Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x |
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2012
or
¨ |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
96 South George Street, Suite 520
York, Pennsylvania 17401
(Address of principal executive offices)
(717) 225-4711
(Registrants telephone number, including area code)
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Commission file
number |
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Exact name of registrant as specified in its
charter |
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IRS Employer
Identification No. |
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State or other jurisdiction of incorporation or
organization |
1-03560 |
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P. H. Glatfelter Company |
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23-0628360 |
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Pennsylvania |
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 the past 90 days. Yes
x No ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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¨ |
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Accelerated filer |
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x |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Small 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 x .
Common Stock outstanding on October 26, 2012 totaled 42,855,288 shares.
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
REPORT ON FORM 10-Q
For the QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2012
Table of Contents
PART I
Item
1 Financial Statements
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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Three months ended September 30 |
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Nine months ended September 30 |
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In thousands, except per share |
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2012 |
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2011 |
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2012 |
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2011 |
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Net sales |
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$ |
404,354 |
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$ |
416,493 |
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$ |
1,186,399 |
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$ |
1,211,249 |
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Energy and related sales, net |
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1,867 |
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2,840 |
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5,358 |
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7,887 |
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Total revenues |
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406,221 |
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419,333 |
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1,191,757 |
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1,219,136 |
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Costs of products sold |
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347,029 |
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364,417 |
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1,030,717 |
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1,066,553 |
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Gross profit |
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59,192 |
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54,916 |
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161,040 |
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152,583 |
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Selling, general and administrative expenses |
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29,380 |
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31,430 |
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89,460 |
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94,520 |
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Gains on dispositions of plant, equipment and timberlands, net |
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(1,473 |
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(698 |
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(8,471 |
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(3,902 |
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Operating income |
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31,285 |
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24,184 |
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80,051 |
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61,965 |
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Non-operating income (expense) |
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Interest expense |
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(4,152 |
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(6,456 |
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(12,580 |
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(19,377 |
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Interest income |
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106 |
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134 |
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332 |
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491 |
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Other, net |
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(4 |
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(137 |
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295 |
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(405 |
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Total other income (expense) |
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(4,050 |
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(6,459 |
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(11,953 |
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(19,291 |
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Income before income taxes |
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27,235 |
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17,725 |
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68,098 |
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42,674 |
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Income tax provision |
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7,136 |
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4,699 |
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15,689 |
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9,721 |
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Net income |
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$ |
20,099 |
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$ |
13,026 |
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$ |
52,409 |
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$ |
32,953 |
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Earnings per share |
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Basic |
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$ |
0.47 |
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$ |
0.29 |
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$ |
1.22 |
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$ |
0.72 |
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Diluted |
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0.46 |
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0.28 |
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1.20 |
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0.71 |
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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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$ |
0.27 |
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$ |
0.27 |
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Weighted average shares outstanding |
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Basic |
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42,837 |
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45,299 |
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42,814 |
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45,813 |
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Diluted |
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43,667 |
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45,839 |
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43,595 |
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46,341 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
- 2 -
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
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Three months ended September 30 |
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Nine months ended September 30 |
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In thousands |
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2012 |
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2011 |
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2012 |
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2011 |
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Net income |
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$ |
20,099 |
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$ |
13,026 |
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$ |
52,409 |
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$ |
32,953 |
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Foreign currency translation adjustments |
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9,048 |
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(17,379 |
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4,473 |
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889 |
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Deferred gains (losses) on cash flow hedges, net of taxes of $196, $(267), $333, and $(273), respectively |
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(495 |
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668 |
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(836 |
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684 |
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Amortization of unrecognized retirement obligations, net of taxes of $1,769, $1,535, $5,438, and $4,445,
respectively |
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3,013 |
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2,475 |
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8,961 |
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7,150 |
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Other comprehensive income (loss) |
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11,566 |
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(14,236 |
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12,598 |
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8,723 |
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Comprehensive income (loss) |
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$ |
31,665 |
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$ |
(1,210 |
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$ |
65,007 |
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$ |
41,676 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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In thousands |
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September 30 2012 |
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December 31 2011 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
28,322 |
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$ |
38,277 |
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Accounts receivable, net |
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161,861 |
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135,412 |
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Inventories |
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222,644 |
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206,707 |
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Prepaid expenses and other current assets |
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51,051 |
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42,017 |
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Total current assets |
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463,878 |
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422,413 |
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Plant, equipment and timberlands, net |
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606,644 |
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601,950 |
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Other assets |
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113,513 |
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112,562 |
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Total assets |
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$ |
1,184,035 |
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$ |
1,136,925 |
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Liabilities and Shareholders Equity |
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Current liabilities |
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Accounts payable |
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$ |
112,615 |
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$ |
109,490 |
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Dividends payable |
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3,912 |
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3,902 |
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Environmental liabilities |
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250 |
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250 |
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Other current liabilities |
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111,619 |
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97,598 |
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Total current liabilities |
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228,396 |
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211,240 |
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Long-term debt |
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219,000 |
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227,000 |
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Deferred income taxes |
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65,991 |
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69,791 |
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Other long-term liabilities |
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124,731 |
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138,490 |
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Total liabilities |
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638,118 |
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646,521 |
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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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50,936 |
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51,477 |
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Retained earnings |
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816,529 |
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775,825 |
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Accumulated other comprehensive loss |
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(154,143 |
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(166,741 |
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713,866 |
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661,105 |
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Less cost of common stock in treasury |
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(167,949 |
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(170,701 |
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Total shareholders equity |
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545,917 |
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490,404 |
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Total liabilities and shareholders equity |
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$ |
1,184,035 |
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$ |
1,136,925 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Nine months ended September 30 |
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In thousands |
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2012 |
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2011 |
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Operating activities |
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Net income |
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$ |
52,409 |
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$ |
32,953 |
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Adjustments to reconcile to net cash provided by operations: |
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Depreciation, depletion and amortization |
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51,123 |
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51,779 |
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Amortization of debt issue costs and original issue discount |
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913 |
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2,001 |
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Pension expense, net of unfunded benefits paid |
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7,711 |
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7,671 |
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Deferred income tax provision (benefit) |
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(10,872 |
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13,111 |
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Gains on dispositions of plant, equipment and timberlands, net |
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(8,471 |
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(3,902 |
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Share-based compensation |
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5,004 |
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4,301 |
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Change in operating assets and liabilities |
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Accounts receivable |
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(25,963 |
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(16,292 |
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Inventories |
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(14,160 |
) |
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(7,136 |
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Prepaid and other current assets |
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(4,389 |
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(9,654 |
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Accounts payable |
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3,029 |
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4,932 |
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Environmental matters |
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(92 |
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Accruals and other current liabilities |
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14,510 |
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(7,630 |
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Cellulosic biofuel and alternative fuel mixture credits |
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(9,387 |
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17,833 |
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Other |
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(12,900 |
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(8,831 |
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Net cash provided by operating activities |
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48,465 |
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81,136 |
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Investing activities |
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Expenditures for purchases of plant, equipment and timberlands |
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(45,027 |
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(44,642 |
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Proceeds from disposals of plant, equipment and timberlands, net |
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8,875 |
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4,442 |
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Other |
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(150 |
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Net cash used by investing activities |
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(36,302 |
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(40,200 |
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Financing activities |
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Net repayments of revolving credit facility |
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(8,000 |
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Payments of note offering costs |
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(102 |
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Net repayments of other short term debt |
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(798 |
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Repurchases of common stock |
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(4,060 |
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(26,251 |
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Payments of dividends |
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(11,696 |
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(12,578 |
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Proceeds from stock options exercised and other |
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1,461 |
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132 |
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Net cash used by financing activities |
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(22,397 |
) |
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(39,495 |
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Effect of exchange rate changes on cash |
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279 |
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1,022 |
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Net (decrease) increase in cash and cash equivalents |
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(9,955 |
) |
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2,463 |
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Cash and cash equivalents at the beginning of period |
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38,277 |
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95,788 |
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Cash and cash equivalents at the end of period |
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$ |
28,322 |
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$ |
98,251 |
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Supplemental cash flow information |
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Cash paid (received) for: |
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Interest, net of amounts capitalized |
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$ |
7,873 |
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$ |
11,818 |
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Income taxes |
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26,097 |
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(9,447 |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
- 5 -
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
P. H. Glatfelter Company and subsidiaries (Glatfelter) is a manufacturer of specialty papers and
fiber-based engineered materials. Headquartered in York, Pennsylvania, our manufacturing facilities are located in Spring Grove, Pennsylvania; Chillicothe and Freemont, Ohio; Gatineau, Quebec, Canada; Gloucestershire (Lydney), England; Caerphilly,
Wales; Gernsbach and Falkenhagen, Germany; Scaër, France; and the Philippines. Our products are marketed worldwide, either through wholesale merchants, brokers and agents or directly to customers.
Basis of Presentation The unaudited condensed
consolidated financial statements (financial statements) include the accounts of Glatfelter and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America
(generally accepted accounting principles or GAAP). In our opinion, the financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these
financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2011 Annual Report on Form 10-K (2011 Form 10-K).
Accounting Estimates The preparation of financial statements in conformity with GAAP
requires us 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. We
believe the estimates and assumptions used in the preparation of these financial statements are reasonable, based upon currently available facts and known circumstances, but recognize that actual results may differ from those estimates and
assumptions.
Recently Issued Accounting Pronouncements In June 2011, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, Presentation of Comprehensive Income. This ASU is designed to improve the comparability and
transparency of other comprehensive income components. The guidance provides an option to present total comprehensive income, the components of net income and the components of other comprehensive income in a single continuous statement or two
separate but consecutive statements. This ASU eliminates the option to present other comprehensive income components as part of the statement of changes in shareholders equity. The provisions of this ASU are required to be applied
retrospectively. We have adopted this standard by presenting a separate consecutive statement of comprehensive income beginning in the first quarter of 2012.
In September 2011, the FASB updated ASC 350, Intangibles - Goodwill and Other to provide an entity the option, when evaluating goodwill and other assets for possible impairment, to first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after completing this
assessment, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. This update became effective for us beginning
January 1, 2012. We adopted this standard in the third quarter of 2012 and it did not have a material impact on us.
In
May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which provides common requirements for
measuring fair value and disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards. We adopted this standard in the first quarter of 2012 and it did not have a material impact
on us.
- 6 -
3. |
GAINS ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS |
Sales of timberlands and other assets in the first nine months of 2012 and 2011 are summarized in the following
table:
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Dollars in thousands |
|
Acres |
|
|
Proceeds |
|
|
Gain |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
4,324 |
|
|
$ |
8,105 |
|
|
$ |
7,867 |
|
Other |
|
|
n/a |
|
|
|
770 |
|
|
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,875 |
|
|
$ |
8,471 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
942 |
|
|
$ |
3,821 |
|
|
$ |
3,575 |
|
Other |
|
|
n/a |
|
|
|
621 |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,442 |
|
|
$ |
3,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We received cash proceeds for all sales summarized above.
The following tables set forth the details of basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
September 30 |
|
In thousands, except per share |
|
2012 |
|
|
2011 |
|
Net income |
|
$ |
20,099 |
|
|
$ |
13,026 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in basic EPS |
|
|
42,837 |
|
|
|
45,299 |
|
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs |
|
|
830 |
|
|
|
540 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and common share equivalents used in diluted EPS |
|
|
43,667 |
|
|
|
45,839 |
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.47 |
|
|
$ |
0.29 |
|
Diluted |
|
|
0.46 |
|
|
|
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
September 30 |
|
In thousands, except per share |
|
2012 |
|
|
2011 |
|
Net income |
|
$ |
52,409 |
|
|
$ |
32,953 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in basic EPS |
|
|
42,814 |
|
|
|
45,813 |
|
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs |
|
|
781 |
|
|
|
528 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and common share equivalents used in diluted EPS |
|
|
43,595 |
|
|
|
46,341 |
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.22 |
|
|
$ |
0.72 |
|
Diluted |
|
|
1.20 |
|
|
|
0.71 |
|
The following table sets forth potential common shares outstanding for stock options and restricted stock units that
were not included in the computation of diluted EPS for the period indicated, because their effect would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
Three months ended September 30 |
|
|
7,544 |
|
|
|
613,900 |
|
Nine months ended September 30 |
|
|
158,444 |
|
|
|
1,090,621 |
|
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.
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, by major jurisdiction, tax years that remain subject to examination:
|
|
|
|
|
|
|
Open Tax Years |
Jurisdiction |
|
Examinations not yet initiated |
|
Examination in progress |
United States |
|
|
|
|
Federal |
|
2009 - 2011 |
|
N/A |
State |
|
2005 - 2011 |
|
2004, 2006, 2008, 2009 |
Canada (1) |
|
2007 - 2011 |
|
2007 - 2010 |
Germany (1) |
|
2007 - 2011 |
|
2008 - 2010 |
France |
|
2009 - 2011 |
|
N/A |
United Kingdom |
|
2008 - 2011 |
|
N/A |
Philippines |
|
2010 - 2011 |
|
2009 - 2010 |
(1) |
includes provincial or similar local jurisdictions, as applicable
|
- 7 -
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.
As of
September 30, 2012 and December 31, 2011, we had $29.9 million and $29.7 million, respectively, of gross unrecognized tax benefits. As of September 30, 2012, if such benefits were to be recognized, approximately $29.9 million would be
recorded as a component of income tax expense, thereby affecting our effective tax rate.
Due to potential for resolution of
federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of zero to $15.4 million.
Substantially all of this range relates to tax positions taken in the U.S. and in the U.K.
We recognize interest and
penalties related to uncertain tax positions as income tax expense. During the first nine months of 2012 and the third quarter of 2012, we recognized a net reduction of interest expense of $0.3 million and $0.7 million respectively. For the first
nine months of 2011, we recognized a net reduction of interest expense of $1.8 million. For the third quarter of 2011, we recognized interest expense of $0.2 million. As of September 30, 2012 and December 31, 2011, accrued interest payable
was $1.4 million and $1.7 million, respectively. We did not record any penalties associated with uncertain tax positions during the third quarters of 2012 or 2011.
In March 2010, we were approved by the Internal Revenue Service to be registered as a producer of cellulosic biofuel under the Internal Revenue Code. The cellulosic biofuel credit was equal to $1.01 per
gallon of black liquor produced in operations during 2009. In the second quarter of 2012, we made the decision to convert a portion of the previously utilized refundable alternative fuel mixture credit, which was equal to $0.50 per gallon, to the
non-refundable cellulosic biofuel credit. The conversion to the cellulosic biofuel credit resulted in a net benefit for income taxes in the second quarter of 2012 of $4.4 million. In the third quarter of 2012, we amended our 2009 federal income tax
return to claim a credit for a portion of the converted credits. This required us to return to the Internal Revenue Service $16.8 million during the third quarter of 2012, net of credits used to reduce estimated tax payments. The amount of
cellulosic biofuel credits recognized is based on numerous assumptions and estimates about
future taxable income. Although we believe our assumptions to be reasonable, actual results may differ from these assumptions and estimates and such differences may have a significant impact on
the amount of credits recognized. In addition, while we do not intend to convert additional credits, if facts and circumstances change, we could further amend our 2009 tax return and convert additional credits.
6. |
STOCK-BASED COMPENSATION |
The P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the LTIP) provides for the issuance
of up to 5,500,000 shares of Glatfelter common stock to eligible participants in the form of restricted stock units, restricted stock awards, stock appreciation rights, non-qualified stock options, performance share awards, incentive stock options
and performance units.
Restricted Stock Units (RSUs) and Performance Share Awards (PSAs)
Awards of RSUs and PSAs are made under our LTIP. The RSUs vest based solely on the passage of time, generally on a graded scale over a three, four, and five-year period. PSAs were first issued in March 2011 and cliff vest three years from the
grant date assuming the achievement of predetermined, three-year cumulative performance targets. The performance measures include a minimum, target and maximum performance level providing the grantees an opportunity to receive more or less shares
than target depending on actual financial performance. For both RSUs and PSAs, the grant date fair value of the awards is used to determine the amount of expense to be recognized over the applicable service period. Settlement of RSUs and PSAs will
be made in shares of our common stock.
The following table summarizes RSU and PSA activity during the first nine months of
the indicated periods:
|
|
|
|
|
|
|
|
|
Units |
|
2012 |
|
|
2011 |
|
Beginning balance |
|
|
788,088 |
|
|
|
579,801 |
|
Granted |
|
|
207,728 |
|
|
|
245,454 |
|
Forfeited |
|
|
(29,825 |
) |
|
|
(12,539 |
) |
Shares delivered |
|
|
(95,430 |
) |
|
|
(14,490 |
) |
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
870,561 |
|
|
|
798,226 |
|
|
|
|
|
|
|
|
|
|
The amount granted in 2012 and 2011 includes PSAs of 161,083 units and 96,410 units, respectively, exclusive of reinvested dividends.
The following table sets forth aggregate RSU and PSA compensation expense for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
Three months ended |
|
$ |
680 |
|
|
$ |
534 |
|
Nine months ended |
|
|
1,959 |
|
|
|
1,541 |
|
- 8 -
Stock Only Stock Appreciation Rights (SOSARs) Under terms of the
SOSAR, the recipients receive the right to 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
vest ratably over a three year period and have a term of ten years.
The following table sets forth information related to
SOSARS for the first nine months of the indicated period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
SOSARS |
|
Shares |
|
|
Wtd Avg Exercise Price |
|
|
Shares |
|
|
Wtd Avg Exercise Price |
|
Outstanding at Jan. 1, |
|
|
2,298,288 |
|
|
$ |
12.35 |
|
|
|
2,061,877 |
|
|
$ |
12.28 |
|
Granted |
|
|
364,114 |
|
|
|
15.23 |
|
|
|
345,290 |
|
|
|
12.56 |
|
Exercised |
|
|
(500,074 |
) |
|
|
12.06 |
|
|
|
|
|
|
|
|
|
Canceled / forfeited |
|
|
(12,000 |
) |
|
|
14.96 |
|
|
|
(102,970 |
) |
|
|
12.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at Sept. 30, |
|
|
2,150,328 |
|
|
$ |
12.94 |
|
|
|
2,304,197 |
|
|
$ |
12.31 |
|
|
|
|
|
|
SOSAR Grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value per share |
|
$ |
4.94 |
|
|
|
|
|
|
$ |
4.09 |
|
|
|
|
|
Aggregate grant date fair value (in thousands) |
|
$ |
1,797 |
|
|
|
|
|
|
$ |
1,412 |
|
|
|
|
|
Black-Scholes assumptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
|
2.31 |
% |
|
|
|
|
|
|
2.87 |
% |
|
|
|
|
Risk free rate of return |
|
|
1.02 |
% |
|
|
|
|
|
|
2.55 |
% |
|
|
|
|
Volatility |
|
|
41.48 |
% |
|
|
|
|
|
|
41.91 |
% |
|
|
|
|
Expected life |
|
|
6 yrs |
|
|
|
|
|
|
|
6 yrs |
|
|
|
|
|
The following table sets forth SOSAR compensation expense for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
Three months ended |
|
$ |
369 |
|
|
$ |
357 |
|
Nine months ended |
|
|
1,095 |
|
|
|
1,237 |
|
7. |
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 |
|
|
September 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
Pension Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
2,778 |
|
|
$ |
2,492 |
|
Interest cost |
|
|
5,770 |
|
|
|
6,109 |
|
Expected return on plan assets |
|
|
(10,541 |
) |
|
|
(10,454 |
) |
Amortization of prior service cost |
|
|
614 |
|
|
|
642 |
|
Amortization of unrecognized loss |
|
|
4,255 |
|
|
|
3,313 |
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
2,876 |
|
|
|
2,102 |
|
One-time settlement charge |
|
|
|
|
|
|
1,987 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2,876 |
|
|
$ |
4,089 |
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
709 |
|
|
$ |
726 |
|
Interest cost |
|
|
608 |
|
|
|
704 |
|
Expected return on plan assets |
|
|
(113 |
) |
|
|
(130 |
) |
Amortization of prior service cost |
|
|
(234 |
) |
|
|
(305 |
) |
Amortization of unrecognized loss |
|
|
165 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1,135 |
|
|
$ |
1,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
September 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
Pension Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
8,334 |
|
|
$ |
7,435 |
|
Interest cost |
|
|
17,304 |
|
|
|
18,206 |
|
Expected return on plan assets |
|
|
(31,651 |
) |
|
|
(31,368 |
) |
Amortization of prior service cost |
|
|
1,841 |
|
|
|
1,925 |
|
Amortization of unrecognized loss |
|
|
12,765 |
|
|
|
9,939 |
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
8,593 |
|
|
|
6,137 |
|
One-time settlement charge |
|
|
|
|
|
|
1,987 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
8,593 |
|
|
$ |
8,124 |
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
2,127 |
|
|
$ |
2,179 |
|
Interest cost |
|
|
1,824 |
|
|
|
2,112 |
|
Expected return on plan assets |
|
|
(339 |
) |
|
|
(390 |
) |
Amortization of prior service cost |
|
|
(703 |
) |
|
|
(916 |
) |
Amortization of unrecognized loss |
|
|
496 |
|
|
|
661 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
3,405 |
|
|
$ |
3,646 |
|
|
|
|
|
|
|
|
|
|
- 9 -
In the third quarter of 2011, we recognized a $2.0 million, one-time pension settlement
charge in connection with the retirement of our former chief executive officer at the end of 2010 and the lump-sum distribution of accrued pension benefits paid to him in July 2011.
Inventories, net of reserves, were as follows:
|
|
|
|
|
|
|
|
|
In thousands |
|
Sept. 30, 2012 |
|
|
Dec. 31, 2011 |
|
Raw materials |
|
$ |
63,816 |
|
|
$ |
57,547 |
|
In-process and finished |
|
|
100,771 |
|
|
|
93,096 |
|
Supplies |
|
|
58,057 |
|
|
|
56,064 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
222,644 |
|
|
$ |
206,707 |
|
|
|
|
|
|
|
|
|
|
Long-term debt is summarized as follows:
|
|
|
|
|
|
|
|
|
In thousands |
|
Sept. 30, 2012 |
|
|
Dec. 31, 2011 |
|
Revolving credit facility, due Nov. 2016 |
|
$ |
19,000 |
|
|
$ |
27,000 |
|
7.125% Notes, due May 2016 |
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
219,000 |
|
|
|
227,000 |
|
Less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
$ |
219,000 |
|
|
$ |
227,000 |
|
|
|
|
|
|
|
|
|
|
On November 21, 2011, we entered into an amendment to our revolving credit agreement with a consortium of banks
(the Revolving Credit Facility) which increased the amount available for borrowing to $350 million, extended the maturity of the facility to November 21, 2016, and instituted a lower interest rate pricing grid.
For all U.S. dollar denominated borrowings under the Revolving Credit Facility, the borrowing rate is, at our option, (a) the
banks base rate which is equal to the greater of i) the prime rate; ii) the federal funds rate plus 50 basis points plus an applicable spread ranging from 25 basis points to 125 basis points based on our corporate credit ratings determined by
Standard & Poors Rating Services and Moodys Investor Service, Inc. (the Corporate Credit Rating); or iii) the daily Euro-rate plus 100 basis points; or (b) the daily Euro-rate plus an applicable margin ranging
from 125 basis points to 225 basis points based on the Corporate Credit Rating. For non-US dollar denominated borrowings, interest is based on (b) above.
The Revolving Credit Facility contains a number of customary covenants for financings of
this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, limits certain intercompany financing arrangements, make acquisitions and engage in mergers or
consolidations. We are also required to comply with specified financial tests and ratios including: i) maximum net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio; ii) a consolidated EBITDA to
interest expense ratio; and iii) beginning December 31, 2015, a minimum liquidity ratio. A breach of these requirements would give rise to certain remedies under the Revolving Credit Facility, among which are the termination of the agreement
and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility.
On April 28, 2006 we completed an offering of $200.0 million aggregate principal amount of our 7.125% Senior Notes due May 2016 (7.125% Notes). Net proceeds from this offering totaled
approximately $196.4 million, after deducting the commissions and other fees and expenses relating to the offering.
Interest on the 7.125% Notes is payable semiannually in arrears on May 1 and November 1.
The 7.125% Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the Revolving Credit Agreement at
maturity or a default under the Revolving Credit Agreement that accelerates the debt outstanding thereunder. As of September 30, 2012, we met all of the requirements of our debt covenants.
On October 3, 2012, we completed an offering of $250 million of 5.375% senior notes replacing the 7.125% Notes. See additional
information in Note 17 Subsequent Events.
As of September 30, 2012 and December 31, 2011, we had $5.2
million and $4.6 million, respectively, of letters of credit issued to us by certain financial institutions. The letters of credit, which reduce amounts available under our revolving credit facility, primarily provide financial assurances for the
benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. No amounts are
outstanding under the letters of credit.
- 10 -
10. |
ASSET RETIREMENT OBLIGATION |
During 2008, we recorded $11.5 million representing the estimated fair value of asset retirement obligations related
to the legal requirement to close several lagoons at the Spring Grove, PA facility. Historically, the lagoons were used to dispose of residual waste material. Closure of the lagoons will be accomplished by installing a non-permeable liner which will
be covered with soil to construct the required cap over the lagoons. The amount referred to above, in addition to upward revisions to the original estimate, was accrued with a corresponding increase in the carrying value of the property, equipment
and timberlands caption on the consolidated balance sheet. The amount capitalized is being amortized as a charge to operations on a straight-line basis over the expected closure period. Following is a summary of activity recorded during the first
nine months of 2012 and 2011:
|
|
|
|
|
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
Balance at Jan. 1, |
|
$ |
9,679 |
|
|
$ |
9,717 |
|
Accretion |
|
|
347 |
|
|
|
388 |
|
Payments |
|
|
(945 |
) |
|
|
(1,018 |
) |
|
|
|
|
|
|
|
|
|
Balance at Sept. 30, |
|
$ |
9,081 |
|
|
$ |
9,087 |
|
|
|
|
|
|
|
|
|
|
At September 30, 2012, $3.1 million of the total liability is recorded in the accompanying consolidated balance
sheet, under the caption Other current liabilities and $6.0 million is recorded under the caption Other long-term liabilities.
11. |
FAIR VALUE OF FINANCIAL INSTRUMENTS |
The amounts reported on the accompanying consolidated balance sheets for cash and cash equivalents, accounts
receivable and short-term debt approximate fair value. The following table sets forth carrying value and fair value of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012 |
|
|
December 31, 2011 |
|
In thousands |
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
Fixed-rate bonds |
|
$ |
200,000 |
|
|
$ |
204,750 |
|
|
$ |
200,000 |
|
|
$ |
204,000 |
|
Variable rate debt |
|
|
19,000 |
|
|
|
19,000 |
|
|
|
27,000 |
|
|
|
27,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
219,000 |
|
|
$ |
223,750 |
|
|
$ |
227,000 |
|
|
$ |
231,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2012, and December 31, 2011, we had $200.0 million of
7 1/8% fixed rate debt. These bonds are publicly registered, but thinly traded. Accordingly, the values set forth above are based on debt instruments with similar characteristics (Level 2). The fair
value of financial derivatives is set forth below in Note 12.
12. |
FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES |
As part of our overall risk management practices, we enter into financial derivatives primarily designed to either i)
hedge foreign currency risks associated with forecasted transactions cash flow hedges; or ii) mitigate the impact that changes in currency exchange rates have on intercompany financing transactions and foreign currency denominated
receivables and payables foreign currency hedges.
Derivatives Designated as Hedging Instruments - Cash
Flow Hedges We use currency forward contracts as cash flow hedges to manage our exposure to fluctuations in the currency exchange rates on certain forecasted production costs expected to be incurred over a maximum of twelve months. Currency
forward contracts involve fixing the EUR-USD exchange rate or USD-CAD for delivery of a specified amount of foreign currency on a specified date.
We designate certain currency forward contracts as cash flow hedges of forecasted raw material purchases and
certain other identified manufacturing cost with exposure to changes in foreign currency exchange rates. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk is
deferred as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets and is subsequently reclassified into cost of products sold in the period that inventory produced using the hedged transaction affects
earnings. The ineffective portion of the change in fair value of the derivative is recognized directly to earnings and reflected in the accompanying consolidated statement of income as non-operating income (expense) under the caption
Other-net.
We had the following outstanding derivatives designated as cash flow hedges:
|
|
|
|
|
|
|
|
|
In thousands |
|
Sept. 30, 2012 |
|
|
Dec. 31, 2011 |
|
Derivative |
|
Buy Notional |
|
Sell / Buy |
|
|
|
|
|
|
|
|
Euro / U.S. dollar |
|
|
26,994 |
|
|
|
22,730 |
|
U.S. dollar / Canadian dollar |
|
|
11,234 |
|
|
|
11,019 |
|
These contracts have maturities of twelve months or less.
Derivatives Not Designated as Hedging Instruments - Foreign Currency Hedges We also enter into forward foreign exchange
contracts to mitigate the impact changes in currency exchange rates have on balance sheet monetary assets and liabilities. None of these contracts
- 11 -
are designated as hedges for financial accounting purposes and, accordingly, changes in value of the foreign exchange forward contracts and in the offsetting underlying on-balance-sheet
transactions are reflected in the accompanying statement of operations under the caption Other net. We had the following foreign currency hedges:
|
|
|
|
|
|
|
|
|
In thousands |
|
Sept. 30, 2012 |
|
|
Dec. 31, 2011 |
|
Derivative |
|
Sell Notional |
|
Sell / Buy |
|
|
|
|
|
|
|
|
Euro / U.S. dollar |
|
|
18,000 |
|
|
|
25,500 |
|
Euro / British Pound |
|
|
4,000 |
|
|
|
|
|
U.S. dollar / Canadian dollar |
|
|
1,000 |
|
|
|
|
|
Philippine peso / U.S. dollar |
|
|
|
|
|
|
150,000 |
|
These contracts have maturities of one month from the date originally entered into.
Fair Value Measurements The following table sets forth the fair values of derivative instruments as of the periods
indicated and the line items in the accompanying consolidated balance sheet where the instruments are recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Sept. 30, 2012 |
|
|
Dec. 31, 2011 |
|
|
Sept. 30, 2012 |
|
|
Dec. 31, 2011 |
|
Balance sheet caption |
|
Prepaid and Other Current Assets |
|
|
Other Current Liabilities |
|
Designated as hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
|
$ |
398 |
|
|
$ |
1,520 |
|
|
$ |
104 |
|
|
|
|
|
Not designated as hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
|
$ |
6 |
|
|
$ |
338 |
|
|
$ |
99 |
|
|
$ |
15 |
|
The amounts set forth in the table above represent the net asset or liability with each counterparty giving effect to
rights of offset.
The following table summarizes the amount of income or loss from derivative instruments recognized in our
results of operations for the periods indicated and the line items in the accompanying consolidated income statement where the results are recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended Sept. 30 |
|
|
Nine months ended Sept. 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Designated as hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective portion cost of products sold |
|
$ |
715 |
|
|
$ |
26 |
|
|
$ |
1,832 |
|
|
$ |
26 |
|
Ineffective portion other net |
|
|
18 |
|
|
|
106 |
|
|
|
244 |
|
|
|
107 |
|
Not designated as hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net |
|
$ |
(684 |
) |
|
$ |
3,366 |
|
|
$ |
(290 |
) |
|
$ |
(2,476 |
) |
The impact on our results of operations of marking-to -market activity not designated as hedging was
substantially all offset by the remeasurement of the underlying on-balance sheet item.
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). The fair values of the foreign exchange forward contracts are considered to be Level 2. Foreign currency forward contracts are valued using foreign currency forward and interest rate curves. The fair value
of each contract is determined by comparing the contract rate to the forward rate and discounting to present value. Contracts in a gain position are recorded in the consolidated balance sheet under the caption Prepaid and other current
assets and the value of contracts in a loss position is recorded under the caption Other current liabilities.
A rollforward of fair value amounts recorded as a component of accumulated other comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
Balance at Jan. 1 |
|
$ |
1,649 |
|
|
$ |
|
|
Deferred gains on cash flow hedges |
|
|
663 |
|
|
|
975 |
|
Reclassified to earnings |
|
|
(1,832 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
Balance at Sept. 30 |
|
$ |
480 |
|
|
$ |
949 |
|
|
|
|
|
|
|
|
|
|
We expect substantially all of the amounts recorded as a component of accumulated other comprehensive income will be
realized in results of operations within the next twelve months and the amount will vary depending on market rates.
Credit
risk related to derivative activity arises in the event a counterparty fails to meet its obligations to us. This exposure is generally limited to the amounts, if any, by which the counterpartys obligations exceed our obligation to them. Our
policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings.
In May 2012, our Board of Directors authorized a new share repurchase program for up to $25.0 million of our
outstanding common stock, exclusive of commissions. The following table summarizes share repurchases under this program:
|
|
|
|
|
|
|
|
|
|
|
shares |
|
|
(thousands) |
|
Authorized amount |
|
|
n/a |
|
|
$ |
25,000 |
|
Repurchases |
|
|
187,975 |
|
|
|
(2,850 |
) |
|
|
|
|
|
|
|
|
|
Remaining authorization |
|
|
|
|
|
$ |
22,150 |
|
|
|
|
|
|
|
|
|
|
- 12 -
In April 2011, our Board of Directors authorized a share repurchase program for up to
$50.0 million of our outstanding common stock, exclusive of commissions, all of which has been used, including 82,533 shares at a cost of $1.2 million repurchased under this program in the first quarter of 2012.
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 our 1979 acquisition of the Bergstrom Paper Company, we acquired a facility located at
the Site (the Neenah Facility). The Neenah Facility used wastepaper as a source of fiber. Discharges to the lower Fox River from the Neenah Facility that may have contained PCBs from wastepaper may have occurred from 1954 to the late
1970s. We believe that any PCBs that the Neenah Facility may have 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 other entities (including local Native American tribes), have found PCBs in sediments in 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 (the OUs), including the most upstream (OU1) and four downstream reaches of the river and bay
(OU2-5). OU1 extends from primarily Lake Winnebago to the dam at Appleton, and is comprised of Little Lake Butte des Morts. The Neenah Facility discharged its wastewater into OU1.
Our liabilities, if any, for this contamination primarily arise under the federal Comprehensive Environmental, Response, Compensation
and Liability Act (CERCLA or Superfund), pursuant to which the Governments have sought to recover response actions or response costs, which are the costs of studying and
cleaning up contamination. Other agencies and natural resource trustee agencies (collectively, the Trustees) have sought to recover natural resource damages (NRDs),
including natural resource damage assessment costs.
We are one of eight entities that have been formally notified that they
are potentially responsible parties (PRPs) under CERCLA for response costs or NRDs. Others, including the United States and the State of Wisconsin, may also be liable for some or all of the costs of NRD at this Site.
The Governments have sought to recover response actions, response costs, and NRDs from us through three principal enforcement actions.
OU1 CD. On October 1, 2003, the United States and the State of Wisconsin commenced an action captioned
United States v. P. H. Glatfelter Co. against us and WTM I Company (WTM I) in the United States District Court for the Eastern District of Wisconsin and simultaneously lodged a consent decree (OU1 CD) that the court
entered on April 12, 2004. Under that OU1 CD, and an amendment dated August 2008, we and WTM I, with a limited fixed contribution from Menasha Corp. and funds provided by the United States from an agreement with others, have implemented the
remedy for OU1. We have also resolved claims for all Governmental response costs in OU1 after July 2003 and made a payment on NRDs. That remedy is complete. We have continuing operation and maintenance obligations that we expect to fund from
contributions we and WTM I have already made to an escrow account for OU1 under the OU1 CD.
OU2-5 UAO. In November
2007, the United States Environmental Protection Agency (EPA) issued an administrative order for remedial action (UAO) to Appleton Papers Inc. (API), 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, Glatfelter, U.S. Paper Mills Corp., and WTM I directing those respondents to implement the remedy in OU2-5.
Shortly following issuance of the UAO, API and NCR commenced litigation against us and others, as described below. Accordingly, we have no vehicle for complying with the UAOs overall requirements other than answering a judgment in the
litigation, and we have so informed EPA, but, to minimize disruptions, have paid certain de minimis amounts to EPA for oversight costs under the UAO.
Government Action. On October 14, 2010, the United States and the State of Wisconsin filed an action in the United States District Court for the Eastern District of Wisconsin captioned
United States v. NCR Corp. (the
- 13 -
Government Action) against 12 parties, including us. The Government Action seeks to recover from each of the defendants, jointly and severally, all of the governments past costs
of response, which are approximately $17 million to date, a declaration as to liability for all of the governments future costs of response, and compensation for natural resource damages, as well as a declaration as to liability for compliance
with the UAO for OU2-5. The United States twice sought a preliminary injunction in 2011 to obtain full-scale remediation from NCR or API, and those motions were denied. NCR implemented less than a full season of work in 2011. On
March 19, 2012, the United States again moved for a preliminary injunction to require NCR and API to conduct full-scale remediation defined as dredging of 660,000 cubic yards of sediment in 2012. On April 10,
2012, the court granted summary judgment to API, holding that API was not a successor to the Appleton Coated Papers Division of NCR Corporation. On April 27, 2012, the court granted the preliminary injunction that the United States had
requested, but against NCR only. The United States Court of Appeals for the Seventh Circuit affirmed that preliminary injunction on August 3, 2012, so work continued in OU2-5 in 2012. Active litigation of the United States claim for a
declaratory judgment or permanent injunctive relief against all recipients of the UAO for OU2-5, including us, is on an accelerated schedule, and the district court has scheduled it for a trial beginning December 3, 2012. Among other issues,
disposition of that claim will require litigation of challenges to the United States selection of the remedy for this Site and will also require disposition of various parties asserted defenses that liability for some or all of this Site
is not joint and several and may be apportioned. Should the government obtain the order against us that it is now seeking on the claim to be tried, the court would issue a mandatory injunction requiring us, jointly and severally with any other
defendants against which the government were to prevail, to complete the remedy for OU2-5. However, the government is not seeking at that trial any change to the rulings in the Whiting Litigation under which NCR bears full responsibility for any
obligations we share jointly with NCR.
Whiting Litigation. On January 7, 2008, NCR and API commenced litigation
in the United States District Court for the Eastern District of Wisconsin captioned Appleton Papers Inc. v. George A. Whiting Paper Co., seeking to reallocate costs and damages allegedly incurred or paid or to be incurred or paid by NCR or
API (the Whiting Litigation). The case involves allocation claims among the two plaintiffs and 28 defendants including us. We and other defendants counterclaimed against NCR and API. Claims by and against us have since been resolved, and
we expect entry of a final judgment as described below.
Claims against governments. The Whiting Litigation involves claims by certain
parties against federal agencies who are responsible parties for this site. In the Government Action many defendants, including us, asserted counterclaims against the United States and the State of Wisconsin.
Settlements. Certain parties have resolved their liability to the United States affording them contribution protection. These
settlements are embodied in consent decrees. Notably, we entered into the OU1 CD. Also, in a case captioned United States v. George A. Whiting Paper Co., the district court entered two consent decrees under which 13 de minimis
defendants in the Whiting Litigation settled with the United States and Wisconsin. The Court of Appeals for the Seventh Circuit denied an appeal of these settlements by NCR and API on May 4, 2011. Further, Georgia-Pacific Consumer Products LP,
has entered into a consent decree resolving its liability for NRDs and a separate consent decree in the Government Action that resolves all of its liabilities except for the downstream portion of the OU4 remedy. Finally, the United States has lodged
a consent decree that would resolve the liability of itself and two municipalities. The United States moved for entry of that consent decree, but later withdrew that motion due to a ruling by the court adverse to the government in a related case
captioned Menasha Corp. v. United States Department of Justice, seeking disclosure of certain documents under the Freedom of Information Act. We oppose entry of that consent decree, which the district court must approve. The United States or
the State of Wisconsin may enter into settlements with us or with other parties that would affect our ultimate obligations because settling parties may become unavailable to pay any share other than their settlement amount, depending upon the terms
of the settlement and the courts order entering any consent decree.
Cleanup Decisions. The extent of our
exposure depends, in large part, on the decisions made by EPA and the Wisconsin Department of Natural Resources (WDNR) as to how the Site will be cleaned up and the costs and timing of those response actions. The nature of the response
actions has been highly controversial. Between 2002 and 2008, the EPA issued records of decision (RODs) regarding required remedial actions for the OUs. Some of those RODs have been amended. We contend that the remedy for OU2-5 is
arbitrary and capricious. We and others have begun to litigate that issue in the Government Action. If we were to be successful in modifying any existing selected remedy, our exposure could be reduced materially.
NRD Assessment. We are engaged in disputes as to (i) whether various documents prepared by the Trustees taken together
constitute a sufficient NRD assessment under applicable regulations; and (ii) on a number of legal grounds, whether the Trustees may recover from us on the specific NRD claims they have made.
- 14 -
Cost estimates. Estimates of the Site remediation change over time as we, or
others, gain additional data and experience at the Site. In addition, disagreement exists over the likely costs for some of this work. Based upon estimates made by the Governments and independent estimates commissioned by various potentially
responsible parties, we have no reason to disagree with the Governments assertion that total past and future costs and NRDs at this site may exceed $1 billion and that $1.5 billion is a reasonable outside estimate.
NRDs. Of that amount, the Trustees assessment documents claimed that we are jointly and severally responsible for NRDs
with a value between $176 million and $333 million. They now claim that this range should be inflated to 2009 dollars and then certain unreimbursed past assessment costs should be added, so that the range of their claim would be
$287 million to $423 million. We deny liability for most of these NRDs and believe that even if anyone is liable, that we are not jointly and severally liable for the full amount. Moreover, we believe that the Trustees may not legally
pursue this claim at this late date, as the limitations period for NRD claims is three years from discovery.
Allocation and Divisibility. 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 NCR or
other sources of NCR®-brand carbonless copy paper that our Neenah Mill recycled bear most, if not all, of the
responsibility for costs and damages arising from the presence of PCBs in OU1 and downstream.
On December 16, 2009,
the court granted motions for summary judgment in our favor in the Whiting Litigation holding that neither NCR nor API may seek contribution from us or other recyclers under CERCLA. The Court made no ruling as to any other allocation, the liability
of NCR or API to us for costs we have incurred, or our liability to the Governments or Trustees. NCR and API have stated their intention to appeal, but an appeal is not yet timely because the court has not entered a final judgment.
We also filed counterclaims against NCR and API to recover the costs we have incurred and may later incur and the damages we have paid
and may later pay in connection with the Site. Other defendants have similar claims. On February 28, 2011, the district court granted our summary judgment motions on those counterclaims in part and denied them in part. The court granted a
declaration that NCR and API are liable to us (and to others) in contribution for 100% of any costs of response (that is, clean up) that we may be required to pay for work in OU2-5 in the future.
On September 30, 2011, the court clarified its ruling with respect to NRDs and natural resource damage assessment costs, holding that NCR and API owe full contribution to us (and others) for NRDs or natural resource damage assessment costs that
we have paid or may be required to pay in the future. The court required further proceedings to decide whether or to what extent NCR and API owe contribution to us and others for costs that we and others incurred in the past and costs that we and
others incurred in connection with OU1. In addition, NCR and API contended that some of the costs we claim are not recoverable and that our insurance coverage settlements ought to be set off against any recovery in whole or in part. Those issues
were tried to the court and on July 3, 2012, the court issued findings of fact and conclusions of law awarding us approximately $4.25 million in claimed past costs associated with the work of the Fox River Group, subject to an
unresolved insurance coverage settlement off-set. The court also found that the sale of production scrap known as broke from NCRs predecessor Appleton Coated Paper Company to recyclers did not constitute arranging for
disposal of the PCBs coated on that broke and therefore did not render NCR liable on that basis for costs we had incurred in OU1, a decision with which we disagree. On October 4, 2012, the court granted APIs motion for summary judgment
relieving it of any liability on the basis of the decision made in the Government Action in April 2012, and the court also held that CERCLA preempts all other claims asserted by us and others under other law. The court ordered the parties to propose
a form of final judgment by October 22, 2012, with which we complied. An appeal of the courts December 16, 2009, February 28, 2011, September 30, 2011, and July 3, 2012, and October 4, 2012, decisions
will not be ripe for any party until entry of that judgment.
Reserves for the Site. As of September 30, 2012,
our reserve for our claimed liability at the Site, including our remediation and ongoing monitoring obligations at OU1, our claimed liability for the remediation of the rest of the Site, our claimed liability for NRDs associated with PCB
contamination at the Site and all pending, threatened or asserted and unasserted claims against us relating to PCB contamination at the Site totaled $16.5 million. Of our total reserve for the Fox River, $0.3 million is recorded in the accompanying
condensed consolidated balance sheets under the caption Environmental liabilities and the remainder is recorded under the caption Other long term liabilities.
Although we believe that amounts already funded by us and WTM I to implement the OU1 remedy are adequate and no payments have been
required since
- 15 -
January 2009, there can be no assurance that these amounts will in fact suffice. WTM I has filed a bankruptcy petition in the Bankruptcy Court in Richmond; accordingly, there can be no
assurance that WTM I will be able to fulfill its obligation to pay half of any additional costs, if required.
We believe
that we have strong defenses to liability for further remediation downstream of OU1, including the existence of ample data that indicate that PCBs did not leave OU1 in concentrations that could have caused or contributed to the need for additional
cleanup downstream. 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 additional remedial work, and filed the Government Action seeking, in part, the same relief.
NCR and API commenced the Whiting Litigation and joined us and others as defendants, but, to this point, have not prevailed.
Even if we are not successful in establishing that we have no further remediation liability, we do not believe that we would be
allocated a significant percentage share of liability in any equitable allocation of the remediation costs and natural resource damages. The accompanying consolidated financial statements do not include reserves for defense costs for the Whiting
Litigation, the Government Action, or any future defense costs related to our involvement at the Site, which could be significant.
In setting our reserve for the Site, we have assessed our legal defenses, including our successful defenses to the allegations made in the Whiting Litigation, and assumed that we will not bear the entire
cost of remediation or 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 certain of the PRPs 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 Site.
The
amount and timing of future expenditures for environmental compliance, cleanup, remediation and personal injury, NRDs and property damage liabilities cannot be ascertained with any certainty due to, among other things, the unknown extent and nature
of any contamination, the response actions that may ultimately
be required, the availability of remediation equipment, and landfill space, and the number and financial resources of any other PRPs.
Other Information. The Governments have published studies estimating the amount of PCBs discharged by each identified PRPs
facility to the lower Fox River and Green Bay. These reports estimate the Neenah Facilitys share of the mass of PCBs discharged to be as high as 27%. We do not believe the discharge mass estimates used in these studies are accurate because
(a) the studies themselves disclose that they are not accurate and (b) the PCB mass estimates contained in the studies are based on assumptions that are unsupported by existing data on the Site. We believe that the Neenah Facilitys
absolute and relative contribution of PCB mass is significantly lower than the estimates set forth in these studies.
In any
event, based upon the courts December 16, 2009, and February 28, 2011, rulings in the Whiting Litigation, statements in the courts disposition of the United States 2011 and 2012 motions for a preliminary injunction in the
Government Action, the court of appeals opinion affirming the 2012 preliminary injunction, as well as certain other procedural orders, we continue to believe that an allocation in proportion to mass of PCBs discharged would not constitute an
equitable allocation of the potential liability for the contamination at the Fox River. We contend that other factors, such as the location of contamination, the location of discharge, and a 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 six of the
other PRPs, which provided for those PRPs to share certain costs relating to scientific studies of PCBs discharged at the Site (Interim Cost Sharing Agreements). These Interim Cost Sharing Agreements do not establish the final allocation
of remediation costs incurred at the Site. Based upon our evaluation of the Courts December 16, 2009, February 28, 2011, and July 3, 2012, and October 4, 2012, rulings in the Whiting Litigation as well as the volume,
nature and location of the various discharges of PCBs at the Site and the relationship of those discharges to identified contamination, we believe our allocable share of liability at the Site is less than our share of costs under the Interim Cost
Sharing Agreements.
Range of Reasonably Possible Outcomes. Our analysis of the range of reasonably possible outcomes
is derived from all available information, including but not limited to 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
- 16 -
to be performed at the Site, we believe that it is reasonably possible that our costs associated with the Fox River matter may exceed our cost estimates and the aggregate amounts accrued for the
Fox River matter by amounts that are insignificant or that could range up to $265 million over an undeterminable period that could range beyond 10 years. We believe that the likelihood of an outcome in the upper end of the monetary range
is significantly less than other possible outcomes within the range and that the possibility of an outcome in excess of the upper end of the monetary range is remote. The two summary judgments in our favor in the Whiting Litigation, if sustained on
appeal, suggest that outcomes in the upper end of the monetary range have become somewhat less likely, while the result of the February 2012 trial and increases in cost estimates for some of the work may make an outcome in the upper end of the range
more likely.
Summary. Our current assessment is that we will be able to manage this environmental matter without a
long-term, material adverse impact on the Company. This matter
could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial position, liquidity and/or results of operations or could
result in a default under our debt covenants. Moreover, there can be no assurance that our reserves will be adequate to provide for future obligations related to this matter, that our share of costs and/or damages will not exceed our available
resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations. Should a court grant the United States or the State of Wisconsin relief that requires
us either to perform directly or to contribute significant amounts towards remedial action downstream of OU1 or to natural resource damages, those developments could have a material adverse effect on our consolidated financial position, liquidity
and results of operations and might result in a default under our loan covenants.
- 17 -
The following table sets forth financial and other information by business unit for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
Specialty Papers |
|
|
Composite Fibers |
|
|
Advanced Airlaid Materials |
|
|
Other and Unallocated |
|
|
Total |
|
In millions |
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
232.6 |
|
|
$ |
225.4 |
|
|
$ |
110.8 |
|
|
$ |
124.9 |
|
|
$ |
60.9 |
|
|
$ |
66.2 |
|
|
|
|
|
|
|
|
|
|
$ |
404.4 |
|
|
$ |
416.5 |
|
Energy and related sales, net |
|
|
1.9 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
234.5 |
|
|
|
228.2 |
|
|
|
110.8 |
|
|
|
124.9 |
|
|
|
60.9 |
|
|
|
66.2 |
|
|
|
|
|
|
|
|
|
|
|
406.2 |
|
|
|
419.3 |
|
Cost of products sold |
|
|
199.1 |
|
|
|
198.6 |
|
|
|
91.2 |
|
|
|
104.6 |
|
|
|
54.1 |
|
|
|
59.2 |
|
|
|
2.6 |
|
|
|
2.0 |
|
|
|
347.0 |
|
|
|
364.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
35.4 |
|
|
|
29.6 |
|
|
|
19.7 |
|
|
|
20.3 |
|
|
|
6.8 |
|
|
|
7.0 |
|
|
|
(2.6 |
) |
|
|
(2.0 |
) |
|
|
59.2 |
|
|
|
54.9 |
|
SG&A |
|
|
14.0 |
|
|
|
12.6 |
|
|
|
9.4 |
|
|
|
10.2 |
|
|
|
2.2 |
|
|
|
2.9 |
|
|
|
3.9 |
|
|
|
5.7 |
|
|
|
29.4 |
|
|
|
31.4 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
(0.7 |
) |
|
|
(1.5 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
21.4 |
|
|
|
17.0 |
|
|
|
10.3 |
|
|
|
10.1 |
|
|
|
4.6 |
|
|
|
4.1 |
|
|
|
(5.0 |
) |
|
|
(7.0 |
) |
|
|
31.3 |
|
|
|
24.2 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.1 |
) |
|
|
(6.5 |
) |
|
|
(4.1 |
) |
|
|
(6.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
21.4 |
|
|
$ |
17.0 |
|
|
$ |
10.3 |
|
|
$ |
10.1 |
|
|
$ |
4.6 |
|
|
$ |
4.1 |
|
|
$ |
(9.0 |
) |
|
$ |
(13.4 |
) |
|
$ |
27.2 |
|
|
$ |
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
204.5 |
|
|
|
199.6 |
|
|
|
23.5 |
|
|
|
24.1 |
|
|
|
22.8 |
|
|
|
23.1 |
|
|
|
|
|
|
|
|
|
|
|
250.9 |
|
|
|
246.7 |
|
Depreciation, depletion and amortization |
|
$ |
9.2 |
|
|
$ |
9.2 |
|
|
$ |
5.7 |
|
|
$ |
6.2 |
|
|
$ |
2.1 |
|
|
$ |
2.1 |
|
|
|
|
|
|
|
|
|
|
$ |
17.1 |
|
|
$ |
17.5 |
|
Capital expenditures |
|
|
5.4 |
|
|
|
6.7 |
|
|
|
7.5 |
|
|
|
5.7 |
|
|
|
1.4 |
|
|
|
4.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
14.4 |
|
|
|
16.8 |
|
|
|
|
|
|
|
Nine months ended September 30 |
|
Specialty Papers |
|
|
Composite Fibers |
|
|
Advanced Airlaid Materials |
|
|
Other and Unallocated |
|
|
Total |
|
In millions |
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
670.5 |
|
|
$ |
662.6 |
|
|
$ |
331.4 |
|
|
$ |
356.5 |
|
|
$ |
184.5 |
|
|
$ |
192.2 |
|
|
|
|
|
|
|
|
|
|
$ |
1,186.4 |
|
|
$ |
1,211.2 |
|
Energy and related sales, net |
|
|
5.4 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
675.9 |
|
|
|
670.5 |
|
|
|
331.4 |
|
|
|
356.5 |
|
|
|
184.5 |
|
|
|
192.2 |
|
|
|
|
|
|
|
|
|
|
|
1,191.8 |
|
|
|
1,219.1 |
|
Cost of products sold |
|
|
585.2 |
|
|
|
592.5 |
|
|
|
273.5 |
|
|
|
295.1 |
|
|
|
164.3 |
|
|
|
174.3 |
|
|
|
7.7 |
|
|
|
4.6 |
|
|
|
1,030.7 |
|
|
|
1,066.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
90.7 |
|
|
|
78.0 |
|
|
|
57.9 |
|
|
|
61.3 |
|
|
|
20.2 |
|
|
|
17.9 |
|
|
|
(7.8 |
) |
|
|
(4.6 |
) |
|
|
161.0 |
|
|
|
152.6 |
|
SG&A |
|
|
41.3 |
|
|
|
38.9 |
|
|
|
28.8 |
|
|
|
29.6 |
|
|
|
7.2 |
|
|
|
8.3 |
|
|
|
12.2 |
|
|
|
17.7 |
|
|
|
89.5 |
|
|
|
94.5 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.5 |
) |
|
|
(3.9 |
) |
|
|
(8.5 |
) |
|
|
(3.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
49.4 |
|
|
|
39.1 |
|
|
|
29.1 |
|
|
|
31.7 |
|
|
|
13.0 |
|
|
|
9.6 |
|
|
|
(11.5 |
) |
|
|
(18.4 |
) |
|
|
80.1 |
|
|
|
62.0 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.0 |
) |
|
|
(19.3 |
) |
|
|
(12.0 |
) |
|
|
(19.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
49.4 |
|
|
$ |
39.1 |
|
|
$ |
29.1 |
|
|
$ |
31.7 |
|
|
$ |
13.0 |
|
|
$ |
9.6 |
|
|
$ |
(23.4 |
) |
|
$ |
(37.7 |
) |
|
$ |
68.1 |
|
|
$ |
42.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
587.1 |
|
|
|
590.1 |
|
|
|
69.2 |
|
|
|
70.0 |
|
|
|
67.9 |
|
|
|
66.9 |
|
|
|
|
|
|
|
|
|
|
|
724.2 |
|
|
|
726.9 |
|
Depreciation, depletion and amortization |
|
$ |
27.1 |
|
|
$ |
26.7 |
|
|
$ |
17.6 |
|
|
$ |
18.7 |
|
|
$ |
6.5 |
|
|
$ |
6.4 |
|
|
|
|
|
|
|
|
|
|
$ |
51.1 |
|
|
$ |
51.8 |
|
Capital expenditures |
|
|
19.1 |
|
|
|
20.0 |
|
|
|
22.9 |
|
|
|
16.2 |
|
|
|
2.8 |
|
|
|
8.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
45.0 |
|
|
|
44.6 |
|
The clerical accuracy of the amounts set forth above may be affected by, or the amounts may not agree to the
condensed consolidated financial statements included herein due to, rounding.
Results of individual business units are presented based on our management accounting practices and
management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business
units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as
management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services.
Management evaluates results of operations of the business units before pension income or expense, alternative fuel mixture and cellulosic biofuel credits, charges related to the Fox River
environmental reserves, acquisition and integration related costs, restructuring related charges, unusual items, certain corporate level costs, and the effects of asset dispositions. Management believes that this is a more meaningful representation
of the operating performance of its core businesses, the profitability of business units and the extent of cash flow generated from these core operations. Such amounts are presented under the caption Other and Unallocated. This
presentation is aligned with the management and operating structure of our company. It is also on this basis that our performance is evaluated internally and by the Companys Board of Directors.
- 18 -
16. |
GUARANTOR FINANCIAL STATEMENTS |
Our 7.125% 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, and Glatfelter Holdings, LLC.
The following presents our condensed consolidating statements of income and cash flow, and our condensed consolidating balance sheets. 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.
Condensed Consolidating Statement of Income for the three months ended
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
232,620 |
|
|
$ |
13,936 |
|
|
$ |
171,734 |
|
|
$ |
(13,936 |
) |
|
$ |
404,354 |
|
Energy and related sales, net |
|
|
1,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
234,487 |
|
|
|
13,936 |
|
|
|
171,734 |
|
|
|
(13,936 |
) |
|
|
406,221 |
|
Costs of products sold |
|
|
203,084 |
|
|
|
12,472 |
|
|
|
145,377 |
|
|
|
(13,904 |
) |
|
|
347,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
31,403 |
|
|
|
1,464 |
|
|
|
26,357 |
|
|
|
(32 |
) |
|
|
59,192 |
|
Selling, general and administrative expenses |
|
|
16,842 |
|
|
|
880 |
|
|
|
11,658 |
|
|
|
|
|
|
|
29,380 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
16 |
|
|
|
(1,489 |
) |
|
|
|
|
|
|
|
|
|
|
(1,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
14,545 |
|
|
|
2,073 |
|
|
|
14,699 |
|
|
|
(32 |
) |
|
|
31,285 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(4,917 |
) |
|
|
1,779 |
|
|
|
(908 |
) |
|
|
|
|
|
|
(4,046 |
) |
Other, net |
|
|
12,016 |
|
|
|
269 |
|
|
|
238 |
|
|
|
(12,527 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense) |
|
|
7,099 |
|
|
|
2,048 |
|
|
|
(670 |
) |
|
|
(12,527 |
) |
|
|
(4,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
21,644 |
|
|
|
4,121 |
|
|
|
14,029 |
|
|
|
(12,559 |
) |
|
|
27,235 |
|
Income tax provision (benefit) |
|
|
1,545 |
|
|
|
1,637 |
|
|
|
3,967 |
|
|
|
(13 |
) |
|
|
7,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
20,099 |
|
|
|
2,484 |
|
|
|
10,062 |
|
|
|
(12,546 |
) |
|
|
20,099 |
|
Other comprehensive income (loss) |
|
|
11,566 |
|
|
|
3,923 |
|
|
|
5,356 |
|
|
|
(9,279 |
) |
|
|
11,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
31,665 |
|
|
$ |
6,407 |
|
|
$ |
15,418 |
|
|
$ |
(21,825 |
) |
|
$ |
31,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income for the three months ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
225,410 |
|
|
$ |
13,060 |
|
|
$ |
191,083 |
|
|
$ |
(13,060 |
) |
|
$ |
416,493 |
|
Energy and related sales, net |
|
|
2,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
228,250 |
|
|
|
13,060 |
|
|
|
191,083 |
|
|
|
(13,060 |
) |
|
|
419,333 |
|
Costs of products sold |
|
|
201,649 |
|
|
|
11,949 |
|
|
|
163,900 |
|
|
|
(13,081 |
) |
|
|
364,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
26,601 |
|
|
|
1,111 |
|
|
|
27,183 |
|
|
|
21 |
|
|
|
54,916 |
|
Selling, general and administrative expenses |
|
|
17,661 |
|
|
|
646 |
|
|
|
13,123 |
|
|
|
|
|
|
|
31,430 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(276 |
) |
|
|
(417 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(698 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
9,216 |
|
|
|
882 |
|
|
|
14,065 |
|
|
|
21 |
|
|
|
24,184 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(6,625 |
) |
|
|
2,032 |
|
|
|
(1,729 |
) |
|
|
|
|
|
|
(6,322 |
) |
Other, net |
|
|
10,935 |
|
|
|
(134 |
) |
|
|
653 |
|
|
|
(11,591 |
) |
|
|
(137 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense) |
|
|
4,310 |
|
|
|
1,898 |
|
|
|
(1,076 |
) |
|
|
(11,591 |
) |
|
|
(6,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
13,526 |
|
|
|
2,780 |
|
|
|
12,989 |
|
|
|
(11,570 |
) |
|
|
17,725 |
|
Income tax provision (benefit) |
|
|
500 |
|
|
|
979 |
|
|
|
3,213 |
|
|
|
7 |
|
|
|
4,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
13,026 |
|
|
|
1,801 |
|
|
|
9,776 |
|
|
|
(11,577 |
) |
|
|
13,026 |
|
Other comprehensive income (loss) |
|
|
(14,236 |
) |
|
|
(8,284 |
) |
|
|
(11,057 |
) |
|
|
19,341 |
|
|
|
(14,236 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
(1,210 |
) |
|
$ |
(6,483 |
) |
|
$ |
(1,281 |
) |
|
$ |
7,764 |
|
|
$ |
(1,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
Condensed Consolidating Statement of Income for the nine months ended September 30,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
670,536 |
|
|
$ |
41,307 |
|
|
$ |
515,874 |
|
|
$ |
(41,318 |
) |
|
$ |
1,186,399 |
|
Energy and related sales net |
|
|
5,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
675,894 |
|
|
|
41,307 |
|
|
|
515,874 |
|
|
|
(41,318 |
) |
|
|
1,191,757 |
|
Costs of products sold |
|
|
596,508 |
|
|
|
37,524 |
|
|
|
437,945 |
|
|
|
(41,260 |
) |
|
|
1,030,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
79,386 |
|
|
|
3,783 |
|
|
|
77,929 |
|
|
|
(58 |
) |
|
|
161,040 |
|
Selling, general and administrative expenses |
|
|
51,570 |
|
|
|
2,220 |
|
|
|
35,670 |
|
|
|
|
|
|
|
89,460 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(506 |
) |
|
|
(7,940 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
(8,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
28,322 |
|
|
|
9,503 |
|
|
|
42,284 |
|
|
|
(58 |
) |
|
|
80,051 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(14,704 |
) |
|
|
5,121 |
|
|
|
(2,665 |
) |
|
|
|
|
|
|
(12,248 |
) |
Other, net |
|
|
36,817 |
|
|
|
642 |
|
|
|
1,099 |
|
|
|
(38,263 |
) |
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense) |
|
|
22,113 |
|
|
|
5,763 |
|
|
|
(1,566 |
) |
|
|
(38,263 |
) |
|
|
(11,953 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
50,435 |
|
|
|
15,266 |
|
|
|
40,718 |
|
|
|
(38,321 |
) |
|
|
68,098 |
|
Income tax provision (benefit) |
|
|
(1,974 |
) |
|
|
6,523 |
|
|
|
11,165 |
|
|
|
(25 |
) |
|
|
15,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
52,409 |
|
|
|
8,743 |
|
|
|
29,553 |
|
|
|
(38,296 |
) |
|
|
52,409 |
|
Other comprehensive income |
|
|
12,598 |
|
|
|
1,815 |
|
|
|
1,366 |
|
|
|
(3,181 |
) |
|
|
12,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
65,007 |
|
|
$ |
10,558 |
|
|
$ |
30,919 |
|
|
$ |
(41,477 |
) |
|
$ |
65,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income for the nine months ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
662,572 |
|
|
$ |
37,878 |
|
|
$ |
548,677 |
|
|
$ |
(37,878 |
) |
|
$ |
1,211,249 |
|
Energy and related sales, net |
|
|
7,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
670,459 |
|
|
|
37,878 |
|
|
|
548,677 |
|
|
|
(37,878 |
) |
|
|
1,219,136 |
|
Costs of products sold |
|
|
601,185 |
|
|
|
34,691 |
|
|
|
468,756 |
|
|
|
(38,079 |
) |
|
|
1,066,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
69,274 |
|
|
|
3,187 |
|
|
|
79,921 |
|
|
|
201 |
|
|
|
152,583 |
|
Selling, general and administrative expenses |
|
|
53,671 |
|
|
|
1,893 |
|
|
|
38,956 |
|
|
|
|
|
|
|
94,520 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(318 |
) |
|
|
(3,575 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
(3,902 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
15,921 |
|
|
|
4,869 |
|
|
|
40,974 |
|
|
|
201 |
|
|
|
61,965 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(16,563 |
) |
|
|
5,905 |
|
|
|
(4,928 |
) |
|
|
(3,300 |
) |
|
|
(18,886 |
) |
Other, net |
|
|
34,120 |
|
|
|
(13 |
) |
|
|
474 |
|
|
|
(34,986 |
) |
|
|
(405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense) |
|
|
17,557 |
|
|
|
5,892 |
|
|
|
(4,454 |
) |
|
|
(38,286 |
) |
|
|
(19,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
33,478 |
|
|
|
10,761 |
|
|
|
36,520 |
|
|
|
(38,085 |
) |
|
|
42,674 |
|
Income tax provision (benefit) |
|
|
525 |
|
|
|
4,111 |
|
|
|
6,251 |
|
|
|
(1,166 |
) |
|
|
9,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
32,953 |
|
|
|
6,650 |
|
|
|
30,269 |
|
|
|
(36,919 |
) |
|
|
32,953 |
|
Other comprehensive income |
|
|
8,723 |
|
|
|
105 |
|
|
|
2,187 |
|
|
|
(2,292 |
) |
|
|
8,723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
41,676 |
|
|
$ |
6,755 |
|
|
$ |
32,456 |
|
|
$ |
(39,211 |
) |
|
$ |
41,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
Condensed Consolidating Balance Sheet as of September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,155 |
|
|
$ |
5,647 |
|
|
$ |
19,520 |
|
|
$ |
|
|
|
$ |
28,322 |
|
Other current assets |
|
|
281,788 |
|
|
|
441,642 |
|
|
|
244,263 |
|
|
|
(532,137 |
) |
|
|
435,556 |
|
Plant, equipment and timberlands, net |
|
|
236,084 |
|
|
|
6,243 |
|
|
|
364,317 |
|
|
|
|
|
|
|
606,644 |
|
Other assets |
|
|
785,241 |
|
|
|
160,327 |
|
|
|
47,983 |
|
|
|
(880,038 |
) |
|
|
113,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,306,268 |
|
|
$ |
613,859 |
|
|
$ |
676,083 |
|
|
$ |
(1,412,175 |
) |
|
$ |
1,184,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
400,569 |
|
|
$ |
68,461 |
|
|
$ |
297,296 |
|
|
$ |
(537,930 |
) |
|
$ |
228,396 |
|
Long-term debt |
|
|
219,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219,000 |
|
Deferred income taxes |
|
|
37,350 |
|
|
|
4,900 |
|
|
|
39,463 |
|
|
|
(15,722 |
) |
|
|
65,991 |
|
Other long-term liabilities |
|
|
103,432 |
|
|
|
10,020 |
|
|
|
9,128 |
|
|
|
2,151 |
|
|
|
124,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
760,351 |
|
|
|
83,381 |
|
|
|
345,887 |
|
|
|
(551,501 |
) |
|
|
638,118 |
|
Shareholders equity |
|
|
545,917 |
|
|
|
530,478 |
|
|
|
330,196 |
|
|
|
(860,674 |
) |
|
|
545,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,306,268 |
|
|
$ |
613,859 |
|
|
$ |
676,083 |
|
|
$ |
(1,412,175 |
) |
|
$ |
1,184,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,007 |
|
|
$ |
2,894 |
|
|
$ |
32,376 |
|
|
$ |
|
|
|
$ |
38,277 |
|
Other current assets |
|
|
203,173 |
|
|
|
378,519 |
|
|
|
223,494 |
|
|
|
(421,050 |
) |
|
|
384,136 |
|
Plant, equipment and timberlands, net |
|
|
243,554 |
|
|
|
6,648 |
|
|
|
351,748 |
|
|
|
|
|
|
|
601,950 |
|
Other assets |
|
|
736,733 |
|
|
|
175,945 |
|
|
|
48,610 |
|
|
|
(848,726 |
) |
|
|
112,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,186,467 |
|
|
$ |
564,006 |
|
|
$ |
656,228 |
|
|
$ |
(1,269,776 |
) |
|
$ |
1,136,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
310,814 |
|
|
$ |
31,328 |
|
|
$ |
293,283 |
|
|
$ |
(424,185 |
) |
|
$ |
211,240 |
|
Long-term debt |
|
|
227,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,000 |
|
Deferred income taxes |
|
|
42,252 |
|
|
|
4,079 |
|
|
|
39,511 |
|
|
|
(16,051 |
) |
|
|
69,791 |
|
Other long-term liabilities |
|
|
115,997 |
|
|
|
10,059 |
|
|
|
9,415 |
|
|
|
3,019 |
|
|
|
138,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
696,063 |
|
|
|
45,466 |
|
|
|
342,209 |
|
|
|
(437,217 |
) |
|
|
646,521 |
|
Shareholders equity |
|
|
490,404 |
|
|
|
518,540 |
|
|
|
314,019 |
|
|
|
(832,559 |
) |
|
|
490,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,186,467 |
|
|
$ |
564,006 |
|
|
$ |
656,228 |
|
|
$ |
(1,269,776 |
) |
|
$ |
1,136,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 21 -
Condensed Consolidating Statement of Cash Flows for the nine months ended
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Net cash provided (used) by Operating activities |
|
$ |
9,196 |
|
|
$ |
4,971 |
|
|
$ |
34,298 |
|
|
$ |
|
|
|
$ |
48,465 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for plant, equipment and timberlands |
|
|
(19,035 |
) |
|
|
(281 |
) |
|
|
(25,711 |
) |
|
|
|
|
|
|
(45,027 |
) |
Proceeds from disposal plant, equipment and timberlands, net |
|
|
654 |
|
|
|
8,185 |
|
|
|
36 |
|
|
|
|
|
|
|
8,875 |
|
Repayments from (advances of) intercompany loans, net and other |
|
|
13,397 |
|
|
|
(2,722 |
) |
|
|
(514 |
) |
|
|
(10,161 |
) |
|
|
|
|
Other |
|
|
(150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investing activities |
|
|
(5,134 |
) |
|
|
5,182 |
|
|
|
(26,189 |
) |
|
|
(10,161 |
) |
|
|
(36,302 |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of indebtedness |
|
|
(8,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,000 |
) |
Payments of note offering costs |
|
|
(102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102 |
) |
Payment of dividends to shareholders |
|
|
(11,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,696 |
) |
Repurchases of common stock |
|
|
(4,060 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,060 |
) |
(Repayments) borrowings of intercompany loans, net |
|
|
18,510 |
|
|
|
(7,400 |
) |
|
|
(21,271 |
) |
|
|
10,161 |
|
|
|
|
|
Proceeds from stock options exercised and other |
|
|
1,434 |
|
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
1,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing activities |
|
|
(3,914 |
) |
|
|
(7,400 |
) |
|
|
(21,244 |
) |
|
|
10,161 |
|
|
|
(22,397 |
) |
Effect of exchange rate on cash |
|
|
|
|
|
|
|
|
|
|
279 |
|
|
|
|
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
148 |
|
|
|
2,753 |
|
|
|
(12,856 |
) |
|
|
|
|
|
|
(9,955 |
) |
Cash at the beginning of period |
|
|
3,007 |
|
|
|
2,894 |
|
|
|
32,376 |
|
|
|
|
|
|
|
38,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of period |
|
$ |
3,155 |
|
|
$ |
5,647 |
|
|
$ |
19,520 |
|
|
$ |
|
|
|
$ |
28,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Operating activities |
|
$ |
78,151 |
|
|
$ |
(29,590 |
) |
|
$ |
35,875 |
|
|
$ |
(3,300 |
) |
|
$ |
81,136 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for plant, equipment and timberlands |
|
|
(19,985 |
) |
|
|
(65 |
) |
|
|
(24,592 |
) |
|
|
|
|
|
|
(44,642 |
) |
Proceeds from disposal plant, equipment and timberlands, net |
|
|
597 |
|
|
|
3,821 |
|
|
|
24 |
|
|
|
|
|
|
|
4,442 |
|
Repayments from (advances of) intercompany loans, net |
|
|
(10,133 |
) |
|
|
29,933 |
|
|
|
|
|
|
|
(19,800 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investing activities |
|
|
(29,521 |
) |
|
|
33,689 |
|
|
|
(24,568 |
) |
|
|
(19,800 |
) |
|
|
(40,200 |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of short-term debt |
|
|
|
|
|
|
|
|
|
|
(798 |
) |
|
|
|
|
|
|
(798 |
) |
Payment of dividends to shareholders |
|
|
(12,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,578 |
) |
Repurchases of common stock |
|
|
(26,251 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,251 |
) |
(Repayments) borrowings of intercompany loans, net |
|
|
(2,050 |
) |
|
|
|
|
|
|
(17,750 |
) |
|
|
19,800 |
|
|
|
|
|
Payment of inter- company dividend |
|
|
|
|
|
|
(3,300 |
) |
|
|
|
|
|
|
3,300 |
|
|
|
|
|
Proceeds from stock options exercised and other |
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing activities |
|
|
(40,747 |
) |
|
|
(3,300 |
) |
|
|
(18,548 |
) |
|
|
23,100 |
|
|
|
(39,495 |
) |
Effect of exchange rate on cash |
|
|
|
|
|
|
|
|
|
|
1,022 |
|
|
|
|
|
|
|
1,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
7,883 |
|
|
|
799 |
|
|
|
(6,219 |
) |
|
|
|
|
|
|
2,463 |
|
Cash at the beginning of period |
|
|
61,953 |
|
|
|
91 |
|
|
|
33,744 |
|
|
|
|
|
|
|
95,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of period |
|
$ |
69,836 |
|
|
$ |
890 |
|
|
$ |
27,525 |
|
|
|
|
|
|
$ |
98,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 22 -
Private Placement On October 3, 2012, we completed a private placement offering of $250.0 million
aggregate principal amount of 5.375% Senior Notes due 2020 (the 5.375% Notes), subject to a registration rights agreement. The 5.375% Notes are fully and unconditionally guaranteed, jointly and severally, by PHG Tea Leaves, Inc.,
Mollanvick, Inc., The Glatfelter Pulp Wood Company, and Glatfelter Holdings, LLC (the Guarantors). The net proceeds from this offering totaled approximately $246.3 million, after deducting the commissions relating to the offering and
were used to tender and call $200.0 million aggregate principal amount of our outstanding 7.125% notes due November 2016, plus the payment of the applicable redemption premium and accrued interest. We used the remaining net proceeds to repay amounts
outstanding under our revolving credit facility and for general corporate purposes. We agreed to pay additional interest on the 5.375% Notes if we do not comply with certain of our obligations under the applicable registration rights agreement.
Interest on the 5.375% Notes will accrue at the rate of 5.375% per annum and will be payable semiannually in arrears
on April 15 and October 15, commencing on April 15, 2013.
The 5.375% Notes are redeemable, in whole or in
part, at anytime on or after October 15, 2016 at the redemption prices specified in the applicable Indenture. Prior to October 15, 2016, we may redeem some or all of the Notes at a make-whole premium as specified in the
Indenture. The Notes and the guarantees of the Notes are senior obligations of the Company and the Guarantors, respectively, rank equally in right of payment with future senior indebtedness of the Company and the Guarantors and will mature on
October 3, 2020.
The 5.375% Notes contain cross default provisions that could result in all such notes becoming due
and payable in the event of a failure to repay debt outstanding under the Revolving Credit Agreement at maturity or a default under the Revolving Credit Agreement that accelerates the debt outstanding thereunder.
Scaer, France Facility Fire On October 14, 2012 our paper mill in Scaer,
France, which produces specialty papers and wet-laid nonwovens on two inclined wire paper machines for the food and beverage markets as well as technical specialty paper grades, sustained a fire that damaged the electrical system primarily servicing
paper machine #3 and certain mill infrastructure. There were no injuries nor known environmental impact. While the initial inspection of the mills two paper machines indicates these assets were not damaged, it may take several weeks to restart
the machines following the restoration of electrical equipment and completion of clean-up activities. Paper machine #4 is expected to be down approximately 3-4 weeks and paper machine #3 approximately 6-8 weeks.
The finishing and shipping operations were not impacted by the incident. Shipment of customer orders resumed within 24 hours and on
site inventories are adequate to satisfy orders through mid-November. Given the flexibility of its assets and mill production systems, and available capacity at our other facilities to meet production needs, we expect no interruption in our ability
to supply customers.
An assessment of the costs for the impact of inventory loss, equipment damage, and clean up costs is
underway. Based on our preliminary assessment, we do not expect a significant financial impact from this incident as it is expected to be covered by insurance, subject to a deductible of $0.5 million.
- 23 -
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 our 2011 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, non-cash pension expense, environmental costs,
capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially
from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:
i. |
variations in demand for our products including the impact of any unplanned market-related downtime, or variations in product pricing; |
ii. |
changes in the cost or availability of raw materials we use, in particular pulpwood, pulp, pulp substitutes, caustic soda and abaca fiber; |
iii. |
changes in energy-related costs and commodity raw materials with an energy component; |
iv. |
our ability to develop new, high value-added products; |
v. |
the impact of exposure to volatile market-based pricing for sales of excess electricity; |
vi. |
the impact of competition, changes in industry production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital
expenditures or productivity increases; |
vii. |
the gain or loss of significant customers and/or on-going viability of such customers; |
viii. |
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; |
ix. |
risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;
|
x. |
geopolitical events, including war and terrorism; |
xi. |
disruptions in production and/or increased costs due to labor disputes; |
xii. |
the impact of unfavorable outcomes of audits by various state, federal or international tax authorities; |
xiii. |
enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation; |
xiv. |
adverse results in litigation in the Fox River matter; |
xv. |
our ability to finance, consummate and integrate acquisitions; |
xvi. |
the cost, and successful design and construction, of the Composite Fibers capacity expansion project; and |
xvii. |
the incurrence of unforeseen costs associated with the repair of equipment and clean-up of the Scaer facility, our ability to supply this facilitys customers, and
the coverage provided by insurance. |
We manufacture a wide array of specialty papers and fiber-based
engineered materials. We manage our company along three business units:
|
i) |
Specialty Papers with revenue from the sale of carbonless papers and forms, book publishing, envelope & converting papers, and fiber-based engineered
products; |
|
ii) |
Composite Fibers with revenue from the sale of single-serve coffee and tea filtration papers, metallized papers, composite laminates used for decorative
furniture and flooring applications, and other technical specialty papers; and |
|
iii) |
Advanced Airlaid Materials with revenue from the sale of airlaid non-woven fabric like materials used in feminine hygiene products, adult incontinence products,
cleaning pads, wipes, food pads, napkins, tablecloths, and specialty wipes. |
- 24 -
RESULTS OF OPERATIONS
Nine months ended September 30, 2012 versus the Nine months ended September 30, 2011
Overview For the first nine months of 2012, net income was $52.4 million, or $1.20 per diluted share, compared with $33.0
million, or $0.71 per diluted share, in the same period of 2011.
Operationally, our results reflect $11.1 million of higher
operating income from our business units primarily reflecting higher selling prices, efficient operations and continuous improvement initiatives, partially offset by the adverse impact of foreign currency translations.
Specialty Papers operating income increased $10.3 million to $49.4 million for the first nine months of 2012. Volumes shipped
declined slightly; however this units profitability was favorably impacted by higher selling prices, the mix of products sold, lower input costs and efficient operations.
Our Composite Fibers business units operating income declined $2.6 million to $29.1 million primarily due to the translation of
foreign currencies as well as lost production associated with two machine upgrades. Volumes shipped were essentially unchanged in the comparison, although the demand trends were impacted by the uncertain European economic conditions.
Advanced Airlaid Materials operating income increased $3.4 million to $13.0 million, reflecting improvements in operating
efficiency and lower raw material and energy costs.
Consolidated net income also benefited by $4.4 million, or $0.10 per diluted share, from
lower interest expense as a result of the debt refinancing undertaken in the fourth quarter of 2011. Diluted shares outstanding for the first nine months of 2012 declined by 2.7 million shares compared with the same period of 2011 primarily due
to the 2011 share repurchase program.
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
|
In thousands, except per share |
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
1,186,399 |
|
|
$ |
1,211,249 |
|
Gross profit |
|
|
161,040 |
|
|
|
152,583 |
|
Operating income |
|
|
80,051 |
|
|
|
61,965 |
|
Net income |
|
|
52,409 |
|
|
|
32,953 |
|
Earnings per diluted share |
|
|
1.20 |
|
|
|
0.71 |
|
The consolidated results of operations summarized above include the following significant items:
|
|
|
|
|
|
|
|
|
In thousands, except per share |
|
After-tax Gain (loss) |
|
|
Diluted EPS |
|
2012 |
|
|
|
|
|
|
|
|
Conversion of Alternative fuel mixture/Cellulosic biofuel credits |
|
$ |
4,329 |
|
|
$ |
0.10 |
|
Timberland sales and related costs |
|
|
4,554 |
|
|
|
0.10 |
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
Timberland sales and related costs |
|
$ |
1,895 |
|
|
$ |
0.04 |
|
Acquisition and integration related costs |
|
|
(793 |
) |
|
|
(0.02 |
) |
The above items increased earnings by $8.9 million, or $0.20 per diluted share, in the first nine
months of 2012 and by $1.1 million, or $0.02 per diluted share, in the first nine months of 2011.
In 2012, we recorded a
$4.3 million, or $0.10 per diluted share, benefit in connection with our conversion of a portion of the alternative fuel mixture credits earned in 2009 for cellulosic biofuel credits.
The consolidated amounts reported for 2012 and 2011 also includes $4.6 million and $1.9 million, respectively, in after-tax gains from
timberland sales.
- 25 -
Business Unit Performance
Nine months ended September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions |
|
Specialty Papers |
|
|
Composite Fibers |
|
|
Advanced Airlaid Materials |
|
|
Other and Unallocated |
|
|
Total |
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
670.5 |
|
|
$ |
662.6 |
|
|
$ |
331.4 |
|
|
$ |
356.5 |
|
|
$ |
184.5 |
|
|
$ |
192.2 |
|
|
|
|
|
|
|
|
|
|
$ |
1,186.4 |
|
|
$ |
1,211.2 |
|
Energy and related sales, net |
|
|
5.4 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.4 |
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
675.9 |
|
|
|
670.5 |
|
|
|
331.4 |
|
|
|
356.5 |
|
|
|
184.5 |
|
|
|
192.2 |
|
|
|
|
|
|
|
|
|
|
|
1,191.8 |
|
|
|
1,219.1 |
|
Cost of products sold |
|
|
585.2 |
|
|
|
592.5 |
|
|
|
273.5 |
|
|
|
295.1 |
|
|
|
164.3 |
|
|
|
174.3 |
|
|
|
7.7 |
|
|
|
4.6 |
|
|
|
1,030.7 |
|
|
|
1,066.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
90.7 |
|
|
|
78.0 |
|
|
|
57.9 |
|
|
|
61.3 |
|
|
|
20.2 |
|
|
|
17.9 |
|
|
|
(7.8 |
) |
|
|
(4.6 |
) |
|
|
161.0 |
|
|
|
152.6 |
|
SG&A |
|
|
41.3 |
|
|
|
38.9 |
|
|
|
28.8 |
|
|
|
29.6 |
|
|
|
7.2 |
|
|
|
8.3 |
|
|
|
12.2 |
|
|
|
17.7 |
|
|
|
89.5 |
|
|
|
94.5 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.5 |
) |
|
|
(3.9 |
) |
|
|
(8.5 |
) |
|
|
(3.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
49.4 |
|
|
|
39.1 |
|
|
|
29.1 |
|
|
|
31.7 |
|
|
|
13.0 |
|
|
|
9.6 |
|
|
|
(11.5 |
) |
|
|
(18.4 |
) |
|
|
80.1 |
|
|
|
62.0 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.0 |
) |
|
|
(19.3 |
) |
|
|
(12.0 |
) |
|
|
(19.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
49.4 |
|
|
$ |
39.1 |
|
|
$ |
29.1 |
|
|
$ |
31.7 |
|
|
$ |
13.0 |
|
|
$ |
9.6 |
|
|
$ |
(23.4 |
) |
|
$ |
(37.7 |
) |
|
$ |
68.1 |
|
|
$ |
42.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
587.1 |
|
|
|
590.1 |
|
|
|
69.2 |
|
|
|
70.0 |
|
|
|
67.9 |
|
|
|
66.9 |
|
|
|
|
|
|
|
|
|
|
|
724.2 |
|
|
|
726.9 |
|
Depreciation, depletion and amortization |
|
$ |
27.1 |
|
|
$ |
26.7 |
|
|
$ |
17.6 |
|
|
$ |
18.7 |
|
|
$ |
6.5 |
|
|
$ |
6.4 |
|
|
|
|
|
|
|
|
|
|
$ |
51.1 |
|
|
$ |
51.8 |
|
Capital expenditures |
|
|
19.1 |
|
|
|
20.0 |
|
|
|
22.9 |
|
|
|
16.2 |
|
|
|
2.8 |
|
|
|
8.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
45.0 |
|
|
|
44.6 |
|
The clerical accuracy of the amounts set forth above may be affected by, or the amounts may not agree
to the condensed consolidated financial statements included herein due to rounding.
Sales and Costs of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
|
Change |
|
Net sales |
|
$ |
1,186,399 |
|
|
$ |
1,211,249 |
|
|
$ |
(24,850 |
) |
Energy and related sales net |
|
|
5,358 |
|
|
|
7,887 |
|
|
|
(2,529 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,191,757 |
|
|
|
1,219,136 |
|
|
|
(27,379 |
) |
Costs of products sold |
|
|
1,030,717 |
|
|
|
1,066,553 |
|
|
|
(35,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
161,040 |
|
|
$ |
152,583 |
|
|
$ |
8,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as a percent of Net sales |
|
|
13.6 |
% |
|
|
12.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the first nine months of 2012 decreased by $24.9 million, or 2.1%, to $1,186.4
million. The translation of foreign currencies unfavorably impacted net sales by $32.0 million in the comparison more than offsetting a $5.5 million benefit from higher selling prices. Total volumes shipped declined slightly.
The following table sets forth the contribution to consolidated net sales by each business unit:
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
|
Percent of Total |
|
2012 |
|
|
2011 |
|
Business Unit |
|
|
|
|
|
|
|
|
Specialty Papers |
|
|
56.5 |
% |
|
|
54.7 |
% |
Composite Fibers |
|
|
27.9 |
|
|
|
29.4 |
|
Advanced Airlaid Material |
|
|
15.6 |
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
In the Specialty Papers business unit, net sales increased $7.9 million primarily
reflecting a $7.0 million benefit from higher selling prices and an improved mix of products sold. Volumes shipped declined less than 1%.
Specialty Papers operating income in the first nine months of 2012 was $10.3 million higher than the same period of 2011 reflecting the benefits from higher selling prices, a $4.0 million benefit
from lower raw material costs, $3.8 million from continuous improvement initiatives, production efficiencies, and cost control initiatives. These factors were partially offset by $2.5 million of lower energy and related sales. Results for the first
nine months of 2011 benefited by $2.8 million from an insurance recovery and the resolution of a tax audit.
We sell excess
power generated by the Spring Grove, PA facility. The following table summarizes this activity for the first nine months of 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
|
Change |
|
Energy sales |
|
$ |
3,911 |
|
|
$ |
9,056 |
|
|
$ |
(5,145 |
) |
Costs to produce |
|
|
(3,064 |
) |
|
|
(7,311 |
) |
|
|
4,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
847 |
|
|
|
1,745 |
|
|
|
(898 |
) |
Renewable energy credits |
|
|
4,511 |
|
|
|
6,142 |
|
|
|
(1,631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,358 |
|
|
$ |
7,887 |
|
|
$ |
(2,529 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Renewable energy credits (RECs) represent sales of certified credits earned related to
burning renewable
- 26 -
sources of energy such as black liquor and wood waste. We sell RECs into an emerging and illiquid market. The extent and value of future revenues from REC sales is dependent on many factors
outside of managements control. Therefore, we may not be able to generate consistent additional sales of RECs in future periods.
In Composite Fibers, net sales were $331.4 million, a decrease of $25.1 million, or 7.0%, primarily due to the translation of foreign currencies which unfavorably impacted the comparison by $21.9 million.
Average selling prices were essentially unchanged and total volumes shipped were slightly lower in the comparison.
Composite Fibers operating income in the first nine months of 2012 decreased by $2.6 million, which was primarily due to $2.8
million from the translation of foreign currencies and unfavorable operating costs including a $1.6 million impact from the completion of machine upgrades adversely affected the comparison. Operating results were favorably impacted by $1.5 million
from lower input costs, primarily fiber and energy.
We previously reported that on October 14, 2012, a fire was
sustained by our Scaer, France facility, one of several within Composite Fibers business unit. The fire damaged the electrical system primarily servicing one of two papermaking machines at the facility as well as certain mill infrastructure. As a
result of this incident, for which we believe we are insured subject to a $0.5 million deductible, we expect this business units fourth quarter 2012 results will be adversely impacted due to machine downtime and the timing of recording costs
associated with the fire and the recognition of any insurance recoveries.
In Advanced Airlaid Materials, net sales were
$184.5 million and $192.2 million in the first nine months of 2012 and 2011, respectively. The total volumes shipped increased 1.5%; however, currency translation and average selling prices unfavorably affected the comparison by $10.1 million and
$2.0 million, respectively.
Operating income in this business unit increased $3.4 million in the first nine months of 2012
compared with the same period a year ago led by a $5.7 million benefit from lower raw material and energy costs in addition to continuous improvement initiatives including supply chain efficiencies, waste reduction and improved throughput, and
benefits from a new festooner. The translation of foreign currencies negatively impacted results by $2.2 million.
Pension Expense The following table summarizes the amounts of pension expense
recognized for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
|
Change |
|
Recorded as: |
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold |
|
$ |
6,804 |
|
|
$ |
4,975 |
|
|
$ |
1,829 |
|
SG&A expense |
|
|
1,789 |
|
|
|
3,149 |
|
|
|
(1,360 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,593 |
|
|
$ |
8,124 |
|
|
$ |
469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of pension expense recognized each year is determined using various actuarial assumptions
and certain other factors. In the third quarter of 2011 we recognized a $2.0 million, one-time pension settlement charge in connection with the retirement of our former chief executive officer at the end of 2010 and the lump-sum distribution of
accrued pension benefits due to him in July 2011.
Other and Unallocated The amount of net operating expenses not
allocated to a business unit and reported as Other and Unallocated in our table of Business Unit Performance, excluding gains from sales of plant, equipment and timberlands, totaled $20.0 million in the first nine months of 2012
compared with $22.3 million in the first nine months of 2011. The decrease was primarily due to lower legal and professional fees partially offset by an increase in pension expense.
Non-operating income (expense) as presented in the Business Unit Performance table includes $12.6 million of
interest expense for the first nine months of 2012, a decrease of $6.8 million in the comparison primarily due to the redemption in the fourth quarter of 2011 of $100.0 million of 7 1/8% bonds.
Income taxes For the first nine months of 2012, we
recorded a provision for income taxes of $15.7 million on $68.1 million of pretax income, or 23.0%. The comparable amounts in the first nine months of 2011 were income tax expense $9.7 million on $42.7 million of pretax income, or 22.8%. Income
taxes in the first nine months of 2012 benefited by $4.3 million from the conversion of alternative fuel mixture credits to cellulosic biofuel credits. The 2011 amounts include the benefit recorded in connection with the resolution of certain
foreign tax audits, partially offset by adjustments to the carrying value of deferred taxes in connection with changes in state tax laws.
Foreign Currency We own and operate facilities in Canada, Germany, France, the United Kingdom and the Philippines. The functional currency of our Canadian operations is the U.S. dollar. However, in
Germany and France it is the Euro, in the UK, it is the British Pound Sterling, and in the Philippines the functional currency is the Peso. During the first nine months of 2012, Euro functional currency operations
- 27 -
generated approximately 25.4% of our sales and 24.3% of operating expenses and British Pound Sterling operations represented 7.6% of net sales and 7.5% 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 the first nine months of 2012 reported results compared to the first nine months 2011:
|
|
|
|
|
In thousands |
|
Nine months ended September 30 |
|
|
|
Favorable (unfavorable) |
|
Net sales |
|
$ |
(32,035 |
) |
Costs of products sold |
|
|
24,466 |
|
SG&A expenses |
|
|
2,574 |
|
Income taxes and other |
|
|
467 |
|
|
|
|
|
|
Net income |
|
$ |
(4,528 |
) |
|
|
|
|
|
The above table only presents the financial reporting impact of foreign currency translations assuming
currency exchange rates in 2012 were the same as 2011. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.
Three months ended September 30, 2012 versus the Three months ended
September 30, 2011
Overview Net income in the third quarter of 2012 totaled $20.1 million, or $0.46 per
diluted share compared with $13.0 million or $0.28 per diluted share for the third quarter of 2011. The following table sets forth summarized results of operations:
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
In thousands, except per share |
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
404,354 |
|
|
$ |
416,493 |
|
Gross profit |
|
|
59,192 |
|
|
|
54,916 |
|
Operating income |
|
|
31,285 |
|
|
|
24,184 |
|
Net income |
|
|
20,099 |
|
|
|
13,026 |
|
Earnings per diluted share |
|
|
0.46 |
|
|
|
0.28 |
|
The consolidated results of operations for the three months ended September 30, 2012 and 2011
include the following significant items:
|
|
|
|
|
|
|
|
|
In thousands, except per share |
|
After-tax Gain (loss) |
|
|
Diluted EPS |
|
2012 |
|
|
|
|
|
|
|
|
Conversion of Alternative fuel mixture/Cellulosic biofuel credits |
|
$ |
(111 |
) |
|
$ |
|
|
Timberland sales and related costs |
|
|
859 |
|
|
|
0.02 |
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
Timberland sales and related costs |
|
$ |
245 |
|
|
$ |
0.01 |
|
The above items increased earnings in the third quarter of 2012 by $0.7 million, or $0.02 per diluted
share and by $0.2 million, or $0.01 per diluted share, in the third quarter of 2011.
Business Unit Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
Specialty Papers |
|
|
Composite Fibers |
|
|
Advanced Airlaid Materials |
|
|
Other and Unallocated |
|
|
Total |
|
In millions |
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
232.6 |
|
|
$ |
225.4 |
|
|
$ |
110.8 |
|
|
$ |
124.9 |
|
|
$ |
60.9 |
|
|
$ |
66.2 |
|
|
|
|
|
|
|
|
|
|
$ |
404.4 |
|
|
$ |
416.5 |
|
Energy and related sales, net |
|
|
1.9 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
234.5 |
|
|
|
228.2 |
|
|
|
110.8 |
|
|
|
124.9 |
|
|
|
60.9 |
|
|
|
66.2 |
|
|
|
|
|
|
|
|
|
|
|
406.2 |
|
|
|
419.3 |
|
Cost of products sold |
|
|
199.1 |
|
|
|
198.6 |
|
|
|
91.2 |
|
|
|
104.6 |
|
|
|
54.1 |
|
|
|
59.2 |
|
|
|
2.6 |
|
|
|
2.0 |
|
|
|
347.0 |
|
|
|
364.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
35.4 |
|
|
|
29.6 |
|
|
|
19.7 |
|
|
|
20.3 |
|
|
|
6.8 |
|
|
|
7.0 |
|
|
|
(2.6 |
) |
|
|
(2.0 |
) |
|
|
59.2 |
|
|
|
54.9 |
|
SG&A |
|
|
14.0 |
|
|
|
12.6 |
|
|
|
9.4 |
|
|
|
10.2 |
|
|
|
2.2 |
|
|
|
2.9 |
|
|
|
3.9 |
|
|
|
5.7 |
|
|
|
29.4 |
|
|
|
31.4 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.5 |
) |
|
|
(0.7 |
) |
|
|
(1.5 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
21.4 |
|
|
|
17.0 |
|
|
|
10.3 |
|
|
|
10.1 |
|
|
|
4.6 |
|
|
|
4.1 |
|
|
|
(5.0 |
) |
|
|
(7.0 |
) |
|
|
31.3 |
|
|
|
24.2 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.1 |
) |
|
|
(6.5 |
) |
|
|
(4.1 |
) |
|
|
(6.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
21.4 |
|
|
$ |
17.0 |
|
|
$ |
10.3 |
|
|
$ |
10.1 |
|
|
$ |
4.6 |
|
|
$ |
4.1 |
|
|
$ |
(9.0 |
) |
|
$ |
(13.4 |
) |
|
$ |
27.2 |
|
|
$ |
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
204.5 |
|
|
|
199.6 |
|
|
|
23.5 |
|
|
|
24.1 |
|
|
|
22.8 |
|
|
|
23.1 |
|
|
|
|
|
|
|
|
|
|
|
250.9 |
|
|
|
246.7 |
|
Depreciation, depletion and amortization |
|
$ |
9.2 |
|
|
$ |
9.2 |
|
|
$ |
5.7 |
|
|
$ |
6.2 |
|
|
$ |
2.1 |
|
|
$ |
2.1 |
|
|
|
|
|
|
|
|
|
|
$ |
17.1 |
|
|
$ |
17.5 |
|
Capital expenditures |
|
|
5.4 |
|
|
|
6.7 |
|
|
|
7.5 |
|
|
|
5.7 |
|
|
|
1.4 |
|
|
|
4.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
14.4 |
|
|
|
16.8 |
|
The clerical accuracy of the amounts set forth above may be affected by, or the amounts may not agree to the condensed
consolidated financial statements included herein due to, rounding.
28
Sales and Costs of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
|
Change |
|
Net sales |
|
$ |
404,354 |
|
|
$ |
416,493 |
|
|
$ |
(12,139 |
) |
Energy and related sales net |
|
|
1,867 |
|
|
|
2,840 |
|
|
|
(973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
406,221 |
|
|
|
419,333 |
|
|
|
(13,112 |
) |
Costs of products sold |
|
|
347,029 |
|
|
|
364,417 |
|
|
|
(17,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
59,192 |
|
|
$ |
54,916 |
|
|
$ |
4,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as a percent of Net sales |
|
|
14.6 |
% |
|
|
13.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the contribution to consolidated net sales by each business unit:
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
Percent of Total |
|
2012 |
|
|
2011 |
|
Business Unit |
|
|
|
|
|
|
|
|
Specialty Papers |
|
|
57.5 |
% |
|
|
54.1 |
% |
Composite Fibers |
|
|
27.4 |
|
|
|
30.0 |
|
Advanced Airlaid Material |
|
|
15.1 |
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Net sales for the third quarter of 2012 were $404.4 million, a 2.9% decrease compared with the
third quarter of 2011, due to unfavorable translation of foreign currencies.
On a year-over-year basis, Specialty
Papers net sales increased 3.2% as volumes shipped increased 2.5% and higher selling prices contributed $0.7 million.
Specialty Papers 2012 third quarter operating income increased $4.4 million, or 26.2% compared with the 2011 third quarter due to
a $3.5 million benefit from lower input costs, primarily purchased fiber and energy costs. These factors were partially offset by a $1.0 million decline in the net margin from energy and renewable energy credit sales.
The following table summarizes sales of excess power and related items for the third
quarters of 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
|
Change |
|
Energy sales |
|
$ |
1,799 |
|
|
$ |
3,240 |
|
|
$ |
(1,441 |
) |
Costs to produce |
|
|
(1,259 |
) |
|
|
(2,355 |
) |
|
|
1,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
540 |
|
|
|
885 |
|
|
|
(345 |
) |
Renewable energy credits |
|
|
1,327 |
|
|
|
1,955 |
|
|
|
(628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,867 |
|
|
$ |
2,840 |
|
|
$ |
(973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Composite Fibers net sales decreased $14.0 million, or 11.2%, primarily due to the translation of
foreign currencies which unfavorably impacted the comparison by $9.2 million and slightly lower selling prices which adversely impacted the comparison by $0.5 million. Shipping volumes were 2.4% lower.
Composite Fibers third-quarter 2012 operating income increased by $0.2 million in the year-over-year comparison. Lower raw
material and energy costs benefited results by $1.8 million. Unfavorable foreign currency translation impacted operating income by $1.0 million in the year-over-year comparison.
On a year-over-year basis, Advanced Airlaid Materials net sales decreased $5.3 million, or 8.1%, primarily due to a $4.4 million
unfavorable impact from the translation of foreign currencies. Volumes shipped decreased 1.1% and lower average selling prices adversely impacted results $1.1 million in the comparison.
Third-quarter 2012 operating income increased $0.4 million, or 10.5%, compared with the year ago quarter primarily due to a $2.7
million benefit from lower raw material and energy costs partially offset by lower selling prices and $1.3 million from unfavorable foreign currency translations.
Pension Expense The following table summarizes the amounts of pension expense recognized for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
|
Change |
|
Recorded as: |
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold |
|
$ |
2,266 |
|
|
$ |
1,711 |
|
|
$ |
555 |
|
SG&A expense |
|
|
610 |
|
|
|
2,378 |
|
|
|
(1,768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,876 |
|
|
$ |
4,089 |
|
|
$ |
(1,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of pension expense or income recognized each year is determined using various actuarial
assumptions and certain other factors.
- 29 -
Other and Unallocated The amount of net operating expenses not
allocated to a business unit and reported as Other and Unallocated in the Companys table of Business Unit Performance, excluding gains from sales of plant, equipment and timberlands, totaled $6.5 million in the third quarter
of 2012 compared with expenses of $7.7 million in the third quarter of 2011. The decline was primarily due to lower pension expense in the comparison related to the 2011 third quarter one-time pension settlement charge discussed previously.
Non-operating income (expense) as presented in the Business Unit Performance table includes $4.2 million of
interest expense for the third quarter of 2012, a decrease of $2.3 million in the comparison to the year-earlier quarter due to the redemption in the fourth quarter of 2011 of $100.0 million of 7 1/8% bonds.
Income taxes In the third quarter of 2012, we recorded
a $7.1 million provision for income taxes on pretax income of $27.2 million, an effective rate of 26.2%. In the third quarter of 2011, we recorded a $4.7 million provision for income taxes on pretax income of $17.7 million, an effective rate of
26.5%.
Foreign Currency We own and operate facilities in Canada, Germany, France, the United Kingdom and the
Philippines. The functional currency of our Canadian operations is the U.S. dollar. However, in Germany and France it is the Euro, in the UK it is the British Pound Sterling, and in the Philippines the currency is the Peso. During the third
quarter of 2012, Euro functional currency operations generated approximately 24.4% of our sales and 23.4% of operating expenses and British Pound Sterling operations represented 7.8% of net sales and 7.9% 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 third quarter 2012 reported results compared to the third quarter 2011:
|
|
|
|
|
In thousands |
|
Three months ended September 30 |
|
|
|
Favorable (unfavorable) |
|
Net sales |
|
$ |
(13,542 |
) |
Costs of products sold |
|
|
10,241 |
|
SG&A expenses |
|
|
1,047 |
|
Income taxes and other |
|
|
242 |
|
|
|
|
|
|
Net income |
|
$ |
(2,012 |
) |
|
|
|
|
|
The above table only presents the financial reporting impact of foreign currency translations assuming
currency exchange rates in 2012 were the same as 2011. It does not
present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and
requires significant expenditures for new or enhanced equipment, for environmental compliance matters, to support our research and development efforts and for our business strategy. In addition, we have mandatory debt service requirements of both
principal and interest. The following table summarizes cash flow information for each of the years presented:
|
|
|
|
|
|
|
|
|
|
|
Nine months ended Sept. 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
Cash and cash equivalents at beginning of period |
|
$ |
38,277 |
|
|
$ |
95,788 |
|
Cash provided (used) by |
|
|
|
|
|
|
|
|
Operating activities |
|
|
48,465 |
|
|
|
81,136 |
|
Investing activities |
|
|
(36,302 |
) |
|
|
(40,200 |
) |
Financing activities |
|
|
(22,397 |
) |
|
|
(39,495 |
) |
Effect of exchange rate changes on cash |
|
|
279 |
|
|
|
1,022 |
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) |
|
|
(9,955 |
) |
|
|
2,463 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
28,322 |
|
|
$ |
98,251 |
|
|
|
|
|
|
|
|
|
|
As of September 30, 2012, we had $28.3 million in cash and cash equivalents and $325.8 million
available under our revolving credit agreement, which matures in November 2016.
Operating cash flow declined in the
year-over-year comparison by $32.7 million. The decline was primarily due to an increase in working capital in the comparison together with the use of $16.8 million of cash in the first nine months of 2012 to return alternative fuel mixture credits
in connection with the conversion of these credits for cellulosic biofuel credits. In the same period of 2011, we received $17.8 million of cellulosic biofuel credits.
Net cash used by investing activities totaled $36.3 million in the first nine months of 2012 compared with $40.2 million in the first nine months of 2011. Capital expenditures totaled $45.0 million in the
first nine months of 2012 compared with $44.6 million in the same period of 2011. Capital expenditures are expected to approximate $85 million in 2012 including $25 million to $30 million of the $50 million investment to expand capacity to serve
Composite Fibers growth markets.
Net cash used by financing activities decreased $17.1 million in the first nine
months of 2012 compared with the same period of 2011, reflecting a $22.2 million reduction in
- 30 -
the amount of common share repurchases, partially offset by an $8.0 million repayment of borrowings under our revolving credit facility in the first nine months of 2012.
During the first nine months of 2012 and 2011 cash dividends paid on common stock totaled $11.7 million and $12.6 million,
respectively. The decline was primarily due to the impact of our 2011 share repurchase program. 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.
In May 2012, our Board of Directors authorized a two-year share repurchase program for up to $25.0 million of our outstanding common stock. The timing and actual number of shares repurchased will depend
on a variety of factors including the market price of our stock, regulatory, legal and contractual requirements, and other market factors. The program, which does not obligate us to repurchase any particular amount of common stock, may be modified
or suspended at any time at the Boards discretion. The following table summarizes share repurchases made under this program through September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
shares |
|
|
(thousands) |
|
Authorized amount |
|
|
n/a |
|
|
$ |
25,000 |
|
Repurchases |
|
|
187,975 |
|
|
|
(2,850 |
) |
|
|
|
|
|
|
|
|
|
Remaining authorization |
|
|
|
|
|
$ |
22,150 |
|
|
|
|
|
|
|
|
|
|
The following table sets forth our outstanding long-term indebtedness:
|
|
|
|
|
|
|
|
|
In thousands |
|
Sept. 30, 2012 |
|
|
Dec. 31, 2011 |
|
Revolving credit facility, due Nov. 2016 |
|
$ |
19,000 |
|
|
$ |
27,000 |
|
7.125% Notes, due May 2016 |
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
219,000 |
|
|
|
227,000 |
|
Less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
$ |
219,000 |
|
|
$ |
227,000 |
|
|
|
|
|
|
|
|
|
|
Our revolving credit facility contains a number of customary compliance covenants.
In addition, the 7.125% Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the credit agreement at maturity, or a default under the credit
agreement, that accelerates the debt outstanding thereunder. As of September 30, 2012, we met all of the requirements of our debt covenants. The significant terms of the debt instruments are more fully discussed in Item 1 - Financial
Statements Note 9.
On October 3, 2012, we completed a private placement offering of $250.0 million aggregate
principal amount of 5.375% Senior Notes due 2020. The net proceeds from this offering totaled approximately $246.3 million, after deducting the commissions
relating to the offering and were used to tender and call $200.0 million aggregate principal amount of our outstanding 7.125% notes due May 2016, plus the payment of the applicable redemption
premium and accrued interest. We used the remaining net proceeds to repay amounts outstanding under our revolving credit facility and for general corporate purposes.
We are subject to various federal, state and local laws and regulations which operate to protect the environment as well as human health and safety. We have, at various times, incurred significant cost to
comply with these regulations, as new regulations are developed or regulatory priorities change. Currently, we anticipate that we could incur material capital and operating costs to comply with several air quality regulations including the U.S. EPA
Best Available Retrofit Technology rule (BART; otherwise known as the Regional Haze Rule) and the Boiler Maximum Achievable Control Technology rule (Boiler MACT). For example, on March 21, 2011, the U. S. Environmental Protection Agency issued
new rules which could require process modifications and/or installation of air pollution controls on power boilers at two of our facilities. We are currently reviewing these rules, and challenges to them filed by others in the court system, to
understand the effect they may have on our operations if we are required to comply with the rules in their current form. We are also evaluating options that may be available to us, such as reducing or curtailing boiler usage or modifying the types
of boilers operated or fuel consumed. The cost of compliance is likely to be significant. Our initial estimates to implement viable options could result in additional capital spending in excess of $30 million; however, the amount ultimately incurred
may be less depending on the outcome of challenges to current rules or on our successful implementation of appropriate available options. In addition, the timing of any additional capital spending is uncertain. Enactment of new environmental laws or
regulations or changes in existing laws or regulations could significantly change our estimates.
- 31 -
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.
In connection with our amendment our federal income tax returns to convert
alternative fuel mixture credits to cellulosic biofuel credits, we were required to return to the Internal Revenue Service approximately $16.8 million, net of credits used to reduce estimated tax payments, during the third quarter of 2012. Based on
current regulations and on our assumptions regarding future financial results, we expect to be able to utilize the cellulosic biofuel production credits to reduce future income tax payments, including $2.7 million, net of interest, in the fourth
quarter of 2012. However, changes in regulations or actual financial performance could affect our ability to utilize such credits.
We expect to meet all of our near- and longer-term cash needs from a combination of operating cash flow, cash and cash equivalents, our 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.
Off-Balance-Sheet Arrangements As of September 30, 2012 and December 31, 2011, 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 Specialty Papers, we expect shipping volumes to decline slightly in
the fourth quarter of 2012 compared with the third quarter of 2012, due to normal seasonality. Selling prices are expected to be slightly lower and input costs are expected to be in line with the third quarter.
We anticipate Composite Fibers shipping volumes will be approximately 5% lower in the fourth quarter compared to the third
quarter due to normal seasonality and soft economic conditions in Europe, while selling prices and input costs are expected to be generally in line with the third quarter of 2012. As a result of the October 2012 fire sustained at our Scaer, France
facility, we expect to incur costs approximating $4.0 million to $6.0 million related to repairs, cleaning and downtime due to the incident. Although the fire is expected to be covered by insurance, we expect this business units fourth quarter
2012 results will be adversely impacted due to machine downtime and costs associated with the fire and differences in the timing of the recognition of any insurance recoveries.
Shipping volumes for the Advanced Airlaid Materials business unit in the fourth quarter of 2012 are expected to be slightly lower than
the third quarter of 2012. Average selling prices are expected to be slightly lower driven by lower input costs in the fourth quarter compared with the third quarter.
In addition, we expect to take our normal seasonal down time in the fourth quarter of 2012.
In connection with the previously announced refinancing of $200.0 million of its 7.125% senior notes, we expect to record an after-tax charge of approximately $5.0 million related to an early redemption
premium and the write-off of unamortized deferred financing costs. We replaced these notes with the issuance of $250 million of 5.375% senior notes due October 2020.
- 32 -
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
At September 30, 2012 |
|
Dollars in thousands |
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
Carrying Value |
|
|
Fair Value |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average principal outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At fixed interest rates Bond |
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
76,923 |
|
|
$ |
200,000 |
|
|
$ |
204,750 |
|
At variable interest rates |
|
|
19,000 |
|
|
|
19,000 |
|
|
|
19,000 |
|
|
|
19,000 |
|
|
|
16,077 |
|
|
|
19,000 |
|
|
|
19,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
219,000 |
|
|
$ |
223,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On fixed rate debt Bond |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
7.13 |
% |
|
|
|
|
|
|
|
|
On variable rate debt |
|
|
1.96 |
% |
|
|
1.96 |
% |
|
|
1.96 |
% |
|
|
1.96 |
% |
|
|
1.96 |
% |
|
|
|
|
|
|
|
|
The table above presents the average principal outstanding and related interest rates for
the next five years for debt outstanding as of September 30, 2012. Fair values included herein have been determined based upon rates currently available to us for debt with similar terms and remaining maturities.
Our market risk exposure primarily results from changes in interest rates and currency exchange rates. At September 30, 2012, we
had long-term debt outstanding of $219.0 million, of which $19.0 million, or 8.7%, was at variable interest rates. Variable-rate debt outstanding represents borrowings under our revolving credit agreement that accrues interest based on one month
LIBOR plus a margin. At September 30, 2012, the weighted-average interest rate paid on variable-rate debt was approximately 1.96%. A hypothetical 100 basis point increase or decrease in the interest rate on variable rate debt would increase or
decrease annual interest expense by $0.2 million.
As part of our overall risk management practices, we enter into financial
derivatives primarily designed to either i) hedge foreign currency risks associated with forecasted transactions cash flow hedges; or ii) mitigate the impact that changes in currency exchange rates have on intercompany financing
transactions and foreign currency denominated receivables and payables foreign currency hedges. For a more complete discussion of this activity, refer to Item 1 Financial Statements Note 12.
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 nine months of 2012, Euro functional currency operations generated approximately 25.4% of our sales and 24.3% of operating expenses and
British Pound Sterling operations represented 7.6% of net sales and 7.5% 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 September 30, 2012, 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 September 30, 2012, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
- 33 -
PART II
ITEM 5. |
OTHER INFORMATION |
In June 2011, the Financial Accounting Standards Board issued guidance on the presentation of comprehensive income in financial statements. Entities are required to present total comprehensive income
either in a single, continuous statement of comprehensive income or in two separate, but consecutive, statements. We adopted this standard as of January 1, 2012, and will present net income and other comprehensive income in two separate
statements in our annual financial statements. The table below reflects the unaudited retrospective application of this guidance for each of the three years ended December 31st. The unaudited retrospective application did not have a material impact on our financial condition or results of
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
In thousands, except per share |
|
2011 |
|
|
2010 |
|
|
2009 |
|
Net income |
|
$ |
42,694 |
|
|
$ |
54,434 |
|
|
$ |
123,442 |
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(10,160 |
) |
|
|
(17,227 |
) |
|
|
11,941 |
|
Deferred losses on cash flow hedges |
|
|
1,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized retirement obligations |
|
|
(36,519 |
) |
|
|
15,865 |
|
|
|
44,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
(45,494 |
) |
|
|
(1,362 |
) |
|
|
56,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(2,800 |
) |
|
$ |
53,072 |
|
|
$ |
179,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income for the year ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Net income (loss) |
|
$ |
42,694 |
|
|
$ |
10,560 |
|
|
$ |
39,137 |
|
|
$ |
(49,697 |
) |
|
$ |
42,694 |
|
Other comprehensive income (loss) |
|
|
(45,494 |
) |
|
|
(3,350 |
) |
|
|
(5,276 |
) |
|
|
8,626 |
|
|
|
(45,494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(2,800 |
) |
|
$ |
7,210 |
|
|
$ |
33,861 |
|
|
$ |
(41,071 |
) |
|
$ |
(2,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income for the year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Net income (loss) |
|
$ |
54,434 |
|
|
$ |
8,301 |
|
|
$ |
22,479 |
|
|
$ |
(30,780 |
) |
|
$ |
54,434 |
|
Other comprehensive income (loss) |
|
|
(1,362 |
) |
|
|
(6,875 |
) |
|
|
(15,406 |
) |
|
|
22,281 |
|
|
|
(1,362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
53,072 |
|
|
$ |
1,426 |
|
|
$ |
7,073 |
|
|
$ |
(8,499 |
) |
|
$ |
53,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income for the year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Net income (loss) |
|
$ |
123,442 |
|
|
$ |
6,192 |
|
|
$ |
11,957 |
|
|
$ |
(18,149 |
) |
|
$ |
123,442 |
|
Other comprehensive income (loss) |
|
|
56,248 |
|
|
|
8,842 |
|
|
|
3,955 |
|
|
|
(12,797 |
) |
|
|
56,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
179,690 |
|
|
$ |
15,034 |
|
|
$ |
15,912 |
|
|
$ |
(30,946 |
) |
|
$ |
179,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 34 -
The following exhibits
are filed herewith or incorporated by reference as indicated.
|
|
|
31.1 |
|
Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 302(a) 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(a) of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350. |
|
|
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. |
|
|
101.INS |
|
XBRL Instance Document * |
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema * |
|
|
101.CAL |
|
XBRL Extension Calculation Linkbase * |
|
|
101.DEF |
|
XBRL Extension Definition Linkbase * |
|
|
101.LAB |
|
XBRL Extension Label Linkbase * |
|
|
101.PRE |
|
XBRL Extension Presentation Linkbase * |
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) |
|
|
|
|
November 2, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By |
|
/s/ David C. Elder |
|
|
|
|
|
|
David C. Elder |
|
|
|
|
|
|
Vice President, Finance |
- 35 -