e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
or
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD |
from ___to ___
For the quarterly period ended June 30, 2008
Commission file number 1-3560
P. H. Glatfelter Company
(Exact name of registrant as specified in its charter)
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Pennsylvania
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23-0628360 |
(State or other jurisdiction of
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(IRS Employer Identification No.) |
incorporation or organization) |
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96 South George Street, Suite 500 |
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York, Pennsylvania 17401
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(717) 225-4711 |
(Address of principal executive offices)
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(Registrants telephone number, including area code) |
N/A
(Former name or former address, if changed since last report)
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 at least
the past 90 days. Yes ü No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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ü Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes No ü .
As of July 31, 2008, P. H. Glatfelter Company had 45,271,073 shares of
common stock outstanding.
P. H. GLATFELTER COMPANY
REPORT ON FORM 10-Q
for the QUARTERLY PERIOD ENDED
JUNE 30, 2008
Table of Contents
PART I
Item 1 Financial Statements
P. H. GLATFELTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30 |
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June 30 |
In thousands, except per share |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
320,224 |
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$ |
288,091 |
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$ |
625,723 |
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$ |
569,080 |
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Energy sales net |
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2,743 |
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2,424 |
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4,727 |
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4,638 |
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Total revenues |
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322,967 |
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290,515 |
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630,450 |
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573,718 |
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Costs of products sold |
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290,569 |
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261,715 |
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553,794 |
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508,209 |
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Gross profit |
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32,398 |
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28,800 |
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76,656 |
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65,509 |
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Selling, general and administrative expenses |
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25,377 |
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23,776 |
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49,512 |
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52,503 |
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Shutdown and restructuring charges |
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(856 |
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(63 |
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(856 |
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162 |
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(Gains) losses on dispositions of plant,
equipment and timberlands, net |
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16 |
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(5,693 |
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(14,502 |
) |
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(8,887 |
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Operating income |
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7,861 |
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10,780 |
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42,502 |
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21,731 |
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Non-operating income (expense) |
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Interest expense |
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(5,827 |
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(7,424 |
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(11,972 |
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(14,761 |
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Interest income |
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1,357 |
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848 |
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2,961 |
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1,589 |
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Other net |
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103 |
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(364 |
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171 |
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267 |
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Total other income (expense) |
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(4,367 |
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(6,940 |
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(8,840 |
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(12,905 |
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Income before income taxes |
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3,494 |
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3,840 |
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33,662 |
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8,826 |
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Income tax provision |
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338 |
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1,842 |
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10,831 |
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3,575 |
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Net income |
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$ |
3,156 |
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$ |
1,998 |
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$ |
22,831 |
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$ |
5,251 |
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Earnings per share |
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Basic |
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$ |
0.07 |
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0.04 |
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0.51 |
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$ |
0.12 |
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Diluted |
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0.07 |
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0.04 |
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0.50 |
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0.12 |
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Cash dividends declared per common share |
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$ |
0.09 |
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$ |
0.09 |
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$ |
0.18 |
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$ |
0.18 |
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Weighted average shares outstanding |
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Basic |
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45,227 |
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45,040 |
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45,192 |
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44,964 |
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Diluted |
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45,666 |
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45,373 |
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45,594 |
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45,308 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
GLATFELTER
- 2 -
P. H. GLATFELTER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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June 30 |
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December 31 |
In thousands |
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2008 |
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2007 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
18,611 |
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$ |
29,833 |
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Accounts
receivable net |
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147,549 |
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122,980 |
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Inventories |
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196,455 |
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193,042 |
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Prepaid expenses and other current assets |
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39,706 |
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27,557 |
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Total current assets |
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402,321 |
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373,412 |
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Plant, equipment and timberlands net |
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530,533 |
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519,866 |
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Other assets |
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400,745 |
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393,789 |
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Total assets |
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$ |
1,333,599 |
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$ |
1,287,067 |
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Liabilities and Shareholders Equity |
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Current liabilities |
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Current portion of long-term debt |
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$ |
12,383 |
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$ |
11,008 |
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Short-term debt |
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3,389 |
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1,136 |
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Accounts payable |
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70,826 |
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73,195 |
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Dividends payable |
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4,073 |
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4,063 |
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Environmental liabilities |
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6,835 |
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7,038 |
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Other current liabilities |
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93,790 |
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101,116 |
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Total current liabilities |
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191,296 |
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197,556 |
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Long-term debt |
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306,268 |
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301,041 |
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Deferred income taxes |
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195,138 |
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189,156 |
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Other long-term liabilities |
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131,369 |
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123,246 |
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Total liabilities |
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824,071 |
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810,999 |
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Commitments and contingencies |
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Shareholders equity |
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Common stock |
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544 |
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544 |
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Capital in excess of par value |
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46,200 |
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44,697 |
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Retained earnings |
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578,272 |
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563,608 |
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Accumulated other comprehensive loss |
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19,806 |
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4,061 |
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644,822 |
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612,910 |
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Less cost of common stock in treasury |
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(135,294 |
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(136,842 |
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Total shareholders equity |
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509,528 |
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476,068 |
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Total liabilities and shareholders equity |
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$ |
1,333,599 |
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$ |
1,287,067 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
GLATFELTER
- 3 -
P. H. GLATFELTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Six Months Ended June 30 |
In thousands |
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2008 |
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2007 |
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Operating activities |
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Net income |
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$ |
22,831 |
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$ |
5,251 |
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Adjustments to reconcile to net cash provided (used) by operations: |
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Depreciation, depletion and amortization |
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30,666 |
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27,865 |
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Pension income |
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(7,965 |
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(6,421 |
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(Reversal of) shutdown and restructuring charges |
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(856 |
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162 |
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Deferred income tax provision |
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5,994 |
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(66 |
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Gains on dispositions of plant, equipment and timberlands, net |
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(14,502 |
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(8,887 |
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Stock-based compensation |
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2,367 |
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2,108 |
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(Cash used) reserve for environmental matters |
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(9,481 |
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5,348 |
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Change in operating assets and liabilities |
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Accounts receivable |
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(20,682 |
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(6,292 |
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Inventories |
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(1,208 |
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5,053 |
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Other assets and prepaid expenses |
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1,956 |
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(1,825 |
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Accounts payable |
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(2,898 |
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(9,962 |
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Accruals and other current liabilities |
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(8,983 |
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1,382 |
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Other |
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(286 |
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3,920 |
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Net cash (used) provided by operating activities |
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(3,047 |
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17,636 |
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Investing activities |
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Expenditures for purchases of plant, equipment and timberlands |
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(25,407 |
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(14,221 |
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Proceeds from disposals of plant, equipment and timberlands, net |
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14,997 |
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9,448 |
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Net cash used by investing activities |
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(10,410 |
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(4,773 |
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Financing activities |
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Net (repayments of) proceeds from revolving credit facility and
other |
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(25,000 |
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1,303 |
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Net proceeds from (repayment of) other short term debt |
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3,295 |
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(519 |
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Proceeds from borrowing from Sun Trust Financial |
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36,695 |
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Principal repayments 2011 Term Loan |
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(6,000 |
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(16,400 |
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Payment of dividends |
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(8,220 |
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(8,159 |
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Proceeds from stock options exercised and other |
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642 |
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1,171 |
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Net cash provided (used) by financing activities |
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1,412 |
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(22,604 |
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Effect of exchange rate changes on cash |
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823 |
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752 |
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Net decrease in cash and cash equivalents |
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(11,222 |
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(8,989 |
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Cash and cash equivalents at the beginning of period |
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29,833 |
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21,985 |
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Cash and cash equivalents at the end of period |
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$ |
18,611 |
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$ |
12,996 |
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Supplemental cash flow information |
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Cash paid (received) for |
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Interest |
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$ |
11,309 |
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$ |
14,549 |
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Income taxes |
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16,110 |
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(1,637 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
GLATFELTER
- 4 -
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
unaudited
1. ORGANIZATION
P. H. Glatfelter Company and subsidiaries (Glatfelter) is a manufacturer of specialty papers
and engineered products. Headquartered in York, Pennsylvania, our manufacturing facilities are
located in Spring Grove, Pennsylvania; Chillicothe and Freemont, Ohio; Gloucestershire (Lydney),
England; Caerphilly, Wales; Gernsbach, Germany; Scaër; France; and the Philippines. Our products are
marketed throughout the United States and in over 85 other countries, either through wholesale
paper merchants, brokers and agents or directly to customers.
2. ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial statements include the accounts of
Glatfelter and its wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated.
Accounting Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingencies as of the balance sheet date and the reported amounts of revenues and expenses during
the reporting period. Management believes the estimates and assumptions used in the preparation of
these consolidated financial statements are reasonable, based upon currently available facts and
known circumstances, but recognizes that actual results may differ from those estimates and
assumptions.
3. RECENT PRONOUNCEMENTS
Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting
Standards No. 157, Fair Value Measurements (SFAS No. 157). This standard defines the term fair
value, establishes a framework for measurement and requires expanded disclosures about the fair
value measurements. The adoption of SFAS No. 157, did not have an impact on our consolidated
financial position or results of operations.
In December 2007, SFAS No. 141(R), Business Combinations was issued. This statement
establishes principles and requirements for how the acquirer of a business recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS No. 141(R) also provides guidance for recognizing and
measuring the goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. It also changes the recognition of assets acquired and liabilities
assumed arising from contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related costs as incurred.
In addition, under SFAS No. 141(R), changes in an acquired entitys
deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. With respect to us, SFAS No. 141(R) applies prospectively to business combinations for which the
acquisition date is on or after January 1, 2009. However, after
adoption of SFAS No. 141(R), changes in estimates of deferred
tax assets and liabilities, and final settlements of all income tax
uncertainties that related to a business
combination which are made after the measurement period will impact
income tax expense. We expect SFAS No. 141(R) will have an impact on
accounting for business combinations once adopted but the effect is dependent upon acquisitions at
that time.
In
June 2008, the FASB issued Staff Position (FSP) No. EITF
No. 03-6-1 Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities. This FSP affects entities that accrue cash
dividends on share-based payment awards during the awards service period when the dividends
do not need to be returned if the employees forfeit the award. The FSP requires that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders and are considered participating securities. The provisions of FSP No. EITF No. 03-6-1 are effective for fiscal years beginning after December 15, 2008. We are currently evaluating the requirements of FSP No. EITF 03-6-1, to determine the impact, if any, on our consolidated financial statements.
4. ACQUISITIONS
Metallised Products Limited On November 30, 2007, through Glatfelter-UK Limited, a
wholly-owned subsidiary, we completed our acquisition of Metallised Products Limited (MPL), a
privately owned company that manufactures a variety of metallized paper products for consumer and
industrial applications. MPL is based in Caerphilly, Wales.
Under terms of the agreement, we purchased the stock of MPL for $6.8 million cash and assumed
$5.8 million of debt in addition to $1.5 million of transaction costs. The amounts set forth above
reflect a $0.4 million reduction in the original purchase based
on final adjusted working capital as of the
closing date. The acquisition, which was financed from our existing cash balance, employed about
165 people and had 2007 revenues of approximately $53.4 million.
GLATFELTER
- 5 -
The following table summarizes the preliminary allocation of the purchase price to assets
acquired and liabilities assumed:
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In thousands |
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Assets acquired: |
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Cash |
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$ |
730 |
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Accounts receivable |
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7,718 |
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Inventory |
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4,747 |
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Property and equipment |
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10,178 |
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Other assets |
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922 |
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Goodwill |
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1,885 |
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26,180 |
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Less acquisition related liabilities including accounts payable
and accrued expenses |
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11,978 |
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Long term debt |
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5,830 |
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17,808 |
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Total |
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$ |
8,372 |
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5. GAIN ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS
During the first six months of 2008 and 2007, we completed sales of timberlands which are
summarized by the following table:
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Dollars in thousands |
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Acres |
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Proceeds |
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Gain |
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2008 |
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Timberlands |
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3,595 |
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$ |
14,997 |
|
|
$ |
14,603 |
|
Other |
|
|
n/a |
|
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
$ |
14,997 |
|
|
$ |
14,502 |
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
3,588 |
|
|
$ |
9,435 |
|
|
$ |
9,066 |
|
|
In accordance with terms of our credit facility, we are required to use the proceeds from
timberland sales to reduce amounts outstanding under our term loan.
6. EARNINGS PER SHARE
The following table sets forth the details of basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30 |
In thousands, except per share |
|
2008 |
|
2007 |
|
Net income |
|
$ |
3,156 |
|
|
$ |
1,998 |
|
|
|
|
Weighted average common shares outstanding used
in basic EPS |
|
|
45,227 |
|
|
|
45,040 |
|
Common shares issuable upon exercise of dilutive
stock options, restricted stock awards and
performance awards |
|
|
439 |
|
|
|
333 |
|
|
|
|
Weighted average common shares outstanding and
common share equivalents used in diluted EPS |
|
|
45,666 |
|
|
|
45,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
0.07 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30 |
In thousands, except per share |
|
2008 |
|
2007 |
|
Net income |
|
$ |
22,831 |
|
|
$ |
5,251 |
|
|
|
|
Weighted average common shares outstanding used
in basic EPS |
|
|
45,192 |
|
|
|
44,964 |
|
Common shares issuable upon exercise of
dilutive stock options, restricted stock awards
and performance awards |
|
|
402 |
|
|
|
344 |
|
|
|
|
Weighted average common shares outstanding and
common share equivalents used in diluted EPS |
|
|
45,594 |
|
|
|
45,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.51 |
|
|
$ |
0.12 |
|
Diluted |
|
$ |
0.50 |
|
|
|
0.12 |
|
|
Approximately 688,500 and 691,500 of potential common shares have been excluded from the
computation of diluted earnings per share for the three month and six month periods ended June 30,
2008, respectively, due to their anti-dilutive nature. Approximately 525,150 and 522,150 of
potential common shares were excluded from the computation of diluted earnings per share for the
three month and six month periods ended June 30, 2007, respectively.
7. INCOME TAXES
Income taxes are recognized for the amount of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of events that have been
recognized in our consolidated financial statements or tax returns. The effects of income taxes are
measured based on enacted tax laws and rates.
As of June 30, 2008 and December 31, 2007, we had $27.7 million and $26.1 million of gross
unrecognized tax benefits respectively. As of June 30, 2008, if such benefits were to be
recognized, approximately $22.0 million would be recorded as a component of income tax expense,
thereby affecting our effective tax rate.
GLATFELTER
- 6 -
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:
|
|
|
|
|
|
|
|
|
|
|
Open Tax Year |
|
|
Examination in |
|
Not under |
Jurisdiction |
|
progress |
|
examination |
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
Federal |
|
|
2004 2006 |
|
|
|
2007 |
|
State |
|
|
2004 |
|
|
|
2003 2007 |
|
Germany (1) |
|
|
2003 2006 |
|
|
|
2007 |
|
France |
|
|
N/A |
|
|
|
2006 2007 |
|
United Kingdom |
|
|
N/A |
|
|
|
2006 2007 |
|
Philippines |
|
|
2005 2006 |
|
|
|
2007 |
|
|
|
|
|
(1) |
|
includes provincial or similar local jurisdictions, as applicable |
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign
tax authorities, which often result in proposed assessments. Management performs a comprehensive
review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax
positions. Based on these reviews and the result of discussions and resolutions of matters with
certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as
necessary. However, future results may include favorable or unfavorable adjustments to our
estimated tax liabilities in the period the assessments are determined or resolved or as such
statutes are closed. Due to potential for resolution of federal, state, and foreign examinations,
and the expiration of various statutes of limitations, it is reasonably possible our gross
unrecognized tax benefits balance may change within the next twelve months by a range of zero to
$0.8 million.
We recognize interest and penalties related to uncertain tax positions as income tax expense.
Interest expense recognized in the second quarter of 2008 totaled $0.04 million and $0.1 million in
the second quarter of 2007. Such amounts were $0.3 million in both the first half of 2008 and 2007.
Accrued interest was $2.0 million and $1.8 million as of June 30, 2008 and December 31, 2007,
respectively. We did not record any penalties associated with uncertain tax positions during 2008
or 2007.
8. STOCK-BASED COMPENSATION
During the first six months of 2008, we issued 274,240 Stock Only Stock Appreciation Rights
(SOSAR) to members of executive management a grant date strike price of $13.44 per share. Under
terms of the SOSAR, the recipients received the right to receive a payment in the form of shares of
common stock equal to the difference if any, in the fair market value of one share of common stock
at the time of exercising the SOSAR and the strike price. The SOSARs, which vest ratably over a
three year period, had a grant date fair value, estimated using the Black-Scholes valuation model,
of $3.72 per right, and an aggregate value of $1.0 million. In addition, 136,100 Restricted Stock
Units (RSU) were issued in the first six months of 2008 with a weighted-average grant date fair
value of $14.48 per unit and an aggregate value of $2.0 million. The RSUs vest over a period
ranging from three years to five years.
During the first six months of 2008 and 2007, we recognized stock-based compensation expense
totaling $2.4 million and $2.1 million, respectively.
GLATFELTER
- 7 -
9. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS
The following table provides information with respect to the net periodic costs of our pension
and post retirement medical benefit plans.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30 |
In thousands |
|
2008 |
|
2007 |
|
Pension Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
1,991 |
|
|
$ |
2,331 |
|
Interest cost |
|
|
6,158 |
|
|
|
5,627 |
|
Expected return on plan assets |
|
|
(13,037 |
) |
|
|
(11,699 |
) |
Amortization of prior service cost |
|
|
597 |
|
|
|
589 |
|
Amortization of unrecognized loss |
|
|
95 |
|
|
|
244 |
|
|
|
|
Net periodic benefit income |
|
$ |
(4,196 |
) |
|
$ |
(2,908 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
503 |
|
|
$ |
538 |
|
Interest cost |
|
|
825 |
|
|
|
743 |
|
Expected return on plan assets |
|
|
(216 |
) |
|
|
(223 |
) |
Amortization of prior service cost |
|
|
(337 |
) |
|
|
(275 |
) |
Amortization of unrecognized loss |
|
|
359 |
|
|
|
262 |
|
|
|
|
Net periodic benefit cost |
|
$ |
1,134 |
|
|
$ |
1,045 |
|
|
|
|
|
Six Months Ended |
|
|
June 30 |
In thousands |
|
2008 |
|
2007 |
| | |
Pension Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
4,528 |
|
|
$ |
4,787 |
|
Interest cost |
|
|
11,749 |
|
|
|
10,918 |
|
Expected return on plan assets |
|
|
(25,632 |
) |
|
|
(23,731 |
) |
Amortization of prior service cost |
|
|
1,197 |
|
|
|
1,199 |
|
Amortization of unrecognized loss |
|
|
193 |
|
|
|
406 |
|
|
|
|
Net periodic benefit income |
|
$ |
(7,965 |
) |
|
$ |
(6,421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
1,061 |
|
|
$ |
1,013 |
|
Interest cost |
|
|
1,576 |
|
|
|
1,517 |
|
Expected return on plan assets |
|
|
(417 |
) |
|
|
(446 |
) |
Amortization of prior service cost |
|
|
(596 |
) |
|
|
(517 |
) |
Amortization of unrecognized loss |
|
|
622 |
|
|
|
523 |
|
|
|
|
Net periodic benefit cost |
|
$ |
2,246 |
|
|
$ |
2,090 |
|
|
10. COMPREHENSIVE INCOME
The following table sets forth comprehensive income and its components:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30 |
In thousands |
|
2008 |
|
2007 |
|
Net income |
|
$ |
3,156 |
|
|
$ |
1,998 |
|
Foreign currency translation adjustment |
|
|
(1,203 |
) |
|
|
4,569 |
|
Additional pension liability amortization, net
of tax |
|
|
450 |
|
|
|
533 |
|
|
|
|
Comprehensive income |
|
$ |
2,403 |
|
|
$ |
7,100 |
|
|
|
|
|
Six Months Ended |
|
|
June 30 |
In thousands |
|
2008 |
|
2007 |
|
Net income |
|
$ |
22,831 |
|
|
$ |
5,251 |
|
Foreign currency translation adjustment |
|
|
14,841 |
|
|
|
6,359 |
|
Additional pension liability amortization, net
of tax |
|
|
904 |
|
|
|
1,047 |
|
|
|
|
Comprehensive income |
|
$ |
38,576 |
|
|
$ |
12,657 |
|
|
11. INVENTORIES
Inventories, net of reserves, were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
In thousands |
|
2008 |
|
2007 |
|
Raw materials |
|
$ |
45,839 |
|
|
$ |
41,119 |
|
In-process and finished |
|
|
99,779 |
|
|
|
102,219 |
|
Supplies |
|
|
50,837 |
|
|
|
49,704 |
|
|
|
|
Total |
|
$ |
196,455 |
|
|
$ |
193,042 |
|
|
12. LONG-TERM DEBT
Long-term debt is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
In thousands |
|
2008 |
|
2007 |
|
Revolving credit facility, due April
2011 |
|
$ |
10,956 |
|
|
$ |
35,049 |
|
Term Loan, due April 2011 |
|
|
37,000 |
|
|
|
43,000 |
|
71/8% Notes, due May 2016 |
|
|
200,000 |
|
|
|
200,000 |
|
Term Loan, due January 2013 |
|
|
36,695 |
|
|
|
|
|
Note payable, due March 2013 |
|
|
34,000 |
|
|
|
34,000 |
|
|
|
|
Total long-term debt |
|
|
318,651 |
|
|
|
312,049 |
|
Less current portion |
|
|
(12,383 |
) |
|
|
(11,008 |
) |
|
|
|
Long-term debt, excluding current
portion |
|
$ |
306,268 |
|
|
$ |
301,041 |
|
|
Our revolving credit facility provides for up to $200 million of aggregate borrowings on an
unsecured basis. The term loan due in April 2011 requires quarterly repayments of principal
outstanding that began on March 31, 2007 with the final principal payment due on April 2, 2011. In
addition, if certain prepayment events occur, such as a sale of assets, the incurrence of
additional indebtedness in excess of $40.0 million in the aggregate, or issuance of additional
equity; we must repay a
GLATFELTER
- 8 -
specified portion of the term loan within five days of the prepayment event.
Borrowings under the credit agreement bear interest, at our option, at either (a) the banks
base rate described in the credit agreement as the greater of the prime rate or the federal funds
rate plus 50 basis points, or (b) the EURO rate based generally on the London Interbank Offer Rate,
plus an applicable margin that varies from 67.5 basis points to 137.5 basis points according to our
corporate credit rating determined by S&P and Moodys.
The credit agreement, as amended, contains a number of customary covenants for financings of
this type that, among other things, restrict our ability to: i) dispose of or create liens on
assets; ii) transfer assets between borrowing or guaranteeing subsidiaries and non guaranteeing
subsidiaries; iii) incur additional indebtedness; iv) repay other indebtedness; or v) make
acquisitions and engage in mergers or consolidations. We are also required to comply with specified
financial tests and ratios, including a consolidated minimum net worth test, a maximum debt to
earnings before interest, taxes, depreciation and amortization (EBITDA) ratio and a minimum
interest coverage ratio. A breach of these requirements, of which we were not aware of any at June
30, 2008, would give rise to certain remedies under the credit agreement as amended, among which
are the termination of the agreement and accelerated repayment of the outstanding borrowings plus
accrued and unpaid interest under the credit facility.
The 71/8% Senior Note agreement contains a cross-default clause that provides if there were to
be an event of default under the credit agreement discussed earlier, we would also be in default
under the 71/8% Senior Notes.
In November 2007, we sold timberlands and as consideration received a $43.2 million, 20-year
interest bearing note receivable from the timberland buyer. In January 2008, we pledged this note
as collateral under a $36.7 million term loan (the 2008 Term Loan) with SunTrust Financial. The
2008 Term Loan matures in five years, and bears interest at a six-month reserve adjusted LIBOR plus
a margin rate of 1.20% per annum.
On March 21, 2003, we sold timberlands and received as consideration a $37.9 million 10-year
interest bearing note receivable from the timberland buyer. We pledged this note as collateral
under a $34.0 million promissory note payable to SunTrust Financial (the Note Payable). The Note
Payable was scheduled to mature in March 2008. In February 2008, we amended the Note Payable to
extend its maturity until March 26, 2013. Beginning on March 26, 2008, the Note Payable bears a
fixed rate of interest of 3.10%.
The notes receivable, discussed in the preceding paragraphs, aggregating $81.1 million, are
recorded in the accompanying consolidated balance sheets under the caption Other assets.
P. H. Glatfelter Company guarantees debt obligations of all its subsidiaries. All such
obligations are recorded in these consolidated financial statements.
As of June 30, 2008 and December 31, 2007, we had $7.1 million and $14.1 million of letters of
credit issued to us by certain financial institutions. Such letters of credit, which reduce amounts
available under our revolving credit facility, provide i) financial assurances for the benefit of
certain state workers compensation insurance agencies in conjunction with our self-insurance
program, and ii) assurance related to the purchase of certain utilities for our manufacturing
facilities. 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.
13. ASSET RETIREMENT OBLIGATION
During the second quarter of 2008, we recorded $7.2 million of asset retirement obligations
related to the legal requirement to close 19 lagoons at the Spring Grove, PA facility. The lagoons
are currently being used to dispose of residual waste material. Closure of the lagoons,
which is expected to occur over the next several years, not to exceed ten years, will be accomplished
by disposing in the lagoons certain non-hazardous sludge, ash and other residual material currently produced by
the mill. This will be followed by the placement of a cover comprised primarily of purchased clay and top soil
to construct the required cap over the lagoons. The ultimate time period over which the lagoons are
closed is dependent upon the plan to be agreed and approved by the Pennsylvania Department of Environmental
Protection. The amounts referred to above were accrued with a corresponding increase in the
carrying value of the property, equipment and timberlands caption on
the consolidated balance sheet. The amount capitalized will be amortized
as a charge to operations on a systematic basis in relation to the expected closure period.
14. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
Fox River Neenah, Wisconsin
Background We have significant uncertainties associated with environmental claims arising out
of the presence of polychlorinated biphenyls (PCBs) in sediments in the lower Fox River and in
the Bay of Green Bay Wisconsin (Site). As part of the 1979 acquisition of the Bergstrom Paper
Company we acquired a facility
GLATFELTER
- 9 -
located at the Site (the Neenah Facility). In part, the Neenah Facility used wastepaper as a
source of fiber. At no time did the Neenah Facility utilize PCBs in the pulp and paper making
process, but discharges to the lower Fox River from the Neenah Facility which may have contained
PCBs from wastepaper may have occurred from 1954 to the late 1970s. Any PCBs that our Neenah
Facility discharged into the lower Fox River resulted from the presence of PCBs in NCR®-brand
carbonless copy paper in the wastepaper that was recycled at the Neenah Facility. We closed the
Neenah Facility in June 2006.
The United States, the State of Wisconsin and various state and federal governmental agencies
(collectively, the Governments), as well as private parties, have found PCBs in sediments on the
bed of the Fox River, apparently from a number of sources at municipal and industrial facilities
along the upstream and downstream portions of the Site. The Governments have identified
manufacturing and recycling of NCR®-brand carbonless copy paper as the principal source of that
contamination.
The United States Environmental Protection Agency (EPA) has divided the lower Fox River and
the Bay of Green Bay site into five operable units numbered from the most upstream (OU1) to the
most downstream (OU5). OU1 is the reach from primarily Lake Winnebago to the dam at Appleton, and
is comprised of Little Lake Butte des Morts. Our Neenah Facility discharged its wastewater into
OU1. OU2 extends from the dam at Appleton to the dam at Little Rapids, OU3 from the dam at Little
Rapids to the dam at De Pere, OU4 from the dam at De Pere to the mouth of the river, and OU5 from
the mouth into the lower portion of Green Bay. The river extends 39 miles from the upstream end of
OU1 to the downstream end of OU4.
Our liabilities, if any, for this contamination primarily arise under the federal
Comprehensive Environmental, Response, Compensation and Liability Act (CERCLA or Superfund).
The Governments have sought to recover response actions or response costs, which are the costs
of studying and cleaning up contamination, from various responsible parties. In addition,
various natural resource trustee agencies of the United States, the States of Wisconsin and
Michigan, and several Indian Tribes have sought to recover natural resource damages (NRDs),
including natural resource damage assessment costs. Parties that have incurred response costs or
NRDs either voluntarily or in response to the governments and trustees demands may have an
opportunity to seek contribution or other recovery of some or all of those costs from other parties
who are jointly and severally responsible under Superfund for those costs. Therefore, as we incur
costs, we also acquire a claim against other parties who may not have paid their equitable share of
those costs. As others incur costs, they
acquire a claim against us to the extent that they claim
that we have not paid our equitable share of the total. Any party that resolves its liability to
the United States or a state in a judicially or administratively approved settlement agreement
obtains protection from contribution claims for matters addressed in the settlement.
For these reasons, all of the parties who are potentially responsible (PRPs) under CERCLA
for response costs or NRDs have exposure to liability for: (a) the cost of past response actions
taken by anyone else, (b) the cost of past NRD payments or restoration projects incurred by anyone
else, (c) the cost of response actions to be taken in the future, and (d) NRDs. All of this
exposure is subject to substantial defenses, including, for example, that the PRP is not liable or
not jointly and severally liable for any particular cost or damage, that the cost or damage is not
recoverable under CERCLA or any other law, or that the recovery is barred by the passage of time.
In addition, a party that has incurred or committed to incur costs or has paid NRDs may be able to
claim credit for that cost or payment in any equitable allocation of response costs or NRDs in any
action for reallocation of costs.
Cleanup Decisions. Our liability exposure depends importantly on the decisions made by EPA and
the Wisconsin Department of Natural Resources (WDNR) as to how the Site will be cleaned up, and
consequently the costs and timing of those response actions. The nature of the response actions has
been highly controversial. EPA issued a record of decision (ROD) selecting response actions for
OU1 and OU2 in December 2002. EPA issued a separate ROD selecting response actions for OU3, OU4,
and OU5 in March 2004.
As the result of continuing discussions with parties other than us, as well as our experience
in OU1 (discussed below), EPA amended the ROD for OU2-5 in June 2007 to rely less on dredging and
more on capping and covering of sediments containing PCBs. The governments project that these
methods will allow certain costs to be lower for this portion of the cleanup. In June 2008, EPA
amended the ROD for OU1.
NRD Assessment. The natural resources trustees have engaged in work to assess NRDs at and
arising from the Site. However, they have not completed a required NRD Assessment under the
pertinent regulations. The trustees estimate of NRDs ranges from $176 million to $333 million,
some of which has already been satisfied. With specific respect to NRD claims, we contended that
the trustees claims are barred by the applicable 3 year statute of limitations.
Work Under Agreements, Orders, and Decrees. As we mention above, our exposure to liability
depends
GLATFELTER
-10-
on the amount of work done, costs incurred, and damages paid both by us and by others. The
procedural context of the work done, costs incurred, and damages paid also matters.
Since 1991, the Governments and various groups of potentially responsible parties, including
us, have entered into a series of agreements, orders, and decrees under which we and others have
performed work, incurred costs, or paid damages in connection with the Site. As a result, some
parties have contributed or performed substantial work at the Site and at least one party, Fort
Howard Corporation (whose successor is either the Fort James
Operating Company or Georgia Pacific Corporation) has resolved its NRD liability at the Site.
Notably, in April 2004, the United States District Court for the Eastern District of Wisconsin
entered a consent decree (OU1 Consent Decree) in United States v. P.H. Glatfelter Co., No.
2:03-cv-949, under which we and WTM I Corp. have been implementing the remedy in OU1, dividing
costs evenly in addition to a $7 million contribution from Menasha Corp. and a $10 million
contribution that the United States contributed from a separate settlement in United States v.
Appleton Papers Inc., No. 2:01-cv-816, obligating NCR and Appleton Papers to contribute to certain
NRD projects. In June 2008, the parties entered into an amendment to the OU1 Consent Decree. The
amendment allows for implementation of the amended remedy for OU1. It also commits us and WTM I to
implement that remedy without a cost limitation on that commitment. The amended OU1 Consent Decree
has been lodged with the court, but has not yet been entered by the court. The amended OU1 Consent
Decree, by its terms, binds the parties unless the United States withdraws its consent or the court
denies a motion to enter the consent decree.
Further, in November 2007, EPA issued an administrative order for remedial action (UAO) to
Appleton Papers Inc., CBC Coating, Inc. (formerly known as Riverside Paper Corporation),
Georgia-Pacific Consumer Products, L.P. (formerly known as Fort James Operating Company), Menasha
Corporation, NCR Corporation, us, U.S. Paper Mills Corp., and WTM I Company directing those
respondents to implement the amended remedy in OU2-5. We have no obligation to assist in that
effort until August 2008. We understand that others have commenced designing that remedy and
procuring certain equipment and real estate necessary to its implementation.
Cost estimates. Estimates of the Site remediation change over time as we, or others, gain
additional experience. In addition, disagreement exists over the likely costs for some of this
work. The Governments estimate that the total cost of implementing the amended
remedy in OU1 will
be approximately $102 million. Because we have completed a significant amount of work in this
portion of the river, we believe the costs of completing the remedial actions specified in the
amended ROD can be completed for this amount. However, it is reasonably possible costs could exceed
this amount by up to $10 million. The cost of implementing the remedy set forth in the amended ROD for
OU2-5 (the downstream portions of the Site) is estimated by the Governments to total between $270
million and $499 million, reflecting a contingency factor of plus or minus 30%. However, based on
independent estimates commissioned by various potentially responsible parties, we believe the
actual costs to be incurred to implement the remedy of OU2 5 will exceed the Governments
estimate by a significant amount.
NRDs. The trustees claim that we are jointly and severally responsible for NRDs with a value
between $176 million and $333 million. We deny (a) liability for most of these NRDs, (b) that if
anyone is liable, that we are jointly and severally liable for the full amount, and (c) that the
trustees can pursue this claim at this late date as the limitations period for NRD claims is three
years from discovery.
Allocation. Since 1991, various potentially responsible parties have, without success,
attempted to agree on a binding, final, allocation of costs and damages among themselves. All costs
that they have incurred to date have been incurred individually, or under interim, nonbinding
allocations. However, the consent decree in United States v. P.H. Glatfelter Co. affords us and WTM
I contribution protection for claims seeking to reallocate costs of implementing the OU1 remedy,
and Fort James Operating Co. (now Georgia-Pacific) has certain rights under its consent decree.
Otherwise, the parties have not litigated their internal allocation with us.
NCR and Appleton Papers Inc. have commenced litigation in the United States District Court for
the Eastern District of Wisconsin captioned Appleton Papers Inc. v. George A. Whiting Paper Co.,
No. 2:08-cv-16, seeking to reallocate costs and damages allegedly incurred or paid or to be
incurred or paid by NCR or Appleton Papers. They have to date joined 22 defendants: us, George A.
Whiting Paper Co., Menasha Corporation, Green Bay Packaging Inc., International Paper Company,
Leicht Transfer & Storage Company, Neenah Foundry Company, Newpage Wisconsin System Inc., The
Procter & Gamble Paper Products Company, Wisconsin Public Service Corp. the Cities of Appleton, De
Pere, Green Bay, and Kaukauna, Brown County, Green Bay Metropolitan Sewerage District, Heart of the
Valley Metropolitan Sewerage District, Neenah-Menasha Sewerage Commission, the Villages of Kimberly
and Wrightstown, WTM I Company, and U.S. Paper Mills Corporation. That litigation may be expected
to result in an allocation of responsibility, at least as between these parties.
We contend that we are not jointly and severally liable for costs or damages arising from the
presence of PCBs downstream of OU1. In addition, we contend that
GLATFELTER
-11-
NCR or other sources of NCR® -
brand carbonless copy paper that our Neenah Mill recycled bear most of the responsibility for costs
and damages arising from the presence of PCBs in OU1. Other parties disagree.
To
date we have spent or have committed to spend approximately $50 million implementing the remedy
in OU1, and under the various agreements, orders, and decrees under which we and others have
performed work, incurred costs, or paid damages in connection with the Site.
Reserves
for the Fox River Site In
2007 we recorded additional charges of $6 million in the first quarter and $20 million in
the third quarter, to satisfy both our obligations at OU1 and all pending, threatened or
asserted and unasserted claims against us for the Fox River including our claimed liability for the
remediation of OU3-5 as a result of the developments concerning the Fox River including our revised
cost estimates for OU1. These additional charges represent our current assessment of the ultimate
costs to be incurred by us associated with the revised final plan for OU1 and any settlement of
liability for NRDs and for remediation of OU 2-5. As of June 30, 2008, our reserve for the Fox
River environmental liability totaled $26.3 million. Of the total reserve, $6.8 million is recorded
in the accompanying consolidated balance sheets under the caption Environmental liabilities and
the remaining $19.5 million is recorded under the caption Other long term liabilities. Our
reserve includes amounts originally established prior to 2002 and adjustments in the first and
third quarter of 2007 increasing the liability by $26.0 million offset by expenditures related to
remediation activities.
We and WTM I have been funding the OU1 remedy by depositing
funds in an OU1 Escrow Account and then paying for work out of that account. At June 30, 2008, the
remaining OU1 Escrow Account balance totaled $13.7 million. During the first six months of 2008,
Menasha contributed $7 million to the OU1 Escrow Account. In addition, WTM I and we committed to
contribute an additional $9.5 million each, and contributions, or security for later contributions,
have been posted according to the agreed schedule. Of the total
commitment, we funded $3.5 million on July 15, 2008 and
obtained a letter of credit guaranteeing payment of the balance.
We believe that we have strong defenses to liability for remediation of OU2-5 including the
existence of ample data that indicates that PCBs did not leave OU1 in concentrations that could
have caused or contributed to the need for cleanup in OU2-5. Others, including the EPA and other
PRPs, disagree with us and, as a result, the EPA has issued a UAO to us and to others to perform
the OU2-5 work. NCR and Appleton Papers have recently commenced the Whiting Litigation and have
joined us and others. Additional litigation associated with the remediation of the Site is likely.
As illustrated by the Whiting Litigation, we also
note that there exist additional potentially
responsible parties other than the PRPs who were named in the UAO or who have been joined in the
Whiting Litigation, including the owners of public wastewater treatment facilities who discharged
PCB-contaminated wastewater to the Fox River and entities providing PCB-containing wastepaper to
each of the recycling mills.
Even if we are not successful in establishing that we are not liable for the remediation of
OU2-5, we do not believe that we would be allocated a significant percentage share of liability in
any equitable allocation of the remediation costs and other potential damages associated with
OU2-5. The accompanying consolidated financial statements do not include reserves for any future
litigation or defense costs for the Fox River, and because litigation has commenced, the costs to
do so could be significant.
In setting our reserve for the Fox River, we have assessed our defenses to liability,
including matters raised in the Whiting Litigation, and assumed that we will not bear the entire
cost of remediation and damages to the exclusion of other known PRPs at the Site who are also
potentially jointly and severally liable. The existence and ability of other PRPs to participate
has also been taken into account in setting our reserve, and is generally based on our evaluation
of recent publicly available financial information on each PRP, and any known insurance, indemnity
or cost sharing agreements between PRPs and third parties. In addition, our assessment is based
upon the magnitude, nature, location and circumstances associated with the various discharges of
PCBs to the river and the relationship of those discharges to identified contamination. We will
continue to evaluate our exposure and the level of our reserves, including, but not limited to, our
potential share of the costs and NRDs, if any, associated with the Fox River site.
Other than with respect to the OU1 Consent Decree, the amount and timing of future
expenditures for environmental compliance, cleanup, remediation and personal injury, NRDs and
property damage liabilities cannot be ascertained with any certainty due to, among other things,
the unknown extent and nature of any contamination, the response actions that may ultimately be
required, the availability of remediation equipment, and landfill space, and the number and
financial resources of any other PRPs.
Other Information The Wisconsin DNR and FWS have each published studies, the latter in draft
form, estimating the amount of PCBs discharged by each identified PRP to the lower Fox River and
the Bay of Green Bay. These reports estimate the Neenah Facilitys share of the volumetric
discharge to be as high as 27%. We do not believe the volumetric estimates used in these
GLATFELTER
-12-
studies are accurate because (a) the studies themselves disclose that they are not accurate and (b) the
volumetric estimates contained in the studies are based on assumptions that are unsupported by
existing data on the Site. We believe that our volumetric contribution is significantly lower than
the estimates set forth in these studies. Further, we do not believe that a volumetric allocation
would constitute an equitable allocation of the potential liability for the contamination. Other
factors, such as the location of contamination, the location of discharge, and a partys role in
causing discharge, must be considered in order for the allocation to be equitable.
We previously entered into interim cost-sharing agreements with four of the other PRPs, which
provided for those PRPs to share certain costs relating to scientific studies of PCBs discharged at
the Site (Interim Cost Sharing Agreements). These interim cost-sharing agreements do not
establish the final allocation of remediation costs incurred at the Site. Based upon our evaluation
of the volume, nature and location of the various discharges of PCBs at the Site and the
relationship of those discharges to identified contamination, we believe our allocable share of
liability at the Site is less than our share of costs under the Interim Cost Sharing Agreements.
While the OU1 Consent Decree, as amended, provides a negotiated framework for resolving both
our and WTM Is liability for the remediation of OU1, it does not resolve our exposure at the Site.
The OU1 Consent Decree does not address response costs necessary to remediate the remainder of the
Site and only addresses NRDs and claims for reimbursement of government expenses to a limited
extent. Because CERCLA imposes strict joint and several liability, uncertainty persists regarding
our exposure with respect to the remainder of the Fox River site. In addition, as mentioned
previously, EPA has issued a UAO to us and others calling for further work in OU2-5, and Appleton
Papers and NCR have commenced the Whiting Litigation that may become more complicated and involve
additional parties. We cannot predict the outcome of the Whiting Litigation or any other litigation
or regulatory actions related to this matter.
Range of Reasonably Possible Outcomes Our analysis of the range of reasonably possible
outcomes is derived from all available information, including but not limited to official documents
such as RODs, discussions with the United States and other PRPs, as well as legal counsel and
engineering consultants. Based on our analysis of the current RODs and cost estimates for work to
be performed at the Site, we believe that it is
reasonably possible that our costs associated with
the Fox River matter may exceed our reserve for the Fox River matter by amounts that are
insignificant or that could range up to $195 million, over a period that is currently
undeterminable but that could range beyond 15 years. We believe that the likelihood of an outcome
in the upper end of the monetary range is significantly less than other possible outcomes within
the range and that the possibility of an outcome in excess of the upper end of the monetary range
is remote.
Based on currently available information, we believe that the remaining work to complete the
remediation of OU1 can be completed with the amounts in the OU1 Escrow Account, and the amounts
committed to be contributed by us and WTM I. Our assessment assumes that: 1) the court ultimately
enters the amended OU1 Consent Decree; 2) we and WTM I successfully negotiate acceptable contracts
covering the work provided for in the amended OU1 ROD; and 3) the remedial measures provided in the
amended OU1 ROD are successfully implemented. However, if we are unsuccessful in managing our costs
to implement the amended OU1 ROD, additional charges may be necessary and such amounts
could be material.
Summary Our current assessment is that we will be able to manage these environmental matters
without a long-term, material adverse impact on the Company. These matters could, however, at any
particular time or for any particular year or years, have a material adverse effect on our
consolidated financial position, liquidity and/or results of operations or could result in a
default under our loan covenants. Moreover, there can be no assurance that our reserves will be
adequate to provide for future obligations related to these matters, that our share of costs and/or
damages for these matters will not exceed our available resources, or that such obligations will
not have a long-term, material adverse effect on our consolidated financial position, liquidity or
results of operations. With regard to the Fox River site, if we are not successful in managing the
completion of the remaining remedial work at OU1 and/or should the United States seek to enforce
the UAO for OU2-5 against us which requires us to either perform directly or contribute significant
amounts towards the performance of that work, such developments could have a material adverse
effect on our consolidated financial position, liquidity and results of operations and may result
in a default under our loan covenants.
GLATFELTER
-13-
15. SEGMENT AND GEOGRAPHIC INFORMATION
The following table sets forth financial and other information by business unit for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit Performance |
|
For The Three Months Ended June 30, |
In thousands |
|
Specialty Papers |
|
Composite Fibers |
|
Other and Unallocated |
|
Total |
|
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
207,296 |
|
|
|
$ |
202,606 |
|
|
$ |
112,928 |
|
|
|
$ |
85,486 |
|
|
$ |
|
|
|
|
$ |
(1 |
) |
|
$ |
320,224 |
|
|
|
$ |
288,091 |
|
Energy sales, net |
|
|
2,743 |
|
|
|
|
2,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,743 |
|
|
|
|
2,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
210,039 |
|
|
|
|
205,030 |
|
|
|
112,928 |
|
|
|
$ |
85,486 |
|
|
|
|
|
|
|
|
(1 |
) |
|
|
322,967 |
|
|
|
|
290,515 |
|
Cost of products sold |
|
|
196,948 |
|
|
|
|
192,817 |
|
|
|
96,462 |
|
|
|
|
70,522 |
|
|
|
(2,841 |
) |
|
|
|
(1,624 |
) |
|
|
290,569 |
|
|
|
|
261,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
13,091 |
|
|
|
|
12,213 |
|
|
|
16,466 |
|
|
|
|
14,964 |
|
|
|
2,841 |
|
|
|
|
1,623 |
|
|
|
32,398 |
|
|
|
|
28,800 |
|
SG&A |
|
|
13,772 |
|
|
|
|
14,521 |
|
|
|
9,689 |
|
|
|
|
8,182 |
|
|
|
1,916 |
|
|
|
|
1,073 |
|
|
|
25,377 |
|
|
|
|
23,776 |
|
Shutdown and restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(856 |
) |
|
|
|
(63 |
) |
|
|
(856 |
) |
|
|
|
(63 |
) |
Gains on dispositions of plant,
equipment and timberlands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
(5,693 |
) |
|
|
16 |
|
|
|
|
(5,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
(681 |
) |
|
|
|
(2,308 |
) |
|
|
6,777 |
|
|
|
|
6,782 |
|
|
|
1,765 |
|
|
|
|
6,306 |
|
|
|
7,861 |
|
|
|
|
10,780 |
|
Nonoperating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,367 |
) |
|
|
|
(6,940 |
) |
|
|
(4,367 |
) |
|
|
|
(6,940 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
(681 |
) |
|
|
$ |
(2,308 |
) |
|
$ |
6,777 |
|
|
|
$ |
6,782 |
|
|
$ |
(2,602 |
) |
|
|
$ |
(634 |
) |
|
$ |
3,494 |
|
|
|
$ |
3,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
182,700 |
|
|
|
|
183,344 |
|
|
|
22,356 |
|
|
|
|
18,118 |
|
|
|
|
|
|
|
|
|
|
|
|
205,056 |
|
|
|
|
201,462 |
|
Depreciation, depletion and
amortization expense |
|
$ |
8,980 |
|
|
|
$ |
8,881 |
|
|
$ |
6,968 |
|
|
|
$ |
5,250 |
|
|
|
|
|
|
|
|
|
|
|
$ |
15,948 |
|
|
|
$ |
14,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit Performance |
|
For The Six Months Ended June 30, |
In thousands |
|
Specialty Papers |
|
Composite Fibers |
|
Other and Unallocated |
|
Total |
|
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
408,242 |
|
|
|
$ |
399,510 |
|
|
$ |
217,480 |
|
|
|
$ |
169,570 |
|
|
$ |
1 |
|
|
|
$ |
|
|
|
$ |
625,723 |
|
|
|
$ |
569,080 |
|
Energy sales, net |
|
|
4,727 |
|
|
|
|
4,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,727 |
|
|
|
|
4,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
412,969 |
|
|
|
|
404,148 |
|
|
|
217,480 |
|
|
|
|
169,570 |
|
|
|
1 |
|
|
|
|
|
|
|
|
630,450 |
|
|
|
|
573,718 |
|
Cost of products sold |
|
|
374,224 |
|
|
|
|
370,737 |
|
|
|
184,858 |
|
|
|
|
141,312 |
|
|
|
(5,288 |
) |
|
|
|
(3,840 |
) |
|
|
553,794 |
|
|
|
|
508,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
38,745 |
|
|
|
|
33,411 |
|
|
|
32,622 |
|
|
|
|
28,258 |
|
|
|
5,289 |
|
|
|
|
3,840 |
|
|
|
76,656 |
|
|
|
|
65,509 |
|
SG&A |
|
|
27,979 |
|
|
|
|
29,048 |
|
|
|
19,709 |
|
|
|
|
16,494 |
|
|
|
1,824 |
|
|
|
|
6,961 |
|
|
|
49,512 |
|
|
|
|
52,503 |
|
Shutdown and restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(856 |
) |
|
|
|
162 |
|
|
|
(856 |
) |
|
|
|
162 |
|
Gains on dispositions of plant,
equipment and timberlands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,502 |
) |
|
|
|
(8,887 |
) |
|
|
(14,502 |
) |
|
|
|
(8,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
10,766 |
|
|
|
|
4,363 |
|
|
|
12,913 |
|
|
|
|
11,764 |
|
|
|
18,823 |
|
|
|
|
5,604 |
|
|
|
42,502 |
|
|
|
|
21,731 |
|
Nonoperating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,840 |
) |
|
|
|
(12,905 |
) |
|
|
(8,840 |
) |
|
|
|
(12,905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
10,766 |
|
|
|
$ |
4,363 |
|
|
$ |
12,913 |
|
|
|
$ |
11,764 |
|
|
$ |
9,983 |
|
|
|
$ |
(7,301 |
) |
|
$ |
33,662 |
|
|
|
$ |
8,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
364,911 |
|
|
|
|
358,464 |
|
|
|
43,695 |
|
|
|
|
36,475 |
|
|
|
|
|
|
|
|
|
|
|
|
408,606 |
|
|
|
|
394,939 |
|
Depreciation depletion and
amortization expense |
|
$ |
17,612 |
|
|
|
$ |
17,532 |
|
|
$ |
13,054 |
|
|
|
$ |
10,333 |
|
|
|
|
|
|
|
|
|
|
|
$ |
30,666 |
|
|
|
$ |
27,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 primarily allocated based
on an estimated utilization of support area services or are included in Other and Unallocated in
the table above.
Management evaluates results of operations of the business units before non-cash pension
income, any charges related to the Fox River environmental reserves, restructuring related charges,
unusual items, effects of asset dispositions and insurance recoveries because it believes this is a
more meaningful representation of the operating performance of its core papermaking businesses, the
profitability of business units and the extent of cash flow generated from core operations. This
presentation is closely aligned with the management and operating structure of our company. It is
also on this basis that the Companys performance is evaluated internally and by the Companys
Board of Directors. Such amounts are presented above under the caption Other and Unallocated.
GLATFELTER
-14-
16. GUARANTOR FINANCIAL STATEMENTS
Our 71/8% Senior Notes have been fully and unconditionally guaranteed, on a joint and several
basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc.,
The Glatfelter Pulp Wood Company, GLT International Finance, LLC, Glatfelter Holdings, LLC and
Glatfelter Holdings II, LLC.
The following presents our condensed consolidating statements of income and cash flow for the
three months ended June 30, 2008 and 2007 and our condensed consolidating balance sheets as of June
30, 2008 and December 31, 2007. These financial statements reflect P. H. Glatfelter Company (the
parent), the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a
combined basis) and elimination entries necessary to combine such entities on a consolidated basis.
During 2007, we completed a reorganization pursuant to which, Glenn Wolfe was merged into the
parent company. Accordingly the 2007 financial information set forth below reflects such
reorganization. All prior period financial information has been restated.
Condensed Consolidating Statement of Income for the
three months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
Non |
|
Adjustments/ |
|
|
In thousand |
|
Company |
|
Guarantors |
|
Guarantors |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
207,296 |
|
|
$ |
10,566 |
|
|
$ |
112,928 |
|
|
$ |
(10,566 |
) |
|
$ |
320,224 |
|
Energy sales net |
|
|
2,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,743 |
|
|
|
|
Total revenues |
|
|
210,039 |
|
|
|
10,566 |
|
|
|
112,928 |
|
|
|
(10,566 |
) |
|
|
322,967 |
|
Costs of products sold |
|
|
194,143 |
|
|
|
10,637 |
|
|
|
96,577 |
|
|
|
(10,788 |
) |
|
|
290,569 |
|
|
|
|
Gross profit |
|
|
15,896 |
|
|
|
(71 |
) |
|
|
16,351 |
|
|
|
222 |
|
|
|
32,398 |
|
Selling, general and administrative expenses |
|
|
14,853 |
|
|
|
554 |
|
|
|
9,970 |
|
|
|
|
|
|
|
25,377 |
|
Shutdown and restructuring charges |
|
|
(856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(856 |
) |
Gains on dispositions of plant, equipment
and timberlands, net |
|
|
2 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
Operating income |
|
|
1,897 |
|
|
|
(639 |
) |
|
|
6,381 |
|
|
|
222 |
|
|
|
7,861 |
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(4,983 |
) |
|
|
|
|
|
|
(844 |
) |
|
|
|
|
|
|
(5,827 |
) |
Interest income (expense) |
|
|
(1,239 |
) |
|
|
3,143 |
|
|
|
(547 |
) |
|
|
|
|
|
|
1,357 |
|
Other income (expense) net |
|
|
5,989 |
|
|
|
181 |
|
|
|
(208 |
) |
|
|
(5,859 |
) |
|
|
103 |
|
|
|
|
Total other income (expense) |
|
|
(233 |
) |
|
|
3,324 |
|
|
|
(1,599 |
) |
|
|
(5,859 |
) |
|
|
(4,367 |
) |
|
|
|
Income (loss) before income taxes |
|
|
1,664 |
|
|
|
2,685 |
|
|
|
4,782 |
|
|
|
(5,637 |
) |
|
|
3,494 |
|
Income tax provision (benefit) |
|
|
(1,492 |
) |
|
|
998 |
|
|
|
740 |
|
|
|
92 |
|
|
|
338 |
|
|
|
|
Net income (loss) |
|
$ |
3,156 |
|
|
$ |
1,687 |
|
|
$ |
4,042 |
|
|
$ |
(5,729 |
) |
|
$ |
3,156 |
|
|
|
|
Condensed Consolidating Statement of Income for the
three months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
Non |
|
Adjustments/ |
|
|
In thousand |
|
Company |
|
Guarantors |
|
Guarantors |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
202,606 |
|
|
$ |
10,576 |
|
|
$ |
85,485 |
|
|
$ |
(10,576 |
) |
|
$ |
288,091 |
|
Energy sales net |
|
|
2,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,424 |
|
|
|
|
Total revenues |
|
|
205,030 |
|
|
|
10,576 |
|
|
|
85,485 |
|
|
|
(10,576 |
) |
|
|
290,515 |
|
Costs of products sold |
|
|
192,055 |
|
|
|
9,574 |
|
|
|
70,693 |
|
|
|
(10,607 |
) |
|
|
261,715 |
|
|
|
|
Gross profit |
|
|
12,975 |
|
|
|
1,002 |
|
|
|
14,792 |
|
|
|
31 |
|
|
|
28,800 |
|
Selling, general and administrative expenses |
|
|
14,387 |
|
|
|
643 |
|
|
|
8,746 |
|
|
|
|
|
|
|
23,776 |
|
Shutdown and restructuring charges |
|
|
63 |
|
|
|
|
|
|
|
(126 |
) |
|
|
|
|
|
|
(63 |
) |
Gains on dispositions of plant, equipment
and timberlands, net |
|
|
179 |
|
|
|
(5,872 |
) |
|
|
|
|
|
|
|
|
|
|
(5,693 |
) |
|
|
|
Operating income |
|
|
(1,654 |
) |
|
|
6,231 |
|
|
|
6,172 |
|
|
|
31 |
|
|
|
10,780 |
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(6,842 |
) |
|
|
|
|
|
|
(582 |
) |
|
|
|
|
|
|
(7,424 |
) |
Interest income (expense) |
|
|
162 |
|
|
|
3,590 |
|
|
|
(1,204 |
) |
|
|
(1,700 |
) |
|
|
848 |
|
Other income (expense) net |
|
|
7,715 |
|
|
|
330 |
|
|
|
(274 |
) |
|
|
(8,135 |
) |
|
|
(364 |
) |
|
|
|
Total other income (expense) |
|
|
1,035 |
|
|
|
3,920 |
|
|
|
(2,060 |
) |
|
|
(9,835 |
) |
|
|
(6,940 |
) |
|
|
|
Income (loss) before income taxes |
|
|
(619 |
) |
|
|
10,151 |
|
|
|
4,112 |
|
|
|
(9,804 |
) |
|
|
3,840 |
|
Income tax provision (benefit) |
|
|
(2,617 |
) |
|
|
4,039 |
|
|
|
1,021 |
|
|
|
(601 |
) |
|
|
1,842 |
|
|
|
|
Net income (loss) |
|
$ |
1,998 |
|
|
$ |
6,112 |
|
|
$ |
3,091 |
|
|
$ |
(9,203 |
) |
|
$ |
1,998 |
|
|
|
|
GLATFELTER
-15-
Condensed Consolidating Statement of Income for the
six
months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
Non |
|
Adjustments/ |
|
|
In thousand |
|
Company |
|
Guarantors |
|
Guarantors |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
408,243 |
|
|
$ |
21,993 |
|
|
$ |
217,480 |
|
|
$ |
(21,993 |
) |
|
$ |
625,723 |
|
Energy sales net |
|
|
4,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,727 |
|
|
|
|
Total revenues |
|
|
412,970 |
|
|
|
21,993 |
|
|
|
217,480 |
|
|
|
(21,993 |
) |
|
|
630,450 |
|
Costs of products sold |
|
|
369,727 |
|
|
|
21,214 |
|
|
|
185,683 |
|
|
|
(22,830 |
) |
|
|
553,794 |
|
|
|
|
Gross profit |
|
|
43,243 |
|
|
|
779 |
|
|
|
31,797 |
|
|
|
837 |
|
|
|
76,656 |
|
Selling, general and administrative expenses |
|
|
27,893 |
|
|
|
1,017 |
|
|
|
20,602 |
|
|
|
|
|
|
|
49,512 |
|
Shutdown and restructuring charges |
|
|
(856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(856 |
) |
Gains on dispositions of plant, equipment
and timberlands, net |
|
|
127 |
|
|
|
(14,604 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
(14,502 |
) |
|
|
|
Operating income |
|
|
16,079 |
|
|
|
14,366 |
|
|
|
11,220 |
|
|
|
837 |
|
|
|
42,502 |
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(10,289 |
) |
|
|
(11 |
) |
|
|
(1,672 |
) |
|
|
|
|
|
|
(11,972 |
) |
Interest income |
|
|
19,346 |
|
|
|
6,293 |
|
|
|
(1,078 |
) |
|
|
(21,600 |
) |
|
|
2,961 |
|
Other income (expense) net |
|
|
6,359 |
|
|
|
559 |
|
|
|
(395 |
) |
|
|
(6,352 |
) |
|
|
171 |
|
|
|
|
Total other income (expense) |
|
|
15,416 |
|
|
|
6,841 |
|
|
|
(3,145 |
) |
|
|
(27,952 |
) |
|
|
(8,840 |
) |
|
|
|
Income (loss) before income taxes |
|
|
31,495 |
|
|
|
21,207 |
|
|
|
8,075 |
|
|
|
(27,115 |
) |
|
|
33,662 |
|
Income tax provision (benefit) |
|
|
8,664 |
|
|
|
8,353 |
|
|
|
1,844 |
|
|
|
(8,030 |
) |
|
|
10,831 |
|
|
|
|
Net income (loss) |
|
$ |
22,831 |
|
|
$ |
12,854 |
|
|
$ |
6,231 |
|
|
$ |
(19,085 |
) |
|
$ |
22,831 |
|
|
|
|
Condensed Consolidating Statement of Income for the
six
months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
Non |
|
Adjustments/ |
|
|
In thousand |
|
Company |
|
Guarantors |
|
Guarantors |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
399,510 |
|
|
$ |
21,603 |
|
|
$ |
169,570 |
|
|
$ |
(21,603 |
) |
|
$ |
569,080 |
|
Energy sales net |
|
|
4,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,638 |
|
|
|
|
Total revenues |
|
|
404,148 |
|
|
|
21,603 |
|
|
|
169,570 |
|
|
|
(21,603 |
) |
|
|
573,718 |
|
Costs of products sold |
|
|
368,673 |
|
|
|
19,452 |
|
|
|
141,535 |
|
|
|
(21,451 |
) |
|
|
508,209 |
|
|
|
|
Gross profit |
|
|
35,475 |
|
|
|
2,151 |
|
|
|
28,035 |
|
|
|
(152 |
) |
|
|
65,509 |
|
Selling, general and administrative expenses |
|
|
33,776 |
|
|
|
1,107 |
|
|
|
17,620 |
|
|
|
|
|
|
|
52,503 |
|
Shutdown and restructuring charges |
|
|
262 |
|
|
|
|
|
|
|
(100 |
) |
|
|
|
|
|
|
162 |
|
Gains on dispositions of plant, equipment
and timberlands, net |
|
|
179 |
|
|
|
(9,066 |
) |
|
|
|
|
|
|
|
|
|
|
(8,887 |
) |
|
|
|
Operating income |
|
|
1,258 |
|
|
|
10,110 |
|
|
|
10,515 |
|
|
|
(152 |
) |
|
|
21,731 |
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(13,601 |
) |
|
|
|
|
|
|
(1,160 |
) |
|
|
|
|
|
|
(14,761 |
) |
Interest income |
|
|
441 |
|
|
|
6,995 |
|
|
|
(2,397 |
) |
|
|
(3,450 |
) |
|
|
1,589 |
|
Other income (expense) net |
|
|
13,140 |
|
|
|
575 |
|
|
|
(192 |
) |
|
|
(13,256 |
) |
|
|
267 |
|
|
|
|
Total other income (expense) |
|
|
(20 |
) |
|
|
7,570 |
|
|
|
(3,749 |
) |
|
|
(16,706 |
) |
|
|
(12,905 |
) |
|
|
|
Income (loss) before income taxes |
|
|
1,238 |
|
|
|
17,680 |
|
|
|
6,766 |
|
|
|
(16,858 |
) |
|
|
8,826 |
|
Income tax provision (benefit) |
|
|
(4,013 |
) |
|
|
7,008 |
|
|
|
1,874 |
|
|
|
(1,294 |
) |
|
|
3,575 |
|
|
|
|
Net income (loss) |
|
$ |
5,251 |
|
|
$ |
10,672 |
|
|
$ |
4,892 |
|
|
$ |
(15,564 |
) |
|
$ |
5,251 |
|
|
|
|
GLATFELTER
-16-
Condensed Consolidating Balance Sheet as of June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
|
|
|
Adjustments/ |
|
|
In thousands |
|
Company |
|
Guarantors |
|
Non Guarantors |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,682 |
|
|
$ |
438 |
|
|
$ |
11,491 |
|
|
$ |
|
|
|
$ |
18,611 |
|
Other current assets |
|
|
300,110 |
|
|
|
334,727 |
|
|
|
75,057 |
|
|
|
(326,184 |
) |
|
|
383,710 |
|
Plant, equipment and timberlands net |
|
|
279,267 |
|
|
|
7,882 |
|
|
|
243,384 |
|
|
|
|
|
|
|
530,533 |
|
Other assets |
|
|
773,537 |
|
|
|
193,572 |
|
|
|
(43,390 |
) |
|
|
(522,974 |
) |
|
|
400,745 |
|
|
|
|
Total assets |
|
$ |
1,359,596 |
|
|
$ |
536,619 |
|
|
$ |
286,542 |
|
|
$ |
(849,158 |
) |
|
$ |
1,333,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
378,082 |
|
|
$ |
70,036 |
|
|
$ |
68,435 |
|
|
$ |
(325,257 |
) |
|
$ |
191,296 |
|
Long-term debt |
|
|
235,573 |
|
|
|
|
|
|
|
70,695 |
|
|
|
|
|
|
|
306,268 |
|
Deferred income taxes |
|
|
138,733 |
|
|
|
35,456 |
|
|
|
32,155 |
|
|
|
(11,206 |
) |
|
|
195,138 |
|
Other long-term liabilities |
|
|
97,680 |
|
|
|
13,677 |
|
|
|
11,127 |
|
|
|
8,885 |
|
|
|
131,369 |
|
|
|
|
Total liabilities |
|
|
850,068 |
|
|
|
119,169 |
|
|
|
182,412 |
|
|
|
(327,578 |
) |
|
|
824,071 |
|
Shareholders equity |
|
|
509,528 |
|
|
|
417,450 |
|
|
|
104,130 |
|
|
|
(521,580 |
) |
|
|
509,528 |
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,359,596 |
|
|
$ |
536,619 |
|
|
$ |
286,542 |
|
|
$ |
(849,158 |
) |
|
$ |
1,333,599 |
|
|
|
|
Condensed Consolidating Balance Sheet as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
Non |
|
Adjustments/ |
|
|
In thousands |
|
Company |
|
Guarantors |
|
Guarantors |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,693 |
|
|
$ |
162 |
|
|
$ |
22,978 |
|
|
$ |
|
|
|
$ |
29,833 |
|
Other current assets |
|
|
257,804 |
|
|
|
277,958 |
|
|
|
37,008 |
|
|
|
(229,191 |
) |
|
|
343,579 |
|
Plant, equipment and timberlands net |
|
|
279,511 |
|
|
|
7,591 |
|
|
|
232,764 |
|
|
|
|
|
|
|
519,866 |
|
Other assets |
|
|
749,913 |
|
|
|
212,513 |
|
|
|
(78,513 |
) |
|
|
(490,124 |
) |
|
|
393,789 |
|
|
|
|
Total assets |
|
$ |
1,293,921 |
|
|
$ |
498,224 |
|
|
$ |
214,237 |
|
|
$ |
(719,315 |
) |
|
$ |
1,287,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
319,516 |
|
|
$ |
39,285 |
|
|
$ |
64,423 |
|
|
$ |
(225,668 |
) |
|
$ |
197,556 |
|
Long-term debt |
|
|
267,041 |
|
|
|
|
|
|
|
34,000 |
|
|
|
|
|
|
|
301,041 |
|
Deferred income taxes |
|
|
138,615 |
|
|
|
33,557 |
|
|
|
32,236 |
|
|
|
(15,252 |
) |
|
|
189,156 |
|
Other long-term liabilities |
|
|
92,681 |
|
|
|
14,310 |
|
|
|
8,489 |
|
|
|
7,766 |
|
|
|
123,246 |
|
|
|
|
Total liabilities |
|
|
817,853 |
|
|
|
87,152 |
|
|
|
139,148 |
|
|
|
(233,154 |
) |
|
|
810,999 |
|
Shareholders equity |
|
|
476,068 |
|
|
|
411,072 |
|
|
|
75,089 |
|
|
|
(486,161 |
) |
|
|
476,068 |
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,293,921 |
|
|
$ |
498,224 |
|
|
$ |
214,237 |
|
|
$ |
(719,315 |
) |
|
$ |
1,287,067 |
|
|
|
|
GLATFELTER
-17-
Condensed Consolidating Statement of Cash Flows for the
six
months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
Non |
|
Adjustments/ |
|
|
In thousands |
|
Company |
|
Guarantors |
|
Guarantors |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
14,431 |
|
|
$ |
2,200 |
|
|
$ |
1,922 |
|
|
$ |
(21,600 |
) |
|
$ |
(3,047 |
) |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of plant, equipment and timberlands |
|
|
(9,308 |
) |
|
|
(1,139 |
) |
|
|
(14,960 |
) |
|
|
|
|
|
|
(25,407 |
) |
Proceeds from disposal plant, equipment and
timberlands |
|
|
1 |
|
|
|
14,996 |
|
|
|
|
|
|
|
|
|
|
|
14,997 |
|
Repayments from (advances of) intercompany loans,
net |
|
|
4,000 |
|
|
|
(16,778 |
) |
|
|
(9,158 |
) |
|
|
21,936 |
|
|
|
|
|
Return (contributions) of intercompany capital, net |
|
|
|
|
|
|
26,597 |
|
|
|
|
|
|
|
(26,597 |
) |
|
|
|
|
|
|
|
Total investing activities |
|
|
(5,307 |
) |
|
|
23,676 |
|
|
|
(24,118 |
) |
|
|
(4,661 |
) |
|
|
(10,410 |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (repayments of) proceeds from indebtedness |
|
|
(30,001 |
) |
|
|
|
|
|
|
38,991 |
|
|
|
|
|
|
|
8,990 |
|
Payment of dividends to shareholders |
|
|
(8,220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,220 |
) |
(Repayments) borrowings of intercompany loans, net |
|
|
28,536 |
|
|
|
(4,000 |
) |
|
|
(2,600 |
) |
|
|
(21,936 |
) |
|
|
|
|
Return of intercompany capital, net |
|
|
|
|
|
|
|
|
|
|
(26,597 |
) |
|
|
26,597 |
|
|
|
|
|
Payment of intercompany dividends |
|
|
|
|
|
|
(21,600 |
) |
|
|
|
|
|
|
21,600 |
|
|
|
|
|
Proceeds from stock options exercised |
|
|
642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642 |
|
|
|
|
Total financing activities |
|
|
(9,043 |
) |
|
|
(25,600 |
) |
|
|
9,794 |
|
|
|
26,261 |
|
|
|
1,412 |
|
Effect of exchange rate on cash |
|
|
(92 |
) |
|
|
|
|
|
|
915 |
|
|
|
|
|
|
|
823 |
|
|
|
|
Net increase (decrease) in cash |
|
|
(11 |
) |
|
|
276 |
|
|
|
(11,487 |
) |
|
|
|
|
|
|
(11,222 |
) |
Cash at the beginning of period |
|
|
6,693 |
|
|
|
162 |
|
|
|
22,978 |
|
|
|
|
|
|
|
29,833 |
|
|
|
|
Cash at the end of period |
|
$ |
6,682 |
|
|
$ |
438 |
|
|
$ |
11,491 |
|
|
$ |
|
|
|
$ |
18,611 |
|
|
|
|
Condensed Consolidating Statement of Cash Flows for the
six
months ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
Non |
|
Adjustments/ |
|
|
In thousands |
|
Company |
|
Guarantors |
|
Guarantors |
|
Eliminations |
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
25,073 |
|
|
$ |
(9,305 |
) |
|
$ |
1,868 |
|
|
$ |
|
|
|
$ |
17,636 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of plant, equipment and timberlands |
|
|
(10,428 |
) |
|
|
(381 |
) |
|
|
(3,412 |
) |
|
|
|
|
|
|
(14,221 |
) |
Proceeds from disposal plant, equipment and
timberlands |
|
|
13 |
|
|
|
9,435 |
|
|
|
|
|
|
|
|
|
|
|
9,448 |
|
|
|
|
Total investing activities |
|
|
(10,415 |
) |
|
|
9,054 |
|
|
|
(3,412 |
) |
|
|
|
|
|
|
(4,773 |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (repayments of) proceeds from indebtedness |
|
|
(15,075 |
) |
|
|
|
|
|
|
(541 |
) |
|
|
|
|
|
|
(15,616 |
) |
Payment of dividends |
|
|
(8,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,159 |
) |
Proceeds from stock options exercised |
|
|
1,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,171 |
|
|
|
|
Total financing activities |
|
|
(22,063 |
) |
|
|
|
|
|
|
(541 |
) |
|
|
|
|
|
|
(22,604 |
) |
Effect of exchange rate on cash |
|
|
|
|
|
|
|
|
|
|
752 |
|
|
|
|
|
|
|
752 |
|
|
|
|
Net increase (decrease) in cash |
|
|
(7,405 |
) |
|
|
(251 |
) |
|
|
(1,333 |
) |
|
|
|
|
|
|
(8,989 |
) |
Cash at the beginning of period |
|
|
10,227 |
|
|
|
546 |
|
|
|
11,212 |
|
|
|
|
|
|
|
21,985 |
|
|
|
|
Cash at the end of period |
|
$ |
2,822 |
|
|
$ |
295 |
|
|
$ |
9,879 |
|
|
$ |
|
|
|
$ |
12,996 |
|
|
|
|
GLATFELTER
-18-
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the information in the unaudited
condensed consolidated financial statements and notes thereto included herein and Glatfelters
Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of
Operations included in its our Annual Report on Form 10-K..
Forward-Looking Statements This Quarterly Report on Form 10-Q 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-Q 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 managements 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, net sales, costs of products
sold, 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. |
|
changes in the cost or availability of raw materials we use, in particular pulpwood, market
pulp, pulp substitutes, and abaca fiber; |
|
ii. |
|
changes in energy-related costs and commodity raw materials with an energy component;
|
|
iii. |
|
variations in demand for, or pricing of, our products; |
|
iv. |
|
our ability to develop new, high value-added Specialty Papers and Composite Fibers
products; |
|
v. |
|
the impact of competition, changes in industry paper production capacity, including the
construction of new mills, the closing of mills and incremental changes due to capital
expenditures or productivity increases; |
|
vi. |
|
the gain or loss of significant customers and/or on-going viability of such customers; |
vii. |
|
cost and other effects of environmental compliance, cleanup, damages, remediation or
restoration, or personal injury or property damages related thereto, such as the costs of
natural resource restoration or damages related to the presence of polychlorinated biphenyls
(PCBs) in the lower Fox River on which our former Neenah mill was located; |
|
viii. |
|
risks associated with our international operations, including local economic and political
environments and fluctuations in currency exchange rates; |
ix. |
|
geopolitical events, including war and terrorism; |
|
x. |
|
enactment of adverse state, federal or foreign tax or other legislation or changes in
government policy or regulation; |
|
xi. |
|
adverse results in litigation; |
|
xii. |
|
our ability to successfully execute our timberland strategy to realize the value of our
timberlands; and |
|
xiii. |
|
our ability to finance, consummate and integrate future acquisitions. |
Introduction We manufacture, both domestically and internationally, a wide array of specialty
papers and engineered products. Substantially all of our revenue is earned from the sale of our
products to customers in numerous markets, including book publishing, envelope & converting,
carbonless papers and forms, food and beverage, decorative laminates for furniture and flooring,
metalized papers and other highly technical niche markets.
Overview Our results of operations for the first half of 2008 when compared with the same
period of 2007 reflect stable demand trends and improved pricing conditions in each of our business
units. However, each of our business units results in the first half of 2008 were adversely
impacted by significantly higher input costs.
Specialty Papers results in 2008 compared to 2007 benefited from initiatives implemented in
the second half of 2007 to improve the operational effectiveness and overall profitability of the
Chillicothe facility.
Composite Fibers results in the first half of 2008 were adversely impacted by operational
matters related to lost production associated with the upgrades of paper machines at two of its
facilities, and lower production output due to the tight supply of abaca fiber. In addition, the
inclusion of the November 2007 acquisition of the Caerphilly facility was slightly dilutive to this
business units results.
GLATFELTER
-19-
Results of operations for the first half of 2008 include $8.7 million of after-tax gains from
the sale of timberlands as well a $2.0 million recovery in a litigation matter related to our
former Ecusta mill, offset by legal fees for matters at that site.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2008 versus the
Six Months Ended June 30, 2007
The following table sets forth summarized results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30 |
In thousands, except per share |
|
2008 |
|
|
2007 |
|
|
|
|
Net sales |
|
$ |
625,723 |
|
|
|
$ |
569,080 |
|
Gross profit |
|
|
76,656 |
|
|
|
|
65,509 |
|
Operating income |
|
|
42,502 |
|
|
|
|
21,731 |
|
Net income |
|
|
22,831 |
|
|
|
|
5,251 |
|
Earnings per share |
|
|
0.50 |
|
|
|
|
0.12 |
|
|
|
|
|
The consolidated results of operations for the six months ended June 30, 2008 includes the
following significant items:
|
|
|
|
|
|
|
|
|
|
|
After-tax |
|
Diluted EPS |
In thousands, except per share |
|
Gain (loss) |
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
Timberland sales |
|
$ |
8,656 |
|
|
$ |
0.19 |
|
Reversal of shutdown and restructuring charges |
|
|
532 |
|
|
|
0.01 |
|
Acquisition integration related costs |
|
|
(588 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Timberland sales |
|
|
5,400 |
|
|
|
0.12 |
|
Environmental remediation |
|
|
(3,693 |
) |
|
|
(0.08 |
) |
Acquisition integration related costs |
|
|
(1,150 |
) |
|
|
(0.03 |
) |
|
The above items increased earnings by $8.6 million, or $0.19 per diluted share in the first
six months of 2008. In the comparable period a year ago, the above items increased earnings by $0.6
million, or $0.01 per diluted share.
Business Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit Performance |
|
For the Six Months Ended June 30, |
In thousands |
|
Specialty Papers |
|
Composite Fibers |
|
Other and Unallocated |
|
Total |
|
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
408,242 |
|
|
|
$ |
399,510 |
|
|
$ |
217,480 |
|
|
|
$ |
169,570 |
|
|
$ |
1 |
|
|
|
$ |
|
|
|
$ |
625,723 |
|
|
|
$ |
569,080 |
|
Energy sales, net |
|
|
4,727 |
|
|
|
|
4,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,727 |
|
|
|
|
4,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
412,969 |
|
|
|
|
404,148 |
|
|
|
217,480 |
|
|
|
|
169,570 |
|
|
|
1 |
|
|
|
|
|
|
|
|
630,450 |
|
|
|
|
573,718 |
|
Cost of products sold |
|
|
374,224 |
|
|
|
|
370,737 |
|
|
|
184,858 |
|
|
|
|
141,312 |
|
|
|
(5,288 |
) |
|
|
|
(3,840 |
) |
|
|
553,794 |
|
|
|
|
508,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
38,745 |
|
|
|
|
33,411 |
|
|
|
32,622 |
|
|
|
|
28,258 |
|
|
|
5,289 |
|
|
|
|
3,840 |
|
|
|
76,656 |
|
|
|
|
65,509 |
|
SG&A |
|
|
27,979 |
|
|
|
|
29,048 |
|
|
|
19,709 |
|
|
|
|
16,494 |
|
|
|
1,824 |
|
|
|
|
6,961 |
|
|
|
49,512 |
|
|
|
|
52,503 |
|
Shutdown and restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(856 |
) |
|
|
|
162 |
|
|
|
(856 |
) |
|
|
|
162 |
|
Gains on dispositions of plant,
equipment and timberlands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,502 |
) |
|
|
|
(8,887 |
) |
|
|
(14,502 |
) |
|
|
|
(8,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
10,766 |
|
|
|
|
4,363 |
|
|
|
12,913 |
|
|
|
|
11,764 |
|
|
|
18,823 |
|
|
|
|
5,604 |
|
|
|
42,502 |
|
|
|
|
21,731 |
|
Nonoperating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,840 |
) |
|
|
|
(12,905 |
) |
|
|
(8,840 |
) |
|
|
|
(12,905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
10,766 |
|
|
|
$ |
4,363 |
|
|
$ |
12,913 |
|
|
|
$ |
11,764 |
|
|
$ |
9,983 |
|
|
|
$ |
(7,301 |
) |
|
$ |
33,662 |
|
|
|
$ |
8,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
364,911 |
|
|
|
|
358,464 |
|
|
|
43,695 |
|
|
|
|
36,475 |
|
|
|
|
|
|
|
|
|
|
|
|
408,606 |
|
|
|
|
394,939 |
|
Depreciation, depletion and
amortization expense |
|
$ |
17,612 |
|
|
|
$ |
17,532 |
|
|
$ |
13,054 |
|
|
|
$ |
10,333 |
|
|
|
|
|
|
|
|
|
|
|
$ |
30,666 |
|
|
|
$ |
27,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GLATFELTER
-20-
Business Units Results of individual business units are presented based on our management
accounting practices and management structure. There is no comprehensive, authoritative body of
guidance for management accounting equivalent to accounting principles generally accepted in the
United States of America; therefore, the financial results of individual business units are not
necessarily comparable with similar information for any other company. The management accounting
process uses assumptions and allocations to measure performance of the business units.
Methodologies are refined from time to time as management accounting practices are enhanced and
businesses change. The costs incurred by support areas not directly aligned with the business unit
are allocated primarily based on an estimated utilization of support area services or are included
in Other and Unallocated in the table above.
Management evaluates results of operations of the business units before non-cash pension
income, charges related to the Fox River environmental reserves, restructuring related charges,
unusual items, certain corporate level costs, effects of asset dispositions and insurance
recoveries because it believes this is a more meaningful representation of the operating
performance of its core papermaking businesses, the profitability of business units and the extent
of cash flow generated from core operations. Such amounts are presented under the caption Other
and Unallocated. This presentation is closely aligned with the management and operating structure
of our company. It is also on this basis that the Companys performance is evaluated internally and
by the Companys Board of Directors.
Sales and Costs of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
June 30 |
|
|
In thousands |
|
2008 |
|
|
2007 |
|
Change |
|
|
|
|
|
|
Net sales |
|
$ |
625,723 |
|
|
|
$ |
569,080 |
|
|
$ |
56,643 |
|
Energy sales net |
|
|
4,727 |
|
|
|
|
4,638 |
|
|
|
89 |
|
|
|
|
|
|
|
Total revenues |
|
|
630,450 |
|
|
|
|
573,718 |
|
|
|
56,732 |
|
Costs of products sold |
|
|
553,794 |
|
|
|
|
508,209 |
|
|
|
45,585 |
|
|
|
|
|
|
|
Gross profit |
|
$ |
76,656 |
|
|
|
$ |
65,509 |
|
|
$ |
11,147 |
|
|
|
|
|
|
|
Gross profit as a percent of Net
sales |
|
|
12.3 |
% |
|
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
The following table sets forth the contribution to consolidated net sales by each business
unit:
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Total |
|
|
2008 |
|
|
2007 |
|
|
|
|
Business Unit |
|
|
|
|
|
|
|
|
|
Specialty Papers |
|
|
65.2 |
% |
|
|
|
70.2 |
% |
Composite Fibers |
|
|
34.8 |
|
|
|
|
29.8 |
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
|
100.0 |
% |
|
Net sales totaled $625.7 million for the first six months of 2008, an increase of $56.6
million, or10.0%, compared to the same period a year ago.
In the Specialty Papers business unit, net sales for the first six months of 2008 increased
$8.7 million to $408.2 million and operating income totaled $10.8 million, an increase of $6.4
million over the previous year. Higher average selling prices contributed $15.0 million of the
increase in net sales and volumes shipped increased 1.8%. These price and volume increases were
partially offset by expected mix changes between carbonless papers and uncoated papers, as well as
lower sales of scrap paper. The benefits of higher average selling prices were offset by $20.7
million of higher costs, largely driven by fiber and energy. Unplanned operating downtime at the
Spring Grove and Chillicothe facilities also reduced operating results by $1.7 million early in the
first half of the current year. In addition to the net effect of the factors discussed above, the
higher operating income for the first half of 2008 reflects progress achieved in the last half of
2007 in executing Chillicothes profit improvement initiatives.
In Composite Fibers, net sales were $217.5 million for the first six months of 2008, an
increase of $47.9 million from the same period a year ago and operating income totaled $12.9
million, an increase of $1.1 million in the comparison. The completion of the November 30, 2007
Caerphilly acquisition accounted for approximately $23.5 million of the increase in net sales and
the translation of foreign currencies benefited net sales by $18.1 million. Volumes increased
approximately 19.8% with increases realized across all product lines. On a constant currency basis,
average selling prices benefited net sales by $3.8 million which partially offset the impact of
higher input costs. Energy and raw material costs in this business unit were $5.8 million higher
than the same period a year ago. During the fourth quarter of 2007, we completed a machine upgrade
at Composite Fibers Lydney facility, with startup extending into the first quarter of 2008,
lowering production volumes and operating income by approximately $1.7 million.
GLATFELTER
-21-
Non-Cash Pension Income Non-cash pension income results from the over-funded status of our
pension plans. The amount of pension income recognized each year is determined using various
actuarial assumptions and certain other factors, including the fair value of our pension assets as
of the beginning of the year. The following summarizes non-cash pension income for the first half
of 2008 compared to the same period of 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
June 30 |
|
|
In thousands |
|
2008 |
|
|
2007 |
|
Change |
|
|
|
|
|
|
Recorded as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold |
|
$ |
5,465 |
|
|
|
$ |
4,694 |
|
|
$ |
771 |
|
SG&A expense |
|
|
2,500 |
|
|
|
|
1,727 |
|
|
|
773 |
|
|
|
|
|
|
|
Total |
|
$ |
7,965 |
|
|
|
$ |
6,421 |
|
|
$ |
1,544 |
|
|
Selling, general and administrative (SG&A) expenses decreased $3.0 million in the
period-to-period comparison and totaled $49.5 million in the first half of 2008. SG&A decreased in
the comparison due to the inclusion in the 2007 period of a $6 million charge for environmental
matters in addition to the benefit in the comparison of a $2.0 million recovery in 2008 from the
settlement of a litigation matter related to our former Ecusta
division, offset by legal fees for matters at that site. The amounts for 2008 also were adversely impacted by foreign
currency translation and the inclusion of the Caerphilly acquisition.
Gain on Sales of Plant, Equipment and Timberlands During the first six months of 2008, we
completed sales of timberlands which are summarized by the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
Acres |
|
|
Proceeds |
|
Gain |
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
3,595 |
|
|
|
$ |
14,997 |
|
|
$ |
14,603 |
|
Other |
|
|
n/a |
|
|
|
|
|
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,997 |
|
|
$ |
14,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
3,588 |
|
|
|
$ |
9,435 |
|
|
$ |
9,066 |
|
|
Income taxes Our results of operations for the first six months of 2008 reflect an effective
tax rate of 32.2% compared to 40.5% in the same period a year ago. The decrease in the effective
tax rate is primarily due to tax benefits recorded upon the filing of an international subsidiarys
tax return and the reversal of a tax reserve in a foreign jurisdiction where the statute expired.
Foreign Currency We own and operate paper and pulp mills in Germany, France, the United
Kingdom and the Philippines. The local currency in Germany and France is the Euro, in the UK it is
the British Pound Sterling, and in the Philippines the currency is the Peso. During the first six
months of 2008, Euro functional currency operations generated approximately 21.5% of our sales and
20.1% of operating expenses and British Pound Sterling operations represented 10.6% of net sales
and 11.2% of operating expenses. The translation of the results from these international operations
into U.S. dollars is subject to changes in foreign currency exchange rates.
The table below summarizes the effect from foreign currency translation on first half 2008
reported results compared to first half 2007:
|
|
|
|
|
|
|
Six Months |
|
In thousands |
|
Ended June 30 |
|
|
|
Favorable |
|
|
|
(unfavorable) |
|
Net sales |
|
$ |
18,073 |
|
Costs of products sold |
|
|
(14,925 |
) |
SG&A expenses |
|
|
(1,515 |
) |
Income taxes and other |
|
|
(309 |
) |
|
|
|
|
Net income |
|
$ |
1,324 |
|
|
The above table only presents the financial reporting impact of foreign currency translations.
It does not present the impact of certain competitive advantages or disadvantages of operating or
competing in multi-currency markets.
GLATFELTER
-22-
Three Months Ended June 30, 2008 versus the
Three Months Ended June 30, 2007
The following table sets forth summarized results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30 |
In thousands, except per share |
|
2008 |
|
|
2007 |
|
Net sales |
|
$ |
320,224 |
|
|
|
$ |
288,091 |
|
Gross profit |
|
|
32,398 |
|
|
|
|
28,800 |
|
Operating income |
|
|
7,861 |
|
|
|
|
10,780 |
|
Net income (loss) |
|
|
3,156 |
|
|
|
|
1,998 |
|
Earnings (loss) per share |
|
|
0.07 |
|
|
|
|
0.04 |
|
|
The consolidated results of operations for the three months ended June 30 includes the
following significant items:
|
|
|
|
|
|
|
|
|
|
|
After-tax |
|
Diluted EPS |
In thousands, except per share |
|
Gain (loss) |
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
Reversal of shutdown and restructuring charges |
|
$ |
532 |
|
|
$ |
0.01 |
|
Acquisition integration related costs |
|
|
(177 |
) |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
Timberland sales |
|
|
3,486 |
|
|
|
0.08 |
|
Acquisition integration related costs |
|
|
(744 |
) |
|
|
(0.02 |
) |
Business Units The following table sets forth profitability information by business unit and
the composition of consolidated income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit Performance |
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
In thousands, except net tons sold |
|
Specialty Papers |
|
Composite Fibers |
|
Other and Unallocated |
|
Total |
|
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
207,296 |
|
|
|
$ |
202,606 |
|
|
$ |
112,928 |
|
|
|
$ |
85,486 |
|
|
$ |
|
|
|
|
$ |
(1 |
) |
|
$ |
320,224 |
|
|
|
$ |
288,091 |
|
Energy sales, net |
|
|
2,743 |
|
|
|
|
2,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,743 |
|
|
|
|
2,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
210,039 |
|
|
|
|
205,030 |
|
|
|
112,928 |
|
|
|
$ |
85,486 |
|
|
|
|
|
|
|
|
(1 |
) |
|
|
322,967 |
|
|
|
|
290,515 |
|
Cost of products sold |
|
|
196,948 |
|
|
|
|
192,817 |
|
|
|
96,462 |
|
|
|
|
70,522 |
|
|
|
(2,841 |
) |
|
|
|
(1,624 |
) |
|
|
290,569 |
|
|
|
|
261,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
13,091 |
|
|
|
|
12,213 |
|
|
|
16,466 |
|
|
|
|
14,964 |
|
|
|
2,841 |
|
|
|
|
1,623 |
|
|
|
32,398 |
|
|
|
|
28,800 |
|
SG&A |
|
|
13,772 |
|
|
|
|
14,521 |
|
|
|
9,689 |
|
|
|
|
8,182 |
|
|
|
1,916 |
|
|
|
|
1,073 |
|
|
|
25,377 |
|
|
|
|
23,776 |
|
Shutdown and restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(856 |
) |
|
|
|
(63 |
) |
|
|
(856 |
) |
|
|
|
(63 |
) |
Gains on dispositions of plant,
equipment and timberlands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
(5,693 |
) |
|
|
16 |
|
|
|
|
(5,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
(681 |
) |
|
|
|
(2,308 |
) |
|
|
6,777 |
|
|
|
|
6,782 |
|
|
|
1,765 |
|
|
|
|
6,306 |
|
|
|
7,861 |
|
|
|
|
10,780 |
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,367 |
) |
|
|
|
(6,940 |
) |
|
|
(4,367 |
) |
|
|
|
(6,940 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
(681 |
) |
|
|
$ |
(2,308 |
) |
|
$ |
6,777 |
|
|
|
$ |
6,782 |
|
|
$ |
(2,602 |
) |
|
|
$ |
(634 |
) |
|
$ |
3,494 |
|
|
|
$ |
3,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
182,700 |
|
|
|
|
183,344 |
|
|
|
22,356 |
|
|
|
|
18,118 |
|
|
|
|
|
|
|
|
|
|
|
|
205,056 |
|
|
|
|
201,462 |
|
Depreciation, depletion and
amortization expense |
|
$ |
8,980 |
|
|
|
$ |
8,881 |
|
|
$ |
6,968 |
|
|
|
$ |
5,250 |
|
|
|
|
|
|
|
|
|
|
|
$ |
15,948 |
|
|
|
$ |
14,131 |
|
|
GLATFELTER
-23-
The following table summarizes sales and costs of products sold for the three months ended
June 30, 2008 and 2007.
Sales and Costs of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
June 30 |
|
|
In thousands |
|
2008 |
|
|
2007 |
|
Change |
|
|
|
|
|
|
Net sales |
|
$ |
320,224 |
|
|
|
$ |
288,091 |
|
|
$ |
32,133 |
|
Energy sales net |
|
|
2,743 |
|
|
|
|
2,424 |
|
|
|
319 |
|
|
|
|
|
|
|
Total revenues |
|
|
322,967 |
|
|
|
|
290,515 |
|
|
|
32,452 |
|
Costs of products sold |
|
|
290,569 |
|
|
|
|
261,715 |
|
|
|
28,854 |
|
|
|
|
|
|
|
Gross profit |
|
$ |
32,398 |
|
|
|
$ |
28,800 |
|
|
$ |
3,598 |
|
|
|
|
|
|
|
Gross profit as a percent of Net
sales |
|
|
10.1 |
% |
|
|
|
10.0 |
% |
|
|
|
|
|
The following table sets forth the contribution to consolidated net sales by each business
unit:
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Total |
|
|
2008 |
|
|
2007 |
|
|
|
|
Business Unit |
|
|
|
|
|
|
|
|
|
Specialty Papers |
|
|
64.7 |
% |
|
|
|
70.3 |
% |
Composite Fibers |
|
|
35.3 |
|
|
|
|
29.7 |
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
|
100.0 |
% |
|
|
|
|
Net sales totaled $320.2 million for the second quarter of 2008, an increase of $32.1 million,
or approximately 11.1%, compared to the same period a year ago.
In the Specialty Papers business unit, net sales for the second quarter of 2008 increased $4.7
million to $207.3 million and the unit had an operating loss of $0.7 million, an improvement of
$1.6 million over the previous year. Higher average selling prices contributed $9.0 million of the
increase in net sales and volumes shipped were essentially unchanged, although the mix of products
was slightly unfavorable primarily due to the expected and continued decline in carbonless and
forms markets. Operating income was adversely impacted by higher production costs primarily due to
higher raw material prices that increased by $11.6 million largely driven by pulp and energy.
During the second quarters of 2008 and 2007, we completed the annually scheduled maintenance
outages at its Spring Grove, PA and Chillicothe, OH facilities. These required outages result in
increased maintenance spending and reduced production leading to unfavorable manufacturing costs
and lower product sales negatively affecting our second quarter results when compared to other
quarters. The maintenance outages adversely impacted gross profit by approximately $15.6 million in
the second quarter of 2008, compared to $15.3 million in the same quarter a year ago. During the
second quarter, we also incurred $0.4 million in severance costs as we continued to reduce the cost
structure at our Chillicothe facility.
Net sales in the Composite Fibers business unit increased $27.4 million, or 32.1% to $112.9
million for the 2008 second quarter, largely due to the November 2007 Caerphilly acquisition and
the impact of foreign currency translation. Despite the loss of production and sales volume
associated with the rebuild of a paper machine in Gernsbach Germany, operating income was in line
with the second quarter of 2007 at $6.8 million. On a constant currency basis, higher average
selling prices contributed $3.0 million to operating income and volumes increased approximately
23.4%. The higher volumes were primarily due to shipments of metalized paper from Caerphilly
(acquired in November 2007), and, to a lesser extent, greater shipments of composite laminates and
food and beverage products. The cost of raw materials, primarily pulps and energy, was $4.9 million
higher than a year ago. As expected, Caerphilly was slightly dilutive to second quarter 2008
earnings and as previously announced, the Company continues to expect Caerphilly to be neutral to
earnings for 2008 and slightly accretive in 2009. During the second quarter of 2008, the Company
completed the previously announced upgrade of a paper machine at the Gernsbach facility. Lost
production time during the upgrade period adversely impacted operating income by approximately $0.3
million. In addition, cost of goods sold in the second quarter of 2008 includes $0.7 million of
accelerated depreciation to write-off the book value of the paper machine components that were
replaced during the upgraded.
Non-Cash Pension Income Non-cash pension income results from the over-funded status of our
pension plans. The amount of pension income recognized each year is determined using various
actuarial assumptions and certain other factors, including the fair value of our pension assets as
of the beginning of the year. The following summarizes non-cash pension income for each of the
second quarters of 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
June 30 |
|
|
In thousands |
|
2008 |
|
|
2007 |
|
Change |
|
|
|
|
|
|
Recorded as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold |
|
$ |
2,925 |
|
|
|
$ |
2,190 |
|
|
$ |
735 |
|
SG&A expense |
|
|
1,271 |
|
|
|
|
718 |
|
|
|
553 |
|
|
|
|
|
|
|
Total |
|
$ |
4,196 |
|
|
|
$ |
2,908 |
|
|
$ |
1,288 |
|
|
Selling, general and administrative (SG&A) expenses increased by $1.6 million in the
quarter-to-quarter comparison and totaled $25.4 million in the second quarter of 2008. The increase
was due to higher performance-based incentive compensation expenses, the effect of foreign currency
translation adjustments and the inclusion of Caerphillys results in 2008.
GLATFELTER
-24-
Income taxes During the second quarter of 2008, our effective tax rate was 9.7% compared to
48.0% in the same period of 2007. The decrease was primarily due to the significant amount of land
sales in the second quarter of 2007 which are subject to higher tax
rates, tax benefits recorded upon the filing of an
international subsidiarys tax return, and the reversal of a tax
reserve in a foreign jurisdiction where the statute expired.
Foreign Currency During the second quarter of 2008, Euro functional currency operations
generated approximately 21.8 % of our sales and 20.1 % of operating expenses and British Pound
Sterling operations represented 10.9 % of net sales and 10.9 % of operating expenses. The
translation of the results from these international operations into U.S. dollars is subject to
changes in foreign currency exchange rates.
The table below summarizes the effect from foreign currency translation on second quarter 2008
reported results compared to second quarter 2007:
|
|
|
|
|
In thousands |
|
Three Months Ended |
|
|
|
Favorable |
|
|
|
(unfavorable) |
|
Net sales |
|
$ |
9,789 |
|
Costs of products sold |
|
|
(7,713 |
) |
SG&A expenses |
|
|
(714 |
) |
Income taxes and other |
|
|
(166 |
) |
|
|
|
|
Net income |
|
$ |
1,196 |
|
|
The above table only presents the financial reporting impact of foreign currency translations.
It does not present the impact of certain competitive advantages or disadvantages of operating or
competing in multi-currency markets.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and requires expenditures for new or enhanced equipment, for
environmental compliance matters and to support our business strategy and research and development
efforts. The following table summarizes cash flow information for each of the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30 |
In thousands |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
$ |
29,833 |
|
|
|
$ |
21,985 |
|
Cash provided by (used for)
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
(3,047 |
) |
|
|
|
17,636 |
|
Investing activities |
|
|
(10,410 |
) |
|
|
|
(4,773 |
) |
Financing activities |
|
|
1,412 |
|
|
|
|
(22,604 |
) |
Effect of exchange rate changes on cash |
|
|
823 |
|
|
|
|
752 |
|
|
|
|
|
|
|
Net cash used |
|
|
(11,222 |
) |
|
|
|
(8,989 |
) |
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
18,611 |
|
|
|
$ |
12,996 |
|
|
Cash used in operating activities increased $20.7 million in the comparison as the benefits of
improved results of operations were more than offset by increased accounts receivables, the use of
$9.4 million of cash to fund environmental matters and the payment of to $16.1 million of taxes in
2008 compared with a $1.6 million of tax refund in the same period of 2007.
The net change in investing cash flows primarily reflects $11.2 million increase in capital
expenditures during the period partially offset by a $5.5 million increase in proceeds from
timberland sales. For all of 2008, capital expenditures are expected to total $52 million to $57
million including a $10 million investment to upgrade the capabilities of one of our inclined-wire
paper machines in Germany during the second quarter of 2008.
We recently announced our intentions to invest $38 million in state-of-the-art inclined wire
and through air drying technology to upgrade another paper machine at our Gernsbach, Germany
facility. This investment is expected to be made in the second half of 2009 and will likely be
funded from existing cash balances and available borrowing capacity under our current credit
facility.
During the first six months of 2008 and 2007, cash dividends paid on common stock totaled
approximately $8.2 million in each period. 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.
Changes in cash flows from financing activity in the comparison resulted primarily from net
debt repayments in first six months of 2007 totaling $15.6 million, compared to net borrowings in
the current year totaling $9.0 million. During the first half of
2008, we completed a $36.7 million
borrowing collateralized with a promissory note received in connection with the fourth quarter of
2007 installment timberland sale.
GLATFELTER
-25-
The following table sets forth our outstanding long-term indebtedness:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December |
In thousands |
|
2008 |
|
|
31, 2007 |
|
|
|
|
Revolving credit facility, due April 2011 |
|
$ |
10,956 |
|
|
|
$ |
35,049 |
|
Term Loan, due April 2011 |
|
|
37,000 |
|
|
|
|
43,000 |
|
71/8% Notes, due May 2016 |
|
|
200,000 |
|
|
|
|
200,000 |
|
Term Loan, due January 2013 |
|
|
36,695 |
|
|
|
|
|
|
Note payable, due March 2013 |
|
|
34,000 |
|
|
|
|
34,000 |
|
|
|
|
|
|
|
Total long-term debt |
|
|
318,651 |
|
|
|
|
312,049 |
|
Less current portion |
|
|
(12,383 |
) |
|
|
|
(11,008 |
) |
|
|
|
|
|
|
Long-term debt, excluding current portion |
|
$ |
306,268 |
|
|
|
$ |
301,041 |
|
|
The significant terms of the debt obligations are set forth in Item 1Financial Statements and
Supplementary Data, Note 12.
We are subject to loss contingencies resulting from regulation by various federal, state,
local and foreign governmental authorities with respect to the environmental impact of mills we
operate, or have operated. To comply with environmental laws and regulations, we have incurred
substantial capital and operating expenditures in past years. We anticipate that environmental
regulation of our operations will continue to become more burdensome and that capital and operating
expenditures necessary to comply with environmental regulations will continue, and perhaps
increase, in the future. In addition, we may incur obligations to remove or mitigate any adverse
effects on the environment resulting from our operations, including the restoration of natural
resources and liability for personal injury and for damages to property and natural resources. See
Item 1 Financial Statements Note 14 for a summary of significant environmental matters.
We expect to meet all of our near- and longer-term cash needs from a combination of operating
cash flow, cash and cash equivalents, sales of timberland, our existing credit facility or other
bank lines of credit and other long-term debt. However, as discussed in Item 1 Financial
Statements Note 14, an unfavorable outcome of various environmental matters could have a material
adverse impact on our consolidated financial position, liquidity and/or results of operations.
Our credit agreement, as amended, contains a number of customary compliance covenants. In
addition, the 71/8% Notes contain a cross default provision that in the event of a default under the
credit agreement, the 71/8% Notes would become currently due. As of June 30, 2008, we met all of the
requirements of our debt covenants.
Off-Balance-Sheet Arrangements As of June 30, 2008 and December 31, 2007, we had not entered
into any off-balance-sheet arrangements. Financial derivative instruments to which we are a party
and guarantees of indebtedness, which solely consist of obligations of subsidiaries and a
partnership, are reflected in the condensed consolidated balance sheets included herein in Item 1
Financial Statements.
Outlook For the second half of 2008, we expect average selling prices to increase across all
product lines in the Specialty Papers business unit. However, the rate of increase in this units
input costs is expected to outpace the benefits from higher selling prices. Further, we expect cost
reduction initiatives to mitigate the adverse effects of the rate of increases in input costs
compared to increases in selling prices. Volumes shipped in the Specialty Papers business unit
during the second half of 2008 are expected to be in line with the
same period of 2007.
In the Composite Fibers business unit, higher average selling prices coupled with continuous
improvement initiatives are expected to more than offset rising input costs. Volumes shipped in this
unit during the second half of 2008 are expected to be higher than the same period of 2007
reflecting additional volumes attributable to the Caerphilly acquisition.
In connection with the previously announced $38 million investment to install state-of-the-art
inclined wire technology and through air drying on a paper machine, we expect to record accelerated
depreciation expense, of $0.7 million per quarter through the third quarter of 2009, associated
with the upgraded machine components.
We
also expect to record, in the second half of 2008, charges estimated to total $0.5 million to
$1.0 million associated with new or additional profit improvement initiatives at the Chillicothe facility.
GLATFELTER
-26-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
At June 30, 2008 |
Dollars in thousands |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Carrying Value |
|
Fair Value |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average principal outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At fixed interest rates Bond |
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
185,175 |
|
At fixed interest rate
SunTrust Note |
|
|
34,000 |
|
|
|
34,000 |
|
|
|
34,000 |
|
|
|
34,000 |
|
|
|
34,000 |
|
|
|
34,000 |
|
|
|
33,621 |
|
At variable interest rates |
|
|
81,900 |
|
|
|
72,268 |
|
|
|
58,509 |
|
|
|
42,055 |
|
|
|
36,695 |
|
|
|
84,651 |
|
|
|
84,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
318,651 |
|
|
$ |
303,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On fixed rate debt Bond |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
|
|
|
|
|
|
On fixed rate debt Note payable |
|
|
3.10 |
|
|
|
3.10 |
|
|
|
3.10 |
|
|
|
3.10 |
|
|
|
3.10 |
|
|
|
|
|
|
|
|
|
On variable rate debt |
|
|
4.47 |
|
|
|
4.62 |
|
|
|
4.92 |
|
|
|
5.20 |
|
|
|
5.31 |
|
|
|
|
|
|
|
|
|
|
Our market risk exposure primarily results from changes in interest rates and currency
exchange rates. At June 30, 2008, we had long-term debt outstanding of $318.7 million, of which
$84.7 million or 26.6 % was at variable interest rates.
The table above presents average principal outstanding and related interest rates for the next
five years. Fair values included herein have been determined based upon rates currently available
to us for debt with similar terms and remaining maturities.
Variable-rate debt outstanding represents borrowings under (i) credit facility that incur
interest based on the domestic prime rate or a Eurocurrency rate, at our option, plus a margin;
(ii) the term loan that matures in April 2011, under which we are required to make quarterly
repayments and (iii) the 2008 Term Loan that bears interest at a six-month reserve adjusted LIBOR
plus a margin rate of 1.2%per annum. At June 30, 2008, the weighted average interest rate paid on
variable rate debt was 4.47%. A hypothetical 100 basis point increase or decrease in the interest
rate on variable rate debt would increase or decrease annual interest expense by $0.9 million.
We are subject to certain risks associated with changes in foreign currency exchange rates to
the extent our operations are conducted in currencies other than the U.S. Dollar. During the first
six months of 2008, Euro functional currency operations generated approximately 21.5 % of our sales
and 20.1 % of operating expenses and British Pound Sterling operations represented 10.6 % of net
sales and 11.2 % of operating expenses.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures Our chief executive officer and our principal
financial officer, 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 June 30, 2008, have concluded that, as
of the evaluation date, our disclosure controls and procedures are effective.
Changes in Internal Controls There were no changes in our internal control over financial
reporting during the three months ended June 30, 2008, that have materially affected or are
reasonably likely to materially affect our internal control over financial reporting.
GLATFELTER
-27-
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
|
The Annual Meeting of holders of Glatfelter common stock was held on May 1, 2008. At this
meeting, shareholders voted on the following matters (with the indicated tabulated results). |
|
i. |
|
The election of two members of the Board of Directors to serve for full
three-year terms expiring in 2011. |
|
|
|
|
|
|
|
|
|
Director |
|
For |
|
Withheld |
|
Nicholas DeBenedictis |
|
|
24,426,131 |
|
|
|
16,736,576 |
|
J. Robert Hall |
|
|
37,745,500 |
|
|
|
3,417,207 |
|
|
ii. |
|
the amendment of the Companys By-laws to phase out the companys classified
Board structure. |
|
|
|
|
|
For |
|
Against |
|
Abstained |
|
40,807,843
|
|
300,680
|
|
54,182 |
|
iii. |
|
the ratification of the appointment of Deloitte & Touche LLP as the independent
registered public accounting firm for the Company for the fiscal year ending December
31, 2008. |
|
|
|
|
|
For |
|
Against |
|
Abstained |
38,594,819
|
|
2,533,458
|
|
34,430 |
ITEM 5. OTHER INFORMATION
On May 8, 2008, in conjunction with the Companys ongoing strategic initiative to monetize
the value of its timberlands, the Company, through a wholly-owned subsidiary, entered into an
agreement to sell 246 acres of timberland for $3.25 million in cash to George H. Glatfelter, its
Chairman and Chief Executive Officer, and his wife Beverly G. Glatfelter (the Glatfelters),
subject to closing conditions customary with transactions of this nature. The 246 acres of
timberland which was subject to the agreement with the Glatfelters, had been independently
appraised and marketed for public sale by the Company. Based on those
appraisals and the marketing
process that was pursued, the Company and its Board of Directors believe that the sale price
agreed to with the Glatfelters constitutes fair market value for the timberland. The sale of this
timberland closed on August 8, 2008.
In accordance with the Companys Corporate Governance standards, the proposed sale
transaction with the Glatfelters was reviewed and pre-approved by the Nominating and Corporate
Governance Committee of the Companys Board of Directors as a related party transaction.
A copy of the land sale agreement is filed with this Quarterly Report on Form 10-Q as
Exhibit 10.2.
GLATFELTER
-28-
ITEM 6. EXHIBITS
The following exhibits are filed herewith or incorporated by reference as indicated.
|
|
|
10.1
|
|
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), incorporated by
reference to the Companys Current Report on Form 8-K, dated June 30,
2008. |
10.2
|
|
Contract for Sale for Sale of Real Estate between Glatfelter Pulp
Wood Company, a wholly owned subsidiary of the Company, and George H.
Glatfelter II and Beverly G. Glatfelter, dated May 8, 2008, filed
herewith. |
31.1
|
|
Certification of George H. Glatfelter II, Chairman and Chief
Executive Officer of Glatfelter, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
31.2
|
|
Certification of John P. Jacunski, Senior Vice President and Chief
Financial Officer of Glatfelter, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
32.1
|
|
Certification of George H. Glatfelter II, Chairman and Chief
Executive Officer of Glatfelter, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
32.2
|
|
Certification of John P. Jacunski, Senior Vice President and Chief
Financial Officer of Glatfelter, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
SIGNATURES
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.
|
|
|
|
|
|
|
|
|
P. H. GLATFELTER COMPANY |
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
August 11, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
|
|
/s/ David C. Elder |
|
|
|
|
|
|
|
|
|
|
|
|
|
David C. Elder |
|
|
|
|
|
|
Corporate Controller |
|
|
GLATFELTER
-29-
|
|
|
Exhibit Number |
|
Description |
10.1
|
|
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), incorporated
by reference to the Companys Current Report on Form 8-K,
dated June 30, 2008. |
10.2
|
|
Contract for Sale for Sale of Real Estate between
Glatfelter Pulp Wood Company, a wholly owned subsidiary of
the Company, and George H. Glatfelter II and Beverly G.
Glatfelter, dated May 8, 2008, filed herewith. |
31.1
|
|
Certification of George H. Glatfelter II, Chairman and
Chief Executive Officer of Glatfelter, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350 Chief Executive Officer, filed herewith. |
31.2
|
|
Certification of John P. Jacunski, Senior Vice President
and Chief Financial Officer of Glatfelter, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 Chief
Financial Officer, filed herewith. |
32.1
|
|
Certification of George H. Glatfelter II, Chairman and
Chief Executive Officer of Glatfelter, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 Chief Executive
Officer, filed herewith. |
32.2
|
|
Certification of John P. Jacunski, Senior Vice President
and Chief Financial Officer of Glatfelter, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350 Chief Financial Officer, filed herewith. |
GLATFELTER
-30-