2 0 1 8 A N N U A L R E P O R T
Glatfelter is a leading global supplier of engineered materials. The Company’s
high-quality, innovative and customizable solutions are found in tea and single-
serve coffee filtration, personal hygiene and packaging products as well as home
improvement and industrial applications. Headquartered in York, PA, the Company’s
annualized net sales approximate $950 million with customers in over 100 countries
and approximately 2,600 employees worldwide. Operations include eleven
manufacturing facilities located in the United States, Canada, Germany, France,
the United Kingdom and the Philippines. Additional information about Glatfelter
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 13 of the accompanying
2018 Annual Report on Form 10-K included herein and in other filings with the SEC.
D E A R S H A R E H O L D E R S ,
As we reflect on 2018, it clearly was a pivotal year in
our journey to transform Glatfelter into a leading global
supplier of engineered materials. Through the diligence
and dedication of Glatfelter PEOPLE, we successfully
executed four strategic actions that reposition our
portfolio and open the door to more stable growth,
stronger cash flows and meaningful improvements
in profitability.
1. Expanded airlaid capacity – Early in 2018, we
shipped the first commercial products from our new
state-of-the-art facility in Fort Smith, Arkansas. This
milestone concluded a multi-year greenfield project
Dante C. Parrini, Chairman and Chief Executive Officer
2 018 F I N A N C I A L A N D
O P E R AT I N G P E R F O R M A N C E
to boost our airlaid materials production capacity
While we made significant progress on our key strategic
by 20,000 metric tons. This expanded capacity
initiatives to transform the business, we faced challenges
better positions us to capitalize more fully on the
that impacted the financial performance of our two
market growth in North America for airlaid products,
business segments. Net sales from continuing operations
including wipes and tabletop products.
of $866.3 million were up 8% over the previous year.
2. Acquired additional airlaid assets – As we
entered the fourth quarter, we further strengthened
our airlaid platform by acquiring Georgia-Pacific’s
However, adjusted earnings from continuing operations
were $0.21 per share compared with $0.59 per share
in 2017.
European nonwovens business in Steinfurt, Germany.
Advanced Airlaid Materials achieved organic volume
Steinfurt’s people, products and technology are highly
growth of 6% in 2018, despite being confronted by short-
complementary to our existing airlaid business. Along
term delays in product and customer qualifications for the
with providing profitable growth opportunities,
new capacity in North America. These issues were resolved
this acquisition will deliver attractive synergies and
by the fourth quarter, in which the legacy airlaid business
allow us to create centers of excellence focused on
achieved 10% organic growth and 11% higher EBITDA
enhancing customer service, expanding innovation,
compared with the fourth quarter of 2017. In addition,
and improving efficiencies.
3. Divested specialty paper business – On October 31,
2018, we exited the uncoated freesheet paper business
the recent Steinfurt acquisition had a strong start under
Glatfelter ownership, contributing $2.4 million to operating
profit in the fourth quarter.
by completing the sale of the Specialty Papers business
Composite Fibers experienced a rapid escalation in
to Lindsay Goldberg for $360 million. This historic
input costs, particularly for fiber and energy. Due to highly
transaction was a key catalyst in our transformation as
competitive market conditions, we were unable to fully
it allows us to devote our investments and resources
recover these costs through higher selling prices. While
to accelerating the growth potential of our Composite
these difficult market dynamics significantly impacted
Fibers and Advanced Airlaid Materials businesses.
profitability, this business continued to drive efficiency
4. Resolved environmental matter – After more than
10 years of litigation, we entered into an agreement
and internal cost improvements to help partially offset the
impact of the higher input costs.
with the U.S. government and State of Wisconsin
While cash flow was lower than in 2017, our balance
to resolve the company’s liability related to the Fox
sheet remained solid and continued to provide us with the
River environmental matter. This settlement, which
flexibility to invest in both organic and acquisitive growth,
was announced on January 3, 2019, is covered by our
and to maintain our annual dividend of $0.52 per share
existing reserves.
in 2018.
1
As usual, Glatfelter PEOPLE remained focused on
in 2019, and the full benefit expected by 2020. In 2019,
their responsibilities, which resulted in record safety
we also expect a $6 million reduction in interest expense
performance in 2018. Our continuing businesses operated
as a result of the debt refinancing that was completed
in the industry’s top quartile for safety, and most facilities
in February 2019. We will continue to take a disciplined
exceeded their annual safety goals. While we will not be
approach to capital allocation as we evaluate strategic
satisfied until the entire company operates injury-free, every
opportunities going forward.
day, it is evident our employees are embracing safety as a
way of life.
L O O K I N G A H E A D T O 2 019 A N D B E YO N D
The significant strategic steps taken in 2018 have helped
us become a more focused engineered materials company.
We are well positioned to accelerate growth and expand
our leadership positions in markets where our products
are recognized for the unique value they provide. We
We will also continue to invest in product development
as we recently reinvigorated our innovation team with
new talent and skill sets as well as a renewed focus. Our
teams are initially targeting health and hygiene products,
including the trend for plastic-free substrates, and a variety
of industrial products. I am excited about the prospects
for these new products as we bring them to market over
the next 24 months.
have opportunities in both Advanced Airlaid Materials and
C L O S I N G T H O U G H T S O N O U R P R O G R E S S
Composite Fibers to further grow these businesses and
A N D F U T U R E
improve profitability in 2019 and beyond.
We are building a new company to produce greater
Our Advanced Airlaid Materials business will focus
rewards for our shareholders, customers and employees.
on driving growth in 2019. The combination of the
Early in 2019, we announced that Glatfelter will move
new Fort Smith facility and the Steinfurt acquisition
from a business unit structure to a functional operating
increased our airlaid production capacity by 50% in 2018
model. As a leaner, more agile enterprise, Glatfelter
and further strengthened our position as the industry
will drive ongoing cost efficiencies, strive to be more
leader. Advanced Airlaid Materials’ strong fourth-quarter
innovative, and push for greater operational excellence,
performance gives us confidence we can continue the
while building upon our strong customer relationships to
momentum and deliver 8% to 10% organic volume
grow market share. The result will be a higher-performing
growth and generate greater EBITDA in 2019. We will
company with excellent customer service, rewarding
continue to drive operational excellence and productivity
careers and more predictable financial performance.
improvement across the business unit.
Our ability to reshape Glatfelter into a higher-value,
Composite Fibers expects volume growth of
more profitable growth business is due to the resolve,
approximately 3%, in line with the market, driven by
commitment and drive of Glatfelter PEOPLE. With a
demand for single-serve coffee, tea, wipes and electrical
renewed sense of optimism and confidence, we are
products. At the same time, the business will continue to
excited about our strategic direction, the actions we are
manage the risk associated with the wallcover segment
taking and the progress we will make in 2019 and beyond.
and higher input costs. To improve profitability, the
business will also rigorously pursue pricing initiatives,
continuous improvement and cost reduction, including
reducing staffing levels by approximately 50 people in
the first half of 2019.
In 2019, we expect earnings to improve compared
with 2018 due to a reduction in corporate expenses to
align with the current scale of our business. We expect
these reductions will generate $14 million to $16 million
in annual savings, with approximately half recognized
It’s a new day at Glatfelter!
Sincerely,
Dante C. Parrini
Chairman and Chief Executive Officer
March 15, 2019
2
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:1800)
(cid:1798)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2018
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 (cid:1798) No (cid:53).
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 (cid:1798) No (cid:53).
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 (cid:53) No (cid:1798).
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes (cid:53) No (cid:1798).
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. (cid:1798)
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. (cid:59) Large accelerated
filer (cid:1798) Accelerated filer (cid:1798) Non-accelerated filer (cid:1798) 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 (cid:1798) No (cid:53).
Based on the closing price as of June 30, 2018, the aggregate market value of the Common Stock of the Registrant held by non-affiliates was $834.8 million.
Emerging growth company (cid:31)
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:31)
Common Stock outstanding on February 20, 2019 totaled 44,014,253 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this Annual Report on Form 10-K:
Portions of the registrant’s Proxy Statement to be dated on or about March 29, 2019 are incorporated by reference to Part III.
P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2018
Table of Contents
Page
Business
PART I
Item 1
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Properties
Legal Proceedings
Executive Officers
Mine Safety Disclosures
Item 4
PART II
Item 5
Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
Stock Performance Graph
Item 6
Item 7
Selected Financial Data
Management's Discussion and Analysis of
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 (Loss)
Statements of Comprehensive Income
(Loss)
Balance Sheets
Statements of Cash Flows
Statements of Shareholders’ Equity
Notes to Consolidated Financial
Statements
1. Organization
2. Accounting Policies
3. Acquisition
4. Discontinued Operations
5. Gain on Dispositions of Plant,
Equipment and Timberlands
6. Revenue
7. Earnings Per Share
8. Accumulated Other Comprehensive
Income
9. Income Taxes
10. Stock-Based Compensation
11. Retirement Plans and Other Post-
Retirement Benefits
12. Inventories
13. Plant, Equipment and Timberlands
14. Goodwill and Intangible Assets
15. Other Long-Term Assets
16. Other Current Liabilities
17. Long-Term Debt
18. Fair Value of Financial Instruments
19. Financial Derivatives and Hedging
Activities
20. Shareholders’ Equity
21. Commitments, Contingencies and
Legal Proceedings
22. Segment and Geographic Information
23. Condensed Consolidating Financial
Statements
24. Quarterly Results (Unaudited)
Item 9 Changes in and Disagreements With
Accountants on Accounting and Financial
Disclosures
Item 9A Controls and Procedures
Item 9B Other Information
PART III
Item 10 Directors, Executive Officers and Corporate
Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions,
and Director Independence
Item 14 Principal Accountant Fees and Services
PART IV
Item 15 Exhibits, Financial Statement Schedules
Signatures
Schedule II
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PART I
P. H. Glatfelter Company makes regular filings
with the Securities and Exchange Commission (“SEC”),
including this Annual Report on Form 10-K, 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,” “our,” “us,” “the Company,”
or “Glatfelter” refer to P. H. Glatfelter Company and
subsidiaries.
ITEM 1
BUSINESS
Overview Glatfelter began operations in 1864,
and over the past few years a key component of our
strategy has been a focus on growing our engineered
materials businesses. In connection with this strategy, in
2018 we divested the former Specialty Papers business
unit, acquired Georgia Pacific’s European nonwovens
business based in Steinfurt, Germany (“Steinfurt”) and
completed the start-up of our new airlaid production
facility in Fort Smith, Arkansas. As a leading global
supplier of engineered materials for consumer and
industrial applications, we maintain leading positions in
key segments serving markets that are growing
commensurate with or in excess of gross domestic
product (“GDP”). We are headquartered in York,
Pennsylvania, and our net sales approximate $950 million
annually with customers in over 100 countries. Operations
include eleven manufacturing facilities located in the
United States, Canada, Germany, France, the United
Kingdom and the Philippines. Our business is managed as
two separate business units: Composite Fibers and
Advanced Airlaid Materials.
We partner with leading consumer product
companies and other market leaders to provide innovative
solutions delivering outstanding performance to meet
market requirements. Over the past several years, we have
made investments to increase production capacity and
improve our technical capabilities to ensure we are best
positioned to serve the market demands and grow our
revenue. We are committed to growing in our key markets
and will make appropriate investments to support our
customers and satisfy market demands.
In the first quarter of 2018, we produced and
delivered our first commercial shipment of Airlaid
product from our new $90 million facility in Arkansas.
This 20,000 metric-ton facility was built to meet the
growing demands of the North American market.
Throughout 2018, this facility continued to ramp up
production and shipments of wipes and table top products.
This investment together with the Steinfurt acquisition
increases our total global airlaid materials capacity to
approximately 150,000 metric tons.
Our high-quality, innovative and customizable
solutions are found in health and hygiene products, tea
and single-serve coffee filtration, and other home,
building, electrical, and industrial applications. Our goal
is to be the global supplier of choice for innovation and
solutions designed to meet the demands of our customers
and the markets they serve.
Our goals are to maintain and grow our leading
market positions, expand product margins, partner with
customers to provide innovative solutions for new
markets, and generate strong free cash flows. We are
committed to ensuring our cost structure is competitive
driven by delivering on cost reduction and continuous
improvement initiatives to maintain our leading market
positions.
Recent Developments On October 1, 2018, we
acquired Georgia-Pacific’s European nonwovens business
for $181 million. The acquisition consisted of Georgia-
Pacific’s operations located in Steinfurt, Germany, along
with sales offices located in France and Italy. Steinfurt is
a state-of-the-art, 32,000-metric-ton-capacity
manufacturing facility that employs approximately 220
people.
On October 31, 2018, we completed the sale of the
Specialty Papers Business Unit to Pixelle Specialty
Solutions LLC, an affiliate of Lindsay Goldberg, for $360
million. For financial reporting purposes, Specialty Papers
is presented as a discontinued operation.
Business Units Consolidated net sales and the
relative net sales contribution of each of our two business
units for the past three years are summarized below:
Dollars in thousands
Net sales
Business unit
contribution
Composite Fibers
Advanced Airlaid
Materials
Total
2018
$ 866,286
2017
$ 800,362
2016
$ 761,216
64.1 %
68.0%
67.9%
35.9
100.0 %
32.0
100.0%
32.1
100.0%
Net tons sold by each business unit for the past
three years were as follows:
Metric tons
Composite Fibers
Advanced Airlaid
Materials
Total
2018
143,777
2017
150,388
104,774
248,551
92,633
243,021
2016
137,680
89,847
227,527
GLATFELTER 2018 FORM 10-K
1
COMPOSITE FIBERS Our Composite Fibers
business unit (“Composite Fibers” or “CFBU”) serves
customers globally and focuses on higher value-added
products in the following markets:
(cid:120) Food & Beverage filtration paper primarily
used for single-serve coffee and tea products;
(cid:120) Wallcover base materials used by the world’s
largest wallpaper manufacturers;
(cid:120) 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;
(cid:120) Composite Laminates paper used in
production of decorative laminates, furniture,
and flooring applications; and
(cid:120) 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
filtration markets, wallcover base material and many other
products it produces. We believe many of the markets
served by Composite Fibers present attractive growth
opportunities due to evolving consumer preferences, new or
emerging geographic markets, new product innovation and
increased market share through superior products and
quality.
This business unit’s revenue composition by market
consisted of the following for the years indicated:
In thousands
Food & beverage
Wallcovering
Technical specialties
Metallized
Composite laminates
Total
2018
$ 279,515
103,686
81,281
52,174
38,213
$ 554,869
2017
$ 268,474
103,011
76,991
57,088
38,696
$ 544,260
2016
$ 258,463
90,767
71,558
61,059
35,107
$ 516,954
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 2018 to 2017 by $18.9 million and by $2.0
million in the comparison of 2017 to 2016.
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 (in metric tons):
Production
Capacity
142,000 lightweight
and other paper
21,600 metallized
15,000 abaca pulp
Principal Raw
Material
(“PRM”)
Abaca pulp
Wood pulp
Synthetic fiber
Base stock
Abaca fiber
Estimated Annual
Quantity of PRM
15,800
99,000
24,400
24,000
23,400
Composite Fibers’ lightweight products are
produced using highly specialized inclined wire paper
machine technology.
The primary raw materials used in the production of
our lightweight papers are softwood pulps, abaca pulp,
and other specialty 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 the price of
electricity and natural gas. The business unit generates all
of its steam needed for production by burning natural gas.
However, in 2018 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
Technical specialties
Composite laminates
Metallized
Competitor
Ahlstrom, Purico, Miquel y
Costas and Zhejiang Kan
Technocell, Neu Kaliss, Goznak,
Kämmerer and Ahlstrom
Nippon Kodoshi Corp ("NKK"),
Kan Kyo Technology, Burrows
and Suominen Oyj
Schweitzer-Maudit, Purico,
Miquel y Costas and Oi Feng
AR Metallizing, Torras Papel
Novelis, Vaassen, Galileo
Nanotech, and Wenzhou Protec
Vacuum Metallizing Co.
2
Our strategy in Composite Fibers is focused on:
(cid:120)
optimizing our product portfolio and
capitalizing on growing global markets in
beverage filtration, and building, electrical and
consumer products;
(cid:120) making targeted investments to create
incremental capacity to serve growth markets;
(cid:120)
leveraging innovation resources to drive new
product and new business development;
(cid:120) maximize continuous improvement
methodologies to increase productivity, reduce
costs and expand capacity; and
(cid:120)
ensuring readily available access to specialized
raw material requirements or suitable
alternatives to support projected growth.
ADVANCED AIRLAID MATERIALS Our
Advanced Airlaid Materials business unit (“Advanced
Airlaid” or “AMBU”) is a leading global supplier of
highly absorbent and very thin profile cellulose-based
airlaid nonwoven materials primarily used to manufacture
consumer products for growing global end-user markets.
The markets served by Advanced Airlaid include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
feminine hygiene;
specialty wipes;
table top;
adult incontinence;
home care; and
other consumer products.
AMBU’s customers are industry leading consumer
product companies as well as private label converters. We
believe this business unit holds leading market share
positions in the majority of the markets it serves.
Advanced Airlaid 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
Table top
Adult incontinence
Home care
Other
Total
2018
$ 195,686
45,375
21,600
19,734
16,010
13,012
$ 311,417
2017
2016
$ 179,671 $ 173,902
25,206
6,718
12,281
12,630
13,525
$ 256,102 $ 244,262
29,519
6,707
14,425
13,029
12,751
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 2018 to 2017 by $6.5 million and by $2.8
million.
The feminine hygiene category accounted for 63%
and 70% of Advanced Airlaid Material’s revenue in 2018
and 2017, respectively, reflecting the Steinfurt
acquisition, and growth in sales of wipes and table top
products from additional capacity at the Fort Smith
facility. Most feminine hygiene sales 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.
AMBU operates state-of-the-art facilities in
Falkenhagen and Steinfurt, Germany, Gatineau, Canada
and Fort Smith, Arkansas. During 2018, this business
unit’s capacity increased by a combined 52,000 metric
tons from the Steinfurt acquisition and from the new Fort
Smith facility.
On October 1, 2018, we completed the Steinfurt
acquisition for $181 million. The Steinfurt facility
produces high-quality airlaid products for the table-top,
wipes, hygiene, food pad, and other nonwoven materials
markets, competing in the marketplace with nonwoven
technologies and substrates, as well as other materials
focused primarily on consumer based end-use
applications. The state-of-the art facility has 32,000-
metric-ton-capacity and in 2017, net sales totaled $99
million.
The business unit’s four facilities operate with the
following combined attributes (in metric tons):
Airlaid Production
Capacity
150,000
Principal Raw
Material
(“PRM”)
Fluff pulp
Estimated
Annual
Quantity of
PRM
113,200
Key raw material inputs other than fluff pulp
include synthetic fibers, super absorbent polymers and
latex. The cost to produce is influenced by the cost of
critical raw materials and by energy prices. Advanced
Airlaid purchases substantially all the electricity and
natural gas used in its operations. Approximately 72% 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 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
GLATFELTER 2018 FORM 10-K
3
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
Hygiene and other absorbent
products
Table top
Wipes
Competitor
Fitesa, McAirlaid's GmbH,
Domtar, Georgia-Pacific
Georgia-Pacific, SharpCell,
Duni AB, Ascutec
Jacob Holmes, Suominen Oyj,
Georgia-Pacific, Kimberly Clark
The global markets served by this business unit are
characterized by attractive growth opportunities. To take
advantage of this, our strategy is focused on:
(cid:120) maintaining and expanding relationships with
customers that are market-leading consumer
product companies as well as companies
distributing through private label arrangements;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
capitalizing on our product and process
innovation capabilities;
expanding geographic reach of markets served;
optimizing the use of existing production
capacity; and
employing continuous improvement
methodologies and initiatives to reduce costs,
improve efficiencies and create additional
capacity.
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 22.
Concentration of Customers Approximately
16% of our consolidated net revenue in each of the past
three years was from sales to Procter & Gamble
Company, a customer of the Advanced Airlaid Materials
business unit.
Capital Expenditures Our business requires
expenditures for equipment enhancements to support
growth strategies, research and development initiatives,
and for normal upgrades or replacements. During the past
three years, we incurred significant expenditures for
Advanced Airlaid Materials’ capacity expansion project.
Capital expenditures totaled $42.1 million, $80.8 million
and $61.2 million in 2018, 2017 and 2016, respectively.
Capital expenditures in 2019 are estimated to total
between approximately $23 million and $28 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
costs to comply with these regulations and we could incur
additional costs as new regulations are developed or
regulatory priorities change.
We are a party 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 21.
Employees As of December 31, 2018, we
employed approximately 2,600 people worldwide, of
whom approximately 60% are represented by labor works
councils. We consider the overall relationship with our
employees to be satisfactory.
Other Available Information The Corporate
Governance page of our website includes the Company’s
Governance Principles, Code of Business Conduct, and
biographies of our Board of Directors and Executive
Officers. In addition, the website includes charters of the
Audit, Compensation, 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.
4
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 $88 million of our net sales in 2018
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 58% of our net sales in 2018 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.
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 €160 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 $88 million of our revenue in 2018 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 or the
availability of certain raw materials could become
constrained.
We require access to sufficient, and reasonably
priced, quantities of pulps, pulp substitutes, abaca fiber,
synthetic fibers, and certain other raw materials, as well
as access to reliable and abundant supplies of water to
support many of our production facilities. We require
significant quantities of wood pulps and, therefore, the
volatility of wood pulp prices can have a significant
impact on our results of operations.
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.
Advanced Airlaid requires access to sufficient
quantities of fluff pulp, the supply of which is subject to
availability of certain softwoods.
The cost of many of our production materials,
including petroleum-based chemicals and freight charges,
are influenced by the cost of oil. Natural gas is the
principal source of fuel for each of our facilities
worldwide and has historically been more volatile than
other fuels. More recently, Europe has experienced a
sharp rise in the price of electricity.
GLATFELTER 2018 FORM 10-K
5
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.
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 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.
The global markets in which we compete, although
growing, are served by a variety of competitors. As a
result, our ability to compete is 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 competitiveness of our
products.
6
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.
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.
We have exposure to potential liability for
remediation and other costs related to the presence of
polychlorinated biphenyls (PCBs) in the lower Fox River
on which our former Neenah, Wisconsin mill was located.
As more fully discussed in Item 8 – Financial Statements
and Supplementary Data – Note 21, this is a complex
matter and has involved several years of litigation. In
January 2019, we entered into a consent decree with
government agencies which we believe resolves our
liability for the site.
Advanced Airlaid 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 63% of
Advanced Airlaid Materials’ net sales in 2018 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
Materials’ products, thus reducing the size of the markets
in which it currently sells its products. Any of the
foregoing could have a material adverse effect on our
financial performance and business prospects.
Our operations may be impaired and we may be
exposed to potential losses and liability as a result of
natural disasters, acts of terrorism or sabotage or
similar events.
If we have a catastrophic loss or unforeseen
operational problem at any of our facilities, we could
suffer significant lost production which could impair our
ability to satisfy customer demands.
Natural disasters, such as earthquakes, hurricanes,
typhoons, flooding or fire, and acts of terrorism or
sabotage affecting our operating activities and major
facilities could materially and adversely affect our
operations, operating results and financial condition.
In addition, many of our 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,
we have had to modify operations at certain of our mills
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
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.
GLATFELTER 2018 FORM 10-K
7
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, but
not limited to, economic and trade disruptions resulting
from geopolitical developments such as “Brexit,”
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.
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
cyberattacks. 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.
8
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
requires expenditures to support growth strategies,
research and development initiatives, 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 credit facility or other long-term
debt. If we are unable to generate sufficient cash flow
from these sources, we could be unable to fund our
operations, finance capital expenditures, satisfy our near
and long-term cash needs or make dividend payments.
ITEM 1B UNRESOLVED STAFF COMMENTS
None.
ITEM 2
PROPERTIES
We own substantially all of the land and buildings
comprising our manufacturing facilities located in
Arkansas; 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 the United States, Moscow, Russia,
Souzou, China and our corporate offices in York,
Pennsylvania. All our properties, other than those that are
leased, are free from any material liens or encumbrances.
We consider all our buildings to be in good structural
condition and well maintained and our properties to be
suitable and adequate for present operations.
ITEM 3
LEGAL PROCEEDINGS
We are involved in various lawsuits that we
consider to be ordinary and incidental to our business.
The ultimate outcome of these lawsuits cannot be
predicted with certainty; however, we do not expect such
lawsuits, individually or in the aggregate, will have a
material adverse effect on our consolidated financial
position, liquidity or results of operations.
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 21.
GLATFELTER 2018 FORM 10-K
9
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.
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.
EXECUTIVE OFFICERS
The following table sets forth certain information with
respect to our executive officers and other senior
management members of February 25, 2019
Name
Dante C. Parrini
John P. Jacunski
Age Office with the Company
54 Chairman and Chief Executive Officer
53 Executive Vice President,
Chief Financial Officer
Christopher W. Astley
46 Senior Vice President & Business Unit
Martin Rapp
Eileen L. Beck
David C. Elder
Samuel L. Hillard
President, Advanced Airlaid
Materials
59 Senior Vice President & Business Unit
President, Composite Fibers
56 Vice President, Human Resources
50 Vice President, Finance
37 Vice President, Corporate Development
& Strategy
Joseph J. Zakutney
56 Vice President, Chief Information
Officer
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.
10
ITEM 4 MINE SAFETY DISCLOSURES
Not Applicable
PART II
ITEM 5 MARKET FOR REGISTRANT'S
COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York
Stock Exchange under the symbol “GLT”
Our Board of Directors declared quarterly cash
dividends of $0.13 per common share in each of the four
quarters of both 2018 and 2017.
As of February 20, 2019, we had 951 shareholders
of record.
STOCK PERFORMANCE GRAPH
The following stock performance graph compares
the cumulative 5-year total return of our common stock
with the cumulative total returns of both a broad market
index and a peer group. We compare our stock
performance to the S&P Small Cap 600 index and to the
S&P Small Cap 600 Paper Products index comprised of
us, Clearwater Paper Corp., Neenah Paper Inc., and
Schweitzer-Mauduit International.
We previously charted our stock compared to the
Russell 2000; however, in 2018 we changed the
comparison to the S&P Small Cap 600 index to be
consistent with certain executive compensation
performance metrics. 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, 2013 and charts it
through December 31, 2018.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
$160
$140
$120
$100
$80
$60
$40
$20
$0
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Glatfelter
Russell 2000
S&P Smallcap 600
S&P SmallCap 600 Paper Products Index
GLATFELTER 2018 FORM 10-K
11
ITEM 6 SELECTED FINANCIAL DATA
As of or for the year ended December 31
Dollars in thousands, except per share
Net sales
2018
$ 866,286
2017
$ 800,362
2016
$ 761,216
2015
2014
$ 786,058 $ 899,519
(448)
Income (loss) from continuing operations
Income (loss) from discontinued operations (177,156)
(177,604)
Net income (loss)
(5,612)
13,526
7,914
(14,177)
35,731
21,554
30,406
34,170
64,576
12,924
56,322
69,246
Earnings (loss) per share from continuing
operations
Basic
Diluted
Total assets
Total debt
Shareholders’ equity
$
(0.01)
(0.01)
$
(0.13)
(0.13)
$
$
(0.33)
(0.33)
0.70 $
0.69
0.30
0.29
$1,339,754
411,747
538,898
$1,730,795
481,396
708,928
$1,521,259 $ 1,500,416 $1,561,504
404,612
372,608
360,662
649,109
653,826 663,247
Cash dividends declared per common
share
0.52
0.52
0.50
0.48
0.44
39,287
61,162
37,284
36,387
227,527 226,546
2,345
2,355
40,655
33,946
233,152
2,410
Depreciation, depletion and
amortization
Capital expenditures
Net tons sold
Number of employees
47,525
42,129
248,551
2,600
42,078
80,783
243,021
2,360
12
ITEM 7 MANAGEMENT'S DISCUSSION AND
vii. changes in energy-related prices and the price of
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
commodity raw materials with an energy component;
viii. the impact of unplanned production interruptions at
Forward-Looking Statements This Annual
our facilities or at any of our key suppliers;
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, 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
variations in product pricing, or product substitution
or the impact of unplanned market-related downtime;
the impact of competition, both domestic and
international, changes in industry production
capacity, including the construction of new machines
or mills, idling of machines or 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, particularly pulp, pulp substitutes, synthetic
pulp, specialty fibers and abaca fiber;
ix. disruptions in production and/or increased costs due
to labor disputes;
x.
the gain or loss of significant customers and/or on-
going viability of such customers;
xi. unfavorable outcomes from any unforeseen
challenges to our pending consent decree with
government agencies relating to the Fox River
environmental matter;
xii. the impact of war and terrorism;
xiii. 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;
xiv. enactment of adverse state, federal or foreign tax or
other legislation or changes in government policy or
regulation; and
xv. our ability to finance, consummate and integrate
future acquisitions.
Introduction We manufacture a wide array of
engineered materials and manage our company along two
business units:
• Composite Fibers with revenue from the sale of
single-serve tea and coffee filtration papers,
wallcovering base materials, composite laminate
papers, technical specialties including substrates for
electrical applications, and metallized products; and
• Advanced Airlaid Materials with revenue from the
sale of airlaid nonwoven fabric-like materials used in
feminine hygiene, adult incontinence products, table
top, specialty wipes, home care products and other
airlaid applications.
Specialty Papers’ results of operations and financial
condition are reported as discontinued operations.
Following is a discussion and analysis primarily of
the financial results of operations and financial
condition of our continuing operations.
GLATFELTER 2018 FORM 10-K
13
In addition to the results reported in accordance with
GAAP, we evaluate our performance using adjusted
earnings and adjusted earnings per diluted share. We
disclose this information to allow investors to evaluate
our performance exclusive of certain items that impact the
comparability of results from period to period and we
believe it is helpful in understanding underlying operating
trends and cash flow generation. Adjusted earnings
consist of net income determined in accordance with
GAAP adjusted to exclude the impact of the following:
Discontinued Operations. In connection with the sale
of the Specialty Papers business unit, its results of
operations, including the loss recorded in connection with
the sale, are reported as discontinued operations for all
periods presented. This adjustment reflects the net results
of this discontinued operation.
Strategic initiatives. These adjustments primarily
reflect one-time professional and legal fees incurred
directly related to evaluating and executing certain
strategic initiatives, acquisition transaction costs and a
currency translation gain on acquisition financing.
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.
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.
U.S. Tax Reform. This adjustment reflects amounts
recorded estimating the impact of the 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%.
RESULTS OF OPERATIONS
2018 versus 2017
Overview For the year ended December 31, 2018 we
reported a net loss of $177.6 million, or $4.06 per share
compared with net income of $7.9 million, or $0.18 per
diluted share in 2017. As part of our strategic
transformation to becoming a leading global supplier of
engineered materials, on October 31, 2018, we completed
the sale of the Specialty Papers business unit.
Accordingly, Specialty Papers’ results are classified as
discontinued operations for all periods presented
including the recognition of an impairment charge of
$144.1 million, in connection with the sale of the business
unit. In addition, on October 1, 2018, we completed our
acquisition of Georgia-Pacific’s European nonwovens
business based in Steinfurt, Germany (“Steinfurt”), with
annual revenues of approximately $99 million.
The results in accordance with generally accepted
accounting principles in the United States (“GAAP”)
reflect the impact of significant unusual and non-recurring
items including, among others, the results of Specialty
Papers, a discontinued operation, costs of strategic
initiatives, capacity expansion, cost optimization actions
and, timberland sales. 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 $9.2 million, or
$0.21 per diluted share for 2018, compared with $26.4
million, or $0.59 per diluted share, a year ago.
We used $6.0 million of cash from operations in
2018 compared with $53.2 million generated a year ago.
During 2018 and 2017, capital expenditures totaled $42.1
million and $80.8 million, respectively, reflecting the
completion in early 2018 of the airlaid capacity expansion
project.
The following table sets forth summarized
consolidated results of operations:
In thousands, except per share
Net sales
Gross profit
Operating income
Continuing operations
Loss
Loss per share
Discontinued operations
Income (loss) from discontinued
operations
Earnings (loss) per share
Net income (loss)
Earnings (loss) per share
Year ended
December 31
$
2018
866,286
130,407
21,942
$
2017
800,362
143,589
33,252
(448 )
(0.01 )
(5,612)
(0.13 )
(177,156 )
(4.05 )
(177,604 )
(4.06 )
$
13,526
0.31
7,914
$
0.18
14
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, 2018 and 2017 :
In thousands, except per share
Net income
Exclude: Net loss (income) from discontinued operations
Loss from continuing operations
Adjustments (pre-tax)(cid:3)
Strategic initiatives
Airlaid capacity expansion costs
Cost optimization actions
Timberland sales and related costs
Total adjustments (pre-tax)
Income taxes (1)
U.S. Tax Reform
Total after-tax adjustments
Adjusted earnings
Year ended December 31
2018
2017
Amount
EPS
Amount
EPS
$
(177,604)
177,156
(448)
(4.06 )
4.05
(0.01 )
$
7,914
(13,526)
(5,612)
0.18
(0.30)
(0.13)
5,898
7,072
440
(3,225)
10,185
6
(545)
9,646
9,198 $
—
10,854
2,592
(188)
13,258
(2,152)
20,922
32,028
26,416
0.22
0.21 $
0.72
0.59
$
$
$
(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
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
Supplementary Data
Net tons sold (thousands)(cid:3)
Depreciation, depletion and
amortization
Capital expenditures
Income (loss) before income taxes $
Advanced Airlaid
Materials
2018
2017
Composite Fibers
2018
2017
$ 554.9
462.3
92.6
44.2
544.3
437.6
106.7
44.4
$
$
—
48.4
—
48.4
143.8
$
28.3
15.7
$
$
—
62.3
—
$
62.3
150.4
104.8
28.3
15.9
$
14.9
21.6
311.4
269.3
42.1
12.2
—
29.9
—
29.9
Other and
Unallocated
Total
2018
—
4.3
(4.3 )
55.3
(3.3 )
(56.3 )
(14.7 )
(71.0 )
—
4.3
4.8
2017
$
—
2.5
(2.5 )
56.8
2018
$ 866.3
735.9
130.4
111.7
(0.2 )
(59.1 )
(13.8 )
(72.9 )
$
(3.3 )
21.9
(14.7 )
7.3
—
248.6
$
4.2
14.3
47.5
42.1
$
$
$
$
$
2017
800.4
656.8
143.6
110.5
(0.2 )
33.3
(13.8 )
19.5
243.0
42.1
80.8
$
$
$
$
256.1
216.7
39.4
9.3
—
30.1
—
$
30.1
92.6
9.6
50.6
$
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 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
GLATFELTER 2018 FORM 10-K
15
presented under the caption “Other and Unallocated.” In
the evaluation of business unit results, management does
not use any measures of total assets. This presentation is
aligned with the management and operating structure of
our company. It is also on this basis that the Company’s
performance is evaluated internally and by the
Company’s Board of Directors.
Sales and Costs of Products Sold
In thousands
Net sales
Costs of products sold
Gross profit
Gross profit as a percent
of Net sales
Year ended
December 31
2018
$ 866,286
735,879
$ 130,407
Change
2017
$ 800,362 $ 65,924
656,773
79,106
$ 143,589 $ (13,182)
15.1 %
17.9 %
The following table sets forth the contribution to
consolidated net sales by each business unit:
Percent of Total
Business Unit
Composite Fibers
Advanced Airlaid Material
Total
Year ended
December 31
2018
2017
64.1 %
35.9
100.0 %
68.0%
32.0
100.0%
Net sales on a consolidated basis totaled $866.3
million and $800.4 million in 2018 and 2017,
respectively. The $65.9 million increase was primarily
driven by $25.4 million of favorable currency translation,
$23.1 million from the Steinfurt acquisition and $11.7
million of higher selling prices. Shipping volumes
increased 2.3%.
Composite Fibers’ net sales increased $10.6 million,
or 1.9%, and totaled $554.9 million in 2018. The increase
was primarily due to $18.9 million from favorable
currency translation and $5.5 million of higher average
selling prices. Shipping volumes in this business unit
decreased 4.4%.
Composite Fibers’ operating income for the year
ended December 31, 2018 decreased $13.9 million to
$48.4 million compared to a year ago primarily due to
significantly higher raw material and energy prices
particularly wood pulp, which outpaced higher selling
prices. The primary drivers are summarized in the
following chart (in millions):
$5.5
$(2.8)
$1.7
$(17.1)
$62.3
$(1.2)
$48.4
2017 Operating
Income
Selling Price
Volume & Mix
Operations & Other
RM & Energy
Inflation
FX
2018 Operating
Income
Advanced Airlaid Materials’ net sales totaled
$311.4 million in 2018. Net sales increased $55.3 million
in the year-over-year comparison primarily due higher
shipping volumes which increased 13.2% reflecting
organic growth of 5.6% and the Steinfurt acquisition.
Favorable currency translation accounted for $6.5 million
and higher selling prices contributed $6.2 million.
Advanced Airlaid Materials’ operating income
totaled $29.9 million, a decrease of $0.2 million, or 0.7%
compared to a year ago. The primary drivers are
summarized in the following chart (in millions):
$3.9(cid:3)
$(3.4)
$6.2(cid:3)
$(6.0)
$30.1
$(0.8)
$29.9(cid:3)
2017
Operating
Income
Selling
Price
Volume &
Mix
Operations
& Other
RM and
Energy
Inflation
FX
2018
Operating
Income
16
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 $56.3 million for 2018 compared
with $59.1 million in 2017. The amounts presented in this
category include costs of strategic initiatives, airlaid
capacity expansion, and cost optimization actions, all of
which are presented previously in the reconciliation of
GAAP results to Adjusted earnings. These charges are not
allocated to a business unit and are recorded in the
accompanying consolidated statements of income (loss)
under the caption “Selling, general and administrative
expenses.” Corporate shared services costs of $23.1
million and $26.7 million for 2018 and 2017,
respectively, were previously included in Specialty
Papers’ results and, in accordance with generally accepted
accounting principles are required to be included in
income from continuing operations.
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
2018
Timberlands
Other
Total
2017
Timberlands
Other
Total
2016
Timberlands
Other
Total
Acres Proceeds
Gain
(loss)
1,918
n/a
$
$
3,414 $ 3,225
31
3,462 $ 3,256
48
332
n/a
$
$
209
9
218
$
$
188
9
197
— $
n/a
$
-
29
29
$
-
(116)
$ (116)
Income taxes On continuing operations, for the year
ended December 31, 2018, we recorded a $7.7 million
provision for income taxes on pretax income of $7.3
million. The comparable amounts in 2017 were a
provision of $25.1 million and pretax income of $19.5
million. As more fully discussed in Item 8 - Financial
Statements and Supplementary Data, Note 9, the Tax Cut
and Jobs Act (“TCJA”) also known as U.S. Tax Reform,
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. Our effective tax rate
for 2018 was unusually high primarily due to losses from
lower taxed U.S.-based operations, together with
provisions of the TCJA which require us to provide for an
additional U.S. tax on international earnings (Global
Intangible Low Taxed Income, or GILTI).
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 €160
million. For 2018 compared to 2017, the average currency
exchange rate of the euro strengthened relative to the U.S.
dollar by approximately 4.6% in the year over year
comparison, and the British pound sterling to the dollar
strengthened by approximately 3.7%. 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 loss
Year ended
December 31, 2018
Favorable
(unfavorable)
$
$
25,399
(23,214)
(1,950)
(301)
(66)
The above table only presents the financial reporting
impact of foreign currency translations assuming currency
exchange rates in 2018 were the same as 2017, or
“constant currency.” It does not present the impact of
certain competitive advantages or disadvantages of
operating or competing in multi-currency markets.
Discontinued Operations We completed the sale of
the Specialty Papers business unit on October 31, 2018.
Its results of operations are reported as discontinued
operations for all periods presented. For the years ended
December 31, 2018, we reported a net loss from
discontinued operations of $177.2 million, including a
$144.1 million impairment charge recorded in connection
with the sale of the business unit. For the years ended
December 31, 2017 and 2016, we reported net income
from discontinued operations of $13.5 million and $35.7
million, respectively.
GLATFELTER 2018 FORM 10-K
17
2017 versus 2016
The following table sets forth summarized results of
Overview Net income for 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, a $7.3 million
pension settlement charge, a $40.0 million charge to
earnings to increase our reserve in the Fox River
environmental matter, costs related to our capacity
expansion project and cost optimization actions.
Excluding these items from reported results, adjusted
earnings, a non-GAAP measure, was $26.4 million, or
$0.59 per diluted share for 2016, compared with $19.4
million, or $0.44 per diluted share, a year ago.
operations:
In thousands, except per share
Net sales
Gross profit
Operating income (loss)
Continuing operations
Loss
Loss per share
Discontinued operations
Income from discontinued
operations
Earnings per share
Net income
Earnings per share
Year ended
December 31
$
2017
800,362
143,589
33,252
$
2016
761,216
131,749
(21,520)
(5,612 )
(0.13 )
(14,177)
(0.32 )
13,526
0.30
7,914
0.18
$
35,731
0.81
21,554
$
0.49
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
Exclude: Net loss (income) from discontinued operations
Loss from continuing operations
Adjustments (pre-tax)
Pension settlement charge
Fox River environmental matter
Airlaid capacity expansion costs
Cost optimization actions
Timberland sales and related costs
Total adjustments (pre-tax)
Income taxes (1)
U.S. Tax Reform
Total after-tax adjustments
Adjusted earnings
Year ended December 31
2017
2016
Amount
EPS
Amount
EPS
$
$
7,914
(13,526)
(5,612)
$
0.18
(0.30)
(0.13)
$
-
-
10,854
2,592
(188)
13,258
(2,152)
20,922
32,028
26,416
$
0.72
0.59
$
$
21,554
(35,731 )
(14,177 )
7,306
40,000
2,661
3,068
-
53,035
(19,447 )
-
33,588
19,411
$
0.49
(0.81)
(0.32)
0.76
0.44
$
(1) Tax effect for adjustments calculated based on the tax rate of the jurisdiction in which each adjustment originated.
Adjusted earnings consists of net income determined in accordance with GAAP adjusted to exclude the impact of the
following (in addition to costs described in the discussion of 2019 versus 2017):
Fox River environmental matter. This adjustment in
2016 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.
18
Business Unit Performance
Year ended December 31
Dollars in millions
Net sales
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
Supplementary Data
Net tons sold (thousands)(cid:3)
Depreciation, depletion and
amortization
Capital expenditures
Income (loss) before income taxes
$
Composite Fibers
2017
2016
$ 544.3
437.6
106.7
44.4
517.0
416.4
100.6
46.3
$
—
62.3
—
62.3
150.4
$
28.3
15.9
—
54.3
—
54.3
137.7
27.8
18.8
$
$
Advanced Airlaid
Materials
Other and
Unallocated
2017
2016
2017
2016
$
$
$
256.1
216.7
39.4
9.3
—
30.1
—
30.1
92.6
9.6
50.6
$
$
$
244.3
209.5
34.8
8.4
—
26.4
—
26.4
89.8
9.0
36.8
$
$
$
Total
— $
2.5
(2.5)
56.8
—
3.6
(3.6 )
98.4
2017
$ 800.4
656.8
143.6
110.5
(0.2)
(59.1)
(13.8)
(72.9)
0.1
(102.2 )
(21.1 )
$ (123.3 )
$
(0.2 )
33.3
(13.8 )
19.5
—
—
243.0
$
4.2
14.3
$
2.5
5.6
42.1
80.8
$
$
$
2016
761.2
629.5
131.7
153.2
0.1
(21.5 )
(21.1 )
(42.6 )
227.5
39.3
61.2
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
Costs of products sold
Gross profit
Gross profit as a percent
of Net sales
Year ended
December 31
2017
$ 800,362
656,773
$ 143,589
2016
$ 761,216 $
629,467
$ 131,749 $
Change
39,146
27,306
11,840
17.9 %
17.3 %
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
The following table sets forth the contribution to
consolidated net sales by each business unit:
$54.3
$(10.1)
$6.0
Percent of Total
Business Unit
Composite Fibers
Advanced Airlaid Material
Total
Year ended
December 31
2017
2016
68.0 %
32.0
100.0 %
67.9%
32.1
100.0%
Net sales on a consolidated basis for 2017 were
$800.4 million compared with $761.2 million for 2016.
On a constant currency basis, net sales increased $34.3
million, or 4.5%. Shipping volumes increased 6.8%.
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.
2016 Operating
Income
Selling Price Volume & Mix Operations &
Other
RM & Energy
Inflation
FX
2017 Operating
Income
GLATFELTER 2018 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. During 2017, our euro denominated revenue
exceeds euro expenses by an estimated €130 million. For
2017 compared to 2016 the average currency exchange
rate of the euro strengthened by approximately 2%
relative to the U.S. dollar in the year over year
comparison, and the British pound sterling to the dollar
declined approximately 5%. 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, 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 include the impact of certain
competitive advantages or disadvantages of operating or
competing in multi-currency markets.
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
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 $59.1 million in 2017
compared with $102.2 million in 2016. The amounts
include charges of $40.0 million recorded in 2016 to
increase our reserve for 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 (loss) under the
caption “Selling, general and administrative expenses.”
This matter is more fully discussed in Item 8, Financial
Statements and Supplementary Data, Note 21.
Income taxes For the year ended December 31,
2017, we recorded a $25.1 million provision for income
taxes on pretax income of $19.5 million. The comparable
amounts in 2016 were a benefit of $28.4 million and
pretax loss of $42.6 million. As more fully discussed in
Item 8 - Financial Statements and Supplementary Data,
Note 9, 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.
20
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth our outstanding long-
Our business requires expenditures for new or
enhanced equipment, research and development efforts,
and to support our business strategy. In addition, we have
mandatory debt service requirements of both principal
and interest. The following table summarizes cash flow
information for each of the 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
Change in cash and cash equivalents from
discontinued operations
Net cash provided
Cash and cash equivalents at end
of period
Year ended
December 31
2018
2017
$ 116,219 $ 55,444
(5,952 )
(217,640 )
(91,426 )
(5,564 )
53,234
(80,808)
76,713
7,244
347,048
26,466
4,392
60,775
$ 142,685 $ 116,219
At December 31, 2018, we had $142.7 million in cash
and cash equivalents (“cash”), of which approximately
50% was held by foreign subsidiaries. Cash held by our
foreign subsidiaries can be repatriated without incurring a
significant amount of additional taxes. In addition to cash,
as of December 31, 2018, $153 million was available
under our then existing revolving credit agreement.
Cash used by operating activities totaled $6.0 million
in 2018 compared with $53.2 million of cash provided by
operations a year ago. The decrease in cash from
operations primarily reflects higher use of cash for
strategic initiatives, working capital, predominantly
inventory, as well as higher payments for interest and
taxes.
Net cash used by investing activities increased by
$136.8 million in the year-over-year comparison
primarily due to the acquisition of Steinfurt for $178.9
million, net of cash acquired and before a post-closing
adjustment. Capital expenditures totaled $42.1 million in
2018 compared with $80.8 million in 2017 reflecting
lower spending due to the completion of Advanced
Airlaid Materials’ capacity expansion project in early
2018. Capital expenditures are expected to total between
$23 million and $28 million in 2019.
Net cash used by financing activities totaled $91.4
million in 2018 compared with $76.7 million provided by
financing activities in 2017. The change in the year-to-
year comparison primarily reflects repayments of debt in
2018 versus a net use of the revolving credit facility in
2017.
term indebtedness:
December 31
2018
In thousands
Revolving credit facility, due Mar. 2020 $ 114,495
250,000
5.375% Notes, due Oct. 2020
5,725
2.40% Term Loan, due Jun. 2022
25,972
2.05% Term Loan, due Mar. 2023
7,361
1.30% Term Loan, due Jun. 2023
9,470
1.55% Term Loan, due Sep. 2025
413,023
(10,785)
(1,276)
Long-term debt, net of current portion $ 400,962
Less current portion
Unamortized deferred issuance costs
Total long-term debt
2017
$ 171,200
250,000
7,710
33,607
9,423
11,390
483,330
(11,298)
(1,934)
$ 470,098
Our revolving credit facility due in March 2020,
contained a number of customary compliance covenants,
the most restrictive of which was a maximum leverage ratio
of 4.5x reducing to 4.0x at the end of 2019. As of
December 31, 2018, the leverage ratio, as calculated in
accordance with the definition in our amended credit
agreement, was 2.9x, within the limits set forth in our credit
agreement.
The table above sets forth our outstanding debt as of
December 31, 2018. The significant terms of the debt
instruments are more fully discussed in Item 8 - Financial
Statements and Supplementary Data – Note 17.
In early 2019, we significantly changed our debt capital
structure. On January 25, 2019, we issued a notice to
redeem, at par, all outstanding 5.375% Notes. We expect
the redemption will be completed on February 28, 2019. In
addition, on February 8, 2019, we entered into a new credit
facility with a consortium of financial institutions. The new
five-year facility (the “2019 Facility”) replaces our existing
Revolving credit facility and consists of a $400 million
variable rate revolver and a €220 million term loan. The
other terms of the 2019 Facility are substantially similar to
our existing Revolving credit facility.
Financing activities includes cash used for common
stock dividends. In 2018, we used $22.8 million of cash for
dividends on our common stock compared with $22.5
million in 2017. 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.
During 2018, we sold Specialty Papers for net
proceeds of $323 million. This receipt and the net
activities of the business unit are reflected in the summary
table of cash flows under the caption “Change in cash and
cash equivalents from discontinued operations.”
GLATFELTER 2018 FORM 10-K
21
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 costs to comply with these regulations and we
could incur additional costs as new regulations are
developed or regulatory priorities change.
As more fully discussed in Item 8 - Financial
Statements and Supplementary Data – Note 21 –
Commitments, Contingencies and Legal Proceedings
(“Note 21”), we are involved in the Lower Fox River in
Wisconsin (the “Fox River”), an EPA Superfund site for
which we remain potentially liable for certain government
oversight and long-term monitoring and maintenance costs.
Pursuant to a consent decree with certain government
agencies entered into in January 2019, we paid $20.5
million for past government oversight costs. Although there
remains some uncertainty as to the amount we may
ultimately be required to spend, the consent decree
specifies the nature of our future obligations.
We expect to meet all 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.
Off-Balance-Sheet Arrangements As of December
31, 2018 and 2017, 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 and Supplementary Data.
1
Contractual Obligations The following table sets forth contractual obligations as of December 31, 2018:
In millions
Long-term debt (1)
Operating leases (2)
Purchase obligations (3)
Other long term obligations (4), (5)
Total
Payments due during the year ending December 31,
Total
2019
2020 to 2021
2022 to 2023
2024 and
beyond
$
$
441 $
13
109
29
592 $
31 $
5
84
4
124 $
288 $
6
25
7
326 $
6 $
2
—
5
13 $
116
—
—
13
129
Represents contractual principal and interest payments due on long-term debt, the significant terms of which are discussed in Item 8 – Financial
Statements and Supplementary Data, Note 17, “Long-term Debt.” The amounts include expected interest payments of $30 million over the term of the
underlying debt instruments based contractual or current market rates in the case of variable rate instruments. The amounts do not reflect the effects of
the debt refinancing initiated in February 2019. See Item 8 – Financial Statements, Note 17, “Long-Term Debt”.
Represents agreements for the lease of production equipment, warehouse space, facilities, automobiles, and office space.
Represents open purchase orders 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, 2018.
Primarily represents benefits estimated to be paid pursuant to retirement medical plans and nonqualified pension plans.
Since we are unable to reasonably estimate the timing of ultimate payment, the amounts set forth above do not include any payments that may be made
related to uncertain tax positions, including potential interest, accounted for in accordance with ASC 740-10-20. As discussed in more detail in Item 8
– Financial Statements and Supplementary Data, Note 9, “Income Taxes,” such amounts totaled $30 million at December 31, 2018.
(1)
(2)
(3)
(4)
(5)
22
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- and indefinite-lived Assets We evaluate
the recoverability of our long- and indefinite-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 for
impairment during the third quarter of each year. The fair
value of Goodwill is determined using market approach
and a discounted cash flow model. The fair value of non-
amortizing tradename intangible assets is determined
using a discounted cash flow model. 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 or settlements 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 or settlements thereof, also requires various
assumptions, which include, but are not limited to, discount
rates and annual rates of increase in the per capita costs of
health care benefits.
The following chart summarizes the more
significant assumption used in the actuarial valuation of
our defined-benefit plans for each of the past three years:
2018 2017
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
Other benefit plans
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
3.85 %
4.34 %
4.44%
3.85%
4.65%
4.44%
7.25 %
7.25%
7.75%
3.00 %
3.00%
3.50%
3.68 %
4.19 %
4.18%
3.68%
5.90 %
4.50 %
6.20%
4.50%
4.38%
4.18%
6.50%
4.50%
2037
2037
2037
(1)
For 2019, the expected long-term rate of return on plan assets
was reduced to 4.50% 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
GLATFELTER 2018 FORM 10-K
23
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
2019
2020
2021
2022
2023
Carrying Value
Fair Value
Year Ended December 31
December 31, 2018
At fixed interest rates – Bond
At fixed interest rates – Term Loans
At variable interest rates
$ 250,000
43,136
114,495
$197,917
32,350
23,853
$ —
21,564
—
$ —
11,392
—
$ —
3,566
—
$
$
250,000
48,528
114,495
413,023
$ 249,010
48,976
114,495
$ 412,481
Weighted-average interest rate
On fixed rate debt – Bond
On fixed rate debt – Term Loans
On variable rate debt
5.375 %
1.87 %
1.50 %
5.375%
1.85%
1.50%
—
1.82%
—
—
1.77%
—
—
1.53 %
—
The table above presents the average principal
outstanding and related interest rates for the next five
years for debt outstanding as of December 31, 2018. The
amounts presented do not give effect to the February 2019
redemption of the $250 million, fixed rate bonds and any
additional borrowings under the variable rate credit
facility to fund such redemption. 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, 2018, we had $411.7 million of long-term
debt, net of deferred debt issuance costs. Approximately
27.8% 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, 2018, the interest
rate paid was 1.50%. A hypothetical 100 basis point
increase or decrease in the interest rate on variable rate
debt would increase or decrease annual interest expense
by $1.1 million.
24
As part of our overall risk management practices,
we enter into financial derivatives primarily designed to
either i) hedge currency risks associated with forecasted
transactions – “cash flow hedges”; or ii) mitigate the
impact that changes in currency exchange rates have on
intercompany financing transactions and foreign currency
denominated receivables and payables – “foreign
currency hedges.” For a more complete discussion of this
activity, refer to Item 8 – Financial Statements and
Supplementary Data – Note 19.
We are subject to certain risks associated with
changes in foreign currency exchange rates to the extent
our operations are conducted in currencies other than the
U.S. Dollar. On an annual basis, our euro denominated
revenue is estimated to exceed euro expenses by
approximately €160 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.
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, 2018, 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). We excluded from our
assessment the internal control over financial reporting at Glatfelter Steinfurt GmbH (“Steinfurt”), which was acquired on
October 1, 2018 and whose financial statements constitute 16.2% of total assets, and 2.7% of total net sales of the Company’s
consolidated financial statement amounts as of and for the year ended December 31, 2018.
Management has determined that the Company’s internal control over financial reporting as of December 31, 2018, 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, 2018, 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, 2018.
The Company’s management, including the chief executive officer and chief financial officer, does not expect that our
internal control over financial reporting will prevent or detect all errors and all frauds. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.
The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
GLATFELTER 2018 FORM 10-K
25
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, 2018, 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, 2018, 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, 2018, of the Company and
our report dated February 25, 2019, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its
assessment the internal control over financial reporting at Glatfelter Steinfurt GmbH (“Steinfurt”), which was acquired on
October 1, 2018 and whose financial statements constitute 16.2% of total assets, and 2.7% of total net sales of the Company’s
consolidated financial statement amounts as of and for the year ended December 31, 2018. Accordingly, our audit did not
include the internal control over financial reporting at Steinfurt.
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.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 25, 2019
26
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, 2018 and 2017, the related consolidated statements of income (loss), comprehensive income
(loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, 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, 2018
and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2018, 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, 2018, 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 25, 2019, 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.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 25, 2019
We have served as the Company’s auditor since at least 1940,
however the specific year has not been determined.
GLATFELTER 2018 FORM 10-K
27
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
In thousands, except per share
Net sales
Costs of products sold
Gross profit
Selling, general and administrative expenses
Losses (gains) on dispositions of plant, equipment
and timberlands, net
Operating income (loss)
Non-operating income (expense)
Interest expense
Interest income
Other, net
Total non-operating expense
Income (loss) before income taxes
Income tax provision (benefit)
Loss from continuing operations
Discontinued operations:
Income (loss) before income taxes
Income tax provision (benefit)
Income (loss) from discontinued operations
Net income (loss)
Basic earnings (loss) per share
Income (loss) from continuing operations
Income (loss) from discontinued operations
Basic earnings (loss) per share
Diluted earnings (loss) per share
Income (loss) from continuing operations
Income (loss) from discontinued operations
Diluted earnings (loss) per share
Weighted average shares outstanding
Basic
Diluted
Year ended December 31
2018
2017
2016
$
$
$
$
$
$
866,286
735,879
130,407
111,721
(3,256)
21,942
(15,609)
559
383
(14,667)
7,275
7,723
(448)
(207,242)
(30,086)
(177,156)
(177,604)
(0.01)
(4.05)
(4.06)
(0.01)
(4.05)
(4.06)
$
$
$
$
$
$
$
800,362
656,773
143,589
110,534
(197 )
33,252
(13,317 )
237
(705 )
(13,785 )
19,467
25,079
(5,612 )
19,868
6,342
13,526
7,914
$
(0.13 ) $
0.31
0.18 $
(0.13 ) $
0.30
0.18 $
761,216
629,467
131,749
153,153
116
(21,520)
(13,850)
206
(7,418)
(21,062)
(42,582)
(28,405)
(14,177)
53,388
17,657
35,731
21,554
(0.33)
0.82
0.49
(0.32)
0.81
0.49
43,768
43,768
43,609
44,439
43,558
44,129
The accompanying notes are an integral part of these consolidated financial statements.
28
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
In thousands
Net income (loss)
Foreign currency translation adjustments
Net change in:
Deferred gains (losses) on cash flow hedges,
net of taxes of $(2,353), $1,930 and $(335),
respectively
Unrecognized retirement obligations, net of
taxes of $(13,898), $(6,293) and $(7,247),
respectively
Other comprehensive income (loss)
Comprehensive income (loss)
2018
2017
2016
Year ended December 31
$
(177,604)
$
7,914
$
21,554
(27,783)
58,609
(27,407)
6,291
(5,592 )
1,725
47,025
25,533
(152,071)
$
10,914
63,931
71,845
$
11,562
(14,120)
7,434
$
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2018 FORM 10-K
29
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands
Assets
Cash and cash equivalents
Accounts receivable (less allowance for doubtful
accounts: 2018 - $1,661; 2017 - $1,761)
Inventories
Prepaid expenses and other current assets
Current assets held for sale
Total current assets
Plant, equipment and timberlands, net
Goodwill
Intangible assets, net
Other assets
Noncurrent assets held for sale
Total assets
Liabilities and Shareholders' Equity
Current portion of long-term debt
Accounts payable
Dividends payable
Environmental liabilities
Other current liabilities
Current liabilities held for sale
Total current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Long-term liabilities held for sale
Total liabilities
Commitments and contingencies
Shareholders’ equity
Common stock, $0.01 par value; authorized - 120,000,000;
issued - 54,361,980 (including treasury
shares: 2018 - 10,403,296; 2017 - 10,748,127)
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
2018
2017
$
142,685
$
116,219
119,772
173,411
33,418
—
469,286
556,044
153,463
93,614
67,347
—
110,586
136,201
32,013
189,952
584,971
515,183
82,744
58,859
81,127
407,911
1,339,754
$
1,730,795
10,785
120,701
5,719
23,000
72,597
—
232,802
400,962
78,651
88,441
—
800,856
—
544
62,239
770,305
(137,440 )
695,648
(156,750 )
538,898
1,339,754
$
$
11,298
113,212
5,678
28,500
75,668
112,820
347,176
470,098
83,571
79,649
41,373
1,021,867
—
544
62,594
948,411
(140,675)
870,874
(161,946)
708,928
1,730,795
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
30
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
2018
2017
2016
$
(177,604)
177,156
$
7,914
(13,526 )
$
21,554
(35,731)
In thousands
Operating activities
Net income (loss)
(Income) loss from discontinued operations, net of tax benefits
Adjustments to reconcile to net cash provided by
operations:
Depreciation, depletion and amortization
Amortization of debt issue costs and original issue discount
Deferred income tax benefit (provision)
(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 (used) 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
Change in cash and cash equivalents from discontinued operations
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
$
$
47,525
1,159
(7,704)
(3,256)
6,288
(621)
(32,138)
(3,372)
13,774
(23,984)
(3,175)
(5,952)
(42,129)
3,462
(178,905)
(68)
(217,640)
(55,446)
—
—
(11,069)
(22,760)
—
(2,151)
(91,426)
(5,564)
(320,582)
347,048
116,219
142,685
15,760
15,171
$
$
42,078
1,157
12,003
(197 )
5,494
(4,148 )
1,522
(910 )
20,361
(16,690 )
(1,824 )
53,234
(80,783 )
218
—
(243 )
(80,808 )
109,436
—
—
(9,771 )
(22,480 )
—
(472 )
76,713
7,244
56,383
4,392
55,444
116,219
13,934
9,336
$
$
39,287
1,153
(38,160)
116
5,482
(2,155)
(4,992)
(1,272)
(544)
40,245
6,095
31,078
(61,162)
29
—
(800)
(61,933)
2,891
(136)
19,428
(8,205)
(21,589)
2,000
(990)
(6,601)
(2,063)
(39,519)
(10,341)
105,304
55,444
13,235
14,020
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2018 FORM 10-K
31
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended December 31, 2018, 2017 and 2016
In thousands
Balance at January 1, 2016
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
Reclassification pursuant to ASU No. 2018-02
Net loss
Other comprehensive income
Comprehensive loss
Tax effect on exercise of stock awards
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, 2018
Common
Stock
$
544
Capital in
Excess of
Par Value
54,912
$
58
5,889
(2,375)
(567)
57,917
6,214
(535)
(1,002)
62,594
(7)
7,000
(6,201)
(1,147)
62,239
544
544
$
544
$
Accumulated
Other
Comprehensive
Loss
$
(190,486 )
(14,120 )
Treasury
Stock
$ (164,866 )
Retained
Earnings
$
963,143
21,554
(21,813)
962,884
(204,606 )
1,624
329
(162,913 )
317
7,914
(22,704)
63,931
948,411
(140,675 )
421
546
(161,946 )
(22,298 )
25,533
22,298
(177,604)
(22,800)
$
770,305
$
(137,440 )
4,575
621
$ (156,750 )
$
Total
Shareholders’
Equity
$
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
—
(177,604)
25,533
(152,071)
(7)
(22,800)
7,000
(1,626)
(526)
538,898
The accompanying notes are an integral part of the consolidated financial statements.
32
P. H. GLATFELTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
P. H. Glatfelter Company and subsidiaries
(“Glatfelter”) is a leading global supplier of engineered
materials. Its high-quality, innovative and customizable
solutions are found in tea and single-serve coffee
filtration, personal hygiene and packaging products as
well as home improvement and industrial applications.
We are headquartered in York, PA, and operate facilities
in the United States, Canada, Germany, France, the
United Kingdom and the Philippines. We have sales and
distribution offices in the U.S., Europe, Russia and China
and our products are marketed worldwide, either directly
to customers or through brokers and agents. The terms
“we,” “us,” “our,” “the Company,” or “Glatfelter,” refer
to P. H. Glatfelter Company and subsidiaries unless the
context indicates otherwise.
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.
Discontinued Operations The results of operations
for the Specialty Papers Business Unit have been
classified as discontinued operations for all periods
presented in the consolidated statements of income (loss).
In addition, the related assets and liabilities of this
business unit have been classified as held for sale in the
consolidated balance sheets for December 31, 2017.
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
goods inventories are valued principally using the
average-cost method.
Plant, Equipment and Timberlands For
financial reporting purposes, depreciation is computed
using the straight-line method over the estimated useful
lives of the respective assets.
The range of estimated service lives used to
calculate financial reporting depreciation for principal
items of plant and equipment are as follows:
Buildings
Machinery and equipment
Other
15 – 45 Years
5 – 40 Years
3 – 25 Years
Maintenance and Repairs Maintenance and
repairs costs are charged to income and major renewals
and betterments are capitalized. At the time property is
retired or sold, the net carrying value is eliminated and
any resultant gain or loss is included in income.
Valuation of Long-lived Assets, Intangible Assets
and Goodwill We evaluate long-lived assets for
impairment when a specific event indicates that the
carrying value of an asset may not be recoverable.
Recoverability is assessed based on estimates of future
cash flows expected to result from the use and eventual
disposition of the asset. If the sum of expected
undiscounted cash flows is less than the carrying value of
the asset, the asset’s fair value is estimated and an
impairment loss is recognized for the amount by which
the carrying value exceeds the estimated fair value.
Goodwill and non-amortizing tradename intangible
assets are reviewed for impairment during the third
quarter of each year or more frequently if impairment
indicators are present. The fair value of Goodwill is
determined using market approach and a discounted cash
flow model. The fair value of non-amortizing tradename
intangible assets is determined using a discounted cash
flow model. 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 non-amortizing tradenames, 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
GLATFELTER 2018 FORM 10-K
33
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 adopted ASU No. 2014-
09, Revenue from Contracts with Customers in the first
quarter of 2018. This ASU clarifies the principles for
recognizing revenue and establishes expanded disclosure
requirements; however, the adoption of ASU No. 2014-09
had no impact on the timing or amount of revenue
recognized for any period presented. Refer to Note 6 for
additional information about the disaggregation of our net
sales.
Our revenue is earned primarily from the
manufacture and sale of engineered materials (“product
sales”). Revenue is earned pursuant to contracts, supply
agreements and other arrangements with a wide variety of
customers. Our performance obligation is to produce a
specified product according to technical specifications
and, in substantially all instances, to deliver the product.
Revenue from product sales is earned at a point in time.
We recognize revenue on product sales when we have
satisfied our performance obligation and control of the
product has passed to the customer thereby entitling us to
34
payment. With respect to substantially all arrangements
for product sales, this is deemed to occur when title
transfers in accordance with specified shipping terms.
The prices are fixed at the time the sales
arrangement is entered into and payment terms are
customary for similar arrangements in our industry. Many
of our agreements include customary provisions for
volume rebates, discounts and similar incentives. In
addition, we are obligated for products that fail to meet
agreed upon specification. Provisions for such items are
estimated and recorded as sales deductions in the period
in which the related revenue is recognized.
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 (loss) per
share is computed by dividing net income (loss) 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. In periods in which there is a net loss, diluted
loss per share is equal to basic loss per share. 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
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
February 2018, the FASB issued ASU No. 2018-02,
“Reclassification of Certain Tax Effects From
Accumulated Other Comprehensive Income. (“ASU No.
2018-02”).” In December 2017, Tax Cuts and Jobs Act
(“TCJA”) was passed into law and, among other
provisions, reduced the statutory federal tax rate from
35% to 21%. The change in the tax rate impacted the
carrying value of deferred tax assets and liabilities. ASU
No. 2018-02 allows a reclassification from accumulated
other comprehensive income (“AOCI”) to retained
earnings for stranded tax effects resulting from the TCJA.
We elected to adopt ASU No. 2018-02 in the first quarter
of 2018, and we reclassified $22.3 million of net deferred
tax benefits from AOCI to Retained earnings.
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 are
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. We adopted this standard in 2018 and all
previously presented consolidated statements of income
(loss) were reclassified to reflect the new presentation
requirements.
In February 2016, the FASB issued ASU No. 2016-
02, Leases (Topic 842) (“ASU 842”). This ASU will
require organizations to recognize on the balance sheet
the assets and liabilities for the rights and obligations
created by those leases. The new guidance is effective for
annual periods beginning after December 15, 2018, and
interim periods therein. We have elected to follow a
modified retrospective method provided for under ASU
842 which permits us to adopt the standard effective
January 1, 2019, without restating previous periods. We
are substantially complete with our review of contracts
and quantifying the net present value of the obligation as
of the adoption date. We do not expect to record a
material right-of-use asset and a corresponding lease
obligation.
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. The adoption of ASU 2017-
12 is not expected to have a material impact on our
consolidated financial statements.
GLATFELTER 2018 FORM 10-K
35
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.
ACQUISITION
On October 1, 2018, we completed the acquisition
of Georgia-Pacific’s European nonwovens business based
in Steinfurt, Germany (“Steinfurt”) for $186 million
including a working capital adjustment and subject to
customary post-closing purchase price adjustments.
The acquisition consisted of Georgia-Pacific’s
operations located in Steinfurt along with sales offices
located in France and Italy. The Steinfurt facility
produces high-quality airlaid products for the table-top,
wipes, hygiene, food pad, and other nonwoven materials
markets, competing in the marketplace with nonwoven
technologies and substrates, as well as other materials
focused primarily on consumer based end-use
applications. The facility is a state-of-the-art, 32,000-
metric-ton-capacity manufacturing facility that employs
approximately 220 people. Steinfurt’s results are reported
prospectively from the acquisition date as part of our
Advanced Airlaid Materials business unit.
We financed the transaction through a combination
of cash on hand and borrowings under our revolving
credit facility.
The preliminary purchase price allocation set forth
in the following table is based on all information available
to us at the present time and is subject to change. In the
event new information, primarily related to the
finalization of working capital adjustments, becomes
available, the measurement of the amounts of goodwill
reflected may be affected.
The preliminary allocation of the purchase price to assets
acquired and liabilities assumed is as follows:
In thousands
Assets
Cash and cash equivalents
Accounts receivable
Inventory
Prepaid and other current assets
Plant, equipment and timberlands
Intangible assets
Goodwill
Total assets
Liabilities
Accounts payable
Deferred tax liabilities
Other long term liabilities
Total liabilities
Total
less cash acquired
Total purchase price
Preliminary
Allocation
$
$
7,540
13,277
11,133
290
66,167
43,573
75,317
217,297
8,577
19,119
1,162
28,858
188,439
(7,540)
180,899
For purposes of allocating the total purchase price,
assets acquired and liabilities assumed are recorded at
their estimated fair market value. The allocation set forth
above is based on management’s estimate of the fair value
using valuation techniques such as discounted cash flow
models, appraisals and similar methodologies. The
amount allocated to intangible assets represents the
estimated value of customer relationships, technological
know-how and trade name.
In connection with the Steinfurt acquisition we
recorded $75.3 million of goodwill and $43.6 million of
intangible assets. The goodwill arising from the
acquisition largely relates to strategic benefits, product
and market diversification, assembled workforce, and
similar factors. For tax purposes, none of the goodwill is
deductible. Intangible assets consist of technology,
customer relationships and tradename.
Acquired property, plant and equipment are being
depreciated on a straight-line basis with estimated
remaining lives ranging from 5 years to 25 years.
Intangible assets are being amortized on a straight-line
basis over an average estimated remaining life of 13 years
reflecting the expected future value.
Revenue and operating income of Steinfurt included
in our consolidated results of operations for 2018 totaled
$23.1 million and $2.4 million, respectively. The
following table summarizes unaudited pro forma financial
information as if the acquisition occurred as of January 1,
2017:
36
In thousands, except per share
Pro forma
Net sales
Income from continuing
operations
Income per share from
continuing operations
Year ended
December 31 (Unaudited)
2017
2018
$
937,043
$
904,430
1,585
0.04
1,396
0.03
During 2018, we incurred legal, professional and
advisory costs directly related to the Steinfurt acquisition
totaling $5.1 million. For purposes of presenting the
4.
DISCONTINUED OPERATIONS
above pro forma financial information, such costs have
been eliminated. All such costs are presented under the
caption “Selling, general and administrative expenses” in
the accompanying consolidated statements of income
(loss).
This unaudited pro forma financial information
presented in this section is not necessarily indicative of
what the operating results would have been had the
acquisition been completed at the beginning of the
respective period nor is it indicative of future results.
On October 31, 2018, we completed the sale of the Specialty Papers Business Unit on a cash free and debt free basis to
Pixelle Specialty Solutions LLC, an affiliate of Lindsay Goldberg (the “Purchaser”) for $360 million. The sale of the business
unit was in connection with the strategic focus on our more growth oriented Composite Fibers and Advanced Airlaid
Materials. Cash proceeds from the sale were approximately $323 million reflecting estimated purchase price adjustments as
of the closing date and the assumption by the Purchaser of approximately $38 million in retiree healthcare liabilities. In
addition, the Purchaser assumed approximately $210 million of pension liabilities relating to Specialty Papers’ employees
and will receive approximately $280 million of related assets from the Company’s existing pension plan. We recognized a
$144.1 million pre-tax loss, presented below as an “Impairment charge” for the amount by which Specialty Papers’ carrying
value exceeded net proceeds from the sale.
In connection with the sale of Specialty Papers, we entered into a Transition Services Agreement with Purchaser
pursuant to which we agreed to provide various back-office and information technology support until the business is fully
separated from us. The following table sets forth a summary of discontinued operations included in the condensed
consolidated statements of income (loss):
In thousands
Net sales
Energy and related sales, net
Total revenues
Costs of products sold
Gross profit
Selling, general and administrative expenses
(Gains) losses on dispositions of plant, equipment and timberlands, net
Operating income (loss)
Non-operating income (expense)
Interest expense
Other, net
Impairment charge
Income (loss) before income taxes
Income tax provision (benefit)
Income (loss) from discontinued operations
$
Year ended
December 31
2017
790,935 $
5,126
796,061
751,135
44,926
22,538
219
22,169
2018
661,186
3,388
664,574
637,472
27,102
32,465
(423)
(4,940)
(6,942)
(51,236)
(144,124)
(207,242)
(30,086)
(177,156) $
(4,455 )
2,154
—
19,868
6,342
13,526 $
$
$
2016
843,582
6,141
849,723
767,320
82,403
29,701
101
52,601
(1,972)
2,759
—
53,388
17,657
35,731
The amounts presented above are derived from the segment reporting for Specialty Papers adjusted to include certain
retirement benefit costs and to exclude corporate shared services costs which are required to remain in continuing operations.
Interest expense was allocated to discontinued operations based on borrowings under the revolving credit facility required to
be repaid with proceeds from the sale of Specialty Papers. The amounts set forth above in 2018 under the caption “Other,
net” include the recognition of a $54.0 million, pre-tax, curtailment and settlement charge for pension and other post-
employment benefits related to the transfer and discontinuance of future service of Specialty Papers’ employees.
GLATFELTER 2018 FORM 10-K
37
The following table sets forth the carrying amounts of Specialty Papers’ major asset and liabilities, which were
classified as held for sale in the consolidated balance sheet as of the end of 2017:
In thousands
Assets
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Current assets held for sale
Plant, equipment and timberlands, net
Other assets
Noncurrent assets held for sale
Liabilities
Accounts payable
Other current liabilities
Current liabilities held for sales
Long-term liabilities held for sale
December 31
2017
63,567
115,858
10,527
189,952
350,560
57,351
407,911
77,266
35,554
112,820
41,373
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) $
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) $
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) $
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) $
(cid:3)(cid:3)
(cid:3)(cid:3) $
(cid:3)(cid:3)
(cid:3)(cid:3) $
The following table sets forth a summary of cash flows from discontinued operations which is included in the
consolidated statements of cash flows:
(cid:3)
In thousands
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Change in cash and cash equivalents from discontinued operations
(cid:3)
$
$
Year ended
December 31
2017
51,028
$
(51,511 )
4,875
4,392
$
2018
38,803
308,120
125
347,048
$
$
2016
85,032
(98,955)
3,582
(10,341) (cid:3)
5. GAIN ON DISPOSITIONS OF PLANT,
EQUIPMENT AND TIMBERLANDS
During 2018, 2017 and 2016, we completed the
following sales of assets:
Acres Proceeds
Gain
(loss)
1,918
n/a
$ 3,414 $ 3,225
31
$ 3,462 $ 3,256
48
332
n/a
$
$
209
9
218
$
$
188
9
197
— $
n/a
$
-
29
29
$
-
(116)
$ (116)
Dollars in thousands
2018
Timberlands
Other
Total
2017
Timberlands
Other
Total
2016
Timberlands
Other
Total
38
6.
REVENUE
7.
EARNINGS PER SHARE
The following tables set forth disaggregated
The following table sets forth the details of basic
information pertaining to our net sales:
and diluted earnings (loss) per share (EPS):
In thousands
Composite Fibers
Food & beverage
Wallcovering
Technical specialties
and other
Metallized
Composite laminates
Advanced Airlaid
Materials
Year ended December 31
2018
2017
2016
$ 279,515
103,686
$ 268,474 $ 258,463
90,767
103,011
81,281
52,174
38,213
71,558
61,059
35,107
554,869 544,260 516,954
76,991
57,088
38,696
Feminine hygiene
195,686
Specialty wipes
Table top
Adult incontinence
Home care
Other
Total
45,375
21,600
19,734
16,010
179,671
29,519
6,707
14,425
13,029
12,751
173,902
25,206
6,718
12,281
12,630
13,012
13,525
311,417 256,102 244,262
$ 800,362 $ 761,216
$ 866,286
In thousands, except per share
Net income (loss)
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
Income (loss) per share
Continuing operations
Discontinued operations
Year ended December 31
2016
2017
2018
$ (177,604 ) $ 7,914 $21,554
43,768 43,609
43,558
—
830
571
43,768 44,439
44,129
$
(0.01 ) $ (0.13) $ (0.32)
0.81
0.30
(4.05 )
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
2017
2018
610
1,379
2016
596
In thousands
2018
2017
2016
Year ended December 31
Composite Fibers
Europe, Middle East
and Africa
Americas
Asia Pacific
Advanced Airlaid
Materials
Europe, Middle East
and Africa
Americas
Asia Pacific
Total
$ 354,978
$ 349,336
$ 341,334
113,546
107,064
97,441
86,345
554,869
87,860
544,260
78,179
516,954
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)
(cid:3) (cid:3)(cid:3)
163,157
144,913
3,347
311,417
$ 866,286
116,895
125,818
132,480
122,379
1,243
1,549
244,262
256,102
$ 800,362 $ 761,216
GLATFELTER 2018 FORM 10-K
39
8.
ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the three
years ended December 31, 2018, 2017 and 2016.
In thousands
Currency
translation
adjustments
Unrealized gain
(loss) on cash
flow hedges
Change in
pensions
Change in other
postretirement
defined benefit
plans
Balance at January 1, 2018
$
(41,839)
$
(4,092)
$
(98,295)
$
3,551 $
Amount reclassified for Adoption of ASU
No. 2018-02
Balance as adjusted at January 1, 2018
(41,839)
(4,092)
(23,297)
(121,592)
999
4,550
Total
(140,675)
(22,298)
(162,973)
2,641
3,650
6,291
2,199
1,500
(5,182)
(410)
(5,592)
(4,092)
(225)
1,247
478
(9,267)
2,979
(31,430)
59,428
(6,115 )
56,963
50,161
(71,431)
$
(3,136 )
1,414 $
25,533
(137,440)
(110,656)
$
4,998 $
(204,606)
2,981
9,380
(1,099 )
55,309
(348 )
8,622
12,361
(98,295)
$
(1,447 )
3,551 $
63,931
(140,675)
(120,714)
$
3,494 $
(190,486)
(4,334)
2,086
(28,408)
14,392
(582 )
14,288
$
$
$
$
$
$
$
$
58,609
—
58,609
(41,839)
(73,041)
(27,407)
—
(27,407)
(100,448)
$
1,725
1,500
10,058
(110,656)
$
$
1,504
4,998 $
(14,120)
(204,606)
Other comprehensive income (loss) 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, 2018
$
(27,783)
—
(27,783)
(69,622)
Balance at January 1, 2017
$
(100,448)
Other comprehensive income (loss) 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, 2017
Balance at January 1, 2016
$
$
Other comprehensive income (loss) 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
$
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 19)
(Gains) losses on cash flow hedges
Tax expense (benefit)
Net of tax
Year ended December 31
2017
2018
2016
Line Item in Statements of Income
$
$
5,020
(1,370)
3,650
$
(532)
122
(410)
551
(73 )
478
Costs of products sold
Income tax provision (benefit)
Retirement plan obligations (Note 11)
Amortization of defined benefit pension plan items
Prior service costs
Actuarial losses
Discontinued operations amortization of defined
benefit pension plans
Pension curtailment and settlement
Pension settlement
Tax benefit
Net of tax
Amortization of defined benefit other plan items
Actuarial losses
Discontinued operations amortization of defined
benefit other plans
Other benefit plan settlement
Tax expense
Net of tax
Total reclassifications, net of tax
$
39
7,050
6,990
61,917
—
75,996
(16,568)
59,428
(261)
(575)
(7,949)
(8,785)
2,670
(6,115)
56,963
$
21
7,109
7,975
—
—
15,105
(5,725)
9,380
(13)
(547)
—
(560)
212
(348)
8,622
21
7,582
8,266
—
7,306
23,175
(8,783)
14,392
Other, net
Other, net
Discontinued operations
Discontinued operations
Selling, general and administrative
Income tax provision (benefit)
(58 )
Other, net
(879)
—
(937)
355
(582)
14,288
$
Discontinued operations
Discontinued operations
Income tax provision (benefit)
9.
INCOME TAXES
On December 22, 2017, the TCJA was signed into
U.S. law. Among other things, the TCJA reduced the U.S.
federal corporate tax rate from 35% to 21% beginning in
2018 and required 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, required companies to
recognize the effect of tax law changes in the period of
enactment, or 2017, even though the effective date for
most provisions was for tax years beginning after
December 31, 2017. Accordingly, in 2017 we recorded an
income tax benefit of $18.1 million to remeasure the net
deferred tax liabilities due to the reduction in the U.S.
corporate income tax rate to 21%.
The TCJA included a one-time mandatory repatriation
transition tax on the net accumulated earnings and profits
of a U.S. taxpayer’s foreign subsidiaries. Given the
significance of the legislation, the U.S. Securities and
Exchange Commission staff issued Staff Accounting
Bulletin No. 118, which allowed registrants to record
provisional amounts during a one year “measurement
period” similar to that used when accounting for business
combinations. We performed an earnings and profits
analysis which resulted in us recording in 2017 a
provisional U.S. federal income tax expense of $41.8
million associated with the repatriation transition tax, and
$3.8 million of non-US taxes and $0.3 million of state
taxes associated with the repatriation of such earnings and
profits.
Our accounting for all provisions of the TCJA was
completed as of December 31, 2018. We filed our 2017
U.S. federal income tax return during the third quarter of
2018 and reported the mandatory repatriation transition
tax on the net earnings and profits of our foreign
subsidiaries. As a result, we recorded a net benefit of $0.5
million to adjust the provisional amounts previously
recorded in 2017 in connection with the repatriation
provision.
While the TCJA provided for a territorial tax system,
beginning in 2018, it includes the global intangible low-
taxed income (“GILTI”) provision. We elected to account
for GILTI tax in the period in which it is incurred. The
GILTI provisions require entities to include in its U.S.
income tax return foreign subsidiary earnings in excess of
an allowable return on the foreign subsidiaries’ tangible
assets.
GLATFELTER 2018 FORM 10-K
41
For the year ended December 31, 2018, our income tax
The following table sets forth a reconciliation of the
expense increased by approximately $2.5 million as a
result of the GILTI provisions which, due to our
utilization of U.S. federal tax loss carryforward, restricts
our ability to recognize the associated foreign tax credits
and a deduction of up to 50% of the GILTI income. Since
we are using U.S. federal tax loss carryforwards, there is
no impact to cash taxes related to the GILTI provisions.
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
continuing 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
2018
2017
2016
$
$
442
14,985
15,427
(1,323 ) $
107
14,292
13,076
(763)
315
10,203
9,755
(9,242 )
251
1,287
(7,704 )
5,375
2,652
3,976
12,003
(38,811)
(3,428)
4,079
(38,160)
$
7,723
$ 25,079 $ (28,405)
The following are the domestic and foreign
components of pretax income (loss) from continuing
operations:
In thousands
United States
Foreign
Total pretax income (loss) $
Year ended December 31
2017
2016
2018
$ (59,264 )
66,539
7,275
$ (60,788 ) $(116,703)
74,121
$ 19,467 $ (42,582)
80,255
42
statutory federal income tax rate to our actual effective
tax rate for continuing operations.
Year ended December 31
2017
2018
2016
Federal income tax
provision at statutory rate
State income taxes,
net of federal income tax
benefit
Foreign income tax rate
differential
Tax effect of tax credits
Provision for (resolution of)
tax matters
Rate changes due to
enacted legislation
State benefit due to
enacted legislation
Effect of U.S. tax law
change (1)
Global Intangible
Low-taxed Income
Stock-based compensation
Nondeductible officer's
compensation
Valuation allowance
Other
Actual tax rate
21.0 %
35.0%
35.0%
(15.9 )
(18.9 )
1.3
46.5
7.2
—
(1.8)
(58.0)
(20.1)
27.8
(1.3)
(8.2)
(7.5 )
107.5
33.8
10.0
5.2
15.7
7.8
106.2 %
—
(0.2)
—
47.0
1.1
128.8%
7.0
24.4
—
0.4
1.9
—
—
—
0.2
—
(1.8)
(0.4)
66.7%
(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 for the year ended December
31, 2017, 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.
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
$
2018
2017
3,720
10,795
3,957
2,133
—
(35 )
21,843
3,506
45,919
(30,029 )
15,890
(66,426 )
(22,231 )
(3,890 )
(1,935 )
(94,482 )
(78,592 )
$
$
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)
Non-current deferred tax assets and liabilities are
included in the following balance sheet captions:
deferred tax liability has been recognized in our
consolidated financial statements.
In thousands
Other assets
December 31
2018
2017
$
59
$
117
Deferred income taxes
78,651
83,571
At December 31, 2018 we had federal, state and
foreign tax net operating loss (“NOL”) carryforwards of
$37.6 million, $201.7 million and $2.7 million,
respectively. These NOL carryforwards are available to
offset future taxable income, if any. All federal NOL
carryforwards expire in 2037. The state NOL
carryforwards expire at various times and in various
amounts beginning in 2019 and through 2038. Certain
foreign NOL carryforwards begin to expire after 2023.
The federal, state and foreign NOL carryforwards
on the income tax returns filed included unrecognized tax
benefits taken in prior years. The NOLs for which a
deferred tax asset is recognized for financial statement
purposes in accordance with ASC 740 are presented net
of these unrecognized tax benefits.
In addition, we had various federal tax credit
carryforwards totaling $11.2 million which begin to
expire after 2036, state tax credit carryforwards totaling
$0.2 million, which begin to expire in 2019, and foreign
investment tax credits of $2.4 million which begin to
expire after 2027.
As of December 31, 2018 and 2017, we had a
valuation allowance of $30.0 million and $7.4 million,
respectively, against net deferred tax assets, primarily due
to uncertainty regarding the ability to utilize federal, 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 $(0.1) million, $3.9 million and $0.0 million in
2018, 2017 and 2016, respectively, related to research and
development credits.
At December 31, 2018 and 2017, unremitted
earnings of subsidiaries outside the United States deemed
to be indefinitely reinvested totaled $29.0 million and
$0.0 million, respectively. Because the unremitted
earnings of subsidiaries are deemed to be indefinitely
reinvested as of December 31, 2018 and because we have
no need for or plans to repatriate such earnings, no
As of December 31, 2018, 2017 and 2016, we had
$29.6 million, $26.9 million and $14.2 million of gross
unrecognized tax benefits, respectively. As of December
31, 2018, if such benefits were to be recognized,
approximately $19.8 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
2018
2017
2016
$
26.9
$
14.2
$
12.2
Increases in tax positions
for prior years
Decreases in tax positions
for prior years
Acquisition related:
Purchase Accounting
Increases in tax positions
for current year
Settlements
Lapse in statutes of
limitation
Balance at December 31
$
0.3
(1.0 )
0.3
4.0
(0.2 )
1.7
—
—
11.9
—
(0.7 )
29.6
$
(0.9)
26.9
$
2.0
(1.4)
—
1.9
(0.2)
(0.3)
14.2
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
Open Tax Years
Examinations
not yet
initiated
Examination
in progress
2015 - 2018
2014 - 2018
2011-2013;
2018
2016 - 2018
N/A
N/A
2014 - 2017
2011 - 2015
2018
2015-2017
United Kingdom
2017 - 2018
N/A
Philippines
2016, 2017
Includes provincial or similar local jurisdictions, as applicable.
2015, 2018
(1)
The amount of income taxes we pay is subject to
ongoing audits by federal, state and foreign tax
authorities, which often result in proposed assessments.
Management performs a comprehensive review of its
global tax positions on a quarterly basis and accrues
amounts for uncertain tax positions. Based on these
reviews and the result of discussions and resolutions of
matters with certain tax authorities and the closure of tax
years subject to tax audit, reserves are adjusted as
necessary. However, future results may include favorable
or unfavorable adjustments to our estimated tax liabilities
GLATFELTER 2018 FORM 10-K
43
providing the grantees an opportunity to receive more or
less shares than targeted depending on actual financial
performance. In addition, beginning in 2018, PSA awards
include a modifier based on the three-year total
shareholder return relative to a broad market index. For
RSUs the grant date fair value of the awards, or 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. For PSAs,
the grant date fair value is estimated using a lattice model.
The significant inputs include the stock price, volatility,
dividend yield, and risk-free rate of return. 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,
2018
2017
929,386 679,038
435,542 375,435
(96,306)
(112,501 )
(495,641 )
(28,781)
756,786 929,386
2016
674,523
302,722
(148,232)
(149,975)
679,038
Compensation expense
$
5,971 $
4,228
$
2,875
2018
2017
2016
The amount granted in 2018, 2017 and 2016
includes 184,834, 163,274 and 199,693 PSAs,
respectively, exclusive of reinvested dividends. The
weighted average grant date fair value per unit for awards
in 2018, 2017 and 2016 was $20.20, $22.32 and $18.08,
respectively. As of December 31, 2018, unrecognized
compensation expense for outstanding RSUs and PSAs
totaled $5.2 million. The weighted average remaining
period over which the expense will be recognized is 1.3
years.
in the period the assessments are determined or resolved
or as such statutes are closed. Due to potential for
resolution of federal, state and foreign examinations, and
the expiration of various statutes of limitation, it is
reasonably possible our gross unrecognized tax benefits
balance may decrease within the next twelve months by a
range of zero to $6.5 million. The majority of this range
relates to tax positions taken in Germany and 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,
2017
2018
2016
$
1.1
0.3
–
0.8 $
0.3
–
0.5
(0.1 )
–
10. STOCK-BASED COMPENSATION
The P. H. Glatfelter Amended and Restated Long
Term Incentive Plan (the “LTIP”) provides for the
issuance of Glatfelter common stock to eligible
participants in the form of restricted stock units, restricted
stock awards, non-qualified stock options, performance
shares, incentive stock options and performance units. As
of December 31, 2018, there were 1,990,742 shares of
common stock available for future issuance under the
LTIP.
Pursuant to the terms of the LTIP, we have issued
to eligible participants restricted stock units, performance
share awards and stock only stock appreciation rights
(“SOSARs”).
Restricted Stock Units (“RSUs”) and
Awards of
Performance Share Awards (“PSAs”)
RSUs and PSAs are made under our LTIP. The vesting of
RSUs is generally based on the passage of time, generally
over a three -year period or in certain instances the RSUs
were issued with fiver year cliff vesting. PSAs are issued
to members of management and vesting is based on
achievement of cumulative financial performance targets
covering a two year period followed by an additional one-
year service period. The performance measures include a
minimum, target and maximum performance level
44
Stock Only Stock Appreciation Rights The following table sets forth information related to outstanding SOSARS:
2018
2017
2016
SOSARS
Outstanding at January 1,
Granted
Exercised
Canceled / forfeited
Outstanding at December 31,
Exercisable at December 31,
Vested and expected to vest
Shares
2,561,846
—
(158,545 )
(68,559 )
2,334,742
2,134,297
2,334,742
Wtd Avg
Exercise Price
17.87
—
13.31
21.09
18.08
18.13
$
$
Shares
2,736,616
—
(157,140)
(17,630)
2,561,846
2,011,075
2,561,846
Wtd Avg
Exercise Price
17.64
$
—
13.76
18.46
17.87
17.56
$
Shares
2,199,742
743,925
(61,190 )
(145,861 )
2,736,616
1,740,591
2,725,611
Wtd Avg
Exercise Price
17.82
$
17.54
10.70
22.80
17.64
16.19
$
SOSAR Grants
Weighted average grant date
fair value per share
Aggregate grant date(cid:3)
fair value (in thousands)
Black-Scholes assumptions
Dividend yield
Risk free rate of return
Volatility
Expected life
Compensation expense(cid:3)
(in thousands)
—
—
—
—
—
—
—
—
—
—
—
—
$
$
4.07
3,013
2.85 %
1.34 %
31.97 %
6
$
317
$
1,266
$
2,607
use a December 31-measurement date for all of our
defined benefit plans.
We also provide certain health care benefits to
eligible U.S.-based retired employees. Participation in the
plan is closed to any salaried employees hired after
December 31, 2006. 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.
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 2018 or 2017. As of
December 31, 2018, the intrinsic value of SOSARs vested
and expected to vest totaled $0 million and the remaining
weighted average contractual life of outstanding SOSARs
was 4.7 years.
11. RETIREMENT PLANS AND OTHER POST-
RETIREMENT BENEFITS
We provide non-contributory retirement benefits
under both funded and unfunded plans to all U.S.
employees and to certain non-U.S. employees in
Germany. 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
GLATFELTER 2018 FORM 10-K
45
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
2017
2018
$
43.3 $
(2.1 )
66.4 $
(2.2 )
Other Benefits
2018
2017
— $ —
(3.5 )
(2.4 )
(40.2 )
(38.4 )
(6.8 )
(6.2 )
$
1.0 $
25.8 $
(9.2 ) $ (9.7 )
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
2017
2018
Other Benefits
2018
2017
$
0.5 $
90.9
16.1
145.6
$
— $
1.9
(0.5 )
(5.6 )
The accumulated benefit obligation for all defined
benefit pension plans was $324.0 million and $320.7
million at December 31, 2018 and 2017, respectively.
The weighted-average assumptions used in
computing the benefit obligations above were as follows:
Pension Benefits
2018
Other Benefits
2017 2018
2017
Discount rate –
benefit
obligation
Future
compensation
growth rate
4.34%
3.85 %
4.19% 3.68%
2.50
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, 2018 ranged from 2.05% to 4.54% for
pension plans and from 4.11% to 4.22% 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
2018
2017
$
42.2
$
36.6
—
40.9
36.7
—
In connection with the sale of the Specialty Papers
business unit, the buyer assumed $210 million of pension
liabilities for all employees active as of October 31, 2018,
and we agreed to transfer pension assets of approximately
$280 million, subject to final actuarial determination. In
addition, the buyers assumed $38 million of retiree
healthcare liabilities related to employees active as of the
October 31, 2018. We retained the pension retiree
healthcare liabilities for all retired and deferred vested
Specialty Paper employees.
All information presented in the following tables
represents amounts attributable to continuing operations
and all prior year data has been restated.
In millions
Pension Benefits
2017
2018
Other Benefits
2018
2017
Change in
Benefit
Obligation
Balance at
beginning of
year
Service cost
Interest cost
Plan amendments
Participant
contributions
Transfers from
Discontinued
Operations
Actuarial
(gain)/loss
Benefits paid
Effect of currency
rate changes
Balance at end
of year
$ 347.0 $ 311.5 $
2.0
13.7
4.1
2.3
13.3
0.1
9.7 $
0.1
0.5
—
—
—
1.2
9.2
0.1
0.4
—
1.1
25.7
27.9
4.3
2.5
(10.6 )
(45.1 )
23.1
(36.5 )
(3.1 )
(3.5 )
(0.6 )
(3.0 )
(0.5 )
1.2
—
—
$ 332.2 $ 347.0 $
9.2 $
9.7
(22.4 )
2.2
Change in
Plan Assets
Fair value of plan
assets at
beginning of year $ 372.8 $ 327.4 $
Actual return
on plan assets
Total contributions
Transfers from
Discontinued
Operations
Benefits paid
Fair value of plan
assets at end
of year
Funded status at
end of year
27.9
(36.5 )
333.2 372.8
51.9
2.1
25.7
(45.1 )
25.8 $
1.0 $
$
— $ —
—
3.5
—
3.0
—
(3.5 )
—
(3.0 )
—
—
(9.2 ) $ (9.7 )
Amounts presented under the caption “transfers
from discontinued operations” represent the impact of
employees changing their status from what was originally
assumed for purposes of accounting for discontinued
operations to the final determination at the time the sale
was completed.
46
Net periodic benefit cost includes the following
The weighted-average assumptions used in
components:
$
In millions
Pension Benefits
Service cost
Interest cost
Expected return on plan
assets
Amortization of
actuarial loss
One-time settlement
charge
Total net periodic
benefit cost
Other Benefits
Service cost
Interest cost
Amortization of
actuarial loss
Total net periodic
benefit cost
Year Ended December 31
2017
2016
2018
2.3 $
13.3
2.0 $
13.7
1.8
14.0
(21.1 )
(22.2 )
(23.3 )
7.1
7.1
—
—
$
1.6 $
0.6 $
$
0.1 $
0.5
0.1 $
0.4
7.6
7.3
7.4
0.1
0.4
(0.3 )
—
(0.1 )
$
0.3 $
0.5 $
0.4
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.
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 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 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
2018
2017
$
32.9 $
0.1
(7.1 )
25.9
(6.8 )
4.1
(7.1 )
(9.8 )
$
27.5 $
(9.2 )
$
(3.1 ) $
0.3
(2.8 )
(0.6 )
—
(0.6 )
$
(2.5 ) $
(0.1 )
computing the net periodic benefit cost information above
were as follows:
Year Ended December 31
2018
2017
2016
Pension Benefits
Discount rate – benefit expense
Future compensation growth rate 3.00
Expected long-term rate of return
on plan assets
7.25
3.85 %
4.44% 4.65%
3.00
3.50
7.25
7.75
Other Benefits
Discount rate – benefit expense
3.68 %
4.18% 4.38%
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
2018
2017
5.90 %
6.20%
4.50
2037
4.50
2037
Plan Assets All pension plan assets in the U.S. are
invested through a single master trust fund. The strategic
asset allocation for this trust fund is selected by
management, reflecting the results of comprehensive asset
and liability modeling. The general principles guiding U.S.
pension asset investment policies are those embodied in the
Employee Retirement Income Security Act of 1974
(ERISA). These principles include discharging our
investment responsibilities for the exclusive benefit of plan
participants and in accordance with the “prudent expert”
standard and other ERISA rules and regulations. We
establish strategic asset allocation percentage targets and
appropriate benchmarks for significant asset classes with
the aim of achieving a prudent balance between return and
risk.
Investments and decisions will be made solely in the
interest of the Plan’s participants and beneficiaries, and for
the exclusive purpose of providing benefits accrued
thereunder. The primary goal of the Plan is to ensure the
solvency of the Plan over time and thereby meet its
distribution objectives. All investments in the Plan will be
made in accordance with ERISA and other applicable
statutes.
Diversification of plan assets is achieved by 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. As of December 31, 2018, the
GLATFELTER 2018 FORM 10-K
47
targeted range of investment allocations of Plan assets is
80% to 100% fixed income and the balance in cash and
cash equivalents.
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:
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
2019
2020
2021
2022
2023
2024 through 2028
Pension
Benefits
26,252 $
22,358
22,009
22,005
21,344
101,499
Other Benefits
2,364
1,732
1,264
885
665
1,992
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. Company matches are made
in cash. The expense associated with our 401(k) match
was $0.4 million, $0.3 million and $0.2 million in 2018,
2017 and 2016, respectively.
12.
INVENTORIES
December 31, 2018
Inventories, net of reserves were as follows:
Total
$ 330.9 $
Level 1 Level 2
41.8 $
Level 3
289.1 $ —
2.3
$ 333.2 $
—
41.8 $
2.3
—
291.4 $ —
December 31, 2017
Total
Level 1 Level 2
Level 3
In thousands
Raw materials
In-process and finished
Supplies
Total
December 31
2018
50,205
84,894
38,312
173,411
$
$
2017
39,797
65,277
31,127
136,201
$
$
$ 119.0 $
6.9 $
112.1
$ —
13. PLANT, EQUIPMENT AND TIMBERLANDS
In millions
Fixed income
Cash and
equivalents
Total
In millions
Domestic Equity
Large cap
Small and mid
cap
International
equity
REIT
Fixed income
Cash and
equivalents
Total
25.6
25.6
— —
45.1
15.3
161.1
4.0
15.3
13.3
41.1
—
— —
—
147.8
6.7
$ 372.8 $
0.1
65.2 $
6.6
307.6
—
$ —
Cash Flow We were not required to make
contributions to our qualified pension plan in 2018 nor do
we expect to make any to this plan in 2019. Benefit
payments expected to be made in 2019 under our non-
qualified pension plans and other benefit plans are
summarized below:
In thousands
Nonqualified pension plans
Other benefit plans
$
2,126
2,364
48
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
2018
164,002
676,501
152,121
(458,567)
534,057
21,946
41
556,044
$
$
2017
126,980
591,220
137,870
(435,231)
420,839
94,149
195
515,183
$
$
As of December 31, 2018 and 2017, we had $4.8
million and $13.7 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
2018
2017
$ 16,005 $ 15,066
1,749
$ 15,609 $ 13,317
396
2016
$ 14,169
319
$ 13,850
14. GOODWILL AND INTANGIBLE ASSETS
16. OTHER CURRENT LIABILITIES
The following table sets forth information with
Other current liabilities consist of the following:
respect to goodwill and other intangible assets:
In thousands
Goodwill
Composite Fibers
Advanced Airlaid Materials
Total Goodwill
Other Intangible Assets
Composite Fibers
Tradename - nonamortizing
Technology and related
Customer relationships and related
Advanced Airlaid Materials
Tradename
Technology and related
Customer relationships and related
Total intangibles
Accumulated amortization
Net intangibles
December 31
2018
2017
$
79,024
74,439
153,463
$
82,744
—
82,744
4,556
38,813
35,029
4,534
18,014
24,853
125,799
(32,185 )
93,614
$
$
4,773
40,686
36,705
—
1,488
3,001
86,653
(27,794)
58,859
The change in the gross value of goodwill and
intangible assets was primarily due to additional amounts
recorded in connection with the Steinfurt acquisition and
due to currency translation adjustments. Other than
goodwill and an indefinite-lived 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:
2019
2020
2021
2022
2023
2018
2017
2016
$ 5,860
$ 4,773
$
4,852
8,416
8,289
7,887
7,767
7,767
The remaining weighted average useful life of
intangible assets was 11.4 years at December 31, 2018.
15. OTHER LONG-TERM ASSETS
Other long-term assets consist of the following:
In thousands
Pension
Other
Total
December 31
2018
2017
$
$
43,341
24,006
67,347
$
$
66,382
14,745
81,127
In thousands
Accrued payroll and benefits
Other accrued compensation
and retirement benefits
Income taxes payable
Accrued rebates
Other accrued expenses
Total
$
December 31
2018
2017
$
15,898
$
29,255
6,064
2,147
2,889
45,599
72,597
$
7,864
1,927
3,261
33,361
75,668
17. LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31
2018
In thousands
Revolving credit facility, due Mar. 2020 $ 114,495
250,000
5.375% Notes, due Oct. 2020
5,725
2.40% Term Loan, due Jun. 2022
25,972
2.05% Term Loan, due Mar. 2023
7,361
1.30% Term Loan, due Jun. 2023
9,470
1.55% Term Loan, due Sep. 2025
413,023
(10,785)
(1,276)
Long-term debt, net of current portion $ 400,962
Less current portion
Unamortized deferred issuance costs
Total long-term debt
2017
$ 171,200
250,000
7,710
33,607
9,423
11,390
483,330
(11,298)
(1,934)
$ 470,098
Our revolving credit agreement with a consortium
of banks (the “Revolving Credit Facility”) provides for
borrowing up to $400 million, and matures March 12,
2020. On February 1, 2017, and September 7, 2018, the
Revolving Credit Facility was further amended to, among
other, (a) increase the maximum leverage ratio financial
covenant to 4.0x and (b) change the definition of earnings
before interest, taxes, depreciation and amortization
(“EBITDA”) for purposes of calculating covenant
compliance.
For all US dollar denominated borrowings under
the Revolving Credit Facility, the borrowing rate is, at our
option, either, (a) the bank’s base rate which is equal to
the greater of i) the prime rate; ii) the federal funds rate
plus 50 basis points; or iii) the daily Euro-rate plus 100
basis points plus an applicable spread over either i), ii) or
iii) ranging from 12.5 basis points to 100 basis points
based on the Company’s leverage ratio and its corporate
credit ratings determined by Standard & Poor’s Rating
Services and Moody’s Investor Service, Inc. (the
“Corporate Credit Rating”); or (b) the daily Euro-rate plus
an applicable margin ranging from 112.5 basis points to
200 basis points based on the Company’s leverage ratio
and the Corporate Credit Rating. For non-US dollar
denominated borrowings, interest is based on (b) above.
The Revolving Credit Facility contains a number of
customary covenants for financings of this type that,
among other things, restrict our ability to dispose of or
create liens on assets, incur additional indebtedness, repay
other indebtedness, limits certain intercompany financing
arrangements, make acquisitions and engage in mergers
GLATFELTER 2018 FORM 10-K
49
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 4.5x reducing 4.0x at the end of 2019. As of December
31, 2018, the leverage ratio, as calculated in accordance
with the definition in our amended credit agreement was
2.9x. 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 publicly
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, 2018, we met all of the
requirements of our debt covenants.
On February 8, 2019, we refinanced the Revolving
Credit Facility with a new credit facility consisting of a
five-year €220 million term loan and a $400 million
revolving credit facility (the “2019 Credit Facility”). The
2019 Credit Facility contains pricing, covenants and terms
and conditions substantially identical to the Revolving
Credit Facility which it refinanced. In addition, in January
2019 we issued a redemption notice for all outstanding
50
5.375% Notes. The redemption of these Notes, at par, will
be completed using proceeds under the term loan and is
expected to be completed on February 28, 2019.
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 $1.9 million at December 31, 2018. 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
$1.1 million in 2018.
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
2019
2020
2021
2022
2023
Thereafter
$
10,785
375,281
10,786
9,968
3,749
2,454
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, 2018 and 2017, we had $5.2
million and $5.2 million, respectively, of letters of credit
issued to us by certain financial institutions. The letters of
credit, which reduce amounts available under our
revolving credit facility, primarily provide financial
assurances for the benefit of certain state workers
compensation insurance agencies in conjunction with our
self-insurance program. We bear the credit risk on this
amount to the extent that we do not comply with the
provisions of certain agreements. No amounts are
outstanding under the letters of credit.
18. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The amounts reported on the consolidated balance
sheets for cash and cash equivalents, accounts receivable
and short-term debt approximate fair value. The following
table sets forth the carrying value and fair value of long-
term debt as of December 31:
2018
2017
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
Carrying
Value
Fair
Value
5,725
$ 114,495 $ 114,495 $ 171,200 $171,200
253,823
250,000 249,010 250,000
7,889
7,710
34,122
33,607
9,370
9,423
11,320
11,390
$ 413,023 $ 412,481 $ 483,330 $487,724
5,836
25,972 26,346
7,341
9,453
7,361
9,470
As of December 31, 2018 and 2017, we had $250.0
million of 5.375% fixed rate bonds. These bonds are
publicly registered, but thinly traded. Accordingly, the
values set forth above for the bonds, as well as our other
debt instruments, are based on observable inputs and
other relevant market data (Level 2). The fair value of
financial derivatives is set forth below in Note 19.
19. FINANCIAL DERIVATIVES AND HEDGING
ACTIVITIES
As part of our overall risk management practices,
we enter into financial derivatives primarily designed to
either i) hedge foreign currency risks associated with
forecasted transactions – “cash flow hedges”; or ii)
mitigate the impact that changes in currency exchange
rates have on intercompany financing transactions and
foreign currency denominated receivables and payables –
“foreign currency hedges."
Derivatives Designated as Hedging Instruments -
Cash Flow Hedges We use currency forward contracts as
cash flow hedges to manage our exposure to fluctuations
in the currency exchange rates on certain forecasted
production costs or capital expenditures expected to be
incurred over a maximum of 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
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 (loss) 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
Philippine Peso / Euro
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
2018
2017
13,140
15,250
16,446
—
88
1,069,006
980,137
76,417
35,154
216
—
19,047
13,586
—
1,048
946
890,096
797,496
60,519
32,265
335
4,253
These contracts have maturities of eighteen months
or less.
Derivatives Not Designated as Hedging
Instruments - Foreign Currency Hedges We also enter
into forward foreign exchange contracts to mitigate the
impact changes in currency exchange rates have on
balance sheet monetary assets and liabilities. None of
these contracts are designated as hedges for financial
accounting purposes and, accordingly, changes in value of
the foreign exchange forward contracts and in the
offsetting underlying on-balance-sheet transactions are
reflected in the accompanying consolidated statements of
income (loss) under the caption “Other, net.”
In thousands
Derivative
Sell/Buy - sell notional
U.S. Dollar / British Pound
British Pound / Euro
Sell/Buy - buy notional
Euro / U.S. Dollar
British Pound / Euro
December 31
2018
2017
25,500
2,000
11,000
8,000
17,500
1,000
4,500
13,000
These contracts have maturities of one month from
the date originally entered into.
GLATFELTER 2018 FORM 10-K
51
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,
$
2018
$
(5,640 )
3,624
5,020
3,004
2017
1,882
(6,990)
(532)
(5,640)
$
$
We expect substantially all of the amounts recorded
as a component of accumulated other comprehensive
income will be realized in results of operations within the
next twelve to eighteen months and the amount ultimately
recognized will vary depending on actual market rates.
Credit risk related to derivative activity arises in the
event a counterparty fails to meet its obligations to us.
This exposure is generally limited to the amounts, if any,
by which the counterparty’s obligations exceed our
obligation to them. Our policy is to enter into contracts
only with financial institutions which meet certain
minimum credit ratings.
20. SHAREHOLDERS’ EQUITY
The following table summarizes outstanding shares
of common stock:
In thousands
Shares outstanding at
beginning of year
Treasury shares issued
for:
Restricted stock awards
Employee stock options
exercised
Shares outstanding at end
of year
Year ended December 31
2018
2017
2016
43,614
43,550
43,420
304
41
28
36
108
22
43,959
43,614
43,550
21. COMMITMENTS, CONTINGENCIES AND
LEGAL PROCEEDINGS
Contractual Commitments The following table
summarizes the minimum annual payments due on
noncancelable operating leases and other similar
Fair Value Measurements
The following table summarizes the fair values of
derivative instruments as of December 31 for the year
indicated and the line items in the accompanying
consolidated balance sheets where the instruments are
recorded:
In thousands
2018
2017
2018
2017
December 31
December 31
Balance sheet caption
Designated as
hedging:
Forward foreign
currency exchange
contracts
Not designated as
hedging:
Forward foreign
currency exchange
contracts
Prepaid Expenses
and Other
Current Assets
Other Current
Liabilities
$ 4,381
$ 1,066
$ 1,548
$ 4,787
$
103
$
151
$
122
$
43
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 (loss) 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(cid:3)
hedging:
Forward foreign
currency exchange
contracts:
Other – net
Year ended December 31
2018
2017
2016
$ (5,020 ) $
532
$
(551)
138
182
(166)
$ (1,419 ) $
882
$
806
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
52
contractual obligations having initial or remaining terms
in excess of one year:
In thousands
2019
2020
2021
2022
2023
Thereafter
$
Leases
Other
5,020 $
3,861
2,515
1,426
584
383
84,451
22,249
2,483
306
49
2
Other contractual obligations primarily represent
minimum purchase commitments under energy supply
contracts and other purchase obligations.
At December 31, 2018, required minimum annual
payments due under operating leases and other similar
contractual obligations aggregated $13.8 million and
$109.5 million, respectively.
Fox River - Neenah, Wisconsin
Background. We have previously reported that we
face 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”). Subject to certain procedural
steps and court approvals, we have resolved many of
those uncertainties as described below.
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 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, with contributions of certain other PRPs,
implemented the remedial action in OU1 under a consent
decree with the Governments. That 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 the work in OU 2-5 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
million of cleanup work under the UAO in 2015 and
2016. The cleanup is expected to continue at least through
2019 and decommissioning thereafter.
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.”
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’ cost 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. The federal
district court entered a somewhat revised version of the
NCR/Appvion consent decree on August 23, 2017. Under
the consent decree, if it were to withstand appeal, we
faced 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”).
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
are responsible for monitoring and maintenance of all
other upstream Operable Units. We paid Georgia Pacific
$9.5 million in August 2017.
GLATFELTER 2018 FORM 10-K
53
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 and
the governments to recover their full claims would exceed
our fair share of costs for this site.
In January 2019, we reached an agreement with the
United States, the State of Wisconsin, and Georgia-
Pacific to resolve all remaining claims among those
parties. A consent decree (“Glatfelter consent decree”)
documenting that agreement was lodged in the federal
district court on January 3, 2019. After an opportunity for
public comment, the United States may move for entry of
that consent decree. If entered, all litigation, including our
appeal from entry of the NCR/Appvion consent decree
would be concluded.
Under the Glatfelter consent decree, we have settled
the United States’ and Wisconsin’s claims for response
costs paid by them before October 2018 and for NRDs. In
addition, we are primarily responsible for long-term
monitoring and maintenance in OU2-OU4a and for
reimbursement of government oversight costs paid after
October 2018. Finally, we remain responsible for our
obligation to continue long-term monitoring and
maintenance under our OU1 consent decree.
Cost estimates. The Glatfelter consent decree calls
for payment of $20.5 million to the United States in
satisfaction of the governments’ claims for costs incurred
prior to October 2018, and NRDs. In January 2019, we
paid that amount into a court registry account, as required
under the consent decree, and that amount will be
disbursed to various government funds upon request of
the United States should the decree be entered.
We remain subject to our remaining obligations
under the OU1 consent decree, which now consist of
long-term monitoring and maintenance. Furthermore,
assuming that the Glatfelter consent decree is entered we
are primarily responsible for long term monitoring and
maintenance in OU2-OU4a 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. In the first quarter
of 2018, we entered into a fixed-price, 30-year agreement
with a third party for the performance of all of our
monitoring and maintenance obligations in OU1 through
OU4a with limited exceptions, such as, for extraordinary
amounts of cap maintenance or replacement. Our
obligation under this agreement is included in our total
reserve for the Site. If the Glatfelter consent decree is
entered, we will be permitted to pay for this contract
using the remaining balance of the escrow account
established by us and WTM I Company (“WTM I”)
another PRP, under the OU1 consent decree during any
period that the balance in that account exceeds the amount
due under our fixed-price contract. We are obligated to
make the regular payments under that fixed-price contract
until the remaining amount due is paid down to below the
OU1 escrow account balance. The difference at present is
approximately $2 million. We are also required to secure
the payment of that difference with a renewal letter of
credit or another instrument in the interim.
We and WTM I executed documents for the
withdrawal of WTM I from the entity we jointly formed
for the performance of the OU1 work and for the release
of all claims between us related to the Site. The court
overseeing WTM I’s bankruptcy approved this action in
May 2018. As a result, we assumed WTM I’s portion of
the OU1 escrow account totaling approximately $4.7
million, and have recorded a corresponding increase of
the same amount to our Fox River reserve for potential
liabilities associated with the river that we believe may
ultimately be satisfied with funds from the escrow
account. At December 31, 2018, the combined account
balance totaled $8.9 million which is included in the
consolidated balance sheet under the caption “other
assets”
54
Under the consent decree, we will be responsible
for reimbursement of government oversight costs paid
from October 2018 and later over approximately the next
30 years. We anticipate that a significant portion of the
oversight costs will be incurred in the next few years until
such time as remediation is completed. Once completed,
costs will be an order of magnitude lower in most years
during the period of long-term monitoring and
maintenance.
Reserves for the Site. Our reserve for past and
future government oversight costs and long-term
monitoring and maintenance is set forth below:
In thousands
Balance at January 1,
Payments
Assumption of WTM I escrow
Accretion
Balance at December 31,
Year ended
December 31
2018
2017
$
$
43,144
$
(3,054 )
4,746
165
45,001
$
52,788
(9,644)
-
-
43,144
The payments set forth above primarily represent
cash paid under the recently-entered long-term monitoring
and maintenance agreement. Of our total reserve for the
Fox River, $23.0 million is recorded in the accompanying
December 31, 2018 consolidated balance sheet under the
caption “Environmental liabilities” and the remaining
$22.0 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 do not believe that our costs
associated with the Fox River matter could exceed the
aggregate amounts accrued by a material amount.
Summary. Our current assessment is that we
expect the Glatfelter consent decree will be entered by the
federal district court and therefore, the Fox River matter
will not have a material adverse impact on us. However, if
the consent decree is not entered by the district court,
there can be no assurances our reserves will be adequate
to provide for future obligations related to this matter.
GLATFELTER 2018 FORM 10-K
55
22. SEGMENT AND GEOGRAPHIC INFORMATION
The following tables set forth profitability and other information by business unit:
For the year ended December 31, 2018
In millions
Net sales
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
Plant, equipment and timberlands, net
Depreciation, depletion and amortization
Capital expenditures
For the year ended December 31, 2017
In millions
Net sales
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
Plant, equipment and timberlands, net
Depreciation, depletion and amortization
Capital expenditures
For the year ended December 31, 2016
In millions
Net sales
Cost of products sold
Gross profit (loss)
SG&A
Loss on dispositions of plant, equipment
and timberlands, net
Total operating income (loss)
Non-operating expense
Income (loss) before income taxes
Supplementary Data
Plant, equipment and timberlands, net
Depreciation, depletion and amortization
Capital expenditures
Composite
Fibers
Advanced
Airlaid
Materials
Other and
Unallocated
$
$
$
$
$
$
$
$
$
554.9
462.3
92.6
44.2
—
48.4
—
48.4
233.2
28.3
15.7
Composite
Fibers
544.3
437.6
106.7
44.4
—
62.3
—
62.3
254.0
28.3
15.9
Composite
Fibers
517.0
416.4
100.6
46.3
—
54.3
—
54.3
235.1
27.8
18.8
$
$
$
$
$
$
$
$
$
311.4
269.3
42.1
12.2
—
29.9
—
29.9
298.2
14.9
21.6
Advanced
Airlaid
Materials
256.1
216.7
39.4
9.3
—
30.1
—
30.1
235.6
9.6
50.6
Advanced
Airlaid
Materials
244.3
209.5
34.8
8.4
—
26.4
—
26.4
179.3
9.0
36.8
$
$
$
$
$
$
$
$
$
—
4.3
(4.3 )
55.3
(3.3 )
(56.3 )
(14.7 )
(71.0 )
24.6
4.3
4.8
Other and
Unallocated
—
2.5
(2.5 )
56.8
(0.2 )
(59.1 )
(13.8 )
(72.9 )
25.6
4.2
14.3
Other and
Unallocated
—
3.6
(3.6 )
98.4
0.1
(102.1 )
(21.1 )
(123.2 )
14.4
2.5
5.6
Total
$
$
$
Total
$
$
$
Total
$
$
$
866.3
735.9
130.4
111.7
(3.3 )
21.9
(14.7 )
7.3
556.0
47.5
42.1
800.4
656.8
143.6
110.5
(0.2 )
33.3
(13.8 )
19.5
515.2
42.1
80.8
761.2
629.5
131.7
153.2
0.1
(21.5 )
(21.1 )
(42.6 )
428.8
39.3
61.2
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
56
electrical energy storage, transport and
transmission, wipes, and other highly-
engineered fiber-based applications;
(cid:120) Composite Laminate paper used in production
of decorative laminates, furniture, and flooring
applications; and
(cid:120) Metallized products used in labels, packaging
liners, gift wrap, and other consumer product
applications.
The Advanced Airlaid Materials business unit is a
leading global supplier of highly absorbent cellulose-
based airlaid nonwoven materials used in:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
feminine hygiene;
specialty wipes;
table top;
adult incontinence;
home care; and
other consumer products.
Disaggregated revenue by market segment and
geographic region for Composite Fibers and Advanced
Airlaid Materials is presented in Item 8 Financial
Statements and Supplementary Data, Note 6 – Revenue.
Approximately 16% of our consolidated net
revenue in 2018, 2017 and 2016, were from sales to
Procter & Gamble Company, a customer of the Advanced
Airlaid Materials business unit.
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:
(cid:120) Food & Beverage filtration paper primarily
used for single-serve coffee and tea products;
(cid:120) Wallcovering base materials used by the
world’s largest wallpaper manufacturers;
(cid:120) Technical Specialties a diverse line of special
paper products used in applications such as
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.
2018
2017
2016
Plant,
Equipment and
Timberlands –
Net
Net sales
$
$
124,690
483,628
76,053
114,877
67,038
866,286
$
$
109,797
286,839
50,483
74,448
34,477
556,044
Plant,
Equipment and
Timberlands –
Net
105,663
240,932
55,494
78,220
34,874
515,183
Net sales
89,773
450,668
76,594
120,433
62,894
800,362
$
$
$
$
Plant,
Equipment and
Timberlands –
Net
44,851
220,380
51,903
79,727
31,911
428,772
Net sales
$
$
74,986
427,520
78,759
115,901
64,050
761,216
$
$
In thousands
United States
Germany
United Kingdom
Canada
Other
Total
GLATFELTER 2018 FORM 10-K
57
23. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Our 5.375% Notes issued by P. H. Glatfelter Company (the “Parent”) are fully and unconditionally guaranteed, on a
joint and several basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc.,
Glatfelter Composite Fibers N. A., Inc., Glatfelter Advance Materials N.A., Inc., and Glatfelter Holdings, LLC. The
guarantees are subject to certain customary release provisions including i) the designation of such subsidiary as an
unrestricted or excluded subsidiary; (ii) in connection with any sale or disposition of the capital stock of the subsidiary
guarantor; and (iii) upon our exercise of our legal defeasance option or our covenant defeasance option, all of which are more
fully described in the Indenture dated as of October 3, 2012 and the First Supplemental Indenture dated as of October 27,
2015, among us, the Guarantors and US Bank National Association, as Trustee, relating to the 5.375% Notes.
The following presents our condensed consolidating statements of income (loss), including comprehensive income
(loss), and cash flows for the years ended December 31, 2018, 2017 and 2016 and our condensed consolidating balance
sheets as of December 31, 2018 and 2017.
Condensed Consolidating Statement of Income (Loss) for the
year ended December 31, 2018
Parent
Company
$
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
- $124,716 $ 844,005 $ (102,435 ) $ 866,286
735,879
130,407
716,701 (102,435 )
127,304
117,867
6,849
—
3,746
(3,746)
45,491
1,856
64,374
(16)
(49,221)
(3,225)
8,218
(15 )
62,945
—
—
—
111,721
(3,256)
21,942
(23,527)
7,070
53,684
(2,784)
6,238
51,721
(2,664 )
617
13,366
(13,366 )
— (105,405 )
(714)
(6,862)
7,959
—
36,513
48,313
(12,708) 56,531
3,079
(12,260)
(448) 53,452
5,912 (105,405 )
68,857 (105,405 )
16,904
51,953 (105,405 )
—
(15,609)
559
—
383
(14,667)
7,275
7,723
(448)
—
(207,242)
—
(30,086)
(177,156)
—
(177,604) 53,452
25,533
(22,411)
$ (152,071) $ 31,041 $
—
—
—
—
—
—
(207,242)
(30,086)
(177,156)
(177,604)
25,533
51,953 (105,405 )
(23,214 )
28,739 $
45,625
(59,780 ) $ (152,071)
In thousands
Net sales
Costs of products sold
Gross profit (loss)
Selling, general and administrative
expenses
Gain 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)
Income (loss) from continuing operations
Discontinued operations:
Income (loss) from discontinued operations
before income taxes
Income tax provision (benefit)
Income (loss) from discontinued operations
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
58
Condensed Consolidating Statement of Income for the
year ended December 31, 2017
In thousands
Net sales
Costs of products sold
Gross profit
Selling, general and administrative
expenses
Gain 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)
Income (loss) from continuing operations
Discontinued operations:
Income from discontinued operations
before income taxes
Income tax provision
Income from discontinued operations
Net income
Other comprehensive income
Comprehensive income
Parent
Company
$
-
598
(598)
Guarantors
89,787
$
85,196
4,591
Non
Adjustments/
Guarantors
Eliminations
Consolidated
$ 798,603 $ (88,028 ) $ 800,362
656,773
143,589
659,007
139,596
(88,028 )
—
45,623
2,598
62,313
—
(46,221)
(188)
2,181
(9 )
77,292
—
—
—
110,534
(197)
33,252
(15,939)
599
18,864
2,756
6,280
(39,941)
(34,329)
(5,612)
(971)
4,947
60,871
(6,776)
58,071
60,252
41,388
18,864
(1,801 )
85
—
3,315
5,394
(5,394 )
(79,735 )
—
1,599
78,891
18,020
60,871
(79,735 )
(79,735 )
—
(79,735 )
(13,317)
237
—
(705)
(13,785)
19,467
25,079
(5,612)
19,868
6,342
13,526
7,914
63,931
71,845
$
—
—
—
18,864
52,290
71,154
—
—
—
—
—
—
(79,735 )
60,871
51,828 (104,118 )
$ 112,699 $ (183,853 ) $
19,868
6,342
13,526
7,914
63,931
71,845
$
GLATFELTER 2018 FORM 10-K
59
Condensed Consolidating Statement of Income for the
year ended December 31, 2016
In thousands
Net sales
Costs of products sold
Gross profit (loss)
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)
Income (loss) from continuing operations
Discontinued operations:
Income from discontinued operations
before income taxes
Income tax provision
Income from discontinued operations
Net income
Other comprehensive income (loss)
Comprehensive income
Parent
Company
$
-
240
(240)
Guarantors
$ 75,000
70,991
4,009
Non
Guarantors
$ 755,860 $
627,880
127,980
Adjustments/
Eliminations Consolidated
(69,644 ) $ 761,216
629,467
(69,644 )
131,749
—
95,846
(156)
57,463
77
(96,163)
—
4,165
39
70,478
—
—
—
153,153
116
(21,520)
(15,464)
687
61,007
(8,459)
37,771
(58,392)
(44,215)
(14,177)
(41)
4,177
58,347
(3,966)
58,517
62,682
1,675
61,007
4,715
(3,060 )
57
(4,715 )
— (119,354 )
—
5,007
2,004 (119,354 )
72,482 (119,354 )
—
14,135
—
58,347
(13,850)
206
—
(7,418)
(21,062)
(42,582)
(28,405)
(14,177)
53,388
17,657
35,731
21,554
(14,120)
7,434
—
—
—
61,007
(25,916)
$ 35,091
$
—
—
—
58,347
(25,176 )
33,171 $
—
—
—
—
51,092
51,092 $
53,388
17,657
35,731
21,554
(14,120)
7,434
$
Condensed Consolidating Balance Sheet as of December 31, 2018
In thousands
Assets
Cash and cash equivalents
Other current assets
Current assets held for sale
Plant, equipment and timberlands, net
Investments in subsidiaries
Other assets
Noncurrent assets held for sale
Total assets
Liabilities and Shareholders' Equity
Current liabilities
Current liabilities held for sale
Long-term debt
Deferred income taxes
Other long-term liabilities
Long-term liabilities held for sale
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
60
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$
$
$
$
69,574
113,809
—
23,943
789,958
59,252
—
1,056,536
212,625
—
248,906
(11,024)
67,131
—
517,638
538,898
1,056,536
$
$
$
$
2,924
162,065
—
85,854
651,873
—
—
902,716
105,603
—
—
15,891
107
—
121,601
781,115
902,716
$
$
$
$
70,187
306,575
—
446,247
—
255,172
—
1,078,181
170,422
—
152,056
73,784
21,203
—
417,465
660,716
1,078,181
$
$
—
(255,848)
—
—
(1,441,831)
—
—
$ (1,697,679) $
$
(255,848) $
—
—
—
—
—
(255,848)
(1,441,831)
$ (1,697,679) $
142,685
326,601
—
556,044
—
314,424
—
1,339,754
232,802
—
400,962
78,651
88,441
—
800,856
538,898
1,339,754
Condensed Consolidating Balance Sheet as of December 31, 2017
In thousands
Assets
Cash and cash equivalents
Other current assets
Current assets held for sale
Plant, equipment and timberlands, net
Investments in subsidiaries
Other assets
Noncurrent assets held for sale
Total assets
Liabilities and Shareholders' Equity
Current liabilities
Current liabilities held for sale
Long-term debt
Deferred income taxes
Other long-term liabilities
Long-term liabilities held for sale
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Parent
Company
Guarantors
$
$
$
$
1,292
59,341
189,952
24,671
829,895
82,201
407,911
1,595,263
289,967
112,820
368,496
14,081
59,598
41,373
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
$
$
$
$
Non
Guarantors
Adjustments/
Eliminations
Consolidated
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
278,800
189,952
515,183
—
222,730
407,911
1,730,795
234,356
112,820
470,098
83,571
79,649
41,373
1,021,867
708,928
1,730,795
Condensed Consolidating Statement of Cash Flows for the year
ended December 31, 2018
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations Consolidated
$
(61,355)
$
14,707
$
81,131
$
(40,435 ) $
(5,952)
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
Advances of intercompany loans
Intercompany capital contributed
Intercompany capital returned
Acquisitions, net of cash acquired
Other
Total investing activities
Financing activities
Net borrowings (repayments) of long-term debt
Payment of dividends to shareholders
Borrowings of intercompany loans
Intercompany capital received
Intercompany capital returned
Payment of intercompany dividend
Payments related to share-based compensation
awards and other
Total financing activities
Effect of exchange rate on cash
Net increase (decrease) in cash
Change in cash from discontinued operations
Cash at the beginning of period
Cash at the end of period
$
(4,799)
(14,929)
(22,401)
—
(42,129)
17
(75,500)
—
—
—
(68)
(80,350)
(120,200)
(22,760)
8,050
—
—
—
(2,151)
(137,061)
—
(278,766)
347,048
1,292
69,574
$
3,416
(8,050)
(315)
20,000
—
—
122
(51,000)
—
68,500
—
—
(30,125)
—
(12,625)
—
2,204
—
720
2,924
$
29
—
—
—
(178,905)
—
(201,277)
104,685
—
7,000
315
(20,000)
(10,310)
—
81,690
(5,564)
(44,020)
—
114,207
70,187
—
83,550
315
(20,000 )
—
—
63,865
—
—
(83,550 )
(315 )
20,000
40,435
—
(23,430 )
—
—
—
—
— $
$
3,462
—
—
—
(178,905)
(68)
(217,640)
(66,515)
(22,760)
—
—
—
—
(2,151)
(91,426)
(5,564)
(320,582)
347,048
116,219
142,685
GLATFELTER 2018 FORM 10-K
61
Condensed Consolidating Statement of Cash Flows for the
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
Intercompany capital returned
Other
Total investing activities
Financing activities
Net borrowings (repayments) of long-term debt
Payment of dividends to shareholders
Repayments of intercompany loans
Borrowings of intercompany loans
Intercompany capital received
Payments related to share-based
compensation awards and other
Total financing activities
Effect of exchange rate on cash
Net increase (decrease) in cash
Change in cash from discontinued operations
Cash at the beginning of period
Cash at the end of period
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations Consolidated
$
(55,287)
$
(3,506)
$
112,027
$
— $
53,234
(14,301)
(45,644)
(20,838)
—
(80,783)
1
—
—
(14,000)
—
(243)
(28,543)
84,200
(22,480)
—
14,400
—
(472)
75,648
—
(8,182)
4,392
5,082
1,292
$
209
12,000
(14,400)
(400)
—
—
(48,235)
37,000
—
—
—
14,000
—
51,000
—
(741)
—
1,461
720
$
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 )
—
—
—
—
— $
218
—
—
—
—
(243)
(80,808)
99,665
(22,480)
—
—
—
(472)
76,713
7,244
56,383
4,392
55,444
116,219
$
62
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
Acquisitions, net of cash acquired
Other
Total investing activities
Financing activities
Net borrowings (repayments) of long-term debt
Payments of borrowing costs
Payment of dividends to shareholders
Repayments of intercompany loans
Borrowings of intercompany loans
Intercompany capital 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
Change in cash from discontinued operations
Cash at the beginning of period
Cash at the end of period
Parent
Company
Guarantors
Non
Guarantors
Adjustments/
Eliminations
Consolidated
$
(51,923)
$
1,275
$
81,726
$
— $
31,078
(5,599)
(30,682)
(24,881)
—
(61,162)
—
—
—
(17,000)
—
(800)
(23,399)
36,000
(136)
(21,589)
—
18,330
—
—
—
(990)
31,615
—
(43,707)
(10,341)
59,130
5,082
$
—
15,601
(18,330)
(500)
—
—
(33,911)
14,000
—
—
—
—
17,000
632
2,000
—
33,632
—
996
29
—
—
—
—
—
(24,852)
(35,886)
—
—
(15,601)
—
500
(632)
—
—
(51,619)
(2,063)
3,192
—
(15,601 )
18,330
17,500
—
—
20,229
—
—
—
15,601
(18,330 )
(17,500 )
—
—
—
(20,229 )
—
—
$
465
1,461
$
45,709
48,901
$
—
— $
29
—
—
—
—
(800)
(61,933)
14,114
(136)
(21,589)
—
—
—
2,000
(990)
(6,601)
(2,063)
(39,519)
(10,341)
105,304
55,444
24. QUARTERLY RESULTS (UNAUDITED)
In thousands,
except per share
First
Second
Third
Fourth
Net sales
Gross Profit
2018
$ 211,209
215,742
209,855
229,480
2017
$ 184,941
195,974
210,120
209,327
2018
$ 36,561
33,300
29,872
30,674
$
2017
32,781
35,096
37,375
38,337
Income (loss) from
continuing operations
2017
2018
Earnings (loss) per share
2017
2018
$
2,268
1,278
(705)
(3,289)
$
$
1,701
2,341
5,045
(14,699 )
0.05
0.03
(0.02 )
(0.08 )
$
0.04
0.05
0.11
(0.34)
GLATFELTER 2018 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, 2018, 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
On October 1, 2018, we completed the acquisition
of Steinfurt. We are in the process of incorporating
Steinfurt’s internal controls into our control structure. We
consider the ongoing integration of Steinfurt a material
change in our internal control over financial reporting.
There were no other changes in our internal control over
financial reporting during the three months ended
December 31, 2018, 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 29, 2019. 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 29, 2019.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT
The information required under this Item is
incorporated herein by reference to our Proxy Statement,
to be dated on or about March 29, 2019.
ITEM 13 CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
The information required under this Item is
incorporated herein by reference to our Proxy Statement,
to be dated on or about March 29, 2019.
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 29, 2019.
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
Articles of Incorporation, as amended through December 20, 2007 (restated for the purpose of filing on
3(b)
Form 10-K filed
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 (Loss) for the years ended December 31, 2018, 2017 and 2016
i.
ii. Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016
iii. Consolidated Balance Sheets as of December 31, 2018 and 2017
iv. Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
v. Consolidated Statements of Shareholders' Equity for the years ended December 31, 2018, 2017 and 2016
vi. Notes to Consolidated Financial Statements
2.
Financial Statement Schedules (Consolidated) included in Part IV:
Schedule II -Valuation and Qualifying Accounts - For each of the three years ended December 31, 2018
i.
(b) Exhibit Index
Exhibit
Number
Description of Documents
2.1
2.2
2.3
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
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). ***
Share Purchase Agreement, dated June 19, 2018, by and among Buckeye Holdings GmbH, Georgia-Pacific
Nonwovens LLC and Glatfelter Gernsbach GmbH & Co. KG. ***
Asset Purchase Agreement, dated August 21, 2018, by and between P. H. Glatfelter Company and Spartan
Paper LLC. ***
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.
Third Amended and Restated Credit Agreement, dated as of February 8, 2019, 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, JPMorgan Chase Bank, N.A.,
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 **
3.2
4.1
4.2
10.1
10.1
10.1
10.2
10.1
10.1
P. H. Glatfelter Company Supplemental Long Term Disability Plan, dated February 25, 2014, between the
10.1
registrant and certain employees **
P. H. Glatfelter Company Supplemental Executive Retirement Plan (amended and restated effective January
10(c)
1, 2010) **
P. H. Glatfelter Company Supplemental Management Pension Plan (amended and restated effective January
10(d)
1, 2008) **
10.10
Form of Non-Employee Director Restricted Stock Unit Award Certificate (form effective May 4, 2017) **
10.4
10.11
Form of Stock-Only Stock Appreciation Right Award Certificate (form effective February 26, 2014) **
10.12
Form of Performance Share Award Certificate (form effective February 23, 2017) **
10.13
Form of Performance Share Award Certificate (form effective February 26, 2014) **
10.3
10.2
10.2
Incorporated by Reference to
Exhibit
2.1
Filing
Form 10-Q filed
May 9, 2013
2.1
2.1
Form 8-K filed
June 19, 2018
Form 8-K filed
August 22, 2018
March 13, 2008
Form 10-K filed
Feb. 24, 2017
Form 8-K filed
Oct. 3, 2012
Form 10-K filed
Feb. 26, 2016
Form 8-K filed
Feb. 11, 2019
Form 8-K filed
Feb. 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
GLATFELTER 2018 FORM 10-K
65
Exhibit
Number
Description of Documents
10.14
Form of Restricted Stock Unit Award Certificate (form effective as of February 23, 2017) **
Incorporated by Reference to
Exhibit
10.3
Filing
10.15
Form of Restricted Stock Unit Award Certificate (form effective as of December 13, 2013) **
10(l)
10.16
Non-Competition and Non-Solicitation Agreement by and between P. H. Glatfelter Company and Dante C.
10.1
10.17
Retention agreement between P. H. Glatfelter Company and Timothy R. Hess, dated January 7, 2017 **
10.17
Parrini, dated July 2, 2010. **
10.18
Restricted Stock Unit Award Certificate for Timothy R. Hess, dated as of January 6, 2017 **
10.18
10.19
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) **
10.20
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) **
10.20
10.21
(A) Schedule of Change in Control Employment Agreements, filed herewith **
Summary of Non-Employee Director Compensation, effective January 1, 2005 **
10.1
10.22
P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of January 1, 2007 **
10(k)
10.23
Service Agreement, commencing on August 1, 2006, between the Registrant (through a wholly owned
subsidiary) and Martin Rapp **
10.24
Retirement Pension Contract, dated October 31, 2007, between Registrant (through a wholly owned
10.25
Form of Director’s and Officer’s Indemnification Agreement **
subsidiary) and Martin Rapp **
10.26
Guidelines for Executive Severance **
10(r)
10(t)
10.1
10.2
Form 8-K filed
May 4, 2017
Form 10-K filed
March 3, 2014
Form 8-K filed
July 6, 2010
Form 10-K filed
Feb. 24, 2017
Form 10-K filed
Feb. 24, 2017
Form 10-K filed
March 13, 2009
Form 10-K filed
March 3, 2014
Form 8-K filed
Dec. 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
Dec. 19, 2017
Form 8-K filed
July 6, 2010
10.27
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.)
10.27
(A) Agreed Supplement to Consent Decree between United States of America and the State of Wisconsin vs. P. H.
10.27
(B) Second Agreed Supplement to Consent Decree between United States of America and the State of Wisconsin
Glatfelter Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
10.27
10.28
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
10.3(a) Form 10-Q filed
August 6, 2010
10.3(b) Form 10-Q filed
August 6, 2010
10.3(c) Form 10-Q filed
August 6, 2010
10.3(d) Form 10-Q filed
August 6, 2010
10.2
14
Form 8-K filed
Nov. 19, 2007
Form 10-K filed
March 15, 2004
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
*** 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.
** 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 25, 2019
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 25, 2019
/s/ Dante C. Parrini
Dante C. Parrini
Chairman and Chief Executive Officer
Principal Executive Officer and Director
February 25, 2019
February 25, 2019
/s/ John P. Jacunski
John P. Jacunski
Executive Vice President and
Chief Financial Officer
/s/ David C. Elder
David C. Elder
Vice President, Finance
February 25, 2019
/s/ Bruce Brown
Bruce Brown
February 25, 2019
February 25, 2019
February 25, 2019
February 25, 2019
February 25, 2019
February 25, 2019
February 25, 2019
/s/ Kathleen A. Dahlberg
Kathleen A. Dahlberg
/s/ Nicholas DeBenedictis
Nicholas DeBenedictis
/s/ Kevin M. Fogarty
Kevin M. Fogarty
/s/ J. Robert Hall
J. Robert Hall
/s/ Richard C. Ill
Richard C. Ill
/s/ Ronald J. Naples
Ronald J. Naples
/s/ Lee C. Stewart
Lee C. Stewart
Principal Financial Officer
Chief Accounting Officer
Director
Director
Director
Director
Director
Director
Director
Director
GLATFELTER 2018 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, 2018
Valuation and Qualifying Accounts
Allowance for
In thousands
Balance, beginning of year
Provision
Write-offs, recoveries and
discounts allowed
Other (a)
Balance, end of year
2018
Doubtful Accounts
2017
2016
2018
2017
2016
Sales Discounts and Deductions
$
1,761
$
1,695
$
2,081
$
1,029
$
925 $
695
(688 )
(107 )
(152)
—
218
32
(363)
(55 )
2,075
1,191
(2,294)
22
(1,159 )
72
$
1,661
$
1,761
$
1,695
$
832
$
1,029 $
1,301
690
(1,054)
(12 )
925
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
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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
Christopher W. Astley
David C. Elder
Senior Vice President & Business Unit
Vice President, Finance
Ramesh Shettigar
Vice President & Treasurer
John A. Stachowiak
Vice President, Internal Audit
President, Advanced Airlaid Materials
Joseph J. Zakutney
Jill L. Urey
Samuel L. Hillard
Vice President & Chief Information Officer
Chief Legal and Compliance Officer
Senior Vice President & Chief Financial Officer
Martin Rapp
Senior Vice President & Business Unit
President, Composite Fibers
D I R E C T O R S
and Corporate Secretary
Amy R. Wannemacher
Vice President, Tax
Dante C. Parrini
Nicholas DeBenedictis
Richard C. Ill
Chairman and Chief Executive Officer
Bruce Brown
Chairman Emeritus
Aqua America, Inc.
Retired Chairman and Chief Executive Officer
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
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
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 9, 2019, 9:00 a.m. EST
York County Heritage Trust
Historical Society Museum
250 East Market Street, York, PA
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
Lydney Facility*
Church Road
Lydney, Gloucestershire
GL15 5EJ
United Kingdom
Caerphilly Facility*
Pontygwindy Industrial Estate
Caerphilly, Mid Glamorgan
CF83 3HU
United Kingdom
Newtech Pulp Facility
Bo. Maria Cristina
9217 Balo-I, Lanao del Norte
Philippines
Gatineau Facility*
1680 rue Atmec
Gatineau, QC J8P 7G7
Canada
Falkenhagen Facility*
Gewerbepark Prignitz/Falkenhagen
Rolf-Hövelmann-Straße 10
16928 Pritzwalk
Germany
Steinfurt Facility*
Dieselstraße 16
48565
Steinfurt, Germany
P. H. Glatfelter Company
96 South George Street
Suite 520
York, PA 17401
U.S.A.
U . S . O P E R AT I O N S
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 O N S
Gernsbach Facility*
Hördener Straße 5
76593 Gernsbach
Germany
Dresden Facility*
Pirnaer StraBe 31-33
01809 Heidenau
Germany
Ober-Schmitten Facility*
Rhönstraße 13
Ober-Schmitten
63667 Nidda
Germany
Scaër Facility*
BP 2
29390 Scaër
France
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
China
Room 501
Building 24 of Times Square
Suzhou Industrial Park
215028 Suzhou
People’s Republic of China
* Also a Sales Office
© 2 01 9 GLATFELTER