.
Employees As of December 31, 2017, we
employed approximately 4,175 people worldwide, of
whom approximately 68% are represented by unions or
labor works councils. The United Steelworkers
International Union and the Office and Professional
Employees International Union represents approximately
1,380 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 expires in
November 2020. 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
6
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
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 $87.7 million of our revenue in 2017
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 volatile currencies
may cause demand for our products to be volatile and cause
abrupt changes in our customers buying patterns.
Approximately 29% of our net sales in 2017 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 invested approximately $85 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 this airlaid capacity expansion 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.
The construction phase of the project is
substantially complete and we have begun product
qualification. If we incur significant unforeseen 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 dollar and Philippine peso,
among others. Our euro denominated revenue exceeds euro
expenses by an estimated €145 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.
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 $87.7 million of our revenue in 2017 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 may 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, pulps, pulp substitutes,
abaca fiber, synthetic fibers, colorformers and certain
other raw materials, as well as access to reliable and
abundant supplies of water to support many of our
production facilities.
Our Specialty Papers’ locations are vertically
integrated manufacturing facilities that can generate
approximately 90% 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 and has historically been more volatile than
other fuels.
GLATFELTER 2017 FORM 10-K
7
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 arrangements with
certain Advanced Airlaid Materials’ customers pursuant
to which our product’s selling price is adjusted for
changes in the cost of certain raw materials, 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
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. Continued imbalance could have
a material adverse effect on our operating and financial
results.
8
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 and coated
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;
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. 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 in 2017 and 2016.
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 20, in 2016 and 2015, we
increased our reserve for potential liabilities by $40
million and $10 million, respectively. The increase
recorded in 2016 was primarily based on our evaluation
of a 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 20.
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 70% of
Advanced Airlaid Materials’ net sales in 2017 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.
GLATFELTER 2017 FORM 10-K
9
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
affiliated companies unless specified conditions are met.
Any such limitations would restrict our flexibility in using
funds generated in those jurisdictions.
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 shut down 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.
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
10
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.
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.
GLATFELTER 2017 FORM 10-K
11
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 involved in litigation of 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 20.
EXECUTIVE OFFICERS
The following table sets forth certain information with
respect to our executive officers and other senior
management members as of February 23, 2018:
Name
Dante C. Parrini
John P. Jacunski
Christopher W. Astley
Timothy R. Hess
Martin Rapp
Eileen L. Beck
David C. Elder
Samuel L. Hillard
Age Office with the Company
53 Chairman and Chief Executive Officer
52 Executive Vice President,
Chief Financial Officer
45 Senior Vice President & Business Unit
President, Advanced Airlaid
Materials
51 Senior Vice President & Business Unit
President, Specialty Papers
58 Senior Vice President & Business Unit
President, Composite Fibers
55 Vice President, Human Resources
49 Vice President, Finance
36 Vice President, Corporate Development
& Strategy
Kent K. Matsumoto
58 Vice President, General Counsel and
Corporate Secretary
Joseph J. Zakutney
55 Vice President, Chief Information Officer
12
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.
Timothy R. Hess was named Senior Vice President
& Business Unit President, Specialty Papers in January
2017. Prior to this, Mr. Hess 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
with Glatfelter.
in
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.
Eileen L. Beck was promoted to Vice President
Human Resources in April 2017. She joined us in 2012 as
Director, Global Compensation and Benefits and was
promoted to Vice President in September 2015. Ms. Beck
previously held various Human Resources roles at
Armstrong World Industries.
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.
Joseph J. Zakutney joined us in September 2015
as Vice President and Chief Information Officer. Prior to
joining Glatfelter, he spent 17 years with The Hershey
Company where he held a broad spectrum of IT roles
including Vice President and CIO.
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
2017
2016
Fourth
Third
Second
First
Fourth
Third
Second
First
High
Low
Dividend
$21.99
20.72
22.53
25.59
$25.49
23.43
23.81
20.94
$18.54
16.53
17.90
20.73
$17.50
19.16
18.50
14.09
$0.13
0.13
0.13
0.13
$0.125
0.125
0.125
0.125
As of February 20, 2018, we had 969 shareholders
of record.
ITEM 4 MINE SAFETY DISCLOSURES
Not Applicable
GLATFELTER 2017 FORM 10-K
13
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, 2012 and charts it through December 31,
2017.
COMPARISON OF 5 YEAR CUMULATIVE
TOTAL RETURN
$250
$200
$150
$100
$50
$0
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
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
Shareholders’ equity
Cash dividends declared per common
share
Depreciation, depletion and
amortization
Capital expenditures
Net tons sold
Number of employees
2017
$1,591,297
5,126
1,596,423
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
(2)
2013
$1,722,615
3,153
1,725,768
$
$
(26)
7,914 (1 )
0.18
0.18
(216)
21,554
0.49
0.49
$
$
21,113
64,575
1.49
1.47
4,861
69,246
1.60
1.57
1,726
67,158
1.56
1.52
$
$
$
$
$
$
$1,730,795
481,396
$1,521,259
372,608
$1,500,416
360,662
$1,557,710
400,818
$1,674,010
437,925
708,928
653,826
663,247
649,109
684,476
0.52
0.50
0.48
0.44
0.40
76,048
132,304
1,032,322
4,175
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
(1) The 2017 results include a $20.9 million non-cash charge related to the impact of the Tax Cuts and Jobs Act (“TCJA”) which was signed into law
on December 22, 2017.
(2) On April 30, 2013, we acquired Dresden Papier GmbH, the results of which are included prospectively from the acquisition date.
14
ITEM 7 MANAGEMENT'S DISCUSSION AND
viii. the impact of unplanned production interruption;
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/regional 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 price or availability of raw materials
we use, in particular pulpwood, pulp, pulp
substitutes, synthetic pulp, colorformers, caustic
soda, and abaca fiber;
vii. changes in energy-related prices and the price of
commodity raw materials with an energy component;
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 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,
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.
GLATFELTER 2017 FORM 10-K
15
RESULTS OF OPERATIONS
2017 versus 2016
Overview Net income for the year ended
December 31, 2017 was $7.9 million, or $0.18 per diluted
share compared with $21.6 million, or $0.49 per diluted
share in 2016. The GAAP-based results reflect the impact
of significant unusual and non-recurring items including,
among others, charges related to cost optimization actions
including workforce efficiency and the reduction of
underutilized capacity, costs related to our environmental
compliance initiative, a capacity expansion project and a
charge in 2016 related to the Fox River environmental
matter. Our results in 2017 reflect the impact of the Tax
Cuts and Jobs Act (the “TCJA”) signed into law on
December 22, 2017.
Excluding these items from reported results, adjusted
earnings, a non-GAAP measure, was $51.5 million, or
$1.16 per diluted share for 2017, compared with $60.7
million, or $1.38 per diluted share, a year ago.
We generated $104.3 million of cash from operations
in 2017 compared with $116.1 million a year ago. During
2017 and 2016, capital expenditures totaled $132.3
million and $160.2 million, respectively, reflecting
spending in connection with the completion of multi-year
major capital spending. We also returned additional cash
to our shareholders in the form of a 4% increase in our
dividend, the fifth 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
2017
$ 1,591,297
192,510
58,090
7,914
0.18
2016
$ 1,604,797
218,603
27,693
21,554
0.49
The Composite Fibers and Advanced Airlaid
Materials business units reported 15% and 14% growth in
operating profit, respectively. The performance of these
businesses was driven by higher shipping volumes, strong
operating performance, higher machine utilization and
cost optimization and continuous improvement initiatives.
However, Specialty Papers’ profitability declined with
selling prices reaching eleven year lows due to declining
industry operating rates. The weakness of Specialty
Papers more than offset meaningful growth in the
engineered materials businesses.
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
16
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:
Airlaid capacity expansion costs. This adjustment
reflects non-capitalized, one-time costs incurred related to
the start-up of a new airlaid production facility in Fort
Smith, Arkansas and the implementation of a new
business system.
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, write-offs of
production assets and certain contract termination costs.
Specialty Papers environmental compliance. This
adjustment reflects non-capitalized, one-time costs
incurred by the business unit directly related to
compliance with the U.S. EPA Best Available Retrofit
Technology rule and the Boiler Maximum Achievable
Control Technology rule. This adjustment includes one-
time costs incurred during the construction and transition
period in which the newly installed equipment was
brought on-line.
U.S. Tax Reform. This adjustment reflects amounts
recorded estimating the impact of the Tax Cuts and Jobs
Act (“TCJA”) which was signed into law on December
22, 2017. The TCJA includes, among many provisions, a
tax on the mandatory repatriation of earnings of the
Company’s non-U.S. subsidiaries and a change in the
corporate tax rate from 35% to 21%.
Timberland sales and related costs. This adjustment
excludes 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.
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.
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.
These adjustments are each unique and not
considered to be on-going in nature. The transactions are
irregular in timing and amount and may significantly
impact our operating performance. As such, these items
may not be indicative of our past or future performance
and therefore are excluded for comparability purposes.
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, 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, 2017 and 2016 :
In thousands, except per share
Net income
Adjustments (pre-tax)
Airlaid capacity expansion costs
Cost optimization actions
Specialty Papers' environmental compliance
Timberland sales and related costs
Fox River environmental matter
Pension settlement charge
Total adjustments (pre-tax)
Income taxes (1)
U.S. Tax Reform
Total after-tax adjustments
Adjusted earnings
Year ended December 31
2017
2016
Amount
Diluted EPS
Amount
Diluted EPS
$
7,914
$
0.18
$
21,554
$
0.49
10,854
9,988
3,617
(188)
-
-
24,271
(1,641 )
20,922
43,552
51,466
$
$
0.98
1.16
$
2,661
3,534
8,348
-
40,000
7,306
61,849
(22,719 )
-
39,130
60,684
$
0.89
1.38
(1) Tax effect on adjustments calculated based on the incremental effective tax rate of the jurisdiction in which each adjustment originated and the related
impact of valuation allowances.
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) losses 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
2016
2017
$ 517.0
$ 544.3
—
—
517.0
544.3
416.4
437.6
100.6
106.7
46.3
44.4
—
62.3
—
—
54.3
—
Advanced Airlaid
Materials
2017
$ 256.1
—
256.1
216.7
39.4
9.3
—
30.1
—
2016
$ 244.3
—
244.3
209.5
34.8
8.4
—
26.4
—
Specialty Papers
2016
2017
$ 843.6
$ 790.9
6.1
5.1
849.7
796.0
752.6
734.2
97.1
61.8
55.9
46.4
Other and
Unallocated
Total
2017
2017
2016
$ — $ — $ 1,591.3
5.1
1,596.4
1,403.9
192.5
134.4
—
—
15.4
(15.4)
34.3
—
—
13.9
(13.9)
80.1
2016
$ 1,604.8
6.1
1,610.9
1,392.3
218.6
190.7
—
15.4
—
—
41.2
—
—
(49.7)
(18.8)
0.2
(94.2)
(16.9)
—
58.1
(18.8)
0.2
27.7
(16.9)
$ 62.3
$ 54.3
$ 30.1
$ 26.4
$ 15.4
$ 41.2
$ (68.5)
$ (111.1)
$
39.3
$
10.8
165.8
151.8
102.1
99.0
764.4
794.3
—
$ 28.3
15.9
$ 27.8
18.8
$
9.6
50.6
$
9.0
36.8
$ 30.8
51.5
$ 26.3
99.0
$
7.3
14.3
$
—
2.7
5.6
1,032.3
1,045.1
$
76.0
132.3
$
65.8
160.2
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.
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.
GLATFELTER 2017 FORM 10-K
17
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
2017
$1,591,297
2016
$1,604,797
Change
$ (13,500)
5,126
1,596,423
1,403,913
$ 192,510
6,141
1,610,938
1,392,335
$ 218,603
(1,015)
(14,515)
11,578
$ (26,093)
12.1%
13.6%
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
2017
2016
34.2%
16.1
49.7
100.0%
32.2%
15.2
52.6
100.0%
Net sales on a consolidated basis totaled $1,591.3
million and $1,604.8 million in 2017 and 2016,
respectively. The $13.5 million decrease was primarily
driven by $29.7 million of lower selling prices partially
offset by $4.8 million of favorable currency translation.
Shipping volumes decreased 1.2%.
Composite Fibers’ net sales increased $27.3 million,
or 5.3%, and totaled $544.3 million in 2017. Shipping
volumes in this business unit increased 9.2% and currency
translation was favorable by $2.0 million; however,
selling prices unfavorably impacted the comparison by
$10.1 million.
Composite Fibers’ operating income for the year
ended December 31, 2017 increased $8.0 million to $62.3
million compared to a year ago primarily due to higher
shipping volumes, improved machine utilization rates and
reduced downtime, and the impact of our cost
optimization program initiated in late 2016. The primary
drivers are summarized in the following chart (in
millions):
$16.0
$(4.8)
$1.0
$62.3
$54.3
$(10.1)
$6.0
2016 Operating
Income
Selling Price Volume & Mix Operations &
Other
RM & Energy
Inflation
FX
2017 Operating
Income
18
Advanced Airlaid Materials’ net sales totaled
$256.1 million in 2017. Net sales increased $11.8 million
in the year-over-year comparison primarily due to higher
shipping volumes which increased 3.1%.
Advanced Airlaid Materials’ operating income
totaled $30.1 million, an increase of $3.7 million, or
14.0% compared to a year ago driven by strong demand.
The primary drivers are summarized in the following
chart (in millions):
$26.4
$0.7
$3.6
$(1.5)
$0.2
$0.8
$30.1
2016
Operating
Income
Selling
Price
Volume &
Mix
Operations
& Other
RM and
Energy
Inflation
FX
2017
Operating
Income
Specialty Papers’ net sales decreased $52.7 million,
or 6.2% and totaled $790.9 million in 2017. The decrease
was due to a $20.3 million impact from lower selling
prices and a 3.8% decrease in shipping volumes.
Operating income totaled $15.4 million, a decrease of
$25.8 million compared to the year ended December 31,
2016. The primary drivers of the change in operating
income are summarized in the following chart (in
millions):
$41.2
$(20.3)
$7.3
$(6.6)
$(5.1)
$(1.0)
$15.4
2016
Operating
Income
Selling Price
Volume
& Mix
Operations &
Other
RM &
Energy
Inflation
Energy
Related
Sales
2017
Operating
Income
The business unit was adversely impacted by a
supply/demand imbalance affecting the broader uncoated
freesheet market. The imbalance negatively impacted
pricing and volume with a combined market impact $25.4
million. Our cost optimization actions including a 15%
reduction in salaried workforce, aggressive cost control
actions, lower maintenance spending and improved
operating performance contributed to the $7.3 million
benefit from operations.
The following table summarizes Energy and related
sales activity for the years of 2017 and 2016:
Year ended
December 31
In thousands
Energy sales
Costs to produce
Net
Renewable energy credits
Total
2017
2016
Change
$
$
3,258
(3,986)
(728)
5,854
5,126
$
$
3,613 $
(3,972)
(359)
6,500
6,141 $
(355)
(14)
(369)
(646)
(1,015)
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 $49.7 million for 2017 compared
with $94.2 million in 2016. The comparison reflects costs
incurred related to the environmental compliance and
capacity expansion projects and charges for cost
optimization actions. The amounts reported in 2016
includes a charge of $40.0 million to increase our reserve
for potential costs related to the Fox River environmental
matter and a $7.3 million pension settlement charge
discussed below. 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.” The Fox
River matter is more fully discussed in Item 8, Financial
Statements and Supplementary Data, Note 20.
Pension Expense
The following table
summarizes the amounts of normal pension expense
recognized, excluding the 2016 pension settlement
charge, for the periods indicated:
In thousands
Recorded as:
Costs of products sold
SG&A expense
Total
Year ended
December 31
2017
2016
Change
$
$
3,381
3,264
6,645
$
$
2,346 $
3,149
5,495 $
1,035
115
1,150
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 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
2018 is expected to be approximately $7.1 million
compared with $6.6 million in 2017.
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
2017
Timberlands
Other
Total
2016
Timberlands
Other
Total
2015
Timberlands
Other
Total
Acres Proceeds
Gain
(loss)
332 $
n/a
$
— $
n/a
$
209 $
19
228 $
- $
70
70 $
188
(214)
(26)
-
(216)
(216)
15,628 $ 23,917 $20,867
246
$ 24,459 $21,113
542
n/a
Income taxes For the year ended December 31,
2017, we recorded a $31.4 million provision for income
taxes on pretax income of $39.3 million. The comparable
amounts in 2016 were a provision of $(10.7) million and
pretax income of $10.8 million. As more fully discussed
in Item 8 - Financial Statements and Supplementary Data,
Note 8, the TCJA was passed into law on December 22,
2017. In connection with the TCJA, we recorded a charge
of $20.9 million during the fourth quarter of 2017.
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.
GLATFELTER 2017 FORM 10-K
19
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 €145
million. For 2017 compared to 2016 the average currency
exchange rate of the euro strengthened relative to the U.S.
dollar by approximately 2.0% in the year over year
comparison, and the British pound sterling to the dollar
declined approximately 5.0%. 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 period
indicated.
In thousands
Net sales
Costs of products sold
SG&A expenses
Income taxes and other
Net income
Year ended
December 31, 2017
Favorable
(unfavorable)
$
$
4,818
(2,782)
(300)
1,122
2,858
The above table only presents the financial reporting
impact of foreign currency translations assuming currency
exchange rates in 2017 were the same as 2016. It does not
present the impact of certain competitive advantages or
disadvantages of operating or competing in multi-
currency markets.
2016 versus 2015
Overview Net income for 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 $160.2 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.
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
2016
$ 1,604,797
218,603
27,693
21,554
0.49
2015
$ 1,661,084
202,965
96,372
64,575
1.47
Net sales on a consolidated basis for 2016 were
$1,604.8 million compared with $1,661.1 million for
2015. On a constant currency basis, net sales declined
$56.3 million, or 3.4%. 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, 2016 and 2015.
20
In thousands, except per share
Net income
Adjustments (pre-tax)
Pension settlement charge
Specialty Papers' environmental compliance
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
2016
2015
Amount
Diluted EPS
Amount
Diluted EPS
$
21,554
$
0.49
$
64,575
$
1.47
7,306
8,348
40,000
2,661
3,534
-
-
-
61,849
(22,719 )
39,130
60,684
$
-
10,000
50
2,461
1,201
(20,867 )
178
(6,977 )
1,328
(5,649 )
58,926
$
(0.13 )
1.34
$
0.89
1.38
$
(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,
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
—
54.3
—
—
61.4
—
Advanced Airlaid
Materials
2016
$ 244.3
—
244.3
209.5
34.8
8.4
—
26.4
—
2015
$ 244.6
—
244.6
215.7
28.9
7.6
—
21.3
—
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
2016
2015
$ — $ — $ 1,604.8
6.1
1,610.9
1,392.3
218.6
190.7
—
—
13.9
(13.9)
80.1
—
—
9.2
(9.2)
31.0
2015
$ 1,661.1
5.7
1,666.8
1,463.8
203.0
127.7
—
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
$ 27.8
18.8
$ 26.2
26.8
$
99.0
9.0
36.8
96.0
794.3
802.2
$
8.8
7.8
$ 26.3
99.0
$ 26.0
63.5
$
—
2.7
5.6
—
2.2
1.8
$
1,045.1
1,051.9
$
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.
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%.
GLATFELTER 2017 FORM 10-K
21
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. The primary drivers are summarized in the
following chart (in millions):
$61.4
$(7.2)
$0.5
$(0.2)
$4.3
$(4.5)
$54.3
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):
$16.3
$0.5
$41.2
$32.9
$(15.1)
$5.8
$0.8
2015
Operating
Income
Selling Price Volume &
Mix
Operations
& Other
RM &
Energy
Inflation
FX
2016
Operating
Income
The following table summarizes Energy and related
sales for 2016 and 2015:
2015
Operating
Income
Selling Price Volume & Mix Oper & Other
RM &
Energy
Inflation
Net Power Sales
and RECs
2016
Operating
Income
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 adjustments due to changes in cost of certain
raw materials. Shipping volumes increased 3.1%.
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
$26.5
$21.3
$(8.5)
$3.2
$1.4
2015
Operating
Income
Selling Price Volume & Mix Operations
& Other
RM &
Energy
Inflation
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%.
Year ended
December 31
In thousands
Energy sales
Costs to produce
Net
Renewable energy credits
Total
2016
2015
Change
$
$
3,613
(3,972)
(359)
6,500
6,141
$
$
5,315 $
(4,428)
887
4,777
5,664 $
(1,702)
456
(1,246)
1,723
477
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 2016
compared with $19.1 million in 2015. The amounts
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 20. In addition,
the comparison reflects $21.1 million of lower gains in
2016 than 2015 from sales of timberlands. The remaining
increase is due to the environmental compliance and
capacity expansion projects, a pension settlement charge
and a charge for cost optimization actions.
22
Pension Expense Pension expenses are not
allocated to a business unit. The following table
summarizes the amounts of pension expense, excluding a
$7.3 million pension settlement charge, recognized 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, mortality,
and the fair value of our pension assets.
Gain (Loss) on Sales of Plant, Equipment and
Timberlands, net During years indicated, we
completed the following sales of assets:
Dollars in thousands
2016
Other
Total
2015
Timberlands
Other
Total
Acres Proceeds
Gain
(loss)
n/a $
$
70 $
70 $
(216)
(216)
15,628 $ 23,917 $20,867
246
$ 24,459 $21,113
542
n/a
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.
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. During 2016, 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
indicated:
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 include the impact of certain
competitive advantages or disadvantages of operating or
competing in multi-currency markets.
GLATFELTER 2017 FORM 10-K
23
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and requires
significant expenditures for new or enhanced equipment,
research and development efforts, 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
Year ended
December 31
2017
2016
$ 55,444
$ 105,304
104,262
(132,319)
81,588
7,244
60,775
116,110
(160,888)
(3,019)
(2,063)
(49,860)
period
$ 116,219
$ 55,444
At December 31, 2017, we had $116.2 million in cash
and cash equivalents held by both domestic and foreign
subsidiaries. In addition to our cash and cash equivalents,
$67.5 million was available under our revolving credit
agreement, which matures in March 2020. Substantially
all of our cash and cash equivalents is held by our foreign
subsidiaries but could be repatriated without incurring a
significant amount of additional taxes.
Cash provided by operating activities totaled $104.3
million in 2017 compared with $116.1 million a year ago.
The decrease in cash from operations primarily reflects
cash paid for the cost optimization initiatives in Specialty
Papers and Composite Fibers and costs associated with
the Airlaid capacity expansion and movement in other
accruals. The use of cash for these factors was partially
offset by $22.7 million from improved working capital.
Net cash used by investing activities decreased by
$28.6 million in the year-over-year comparison primarily
due to lower capital expenditures for Specialty Papers’
environmental compliance and Advanced Airlaid
Materials’ capacity expansion projects which totaled
$58.8 million in 2017 compared to $100.2 million in
2016. These two major capital projects are substantially
complete with spending related to them in 2018 expected
to be approximately $9 million. Capital expenditures are
expected to total between $67 million and $72 million for
2018.
Net cash provided by financing activities totaled $81.6
million in 2017 compared with a use of $3.0 million in
2016. The increase in cash provided by financing
activities primarily reflects additional borrowings under
our revolving credit agreement to support capital
24
spending for our major capital programs.
The following table sets forth our outstanding long-
term indebtedness:
December 31
2017
In thousands
Revolving credit facility, due Mar. 2020 $ 171,200
250,000
5.375% Notes, due Oct. 2020
7,710
2.40% Term Loan, due Jun. 2022
33,607
2.05% Term Loan, due Mar. 2023
9,423
1.30% Term Loan, due Jun. 2023
11,390
1.55% Term Loan, due Sep. 2025
483,330
(11,298)
(1,934)
Long-term debt, net of current portion $ 470,098
Less current portion
Unamortized deferred issuance costs
Total long-term debt
$
2016
61,595
250,000
8,282
35,163
9,788
10,333
375,161
(8,961)
(2,553)
$ 363,647
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, 2017, the leverage ratio, as calculated in
accordance with the definition in our amended credit
agreement, was 2.5x, 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, 2017, we met all of the requirements
of our debt covenants. The significant terms of the debt
instruments are more fully discussed in Item 8 - Financial
Statements and Supplementary Data – Note 16.
Financing activities includes cash used for common
stock dividends which reflects a 4% increase in our
quarterly cash dividend rate in 2017. In 2017, we used
$22.5 million of cash for dividends on our common stock
compared with $21.6 million in 2016. 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
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 was
$105.6 million.
As more fully discussed in Item 8 - Financial
Statements and Supplementary Data – Note 20 –
Commitments, Contingencies and Legal Proceedings
(“Note 20”), 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. Based on the recent developments more fully
discussed in Note 20, it is conceivable the resolution of this
matter may require us to spend in excess of $28 million in
2018 to settle past and future costs and for certain
monitoring activities. 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 20, 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, 2017 and 2016, 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.
Contractual Obligations The following table sets forth contractual obligations as of December 31, 2017:
1
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
2018
$
$
535
37
168
63
803
$
$
2019 to 2020
475
$
10
50
13
548
$
2021 to 2022
23
$
6
2
13
44
$
$
$
31
13
116
6
166
2023 and
beyond
6
8
—
31
45
(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 16, “Long-term Debt.” The amounts set forth above include expected interest payments of $52 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 16, “Long-Term Debt”.
Represents rental agreements for various 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, 2017.
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 8, “Income Taxes”, such amounts totaled $27 million at December 31, 2017.
GLATFELTER 2017 FORM 10-K
25
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
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.
26
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:
2017
2015
2016
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
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
4.43%
3.85%
4.65%
4.43%
4.21%
4.65%
7.25%
7.75%
8.00%
3.00%
3.50%
4.00%
4.18%
3.68%
6.20%
4.50%
4.38%
4.18%
6.50%
4.50%
3.89%
4.38%
6.80%
4.50%
2037
2037
2037
(1)
For 2018, the expected long-term rate of return on plan assets
was reduced to 7.00% due, in part, to a change in the investment
allocation of plan assets.
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 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 –
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, 2017
2018
2019
2020
2021
2022
Carrying Value
Fair Value
At fixed interest rates – Bond
At fixed interest rates – Term Loans
At variable interest rates
$250,000
56,482
171,200
$250,000
45,184
171,200
$218,750
33,887
35,667
$ —
22,588
—
$ —
11,933
—
$
$
250,000
62,130
171,200
483,330
$ 253,823
62,701
171,200
$ 487,724
Weighted-average interest rate
On fixed rate debt – Bond
On fixed rate debt – Term Loans
On variable rate debt
5.375%
1.88%
2.99%
5.375%
1.87%
2.99%
5.375%
1.85%
2.99%
—
1.82%
—
—
1.77%
—
The table above presents the average principal
outstanding and related interest rates for the next five
years for debt outstanding as of December 31, 2017. 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, 2017, we had $481.4 million of long-term
debt, net of deferred debt issuance costs. Approximately
35.4% 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, 2017, the interest
rate paid was 2.99%. A hypothetical 100 basis point
increase or decrease in the interest rate on variable rate
debt would increase or decrease annual interest expense
by $1.7 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 18.
We are subject to certain risks associated with
changes in foreign currency exchange rates to the extent
our operations are conducted in currencies other than the
U.S. Dollar. Our euro denominated revenue exceeds euro
expenses by an estimated €145 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.
GLATFELTER 2017 FORM 10-K
27
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, 2017, 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, 2017, 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, 2017, 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, 2017.
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.
28
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the shareholders and Board of Directors of
P. H. Glatfelter Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of P. H. Glatfelter Company and subsidiaries (the
"Company") as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Company and
our report dated February 23, 2018, expressed an unqualified opinion on those financial statements.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 23, 2018
GLATFELTER 2017 FORM 10-K
29
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the shareholders and Board of Directors of
P. H. Glatfelter Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of P. H. Glatfelter Company and subsidiaries (the
"Company") as of December 31, 2017 and 2016, 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, 2017, and the related notes
and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017
and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 23, 2018, expressed an unqualified opinion on the Company’s internal
control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 23, 2018
We have served as the Company’s auditor since at least 1940,
however the specific year has not been determined.
30
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
$
$
$
$
2017
1,591,297
5,126
1,596,423
1,403,913
192,510
134,394
26
58,090
(17,772)
237
(1,220)
(18,755)
39,335
31,421
7,914
0.18
0.18
0.52
43,609
44,439
$
$
$
$
$
$
$
$
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
43,558
44,129
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
43,397
43,942
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2017 FORM 10-K
31
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 $1,930, $(335) and $880,
respectively
Unrecognized retirement obligations, net of
taxes of $(6,293), $(7,247) and $(2,920),
respectively
Other comprehensive income (loss)
Comprehensive income
2017
2016
2015
Year ended December 31
$
7,914
$
21,554
$
64,575
58,609
(27,407)
(38,817)
(5,592)
1,725
(2,581)
10,914
63,931
71,845
$
11,562
(14,120)
7,434
$
5,782
(35,616)
28,959
$
The accompanying notes are an integral part of these consolidated financial statements.
32
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
Assets
Cash and cash equivalents
Accounts receivable (less allowance for doubtful
accounts: 2017 - $1,957; 2016 - $1,719)
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: 2017 - 10,748,127; 2016 - 10,812,341)
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
2017
2016
$
$
$
$
116,219
174,154
252,064
42,534
584,971
865,743
82,744
58,859
138,478
1,730,795
11,298
190,478
5,678
28,500
111,222
347,176
470,098
83,571
121,022
1,021,867
—
544
62,594
948,411
(140,675)
870,874
(161,946)
708,928
1,730,795
$
$
$
$
55,444
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
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2017 FORM 10-K
33
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 provision (benefit)
(Gains) losses 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 investing
Net cash used by investing activities
Financing activities
Net borrowings (repayments) under revolving credit facility
Payments of borrowing costs
Proceeds from term loans
Repayment of term loans
Payments of dividends
Proceeds from government grants
Payments related to share-based compensation awards and other
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents at the beginning of
period
Cash and cash equivalents at the end of period
Supplemental cash flow information
Cash paid for:
Interest, net of amounts capitalized
Income taxes, net
Year ended December 31
2017
2016
2015
$
7,914
$
21,554
$
64,575
76,048
1,157
4,933
—
19,026
26
6,214
(10,189)
9,198
(6,300)
13,065
(17,615)
785
104,262
(132,304)
228
—
(243)
(132,319)
109,436
—
—
(9,771)
(22,480)
4,875
(472)
81,588
7,244
60,775
55,444
116,219
16,476
9,336
$
$
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
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
$
$
The accompanying notes are an integral part of these consolidated financial statements.
34
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2017, 2016 and 2015
In thousands
Balance at January 1, 2015
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
Previously unrecognized excess tax benefit on
exercise of stock awards
Net income
Other comprehensive income
Comprehensive income
Cash dividends declared ($0.52 per share)
Share-based compensation expense
Delivery of treasury shares
RSUs and PSAs
Employee stock options exercised — net
Balance at December 31, 2017
Common
Stock
$
544
Capital in
Excess of
Par Value
54,342
$
843
4,403
(5,078)
838
(436)
54,912
58
5,889
(2,375)
(567)
57,917
6,214
(535)
(1,002)
62,594
544
544
$
544
$
Accumulated
Other
Comprehensive
Loss
$
(154,870)
(35,616)
Treasury
Stock
$ (170,375)
Retained
Earnings
$
919,468
64,575
(20,900)
3,102
2,010
397
(164,866)
963,143
(190,486)
21,554
(21,813)
(14,120)
962,884
(204,606)
1,624
329
(162,913)
317
7,914
(22,704)
63,931
$
948,411
$
(140,675)
421
546
$ (161,946)
$
Total
Shareholders’
Equity
$
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
317
7,914
63,931
71,845
(22,704)
6,214
(114)
(456)
708,928
The accompanying notes are an integral part of the consolidated financial statements.
GLATFELTER 2017 FORM 10-K
35
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
engineered materials. Headquartered in York, PA, U.S.
operations include facilities in Fort Smith, Arkansas,
Spring Grove, PA and Chillicothe and Fremont, OH.
International operations include facilities in Canada,
Germany, France, the United Kingdom and the
Philippines. In addition to many of our manufacturing
locations, we have sales and distribution offices in the
U.S., 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.
36
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. For
Goodwill, 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. With respect to
tradename, impairment losses, if any, are recognized for
the amount by which the carrying value of the tradename
exceeds its fair value.
Income Taxes
Income taxes are determined using
the asset and liability method of accounting for income
taxes in accordance with FASB ASC 740 Income Taxes
(“ASC 740”). Under ASC 740, tax expense includes U.S.
and international income taxes plus the provision for U.S.
taxes on undistributed earnings of international
subsidiaries not deemed to be permanently invested. Tax
credits and other incentives reduce tax expense in the year
the credits are claimed. Certain items of income and
expense are not reported in tax returns and financial
statements in the same year. The tax effect of such
temporary differences is reported in deferred income
taxes. Deferred tax assets are recognized if it is more
likely than not that the assets will be realized in future
years. We establish a valuation allowance for deferred tax
assets for which realization is not more likely than not.
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. Substantially all of
our revenue is earned pursuant to contracts under which
we have one performance obligation that is satisfied at a
point-in-time. 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
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.
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
GLATFELTER 2017 FORM 10-K
37
changes in judgments. Substantially all of our revenue is
earned pursuant to contracts under which we have one
performance obligation that is satisfied at a point-in-time.
We have completed our review of our contracts and have
determined this ASU will not have an impact on the
timing or amount of revenue recognition, our results of
operations or our financial position. We have elected to
use the modified retrospective method of adoption.
In March 2017, the FASB issued ASU No. 2017-07,
Improving the Presentation of Net Periodic Pension Cost
and Net Periodic Postretirement Benefit Cost (“ASU
2017-07”). The update requires entities to present the
service cost component of the net periodic benefit cost in
the same income statement line item as other employee
compensation costs arising from services rendered during
the period. All other components are to be presented
below the determination of operating income. Entities will
be required to disclose the line(s) used to present the other
components of net periodic benefit cost, if the
components are not presented separately in the income
statement. ASU 2017-07 is effective for fiscal years and
interim periods beginning after December 15, 2017, and
early adoption is permitted. We will adopt this standard
beginning with first quarter 2018 financial statements and
all previously presented consolidated statements of
income will be represented to reflect the reclassification
and will result in a reduction of operating income of $2.7
million in 2017 and an increase of $3.4 million for 2016.
Such amounts will be reclassified to “Non-operating
income (expense).”
In February 2016, the FASB issued ASU No. 2016-
02, Leases (Topic 842). This ASU will require
organizations such as us 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.
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.” 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.
In addition, as permitted by the ASU, we have elected to
account for the impact of forfeitures as they occur rather
to estimate forfeitures for purposes of recognizing
compensation expense. We adopted this standard
effective January 1, 2017, on a prospective basis;
however, the adoption of the new standard did not have a
material impact on our reported results of operations or
financial position.
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. The ASU requires
additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from
customer contracts, including significant judgments and
38
In August 2017, the FASB issued ASU 2017-12,
"Derivatives and Hedging (Topic 815), Targeted
Improvements to Accounting for Hedging Activities"
(“ASU 2017-12”), which simplifies the application of
hedge accounting and more closely aligns hedge
accounting with an entity’s risk management strategies.
ASU 2017-12 also amends the manner in which hedge
effectiveness may be performed and changes the
presentation of hedge ineffectiveness in the financial
statements. ASU 2017-12 is effective for us beginning
January 1, 2019, with early adoption permitted. ASU
2017-12 requires a cumulative-effect adjustment for
certain items upon adoption. We are currently evaluating
the impact the adoption of ASU 2017-12 will have on our
consolidated financial statements.
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.
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
2016
2017
2015
$
$
3,258
(3,986)
(728)
5,854
5,126
$
$
3,613
(3,972)
(359)
6,500
6,141
$
$
5,315
(4,428)
887
4,777
5,664
4.
GAIN ON DISPOSITIONS OF PLANT,
EQUIPMENT AND TIMBERLANDS
During 2017, 2016 and 2015, we completed the
following sales of assets:
Dollars in thousands
2017
Timberlands
Other
Total
2016
Timberlands
Other
Total
2015
Timberlands
Other
Total
Acres Proceeds
Gain
(loss)
332 $
n/a
$
— $
n/a
$
209 $
19
228 $
- $
70
70 $
188
(214)
(26)
-
(216)
(216)
15,628 $ 23,917 $20,867
246
$ 24,459 $21,113
542
n/a
5.
ASSET IMPAIRMENT CHARGES
In connection with our annual test of potential
impairment of indefinite lived intangible assets, in 2015
we recorded a non-cash impairment charge of $1.2
million. No such charges were recorded in 2017 or 2016.
A trade name intangible asset was acquired in connection
with our Composite Fibers business unit’s 2013 Dresden
acquisition. The charge was 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 13.
GLATFELTER 2017 FORM 10-K
39
6.
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
2017
$ 7,914
2016
2015
$21,554 $64,575
43,609
43,558
43,397
830
571
545
44,439
44,129
43,942
$
$
0.18
0.18
0.49 $
0.49
1.49
1.47
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
2016
2017
678
596
610
7.
ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the three
years ended December 31, 2017, 2016 and 2015.
other comprehensive income (net of tax)
—
(410)
Currency
translation
adjustments
Unrealized gain
(loss) on cash
flow hedges
Change in
pensions
Change in other
postretirement
defined benefit
plans
Total
$
(100,448)
$
1,500
$
(110,656)
$
4,998
$
(204,606)
58,609
(5,182)
58,609
(41,839)
(73,041)
(27,407)
—
(27,407)
(100,448)
(34,224)
(38,817)
$
$
$
$
(5,592)
(4,092)
(225)
1,247
478
1,725
1,500
2,356
1,620
$
$
$
$
2,981
9,380
12,361
(98,295)
(120,714)
(4,334)
14,392
10,058
(110,656)
(120,260)
$
$
$
$
(1,099)
55,309
(348)
8,622
(1,447)
3,551
3,494
2,086
$
$
63,931
(140,675)
(190,486)
(28,408)
(582)
14,288
1,504
4,998
(2,742)
$
$
(14,120)
(204,606)
(154,870)
(12,995)
6,266
(43,926)
—
(4,201)
12,541
(30)
8,310
(38,817)
(73,041)
$
(2,581)
(225)
(454)
(120,714)
$
$
6,236
3,494
(35,616)
(190,486)
$
In thousands
Balance at January 1, 2017
Other comprehensive income
before reclassifications (net of tax)
Amounts reclassified from accumulated
Net current period other comprehensive
income (loss)
Balance at December 31, 2017
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
$
$
$
$
$
40
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 18)
(Gains) losses on cash flow hedges
Tax expense (benefit)
Net of tax
Retirement plan obligations (Note 10)
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
Year ended December 31
2016
2017
2015
$
(532) $
122
(410)
551 $
(73)
478
Line Item in Statements of Income
Costs of products sold
Income tax provision (benefit)
Costs of products sold
Selling, general and administrative
Costs of products sold
Selling, general and administrative
Selling, general and administrative
Income tax provision (benefit)
Costs of products sold
Selling, general and administrative
Costs of products sold
Selling, general and administrative
Income tax provision (benefit)
(5,752)
1,551
(4,201)
2,300
762
12,745
4,388
—
20,195
(7,654)
12,541
(230)
(50)
190
41
(49)
19
(30)
8,310
2,122
704
9,134
3,145
—
15,105
(5,725)
9,380
(150)
(32)
(311)
(67)
(560)
212
(348)
8,622 $
2,026
672
9,798
3,373
7,306
23,175
(8,783)
14,392
(150)
(32)
(621)
(134)
(937)
355
(582)
14,288 $
Tax expense (benefit)
Net of tax
Total reclassifications, net of tax
$
8.
INCOME TAXES
Effects of the Tax Cuts and Jobs Act
On December 22, 2017, the Tax Cuts and Jobs Act of
2017 (“TCJA”) was signed into U.S. law. Among other
things, the TCJA reduces the U.S. federal corporate tax
rate from 35% to 21% beginning in 2018 and requires
companies to pay a one-time transition tax on previously
unremitted earnings of non-U.S. subsidiaries that were
previously tax deferred. ASC Topic 740, Accounting for
Income Taxes, requires companies to recognize the effect
of tax law changes in the period of enactment even though
the effective date for most provisions is for tax years
beginning after December 31, 2017.
Given the significance of the legislation, the U.S.
Securities and Exchange Commission (the "SEC") staff
issued Staff Accounting Bulletin No. 118 (“SAB 118”),
which allows registrants to record provisional amounts
during a one year “measurement period” similar to that
used when accounting for business combinations.
However, the measurement period is deemed to have
ended earlier when the registrant has obtained, prepared,
and analyzed the information necessary to finalize its
accounting. During the measurement period, impacts of
the law are expected to be recorded at the time a
reasonable estimate for all or a portion of the effects can
be made, and provisional amounts can be recognized and
adjusted as information becomes available, prepared, or
analyzed.
SAB 118 summarizes a three-step process to be
applied at each reporting period to account for and
qualitatively disclose: (1) the effects of the change in tax
law for which accounting is complete; (2) provisional
amounts (or adjustments to provisional amounts) for the
effects of the tax law where accounting is not complete,
but that a reasonable estimate has been determined; and
(3) a reasonable estimate cannot yet be made and
therefore taxes are reflected in accordance with law prior
to the enactment of the Tax Cuts and Jobs Act.
Amounts recorded where we consider accounting to be
complete for the year ended December 31, 2017,
principally relate to the reduction in the U.S. corporate
income tax rate to 21%, which resulted in us recording an
income tax benefit of $18.1 million to remeasure net
deferred taxes liabilities.
The TCJA includes a one-time mandatory repatriation
transition tax on the net accumulated earnings and profits
of a U.S. taxpayer’s foreign subsidiaries. We performed a
preliminary earnings and profits analysis which resulted
in us recording provisional U.S. federal income tax
expense of $41.8 million, $3.8 million of non-US taxes
and $0.3 million of state taxes associated with the
repatriation of such earnings and profits. Although we
have made a reasonable estimate of the tax associated
with our net accumulated earnings, a final determination
of the TCJA’s impact remains incomplete pending a full
analysis of the provisions and their interpretations.
GLATFELTER 2017 FORM 10-K
41
Other significant provisions that are not yet effective
but may impact income taxes in future years include: an
exemption from U.S. tax on dividends of future earnings,
limitation on the current deductibility of net interest
expense in excess of 30% of adjusted taxable income, a
limitation of the use of net operating losses generated
after fiscal 2018 to 80% of taxable income but with an
indefinite carryforward period, an incremental tax (base
erosion anti-abuse tax or “BEAT”) on excessive amounts
paid to foreign related parties, and a minimum tax on
certain foreign earnings in excess of 10% of the foreign
subsidiaries’ tangible assets (i.e., global intangible low-
taxed income or “GILTI”). We are still evaluating
whether to make a policy election to treat the GILTI tax
as a period expense or to provide U.S. deferred taxes on
foreign temporary differences that are expected to
generate GILTI when they reverse in future years.
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 (benefit from) 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
2016
2015
2017
$ (1,961)
64
14,292
12,395
$
2,216
(1,112)
10,203
11,307
$
5,047
(1,680)
12,536
15,903
11,662
3,388
3,976
19,026
(24,411)
(1,723)
4,079
(22,055)
(7,287)
564
4,821
(1,902)
$ 31,421
$ (10,748)
$ 14,001
The following are the domestic and foreign
components of pretax income (loss) from operations:
Year ended December 31
2016
$ (63,315)
74,121
$ 10,806
2017
$ (40,920)
80,255
$ 39,335
$
2015
2,382
76,194
$ 78,576
In thousands
United States
Foreign
Total pretax income
42
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
2016
2017
2015
Federal income tax
provision at statutory rate
35.0%
35.0%
35.0%
State income taxes,
net of federal income tax
benefit
Foreign income tax rate
differential
Rate changes due to
enacted legislation
Tax effect of credits
Provision for (resolution of
) tax matters
State benefit due to enacted
legislation
Effect of U.S. tax law
change (1)
Valuation allowance
Permanent differences on
non-U.S. earnings
Other
Actual tax rate
0.4
(28.7)
(0.6)
(16.1)
16.9
(4.1)
53.2
23.3
(15.0)
(96.3)
(6.7)
(30.3)
2.8
—
—
7.1
0.3
(8.6)
—
(1.9)
(2.1)
—
—
0.4
—
0.6
79.9%
—
3.9
(99.5)%
(4.4)
(0.9)
17.8%
(1) Due to the TCJA which was enacted in December 2017,
provisional mandatory transition tax on accumulated foreign
earnings was accrued as of December 31, 2017. Our U.S. deferred
tax assets and liabilities as of December 31, 2017 were re-
measured from 35% to 21%.
The provisional effects of the TCJA are $39.0 million of deferred
income tax expense,
including a $6.8 million reversal of a
valuation allowance, and $18.1 million of deferred income tax
benefit for the year ended December 31, 2017.
The sources of deferred income taxes were as
follows at December 31:
$
In thousands
Reserves
Environmental
Compensation
Post-retirement benefits
Research & development
expenses
Inventories
Tax carryforwards
Other
Deferred tax assets
Valuation allowance
Net deferred tax assets
Property
Intangible assets
Pension
Other
Deferred tax liabilities
Net deferred tax liabilities
$
2017
2016
3,145
11,189
6,782
12,570
6,787
1,891
21,988
2,106
66,458
(7,405)
59,053
(98,809)
(17,647)
(21,941)
(4,110)
(142,507)
(83,454)
$
$
4,625
20,868
8,950
18,318
6,949
1,464
14,438
993
76,605
(4,066)
72,539
(81,837)
(16,561)
(29,041)
—
(127,439)
(54,900)
Non-current deferred tax assets and liabilities are
included in the following balance sheet captions:
December 31
In thousands
Other assets
2017
$
117
$
Deferred income taxes
83,571
2016
95
54,995
At December 31, 2017 we had federal, state and
foreign tax net operating loss (“NOL”) carryforwards of
$47.9 million, $188.4 million and $3.7 million,
respectively. These NOL carryforwards are available to
offset future taxable income, if any. The federal NOL
carryforward expires in 2037, state NOLs expire at
various times and in various amounts beginning in 2018
and through 2037. Certain foreign NOL carryforwards
begin to expire after 2023.
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 $9.1 million which begin to expire
after 2035, state tax credit carryforwards totaling $0.2
million, which begin to expire in 2018, and foreign
investment tax credits of $2.4 million which begin to
expire after 2027.
As of December 31, 2017 and 2016, we had a
valuation allowance of $7.4 million and $4.1 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 $6.3 million, $1.1 million and $1.5 million in
2017, 2016 and 2015, respectively, related to research and
development credits and fuels tax credits.
As a result of the mandatory deemed repatriation
provisions in the TCJA, we recorded a provisional
estimate on $397.8 million of undistributed earnings of
foreign subsidiaries in U.S. taxable income at the reduced
tax rates. With respect to other basis differences in
connection with our foreign subsidiaries at December 31,
2017, we assert that such basis differences are indefinite
in duration, and as a result, no deferred taxes have been
provided.
As of December 31, 2017, 2016 and 2015, we had
$26.9 million, $14.2 million and $12.2 million of gross
unrecognized tax benefits, respectively. As of December
31, 2017, if such benefits were to be recognized,
approximately $16.8 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
2017
2016
2015
$
14.2
$
12.2
$
14.9
Increases in tax positions
for prior years
Decreases in tax positions
for prior years
Increases in tax positions
for current year
Settlements
Lapse in statutes of
limitation
Balance at December 31
$
1.7
—
11.9
—
(0.9)
26.9
$
2.0
(1.4)
1.9
(0.2)
(0.3)
14.2
0.0
(4.3)
1.9
0.0
(0.3)
12.2
$
We, or one of our subsidiaries, file income tax
returns with the United States Internal Revenue Service,
as well as various state and foreign authorities. The
following table summarizes tax years that remain subject
to examination by major jurisdiction:
Jurisdiction
United States
Federal
State
Canada(1)
Germany(1)
France
United Kingdom
Philippines
Open Tax Years
Examinations
not yet
initiated
Examination
in progress
2014 - 2017
2013 - 2017
2010-2013;
2017
2016 - 2017
2015 - 2017
2016 - 2017
2015, 2017
N/A
2014
2014 - 2016
2011 - 2015
2012
N/A
2016
(1)
includes provincial or similar local jurisdictions, as applicable.
The amount of income taxes we pay is subject to
ongoing audits by federal, state and foreign tax
authorities, which often result in proposed assessments.
Management performs a comprehensive review of its
global tax positions on a quarterly basis and accrues
amounts for uncertain tax positions. Based on these
reviews and the result of discussions and resolutions of
matters with certain tax authorities and the closure of tax
years subject to tax audit, reserves are adjusted as
necessary. However, future results may include favorable
or unfavorable adjustments to our estimated tax liabilities
in the period the assessments are determined or resolved
GLATFELTER 2017 FORM 10-K
43
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,
2017
679,038
375,435
(96,306)
(28,781)
929,386
2016
674,523
302,722
(148,232)
(149,975)
679,038
2015
888,942
164,666
(92,183)
(286,902)
674,523
Compensation expense
$
4,843
$
3,154
$
1,758
2017
2016
2015
The amount granted in 2017, 2016 and 2015
includes 163,274, 199,693 and 105,017 PSAs,
respectively, exclusive of reinvested dividends. The
weighted average grant date fair value per unit for awards
in 2017, 2016 and 2015 was $22.32, $18.08 and $24.62,
respectively. As of December 31, 2017, unrecognized
compensation expense for outstanding RSUs and PSAs
totaled $6.7 million. The weighted average remaining
period over which the expense will be recognized is 1.9
years.
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 $0.6 million. The majority of this range
relates to tax positions taken 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,
2016
2015
2017
$
$
0.8
0.3
–
0.5
(0.1)
–
$
0.6
–
–
9.
STOCK-BASED COMPENSATION
The P. H. Glatfelter Amended and Restated Long
Term Incentive Plan (the “LTIP”) provides for the
issuance of Glatfelter common stock to eligible
participants in the form of restricted stock units, restricted
stock awards, non-qualified stock options, performance
shares, incentive stock options and performance units. As
of December 31, 2017, there were 2,188,572 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”).
44
Stock Only Stock Appreciation Rights
The following table sets forth information related to outstanding
SOSARS:
SOSARS
Outstanding at January 1,
Granted
Exercised
Canceled / forfeited
Outstanding at December 31,
Exercisable at December 31,
Vested and expected to vest
Shares
2,736,616
—
(157,140)
(17,630)
2,561,846
2,011,075
2,561,846
2017
2016
2015
Wtd Avg
Exercise Price
17.64
$
—
13.76
18.46
17.87
17.56
$
Wtd Avg
Exercise Price
17.82
$
17.54
10.70
22.80
17.64
16.19
$
Shares
2,199,742
743,925
(61,190)
(145,861)
2,736,616
1,740,591
2,725,611
Wtd Avg
Exercise Price
16.20
$
24.62
14.12
25.41
17.82
14.48
$
Shares
1,864,707
423,590
(70,347)
(18,208)
2,199,742
1,504,599
2,178,708
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
1.94%
1.64%
36.38%
6
$
1,371
$
2,735
$
2,645
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. No
SOSARs were issued during 2017. As of December 31,
2017, the intrinsic value of SOSARs vested and expected
to vest totaled $12.4 million and the remaining weighted
average contractual life of outstanding SOSARs was 5.2
years.
10. 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 2017 FORM 10-K
45
We also provide certain health care benefits to
eligible U.S.-based retired employees. Participation in the
plan is closed to any salaried employees hired after
December 31, 2006. Participation is closed to any hourly
union employees in our Pennsylvania operations hired
after January 16, 2011. Hourly union employees in our
Ohio operations are eligible to participate upon attaining
age 55 with five years of service. These benefits include a
comprehensive medical plan for retirees prior to age 65
and a fixed payment to certain retirees over age 65 to help
defray the costs of Medicare. Claims are paid as reported.
In millions
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
Pension Benefits
2016
2017
Other Benefits
2017
2016
$
$
552.0
10.7
23.8
4.1
$ 541.9
10.5
24.5
5.5
—
—
45.5
(36.5)
—
1.2
17.0
(22.9)
(24.2)
(0.3)
47.9
1.2
2.0
—
1.1
1.5
(3.0)
—
—
$ 51.0
1.1
2.0
—
1.0
(3.4)
(3.8)
—
—
of year
$
600.8
$ 552.0
$
50.7
$ 47.9
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
$
$
610.7
$ 594.9
$
— $ —
96.8
2.1
(36.5)
60.8
2.1
(22.9)
—
(24.2)
673.1
610.7
—
3.0
(3.0)
—
—
—
3.8
(3.8)
—
—
72.3
$
58.7
$
(50.7)
$ (47.9)
In 2016, 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.
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
2017
Other Benefits
2017
2016
$
$
115.5
(2.2)
96.7
(2.0)
$
— $ —
(3.2)
(3.5)
(41.0)
(36.0)
(47.2)
(44.7)
$
72.3
$
58.7
$
(50.7)
$ (47.9)
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
2017
Other Benefits
2017
2016
$
16.1
145.6
$
14.8
165.9
$
(0.5)
(5.6)
$
(0.6)
(7.4)
The accumulated benefit obligation for all defined
benefit pension plans was $584.3 million and $537.6
million at December 31, 2017 and 2016, respectively.
The weighted-average assumptions used in
computing the benefit obligations above were as follows:
Pension Benefits
2016
2017
Other Benefits
2017
2016
Discount rate –
benefit
obligation
Future
compensation
growth rate
3.85%
4.43%
3.68% 4.18%
3.00
3.00
—
—
The discount rates set forth above were estimated
based on the modeling of expected cash flows for each of
our benefit plans and selecting a portfolio of high-quality
debt instruments with maturities matching the respective
cash flows of each plan. The resulting discount rates as of
December 31, 2017 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
2017
2016
$
43.1
$
38.6
—
37.9
34.6
—
46
Net periodic benefit cost includes the following
The weighted-average assumptions used in
Year Ended December 31
2016
2015
2017
computing the net periodic benefit cost information above
were as follows:
Year Ended December 31
2016
2017
2015
$
$
10.7
23.8
$
10.5
24.5
11.6
23.3
(43.0)
(45.4)
(46.0)
Pension Benefits
Discount rate – benefit expense
Future compensation growth rate
Expected long-term rate of return
4.43%
3.00
4.65% 4.21%
3.50
4.00
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
2.8
12.3
—
6.6
1.2
2.0
(0.2)
(0.4)
$
$
2.7
13.2
7.3
12.8
1.1
2.0
(0.2)
(0.8)
$
$
$
$
$
2.6
$
2.1
$
3.1
17.1
—
9.1
1.4
2.0
(0.3)
0.2
3.3
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 $3.1 million and
$13.5 million, respectively. The comparable amounts of
expected amortization for other benefit plans are a credit
of $0.2 million and $0.3 million, respectively.
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss) were as
follows:
In millions
Pension Benefits
Actuarial (gain) loss
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
2017
2016
$
$
$
$
$
$
(8.3)
4.1
(2.8)
(12.3)
(19.3)
(12.7)
1.5
0.2
0.4
2.1
1.4
5.5
(2.7)
(20.5)
(16.3)
(3.5)
(3.4)
0.2
0.8
(2.4)
$
4.7
$
(0.3)
on plan assets
7.25
7.75
8.00
Other Benefits
Discount rate – benefit expense
4.18%
4.38% 3.89%
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
2017
2016
6.20%
6.50%
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
3.9
0.3
$
(3.5)
(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 2017 FORM 10-K
47
In millions
Domestic Equity
Large cap
Small and mid
cap
International
equity
REIT
Fixed income
Cash and
equivalents
Total
Total
December 31, 2016
Level 1
Level 2
Level 3
$
201.9
$
7.1
$
194.8
$ —
50.9
79.5
27.9
237.7
12.8
610.7
$
50.9
38.8
27.9
28.5
—
153.2
$
$
—
40.7
—
209.2
12.8
457.5
—
—
—
—
—
$ —
Cash Flow We were not required to make
contributions to our qualified pension plan in 2017 nor do
we expect to make any to this plan in 2018. Benefit
payments expected to be made in 2018 under our non-
qualified pension plans and other benefit plans are
summarized below:
In thousands
Nonqualified pension plans
Other benefit plans
$
2,160
3,500
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
2018
2019
2020
2021
2022
2023 through 2027
$
Pension
Benefits
41,106
39,993
39,468
39,375
39,041
188,907
Other Benefits
3,500
$
4,129
4,500
4,663
4,620
21,053
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 $2.3 million, $2.0 million and
$2.1 million in 2017, 2016 and 2015, 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. It is expected that asset class performance
will meet or exceed that of the assigned indices, and be at
least at the median relative to other professionally
managed accounts in its peer group. 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
Total
December 31, 2017
Level 2
Level 1
Level 3
$
214.9
$
12.4
$
202.5
$ —
46.2
81.4
27.6
290.9
12.1
673.1
$
46.2
7.2
27.6
24.0
0.1
117.5
$
$
—
74.2
—
266.9
12.0
555.6
—
—
—
—
—
$ —
48
11.
INVENTORIES
Inventories, net of reserves were as follows:
In thousands
Raw materials
In-process and finished
Supplies
Total
December 31
2017
60,806
116,678
74,580
252,064
$
$
2016
66,359
112,507
70,803
249,669
$
$
We value all of our U.S. inventories, excluding
supplies, on the LIFO method. If we had valued these
inventories using the first-in, first-out method, inventories
would have been $22.7 million and $21.3 million higher
than reported at December 31, 2017 and 2016,
respectively.
12. PLANT, EQUIPMENT AND TIMBERLANDS
Plant, equipment and timberlands at December 31
were as follows:
In thousands
Land and buildings
Machinery and equipment
Furniture, fixtures, and other
Accumulated depreciation
Construction in progress
Timberlands, less depletion
Total
2017
221,436
1,484,545
174,462
(1,125,203)
755,240
105,673
4,830
865,743
$
$
2016
192,877
1,335,669
142,110
(1,036,825)
633,831
137,665
4,402
775,898
$
$
As of December 31, 2017 and 2016, we had $21.0
million and $24.3 million, respectively, of accrued capital
expenditures.
The following table sets forth amounts of interest
expense capitalized in connection with major capital
projects:
Interest cost incurred
Interest capitalized
Interest expense
Year Ended December 31
2016
$ 17,431
1,609
$ 15,822
2015
$ 17,815
351
$ 17,464
2017
$ 19,852
2,080
$ 17,772
13. GOODWILL AND INTANGIBLE ASSETS
The following table sets forth information with
respect to goodwill and other intangible assets:
December 31
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
2017
82,744
6,155
4,773
40,686
36,705
1,488
3,001
92,808
(33,949)
58,859
$
$
$
2016
73,094
6,155
4,195
35,874
32,310
1,377
2,638
82,549
(26,290)
56,259
$
$
$
The change in the gross value of goodwill and
intangible assets 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 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:
2018
2019
2020
2021
2022
2017
2016
2015
$
4,773
$
4,852
$
5,340
4,773
4,773
4,639
4,254
4,139
The remaining weighted average useful life of
intangible assets was 12.2 years at December 31, 2017.
14. OTHER LONG-TERM ASSETS
Other long-term assets consist of the following:
In thousands
Pension
Other
Total
December 31
2017
115,482
22,996
138,478
$
$
2016
96,699
25,050
121,749
$
$
GLATFELTER 2017 FORM 10-K
49
arrangements, make acquisitions and engage in mergers
or consolidations. We are also required to comply with
specified financial tests and ratios including: i) maximum
net debt to 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, 2017, the leverage ratio, as
calculated in accordance with the definition in our
amended credit agreement was 2.5x. 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%
Notes is payable semiannually in arrears on April 15 and
October 15.
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, 2017, we met all of the
requirements of our debt covenants.
15. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
In thousands
Accrued payroll and benefits
Other accrued compensation
and retirement benefits
Income taxes payable
Accrued rebates
Other accrued expenses
Total
December 31
2017
2016
$
39,375
$
48,306
7,864
1,927
16,126
45,930
111,222
$
6,828
211
14,329
49,576
119,250
$
16. LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31
2017
In thousands
Revolving credit facility, due Mar. 2020 $ 171,200
250,000
5.375% Notes, due Oct. 2020
7,710
2.40% Term Loan, due Jun. 2022
33,607
2.05% Term Loan, due Mar. 2023
9,423
1.30% Term Loan, due Jun. 2023
11,390
1.55% Term Loan, due Sep. 2025
483,330
(11,298)
(1,934)
Long-term debt, net of current portion $ 470,098
Less current portion
Unamortized deferred issuance costs
Total long-term debt
$
2016
61,595
250,000
8,282
35,163
9,788
10,333
375,161
(8,961)
(2,553)
$ 363,647
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
50
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
Apr. 26, 2016
May 4, 2016
Original
Principal
Interest
Rate
Maturity
€
42,700
10,000
2,608
10,000
7,195
2.05%
2.40%
1.55%
1.30%
1.55%
Mar. 2023
Jun. 2022
Sep. 2025
Jun. 2023
Sep. 2025
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 $3.0 million at December 31, 2017. 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 2017.
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
2018
2019
2020
2021
2022
Thereafter
$
11,298
11,297
432,497
11,297
10,441
6,500
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, 2017 and 2016, we had $5.2
million and $5.1 million, respectively, of letters of credit
issued to us by certain financial institutions. The letters of
credit, which reduce amounts available under our
revolving credit facility, primarily provide financial
assurances for the benefit of certain state workers
compensation insurance agencies in conjunction with our
self-insurance program. We bear the credit risk on this
amount to the extent that we do not comply with the
provisions of certain agreements. No amounts are
outstanding under the letters of credit.
17. 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:
2017
2016
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
Fair
Value
$ 171,200 $171,200
253,823
7,889
34,122
9,370
11,320
$ 483,330 $487,724
250,000
7,710
33,607
9,423
11,390
Carrying
Value
Fair
Value
$
61,595 $ 61,595
256,563
250,000
8,877
8,282
37,089
35,163
10,062
9,788
10,082
10,333
$ 375,161 $384,268
As of December 31, 2017 and 2016, 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 18.
18. FINANCIAL DERIVATIVES AND HEDGING
ACTIVITIES
As part of our overall risk management practices,
we enter into financial derivatives primarily designed to
either i) hedge foreign currency risks associated with
forecasted transactions – “cash flow hedges”; or ii)
mitigate the impact that changes in currency exchange
rates have on intercompany financing transactions and
foreign currency denominated receivables and payables –
“foreign currency hedges."
Derivatives Designated as Hedging 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 eighteen 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
GLATFELTER 2017 FORM 10-K
51
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
Philippine Peso / British Pound
Euro / British Pound
Euro / U.S. Dollar
U.S. Dollar / Euro
Sell/Buy - buy notional
Euro / Philippine Peso
British Pound / Philippine Peso
Euro / U.S. Dollar
U.S. Dollar / Canadian Dollar
British Pound / Euro
U.S. Dollar / Euro
December 31
2017
2016
19,047
13,586
1,048
946
890,096
797,496
60,519
32,265
—
10,373
—
—
699,279
557,025
43,951
35,290
—
15,379
These contracts have maturities of eighteen months
335
4,253
or less.
Derivatives Not Designated as Hedging
Instruments - Foreign Currency Hedges We also enter
into forward foreign exchange contracts to mitigate the
impact changes in currency exchange rates have on
balance sheet monetary assets and liabilities. None of
these contracts are designated as hedges for financial
accounting purposes and, accordingly, changes in value of
the foreign exchange forward contracts and in the
offsetting underlying on-balance-sheet transactions are
reflected in the accompanying 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
2017
2016
—
17,500
—
1,000
4,500
13,000
—
10,500
—
2,500
3,500
18,500
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
52
consolidated balance sheets where the instruments are
recorded:
In thousands
Balance sheet caption
Designated as
hedging:
Forward foreign
currency exchange
contracts
Not designated as
hedging:
Forward foreign
currency exchange
contracts
December 31
2017
2016
Prepaid Expenses
and Other
Current Assets
December 31
2017
2016
Other Current
Liabilities
$ 1,066
$ 2,625
$ 4,787
$ 1,493
$
151
$
60
$
43
$
104
The amounts set forth in the table above represent
the net asset or liability giving effect to rights of offset
with each counterparty.
The following table summarizes the amount of
income or loss from derivative instruments recognized in
our results of operations for the periods indicated and the
line items in the accompanying consolidated statements of
income where the results are recorded:
In thousands
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
2017
$
532
$
(551)
$ 5,752
182
(166)
(152)
$
882
$
806
$
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,
2017
1,882
(6,990)
(532)
(5,640)
$
$
2016
(178)
1,509
551
1,882
$
$
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.
19.
SHAREHOLDERS’ EQUITY
The following table summarizes outstanding shares
of common stock:
In thousands
Shares outstanding at
beginning of year
Treasury shares issued
for:
Restricted stock awards
401(k) plan
Employee stock options
exercised
Shares outstanding at end
of year
Year ended December 31
2016
2015
2017
43,550
43,420
43,054
28
—
36
108
—
22
206
134
26
43,614
43,550
43,420
20. 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
2018
2019
2020
2021
2022
Thereafter
$
Leases
Other
12,683
5,926
4,393
3,276
2,932
8,431
$
115,710
31,415
18,674
1,705
4
1
Other contractual obligations primarily represent
minimum purchase commitments under energy supply
contracts and other purchase obligations.
At December 31, 2017, required minimum annual
payments due under operating leases and other similar
contractual obligations aggregated $37.6 million and
$167.5 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”).
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. Prior to the
UAO we contributed to a project in that area. Since the
issuance of the UAO we have conducted about $13.4
GLATFELTER 2017 FORM 10-K
53
million of cleanup work under the UAO in 2015 and
2016. The cleanup is expected to continue through 2019.
However, as discussed below, under a consent decree
between the United States, Wisconsin, NCR and Appvion
we are not 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
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
to something less than 100% to NCR.
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 (the
“NCR/Appvion consent decree”) 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. On March 29,
2017, the United States moved for entry of a somewhat
revised version of the NCR/Appvion consent decree,
which the federal district court entered on August 23,
2017. Under the consent decree, if it were to withstand
appeal, 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. 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 had claims
against each other to reallocate the costs that we have
each incurred or will incur. We have settled those claims.
Under this settlement, Georgia Pacific has agreed to
implement the monitoring and maintenance in OU4b and
OU5 and we would be responsible for monitoring and
maintenance of all other upstream Operable Units. We
paid Georgia Pacific $9.5 million in August 2017.
54
The NCR/Appvion consent decree and our settlement
with Georgia Pacific resulted in all claims among the
responsible parties being barred, waived, or withdrawn.
Accordingly, on October 10, 2017, the federal district
court approved a stipulation dismissing all remaining
claims in the Whiting litigation. Therefore, unless certain
limited circumstances occur permitting reassertion of
claims, we are not subject to claims for reallocation of
costs or damages incurred by any of the other parties and
we cannot seek contribution or reallocation from them.
On October 20, 2017, we appealed the district court’s
approval of the NCR/Appvion consent decree. We
contend that the court did not do what was required to
properly conclude that the NCR/Appvion consent decree
was substantially fair to us. We contend that the consent
decree was unfair to us because the costs we have already
incurred and the costs that we would have to incur were
the NCR/Appvion consent decree to remain in effect
would exceed our fair share of costs for this site. If we
prevail on appeal, the circumstances that caused us to
prevail would lead us to anticipate that, while all costs
would again be subject to reallocation, that reallocation to
be in our favor.
Cost estimates. The NCR/Appvion consent decree,
as revised, states that all parties combined have spent
more than $1 billion through March 2017 towards
remedial actions and NRDs, of which we have
contributed approximately $75 million. In addition, work
to complete the remaining site remedy under the UAO
was anticipated to cost approximately $200 million at the
beginning of the 2017 remediation season. So long as the
NCR/Appvion consent decree remains in effect, we are
not exposed to reallocation of any of those amounts, and
no other party will be exposed to reallocation of any of
the amounts that we have incurred or may incur in the
future.
So long as the NCR/Appvion consent decree remains
in effect, we (and not NCR) would remain responsible for
the Governments’ unreimbursed past costs. Many parties
have entered into settlements with the Governments over
time, including us, that have called for payments of cash
or in-kind provision of natural resource restoration
projects. Certain amounts were allocated to the United
States and the State to reimburse their costs, and other
amounts were allocated to the Natural Resource Damages
Assessment and Restoration (“NRDAR”) Fund to pay for
natural resource damages assessment, if any, and
restoration projects. The Governments may not recover
costs from us that anyone has reimbursed previously. As
of the end of 2015, the United States claimed to have
incurred about $34 million in unreimbursed costs, an
amount that we dispute. The State had no unreimbursed
costs, and had on hand approximately $4 million of
unspent settlement money. Further, the NRDAR Fund had
received what the Governments claim to have been
approximately $104 million in settlement payments, of
which more than $60 million remained unspent. On
February 5, 2018, the district court decided that the
Governments’ recovery of costs would be reduced by the
funds held by the State at the end of 2015 and by any
amount by which the Governments had applied settlement
payments to natural resource damages in excess of the
actual amount of natural resource damages. We contend
that the natural resource restoration projects already
constructed fully compensate the public for any natural
resource damages, and therefore that the entire unspent
balance in the NRDAR Fund remains as an off-set, an
amount likely to exceed all of the Governments’ past and
future costs of response. The Governments disagree. No
date has yet been set for trial of the issue.
So long as the NCR/Appvion consent decree remains
in effect, we would also remain subject to our obligations
under the OU1 consent decree, which now consist of long
term monitoring and maintenance that we expect earlier
contributions to the OU1 escrow account to fund these
costs. Furthermore, we, along with Georgia Pacific, but
not NCR, 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 OU2
through OU5 over a period of at least 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, because of our
settlement with Georgia Pacific, our obligations are in
OU1-OU4a. 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. Our reserve for all remaining
claims against us relating to PCB contamination is set
forth below:
In thousands
Balance at January 1,
Payments
Accruals
Balance at December 31,
Year ended
December 31
2017
2016
$
$
52,788
(9,644)
-
43,144
$
$
17,105
(4,317)
40,000
52,788
The payments set forth above represent cash paid
towards completion of remediation activities in
connection with the 2016 and 2015 Work Plans, the
Georgia-Pacific settlement and ongoing monitoring
activities. Of our total reserve for the Fox River, $28.5
million is recorded in the accompanying December 31,
GLATFELTER 2017 FORM 10-K
55
2017 consolidated balance sheet under the caption
“Environmental liabilities” and the remaining $14.6
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,
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 approximately $30 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.
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.
56
21.
SEGMENT AND GEOGRAPHIC INFORMATION
The following tables set forth profitability and other information by business unit:
For the year ended December 31, 2017
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
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
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, 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
Composite
Fibers
Advanced
Airlaid
Materials
Specialty
Papers
Other and
Unallocated
$
$
$
$
$
$
$
$
$
544.3
—
544.3
437.6
106.7
44.4
—
62.3
—
62.3
254.0
28.3
15.9
Composite
Fibers
517.0
—
517.0
416.4
100.6
46.3
—
54.3
—
54.3
235.1
27.8
18.8
Composite
Fibers
541.5
—
541.5
434.4
107.1
45.7
—
61.4
—
61.4
258.1
26.2
26.8
$
$
$
$
$
$
$
$
$
256.1
—
256.1
216.7
39.4
9.3
—
30.1
—
30.1
235.6
9.6
50.6
Advanced
Airlaid
Materials
244.3
—
244.3
209.5
34.8
8.4
—
26.4
—
26.4
179.3
9.0
36.8
Advanced
Airlaid
Materials
244.6
—
244.6
215.7
28.9
7.6
—
21.3
—
21.3
153.5
8.8
7.8
$
$
$
$
$
$
$
$
$
790.9
5.1
796.0
734.2
61.8
46.4
—
15.4
—
15.4
360.5
30.8
51.5
Specialty
Papers
843.6
6.1
849.7
752.6
97.1
55.9
—
41.2
—
41.2
352.9
26.3
99.0
Specialty
Papers
875.0
5.7
880.7
804.5
76.2
43.3
—
32.9
—
32.9
282.0
26.0
63.5
$
$
$
$
$
$
$
$
$
—
—
—
15.4
(15.4)
34.3
—
(49.7)
(18.8)
(68.5)
15.6
7.3
14.3
Other and
Unallocated
—
—
—
13.9
(13.9)
80.1
0.2
(94.2)
(16.9)
(111.1)
8.6
2.7
5.6
Other and
Unallocated
—
—
—
9.2
(9.2)
31.0
(21.1)
(19.1)
(17.8)
(36.9)
5.7
2.2
1.8
$
$
$
$
$
$
$
$
$
Total
1,591.3
5.1
1,596.4
1,403.9
192.5
134.4
—
58.1
(18.8)
39.3
865.7
76.0
132.3
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
Total
1,661.1
5.7
1,666.8
1,463.8
203.0
127.7
(21.1)
96.4
(17.8)
78.6
698.9
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.
GLATFELTER 2017 FORM 10-K
57
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;
•
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 Laminate paper used in production
of decorative laminates, furniture, and flooring
applications; and
• Metallized products used in labels, packaging
liners, gift wrap, and other consumer product
applications.
58
Composite Fibers’ revenue composition by market
consisted of the following for the years indicated:
In thousands
Food & beverage
Wallcovering
Technical specialties and
other
Composite laminates
Metallized
Total
2017
$ 268,474
103,011
2016
$ 258,463
90,767
2015
$ 274,865
91,620
76,991
38,696
57,088
$ 544,260
71,558
35,107
61,059
$ 516,954
71,689
34,897
68,397
$ 541,468
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
2017
$ 179,670
29,519
14,425
13,029
19,458
$ 256,101
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
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
2017
$ 292,071
189,930
154,291
152,576
2,067
$ 790,935
2016
$ 319,648
189,463
173,362
157,541
3,568
$ 843,582
2015
$ 349,831
190,943
178,067
152,647
3,538
$ 875,026
No individual customer accounted for more than
10% of our consolidated net sales in 2017, 2016 and
2015. However, one customer accounted for the majority
of Advanced Airlaid Materials’ net sales in each of the
past three years ended December 31, 2017.
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.
2017
2016
2015
In thousands
United States
Germany
United Kingdom
Canada
Other
Total
Net sales
880,708
450,668
76,594
120,434
62,893
1,591,297
$
$
$
$
Plant,
Equipment and
Timberlands –
Net
456,223
240,932
55,495
78,220
34,873
865,743
Plant,
Equipment and
Timberlands –
Net
391,977
220,380
51,903
79,727
31,911
775,898
Net sales
918,567
427,520
78,759
115,902
64,049
1,604,797
$
$
$
$
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
$
$
$
$
22. 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, 2017, 2016 and 2015 and our condensed consolidating balance sheets as of
December 31, 2017 and 2016.
Condensed Consolidating Statement of Income for the
year ended December 31, 2017
In thousands
Net sales
Energy and related sales, net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative
expenses
(Gain) 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 income
Comprehensive income
Parent
Company
Guarantors
Non
Guarantors
$
790,933
5,126
796,059
747,736
48,323
$
89,787
—
89,787
85,196
4,591
798,603
—
798,603
659,007
139,596
69,483
2,598
62,313
223
(21,383)
(20,394)
599
18,864
2,241
1,310
(20,073)
(27,987)
7,914
63,931
71,845
$
(188)
2,181
(9)
77,292
(971)
4,947
60,871
(6,776)
58,071
60,252
41,388
18,864
52,290
71,154
$
(1,801)
85
—
3,315
1,599
78,891
18,020
60,871
51,828
112,699
$
$
Adjustments/
Eliminations
$
(88,026) $
—
(88,026)
(88,026)
—
Consolidated
1,591,297
5,126
1,596,423
1,403,913
192,510
—
—
—
5,394
(5,394)
(79,735)
—
(79,735)
(79,735)
—
(79,735)
(104,118)
(183,853) $
$
134,394
26
58,090
(17,772)
237
—
(1,220)
(18,755)
39,335
31,421
7,914
63,931
71,845
GLATFELTER 2017 FORM 10-K
59
Condensed Consolidating Statement of Income for the
year ended December 31, 2016
Parent
Company
Guarantors
Non
Guarantors
$
$
843,582
6,141
849,723
763,109
86,614
133,387
177
(46,950)
(17,436)
687
61,007
(2,312)
41,946
(5,004)
(26,558)
21,554
(14,120)
7,434
$
$
$
75,000
—
75,000
70,991
4,009
755,860
—
755,860
627,880
127,980
(156)
57,463
—
4,165
39
70,478
(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
Condensed Consolidating Statement of Income for the
year ended December 31, 2015
Adjustments/
Eliminations
$
(69,645) $
—
(69,645)
(69,645)
—
Consolidated
1,604,797
6,141
1,610,938
1,392,335
218,603
—
—
—
4,715
(4,715)
(119,354)
—
(119,354)
(119,354)
—
(119,354)
51,092
(68,262) $
$
190,694
216
27,693
(15,822)
206
—
(1,271)
(16,887)
10,806
(10,748)
21,554
(14,120)
7,434
Parent
Company
Guarantors
Non
Guarantors
$
875,026
5,664
880,690
811,329
69,361
71,751
$
84,704
—
84,704
80,455
4,249
779,380
—
779,380
650,025
129,355
821
55,134
(19,720)
17,330
(1,183)
4,611
(210)
74,431
Adjustments/
Eliminations
$
(78,026) $
—
(78,026)
(78,026)
—
Consolidated
1,661,084
5,664
1,666,748
1,463,783
202,965
—
—
—
(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
$
$
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
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
60
Condensed Consolidating Balance Sheet as of December 31, 2017
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
$
$
$
$
1,292
249,293
375,231
829,895
139,552
1,595,263
402,787
368,496
14,081
100,971
886,335
708,928
1,595,263
$
$
$
$
720
217,822
80,992
653,128
—
952,662
54,640
51,000
16,814
313
122,767
829,895
952,662
$
$
$
$
114,207
279,626
409,520
—
140,529
943,882
167,738
50,602
52,676
19,738
290,754
653,128
943,882
$
— $
(277,989)
—
(1,483,023)
—
$ (1,761,012) $
$
(277,989) $
—
—
—
(277,989)
(1,483,023)
$ (1,761,012) $
116,219
468,752
865,743
—
280,081
1,730,795
347,176
470,098
83,571
121,022
1,021,867
708,928
1,730,795
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) $
$
(265,663) $
—
—
—
(265,663)
(1,329,594)
$ (1,595,257) $
55,444
438,815
775,898
—
251,102
1,521,259
323,011
363,647
54,995
125,780
867,433
653,826
1,521,259
GLATFELTER 2017 FORM 10-K
61
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2017
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
Acquisitions, net of cash acquired
Other
Total investing activities
Financing activities
Net long-term borrowings
Payment of dividends to shareholders
Repayments of intercompany loans
Borrowings of intercompany loans
Intercompany capital received
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
$
(4,259) $
(3,506) $
112,027
$
— $
104,262
(65,822)
11
—
—
(14,000)
—
(243)
(80,054)
84,200
(22,480)
—
14,400
—
4,875
(472)
80,523
—
(3,790)
5,082
1,292
$
(45,644)
209
12,000
(14,400)
(400)
—
—
(48,235)
37,000
—
—
—
14,000
—
—
51,000
—
(741)
1,461
720
$
(20,838)
8
—
—
—
—
—
(20,830)
(21,535)
—
(12,000)
—
400
—
—
(33,135)
7,244
65,306
48,901
114,207
$
—
—
(12,000)
14,400
14,400
—
—
16,800
—
—
12,000
(14,400)
(14,400)
—
—
(16,800)
—
—
—
— $
(132,304)
228
—
—
—
—
(243)
(132,319)
99,665
(22,480)
—
—
—
4,875
(472)
81,588
7,244
60,775
55,444
116,219
$
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) returned
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
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
62
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 plant, equipment and timberlands
Proceeds from disposal plant, equipment and timberlands, net
Repayments from intercompany loans
Advances of intercompany loans
Intercompany capital contributed, net
Acquisitions, net of cash acquired
Other
Total investing activities
Financing activities
Net proceeds from indebtedness
Payments of note offering costs
Payment of dividends to shareholders
Repayments of intercompany loans
Borrowings of intercompany loans
Intercompany capital (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 increase (decrease) in cash
Cash at the beginning of period
Cash at the end of period
23. QUARTERLY RESULTS (UNAUDITED)
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
$
In thousands,
except per share
First
Second
Third
Fourth
Net sales
Gross profit
Net income (loss)
2017
$ 390,713
387,342
413,325
399,917
2016
$ 402,218
406,413
405,301
390,865
$
2017
56,929
30,436
54,735
50,410
$
2016
57,843
42,723
61,170
56,867
$
2017
11,603
(5,714)
12,105
(10,080)
$
2016
16,168
1,965
19,601
(16,180)
Earnings (loss)
per share
2017
2016
$
0.26
(0.13)
0.27
(0.23)
$
0.37
0.04
0.44
(0.37)
GLATFELTER 2017 FORM 10-K
63
ITEM 9
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
ITEM 9A CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our chief executive officer and our chief financial
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, 2017, concluded that, as of the evaluation
date, our disclosure controls and procedures were
effective.
Internal Control Over Financial Reporting
Management’s report on the Company’s internal
control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) and the related report
of our independent registered public accounting firm are
included in Item 8 – Financial Statements and
Supplementary Data.
Changes in Internal Control over Financial Reporting
During the fourth quarter of 2017, we completed
the implementation of a new enterprise resource planning
and manufacturing system for our Advanced Airlaid
Materials’ North America locations. There were no other
changes in our internal control over financial reporting
during the three months ended December 31, 2017, 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, 2018. 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.
Executive Officers of the Registrant The
information with respect to the executive officers required
under this Item is 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.
ITEM 11 EXECUTIVE COMPENSATION
The information required under this Item is
incorporated herein by reference to our Proxy Statement,
to be dated on or about March 30, 2018.
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, 2018.
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, 2018.
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, 2018.
Our Chief Executive Officer has certified to the
New York Stock Exchange that he is not aware of any
violations by the Company of the NYSE corporate
governance listing standards.
64
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, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015
i.
ii.
iii. Consolidated Balance Sheets as of December 31, 2017 and 2016
iv. Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
v.
vi. Notes to Consolidated Financial Statements
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2017, 2016 and 2015
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, 2017
(b) Exhibit Index
Exhibit
Number
Description of Documents
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
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
EDGAR).
Amended and Restated By-Laws of P. H. Glatfelter Company, as amended, dated December 15, 2016
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
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,
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 23, 2017 **
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 Non-Employee Director Restricted Stock Unit Award Certificate (form effective May 4, 2017) **
Form of Stock-Only Stock Appreciation Right Award Certificate (form effective February 26, 2014) **
Form of Performance Share Award Certificate (form effective February 23, 2017) **
Form of Performance Share Award Certificate (form effective February 26, 2014) **
Form of Restricted Stock Unit Award Certificate (form effective as of February 23, 2017) **
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 **
Incorporated by Reference to
Exhibit
2.1
Filing
Form 10-Q filed
May 9, 2013
3(b)
3.2
4.1
4.2
10.1
10.1
10.1
10.2
10.1
10.1
10.1
10(c)
10(d)
10.4
10.3
10.2
10.2
10.3
10(l)
10.1
Form 10-K filed
March 13, 2008
Form 10-K filed
February 24, 2017
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 8-K filed
May 4, 2017
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 4, 2017
Form 10-Q filed
May 2, 2014
Form 8-K filed
May 4, 2017
Form 10-Q filed
May 2, 2014
Form 8-K filed
May 4, 2017
Form 10-K filed
March 3, 2014
Form 8-K filed
December 17, 2013
GLATFELTER 2017 FORM 10-K
65
Incorporated by Reference to
Exhibit
10.1
Filing
Form 8-K filed
July 6, 2010
Form 10-K filed
February 24, 2017
Form 10-K filed
February 24, 2017
Form 10-K filed
March 13, 2009
Form 10-K filed
March 3, 2014
10.1
10(k)
10(r)
10(t)
10.1
10.2
10(i)
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
December 19, 2017
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
Exhibit
Number
Description of Documents
10.17
10.18
10.19
10.20
10.21
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
Non-Competition and Non-Solicitation Agreement by and between P. H. Glatfelter Company and Dante C.
Parrini, dated July 2, 2010. **
Retention agreement between P. H. Glatfelter Company and Timothy R. Hess, dated January 7, 2017 **
Restricted Stock Unit Award Certificate for Timothy R. Hess, dated as of January 6, 2017 **
10.17
10.18
Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company and certain
10(j)
employees (form effective as of March 7, 2008) **
Form of Change in Control Employment Agreement by and between P. H. Glatfelter Company and certain
10(q)
employees (form effective as of August 5, 2013) **
(A)Schedule of Change in Control Employment Agreements, filed herewith **
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 **
Form of Director’s and Officer’s Indemnification Agreement **
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.)
10.29
(A)Agreed Supplement to Consent Decree between United States of America and the State of Wisconsin vs. P. H.
10.3(b)
10.29
(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.)
10.29
10.30
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
66
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
February 23, 2018
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
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
/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
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
GLATFELTER 2017 FORM 10-K
67
Schedule II
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
For each of the three years ended December 31, 2017
Valuation and Qualifying Accounts
Allowance for
In thousands
2017
Doubtful Accounts
2016
2015
2017
2016
2015
Sales Discounts and Deductions
Balance, beginning of year
Provision
Write-offs, recoveries and
discounts allowed
Other (a)
Balance, end of year
$
$
1,719
49
(29)
218
$
2,239
$
2,703
$
32
(497)
(55)
7
(275)
(196)
1,957
$
1,719
$
2,239
$
1,462
4,610
(4,697)
68
1,443
$
$
$
1,593
4,283
(4,368)
(46)
1,462
$
1,809
3,856
(3,649)
(423)
1,593
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.
68
[THIS PAGE INTENTIONALLY LEFT BLANK]
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 AG E M E N T
Dante C. Parrini
Eileen L. Beck
Chairman and Chief Executive Officer
Vice President, Human Resources
John P. Jacunski
Executive Vice President and
Chief Financial Officer
David C. Elder
Vice President, Finance
Samuel L. Hillard
Ramesh Shettigar
Vice President & Treasurer
John A. Stachowiak
Vice President, Internal Audit
Amy R. Wannemacher
Christopher W. Astley
Vice President, Corporate Development
Vice President, Tax
Senior Vice President & Business Unit
& Strategy
President, Advanced Airlaid Materials
Timothy R. Hess
Kent K. Matsumoto
Vice President, General Counsel &
Senior Vice President & Business Unit
Corporate Secretary
Joseph J. Zakutney
Vice President & Chief Information Officer
President, Specialty Papers
Martin Rapp
Senior Vice President & Business Unit
President, Composite Fibers
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.
Triumph Group, Inc.
Retired Chief Technology Officer
Kevin M. Fogarty
Ronald J. Naples
Procter & Gamble
President and Chief Executive Officer
Chairman Emeritus
Kathleen A. Dahlberg
Chief Executive Officer
G.G.I., Inc.
Kraton Corporation, 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 3, 2018, 9:00 a.m. EST
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
Correspondence should be mailed to:
or contact:
Computershare
P.O. Box 505000
Louisville, KY 40233
Overnight correspondence should be sent to:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Shareholder website
www.computershare.com/investor
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
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
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
351 Jesse Jewell Parkway
Suite 301
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
2
0
1
7
A
N
N
U
A
L
R
E
P
O
R
T
© 20 18 GLATFELTER
2 0 1 7 A N N U A L R E P O R T