1- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 2000
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 2001 1-3560
P. H. GLATFELTER COMPANY
-----------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0628360
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
96 South George Street, Suite 500
York, Pennsylvania 17401
- ---------------------------------- -------------------
PENNSYLVANIA 23-0628360
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
96 SOUTH GEORGE STREET, SUITE 500 17401
YORK, PENNSYLVANIA (Zip Code)
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number,
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(717) 225-4711
including area code -------------------
Securities registered pursuant to SectionSECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:
Common Stock New York Stock Exchange
- --------------------- ----------------------------------------OF THE ACT:
COMMON STOCK NEW YORK STOCK EXCHANGE
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:
None
--------------OF THE ACT:
NONE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates at March 1, 2001February 27, 2002 was $313,227,001.
Common Stock outstanding at March 1, 2001: 42,435,131 Shares$465,893,015.
COMMON STOCK OUTSTANDING AT MARCH 19, 2002:
43,454,214 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this
Report on Form 10-K: Proxy Statement dated March 19, 2001April 9, 2002 (Part III)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[This page intentionally left blank]
P. H. GLATFELTER COMPANY
FORM 10-K
YEAR ENDED DECEMBER 31, 2001
INDEX
PAGE
----
PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 7
Item 3 Legal Proceedings........................................... 8
Item 4 Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 11
Item 6 Selected Financial Data..................................... 12
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 7A Quantitative and Qualitative Disclosures about Market
Risk........................................................ 22
Item 8 Financial Statements and Supplementary Data................. 23
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 49
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 49
Item 11 Executive Compensation...................................... 49
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 49
Item 13 Certain Relationships and Related Transactions.............. 49
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 50
SIGNATURES
SCHEDULE II
PART I
ItemITEM 1. Business.
The Registrant,BUSINESS
Glatfelter, a paper manufacturing company, began operations in Spring
Grove, Pennsylvania in 1864 and was incorporated as a Pennsylvania corporation
in 1905. The Registrant has threeWe have two paper mills located in the United States: Spring Grove,
Pennsylvania; Pisgah Forest, North Carolina;Pennsylvania and Neenah, Wisconsin. The RegistrantWe also hashave paper mills in Gernsbach,
Germany and Scaer, France. The Registrant also ownsFrance and operatesown and operate a manufacturing facility in
Wisches, France and an abaca pulpmill in the Philippines. The Registrant
manufacturesWe manufacture
engineered papers and specialized printing papers.
The Registrant'sOur engineered papers are used in the manufacture of a variety of products,
including tea bags, cigarette papers, cigarette tipping
and plug wrap papers, metalized beverage labels, decorative laminates, food
product casings, stencil papers, photo-glossy ink jet papers, greeting cards,
medical dressings, highway signs and striping, billboard graphics, decorative
shopping bags, playing cards, postage stamps, filters, cigarette papers, labels
and surgical gowns. Sales of these papers are generally made directly to the
converter of the paper. Engineered papers are manufactured in each of the Registrant'sour mills.
Most of the Registrant'sour specialized printing paper products are directed at the
uncoated free-sheet portion of the industry. The Registrant'sOur specialized printing paper
products are used principally for the printing of case bound and quality
paperback books, envelope converting and commercial and financial printing and
envelope converting.printing.
Specialized printing papers are manufactured in each of the
Registrant'sour mills except the
Scaer mill.
In 2000,2001, sales of paper for book publishing and commercial printing
generally were made through wholesale paper merchants, whereas sales of paper to
converters and financial printers and converters generally were made directly. Net sales to
each of the Registrant'sour customers were less than 10% of the
Registrant's net sales during 1998, 1999, 2000 and
2000.
2
3
A significant portion2001. Net sales to one customer, Central National-Gottesman Inc. (which buys
paper through its division, Lindenmeyr Book Publishing), in 2001 were
approximately 11% of total net sales excluding the Ecusta Division, which was
sold in 2001.
During August 2001, we completed the sale of our Ecusta facility in Pisgah
Forest, North Carolina and its operating subsidiaries ("Ecusta Division"). The
impact of this sale is described in the "Unusual Items" section of our
Management's Discussion and Analysis of Financial Condition and Results of
Operations (see Item 7).
Prior to our sale of the Pisgah Forest mill's salesEcusta Division, approximately 49% and a
modest portion25% of the
Ecusta Division and Gernsbach mill's 2001 net sales, from the Gernsbach and Scaer mills arerespectively, were made to
a limited number of major tobacco companies. Legal, regulatorySubsequent to the sale of the Ecusta
Division, all tobacco papers sales of the Gernsbach mill, or approximately 19%
of its net sales, were sold to the buyer of the Ecusta Division under a supply
agreement. The supply agreement, which expires on July 31, 2004, calls for a
reduction in supply of these papers in each year through the agreement's
expiration. We plan to replace the lost volume of tobacco papers sales with
other engineered papers, specifically overlay papers. In connection with this
plan, we are proceeding with an investment of approximately $30 million to
expand our capacity to produce overlay and other papers at the Gernsbach mill.
This project will be complete upon the expiration of the supply agreement. Our
decision to sell the Ecusta Division and transition our Gernsbach mill's tobacco
papers sales to overlay papers greatly reduces our exposure to the difficult
economic and competitive pressures onconditions facing paper suppliers of the tobacco
industry in the United States and elsewhere could have
a material adverse effect on future tobacco paper sales. The profitability of
these mills has already been negatively affected by these pressures. In that
regard, in December 1999, the Registrant announced that it would begin reducing
its tobacco paper manufacturing capacity at its Pisgah Forest mill during 2000.
As a result, the Registrant has eliminated approximately 200 salaried and
hourly jobs and has shut down three paper machines.industry.
See Note 1110 to the Registrant's 2000 consolidated financial
statementsour 2001 Consolidated Financial Statements in Item 8 for
other sales and geographic disclosure.
For more than a year, the Registrant has beenWe are continuously developing and refining strategies to position itsour
business for the future. Execution of these strategies is intended to result in
a reorganization of the Registrant'sour business to capitalize on its strengthsour strength in customer
relationships, technology and people and itsour leadership positionsposition in certain
markets. Internally, the
Registrant iswe are working to improve the efficiency of itsour operations.
Externally, the Registrant iswe are looking to strengthen itsour business through strategic
alliances and joint ventures, as well as potential acquisition opportunities or
dispositions of under-performing or non-strategic assets.
1
The competitiveness of the markets in which the Registrant sells
itswe sell our products varies.
The necessity for technical expertise limits the number of competitors for the Registrant'sour
engineered papers. Despite the technical
expertise required to make tobacco papers, competition for such papers is
currently intense as a result of excess worldwide capacity. There are a number of companies in the United States
manufacturing specialized printing papers, and no one company holds a dominant
position. Capacity in the worldwide uncoated free-sheet industry, which includes
uncoated specialized printing papers, has declined in recent years and is not
expected to increase significantly for the next few years. Service, product
performance and technological advances are important competitive factors with
respect to all of the Registrant'sour products. The Registrant believes itsWe believe our reputation in these areas continues
to be excellent.
Backlogs are generally not significant in the Registrant'sour business, as substantially
all of the Registrant'sour customer orders are produced within 30 days of receipt. A backlog of
unmade customer orders is monitored primarily for purposes of scheduling
production to optimize paper machine performance. From time to time, the Registrantwe may
determine that the backlog of unmade orders, along with high finished goods
inventory levels, may be insufficient to warrant a full schedule of paper
machine production. In these circumstances, certain paper machines may be
temporarily shut down until backlog and inventory levels justify a resumption of
operations.
3
4
The principal raw material used at the Spring Grove mill is pulpwood. In
2000, the Registrant2001, we acquired approximately 75% of itsour pulpwood from saw mills and
independent logging contractors and 25% from Company-owned timberlands. Hardwoodtimberlands located
in Delaware, Maryland, Pennsylvania, and Virginia. These timberlands are
maintained for the purpose of providing wood to our Spring Grove mill.
Occasionally, some product from our timberlands may be sold to outside parties,
but such transactions are not significant. During 2001, hardwood and softwood
purchases constituted 49% and 51% of the pulpwood acquired, respectively.
Hardwoods are available within a relatively short distance of the Registrant'sour Spring Grove
mill. Softwood is obtained primarily from Maryland, Delaware and Virginia. To
protect itsour sources of pulpwood, the Registrantwe actively promotespromote conservation and forest
management among suppliers and woodland owners. In addition, its subsidiary, The Glatfelter
Pulp Wood Company hasOver the past five years, we
have acquired 5,144 acres of woodlands particularly softwood growing land,
with the objective of having a significant portionand now supply approximately 38% of the
Registrant's softwood requirement availableand 5% of hardwood requirements of the Spring Grove mill from Company-owned woodlands.our own
timberland.
The Spring Grove pulpmill converts pulpwood into wood pulp for use in its
papermaking operations. In addition to the pulp it produces, the Spring Grove
mill purchases market pulp from others. The principal raw material used byDuring 2001, approximately 11% of the
Spring Grove mill's pulp requirements were supplied through the purchase of pulp
from third parties.
During 2001, approximately 71% of the Neenah mill ismill's fiber requirements were
met with pulp made at Neenah from high-grade, recycled wastepaper. The quality
of different types of high-grade wastepaper varies significantly depending on
the amount of contamination. Wastepaper prices
rose early in 2000 and then dropped throughout the remainder of 2000 and in
early 2001. The Registrant expects such prices to continue dropping until
mid-year 2001 and to remain steady for the remainder of 2001. It is anticipated that there will be an adequate
supply of wastepaper in the future.
The major raw materials used at the Pisgah Forest mill are
purchased wood pulp and processed flax straw, which is derived from linseed flax
plants. The current supply of wood pulp and flax straw is sufficient for the
present and anticipated future operations at the Pisgah Forest mill. The Pisgah
Forest mill receives a majority of its processed flax straw from the
Registrant's Canadian operation.
The principal raw materials used by the Schoeller & Hoesch ("S&H") mills in
Gernsbach and Scaer are purchased wood pulp and abaca pulp provided by S&H's
Philippine pulpmill. The current supply of such materials is sufficient for the
present and anticipated future operations of these mills. 4
5We plan to invest $6,000,000 in capital to
expand the capacity of the abaca pulpmill by 2004 in order to meet the
anticipated future needs of the Gernsbach and Scaer facilities. This expansion
is part of our strategy to transition our remaining tobacco papers to long-fiber
and overlay papers.
Wood and other pulp purchased from others for all our current facilities
comprised approximately 122,000101,000 short tons or 26%24% of theour total 20002001 fiber
requirements of the Registrant.requirements. The average cost of purchased pulp during 20002001 was higherlower than in
1999.2000. Market pulp prices decreased steadily through August 2000 and increased
slightly in February and March 2001. The Registrant expects one
additionalOctober. Aside from minor price decreasedecreases in the secondfirst quarter of
2001.2002, pulp prices are expected to remain steady throughout 2002.
The Registrant's Spring Grove millfacility generates all100% of itsthe steam requirements and is 100% self-sufficient in electrical energy generation. The
millelectricity
required for operations. This facility also produces excess electricity, which
is sold to the local power company under a long-term co-generation contract.
These net energy sales were $9,243,000$9,661,000 in 2000.2001. Principal fuel sources used by
the Spring Grove millfacility are coal, spentrecycled pulping chemicals, bark and wood
waste, and oil (#2 and #6), which were used to produce approximately 57%59%, 36%35%,
7%5% and less than 1%, respectively, of the total energy internally generated at the Spring Grove
millfacility in 2000.
The Pisgah Forest mill generates all of its steam requirements
and a majority of its electric power requirements (64% in 2000) and purchases
the remainder of its electric power requirements. Coal was used to produce
essentially all of the mill's internally generated energy during 2000.2001.
2
During 1998, the Neenah millfacility began to purchasepurchasing steam under a twenty-year
contract from a facility of Minergy Corporation. TheThis facility, which is located
adjacent to theour Neenah mill,facility, processes paper mill sludge from theour Neenah
millfacility as well as other mills in the Neenah area. During 2000,2001, the Neenah
mill purchased 68%facility generated 21% of its required steam and purchased the balance from
Minergy Corporation and generated 32% of
its steam requirements.Corporation. The Neenah millfacility generates a portion of its electric
power requirements (14%(12% in 2000)2001) and purchases the remainder of its electric
power requirements.remainder. Gas was used to
produce almost all of the mill's internally generated steam during 2000 with2001; fuel
oil beingwas used to generate the remainder.
The Gernsbach and Scaer millsfacilities both generate all of their ownthe steam requirements.required for
operations. The Gernsbach millfacility generated approximately 34%32% of its 2000
electric power requirements2001
electricity and purchased the balance. Gas was used to produce almost all of
the mill'sGernsbach's internally generated energy during 2000.2001. The Scaer millfacility
purchased all of its 20002001 electric power requirements.
The Registrant hasWe have approximately 3,4002,400 active full-time employees.employees and consider the
overall relationship with our employees to be satisfactory.
Hourly employees at the Registrant'sour U.S. millsfacilities are represented by different locals
of the Paper, Allied-Industrial, 5
6
Chemical and Energy Workers International
Union. In October 1996, a five-year
labor agreement that covers approximately 730 employees at the Pisgah Forest
mill was ratified. A five-year labor agreement that covers approximately 300 employees at
the Neenah millfacility was ratified in August 1997.1997 and will expire in August 2002.
A five-year labor agreement that covers approximately 700 employees in Spring
Grove was ratified in January 2000.1998 and will expire in January 2003. Under all of these
agreements, wages increased by 3% in 2000
and will increase by 3% per year for the duration of the agreements.
Approximately 810 hourly employees at the Registrant's860 of our S&H locationsemployees are represented by various unions. A
two-year labor agreement that
coverscovering approximately 620 hourly640 employees at the Gernsbach mill was ratifiedfacility
expired on February 28, 2002. A labor agreement covering approximately 140
employees at the Scaer facility expired on January 31, 2002. The terms and
conditions of these expired agreements will remain in March 2000.effect until the new
agreements are negotiated, though any wage increase negotiated in the new
agreements will be retroactive to the respective expiration dates of the old
agreements. We are not directly involved in these negotiations as paper industry
representatives are negotiating the agreements. This situation is not unusual in
Germany and France, and we do not believe that the lack of an agreement will
result in any significant operational interruptions.
Approximately 50 employees at our abaca pulpmill in the Philippines are
covered by a labor agreement, which expires in September 2002. Under this
agreement, salariesemployees received a 2001 wage increase of 42.50 Philippine Pesos per
day. The 2002 wage increase will increasebe determined by 2.2%the new agreement in 2001 and
2.0% inSeptember
2002.
ENVIRONMENTAL MATTERS
The Registrant isWe are subject to loss contingencies resulting from regulation by various
federal, state, local and foreign governmental authorities with respect to the
environmental impact of air and water emissions and noise
from its mills, as well as the disposal of solid waste generated by its
operations.our mills. To comply with environmental laws and
regulations, the Registrant
haswe have incurred substantial capital and operating expenditures in
past years. The
Registrant anticipatesWe anticipate that environmental regulation of itsour operations will
continue to become more burdensome and that capital and operating expenditures
necessary to comply with environmental regulations will continue, and perhaps
increase, in the future. In addition, the Registrantwe may incur obligations to remove or
mitigate any adverse effects on the environment resulting from itsour operations,
including the restoration of natural resources, and liability for personal
injury and damagefor damages to property includingand natural resources. Because environmental
regulations are not consistent worldwide, the Registrant'sour ability to compete in the world
marketplace may be adversely affected by capital and operating expenditures
required for environmental compliance. For further information with respect to such
compliance, reference is made to Item 3 of this report.
Compliance with governmental and environmental regulations and requirements
is an absolute necessity. To meet environmental requirements, we have undertaken
a variety of projects. Subject to permit approval, the Registrant hasapprovals, we have undertaken an
initiative at our Spring Grove facility under the Voluntary Advanced Technical
Incentive Program ofset forth by the United States Environmental Protection Agency
("EPA") to comply with newin the "Cluster Rule" regulations.. This initiative, is part of the Registrant's "New Century Project," which will
require capital expenditures currently estimated at
3
approximately $30,000,000$32,500,000 to be incurred before April 2004. Compliance with government environmental regulationsThrough 2001, we
have invested approximately $2,400,000 in this project including $900,000 in
2001. We estimate that $6,700,000, $18,000,000 and $5,400,000 will be spent on
this project during 2002, 2003 and 2004, respectively. The Cluster Rule is a
matter
of high priority1998 federal regulation in which the EPA aims to regulate air and water
emissions from certain pulp and paper mills, including kraft pulp mills such as
our Spring Grove facility. Issued under both the Registrant. To meet environmental requirements,Clean Air Act and the Registrant has undertaken a variety of projects.
6
7
During 2000,Clean
Water Act, the Registrant expended approximately $2,600,000Cluster Rule establishes baseline emissions limits for toxic and
non-conventional pollutant releases to both water and air.
In total, we spent $1,700,000 on environmental capital projects. The Registrant estimates that projects requiring total
expenditures of $8,900,000 and $22,300,000 for environmental-related capital
will be initiated in 2001 and
we estimate spending $7,400,000, $19,900,000 and $6,800,000 in 2002, respectively. Since2003 and
2004, respectively, for such projects. In our 2000 Form 10-K, we estimated
environmental capital expenditures for pollution abatement generally do not increase2001 and 2002 that were higher than the
productivity or efficiency of
the Registrant's mills, the Registrant's earnings have beenamounts noted above. Our actual 2001 and will be
adversely affected to the extent that selling prices have not been and cannot be
increased to offset additional incremental operating costs, including
depreciation, resulting from suchcurrent estimates for projected
environmental related capital expenditures andreflect a change in the timing of
these expenditures, primarily due to offset additional
interest expense ona delay in the amounts expended forreceipt of permits related
to several of these projects. The aggregate amount of projected environmental
purposes.related capital expenditures has not changed significantly; however, a more
significant amount of these expenditures is now expected to be incurred
subsequent to 2002.
SPRING GROVE, PENNSYLVANIA -- AIR. In 1999, EPA and the Pennsylvania
Department of Environmental Protection ("Pennsylvania DEP") issued to the Registrantus
separate Notices of Violation ("NOVs") alleging violations of the federal and state air pollution
control laws, primarily for purportedly failing to obtain appropriate
preconstructionpre-construction air quality permits in conjunction with certain modifications
to the
Registrant'sour Spring Grove mill. EPA announced that the Registrant was one of
seven pulp and paper mill operators to have received contemporaneously an NOV
alleging this kind of violation.facility. EPA and the Pennsylvania DEP primarily alleged
that the Registrant'sour modifications produced (1) significant net emissions increases in certain
air pollutants whichthat should have been covered by appropriate permits imposing newcontaining reduced
emissions limitations, and (2) certain other violations.limitations.
For all but one of the modifications cited by EPA, the Registrantwe applied for and
obtained from the Pennsylvania DEP the preconstructionpre-construction permits which the
Registrantthat we
concluded were required by applicable law. EPA reviewed those applications
before the permits were issued. The Pennsylvania DEP's NOV pertained only pertained to the
modification for which the Registrantwe did not receive a preconstructionpre-construction permit. The RegistrantWe
conducted an evaluation at the time of this modification and determined that the
preconstructionpre-construction permit cited by EPA and the Pennsylvania DEP was not required.
The Registrant hasWe have been informed that EPA and the Pennsylvania DEP will seek substantial
emissions reductions, as well as civil penalties, to which the
Registrant believes it haswe believe we have
meritorious defenses. Nevertheless, the Registrant iswe are unable to predict the ultimate
outcome of these matters or the costs involved,
and there can be no assurance that such costs would notinvolved.
NEENAH, WISCONSIN -- WATER. We have a material adverse
effect on the Registrant's consolidated financial condition, liquidity or
results of operations.
7
8
The Registrant faces a set of related threatenedpreviously reported with respect to
potential environmental claims arising out of the presence of polychlorinated
biphenyls ("PCBs") in sediments in the lower Fox River below Lake Winnebago and in the Bay of Green
Bay, downstream of our Neenah, Wisconsin facility. We acquired the Registrant's
Neenah
mill.facility in 1979 as part of the acquisition of the Bergstrom Paper Company. In
part, this facility uses wastepaper as a source of fiber. At no time did the
Neenah facility utilize PCBs in the pulp and paper making process, but
discharges from the facility containing PCBs from wastepaper may have occurred
from 1954 to the late 1970s. Any PCBs that the Neenah facility discharged into
the Fox River resulted from the presence of NCR(R)-brand carbonless copy paper
in the wastepaper that was received from others and recycled.
As described below, various sovereignsstate and federal governmental agencies have
formally notified seven potentially responsible parties ("PRPs"), of which the Registrant is one,including
Glatfelter, that they are potentially responsible for investigation, cleanupresponse costs and
natural"natural resource damagesdamages" ("NRDs") arising from thisPCB contamination in the lower
Fox River and in the Bay of Green Bay, under the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") and other laws.statutes. The six
other identified PRPs include NCR Corporation, Appleton Papers Inc., Georgia
Pacific Corp., WTM I Co. (a subsidiary of Chesapeake Corp.), Riverside Paper
Company, and U.S. Paper Mills Corp. (now owned by Sonoco Products Company).
CERCLA establishes a two-part liability structure that makes responsible
parties liable for (1) "response costs" associated with the remediation of a
release of hazardous substances and (2) NRDs related to that release. Courts
have interpreted CERCLA to impose joint and several liability on responsible
parties, subject to equitable allocation in certain instances. Prior to a final
settlement by all responsible parties and the final cleanup of the
contamination, uncertainty regarding the application of such liability will
persist.
4
On October 2, 2001, the Wisconsin Department of Natural Resources
("Wisconsin DNR") notifiedand EPA issued drafts of the Registrant and other PRPs informally in 1990 that it wished to pursue
cleanup of certain sediments inreports resulting from the Fox River under state law. DNR subsequently
asserted claims under federal law as well for cleanup and for natural resource
damages. Since 1998, DNR has been performing a
remedial investigation and the feasibility study ("RI/FS") of the PCB contamination of the
lower Fox River and the Bay of Green Bay. On that same day, the Wisconsin DNR
and EPA issued a Proposed Remedial Action Plan ("PRAP") for the cleanup of the
lower Fox River and the Bay of Green Bay, under contract to the
EPA. In February 1999, DNR issued a draft RI/FS report estimating the total costs of
potential remedies forassociated
with the Fox Riverproposed response action at between $0 and $721,000,000, but did not
select$307,600,000 (without a preferred remedy.contingency factor)
over a 7-to-18-year time period. The Registrant does not believe that the no action
remedy will be selected. The largest componentsmost significant component of the estimated
costs of certain of the
remedial alternatives areis attributable to large-scale sediment removal by dredging. There is no assuranceBased on cost
estimates of large-scale dredging response actions at other sites, we believe
that the PRAP's cost estimates inprojections may underestimate actual costs of the draft RI/FS willproposed
remedy by over $800,000,000.
We do not differ significantly from actual costs. Under ordinary procedures,believe that the final
RI/FS report will be issued along withresponse action proposed by the Wisconsin DNR
and EPA is appropriate or cost effective. We believe that a proposed remedial action plan ("PRAP").
EPA will consider comments on the PRAP and then will select aprotective remedy
for Little Lake Butte des Morts, the site. EPA and DNR have stated publiclyportion of the river that the RI/FSis closest of our
Neenah facility, can be implemented at a much lower actual cost than would be
issued in 2000.
The expected date of issuance was subsequently delayed to the spring of 2001 and
has now been further delayed.
Based on current information and advice from its environmental
consultants, the Registrant continues toincurred performing large-scale dredging. We also believe that an aggressive
effort as
included in certain remedial alternatives in the draft RI/FS, to remove the PCB-contaminated sediment, much of which is buried under
cleaner materialsediment or is otherwise unlikely to move and which is abating
naturally, would be environmentally detrimental and, therefore, inappropriate.
8
9
In January 1997, DNR,inappropriate at
all locations of the Wisconsin Department of Justice
("WDOJ"), and the seven PRPs entered into an agreement to conduct a cooperative
natural resource damages assessment ("NRDA"). While that NRDA has not been
completed, based upon work conducted to date, DNR and WDOJriver. We have proposed to enter intodredge and cap certain
delineated areas with relatively higher concentrations of PCBs in Little Lake
Butte des Morts. We have accrued an amount to cover this project, potential NRD
claims, claims for reimbursement of expenses of other parties and residual
liabilities.
We have submitted comments to the PRAP that advocate vigorously for the
implementation of environmentally protective alternatives that do not rely upon
large-scale dredging. EPA, in consultation with the Wisconsin DNR, will consider
comments on the PRAP and will then select a settlement with another PRPremedy to address the contaminated
sediment. Because we have thus far been unable to persuade the EPA and the
Wisconsin DNR of the correctness of our assessment (as evidenced by the issuance
of the PRAP), we are becoming less confident that an alternative remedy totally
excluding large-scale dredging will be implemented. Therefore, we have increased
the reasonably possible estimate of our potential cost in this matter. The
issuance of the PRAP has not materially impacted the amount we have accrued for
this matter, however, as we continue to believe that ultimately we will be able
to convince the EPA and the Wisconsin DNR that large-scale dredging is
inappropriate.
As noted above, NRD claims are theoretically distinct from costs related to
the primary remediation of a Superfund site. Calculating the value of NRD claims
is difficult, especially in the absence of a completed remedy of the underlying
contamination. The State of Wisconsin has informally asserted claims for NRDs
against the identified PRPs regarding alleged injuries to natural resources
under its alleged trusteeship in the lower Fox River and the Bay of Green Bay.
To date, Wisconsin has not prepared any estimates of the alleged value of its
share of the natural resource
damages liability. The proposed settlement does not state explicitly the total
amount of natural resource damages, but it calls for such other PRP to spend
$7,000,000NRD settlements nor finalized any claims from which that value could be
estimated. Based on resource restoration projects.available information, we believe that any NRD claims that
Wisconsin may bring will likely be legally and factually without merit.
The United States Fish and Wildlife Service ("FWS"), the National Oceanic
and Atmospheric Administration ("NOAA"), four Indian tribes and the Michigan
Attorney General claimalso assert that they possess NRD claims related to be trustees for natural resources injured by
the PCBs in thelower
Fox River and the Bay of Green Bay. In June 1994, FWS notified the Registrant and otherseven
identified PRPs that it considered them potentially responsible for natural resource damages.NRDs. The
federal, tribal and Michigan agencies claiming to be NRD trustees have proceeded
with the preparation of an NRDANRD assessment separate from the work performed byWisconsin DNR. While
the final report of assessment will be delayed until after the selection of a remedy, for the site, on October 25, 2000, the
federal trustees released a restoration and compensation determination plan ("RCDP")on October 25, 2000 that estimatesvalues the NRDs for
injured natural resource damages for the site atresources between $176,000,000 and $333,000,000. The RegistrantWe believe that
the federal NRD assessment is technically and procedurally flawed. We also
believe that the NRD claim alleged by the federal, tribal and Michigan entities
are legally and factually without merit.
We are seeking settlement with the Wisconsin agencies and EPAwith the federal
government for all of itsour potential liabilities for response actionscosts and natural resource
damagesNRDs
associated with the site.contamination. The Registrant believesWisconsin DNR and FWS have published
studies, the latter in draft form, estimating the amount of PCBs discharged by
each PRP that estimate the federal,
tribalvolumetric share of the discharge from our Neenah
facility to be as high as 27%. We do not
5
believe the volumetric estimates used in these studies are accurate because the
studies themselves disclose that they are not accurate and Michigan natural resource damages claims are without merit,based on
assumptions for which there is no evidence. We believe that our volumetric
contribution is significantly lower. We further maintain that we do not believe
that a volumetric allocation would constitute an equitable distribution of the
potential liability for the contamination. Other factors, such as the location
of contamination, location of discharge and thata party's role in causing discharge
must be considered in order for the federal NRDA is technicallyallocation to be equitable. We have entered
into interim cost-sharing agreements with four of the other six PRPs, pursuant
to which the PRPs have agreed to share both defense costs and procedurally flawed. The Registrant further
maintains that itscosts for
scientific studies relating to PCBs discharged into the Lower Fox River. These
interim cost-sharing agreements have no bearing on the final allocation of costs
related to this matter. Based upon our evaluation of the magnitude, nature and
location of the various discharges of PCBs to the river and the relationship of
those discharges to identified contamination, we believe our share of any
liability as among the seven identified PRPs is much less than one-seventh andof the
whole.
We also believe that additional potentially responsible parties exist other
than the seven identified byPRPs, which are all paper companies. For instance,
certain of the governments.
The Registrantidentified PRPs discharged their wastewater through public
wastewater treatment facilities, which we believe makes the owners of such
facilities potentially responsible in this matter. We also believe that entities
providing wastepaper containing PCBs to each of the recycling mills, including
our Neenah facility, are also potentially responsible for this matter.
We currently isare unable to predict theour ultimate costs
to the Registrantcost related to this
matter, because the Registrantwe cannot predict which remedy will be selected for the site,
orthe costs thereof, the ultimate amount of natural
resource damages nor can the Registrant predict itsNRDs, or our share of these costs or
damages.
The Registrant continuesNRDs.
We continue to believe it is likely that this matter will result in
litigation; however,litigation. We maintain that the Registrant believes it will be able to
persuade a court that removal of a substantial amount of
PCB-contaminated sediments is not an appropriate remedy. There can be no
assurance, however, that the Registrantwe will be successful in arguing that removal of
PCB-contaminated sediments is inappropriate or that itwe would prevail in any
resulting litigation.
9
10
The amount and timing of future expenditures for environmental compliance,
cleanup, remediation and personal injury, natural resource damageNRDs and property damage liability,
including but not limited to those related to the lower Fox River and the Bay of
Green Bay cannot be ascertained with any certainty due to, among other things,
the unknown extent and nature of any contamination, the extent and timing of any
technological advances for pollution control,abatement, the remedialresponse actions whichthat may be
required, the availability of qualified remediation contractors, equipment and
landfill space and the number and financial resources of any other responsible parties.PRPs. We have
established reserves, relating to unasserted claims, for environmental
remediation and other environmental liabilities for those environmental matters
for which it is probable that an assertion will be made and an obligation exists
and for which the amount of the obligation is reasonably estimable. As of
December 31, 2001 and December 31, 2000, we have accrued reserves of
approximately $28,800,000 and $26,400,000, respectively, representing our best
estimate within a range of possible outcomes, which would cover the cost of our
proposed project regarding Little Lake Butte des Morts, potential NRD claims,
claims for reimbursement of expenses of other parties and residual liabilities.
Changes to the accrual reflect our best estimate of the ultimate outcome and
considers changes in the extent and cost of the remedy, the status of
negotiations with the various parties, including other PRPs, and our assessment
of potential NRD claims, claims for reimbursement of expenses of other parties
and residual liabilities. Based upon our assessment as to the ultimate outcome
to this matter, we accrued and charged $2,400,000 to pre-tax earnings each year
in 2001, 2000 and 1999.
Based on analysis of currently available information and experience with
respect to the cleanup of hazardous substances, we believe that it is reasonably
possible that our costs associated with these matters may exceed current
reserves by amounts that may prove to be insignificant or that could range, in
the aggregate, up to approximately $200,000,000 over a period that is
undeterminable but could range between 10 to 20 years or beyond. The Registrant continuesupper limit
of such range is substantially larger than the amount of our reserves. The
estimate of the range of reasonably possible additional costs is less certain
than the estimates upon which reserves are based. In order to establish the
upper limit of such range, we used assumptions that are the least favorable to
us among the range of assumptions pertinent to reasonably possible outcomes. We
believe that the
6
likelihood of an outcome in the upper end of the 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 range is remote.
In our estimate of the upper end of the range, we have assumed full-scale
dredging as set forth in the PRAP, at a significantly higher cost than estimated
in the PRAP. We have also assumed our share of the ultimate liability to be 18%,
which is significantly higher than we believe is appropriate or will occur, and
a level of NRD claims and claims for reimbursement of expenses from other
parties that, although reasonably possible, is unlikely. In estimating both our
current reserve for environmental remediation and other environmental
liabilities and the possible range of additional costs, we have not assumed that
we will bear the entire cost of remediation and damages to the exclusion of
other known PRPs who may be jointly and severally liable. The ability of other
PRPs to participate has been taken into account, based generally on their
financial condition and probable contribution. Our evaluation of the other PRPs'
financial condition included the review of publicly disclosed financial
information. The relative probable contribution is based upon our knowledge that
at least two PRPs manufactured the paper that included the PCBs and as such, in
our opinion, bear a higher level of responsibility. In addition, our assessment
is based upon the magnitude, nature and location of the various discharges of
PCBs to the river and the relationship of those discharges to identified
contamination. We did not consider the financial condition of a smaller,
non-public PRP as financial information is not available, and we do not believe
its contribution to be material. We have also considered that over a number of
years, certain PRPs were under the ownership of large multinational companies,
who appear to retain some liability for this matter. We continue to evaluate itsour
exposure and the level of itsour reserves, including, but not limited to, itsour
potential share of the costs and damagesNRDs (if any) associated with the lower Fox
River and the Bay of Green Bay.
The Registrant believesWe believe that it iswe are insured against certain losses related to the lower
Fox River and the Bay of Green Bay, depending on the nature and amount thereof. Coverage,of the
losses. Insurance coverage, which is currently being investigated under
reservation of rights by various insurance companies, is dependent upon the
identity of the plaintiff, the procedural posture of the claims asserted and how
such claims are characterized. The Registrant doesWe do not know when the insurers' investigationinvestigations
as to coverage will be completed.
The Registrant'scompleted, and we are uncertain as to what the ultimate
recovery will be and whether it will be significant in relation to the losses
for which we have accrued.
SUMMARY. Our current assessment after consultation with
legal counsel, is that ultimately itwe should be able to resolvemanage these
environmental matters without a long-term, material adverse impact on the
Registrant. In the meantime, however, theseus. These
matters could, however, at any particular time or for any particular period,year or
years, have a material adverse effect on the
Registrant'sour consolidated financial condition,
liquidity or results of operations or could result in a default under the Registrant'sour loan
covenants. Moreover, there can be no assurance that the Registrant'sour reserves will be
adequate to provide for future obligations related to these matters, that the
Registrant'sour
share of costs and/or damages for these matters will not exceed itsour available
resources, or that such obligations will not have a long-term, material adverse
effect on the Registrant'sour consolidated financial condition, liquidity or results of
operations. ItemWith regard to the lower Fox River and the Bay of Green Bay, if we
are not successful in managing the matter and are ordered to implement the
remedy proposed in the PRAP, such order would have a material adverse effect on
our consolidated financial condition, liquidity and results of operations and
would result in a default under our loan covenants.
ITEM 2. Properties.
The Registrant'sPROPERTIES
Our executive offices are located in York, Pennsylvania. The Registrant'sPennsylvania and our paper mills
are located in Spring Grove, Pennsylvania; Pisgah Forest, North Carolina; Neenah, Wisconsin; Gernsbach,
Germany; and Scaer, France.
10
11
The Spring Grove facilities includefacility includes six uncoated paper machines with a daily
capacity ranging from 1218 to 308305 tons and an aggregate annual capacity of about
302,000308,000 tons of finished paper. The machines have been rebuilt and modernized
from time to time. The Spring Grove millfacility has a GravureSpecialty Coater ("G-Coater"S-Coater")
and an off-line combi-blade coater, which give the Registrantyield a potential annual production
capacity for coated paper of approximately 53,00062,000 tons. Since uncoated paper is
used in producing coated paper, this does not represent an increase in the
Spring Grove mill capacity. The Registrant viewsWe view the G-CoaterS-Coater as an important asset, which
will allow itus to expand itsour more profitable engineered paper products. The
Spring Grove facilitiesfacility also includeincludes a pulpmill, which has a production capacity
of approximately 650 tons of bleached pulp per day.
During the first quarter of 1998, the Registrant completed
construction of7
We also have a precipitated calcium carbonate ("PCC") plant at itsour Spring
Grove mill.facility. This plant reduced the cost ofproduces PCC at this mill as well as lowereda lower cost than could be purchased
from others and lowers the need for higher-priced raw materialsmaterial typically used
for increasing the opacity and brightness of certain papers.
The Pisgah Forest facilities currently include eleven paper
machines, stock preparation equipment, a modified kraft bleached flax pulpmill
with thirteen rotary digesters, a PCC plant and a small recycled pulping
operation. The annual lightweight paper capacity is approximately 99,000 tons.
Eight paper machines are essentially identical while the newer, larger three
remaining machines have design variations specific to the products produced.
Converting equipment includes winders, calendars, slitters, perforators and
printing presses. As explained in Item 7 of this report, in December 1999, the
Registrant announced it would begin reducing its tobacco paper manufacturing
capacity at thisNeenah facility, during 2000. As a result, the Registrant is currently
operating the three larger paper machines and five of the smaller paper machines
for a total capacity of 86,000 tons.
The Neenah facilities, consisting of a paper manufacturing mill and offices,
areis located at two sites. The Neenah mill includes three paper machines, with an
aggregate annual capacity of approximately 162,000158,000 tons and a wastepaper
de-inking and bleaching plant with an annual capacity of approximately 97,00095,000
tons.
The Registrant'sOur subsidiary, S&H, currently owns and operates paper mills in Gernsbach, Germany
and Scaer, France, as well as a manufacturing facility in Wisches, France. S&H
also owns a pulpmill in the Philippines which supplies substantially all of the
abaca pulp torequirements of the S&H's&H paper mills.
11
12
The Gernsbach facility includes five uncoated paper machines with an
aggregate annual lightweight capacity of about 37,50038,000 tons. In addition, the
Gernsbach facility has the capacity to produce 8,8008,700 tons of metalized papers
annually, using a lacquering machine and two metalizers. The base paper used to
manufacture the metalized paper is purchased. The Scaer facility includes two
paper machines with an aggregate annual lightweight capacity of approximately
4,6004,400 tons of finished paper. The Philippine pulpmill has an aggregate annual
capacity of approximately 8,5009,300 tons of abaca pulp. Of this amount,
approximately 7,700 tons are supplied to the Gernsbach and Scaer paper mills,
with the remainder being sold to outside parties. The Gernsbach and Scaer paper
mills obtain substantially all of their abaca pulp from the Philippine pulpmill.
The Glatfelter Pulp Wood Company, a subsidiary of the Registrant,ours, owns and manages
approximately 114,000115,000 acres of land, most of which is timberland.
The Registrant ownsWe own substantially all of the properties used in itsour papermaking
operations, except for certain land leased from the City of Neenah under leases
expiring in 2050, on which wastewater treatment, storage and other facilities
and a parking lot are located. The leases with the City of Neenah cover
approximately seven acres of land at an annual rent of approximately $3,500. We
own our operating equipment with the exception of some leased vehicles. All of
the Registrant'sour properties, other than those which are leased, are free from any material
liens or encumbrances. The Registrant considers thatWe consider all of itsour buildings areto be in good structural
condition and well-maintainedwell maintained and itsour properties areto be suitable and adequate for
present operations.
ItemITEM 3. Pending Legal Proceedings.LEGAL PROCEEDINGS
For a discussion of the separate NOVs issued to the RegistrantGlatfelter by EPA and the
Pennsylvania DEP and the potential legal proceedings involving the lower Fox
River and the Bay of Green Bay, see "Environmental Matters" in Item 1 of Part I of this
report.
The Registrant
does not believe thatIn June 1999, the other environmental matters discussed below will have
a material adverse effect on its business or consolidated financial position,
liquidity or results of operations, although there is no assurance that such a
material adverse effect will not result therefrom.
On September 7, 2000, DEP issued to the Registrant a renewed
wastewater discharge permit for the Spring Grove mill with an effective date of
October 1, 2000. The renewed permit calls for reductions in the mill's discharge
of color that the Registrant believes cannot be achieved at this time without a
curtailment of operations. On September 7, 2000, DEP also issued to the
Registrant an administrative order calling for achievement of the limitations in
the permit on a schedule extending until 2007. Both the permit and the order
contemplate adoption of an alternative limitation on color which would be less
stringent. The Registrant expects to be able to meet the alternative limitation
without a
12
13
curtailment of operations under the schedule set forth in the order. Under the
schedule set forth in the permit, however, the Registrant may not be able to
meet the alternative limitation without a curtailment of operations. The
Registrant has appealed the permit and the order to the Pennsylvania
Environmental Hearing Board. After an evidentiary hearing, the Board granted a
stay of the permit limitation during the pendency of the appeal. The Board did
not grant a stay of the alternative limitation because it is not yet in effect,
and will not come into effect until a change in the Pennsylvania Water Quality
Standard for color is approved; in this case, "approval" includes an approval by
EPA. The Pennsylvania Public Interest Research Group and several
other parties (collectively, "Penn PIRG""PennPIRG") have appealed the alternative limitation and have
also intervened in the Registrant's appeal of the permit. The Registrant is
engaged in settlement discussion with Penn PIRG and DEP, but also continues to
litigate all appeals vigorously.
In June 1999, Penn PIRG broughtfiled a citizencitizens suit under the Federalfederal
Clean Water Act and the Pennsylvania Clean Streams Law seekingalleging that we had been
operating our Spring Grove facility in violation of a 1984 wastewater discharge
permit. We disagreed with this allegation; however, the parties settled the
litigation, as described below, prior to the issuance of a final adjudication.
In its citizens suit, PennPIRG sought civil penalties, reimbursement for costs
of litigation and a reduction in the Spring Grove mill'sfacility's discharge of color
civil penalties(a) immediately and costs(b) to a level lower than that achievable with the New
Century Project. This project, as described in Item 1, is intended, among other
things, to achieve by April 2004 a level of litigation.color in the receiving stream
consistent with the level required in all similar streams in Pennsylvania.
A "discharge of color" describes the presence in the facility's water
effluent of materials, primarily lignins and tannins, which are natural glues
and saps, found in trees, which discolor the water. The lignins and tannins are
not themselves toxic, and we believe that the receiving stream is not
environmentally impacted by the color. In September 2000, the Pennsylvania DEP
issued a renewed permit that required us to comply with more stringent limits on
color discharges than had been in place. We appealed the permit, as did
PennPIRG.
On February 7,October 26, 2001, the United States District Court granted partial summary
judgment on liabilityfor the Middle
District of Pennsylvania approved a settlement between the parties to plaintiffsthe
citizens suit to which the Pennsylvania DEP joined. Under this settlement, the
Court established a compliance schedule that would require achievement of water
quality
8
limits consistent with those contemplated under the New Century Project by April
2004. We also agreed to the implementation of certain projects encompassed by
the New Century Project consistent with the timetable set forth in our water
discharge permit requiring completion of the projects by April 2004. These
projects include improvements in brownstock washing, installation of an oxygen
delignification bleaching process and 100 percent chlorine dioxide substitution.
We believe these projects will enable us to achieve compliance with the final
permit limits. We presently do not anticipate difficulties in implementing the
New Century Project; however, we have not yet received all the required
governmental approvals, nor have we installed all the necessary equipment.
In addition to these projects, under the terms of the settlement, we have
created a permanent endowment for certain environmental and recreational
improvement projects in the Codorus Creek watershed, and have paid PennPIRG
certain litigation costs related to this lawsuit. Our total cost accrued and
paid under this settlement in 2001 was $2,500,000. The administrative appeals
filed by Glatfelter and PennPIRG have been dismissed as moot.
We are voluntarily cooperating with an investigation by the Pennsylvania
DEP, which commenced in February 2002, of our Spring Grove facility related to
certain claims and granted summary
judgmentdischarges which are alleged to be unpermitted, to the RegistrantCodorus Creek.
There is no indication that these discharges had an impact on others. The court hashuman health or on
the environment. Although this investigation could result in the imposition of a
fine or other punitive measures, we currently do not scheduled further
proceedings with respect toknow what, if any, remedy until after it resolves the Registrant's
pending motion for reconsideration.
Itemactions
will be taken.
ITEM 4. Submission of Matters to a Vote of Security Holders.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Executive Officers Office AgeEXECUTIVE OFFICERS OFFICE AGE
- ------------------ ------ ---
G. H. Glatfelter IIII......... Chairman and Chief Executive Officer (a) 49Officer(a) 50
R. P. NewcomerNewcomer.............. President and Chief Operating Officer (b)Officer(b) 53
G. MacKenzie................ Executive Vice President and Chief Financial Officer(c) 52
C. M. Smith Chief Financial Officer (c) 42Smith................. Corporate Controller(d) 43
R. S. WoodWood.................. Chief Strategy Officer (d) 43Officer(e) 44
J. R. Anke Treasurer (e) 55
T. D. D'Orazio Corporate Controller (f) 42Anke.................. Treasurer(f) 56
G. K. FedererFederer............... Vice President --- Finance and Business Support (g) 43
L. R. Hall Vice President - New Product Development (h) 63Support(g) 44
R. L. Inners IIII............. Vice President --- Operations & Supply 42
13
14
Chain (i)
R.Chain(h) 43
C. L. MillerMissimer.............. Vice President - Special Projects (j) 54
C. L. Missimer Vice President - Environmental Affairs (k) 49-- Environment, Health and Safety(i) 50
M. R. MuellerMueller............... Corporate Counsel and Secretary,Secretary; Director of 40
Policy and
Compliance (l)Compliance(j) 41
D. C. ParriniParrini............... Vice President --- Sales and Marketing (m) 36Marketing(k) 37
P. M. YaffeYaffe................. Vice President --- Government and Public Affairs (n) 52Affairs(l) 53
W. T. YanavitchYanavitch............. Vice President --- Human Resources (o) 40Resources(m) 41
Officers are elected to serve at the pleasure of the Board of Directors.
Except in the case of officers elected to fill a new position or a vacancy
occurring at some other date, officers are generally elected at the annual
meeting of the Board of Directors held immediately after the annual meeting of
shareholders.
- -----------------------------------------------------------------------------------------------
(a) Mr. Glatfelter becamecurrently serves as Chairman inand Chief Executive Officer.
From April 2000 to February 2001, he was Chairman, President and has served asChief
Executive Officer. From June 1998 to April 2000, he was Chief Executive
Officer since June 1998. He was also President from June 1998
to February 2001. Priorand President. From September 1995 to June 1998, he was Senior Vice
President.
(b) Mr. Newcomer becamecurrently serves as President and Chief Operating Officer in February
2001.Officer.
From June 19982000 to February 2001, he was Executive Vice President. From June
1998 to June 2000, he was alsoExecutive Vice President and Chief Financial
Officer. PriorFrom May 1997 to June 1998, he was Senior Vice President and Chief
9
Financial Officer. PriorFrom September 1995 to April 1997, he was also Treasurer.Senior Vice
President, Treasurer and Chief Financial Officer. Mr. Newcomer is a
director of the Burnham Corporation, Lancaster, Pennsylvania.
(c) Mr. SmithMacKenzie became Executive Vice President and Chief Financial Officer
in September 2001. From November 2000 to September 2001 he was Vice
Chairman of Hercules Incorporated. From April 2000 to October 2000, he was
Executive Vice President and Chief Financial Officer of Hercules
Incorporated. From 1999 to March 2000, he was Executive Vice President,
Hercules Incorporated, President, Chemical Specialties Segment and Chief
Financial Officer. From 1996 to 1999 he was Senior Vice President and Chief
Financial Officer of Hercules Incorporated. Mr. MacKenzie is a member of
the Board of Trustees of the Medical Center of Delaware and the Investment
Committee at the University of Delaware. He is also on the board of
directors of C&D Technologies, Inc., Blue Bell, Pennsylvania where he is
chair of the Audit Committee and a member of the board of directors of
Central Vermont Public Service Corporation.
(d) Mr. Smith became Corporate Controller in September 2001. From June 2000.2000 to
September 2001 he was Chief Financial Officer and continued to serve as
Assistant Secretary. From August 1998December 1999 to June 2000, he was Assistant
Secretary and Vice President --- Finance. PriorFrom December 1998 to December
1999, he was Vice President -- Finance. From August 1998 to December 1998,
he was Vice President -- Finance, Assistant Secretary and Controller. From
May 1993 to August 1998, he was Corporate Controller.
(d)(e) Mr. Wood became Chief Strategy Officer in June 2000. From December 1999 to
June 2000, he was Vice President --- Administration. From August 1998 to
December 1999, he was Vice President --- Administration and Secretary. From
May 1997 to August 1998, he was Secretary and Treasurer. PriorFrom October 1992
to May 1997, he was Secretary and Assistant Treasurer.
14
15
(e)(f) Mr. Anke became Treasurer in September 1998. From June 1997 to September
1998, he was Chief Financial Officer for the Senator John Heinz Pittsburgh
Regional History Center. From September 1996 to June 1997, he was a
consultant to AMSCO International, Inc. PriorFrom April 1994 to September 1996,
he was Vice President and Treasurer of AMSCO International, Inc., where he
was responsible for treasury, insurance, retirement plan and international
functions and supervised approximately forty employees.
(f) Mr. D'Orazio became Corporate Controller in December 1998. Prior to
December 1998, he was Assistant Corporate Controller of Mohawk
Industries, Inc., where he was responsible for corporate accounting
functions and supervised approximately twenty employees.
(g) Mr. Federer became Vice President --- Finance and Business Support in
December 2000. From June 20001997 to December 2000, he was Vice President -
International Business. From June 1997 to June 2000, he was Managing Director,
Papierfabrik Schoeller & Hoesch GmbH & Co. KG. PriorFrom December 1992 to June
1997, he was Director of Finance, Papierfabrik Schoeller & Hoesch GmbH &
Co. KG.
(h) Mr. Hall became Vice President - New Product Development in June 2000.
From August 1998 to June 2000, he was Vice President and General
Manager, Glatfelter Division. Prior to August 1998, he was Director of
Operations - Glatfelter Division.
(i) Mr. Inners became Vice President - Operations-- Operation and Supply Chain in June
2000. From August 1998 to June 2000, he was Director of Operations,
Glatfelter Division. PriorFrom October 1995 to August 1998, he was Spring Grove
Mill Manager.
(j) Mr. Miller became Vice President - Special Projects in June 2000. From
August 1998 to June 2000, he was Vice President - International
Business. Prior to August 1998, he was Vice President - Administration.
(k)(i) Mr. Missimer became Vice President --- Environment, Health and Safety in
February 2001. From July 2000 to February 2001 he was Vice
President -- Environmental Affairs in July 2000.Affairs. From January 1999 to July 2000, he was
Corporate Environmental Director. PriorFrom November 1990 to January 1999, he
was Assistant Corporate Environmental Manager.
(l)(j) Mr. Mueller became Corporate Counsel and Director of Policy and Compliance
in June 2000 and has served as Secretary since December 1999. He was
Associate Counsel from June 1998 to June 2000. From September 1996 to June
1998, he was a co-owner and Vice President of Scheller, Inc., where he was
responsible for the administration of the company.
15
16
(m)(k) Mr. Parrini became Vice President --- Sales and Marketing in December 2000.
From July 2000 to December 2000, he was Vice President --- Sales and
Marketing, Glatfelter Division and Corporate Strategic Marketing. From June
1999 to December 2000, he was Vice President --- Sales and Marketing,
Glatfelter Division. From August 1998 to June 1999, he was National Sales
and Marketing Manager, Glatfelter Division. From December 1997 to August
1998, he was National Sales Manager, Glatfelter Division. PriorFrom 1993 to
December 1997 he was North American Sales Manager --- Technical Products &
ARC Divisions, A.W. Chesterton Company, where he was responsible for sales,
marketing
10
and business development for the specialty chemical and polymer composite
divisions and supervised approximately thirty employees.
(n)(l) Mr. Yaffe became Vice President --- Government and Public Affairs in
September 2000. From March 1997 to September 2000, he was Vice
President --- Public Policy of Philadelphia Gas Works, where he was
responsible for establishing advocacy communications and corporate
responsibility programs and supervised approximately ten employees. PriorFrom
December 1995 to March 1997, he was owner of the Yaffe Group, where he
consulted with clients on government relations and public affairs.
(o)(m) Mr. Yanavitch became Vice President --- Human Resources in July 2000. From
October 1998 to July 2000, he was Director of Human Resources for the
Ceramco and Trubyte Divisions of Dentsply, where he was responsible for all
human resources activities and acted as chief spokesperson for union
contracts and employee benefits. PriorFrom December 1993 to October 1998, he was
Director of Human Resources for the Trubyte Division of Dentsply, where he
was responsible for daily human resources activities. In his positions with
Dentsply, Mr. Yanavitch supervised approximately ten employees.
PART II
ItemITEM 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
Common Stock Prices and Dividends Paid InformationMARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
COMMON STOCK PRICES AND DIVIDENDS PAID INFORMATION
The table below shows the high and low prices of the Registrant'sour common stock traded on
the New York Stock Exchange (Ticket Symbolunder the symbol "GLT") and the dividends paid per
share for each quarter during the past two years.
2001 2000
1999
-------------------------------- ----------------------------------
Quarter High Low Dividends High Low Dividends--------------------------- ---------------------------
QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- ------- ------ ------ --------- ------ ------ ---------
1ST $14-5/8 $10-1/81st............................ $13.22 $11.30 $.175 $12-1/2 $9-5/8$14.63 $10.13 $.175
2nd 11-13/16 9-13/162nd............................ 16.10 12.21 .175 14-13/16 1111.81 9.81 .175
3rd 12-3/16 103rd............................ 16.37 12.25 .175 16-7/16 13-3/1612.19 10.00 .175
4th 13-3/4 9-7/84th............................ 15.98 13.95 .175 15-3/4 12-3/813.75 9.88 .175
16
17
As of December 31, 2000, the RegistrantMarch 19, 2002, we had 2,8262,584 shareholders of record. A number of the
shareholders of record are nominees.
1711
18
ItemITEM 6. Selected Financial Data.
Summary of Selected Consolidated Financial Data
Years Ended December 31
(in thousands except per share amounts)SELECTED FINANCIAL DATA
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ------------ ---------- ---------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net salessales............ $635,691 $ 724,720 $ 705,491(a) $ 727,312(a) $ 585,520(a) $ 583,505(a)705,491 $727,312 $585,520 $583,505
Income (loss) before
accounting changes 44,000(b)changes.. 6,958(b) 44,000(c) 41,425 36,133(c)36,133(d) 45,284 60,399
Basic earnings (loss)
per share before
accounting changes 1.04(b) .98 .86(c)changes.. 0.16(b) 1.04(c) 0.98 0.86(d) 1.07 1.41
Diluted earnings
(loss) per share
before accounting
changes 1.04(b) .98 .86(c)changes............. 0.16(b) 1.04(c) 0.98 0.86(d) 1.07 1.41
Total assets 1,013,191assets......... 960,724 1,023,325 1,003,780 990,738 937,583 715,310
DebtDebt................. 277,755 306,822 329,770 356,459 348,665 150,000
Cash dividends
declared per common
share............... $ 0.70 $ 0.70 $ 0.70 $ 0.70 $ 0.70 $ 0.70
YEARS ENDED DECEMBER 31
---------------------------------------------
1995 1994 1993 1992
-------- --------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net sales............ $623,709(a) $ 478,302(a) $473,509(a) $540,057(a)
Income (loss) before
accounting changes.. 65,828 (118,251)(e) 20,409(g) 56,544
Basic earnings (loss)
per share before
accounting changes.. 1.50 (2.67)(e) 0.46(g) 1.28
Diluted earnings
(loss) per share
before accounting
changes............. 1.49 (2.67)(e) 0.46(g) 1.27
Total assets......... 673,107 650,810(f) 847,087(h) 648,464
Debt................. 150,000 174,100 150,000 10,100
Cash dividends
declared per common
share............... $ .700.70 $ .700.70 $ .700.70 $ .70 $ .700.70
- ---------------
(a) ReflectsDoes not reflect reclassification of prior-period shipping and handling costs
from net sales to cost of products sold in accordance with recent accounting
pronouncements. Pre-1996 shipping and handling costs have not been
reclassified.
(b)After impact of an after-tax charge relating primarily to a loss on
disposition of the Ecusta Division (unusual item) of $39,709,000.
(c)After impact of an after-tax restructuring charge (unusual item) of
$2,120,000.
(c) (d)After impact of an after-tax charge for voluntary early retirement
enhancement program (unusual item) of $5,988,000.
18
19
Item 7. Management's Discussion(e)After impact of an after-tax charge for a writedown of impaired assets
(unusual items) of $127,981,000.
(f)After impact of a pre-tax charge for a writedown of impaired assets (unusual
items) of $208,949,000.
(g)After impact of an after-tax charge for rightsizing and Analysisrestructuring
(unusual items) of $8,430,000 and the effect of an increased federal
corporate income tax rate of $3,587,000.
(h)Includes an increase of $61,062,000 for the adoption of Statement of
Financial ConditionAccounting Standards No. 109.
OTHER FINANCIAL DATA
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
Percent income before
income taxes and
accounting changes to
net sales............. 1.8% 9.5% 9.2% 8.1% 12.6% 16.8% 17.3%(a)
Cash dividends declared
on common stock....... $ 29,827 $ 29,661 $ 29,538 $ 29,413 $ 29,548 $ 29,824 $ 30,701
Current assets......... 240,428 286,624 268,127 241,908 376,479 188,069 160,423
Current liabilities.... 209,315 119,184 132,631 126,876 289,943 86,183 84,008
Working capital
(current assets less
current
liabilities).......... 31,113 167,440 135,496 115,032 86,536 101,886 76,415
Shareholders' equity... 353,469 372,703 358,124 343,929 339,358 330,623 314,820
Common shares
outstanding at
December 31........... 42,750 42,391 42,246 42,085 42,150 42,540 43,435
YEARS ENDED DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
Percent income before
income taxes and
accounting changes to
net sales............. --(a) 7.5%(a) 16.8%(a)
Cash dividends declared
on common stock....... $ 30,884 $ 30,828 $ 30,904
Current assets......... 135,369 175,941 130,527
Current liabilities.... 104,272 81,477 85,851
Working capital
(current assets less
current
liabilities).......... 31,097 94,464 44,676
Shareholders' equity... 295,734 441,400 457,049
Common shares
outstanding at
December 31........... 44,200 43,987 44,057
- ---------------
(a)Does not reflect reclassification of prior-period shipping and Resultshandling costs
from net sales to cost of Operations.products sold in accordance with accounting
pronouncements.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Any statements we set forth in this annual report or otherwise made in
writing or orally by the Company with regard to itsour goals for revenues, cost reductions and
return on capital, execution of our business model in a timely manner,
expectations as to industry conditions and the Company'sour financial results and cash flow,
demand for or pricing of itsour products, margin enhancement, retention of key
accounts, income growth, market penetration, development of new products and new
and existing markets for our products, environmental matters, implementation of
our integrated information technology platform, our ability to identify and
execute future acquisitions which will enhance both our business growth and
return on capital and other aspects of itsour business may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company makeswe make such statements based on
assumptions that it believeswe believe to be reasonable, there can be no assurance that
actual results will not differ materially from the Company'sour expectations. Accordingly, the Company
identifieswe
identify the following important factors, among others, which could cause itsour
results to differ from any results which might be projected, forecasted or
estimated by the Company in any such forward-looking statements: (i) variations in demand for
or pricing of itsour products; (ii) the Company'sour ability to identify, finance and consummate
future alliances or acquisitions; (iii) the Company'sour ability to develop new, high
value-added engineered products; (iv) the Company'sour ability to identify and implement its plannedrealize cost reductions
pursuant to itsour DRIVE project and changes to its business processes contemplated by
itsour IMPACT project; (v) changes in the cost or availability of raw materials used by the Company,we
use, in particular market pulp, pulp substitutes and wastepaper, and changes in
energy-related costs; (vi) changes in industry paper production capacity,
including the construction of new mills, the closing of mills and incremental
changes due to capital expenditures or productivity increases; (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 damage related
thereto, such as costs associated with the NOVsNotices of Violation ("NOVs") issued
by EPAthe United States Environmental Protection Agency ("EPA") and DEP,the
Pennsylvania Department of Environmental Protection ("Pennsylvania DEP"), the
costs of natural resource restoration or damages related to the presence of
PCBspolychlorinated biphenyls ("PCBs") in the lower Fox River on which the Company'sour Neenah
mill is located and the effect of complying with the wastewater discharge
limitations of the Spring Grove mill permit which the Company is currently appealing;permit; (ix)
significant changes in cigarette consumption, both domestically and
internationally; (x) enactment of adverse state,
federal or foreign legislation or changes in government policy or regulation;
(xi)(x) adverse results in litigation; (xii)(xi) fluctuations in currency exchange rates;
and (xiii)(xii) disruptions in production and/or increased costs due to labor disputes.disputes;
and (xiii) our ability to enter into a new debt facility.
SIGNIFICANT AND SUBJECTIVE ESTIMATES
The following discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to sales returns, doubtful accounts, inventories, investments and
derivative financial instruments, long-lived assets, and contingencies,
including environmental matters. We base our estimates on historical experience
and on various other assumptions that we believe are reasonable under the
circumstances; the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
We believe the following represent the most significant and subjective
estimates used in the preparation of our consolidated financial statements.
We maintain reserves for expected sales returns and allowances based
principally on our return practices and our historical experience. If actual
sales returns differ from the estimated return rates projected, we may need to
increase or decrease our reserves for sales returns and allowances, which could
affect our reported income.
13
We maintain allowances for doubtful accounts for estimated losses resulting
from our customers' failure to make required payments. If customer payments were
to differ from our estimates, we may need to increase or decrease our allowances
for doubtful accounts, which could affect our reported income.
We maintain reserves for excess and obsolete inventories to reflect our
inventory at the lower of its stated cost or market value. Our estimate for
excess and obsolete inventory is based upon our assumptions about future demand
and market conditions. If actual market conditions are more or less favorable
than those we have projected, we may need to increase or decrease our reserves
for excess and obsolete inventories, which could affect our reported income.
We evaluate the recoverability of our long-lived assets, including
property, equipment and intangible assets periodically or whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Our evaluations include analyses based on the cash flows generated
by the underlying assets, profitability information, including estimated future
operating results, trends or other determinants of fair value. If the value of
an asset determined by these evaluations is less than its carrying amount, a
loss is recognized for the difference between the fair value and the carrying
value of the asset. Future adverse changes in market conditions or poor
operating results of the related business may indicate an inability to recover
the carrying value of the assets, thereby possibly requiring an impairment
charge in the future.
Accounting for defined-benefit pension plans require various assumptions,
including but not limited to, discount rates, expected rate of return on plan
assets and future compensation growth rates. Our retiree medical plans also
require various assumptions, which include but are not limited to, discount
rates and annual rates of increase in the per-capita costs of health care
benefits. We evaluate these assumptions at least once each year and make changes
as conditions warrant. Changes to these assumptions will increase or decrease
our reported income, which will result in changes to the assets and liabilities
associated with our benefit plans.
We maintain accruals for losses associated with environmental obligations
when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated based on existing legislation and
remediation technologies. These accruals are adjusted periodically as assessment
and remediation actions continue and/or further legal or technical information
develops. Such undiscounted liabilities are exclusive of any insurance or other
claims against third parties. Recoveries of environmental remediation costs from
other parties, including insurance carriers, are recorded as assets when their
receipt is deemed probable.
Refer to Note 1 to our consolidated financial statements for a discussion
of our accounting policies with respect to these and other items.
OVERVIEW
The Company classifies itsWe classify our sales into two product groups: (1) specialized printing
papers and (2) engineered papers (including tobacco papers). The Glatfelter
Division, which includes the Spring Grove, Pennsylvania and Neenah, Wisconsin
paper mills, produces both specialized printing and engineered papers. The
EcustaSchoeller & Hoesch Division is
comprised of the Pisgah Forest, North Carolina paper mill ("Ecusta"S&H") as
well as other various supporting facilities. S&H, acquired on January
2, 1998, includes paper mills in Gernsbach, Germany
and Scaer, France. Both Ecusta and S&H produceproduces specialized printing papers and engineered
papers (including tobacco papers). The Company isWe are in the process of changing itsour
organization and information systems to manage itsour business in fourthree separate
business units: (1) engineered products, (2) printing and converting papers and
(3) long fiber and overlay papers and
(4) tobacco papers. The Company'sOur information systems do not currently
provide the information necessary for reporting by business unit. Such
information is expected to be available by the end of 2002.
Overall demand for our products was fairly stable throughout 2001. Of our
two product groups, specialized printing papers typically are more influenced by
the impact of changes in economic conditions. During 2001, this portion of our
business experienced some decline in demand and a resulting decrease in sales
volume and some selling price concessions. Despite this weakness, we had some
market-related downtimesuccesses during 2001, including an increase in shipments for our book
publishing papers in a year when overall industry shipments were down
significantly. The current outlook for our specialized printing papers is for
demand to remain weak
14
throughout the first and second quarters of 2002. We believe that some
improvement in conditions could occur in the third quarter of 2002.
Our engineered papers tend to be less influenced by changing economic
conditions. Demand for these products, excluding tobacco papers, remained fairly
stable during 2001 and overall sales volume increases were realized. Pricing
also remained fairly stable, although some price reductions did occur in
selected markets. Our current outlook for these products is for stability to
continue until mid-year, with the potential for improved conditions thereafter.
After several years of declining market conditions, demand for our tobacco
papers continued to weaken during the first half of 2001. In May 2001, we
announced our intent to sell the Ecusta Division as the tobacco papers market
was no longer compatible with our strategic direction (see "Unusual Items"
below). As part of the sale, which was completed on August 9, 2001, we entered
into a supply agreement with the buyer of the Ecusta Division. Under this
agreement, which expires mid-year 2004, we will continue the manufacture and
sale of tobacco papers at our Gernsbach, Germany facility exclusively for the
buyer. This agreement allows us to transition our product mix from tobacco
papers to other engineered products, more specifically to long-fiber and overlay
papers. See "Capital Resources" below for a description of capital spending
related to this transition.
We have defined our Vision to become the global supplier of choice in
specialty papers and engineered products and established goals to achieve
revenue of $1 billion by 2004 with a sustainable average return on capital
employed ("ROCE") of 17%. Despite our best efforts, economic conditions that
have adversely affected our industry for the last several years have inhibited
our progress in reaching our ROCE goal. In addition, a lack of external growth
opportunities and the sale of our Ecusta Division have hindered our ability to
achieve our revenue growth target. Therefore, it is doubtful that we will be
able to achieve these financial goals in the foreseeable future.
2001 COMPARED TO 2000
Overall, net sales in 2001 decreased $89,029,000, or 12.3%, compared to
2000. Excluding the Ecusta Division, net sales in 2001 decreased $10,044,000, or
1.8%, compared to 2000 due to a 2.1% decrease in average net selling prices,
which were slightly offset by a net sales volume increase of 0.3%. Average net
selling prices decreased primarily due to lower prices because of weaker
economic conditions, as well as a weaker mix of products sold and the
unfavorable impact of foreign currency translation. The following net sales
analysis for both product groups, specialized printing papers and engineered
products, excludes the results of the Ecusta Division.
Net sales of specialized printing papers were lower in 2001 than in 2000 by
7.3% due principally to a 5.1% decrease in average net selling prices in
addition to a decrease in net sales volume of 2.3%. The decreased average net
selling prices resulted almost entirely from lower pricing as product mix
remained relatively stable.
Net sales of engineered papers (excluding tobacco papers) increased by 6.2%
in 2001 versus 2000, as a 10.7% increase in net sales volume was partially
offset by a 4.1% decrease in average net selling prices. Lower average net
selling prices were due chiefly to reduced prices, as well as the backlog atunfavorable
impact of foreign currency translation and a weaker mix of products sold.
The cost of products sold decreased $87,632,000, or 14.8%, in 2001 compared
to 2000. Excluding the endEcusta Division, cost of products sold decreased by
$5,738,000, or 1.3%. Cost of products sold was lower in 2001 versus 2000
primarily due to lower market pulp prices, savings from our DRIVE initiative
(see "DRIVE and IMPACT Projects" below) and increased pension income. Pension
income, which is non cash, reduced cost of products sold by $24,346,000 in 2001
compared to $22,914,000 in 2000. Partially offsetting such cost reductions were
higher energy costs for 2001. See Note 8 to the fourthConsolidated Financial
Statements for disclosure related to our retirement plans, including pension
income.
Selling, general and administrative ("SG&A") expenses increased by $386,000
in 2001 over 2000. Excluding the Ecusta Division, SG&A expenses increased by
$5,698,000 net of changes in pension income, or 11.5%, from 2000 to 2001, which
was due primarily to increased salaries and professional fees related to
15
building our capabilities to effectively implement our strategic initiatives.
Pension income, which is non cash, reduced SG&A expense by $6,332,000 in 2001
versus $5,195,000 in 2000. See Note 8 to the Consolidated Financial Statements.
Gain from property dispositions, etc. -- net for 2001 increased to
$3,598,000 from $2,029,000 in 2000. In the third quarter demandof 2001, we sold a
413-acre tract of land for which we received $1,729,000 in net cash proceeds
resulting in a realized pre-tax gain of approximately $1,700,000. No significant
sales of such properties occurred in 2000. From time to time, we divest certain
tracts of our timberlands when we are offered attractive prices. While we do not
actively solicit the Company's productssale of our timberlands, we are currently evaluating our
overall remained stable
throughouttimberland strategy.
Earnings (excluding unusual items) before interest income and expense and
taxes were $84,728,000 in 2001 compared to $84,524,000 in 2000. Demand forExcluding the
Company's tobacco papers, however,
continuedEcusta Division, earnings (excluding unusual items) before interest income and
expense and taxes decreased by $7,891,000, or 9.2%. This was due to be weak duringhigher SG&A
expenses and a lower gross margin, which were partially offset by higher gains
from property dispositions, etc. -- net.
Interest on investments and other -- net declined slightly in 2001 from
2000 from $3,820,000 to $3,589,000 primarily due to lower interest rates in 2001
compared to 2000 while higher average cash balances nearly offset such lower
interest rates in 2001.
Interest on debt was $15,689,000 in 2001 compared to $16,405,000 in 2000.
This portion of the Company's
business has suffered from extremely low pricing in recent years asdecrease was a result of overcapacity in the tobacco papers industry and declining
domestic consumption of tobacco products. To combat such depressed
pricing, the Company announced in September 1999 that, effective
January 1, 2000, prices would be increased for certain of its tobacco
paper products. This initiative was required for the Company to remainlower average borrowings. Additionally, a viable, high-quality supplier to its customers. As the Company
expected, certain of these customers sought other suppliers after this
announcement. As a result, the Company announced in December 1999 that
it would begin reducing its tobacco paper manufacturing capacity at its
Ecusta mill during 2000. In the first quarter of 2000, the
19
20
Company recognized a one-time, pre-tax restructuring charge of
$3,336,000 related primarilystronger
U.S. dollar relative to the cost of offering early retirement
to 42 salaried employees. To date, approximately 200 salaried and
hourly jobs have been eliminated. The Company does not expect to
complete the restructuring until AprilDeutsche Mark ("DM") during 2001 with an ultimate reduction
estimated at approximately 220 jobs.
Despite the decline in the Company's tobacco papers business,
demand has not diminished as swiftly as expected, and the announced
price increases have held relatively firm. The Company expects,
however, that in the long run net sales of tobacco papers will continue
to trend downward. Future price changes will be determined based on
contractual provisions to reflect changes in market pulp prices.
To offset the loss of tobacco paper volume, the Company has been
growing its specialized printing papers business. It also plans to grow
its engineered papers business and has invested resources into its new
product development area. Despite the Company's expectations that the
reduction of its tobacco paper producing capacity would reduce its
total sales volume in the near term, sales of the Glatfelter and S&H
divisions more than offset such capacity reduction. The Company is
continuing to remove costs associated with the lost tobacco papers
business.
The Company's other engineered papers, excluding tobacco papers,
are often difficult to characterize because the products vary widely.
Overall, markets for such papers remained steady throughout 2000, and
the short-term outlook appears stable. Nevertheless, volume for these
papers decreased slightly in 2000 compared to 1999.
Most of the Company's specialized printing paper products are
directed at the uncoated free sheet portion of the industry. With the
exception of some second-quarter softening in demand for envelope
papers, demand for the Company's printing papers remained strong
through most of 2000. Backlogs decreased in December 2000 and remained
weak through January 2001. This is not uncommon during the winter
months; however, current domestic and worldwide economic conditions
create some concern regarding demand for the next several months. The
Company expects demand to improve and backlogs to increase later in the
year.
The Company announced a price increase for a substantial number of
its specialized printing papers effective in early February 2000. The
Company had anticipated additional price increases through the
remainder of 2000, but softening demand in the second quarter resulted
in some slippage in pricing. By early in the fourth quarter of 2000
pricing recovered somewhat, particularly in the Company's trade book
papers.caused lower
reported interest expense from DM-denominated debt.
2000 COMPARED TO 1999
Overall, net sales in 2000 increased $19,229,000, or 2.7%, compared to
1999. Though net sales volume was slightly0.8% higher in 2000 versus 1999, the majority
of the net sales increase in 2000 was due to ana 1.9% increase in average net selling
price.
Sales of specialized printing papers were higher in 2000 than 1999 by
14.4%, primarily due to a 9.3% increase in average net selling prices resulting
from improved pricing and product mix. Increased demand for these papers
resulted in increased net sales volume.volume of 4.6%.
Sales of engineered papers (including tobacco papers) fell by 8.2% in 2000
versus 1999, as aan 8.9% decrease in net sales volume was slightly offset by a
small0.7% increase in average net selling price. ThisThe decrease in sales of engineered
papers was largely due to a 17.6% decrease in net sales of tobacco papers. The
majority of this decrease was due to a 16.2% decrease in net sales volume. The
remainder results from a 1.7% decrease in average price. This decrease in sales
was in large part a result of our 1999 announcement of tobacco papers selling
price increases. As we expected, subsequent to the announcement, some of our
tobacco papers customers sought other suppliers. During the year 2000, Ecusta
Division tobacco paper sales declined by approximately 24% compared to 1999.
The cost of products sold increased by 1.8% in 2000 compared to 1999. With
energy costs abnormally high and market pulp price increases
uncharacteristically outpacing selling price increases, the Companywe would have expected
cost of products sold from 1999 to 2000 to have increased more than the 2.7% net
sales increase. Pension income, which is non cash, reduced cost of products sold
by $28,300,000$22,914,000 in 2000 compared to $20,100,000 in 1999. In addition,
implementation of the Company's DRIVE project has reduced cost of products sold. As of December 31, 2000, the Company had
implemented portions of the DRIVE project that will realize over
$20,000,000 per year in sustainable cash cost savings. The Company's
ultimate goal is to realize over $50,000,000 per year in such savings. Primarily as
a result of the increase in pension income and cost savings associated with the
DRIVE project, gross margin as a percentage of net sales increased to 18.4% for
2000 from 17.7% for 1999.
The increase in selling, general and administrative expenses of $4,011,000
in 2000 versus 1999 was due primarily to increased spending on outside
consulting services relating to the Company'sour DRIVE and IMPACT projects.
20Gain from property dispositions, etc. -- net for 2000 decreased to about
half of the 1999 gain from $4,076,000 to $2,029,000. In the first quarter of
1999, we sold a 268-acre tract of timberland for $1,000,000 in cash resulting in
a realized gain of $976,000. During the remainder of 1999, we sold various
fully-depreciated
16
21
Profit from operationsitems, in addition to the rights to standing timber on select tracts of land.
Subsequent to the first quarter of 1999, no single sale was material to our
results of operations. No significant sales of such properties occurred in 2000.
Earnings before interest income and expense and taxes waswere $84,524,000
(excluding the unusual item) in 2000 compared to $81,582,000 in 1999. This
increase was driven primarily by improved profit margins at the Glatfelter and
S&H divisions as increased sales volume spread fixed costs over a greater number
of tons produced and sold. The Ecusta Division experienced lower sales volume,
which decreased profit margins, thus partially negating the gains of the other
divisions. The strengthening of the U.S. dollar with respect to the Deutsche Mark ("DM")DM in 2000
also adversely affected earnings as foreign profits translated into fewer
dollars. Finally, savings from the Company'sour DRIVE project contributed significantly to profits, but
such savings were offset by the effects of a weaker economy as well as
additional consulting costs incurred in 2000.
The Company expects that its DRIVE savings will continue to
increase through 2001. Additionally, a significant portion of the
consulting costs incurred for the Company's IMPACT project will be
capitalized during 2001.
Interest on investments and other --- net nearly doubled in 2000 from 1999
from $1,994,000 to $3,820,000. The Company'sOur average cash holdings in 2000 were
significantly higher than in 1999, yielding higher interest income.
Additionally, cash was invested in higher yielding debt instruments throughout
2000 as compared to 1999.
Gain from property dispositions, etc. - net for 2000 decreased
to about half of the 1999 gain from $4,076,000 to $2,029,000. In the
first quarter of 1999, the Company sold a tract of timberland,
realizing a gain of $976,000. During the remainder of 1999, the Company
sold various fully-depreciated items, in addition to the rights to
standing timber on select tracts of land. Subsequent to the first
quarter of 1999, no single sale was material to the Company's results
of operations. No significant sales of such properties occurred in
2000. From time to time, the Company divests certain tracts of its
timberlands when it is offered attractive prices. The Company does not
actively solicit the sale of its timberlands as it currently intends to
maintain its own sources of raw materials.
Interest on debt was $16,405,000 in 2000 compared to $18,424,000 in 1999.
This decrease was a result of lower average borrowings, offset partially by
higher interest rates. Such lower average borrowings were related to an 80%
decrease in short-term debt stemming from payments made. Additionally, a
stronger U.S. dollar relative to the DM during 2000 caused lower reported
interest expense.
1999 COMPARED TO 1998
Overall, net sales in 1999 decreased $21,821,000, or 3.0%,
comparedUNUSUAL ITEMS
On May 16, 2001, we announced that we had entered into an agreement to 1998. Though net sales volume was higher in 1999 versus
1998, average net pricing was lower in 1999.
Salessell
our Ecusta facility and two of specialized printing papersits operating subsidiaries ("Ecusta Division").
Because our Board of Directors had committed to a plan to dispose of the Ecusta
Division by accepting an offer to sell the Division, subject to certain closing
conditions, at a loss, on that date the assets of the Ecusta Division were
lower in 1999 than
1998 by 6.4%reclassified as a result of weak demandassets held-for-disposal, and pricing for such products
early in 1999. Throughoutthus the remainder of 1999, the Company was able
to implement several price increases as demand and pricing improved
during the year. As a resultcarrying amount of these
price increases, average net
pricing for such productsassets was 7.2% higher inreduced to fair value. The decision to sell the fourth quarter of 1999
versus the fourth quarter of 1998.
Sales of engineered papers (including tobacco papers)
increased by less than 1% in 1999 versus 1998, as an increase in net
sales volumeEcusta Division was
substantially offset by a decrease in average net
selling price. The increase in volume was largely a result of
successfully marketing certain of the Company's existing products. As
mentioned above, the Company, along with much of the rest of the paper
industry, experienced weakness in demand for many of its products early
in 1999. As a result, the Company accepted orders for certain of its
products with lower average net selling prices. The decrease in average
net selling price for the year 1999, therefore, was almost entirely a
result of a change in mix of products sold and not a weakening of
prices for specific products.
The cost of products sold decreased by 2.8% in 1999 compared
to 1998, in part due to aggressive steps taken to remove costs from its
business. Further, an increase in operational efficiency at many of the
Company's operating locations was realized as a result of an improving
and more stable order pattern for many of the Company's products. In
addition, market pulp prices, a key raw material in the Company's
business, were lower, on average, than in 1998. Pension income reduced
cost of products sold by $20,100,000 in 1999 compared to $13,800,000 in
1998.
The increase in selling, general and administrative expenses
of $4,457,000 in 1999 versus 1998 was primarily a result of additional
spending on legal and professional services relating to certain
environmental and other matters.
21
22
Profit from operations before interest income and expense and
taxes was $81,582,000 in 1999 compared to $88,599,000 excluding the
unusual item in 1998. This decrease was largelymade due to the decrease in
net sales in 1999 versus 1998, partially offset by a decrease in cost
of products sold.
Interest on investments and other--net remained flat from 1998
to 1999. The Company's average cash holdings in 1999 were higher than
in 1998, yielding higher interest income. Offsetting this was interest
income realized in 1998 on a trust held to defease certaindetermination that the business of the Company's debt.Ecusta Division,
principally tobacco papers, did not fit with our long-term strategic plans.
On August 9, 2001, we completed the sale of the Ecusta Division including
plant and equipment, inventory, accounts receivable and essentially all other
operating assets and certain other receivables related to our tobacco papers
business. The defeasance trustcarrying value of the Ecusta Division totaled $61,467,000, after
we recorded an impairment write down of $50,000,000 in the second quarter to
reflect the fair value of the Ecusta Division. These assets were sold for
$22,726,000 plus the assumption by the buyer of certain liabilities totaling
$21,440,000 related to the Ecusta Division's business. The liabilities assumed
by the buyer included accounts payable, accrued expenses and other liabilities
related to the operation of the Ecusta Division's business. Our total charge to
earnings associated with the sale was liquidated early in 1998, and
no such income was realized in 1999.
Gain from property dispositions, etc.--net increased from
$1,019,000 in 1998 to $4,076,000 in 1999. In$58,408,000 including the first$50,000,000
impairment charge recognized during the second quarter of 1999,2001. The $58,408,000
pre-tax charge included $6,095,000 in transaction and other costs incurred upon
sale of the Company sold a tract of timberland, realizing a gain of $976,000.
During theEcusta Division. Of this amount, approximately $1,900,000 related to
transaction costs. The remainder of 1999, the Company sold various fully
depreciated items, in additionrelated to certain liabilities accrued related
to the rightstransaction. Under the terms of the sale agreement, we are obligated to
standing timber on
select tractsincur costs in the future related to certain long-term liabilities related to
employee benefits ($2,000,000) and facility maintenance ($900,000) which would
not have been necessary had we retained ownership interest in the Ecusta
Division but were agreed to in order to consummate the transaction. The
$58,408,000 pre-tax charge was net of land. Subsequenta $14,988,000, pre-tax gain related to the
firstcurtailment and settlement of pension obligations and other retiree benefits
related to employees who transferred to the buyer. The Ecusta Division
contributed approximately $7,200,000 in operating profit during 2001 until its
sale in August, had an operating loss of approximately $1,000,000 during 2000
and contributed approximately $13,300,000 in operating profit during 1999.
We also recognized a $2,500,000 pre-tax charge during the second quarter of
1999, no
single sale was material2001 related to the Company's resultssettlement of operations. No
significant sales of such property occurredan environmental matter in 1998.
Interest on debt was $18,424,000connection with the
Spring Grove facility's wastewater discharge permit. The total unusual items
recorded in 1999 compared to
$22,007,000 in 1998. This decrease was a result of lower average
reported borrowings and generally lower interest rates experienced in
1999 versus 1998. Such lower average borrowings2001 were partially a result
of the Company's repayment of its $150,000,000 principal amount of 5
7/8% Notes early in 1998 as well as strengthening of the U.S. dollar
relative to the DM during 1999.
UNUSUAL ITEMS
2000 The Company's tobacco papers business has suffered from
extremely low pricing in recent years as a result of overcapacity in
the tobacco papers industry and declining domestic consumption of
tobacco products. To combat such depressed pricing, the Company
announced in September 1999 that, effective January 1, 2000, prices
would be increased for certain of its tobacco paper products. This
initiative was required for the Company to remain a viable,
high-quality supplier to its tobacco paper customers. As the Company
expected, certain of these customers sought other suppliers after this
announcement. As a result, the Company announced in December 1999 that
it would begin reducing its tobacco paper manufacturing capacity at its
Ecusta mill during 2000.$60,908,000.
17
During the first quarter of 2000, the Companywe finalized itsour restructuring plan of restructuring and
shortly thereafter began to reduce the workforce at Ecusta. The workforce
reduction is substantiallywas completed during the first quarter of 2001 and will ultimately resultresulted in the
reduction of over 200 salaried and hourly jobs associated with the Company'sour tobacco paper
production capacity. This reduction in jobs is lower than originally estimated due
to stronger customer demand than anticipated. The CompanyWe accrued and charged to expense $3,336,000 ($2,120,000
after tax, or $.05 per share)tax) in the first quarter of 2000 primarily as a result of the voluntary
portion of this restructuring, specifically 42 salaried employees,employees. Of this
amount, $2,182,000 related to enhanced pension benefits to be paid out of our
retirement plans as discussed in our disclosure of retirement and other
post-retirement benefits. The remaining $1,154,000 of this restructuring. The
amountcharge related to
severance and other employee benefits to be paid using our assets. Approximately
$800,000 of actual termination benefits paid and charged againstthese liabilities were transferred to the liabilitybuyer of the Ecusta
Division. Unpaid amounts as of December 31, 2000 was $316,000, covering 31 salaried
employees.
1998 During 1998,2001 are expected to be paid by the
Company recognized a chargeend of $9,816,000 related primarily2005.
DRIVE AND IMPACT PROJECTS
As of November 1, 2001, we completed the implementation of cost reduction
programs designed to the accrualrealize $40,000,000 at our current operations of pensionannual
cash cost savings identified during our on-going DRIVE project. Our employees
generated over 7,000 cost savings ideas under DRIVE of which over 950 ideas were
identified for implementation. DRIVE ideas included, among others, procurement
initiatives and medical
benefits for certain salaried and hourly employees of the Ecusta
Division and certain salaried employees of the Glatfelter Division who
electedproduction process improvements to participate in a voluntary early retirement enhancement
program. The charge also includedreduce the cost of terminationraw
materials, efficiency increases to improve paper machine speeds and quality
yields, energy conservation programs and the outsourcing of several
Glatfelter Division salaried employees, which was necessary to achieveour sheeting
operation at the Company's cost-savings goals. The total after-tax effectNeenah, Wisconsin facility. Because of the unusual itemcomplex and highly
integrated nature of our operations and the number of projects implemented, it
is extremely difficult and cost prohibitive to determine the actual amount of
cost savings realized. We do recognize, however, that upon completing the
implementation of the DRIVE project, realized cost reductions have been largely
offset by increases in on-going operating costs such as wages and salaries,
fringe benefits, energy costs and professional and other costs. We continue to
review our manufacturing processes for the year was $5,988,000, or $.14 per share.
22
23
ACQUISITION OF SCHOELLER AND HOESCH
On January 2, 1998, the Company acquired S&H whichopportunities to improve efficiencies and
effectiveness.
Our IMPACT project is focused on identifying and implementing changes in
our organization and business processes. We are currently owns and operates paper mills in Gernsbach, Germany and
Scaer, France, as well as a facility in Wisches, France. S&H also owns
a pulpmill in the Philippinessecond phase of
IMPACT, which supplies abaca pulpincludes the installation of an enterprise resource planning
system. This system, which will provide a common platform for purchasing,
accounts payable, sales orders, cost accounting and general ledgers, among other
things, is planned to S&H's paper
mills. S&H primarily manufactures long fiber and overlay papers and hasbe implemented at our U.S. based locations during the
leading positionsecond quarter of 2002. Installation at our larger European locations will be
completed in the world tea bag paper market. It also
manufactures tobacco papersfall of 2002. Total spending on the IMPACT project is expected
to be approximately $49,000,000, of which approximately $45,000,000 is capital
related. Through December 31, 2001, we have capitalized approximately
$24,000,000 on the IMPACT project.
The implementation of an enterprise resource planning system requires
significant and other engineered products such as
metalized papers, as well as some specialized printing papers. The
acquisition of S&H has provided the Company withpervasive change and thus subjects our business to significant
implementation risk. Based on our progress to date, we believe we will complete
an effective implementation within budget and without a strong business
position in the world tea bag paper market and a presence in other long
fiber markets, such as stencil, filter and casing papers. It also has
strengthened the Company's tobacco papers business by providing a
manufacturing presence in Europe and a significant share of the
European tobacco papers market, plus the ability to manufacture and
market ultraporous plug wrap, a growing segment of the world tobacco
papers market.
FINANCIAL CONDITIONmaterial adverse impact
on our business.
LIQUIDITY
During 2000, the Company's2001, our cash and cash equivalents increaseddecreased by $34,517,000,$15,051,000,
principally due to cash provided
from operations of $103,408,000. Such cash generation was partially
offset by cash used in investing activities of $29,072,000, mainly for
additions to plant, equipment and timberlands, and cash used in financing activities and investing activities of
$40,142,000, primarily$48,710,000 and $30,576,000, respectively. Cash used in financing activities was
mainly for dividend payments and net payment of debt. Cash used in investing
activities was for additions to plant, equipment and timberlands, partially
offset by cash provided from net proceeds from the sale of the Ecusta Division
(see "Unusual Items"). Cash used in investing and financing activities was
partially offset by cash provided by operations of $63,899,000.
Our Consolidated Statement of Cash Flows ("Cash Flow Statement") for 2001
reflects the pre-tax loss on the disposition of the Ecusta Division as an
"unusual item." Changes in the Ecusta Division's assets and liabilities, with
the exception of taxes, are not reflected as changes in assets and liabilities
in the Cash Flow Statement.
18
The Company expectssignificant decreases reflected in our Consolidated Balance Sheet
("Balance Sheet") related to accounts receivable, inventory, plant, equipment
and timberlands -- net and current liabilities from December 31, 2000 to
December 31, 2001 are primarily due to the disposition of the Ecusta Division.
We expect to meet all itsour near- and long-term cash needs from a combination
of internally generated funds, cash, cash equivalents and itsour existing Revolving
Credit Facility or other bank lines of credit and if prudent, other long-term debt. The
Company isWe are
subject to certain financial covenants under the Revolving Credit Facility and
isare in compliance with all such covenants. As the Revolving Credit Facility
matures on December 22, 2002, it has been reclassified on the Balance Sheet to
"Current portion of long-term debt." As of December 31, 2001, we had
$122,515,000 of borrowings under the Revolving Credit Facility and an additional
$77,485,000 was available under our Revolving Credit Facility. We intend to
repay the Revolving Credit Facility during 2002 using a portion of our cash and
cash equivalents as well as through borrowings under a new debt facility to be
negotiated.
INTEREST RATE RISK
The Company uses itsWe use our Revolving Credit Facility and proceeds from the issuance of itsour
6 7/8% Notes to finance a significant portion of itsour operations. The Revolving
Credit Facility provides for variable rates of interest and exposes the
Companyus to
interest rate risk resulting from changes in the DMEuro London Interbank Offered
Rate. The Company uses off-balance sheetWe use interest rate swap agreements to partially hedge interest rate
exposure associated with the Revolving Credit Facility. All of the Company'sour derivative
financial instrument transactions are entered into for non-trading purposes.
To the extent that the Company'sour financial instruments expose the Companyus to interest rate
risk and market risk, they are presented in the table below. The table presents
principal cash flows and related interest rates by year of maturity for the Company'sour
Revolving Credit Facility, and 6 7/8% Notes and other long-term debt as of
December 31, 2000.2001. For interest rate swap agreements, the table presents
notional amounts and the related reference interest rates by year of maturity.
Fair values included herein have been determined based upon (1) rates currently
available to the Companyus for debt with similar terms and remaining maturities, and (2)
estimates obtained from dealers to settle interest rate swap agreements. The
table should be read in conjunction with Notes 65 and 76 to the consolidated
financial statements (dollar amounts
in thousands).statements.
Year of Maturity Fair Value
------------------------------------------------------------------- at
2001YEAR OF MATURITY
------------------------------------------------------ FAIR
VALUE AT
2002 2003 2004 2005 Thereafter Total2006 THEREAFTER TOTAL 12/31/00
----------------------------------------------------------------------------------------------01
-------- ------ ----- ----- ----- ---------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
Debt:
Fixed rate --............... $ 1,4191,194 $1,058 $ 1,267 $1,112883 $ 929530 $ 560 $150,128 $155,415 $158,667122 $150,000 $153,787 $152,666
Average interest raterate..... 6.86% 6.86% 6.86%6.87% 6.87% 6.87% 6.87% 6.87%
Variable rate $ -- $146,249--............ $122,515 $ -- $ -- $ -- $ -- $146,249 $146,249$ -- $122,515 $122,515
Average interest rate 4.63% 4.63%rate..... 3.80 -- -- -- -- --
Interest rate swap agreements:
Variable to fixed
swaps $25,025--.................. $ 47,57645,098 $ -- $ -- $ -- $ -- $ 72,601-- $ 1,31745,098 $ 32
Average pay raterate.......... 3.42% 3.42%-- -- -- -- --
Average receive rate 5.20% 5.20%rate...... 3.60% -- -- -- -- --
23
24
As required by Statement of Financial Accounting Standards (SFAS)("SFAS") No. 133,"Accounting "Accounting
for Derivative Instruments and Hedging Activities," the Company is requiredrequires us to record the
interest rate swaps from the table above on the balance sheet at fair value
beginning January 1, 2001. SFAS No. 133, as amended and interpreted, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
Because these swaps are designated in a cash-flow hedge, changes in the fair
value of the derivative will beare recorded in other comprehensive income ("OCI") and
will beare recognized in the income statement when the hedged item affects earnings.
Effective January 1, 2001, the Companywe recorded $845,000 in OCI as a cumulative
transition adjustment for derivatives designated in cash flow-type
19
hedges prior to adopting SFAS No. 133. As of December 31, 2001, the balance in
OCI related to derivatives was $21,000.
CAPITAL RESOURCES
During 2000, the Company2001, we expended $29,215,000$47,845,000 on capital projects compared to
$24,160,000$29,215,000 in 1999.2000. Of the 20002001 capital spending, approximately $5,200,000$18,400,000 was
spent on our IMPACT project and approximately $900,000 was spent on the Company's IMPACT project.New
Century Project. Capital spending is expected to be approximately $67,000,000,$56,000,000 in
2002. Included in this total is an expected additional $21,000,000 capital
expenditure for our IMPACT project and $6,700,000 for the New Century Project.
The New Century Project will also require an estimated $18,000,000 and
$5,400,000 in spending during 2003 and 2004, respectively. The total capital
spending on the New Century Project is expected to be approximately $32,500,000,
including $1,500,000 that was spent during preliminary phases prior to 2001.
Other significant capital expenditures expected during 2002 include
$6,000,000 to begin the expansion of whichour long-fiber and overlay papers capacity
in Gernsbach and $4,200,000 to begin the expansion of our abaca pulp making
capacity in the Philippines. Capital expenditures of $25,800,000 are expected on
these projects in 2003.
In our 2000 Form 10-K, we estimated our 2001 total capital expenditures to
be $67,000,000. Actual spending was less than that amount due to the
cancellation and delay of certain projects. Capital spending on environmental
related projects was approximately $24,000,000 will be
for$7,000,000 lower than expected due to the
delay in the receipt of certain necessary permits. Spending on our IMPACT
project in 2001 was approximately $5,600,000 less than anticipated.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 141, "Business
Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS
No. 143, "Accounting for Asset Retirement Obligations," in June 2001 and issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
in August 2001.
SFAS No. 141 is effective for all business combinations occurring after
June 30, 2001 and requires that all business combinations be accounted for under
the purchase method only and that certain acquired intangible assets in a
business combination be recognized as assets apart from goodwill. The adoption
of SFAS No. 141 had no impact on our consolidated financial position or results
of operations.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001 and establishes revised reporting requirements for goodwill and other
intangible assets. Upon adoption, we no longer amortize goodwill unless evidence
of impairment exists; goodwill will be evaluated on at least an annual basis. As
of December 31, 2001 and using the 2001 foreign exchange translation rates, we
had $8,170,000 in unamortized goodwill and recorded $518,000 in goodwill
amortization expense in 2001. We adopted SFAS No. 142 on January 1, 2002.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002
and applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or the
normal operation of a long-lived asset. We will adopt SFAS No. 143 on January 1,
2003. We are currently evaluating the effects that the adoption of SFAS No. 143
may have on our consolidated financial position and results of operations.
SFAS No. 144 is effective for fiscal years beginning after December 15,
2001. This statement supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and establishes
new guidelines for the valuation of long-lived assets. We adopted SFAS No. 144
on January 1, 2002. The adoption of SFAS No. 144 had no impact on our
consolidated financial position or results of operations.
20
ENVIRONMENTAL MATTERS
The Company isWe are subject to loss contingencies resulting from regulation by various
federal, state, local and foreign governmental authorities with respect to the
environmental impact of air and water emissions and noise from its
mills, as well as the disposal of solid waste generated by its
operations.our mills. To comply with environmental laws and
regulations, the
Company haswe have incurred substantial capital and operating expenditures in
past years. During 2001, 2000 and 1999, and 1998, the Companywe incurred approximately $15,600,000,
$16,700,000 $15,800,000, and $17,700,000,$15,800,000, respectively, in operating costs related to
complying with environmental laws and regulations. The Company anticipatesWe anticipate that
environmental regulation of itsour operations will continue to become more
burdensome and that capital and operating expenditures necessary to comply with
environmental regulations will continue, and perhaps increase, in the future. In
addition, the Companywe may incur obligations to remove or mitigate any adverse effects on
the environment allegedly resulting from itsour operations, including the
restoration of natural resources, and liability for personal injury and damagefor
damages to property includingand natural resources.
In particular, the Company remainswe remain open to negotiations with the EPA and the
Pennsylvania DEP regarding the NOVs under the federal and state air pollution
control laws. The Company continuesIn addition, we continue to negotiate with the State of Wisconsin
and the United States regarding natural resources damages and response costs
related to the discharge of PCBs and other hazardous substances in the lower Fox
River, on which the Company'sour Neenah millfacility is located. The Company also is in settlement discussionsWe have settled with the
Pennsylvania DEP and with the Pennsylvania Public Interest Research Group and
several other parties (collectively "PennPIRG") regarding the wastewater
discharge permit for itsour Spring Grove mill.facility. Under this settlement, we agreed
to the implementation of certain projects encompassed by the New Century Project
consistent with the time table set forth in our water discharge permit,
requiring completion of the project by April 2004. This settlement also required
a one-time, pre-tax charge of $2,500,000 during the second quarter of 2001. We
are also voluntarily cooperating with an investigation by the Pennsylvania DEP,
which commenced in February 2002 of our Spring Grove facility related to certain
discharges, which are alleged to be unpermitted, to the Codorus Creek.
The costs associated with suchenvironmental matters are presently unknown but
could be substantial and perhaps exceed the Company'sour available resources. The Company'sOur current
assessment after
consultation with legal counsel, is that ultimately itwe should be able to resolvemanage these environmental matters
without a long-term, material adverse impact on the Company. In the meantime, however, theseimpact. These matters could, however, at
any particular time or for any particular period,year or years, have a material adverse
effect on the Company'sour consolidated financial condition, liquidity or results of
operations.operations or could result in a default under our loan covenants. Moreover,
there can be no assurance that the Company'sour reserves will be adequate to provide for
future obligations related to these matters, that our share of costs and/or
damages for these matters will not exceed our available resources, or that such
obligations will not have a long-term, material adverse effect on the
Company'sour
consolidated financial condition, liquidity or results of operations. With
regard to the lower Fox River and the Bay of Green Bay, if we are not successful
in managing the matter and are ordered to implement the remedy set forth in the
proposed remedial action plan issued by the State of Wisconsin and the United
States, such order would have a material adverse effect on our consolidated
financial condition, liquidity and results of operations and would result in a
default under our loan covenants. We have accrued an amount to cover this matter
which represents our best estimate within a range of possible outcomes. Changes
to the accrual reflect our best estimate of the ultimate outcome and considers
changes in the extent and cost of the remedy, the status of negotiations with
the various parties, including other PRPs, and our assessment of potential NRD
claims, claims for reimbursement of expenses of other parties and residual
liabilities. For further discussion, see Note 9 of the Consolidated Financial
Statements.
ENVIRONMENTAL ACHIEVEMENTS
On April 19, 2000, the
Company's Neenah, Wisconsin paper mill achievedWe continue to strive for ISO 14001 certification for itsour environmental
management system and itsas a component of our commitment to environmental excellence.
ISO 14001 requires that an organization have an environmental policy that
includes commitments to prevention of pollution, compliance with environmental
laws and regulations and continual improvements in its environmental management
system. The
Company'ssystems. Our Spring Grove, Pennsylvania, Neenah, Wisconsin and Gernsbach,
Germany paper millsfacilities are already ISO 14001 certified. As a part of maintaining itsour
certification, the mills'each facility's environmental management systems will besystem is audited by an
independent third party on an ongoing, periodic basis. The Company's Pisgah Forest, North Carolina paper mill is currently
working on achievingWe plan to have our
Scaer, France facility ISO 14001 certification. The Company expects its
Pisgah Forest mill to be certified by the end of 2001 and plans to have
all of its paper mills certified by the end of 2002.
21
On April 20, 1999, the Companywe announced itsour "New Century Project." The New Century
Project is aour commitment by the
Company to participate at itsour Spring Grove millfacility in EPA's
Advanced Technology Incentive Program under the "Cluster Rules."As a result,described in
the Company expectsCapital Resources section above, we expect to spend approximately
$30,000,000$32,500,000 prior to April 2004 to eliminate the use of elemental chlorine in
itsour bleaching process, reduce odor emissions and improve water quality. The New
Century Project demonstrates the Company'sour commitment to minimizing itsour impact on natural
resources.
24
25
ItemITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the discussion under the heading "Interest Rate Risk" in Item 7 as well
as Notes 6 and 7 to the Registrant'sour consolidated financial statements in Item 8.
Item22
ITEM 8. Financial Statements and Supplementary Data.
P. H. GLATFELTER COMPANY and SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income
For the Years Ended December 31, 2000, 1999 and 1998
(in thousands except per share amounts) 2000 1999 1998
- --------------------------------------------------------------------------------------------------
NET SALES (Note 1 (p)) $ 724,720 $705,491 $ 727,312
OTHER INCOME:
Energy sales - net (Note 1 (j)) 9,243 9,176 9,652
Interest on investments and other - net (Note 6) 3,820 1,994 1,956
Gain from property dispositions, etc. - net 2,029 4,076 1,019
--------- -------- ---------
Total 739,812 720,737 739,939
--------- -------- ---------
COSTS AND EXPENSES:
Cost of products sold (Note 1 (p)) 591,201 580,905 597,585
Selling, general and administrative expenses 60,267 56,256 51,799
Interest on debt (Notes 6 and 7) 16,405 18,424 22,007
Unusual item (Note 3) 3,336 -- 9,816
--------- -------- ---------
Total costs and expenses 671,209 655,585 681,207
--------- -------- ---------
INCOME BEFORE INCOME TAXES 68,603 65,152 58,732
--------- -------- ---------
INCOME TAX PROVISION (NOTE 5):
Current 11,366 10,973 14,488
Deferred 13,237 12,754 8,111
--------- -------- ---------
Total 24,603 23,727 22,599
--------- -------- ---------
NET INCOME $ 44,000 $ 41,425 $ 36,133
========= ======== =========
BASIC AND DILUTED EARNINGS PER SHARE (Notes 4 and 8) $ 1.04 $ .98 $ .86
COMPREHENSIVE INCOME, NET OF TAX:
NET INCOME $ 44,000 $ 41,425 $ 36,133
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (Note 1 (n)) (1,451) 219 (553)
--------- -------- ---------
COMPREHENSIVE INCOME $ 42,549 $ 41,644 $ 35,580
========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
25
26
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(in thousands except share information) 2000 1999
- ------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1(b)) $ 110,552 $ 76,035
Accounts receivable (less allowance for doubtful accounts:
2000, $1,515; 1999, $1,227) 72,231 74,638
Inventories (Note 1(c)) 101,294 115,100
Prepaid expenses and other current assets 2,547 2,354
----------- -----------
Total current assets 286,624 268,127
PLANT, EQUIPMENT AND TIMBERLANDS - NET (Notes 1(d) and 10) 552,768 582,213
OTHER ASSETS (Notes 1(e), 5 and 9) 173,799 153,440
----------- -----------
Total assets $ 1,013,191 $ 1,003,780
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt (Note 6) $ 1,419 $ 1,824
Short-term debt (Note 2) 5,158 26,566
Accounts payable 45,869 40,047
Dividends payable 7,430 7,393
Income taxes payable 7,328 9,601
Accrued compensation and other expenses and
deferred income taxes 51,980 47,200
----------- -----------
Total current liabilities 119,184 132,631
LONG-TERM DEBT (Note 6) 300,245 301,380
DEFERRED INCOME TAXES (Notes 1(f) and 5) 155,360 147,698
OTHER LONG-TERM LIABILITIES (Notes 1(k), 2, 8 and 9) 65,699 63,947
----------- -----------
Total liabilities 640,488 645,656
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY (Note 8):
Common stock, $.01 par value; authorized- 120,000,000 shares;
issued (including shares in treasury: 2000, 11,971,208;
1999, 12,115,725)- 54,361,980 shares 544 544
Capital in excess of par value 41,669 42,296
Retained earnings 511,019 496,680
Accumulated other comprehensive income (2,843) (1,392)
----------- -----------
Total 550,389 538,128
Less cost of common stock in treasury (177,686) (180,004)
----------- -----------
Total shareholders' equity 372,703 358,124
----------- -----------
Total liabilities and shareholders' equity $ 1,013,191 $ 1,003,780
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
26
27
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
Accumulated
Common Capital in Other Total
(in thousands except Shares Common Excess of Retained Comprehensive Treasury Shareholders'
shares outstanding) Outstanding Stock Par Value Earnings Income Stock Equity
------------------------------------------------------------------------------------------------
Balance,
January 1, 1998 42,149,608 $ 544 $ 42,623 $478,073 $ (1,058) $(180,824) $ 339,358
Net income 36,133 36,133
Foreign currency
translation adjustments (553) (553)
Cash dividends declared (29,413) (29,413)
Delivery of treasury shares:
Employee stock
purchase and
401(k) plans 182,528 (13) 2,713 2,700
Employee stock options
exercised - net 3,100 2 46 48
Purchase of stock for
treasury (250,000) (4,344) (4,344)
---------- ----- -------- -------- -------- --------- ---------
Balance,
December 31, 1998 42,085,236 544 42,612 484,793 (1,611) (182,409) 343,929
Net income 41,425 41,425
Foreign currency
translation adjustments 219 219
Cash dividends declared (29,538) (29,538)
Delivery of treasury shares:
Performance shares 11,440 (28) 170 142
401(k) plans 143,579 (273) 2,146 1,873
Employee stock options
exercised-net 6,000 (15) 89 74
---------- ----- -------- -------- -------- --------- ---------
Balance,
December 31, 1999 42,246,255 544 42,296 496,680 (1,392) (180,004) 358,124
Net income 44,000 44,000
Foreign currency
translation adjustments (1,451) (1,451)
Cash dividends declared (29,661) (29,661)
Delivery of treasury shares:
Performance shares 6,048 (2) 90 88
401(k) plans 167,769 (606) 2,498 1,892
Employee stock options
exercised- net 7,500 (19) 112 93
Purchase of stock for
treasury (36,800) (382) (382)
---------- ----- -------- -------- -------- --------- ---------
BALANCE,
DECEMBER 31, 2000 42,390,772 $ 544 $ 41,669 $511,019 $ (2,843) $(177,686) $ 372,703
========== ===== ======== ======== ======== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
27
28
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
(in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 44,000 $ 41,425 $ 36,133
Items included in net income not using (providing) cash:
Depreciation, depletion and amortization 46,106 47,766 47,738
Loss (gain) on disposition of fixed assets 467 (1,339) 481
Expense related to employee stock purchase
and 401(k) plans 2,073 2,303 1,652
Changes in assets and liabilities, net of effect
of acquisitions:
Accounts receivable 483 (7,170) 8,703
Inventories 11,351 (1,965) 16,437
Other assets and prepaid expenses (22,304) (37,259) (2,328)
Accounts payable, accrued compensation and
other expenses, deferred income taxes and
other long-term liabilities 14,694 13,999 (8,272)
Income taxes payable (1,735) (543) (4,341)
Deferred income taxes- noncurrent 8,273 24,441 4,214
--------- -------- ---------
Net cash provided by operating activities 103,408 81,658 100,417
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale or maturity of investments- net -- 401 158,475
Proceeds from disposal of fixed assets 143 1,929 319
Additions to plant, equipment and timberlands (29,215) (24,160) (40,531)
Acquisition of S&H- net of cash acquired -- -- (147,491)
Acquisition of Cascadec -- (7,399) --
--------- -------- ---------
Net cash used in investing activities (29,072) (29,229) (29,228)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payment) of debt (10,136) 2,828 (5,591)
Repayment of 5 7/8% Notes -- -- (150,000)
Acquisition-related borrowings -- -- 101,500
Dividends paid (29,624) (29,510) (29,436)
Purchases of common stock (382) -- (4,344)
Proceeds from issuance of common stock under
employee stock purchase plans and key employee
long-term incentive plan -- -- 1,088
--------- -------- ---------
Net cash used in financing activities (40,142) (26,682) (86,783)
--------- -------- ---------
Effect of exchange rate changes on cash 323 (619) (418)
Net increase (decrease) in cash and cash equivalents 34,517 25,128 (16,012)
CASH AND CASH EQUIVALENTS:
At beginning of year 76,035 50,907 66,919
--------- -------- ---------
At end of year $ 110,552 $ 76,035 $ 50,907
========= ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 16,848 $ 23,273 $ 22,722
Income taxes 12,626 12,119 19,573
The accompanying notes are an integral part of these consolidated financial
statements.
28
29
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2000, 1999 and 1998
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION P.H.
Glatfelter Company and subsidiaries are manufacturers of engineered
papers and specialized printing papers. Headquartered in York,
Pennsylvania, the Company's paper mills are located in Spring Grove,
Pennsylvania; Neenah, Wisconsin; Pisgah Forest, North Carolina;
Gernsbach, Germany; and Scaer, France. The Company's products are
marketed in most parts of the United States and in many foreign
countries, either through wholesale paper merchants, brokers and agents
or direct to customers. The accounts of the Company, and those of its
subsidiaries, are included in the consolidated financial statements.
All intercompany transactions have been eliminated. The Company's
operating locations have been aggregated into a single reportable
segment since they have similar economic characteristics, products,
production processes, types of customers and distribution methods.
Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to those classifications
used in 2000.
(b) CASH AND CASH EQUIVALENTS The Company considers all highly liquid
financial instruments with effective maturities at date of purchase of
three months or less to be cash equivalents.
(c) INVENTORIES Inventories are stated at the lower of cost or market.
Raw materials and in-process and finished inventories of the Company's
domestic operations are valued using the last-in, first-out (LIFO)
method, and the supplies inventories are valued principally using the
average-cost method. Certain of the Company's inventories are valued
using a method which approximates average cost. Inventories at December
31 are summarized as follows:
2000 1999
----------------------
(in thousands)
Raw materials $ 27,789 $ 41,013
In-process and finished 43,819 42,463
Supplies 29,686 31,624
-------- --------
Total $101,294 $115,100
======== ========
If the Company had valued all inventories using the average-cost
method, inventories would have been $8,121,000 and $3,790,000 higher
than reported at December 31, 2000 and 1999, respectively. During 2000
and 1998, the Company liquidated certain LIFO inventories. The effect
of the liquidations did not have a significant impact on net income.
At December 31, 2000 and 1999, the recorded value of the above
inventories exceeded inventories for income tax purposes by
approximately $22,400,000 and $22,200,000, respectively.
(d) PLANT, EQUIPMENT AND TIMBERLANDS Depreciation is computed for
financial reporting using the straight-line method over the estimated
useful lives of the respective assets and for income taxes principally
using accelerated methods over lives established by statute or
Treasury Department procedures. Provision is made for deferred income
taxes applicable to this difference. See Notes 1(f) and 5.
The range of estimated service lives used to calculate financial
reporting depreciation for principal items of property, plant and
equipment are as follows:
Buildings 10 - 45 Years
Machinery and equipment 7 - 35 Years
Other 4 - 40 Years
Depletion of the cost of timber is computed on a unit rate of usage by
growing area based on estimated quantities of recoverable material.
Maintenance and repairs are charged to income and major renewals and
betterments are capitalized. At the time property is retired or sold,
the cost and related reserve are eliminated and any resultant gain or
loss is included in income.
Property, equipment and timberlands accounts, as of December 31, are
summarized as follows:
2000 1999
-----------------------------
(in thousands)
Land and buildings $ 145,323 $ 145,898
Machinery and
equipment 1,073,396 1,071,656
Other 38,842 37,745
Less accumulated
depreciation (737,985) (699,557)
---------- ------------
Total 519,576 555,742
Construction in progress 14,674 7,893
Timberlands, less
depletion 18,518 18,578
---------- ------------
Plant, equipment and
timberlands - net $ 552,768 $ 582,213
========== ============
(e) INVESTMENTS IN DEBT SECURITIES Long-term investments, which are due
over a remaining 14-year period and are classified as held-to-
maturity, are included in "Other assets" on the Consolidated Balance
Sheets at December 31, 2000 and 1999. The investments consist of
approximately $10,300,000 and $10,400,000 in U.S. Treasury and
government obligations at December 31, 2000 and 1999, respectively. The
fair market value of such investments approximated the amortized cost,
and therefore, there were no significant unrealized gains or losses as
of December 31, 2000 and 1999.
29
30
(f) INCOME TAX ACCOUNTING The Company recognizes deferred tax assets
and liabilities for temporary differences between the financial
reporting basis and the tax basis of the Company's assets and
liabilities. The impact on deferred taxes of changes in tax rates and
laws, if any, applied to the years during which temporary differences
are expected to be settled, are reflected in the consolidated financial
statements in the period of enactment. See Note 5.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS The amounts reported on the
Consolidated Balance Sheets for cash and cash equivalents, accounts
receivable, other assets, short-term debt and long-term debt
approximate fair value.
(h) VALUATION OF LONG-LIVED ASSETS The Company evaluates long-lived
assets for impairment periodically or when a specific event indicates
that the carrying value of an asset may not be recoverable.
Recoverability is assessed based on estimates of future cash flows
expected to result from the use and eventual disposition of the asset.
If the sum of expected undiscounted cash flows is less than the
carrying value of the asset, an impairment loss is recognized. The
impairment loss is measured as the amount by which the carrying amount
of the asset exceeds its fair value.
(i) ACCOUNTING ESTIMATES The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires the use of management's estimates
and assumptions. Management believes the estimates and assumptions used
in the preparation of these consolidated financial statements are
reasonable, based upon currently available facts and known
circumstances, but recognizes that actual results may differ from those
estimates and assumptions. See Note 10.
(j) REVENUE RECOGNITION The Company recognizes revenue on product
sales upon shipment and on energy sales when electricity is delivered
to its customer. Certain costs associated with the production of
electricity, such as fuel, labor, depreciation and maintenance are
netted against the energy sales for presentation on the Consolidated
Statements of Income and Comprehensive Income. The Company's current
contract to sell electricity generated in excess of its own use expires
in the year 2010 and requires that the customer purchase all of the
Company's excess electricity up to a certain level. The price for the
electricity is determined pursuant to a formula and varies depending
upon the amount sold in any given year.
(k) ENVIRONMENTAL LIABILITIES Accruals for losses associated with
environmental obligations are recorded when it is probable that a
liability has been incurred and the amount of the liability can be
reasonably estimated based on existing legislation and remediation
technologies. These accruals are adjusted periodically as assessment
and remediation actions continue and/or further legal or technical
information develops. Accrued environmental liabilities are classified
as "Other long-term liabilities" on the Consolidated Balance Sheets.
Such undiscounted liabilities are exclusive of any insurance or other
claims against third parties.
Costs related to environmental remediation are charged to expense.
Environmental costs are capitalized if the costs extend the life of the
property, increase its capacity and/or mitigate or prevent
contamination from future operations. See Note 10.
(l) STOCK-BASED COMPENSATION The Company has adopted the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
encourages, but does not require, companies to record compensation cost
for stock-based compensation plans at fair value. The Company has
elected to continue to account for stock-based compensation in
accordance with APB Opinion No. 25,"Accounting for Stock Issued to
Employees," and related interpretations, as permitted by SFAS No. 123.
Compensation expense for stock options is measured as the excess, if
any, of the average quoted market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the
stock. Compensation expense for both restricted stock and performance
stock awards is recognized ratably over the performance period based
on changes in quoted market prices of the Company's stock and the
likelihood of achieving the performance goals. See Note 8.
(m) DERIVATIVE FINANCIAL INSTRUMENTS The Company uses interest rate
swap agreements to manage its exposure to fluctuations in interest
rates. Amounts to be paid or received under interest rate swap
agreements are recognized as interest expense or interest income during
the period in which they accrue. The Company does not hold any
derivative financial instruments for trading purposes. The credit risks
associated with the Company's interest rate swap agreements are
controlled through the evaluation and monitoring of creditworthiness of
the counterparties. Although the Company may be exposed to losses in
the event of nonperformance by counterparties, the Company does not
expect such losses, if any, to be significant. See Note 7.
(n) FOREIGN CURRENCY TRANSLATION The Company's subsidiaries outside the
United States use their local currency as the functional currency.
Accordingly, translation gains and losses and the effect of exchange
rate changes on transactions designated as hedges of net foreign
investments are included as a separate component of shareholders'
equity. Transaction gains and losses are included in income in the
period in which they occur.
30
31
(o) RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting
Standards (SFAS) No. 133,"Accounting for Derivative Instruments and
Hedging Activities," is effective for all fiscal years beginning after
June 15, 2000. SFAS No. 133, as amended and interpreted, establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. All derivatives, whether designated in
hedging relationships or not, will be required to be recorded on the
balance sheet at fair value. If the derivative is designated in a
fair-value hedge, changes in the fair value of the derivative and the
hedged item will be recognized in earnings. If the derivative is
designated in a cash-flow hedge, changes in the fair value of the
derivative will be recorded in other comprehensive income ("OCI") and
will be recognized in the income statement when the hedged item affects
earnings. SFAS No. 133 defines new requirements for designation and
documentation of hedging relationships as well as ongoing effectiveness
assessments to use hedge accounting. For a derivative that does not
qualify as a hedge, changes in fair value will be recognized in
earnings.
As of January 1, 2001, the Company had no derivatives that required a
cumulative transition adjustment to earnings under SFAS No. 133. The
Company recorded an $845,000 increase in OCI, as of January 1, 2001, as
a cumulative transition adjustment for derivatives designated in cash
flow-type hedges prior to adopting SFAS No. 133.
(p) RECLASSIFICATIONS During the fourth quarter of 2000, the Company
adopted the provisions of the Emerging Issues Task Force ("EITF") Issue
No. 00-10,"Accounting for Shipping and Handling Fees and Costs." In
accordance with the provisions of EITF 00-10, certain shipping and
handling costs that the Company had previously recorded as a
deduction in determining net sales have been reclassified to cost of
products sold. As a result of adopting EITF 00-10, the Company has
restated previous quarters of 2000 and previous years' financial
information to reflect comparable reporting of such shipping and
handling costs.
2 ACQUISITION OF THE SPECIALTY PAPER DIVISION OF THE SCHOELLER AND HOESCH GROUP
Effective January 2, 1998, the Company acquired all of the outstanding
common stock of S&H Papier-Holding GmbH ("S&H"), the specialty paper
division of the Schoeller and Hoesch Group, from RQPO Beteiligungs GmbH
& Co. Papier KG ("RQPO") and EVOBESTRA Vermogensverwaltungsgesellschaft
mbH, for DM 268,900,000 (approximately $150,000,000) in cash. The
purchase price was finalized in the fourth quarter of 1998. The
principal partners in RQPO were Deutsche Beteiligungs AG and S&H
management. The Company accounted for the S&H acquisition under the
purchase method of accounting, and S&H was consolidated with the
Company beginning in January 1998.
S&H was founded in 1881 in Gernsbach, Germany, where its corporate
offices and major paper production facilities are located. S&H produces
a range of paper products, including tea bag and other long fiber
products such as stencil, filter and casing paper, as well as overlay
papers, tobacco papers and printing papers. S&H owns an abaca pulpmill
in the Philippines and other facilities in France. The acquisition of
S&H initially included a 50% controlling ownership interest in
Papeteries de Cascadec S. A. ("Cascadec"), a French company, along with
the option to acquire the remaining 50% at a future time. For the year
ended December 31, 1998, the Company recognized $886,000 of minority
interest expense classified as "Gain from property dispositions,
etc.-net" on the Company's Consolidated Statement of Income and
Comprehensive Income. On April 9, 1999, the Company exercised its
option and purchased the remaining 50% of Cascadec for FF 45,181,233
($7,399,000) in cash. During 1999, the Company recognized $343,000 of
minority interest expense through the acquisition date of the remaining
50% of Cascadec.
The purchase price of S&H, including certain transaction costs, was
allocated to the assets acquired and liabilities assumed based upon
their fair values at the date of acquisition. The fair values allocated
were approximately $238,000,000 for the assets acquired and
approximately $101,000,000 for the liabilities assumed. The excess of
the purchase price over the fair value of net assets acquired of
approximately $13,000,000 was recorded as goodwill and is being
amortized on a straight-line basis over 20 years.
To finance the acquisition, on December 22, 1997, the Company entered
into a $200,000,000 multi-currency revolving credit facility
("Revolving Credit Facility") with a syndicate of major lending
institutions. The Revolving Credit Facility enables the Company to
borrow up to the equivalent of $200,000,000 in certain currencies in
the form of revolving credit loans with a final maturity date of
December 22, 2002, and with interest periods determined, at the
Company's option, on a daily or one- to six-month basis. Interest on
the revolving credit loans is at variable rates based, at the Company's
option, on the Eurocurrency Rate or the Base Rate (lender's prime
rate), plus applicable margins. Margins are based on the higher of the
Company's debt ratings as
31
32
published by Standard & Poor's and Moody's. The Company is subject to
certain financial covenants under the Revolving Credit Facility and is
in compliance with all such covenants as of December 31, 2000. The
Company must pay an annual administrative fee of $25,000 as well as an
annual facility fee which is 1% of the total credit commitment. As of
December 31, 2000, $53,751,000 of credit availability under the
Revolving Credit Facility was unused.
3 UNUSUAL ITEMS
The Company announced in September 1999 that, effective January 1,
2000, prices would be increased for certain of its tobacco paper
products. This initiative was required for the Company to remain a
viable, high-quality supplier to its tobacco paper customers. As the
Company expected, certain of these customers sought other suppliers
after this announcement. As a result, the Company announced in December
1999 that it would begin reducing its tobacco paper manufacturing
capacity at its Ecusta mill during 2000.
During the first quarter of 2000, the Company finalized its plan of
restructuring and shortly thereafter began to reduce the workforce at
Ecusta. The workforce reduction is substantially completed and will
ultimately result in the reduction of over 200 salaried and hourly jobs
associated with the Company's tobacco paper production capacity. The
Company accrued and charged to expense $3,336,000 ($2,120,000 after
tax) in the first quarter of 2000 primarily as a result of the
voluntary portion, specifically 42 salaried employees, of this
restructuring. The amount of actual termination benefits paid and
charged against the liability as of December 31, 2000 was $316,000
covering 31 salaried employees.
During 1998, the Company recognized a charge of $9,816,000 ($5,988,000
after tax) related primarily to the accrual of pension and medical
benefits for certain salaried and hourly employees of the Company's
Ecusta Division and certain salaried employees of the Company's
Glatfelter Division who elected to participate in a voluntary early
retirement enhancement program. The charge also included the cost of
termination of several Glatfelter Division salaried employees which was
necessary to achieve the Company's cost-savings goals.
4 EARNINGS PER SHARE("EPS")
Basic EPS excludes the dilutive impact of common stock equivalents
and is computed by dividing net income by the weighted-average number
of shares of common stock outstanding for the period. Diluted EPS
includes the effect of potential dilution from the issuance of common
stock, pursuant to common stock equivalents, using the treasury stock
method. A reconciliation of the Company's basic and diluted EPS follows
with the dollar and share amounts in thousands:
2000 1999 1998
Shares Shares Shares
---------------------------------
Basic EPS factors 42,342 42,173 42,047
Effect of potentially
dilutive employee
incentive plans:
Restricted stock
awards 82 3 16
Performance
stock awards 59 131 126
Employee stock
options -- 124 13
------- ------- -------
Diluted EPS factors 42,483 42,431 42,202
======= ======= =======
Net income $44,000 $41,425 $36,133
Basic and diluted EPS $ 1.04 $ .98 $ .86
The 2000 and 1998 basic and diluted EPS of $1.04 and $0.86,
respectively, as presented on the Consolidated Statements of Income and
Comprehensive Income, reflect the negative impact of an after-tax
restructuring charge (unusual item) of $.05 per share for 2000 and an
after-tax charge for a voluntary early retirement enhancement program
(unusual item) of $.14 per share for 1998 (see Note 3).
32
33
5 INCOME TAXES
Income taxes are recognized for the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets
for the future tax consequences of events that have been recognized in
the Company's consolidated financial statements or tax returns. The
effects of income taxes are measured based on effective tax law and
rates.
The following are domestic and foreign components of pre-tax income
for the years ended December 31:
2000 1999 1998
--------------------------------
(in thousands)
United States $59,653 $55,911 $44,602
Foreign 8,950 9,241 14,130
------- ------- -------
Total pre-tax income $68,603 $65,152 $58,732
======= ======= =======
The income tax provision for the years ended December 31 consists of
the following:
2000 1999 1998
-----------------------------------
(in thousands)
Current:
Federal $ 9,939 $ 6,953 $ 10,789
State -- 217 (106)
Foreign 1,427 3,803 3,805
-------- -------- --------
Total current
tax provision 11,366 10,973 14,488
-------- -------- --------
Deferred:
Federal 9,729 11,735 6,647
State 1,822 2,197 1,244
Foreign 1,686 (1,178) 220
-------- -------- --------
Total deferred
tax provision 13,237 12,754 8,111
-------- -------- --------
Total income
tax provision $ 24,603 $ 23,727 $ 22,599
======== ======== ========
The Company has provided deferred income taxes of $1,217,000 and
$57,000 on undistributed earnings of foreign subsidiaries as of
December 31, 2000 and 1999, respectively.
The net deferred tax amounts reported on the Company's Consolidated
Balance Sheets as of December 31 are as follows:
2000 1999
------------------------------------------------------------
Federal State Foreign Total Total
------------------------------------------------------------
(in thousands)
Current asset $ -- $ -- $ 1,295 $ 1,295 $ 1,225
Current liability 2,829 534 670 4,033 4,988
Long-term asset -- -- 20,917 20,917 27,666
Long-term liability 113,246 21,390 20,724 155,360 147,698
The following are components of the net deferred tax balances as of
December 31:
2000 1999
------------------------------------------------------------
Federal State Foreign Total Total
------------------------------------------------------------
(in thousands)
Deferred tax assets:
Current $ 4,520 $ 852 $ 1,295 $ 6,667 $ 5,737
Long-term 21,848 4,121 20,917 46,886 52,859
-------- -------- -------- -------- --------
$ 26,368 $ 4,973 $ 22,212 $ 53,553 $ 58,596
======== ======== ======== ======== ========
Deferred tax liabilities:
Current $ 7,349 $ 1,386 $ 670 $ 9,405 $ 9,500
Long-term 135,094 25,511 20,724 181,329 172,891
-------- -------- -------- -------- --------
$142,443 $ 26,897 $ 21,394 $190,734 $182,391
======== ======== ======== ======== ========
33
34
The tax effects of temporary differences as of December 31 are as
follows:
2000 1999
-------------------------
(in thousands)
Deferred tax assets:
Reserves $ 15,484 $ 13,469
Compensation 7,334 7,068
Postretirement benefits 10,349 10,752
Property 8,626 16,104
Pension 2,906 3,164
Net operating loss
carryforwards 9,366 7,947
Other 1,320 1,339
--------- ---------
Subtotal 55,385 59,843
Valuation allowance (1,832) (1,247)
--------- ---------
Total deferred tax assets 53,553 58,596
--------- ---------
Deferred tax liabilities:
Property 127,906 131,873
Pension 50,745 39,450
Inventories 8,735 8,648
Inventories 3,348 2,420
--------- ---------
Total deferred tax liabilities 190,734 182,391
--------- ---------
Net deferred tax liabilities $ 137,181 $ 123,795
========= =========
A reconciliation between the income tax provision, computed by
applying the statutory federal income tax rate of 35% to income before
income taxes, and the actual income tax provision for the years ended
December 31 follows:
2000 1999 1998
------------------------------------
(in thousands)
Federal income tax
provision at
statutory rate $ 24,011 $ 22,803 $ 20,556
State income taxes,
net of federal
income tax benefit 1,185 1,569 740
Tax effect of exempt
earnings of foreign
sales corporation (90) (713) (1,313)
Other (503) 68 2,616
-------- -------- --------
Actual income
tax provision $ 24,603 $ 23,727 $ 22,599
======== ======== ========
At December 31, 2000, the Company had net operating loss ("NOL")
carryforwards for foreign and state income tax purposes of $38,128,000
and $16,478,000, respectively, which relate to foreign and state NOL
deferred tax assets of $7,939,000 and $1,427,000, respectively. These
foreign and state NOL carryforwards are available to offset future
taxable income, if any. A valuation allowance of $1,832,000 has been
recorded against these NOL deferred tax assets due to the uncertainty
regarding the Company's ability to utilize the NOL carryforwards. The
foreign NOL carryforwards do not expire, and the state NOL
carryforwards expire between 2004 and 2020.
6 BORROWINGS
Long-term debt at December 31 is summarized as follows:
2000 1999
-------------------------
(in thousands)
Revolving Credit Facility,
due December 22, 2002 $ 146,249 $ 145,545
6-7/8% Notes, due July 15,
2007, interest payable
semiannually 150,000 150,000
Other Notes, various 5,415 7,659
--------- ---------
Total long-term debt 301,664 303,204
Less current portion (1,419) (1,824)
--------- ---------
Long-term debt, excluding
current portion $ 300,245 $ 301,380
========= =========
The aggregate maturities of long-term debt as of December 31, 2000 are
as follows (in thousands):
2001 $ 1,419
2002 147,516
2003 1,112
2004 929
2005 560
Thereafter 150,128
---------
$ 301,664
=========
The Company has $3,030,000 of letters of credit outstanding as of
December 31, 2000. The Company bears the credit risk on this amount to
the extent that it does not comply with the provisions of certain
agreements. The letters of credit do not reduce the amount available
under the Company's lines of credit.
On July 22, 1997, the Company issued $150,000,000 principal amount of
6-7/8% Notes due July 15, 2007. Interest on the 6-7/8% Notes is payable
semiannually on January 15 and July 15. The 6-7/8% Notes are
redeemable, in whole or in part, at the option of the Company at any
time at a calculated redemption price plus accrued and unpaid interest
to the date of redemption, and constitute unsecured and unsubordinated
indebtedness of the Company. The net proceeds from the sale of the
6-7/8% Notes were used primarily to repay certain short-term unsecured
debt and related interest.
34
35
7 INTEREST RATE SWAP AGREEMENTS
In January 1998, the Company entered into two interest rate swap
agreements, each having a total notional principal amount of DM
52,600,000 (approximately $25,000,000 as of December 31, 2000). One
such agreement expired January 6, 2000. Under the remaining agreement,
which expired January 2, 2001, the Company received a floating rate of
the six-month DM London Interbank Offered Rate ("LIBOR") and paid a
fixed rate of 4.45% for the term of the agreement. The six-month DM
LIBOR applicable for the first and second half of 2000 was approxi-
mately 3.60% and 5.01%, respectively. The Company recognized net
interest expense of $85,000, $770,000 and $638,000 in 2000, 1999 and
1998, respectively, related to these agreements.
In January 1999, the Company entered into two additional interest rate
swap agreements, each having a total notional principal amount of DM
50,000,000 (approximately $23,800,000 as of December 31, 2000). Under
these agreements, which were effective April 6, 1999 and July 6, 1999
and which expire December 22, 2002, the Company receives a floating
rate of the three- month DM LIBOR plus twenty basis points and pays a
fixed rate of 3.41% and 3.43%, respectively, for the term of the
agreements. The Company recognized net interest income of $461,000 in
2000 and net interest expense of $167,000 in 1999 related to these
agreements. As of December 31, 2000, the Company's proceeds from
termination of these interest rate swap agreements would have been
$1,273,000.
The Company had other interest rate swap agreements outstanding, which
do not have a material impact on the Company's consolidated financial
statements. All of the Company's interest rate swap agreements
convert a portion of the Company's borrowings from a floating rate to a
fixed-rate basis. Although the Company can terminate any of its swap
agreements at any time, the Company intends to hold all of its swap
agreements until their respective maturities.
8 KEY EMPLOYEE LONG-TERM INCENTIVE PLAN, RESTRICTED COMMON STOCK AWARD PLAN AND
EMPLOYEE STOCK PURCHASE PLANS
On April 23, 1997, the common shareholders amended the 1992 Key
Employee Long-Term Incentive Plan ("1992 Plan") to authorize, among
other things, the issuance of up to 5,000,000 shares of the Company's
common stock to eligible participants. The 1992 Plan provides for
incentive stock options, non-qualified stock options, restricted stock
awards, performance shares and performance units. To date, there have
been no grants of incentive stock options or performance units.
RESTRICTED STOCK AWARDS During December 2000, December 1999 and
December 1998, 81,780, 101,730 and 60,465 shares, respectively, of
common stock were awarded under the 1992 Plan. Awarded shares are
subject to forfeiture, in whole or in part, if the recipient ceases to
be an employee within a specified time period. The shares awarded under
the 1992 Plan are also subject to forfeiture if defined minimum
earnings levels are not met. The Company may reduce the number of
shares otherwise required to be delivered by an amount that would have
a fair market value equal to the taxes withheld by the Company on
delivery. The Company may also, at its sole discretion, elect to pay to
the recipients in cash an amount equal to the fair market value of the
shares that would otherwise be required to be delivered.
The Company recognized expense of $936,000 in 2000, including $512,000
related to "Unusual Items" described in Note 3, expense of $262,000 in
1999 and income of $64,000 in 1998 related to these awards. The shares
awarded under the 1992 Plan all cease to be subject to forfeiture by
the end of 2004.
PERFORMANCE SHARES On May 1, 1995, January 1, 1996, January 1, 1997 and
January 1, 1998, the Company awarded, under the 1992 Plan, 59,620,
44,860, 40,060 and 45,740 shares, respectively, subject to certain
conditions, to certain key employees to be issued in whole or in part
depending on the Company's degree of success in achieving certain
financial performance goals during defined four-year performance
periods. The May 1, 1995 award was for the four-year performance period
ended December 31, 1998. Based upon the financial performance levels
achieved during the periods ended December 31, 1998, 1999 and 2000,
45,751, 27,668 and 16,492 shares, respectively, were earned for
distribution. During February 1999, in lieu of delivering 45,751 shares
of common stock, the Company elected to pay cash equal to the fair
value of 34,311 shares as of December 31, 1998, and deliver 11,440
shares from treasury. During February 2000, in lieu of delivering
27,668 shares of common stock, the Company elected to pay cash equal to
the fair value of 21,620 shares as of December 31, 1999, and deliver
6,048 shares from treasury. During February 2001, in lieu of delivering
16,492 shares of common stock, the Company elected to pay cash equal to
the fair value of 13,003 shares as of December 31, 2000, and deliver
3,489 shares from treasury. The January 1, 1998 award is for the
performance period ending December 31, 2001 and if earned will be
distributed in 2002.
35
36
The Company recognized income of $169,000 in 2000, expense of $357,000
in 1999 and income of $25,000 in 1998 related to these performance
stock awards. The quoted market value per share of the shares granted
during 1998, 1997, 1996 and 1995 was $18.38, $17.88, $17.16 and $17.81,
respectively.
NON-QUALIFIED STOCK OPTIONS The following summarizes the activity with
respect to non-qualified options to purchase shares of common stock
granted under the 1992 Plan during the years ended December 31, 2000,
1999 and 1998:
2000 1999 1998
-----------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-----------------------------------------------------------------------------------------------
Outstanding at beginning
of year 3,293,215 $14.86 3,216,580 $15.32 1,621,165 $17.61
Options granted 636,600 12.90 467,850 13.28 1,659,115 13.19
Options exercised (7,500) 12.34 (6,000) 12.40 (3,100) 15.44
Options canceled (271,633) 15.37 (385,215) 16.82 (60,600) 18.03
--------- --------- ---------
Outstanding at end of year 3,650,682 14.49 3,293,215 14.86 3,216,580 15.32
========= ========= =========
Exercisable at end of year 1,921,332 15.82 1,293,709 17.54 1,264,973 17.54
The following table summarizes information about stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding as Remaining Average Exercisable as Average
Exercise Price of 12/31/00 Contractual Life Exercise Price of 12/31/00 Exercise Price
- --------------------------------------------------------------------------------------------------------------------
$10.78- $12.95 1,922,140 8.4 years $12.53 605,388 $12.35
$12.96- $18.78 1,728,542 5.1 years 16.66 1,315,944 17.41
---------- ----------
3,650,682 6.8 years 14.49 1,921,332 15.82
========== ==========
An additional 364,153 options became exercisable January 1, 2001, at a
weighted-average exercise price of $13.34. The weighted-average fair
value of options granted during 2000, 1999 and 1998 was $2.60, $3.06,
and $3.12, respectively, on the date of grant. The fair value of each
option on the date of grant is estimated using the Black-Scholes option
pricing model with expected lives of ten years and the following
weighted-average assumptions:
2000 1999 1998
-------------------------------
Risk-free interest rate 5.61% 6.26% 4.98%
Expected dividend yield 7.61% 5.36% 4.44%
Expected volatility 42.0% 30.0% 28.6%
Options typically become exercisable for 25% of the shares of common
stock issuable on exercise thereof, beginning January 1 of the year
following the date of grant, assuming six months has passed, with
options for an additional 25% of such shares becoming exercisable on
January 1 of each of the next three years. Options not exercisable in
this format are exercisable in full either six months or one year from
the date of grant. All options expire on the earlier of termination of
employment or, in some instances, a defined period subsequent to
termination of employment, or ten years from the date of grant.
The exercise price represents the average quoted market price of the
Company's common stock on the date of grant, or the average quoted
market prices of the Company's common stock on the first day before and
after the date of grant for which quoted market price information was
available if such information was not available on the date of grant.
36
37
PRO FORMA INFORMATION The Company accounts for these plans under APB
Opinion No. 25, under which no compensation cost has been recognized
for the non-qualified stock options and for which compensation cost has
been recognized for stock awards, as described in Note 1(I). Had
compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's net income and EPS for the years ended
December 31, 2000, 1999 and 1998 would have been reduced to the
following pro forma amounts:
2000 1999 1998
-------------------------------------------
(in thousands except per share information)
Net income:
As reported $ 44,000 $ 41,425 $ 36,133
Pro forma 42,656 39,960 35,554
EPS:
Reported- basic and diluted $ 1.04 $ .98 $ .86
Pro forma- basic 1.01 .95 .85
Pro forma- diluted 1.00 .94 .84
EMPLOYEE STOCK PURCHASE PLANS Through 1998, under the Company's
employee stock purchase plans, eligible hourly employees could acquire
shares of the Company's common stock at its fair market value.
Employees could contribute up to 10% of their compensation, as defined.
For employee contributions up to 6% of their compensation, the Company
would contribute, as specified in the plans, 15% of the employee's
contribution.
As of January 1999, benefits offered to eligible hourly employees under
the Company's stock purchase plans were replaced with similar benefits
under a 401(k) plan. See Note 9.
9 RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS
The Company has trusteed noncontributory defined benefit pension plans
covering substantially all of its employees. The benefits are based, in
the case of certain plans, on average salary and years of service and,
in the case of other plans, on a fixed amount for each year of service.
Plan provisions and funding meet the requirements of the Employee
Retirement Income Security Act of 1974. Pension income of $25,927,000,
$20,490,000 and $5,502,000 was recognized in 2000, 1999 and 1998,
respectively. The pension income for 2000 and 1998 was after the
impact of pre-tax charges of $2,182,000 and $8,486,000, respectively,
related to the unusual items discussed in Note 3. The Company provides
certain health care benefits to eligible retired employees. These
benefits include a comprehensive medical plan for retirees prior to age
65 and fixed supplemental premium payments to retirees over age 65 to
help defray the costs of Medicare. The plan is not funded; claims are
paid as incurred.
37
38
The following table sets forth the status of the Company's defined
benefit pension plans and other post-retirement benefit plans at
December 31, 2000 and 1999 (in thousands):
Pension Benefits Other Benefits
------------------------ ------------------------
2000 1999 2000 1999
------------------------ ------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 241,563 $ 230,921 $ 32,221 $ 31,291
Service cost 5,254 4,877 806 741
Interest cost 16,016 15,977 2,140 2,153
Plan amendments 1,281 -- -- --
Actuarial (gain) loss (5,451) 3,904 7,243 456
Benefits paid (14,822) (14,116) (4,119) (2,420)
Unusual item (Note 3) 2,182 -- -- --
--------- --------- --------- ---------
Benefit obligation at end of year $ 246,023 $ 241,563 $ 38,291 $ 32,221
========= ========= ========= =========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 564,271 $ 504,185 $ -- $ --
Actual return on plan assets 5,774 72,677 -- --
Employer contributions 2,687 1,525 4,119 2,420
Benefits paid (14,822) (14,116) (4,119) (2,420)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 557,910 $ 564,271 $ -- $ --
========= ========= ========= =========
RECONCILIATION OF THE FUNDED STATUS:
Funded status $ 311,887 $ 322,708 $ (38,291) $ (32,221)
Unrecognized transition asset (5,753) (7,477) -- --
Unrecognized prior service cost 19,148 19,695 (1,422) (1,634)
Unrecognized (gain) loss (200,500) (239,733) 13,193 6,297
--------- --------- --------- ---------
Net amount recognized $ 124,782 $ 95,193 $ (26,520) $ (27,558)
========= ========= ========= =========
AMOUNTS RECOGNIZED ON THE CONSOLIDATED
BALANCE SHEETS CONSIST OF:
Prepaid benefit cost $ 158,152 $ 125,603 $ -- $ --
Accrued benefit liability (33,370) (30,410) (26,520) (27,558)
--------- --------- --------- ---------
Prepaid (accrued) benefit cost $ 124,782 $ 95,193 $ (26,520) $ (27,558)
========= ========= ========= =========
The net prepaid pension cost is included in "Other assets", and accrued
postretirement benefit costs are principally included in "Other
long-term liabilities" on the Consolidated Balance Sheets at December
31, 2000 and 1999.
Net periodic benefit (income) cost includes the following components
(in thousands):
Pension Benefits Other Benefits
------------------------------------ ------------------------------------
2000 1999 1998 2000 1999 1998
------------------------------------ ------------------------------------
Service cost $ 5,254 $ 4,877 $ 4,838 $ 806 $ 741 $ 728
Interest cost 16,016 15,977 14,355 2,140 2,153 2,005
Expected return on plan assets (42,350) (35,735) (29,607) -- -- --
Amortization of transition asset (1,724) (1,724) (1,724) -- -- --
Amortization of prior service cost 1,829 1,746 1,333 (212) (212) (175)
Recognized actuarial (gain) loss (7,134) (5,631) (3,183) 280 351 123
-------- -------- -------- -------- -------- --------
Net periodic benefit (income) cost (28,109) (20,490) (13,988) 3,014 3,033 2,681
Unusual item (Note 3) 2,182 -- 8,486 -- -- 1,294
-------- -------- -------- -------- -------- --------
Total net periodic benefit (income) cost $(25,927) $(20,490) $ (5,502) $ 3,014 $ 3,033 $ 3,975
======== ======== ======== ======== ======== ========
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $23,271,000,
$20,708,000 and $0, respectively, as of December 31, 2000 and
$20,602,000, $18,972,000 and $0, respectively, as of December 31, 1999.
38
39
The assumptions used in computing the information above were as
follows:
Pension Benefits Other Benefits
--------------------- ---------------------
2000 1999 & 1998 2000 1999 & 1998
--------------------- ---------------------
Discount rate- benefit expense 7.0% 7.5% 7.0% 7.5%
Expected long-term rate of return on plan assets 9.0% 9.0% -- --
Discount rate- benefit obligation 7.0% 7.0% 7.0% 7.0%
Future compensation growth rate 3.5% 3.5% -- --
For measurement purposes, a 6% and 5.5% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1999
and 2000, respectively. The rate is assumed to remain level at 5.5%
going forward.
A one percentage-point change in assumed health care cost trend rates
would have the following effects:
2000 1999
-------------------------------- ----------------------------
1% Increase 1% Decrease 1% Increase 1% Decrease
-------------------------------- ----------------------------
(in thousands)
Effect on postretirement benefit obligation $2,793 $(2,429) $2,295 $(1,999)
Effect on total of service and interest
cost components 273 (233) 266 (226)
The Company maintains 401(k) plans for certain hourly and salaried
employees. Employees may contribute up to 15% of their salary to
these plans, subject to certain restrictions. The Company will match a
portion of the employee's contribution, subject to certain limitations,
in the form of shares of the Company's common stock into the Company
stock fund maintained under the 401(k) plans. During 2000, 1999 and
1998, the Company contributed shares of its common stock valued at
$1,681,000, $1,626,000, and $1,541,000, respectively, to these 401(k)
plans.
10 COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
The Company is subject to loss contingencies resulting from regulation
by various federal, state, local and foreign governmental authorities
with respect to the environmental impact of air and water emissions
and noise from its mills, as well as the disposal of solid waste
generated by its operations. To comply with environmental laws and
regulations, the Company has incurred substantial capital and operating
expenditures in past years. The Company anticipates that environmental
regulation of its operations will continue to become more burdensome
and that capital and operating expenditures will continue, and perhaps
increase, in the future. In addition, the Company may incur obligations
to remove or mitigate any adverse effects on the environment resulting
from its operations, including the restoration of natural resources,
and liability for personal injury and damage to property, including
natural resources. Because environmental regulations are not
consistent worldwide, the Company's ability to compete in the world
marketplace may be adversely affected by capital and operating
expenditures required for environmental compliance.
Subject to permit approval, the Company has undertaken an initiative
under the Voluntary Advanced Technical Incentive Program of the United
States Environmental Protection Agency ("EPA") to comply with the
new "Cluster Rule" regulations. This initiative, the Company's "New
Century Project," will require capital expenditures currently estimated
at approximately $30,000,000 to be incurred before April 2004.
On September 7, 2000, the Pennsylvania Department of Environmental
Protection ("DEP") issued to the Company a renewed wastewater discharge
permit for the Spring Grove mill with an effective date of October 1,
2000. The renewed permit calls for reductions in the mill's discharge
of color that the Company believes cannot be achieved at this time
without a curtailment of operations. On September 7, 2000, DEP also
issued to the Company an administrative order calling for achievement
of the limitations in the permit on a schedule extending until 2007.
Both the permit and the order contemplate adoption of an alternative
limitation on color which would be less stringent. The Company expects
to be able to meet the alternative limitation without a curtailment of
operations under the schedule set forth in the order. Under the
schedule set forth in the permit, however, the Company may not be able
to
39
40
meet the alternative limitation without a curtailment of operations.
The Company has appealed the permit and the order to the Pennsylvania
Environmental Hearing Board. After an evidentiary hearing, the Board
granted a stay of the permit limitation during the pendency of the
appeal. The Board did not grant a stay of the alternative limitation
because it is not yet in effect, and will not come into effect until a
change in the Pennsylvania Water Quality Standard for color is
approved; in this case, "approval" includes an approval by EPA. The
Pennsylvania Public Interest Research Group and several other parties
(collectively "Penn PIRG") have appealed the alternative limitation and
have also intervened in the Company's appeal of the permit. The
Company is engaged in settlement discussions with Penn PIRG and DEP,
but also continues to litigate all appeals vigorously.
In June 1999, Penn PIRG brought a citizen suit under the Federal Clean
Water Act and Pennsylvania Clean Streams Law seeking a reduction in the
Spring Grove mill's discharge of color, civil penalties and costs of
litigation. On February 7, 2001, the United States District Court
granted partial summary judgment on liability to plaintiffs as to
certain claims and granted summary judgment to the Company on others.
The court has not scheduled further proceedings with respect to any
remedy until after it resolves the Company's pending motion for
reconsideration.
In 1999, EPA and DEP issued to the Company separate Notices of
Violation ("NOVs") alleging violations of the federal and state air
pollution control laws, primarily for purportedly failing to obtain
appropriate preconstruction air quality permits in conjunction with
certain modifications to the Company's Spring Grove mill. EPA announced
that the Company was one of seven pulp and paper mill operators to have
received contemporaneously an NOV alleging this kind of violation. EPA
and DEP alleged that the Company's modifications produced (1)
significant net emissions increases in certain air pollutants which
should have been covered by appropriate permits imposing new emissions
limitations, and (2) certain other violations.
For all but one of the modifications cited by EPA, the Company applied
for and obtained from DEP the preconstruction permits which the Company
concluded were required by applicable law. EPA reviewed those
applications before the permits were issued. DEP's NOV pertained only
to the modification for which the Company did not receive a
preconstruction permit. The Company conducted an evaluation at the time
of this modification, and determined that the preconstruction
permit cited by EPA and DEP was not required. The Company has been
informed that EPA and DEP will seek substantial emissions reductions,
as well as civil penalties, to which the Company believes it has
meritorious defenses. Nevertheless, the Company is unable to predict
the ultimate outcome of these matters or the costs involved.
The Company faces a set of related threatened claims arising out of the
presence of polychlorinated biphenyls ("PCBs") in sediments in the
Fox River below Lake Winnebago and in Green Bay, downstream of the
Company's Neenah mill. As described below, various sovereigns have for-
mally notified seven parties ("PRPs"), of which the Company is one,
that they are potentially responsible for investigation, cleanup and
natural resource damages arising from this contamination under the
federal Comprehensive Environmental Response, Compensation and
Liability Act and other laws.
The Wisconsin Department of Natural Resources ("DNR") notified the
Company and other PRPs informally in 1990 that it wished to pursue
cleanup of certain sediments in the Fox River under state law. DNR
subsequently asserted claims under federal law as well for cleanup and
for natural resource damages. Since 1998, DNR has been performing a
remedial investigation and feasibility study ("RI/FS") of the Fox River
and Green Bay under contract to the EPA. In February 1999, DNR issued a
draft RI/FS report estimating the costs of potential remedies for the
Fox River at between $0 and $721,000,000, but did not select a
preferred remedy. The Company does not believe that the no action
remedy will be selected. The largest components of the costs of certain
of the remedial alternatives are attributable to large-scale sediment
removal by dredging. There is no assurance that the cost estimates in
the draft RI/FS will not differ significantly from actual costs.
Under ordinary procedures, the final RI/FS report will be issued
along with a proposed remedial action plan ("PRAP"). EPA will consider
comments on the PRAP and then will select a remedy for the site. EPA
and DNR have stated publicly that the RI/FS would be issued in 2000.
The expected date of issuance was subsequently delayed to the spring of
2001 and has now been further delayed.
Based on current information and advice from its environmental
consultants, the Company continues to believe that an aggressive
effort, as included in certain remedial alternatives in the draft
RI/FS, to remove PCB-contaminated sediment, much of which is buried
under cleaner material or is otherwise unlikely to move and which is
abating naturally, would be environmentally detrimental and,
therefore, inappropriate.
In January 1997, DNR, the Wisconsin Department of Justice ("WDOJ"), and
the seven PRPs entered into an agreement to conduct a cooperative
natural resource damages assessment ("NRDA"). While that NRDA has not
been completed, based upon work conducted to date, DNR and WDOJ have
proposed to enter into a
40
41
settlement with another PRP of its share of the natural resource
damages liability. The proposed settlement does not state explicitly
the total amount of natural resource damages, but it calls for such
other PRP to spend $7,000,000 on resource restoration projects.
The United States Fish and Wildlife Service ("FWS"), the National
Oceanic and Atmospheric Administration ("NOAA"), four Indian tribes and
the Michigan Attorney General claim to be trustees for natural
resources injured by the PCBs in the Fox River and Green Bay. In June
1994, FWS notified the Company and other PRPs that it considered them
potentially responsible for natural resource damages. The federal,
tribal, and Michigan agencies claiming to be trustees have proceeded
with the preparation of an NRDA separate from the work performed by
DNR. While the final report of assessment will be delayed until after
selection of a remedy for the site, on October 25, 2000, the federal
trustees released a restoration and compensation determination plan
("RCDP") that estimates natural resource damages for the site at
between $176,000,000 and $333,000,000.
The Company is seeking settlement with the Wisconsin agencies and with
EPA for all of its liabilities for response actions and natural
resource damages associated with the site. The Company believes that
the federal, tribal, and Michigan natural resource damages claims are
without merit, and that the federal NRDA is technically and
procedurally flawed. The Company further maintains that its share of
any liability as among the seven identified PRPs is much less than
one-seventh and that additional responsible parties exist other than
the seven identified by the governments.
The Company currently is unable to predict the ultimate costs to the
Company related to this matter, because the Company cannot predict
which remedy will be selected for the site or the ultimate amount of
natural resource damages nor can the Company predict its share of these
costs or damages.
The Company continues to believe it is likely that this matter will
result in litigation; however, the Company believes it will be able to
persuade a court that removal of a substantial amount of
PCB-contaminated sediments is not an appropriate remedy. There can be
no assurance, however, that the Company will be successful in arguing
that removal of PCB-contaminated sediments is inappropriate or that
it would prevail in any resulting litigation.
The amount and timing of future expenditures for environmental
compliance, cleanup, remediation and personal injury, natural resource
damage and property damage liability, including but not limited to
those related to the lower Fox River and the Bay of Green Bay, cannot
be ascertained with any certainty due to, among other things, the
unknown extent and nature of any contamination, the extent and timing
of any technological advances for pollution control, the remedial
actions which may be required and the number and financial resources of
any other responsible parties. The Company continues to evaluate its
exposure and the level of its reserves, including, but not limited to,
its share of the costs and damages (if any) associated with the lower
Fox River and the Bay of Green Bay. The Company believes that it is
insured against certain losses related to the lower Fox River,
depending on the nature and amount thereof. Coverage, which is
currently being investigated under reservation of rights by various
insurance companies, is dependent upon the identity of the plaintiff,
the procedural posture of the claims asserted and how such claims are
characterized. The Company does not know when the
insurers' investigation as to coverage will be completed.
The Company's current assessment, after consultation with legal
counsel, is that ultimately it should be able to resolve these
environmental matters without a long-term, material adverse impact on
the Company. In the meantime, however, these matters could, at any
particular time or for any particular period, have a material adverse
effect on the Company's consolidated financial condition, liquidity or
results of operations or result in a default under the Company's loan
covenants. Moreover, there can be no assurance that the Company's
reserves will be adequate to provide for future obligations related to
these matters, that the Company's share of costs and/or damages for
these matters will not exceed its available resources or that such
obligations will not have a long-term, material adverse effect on the
Company's consolidated financial condition, liquidity or results of
operations.
During 2000, 1999 and 1998, the Company expended approximately
$2,600,000, $2,600,000 and $4,900,000, respectively, on environmental
capital projects. The Company estimates that projects requiring total
expenditures of $8,900,000 and $22,300,000 for environmental-related
capital will be initiated in 2001 and 2002, respectively. During 2000,
1999 and 1998, the Company incurred approximately $16,700,000,
41
42
$15,800,000, and $17,700,000, respectively, in operating costs related
to complying with environmental laws and regulations.
The Company is also involved in other lawsuits. Although the ultimate
outcome of these lawsuits cannot be predicted with certainty, the
Company's management, after consultation with legal counsel, does not
expect that such lawsuits will have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity.
11 OTHER SALES AND GEOGRAPHIC INFORMATION
The Company sells a significant portion of its specialized printing
papers through wholesale paper merchants. No individual customer
accounted for 10% or more of the Company's net sales in 2000, 1999 or
1998. The Company's 2000, 1999 and 1998 net sales to external customers
and location of net plant, equipment and timberlands as of December 31,
2000, 1999 and 1998 are summarized below. Net sales are attributed to
countries based upon origin of shipment.
2000 1999 1998
--------------------------------------------------------------------------------------------------------
Plant, Plant, Plant,
Equipment and Equipment and Equipment and
Net Sales Timberlands-Net Net Sales Timberlands-Net Net Sales Timberlands-Net
----------------------------- ------------------------------- --------------------------------
United States $567,520 $432,499 $543,436(a) $445,376 $551,988(a) $464,384
Germany 121,352 103,286 128,969(a) 118,053 133,683(a) 141,743
Other foreign
countries 35,848 16,983 33,086(a) 18,784 41,641(a) 22,029
-------- -------- -------- -------- -------- --------
Total $724,720 $552,768 $705,491(a) $582,213 $727,312(a) $628,156
======== ======== ======== ======== ======== ========
Net sales information by the Company's product groups for the years
ending December 31 follows:
2000 1999 1998
-----------------------------------------------------------------------------------------
(in thousands)
Specialized Printing Papers $391,087 54% $341,990(a) 48% $365,411(a) 50%
Engineered Papers
(including tobacco papers) 333,633 46% 363,501(a) 52% 361,901(a) 50%
-------- --- -------- --- -------- ---
Total $724,720 100% $705,491(a) 100% $727,312(a) 100%
======== === ======== === ======== ===
(a) Reflects reclassification of shipping and handling costs. See
Note 1(p).
42
43SUPPLEMENTARY DATA
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
MANAGEMENT'S RESPONSIBILITY REPORT
The management of P. H. Glatfelter Company has prepared and is responsible
for the Company's consolidated financial statements and other corroborating
information contained herein. Management bears responsibility for the integrity
of these statements which have been prepared in accordance with accounting
principles generally accepted in the United States of America and include management's best
judgments and estimates. All information in this annual report consistently
reflects the data contained in the consolidated financial statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance that assets are safeguarded, transactions are executed and
recorded in accordance with their authorizations, and financial records are
maintained so as to permit the preparation of reliable financial statements. The
system of internal controls is enhanced by written policies and procedures, an
organizational structure providing appropriate segregation of duties, careful
selection and training of qualified people, and periodic reviews performed by
both its internal audit department and independent public auditors.
The Audit Committee of the Board of Directors, consisting exclusively of
directors who are not Company employees, provides oversight of financial
reporting. The Company's internal audit department and independent auditors meet
with the Audit Committee on a periodic basis to discuss financial reporting,
audit and internal control issues and have completely free access to the Audit
Committee.
/S/ GeorgeGEORGE H. Glatfelter, II
------------------------------------
George H. GlatfelterGLATFELTER II
Chairman and Chief Executive Officer
/s/ C. Matthew Smith
------------------------------------
C. Matthew SmithGEORGE MACKENZIE
Executive Vice President and Chief
Financial Officer
23
INDEPENDENT AUDITORS' REPORT
P. H. Glatfelter Company,
Its Shareholders and Directors:
We have audited the accompanying consolidated balance sheets of P. H.
Glatfelter Company and subsidiaries as of December 31, 20002001 and 1999,2000, and the
related consolidated statements of income and comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000.2001. Our audits also included the financial statement
schedule listed in the Index at Item 14. These financial statements and
the financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on thesethe financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of P. H. Glatfelter Company and
subsidiaries at December 31, 20002001 and 1999,2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000,2001 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 2, 2001
4328, 2002
24
44
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATACONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 2001, 2000 AND 1999
2001 2000 1999
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
NET SALES................................................... $635,691 $724,720 $705,491
OTHER INCOME:
Energy sales -- net....................................... 9,661 9,243 9,176
Interest on investments and other -- net.................. 3,589 3,820 1,994
Gain from property dispositions, etc. -- net.............. 3,598 2,029 4,076
-------- -------- --------
Total revenues......................................... 652,539 739,812 720,737
-------- -------- --------
COSTS AND EXPENSES:
Cost of products sold..................................... 503,569 591,201 580,905
Selling, general and administrative expenses.............. 60,653 60,267 56,256
Interest on debt.......................................... 15,689 16,405 18,424
Unusual items............................................. 60,908 3,336 --
-------- -------- --------
Total costs and expenses............................... 640,819 671,209 655,585
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 11,720 68,603 65,152
-------- -------- --------
INCOME TAX PROVISION (BENEFIT):
Current................................................... (8,861) 11,366 10,973
Deferred.................................................. 13,623 13,237 12,754
-------- -------- --------
Total.................................................. 4,762 24,603 23,727
-------- -------- --------
NET INCOME.................................................. $ 6,958 $ 44,000 $ 41,425
======== ======== ========
BASIC AND DILUTED EARNINGS PER SHARE........................ $ 0.16 $ 1.04 $ 0.98
COMPREHENSIVE INCOME, NET OF TAX:
NET INCOME.................................................. $ 6,958 $ 44,000 $ 41,425
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments -- net........... (1,027) (1,451) 219
Change in interest rate swap market value -- net.......... 21 -- --
-------- -------- --------
COMPREHENSIVE INCOME........................................ $ 5,952 $ 42,549 $ 41,644
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
25
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
2001 2000
----------- -------------
(IN THOUSANDS EXCEPT SHARE
INFORMATION)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 95,501 $ 110,552
Accounts receivable (less allowance for doubtful accounts:
2001, $1,551; 2000, $1,515)............................ 60,157 72,231
Inventories............................................... 62,815 101,294
Refundable income taxes................................... 17,522 --
Prepaid expenses and other current assets................. 4,433 2,547
-------- ----------
Total current assets................................... 240,428 286,624
PLANT, EQUIPMENT AND TIMBERLANDS -- NET..................... 497,228 552,768
OTHER ASSETS................................................ 223,068 183,933
-------- ----------
Total assets........................................... $960,724 $1,023,325
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $123,709 $ 1,419
Short-term debt........................................... 1,453 5,158
Accounts payable.......................................... 36,155 45,869
Dividends payable......................................... 7,481 7,430
Income taxes payable...................................... 1,853 7,328
Accrued compensation and other expenses and deferred
income taxes........................................... 38,664 51,980
-------- ----------
Total current liabilities.............................. 209,315 119,184
LONG-TERM DEBT.............................................. 152,593 300,245
DEFERRED INCOME TAXES....................................... 167,623 155,360
OTHER LONG-TERM LIABILITIES................................. 77,724 75,833
-------- ----------
Total liabilities...................................... 607,255 650,622
-------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; authorized -- 120,000,000
shares; issued (including shares in treasury: 2001,
11,611,559; 2000, 11,971,208) -- 54,361,980 shares..... 544 544
Capital in excess of par value............................ 40,968 41,669
Retained earnings......................................... 488,150 511,019
Accumulated other comprehensive loss...................... (3,849) (2,843)
-------- ----------
Total.................................................. 525,813 550,389
Less cost of common stock in treasury..................... (172,344) (177,686)
-------- ----------
Total shareholders' equity............................. 353,469 372,703
Total liabilities and shareholders' equity........... $960,724 $1,023,325
======== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
26
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
ACCUMULATED
COMMON CAPITAL IN OTHER TOTAL
SHARES COMMON EXCESS OF RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
OUTSTANDING STOCK PAR VALUE EARNINGS INCOME (LOSS) STOCK EQUITY
----------- ------ ---------- -------- ------------- --------- -------------
(IN THOUSANDS EXCEPT SHARES OUTSTANDING)
BALANCE, JANUARY 1,
1999................... 42,085,236 $544 $42,612 $484,793 $(1,611) $(182,409) $343,929
Net Sales Gross Profitincome............... 41,425 41,425
Foreign currency
translation
adjustments............ 219 219
Cash dividends
declared............... (29,538) (29,538)
Delivery of treasury
shares:
Performance shares..... 11,440 (28) 170 142
401(k) plans........... 143,579 (273) 2,146 1,873
Employee stock options
exercised -- net..... 6,000 (15) 89 74
---------- ---- ------- -------- ------- --------- --------
BALANCE, DECEMBER 31,
1999................... 42,246,255 544 42,296 496,680 (1,392) (180,004) 358,124
Net income............... 44,000 44,000
Foreign currency
translation
adjustments............ (1,451) (1,451)
Cash dividends
declared............... (29,661) (29,661)
Delivery of treasury
shares:
Performance shares..... 6,048 (2) 90 88
401(k) plans........... 167,769 (606) 2,498 1,892
Employee stock options
exercised -- net..... 7,500 (19) 112 93
Purchase of stock for
treasury............... (36,800) (382) (382)
---------- ---- ------- -------- ------- --------- --------
BALANCE, DECEMBER 31,
2000................... 42,390,772 544 41,669 511,019 (2,843) (177,686) 372,703
Net income............... 6,958 6,958
Reclassification
adjustment for Ecusta
sale included in net
income................. 1,936 1,936
Foreign currency
translation
adjustments............ (2,963) (2,963)
Transition adjustment for
interest rate swaps.... 845 845
Change in market value of
interest rate swaps.... (824) (824)
Cash dividends
declared............... (29,827) (29,827)
Delivery of treasury
shares:
Performance shares..... 3,489 (9) 52 43
401(k) plans........... 118,389 (108) 1,746 1,638
Employee stock options
exercised -- net..... 237,771 (584) 3,544 2,960
---------- ---- ------- -------- ------- --------- --------
BALANCE, DECEMBER 31,
2001................... 42,750,421 $544 $40,968 $488,150 $(3,849) $(172,344) $353,469
========== ==== ======= ======== ======= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
27
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 2001, 2000 AND 1999
2001 2000 1999
-------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 6,958 $ 44,000 $41,425
Items included in net income not using (providing) cash:
Depreciation, depletion and amortization.................. 44,988 46,106 47,766
Loss (gain) on disposition of fixed assets................ (2,015) 467 (1,339)
Unusual items............................................. 60,908 3,336 --
Expense related to 401(k) plans and other................. 1,681 1,980 2,015
Change in assets and liabilities, net of effect of unusual
items:
Accounts receivable....................................... (14,350) 483 (7,170)
Inventories............................................... 3,801 11,351 (1,965)
Other assets and prepaid expenses......................... (27,642) (24,486) (37,259)
Accounts payable, accrued compensation and other expenses,
deferred income taxes and other long-term
liabilities............................................ (11,950) 13,540 14,213
Income taxes payable...................................... (7,756) (1,735) (543)
Deferred income taxes -- noncurrent....................... 9,276 8,273 24,441
-------- -------- -------
Net cash provided by operating activities................... 63,899 103,315 81,584
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale or maturity of investments -- net.................... -- -- 401
Proceeds from disposal of fixed assets.................... 2,764 143 1,929
Net proceeds from sale of Ecusta Division................. 14,505 -- --
Additions to plant, equipment and timberlands............. (47,845) (29,215) (24,160)
Acquisition of Scaer facility............................. -- -- (7,399)
-------- -------- -------
Net cash used in investing activities....................... (30,576) (29,072) (29,229)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payment) of debt.......................... (21,794) (10,136) 2,828
Dividends paid............................................ (29,876) (29,624) (29,510)
Purchases of common stock................................. -- (382) --
Proceeds from stock option exercises...................... 2,960 93 74
-------- -------- -------
Net cash used in financing activities....................... (48,710) (40,049) (26,608)
-------- -------- -------
Effect of exchange rate changes on cash..................... 336 323 (619)
Net increase (decrease) in cash and cash equivalents........ (15,051) 34,517 25,128
CASH AND CASH EQUIVALENTS:
At beginning of year...................................... 110,552 76,035 50,907
-------- -------- -------
At end of year............................................ $ 95,501 $110,552 $76,035
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest.................................................. $ 16,455 $ 16,848 $23,273
Income taxes.............................................. 13,385 12,626 12,119
The accompanying notes are an integral part of these consolidated financial
statements.
28
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION We are
manufacturers of engineered papers and specialized printing papers.
Headquartered in York, Pennsylvania, our paper mills are located in Spring
Grove, Pennsylvania; Neenah, Wisconsin; Gernsbach, Germany; and Scaer, France.
Our products are marketed throughout the United States and in many foreign
countries, either through wholesale paper merchants, brokers and agents or
direct to customers. Our accounts, and those of our subsidiaries, are included
in the consolidated financial statements. All intercompany transactions have
been eliminated. Our operating locations have been aggregated into a single
reportable segment since they have similar economic characteristics, products,
production processes, types of customers and distribution methods. Certain
reclassifications have been made to the prior years' consolidated financial
statements to conform to those classifications used in 2001.
(B) CASH AND CASH EQUIVALENTS We consider all highly liquid financial
instruments with effective maturities at date of purchase of three months or
less to be cash equivalents.
(C) INVENTORIES Inventories are stated at the lower of cost or market. Raw
materials and in-process and finished inventories of our domestic operations are
valued using the last-in, first-out (LIFO) method, and the supplies inventories
are valued principally using the average-cost method. Inventory at our foreign
operations is valued using a method which approximates average cost. Inventories
at December 31 are summarized as follows:
2001 2000
------- --------
(IN THOUSANDS)
Raw materials............................................... $13,404 $ 27,789
In-process and finished..................................... 27,376 43,819
Supplies.................................................... 22,035 29,686
------- --------
Total....................................................... $62,815 $101,294
======= ========
If we had valued all inventories using the average-cost method, inventories
would have been $3,790,000 and $8,121,000 higher than reported at December 31,
2001 and 2000, respectively. During 2001 and 2000, we liquidated certain LIFO
inventories. The effect of the liquidations did not have a significant impact on
net income.
At December 31, 2001, the recorded value of the above inventories was
approximately $300,000 lower than inventories for income tax purposes while the
recorded value of the above inventories exceeded inventories for income tax
purposes by approximately $22,400,000 as of December 31, 2000. The difference at
December 31, 2000 was primarily related to the Ecusta Division, which was sold
during 2001. Inventory for the Ecusta Division at December 31, 2000 was
$34,849,000. See Note 2.
(D) PLANT, EQUIPMENT AND TIMBERLANDS Depreciation is computed for
financial reporting using the straight-line method over the estimated useful
lives of the respective assets and for income taxes principally using
accelerated methods over lives established by statute or U.S. Treasury
Department procedures. Provision is made for deferred income taxes applicable to
this difference. See Notes 1(f) and 4.
The range of estimated service lives used to calculate financial reporting
depreciation for principal items of property, plant and equipment are as
follows:
Buildings................................................... 10 - 45 Years
Machinery and equipment..................................... 7 - 35 Years
Other....................................................... 4 - 40 Years
29
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All timber costs related to the reforestation process, including interest,
taxes, site preparation, planting, fertilization, herbicide application and
thinning are capitalized. After 20 years, the timber is considered merchantable
and depletion is computed on a unit rate of usage by growing area based on
estimated quantities of recoverable material. For purchases of land tracts with
existing timber, inventoried merchantable timber is subject to immediate
depletion based upon usage. Costs related to the purchase of pre-merchantable
timber are transferred to merchantable timber over a 10-year period, whereupon
it is eligible for depletion.
Estimated timber volume is based upon its current stage in the growth
cycle. Growth and yield data is developed through the use of published growth
and yield studies as well as our own historical experience. This data is used to
calculate volumes for established timber stands. Timber is depleted on an actual
usage basis. For purchased timber tracts, a systematic timber inventory is
completed and volume is estimated for merchantable timber. Pre-merchantable
timber of purchased tracts is estimated based upon its current stage in the
growth cycle using growth and yield data.
Maintenance and repairs are charged to income and major renewals and
betterments are capitalized. At the time property is retired or sold, the cost
and related reserve are eliminated and any resultant gain or loss is included in
income.
Plant, equipment and timberlands at December 31 are summarized as follows:
2001 2000
--------- -----------
(IN THOUSANDS)
Land and buildings.......................................... $ 104,098 $ 145,323
Machinery and equipment..................................... 785,871 1,073,396
Other....................................................... 36,526 38,842
Less accumulated depreciation............................... (477,511) (737,985)
--------- -----------
Total.................................................. 448,984 519,576
Construction in progress.................................... 29,592 14,674
Timberlands, less depletion................................. 18,652 18,518
--------- -----------
Plant, equipment and timberlands -- net..................... $ 497,228 $ 552,768
========= ===========
Plant and equipment -- net for the Ecusta Division at December 31, 2000 was
$52,577,000.
(E) INVESTMENTS IN DEBT SECURITIES Long-term investments, which are due
over a remaining 13-year period and are classified as held-to-maturity, are
included in "Other assets" on the Consolidated Balance Sheets at December 31,
2001 and 2000. The investments consist of approximately $10,300,000 in U.S.
Treasury and government obligations at both December 31, 2001 and 2000. The fair
market value of such investments approximated the amortized cost, and therefore,
there were no significant unrealized gains or losses as of December 31, 2001 and
2000.
(F) INCOME TAX ACCOUNTING We recognize deferred tax assets and liabilities
for temporary differences between the financial reporting basis and the tax
basis of our assets and liabilities. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment. See Note 4.
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS The amounts reported on the
Consolidated Balance Sheets for cash and cash equivalents, accounts receivable,
other assets, short-term debt and long-term debt approximate fair value.
(H) VALUATION OF LONG-LIVED ASSETS We evaluate long-lived assets for
impairment periodically or when a specific event indicates that the carrying
value of an asset may not be recoverable. Recoverability is
30
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assessed based on estimates of future cash flows expected to result from the use
and eventual disposition of the asset. If the sum of expected undiscounted cash
flows is less than the carrying value of the asset, an impairment loss is
recognized. The impairment loss is measured as the amount by which the carrying
amount of the asset exceeds its fair value.
(I) ACCOUNTING ESTIMATES The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires the use of management's estimates and assumptions. Management believes
the estimates and assumptions used in the preparation of these consolidated
financial statements are reasonable, based upon currently available facts and
known circumstances, but recognizes that actual results may differ from those
estimates and assumptions. See Note 9.
(J) REVENUE RECOGNITION We recognize revenue on product sales upon
shipment and on energy sales when electricity is delivered to our customer.
Certain costs associated with the production of electricity, such as fuel,
labor, depreciation and maintenance are netted against the energy sales for
presentation on the Consolidated Statements of Income and Comprehensive Income.
Our current contract to sell electricity generated in excess of our own use
expires in the year 2010 and requires that the customer purchase all of our
excess electricity up to a certain level. The price for the electricity is
determined pursuant to a formula and varies depending upon the amount sold in
any given year.
(K) ENVIRONMENTAL LIABILITIES Accruals for losses associated with
environmental obligations are recorded when it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated based
on existing legislation and remediation technologies. These accruals are
adjusted periodically as assessment and remediation actions continue and/or
further legal or technical information develops. Accrued environmental
liabilities are classified as "Other long-term liabilities" on the Consolidated
Balance Sheets. Such undiscounted liabilities are exclusive of any insurance or
other claims against third parties. Recoveries of environmental remediation
costs from other parties, including insurance carriers, are recorded as assets
when their receipt is deemed probable. We have not recorded any such recoveries.
Costs related to environmental remediation are charged to expense.
Environmental costs are capitalized if the costs extend the life of the asset,
increase its capacity and/or mitigate or prevent contamination from future
operations. See Note 9.
(L) STOCK-BASED COMPENSATION We account for stock-based compensation in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations, as permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation." Compensation expense for stock options is measured as
the excess, if any, of the average quoted market price of our stock at the date
of grant over the amount an employee must pay to acquire the stock. Compensation
expense for both restricted stock and performance stock awards is recognized
ratably over the performance period based on changes in quoted market prices of
Glatfelter stock and the likelihood of achieving the performance goals. This
variable plan accounting recognition is due to the uncertainty of achieving
performance goals and determining the resulting number of shares to ultimately
be issued. See Note 7.
(M) DERIVATIVE FINANCIAL INSTRUMENTS We use interest rate swap agreements
to manage our exposure to fluctuations in interest rates. Amounts to be paid or
received under interest rate swap agreements are recognized as interest expense
or interest income during the period in which they accrue. We do not hold any
derivative financial instruments for trading purposes. The credit risks
associated with our interest rate swap agreements are controlled through the
evaluation and monitoring of creditworthiness of the counterparties. Although we
may be exposed to losses in the event of nonperformance by counterparties, we do
not expect such losses, if any, to be significant. See Notes 1(o) and 6.
(N) FOREIGN CURRENCY TRANSLATION Our subsidiaries outside the United
States use their local currency as the functional currency. Accordingly,
translation gains and losses and the effect of exchange rate changes on
transactions designated as hedges of net foreign investments are included as a
component of other
31
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprehensive income (loss). Transaction gains and losses are included in income
in the period in which they occur.
(O) RECENT ACCOUNTING PRONOUNCEMENTS On January 1, 2001, we adopted
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and
interpreted, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the balance sheet
at fair value. If the derivative is designated in a fair-value hedge, changes in
the fair value of the derivative and the hedged item are recognized in earnings.
If the derivative is designated as a cash-flow hedge, changes in the fair value
of the derivative are recorded in other comprehensive income ("OCI") and are
recognized in the income statement when the hedged item affects earnings. SFAS
No. 133 defines new requirements for designation and documentation of hedging
relationships, as well as ongoing effectiveness assessments and measurements to
use hedge accounting. The ineffective portion of a hedging derivative's change
in fair value is immediately recognized in earnings. For a derivative that does
not qualify as a hedge, changes in fair value are recognized in earnings.
The adoption of SFAS No. 133 on January 1, 2001 resulted in an $845,000
increase in OCI as a cumulative transition adjustment for derivatives designated
in cash flow-type hedges prior to adopting SFAS No. 133. Due to our limited use
of derivative instruments, the effect on earnings of adopting SFAS No. 133 was
immaterial.
The Financial Accounting Standards Board issued SFAS No. 141, "Business
Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS
No. 143, "Accounting for Asset Retirement Obligations," in June 2001 and issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
in August 2001.
SFAS No. 141 is effective for all business combinations occurring after
June 30, 2001 and requires that all business combinations be accounted for under
the purchase method only and that certain acquired intangible assets in a
business combination be recognized as assets apart from goodwill. The adoption
of SFAS No. 141 had no impact on our consolidated financial position or results
of operations.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001 and establishes revised reporting requirements for goodwill and other
intangible assets. Upon adoption, we no longer amortize goodwill unless evidence
of impairment exists; goodwill will be evaluated on at least an annual basis. As
of December 31, 2001 and using the 2001 foreign exchange translation rates, we
had $8,170,000 in unamortized goodwill and recorded $518,000 in goodwill
amortization expense in 2001. We adopted SFAS No. 142 on January 1, 2002.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002
and applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or the
normal operation of a long-lived asset. We will adopt SFAS No. 143 on January 1,
2003. We are currently evaluating the effects that the adoption of SFAS No. 143
may have on our consolidated financial position and results of operations.
SFAS No. 144 is effective for fiscal years beginning after December 15,
2001. This statement supercedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and establishes
new guidelines for the valuation of long-lived assets. We adopted SFAS No. 144
on January 1, 2002. The adoption of SFAS No. 144 had no impact on our
consolidated financial position or results of operations.
32
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. UNUSUAL ITEMS
On May 16, 2001, we announced that we had entered into an agreement to sell
our Ecusta facility and two of its operating subsidiaries ("Ecusta Division").
Because our Board of Directors had committed to a plan to dispose of the Ecusta
Division by accepting an offer to sell the Division, subject to certain closing
conditions, at a loss, on that date the assets of the Ecusta Division were
reclassified as assets held-for-disposal, and thus the carrying amount of these
assets was reduced to fair value. The decision to sell the Ecusta Division was
made due to the determination that the business of the Ecusta Division,
principally tobacco papers, did not fit with our long-term strategic plans.
On August 9, 2001, we completed the sale of the Ecusta Division including
plant and equipment, inventory, accounts receivable and essentially all other
operating assets and certain other receivables related to our tobacco papers
business. The carrying value of the Ecusta Division totaled $61,467,000, after
we recorded an impairment write down of $50,000,000 in the second quarter to
reflect the fair value of the Ecusta Division. These assets were sold for
$22,726,000 plus the assumption by the buyer of certain liabilities totaling
$21,440,000 related to the Ecusta Division's business. The liabilities assumed
by the buyer included accounts payable, accrued expenses and other liabilities
related to the operation of the Ecusta Division's business. Our total charge to
earnings associated with the sale was $58,408,000 including the $50,000,000
impairment charge recognized during the second quarter of 2001.
The $58,408,000 pre-tax charge included $6,095,000 in transaction and other
costs incurred upon sale of the Ecusta Division. Of this amount, approximately
$1,900,000 related to transaction costs. The remainder related to certain
liabilities accrued related to the transaction. Under the terms of the sale
agreement, we are obligated to incur costs in the future related to certain
long-term liabilities related to employee benefits ($2,000,000) and facility
maintenance ($900,000) which would not have been necessary had we retained
ownership interest in the Ecusta Division but were agreed to in order to
consummate the transaction. The $58,408,000 pre-tax charge was net of a
$14,988,000, pre-tax gain related to the curtailment and settlement of pension
obligations and other retiree benefits related to employees who transferred to
the buyer. The Ecusta Division contributed approximately $7,200,000 in operating
profit during 2001 until its sale in August, had an operating loss of
approximately $1,000,000 during 2000 and contributed approximately $13,300,000
in operating profit during 1999.
A calculation of the unusual item related to the sale of the Ecusta
Division is as follows (in thousands):
Asset impairment recognized................................. $(50,000)
Loss recognized upon sale
Consideration received.................................... $ 44,166
Book value of net assets sold............................. (61,467)
--------
(17,301)
Transaction and other costs............................... (6,095)
Gain on retiree benefit plans............................. 14,988
--------
Loss on disposition excluding impairment charge........ (8,408) (8,408)
-------- --------
Total loss on disposition................................. $(58,408)
========
We also recognized a $2,500,000 pre-tax charge during the second quarter of
2001 related to the settlement of an environmental matter in connection with the
Spring Grove facility's wastewater discharge permit. See Note 9. The total
unusual items recorded in 2001 were $60,908,000.
During the first quarter of 2000, we finalized our restructuring plan and
shortly thereafter began to reduce the workforce at Ecusta. The workforce
reduction was completed during the first quarter of 2001 and resulted
33
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in the reduction of over 200 salaried and hourly jobs associated with our
tobacco paper production capacity. We accrued and charged to expense $3,336,000
($2,120,000 after tax) in the first quarter of 2000 primarily as a result of the
voluntary portion of this restructuring, specifically 42 salaried employees. Of
this amount, $2,182,000 related to enhanced pension benefits to be paid out of
our retirement plans as discussed in our disclosure of retirement and other
post-retirement benefits (see Note 8). The remaining $1,154,000 of this charge
related to severance and other employee benefits to be paid using our assets.
Approximately $800,000 of these liabilities were transferred to the buyer of the
Ecusta Division. Unpaid amounts as of December 31, 2001 are expected to be paid
by the end of 2005. The following schedule summarizes the activity of the
liability since the initial accrual (in thousands):
Balance recorded during first quarter of 2000............... $1,154
Amount paid during 2000................................... (82)
------
Balance as of December 31, 2000............................. $1,072
Amount transferred to buyer of Ecusta Division............ (807)
Amount paid during 2001................................... (93)
------
Balance as of December 31, 2001............................. $ 172
======
NOTE 3. EARNINGS PER SHARE ("EPS")
Basic EPS excludes the dilutive impact of common stock equivalents and is
computed by dividing net income by the weighted-average number of shares of
common stock outstanding for the period. Diluted EPS includes the effect of
potential dilution from the issuance of common stock, pursuant to common stock
equivalents, using the treasury stock method. A reconciliation of our basic and
diluted EPS follows with the net income and share amounts in thousands:
2001 2000 1999
SHARES SHARES SHARES
------- ------- -------
Basic EPS factors....................................... 42,577 42,342 42,173
Effect of potentially dilutive employee incentive plans:
Restricted stock awards............................... 97 82 3
Performance stock awards.............................. 18 59 131
Employee stock options................................ 154 -- 124
------- ------- -------
Diluted EPS factors..................................... 42,846 42,483 42,431
======= ======= =======
Net income.............................................. $ 6,958 $44,000 $41,425
Basic and Diluted
In Thousands In Thousands In Thousands Earnings Per Share
--------------------------- --------------------- ------------------------ ----------------------diluted EPS................................... $ 0.16 $ 1.04 $ .98
The 2001 and 2000 basic and diluted EPS of $0.16 and $1.04, respectively,
as presented on the Consolidated Statements of Income and Comprehensive Income,
reflect an after-tax charge (unusual item) of $0.93 per share primarily related
to the sale of the Ecusta Division in 2001 and the negative impact of an after-
tax restructuring charge (unusual item) of $.05 per share for 2000 (see Note 2).
NOTE 4. INCOME TAXES
Income taxes are recognized for the amount of taxes payable or refundable
for the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in our consolidated financial
statements or tax returns. The effects of income taxes are measured based on
effective tax law and rates.
34
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are domestic and foreign components of pre-tax income for the
years ended December 31:
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
United States........................................... $ (525) $59,653 $55,911
Foreign................................................. 12,245 8,950 9,241
------- ------- -------
Total pre-tax income.................................... $11,720 $68,603 $65,152
======= ======= =======
The income tax provision for the years ended December 31 consists of the
following:
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Current:
Federal............................................... $(8,893) $ 9,939 $ 6,953
State................................................. -- -- 217
Foreign............................................... 32 1,427 3,803
------- ------- -------
Total current tax provision........................ (8,861) 11,366 10,973
------- ------- -------
Deferred:
Federal............................................... 7,777 9,729 11,735
State................................................. 1,604 1,822 2,197
Foreign............................................... 4,242 1,686 (1,178)
------- ------- -------
Total deferred tax provision....................... 13,623 13,237 12,754
------- ------- -------
Total income tax provision.............................. $ 4,762 $24,603 $23,727
======= ======= =======
We have deferred income taxes of $0 and $1,217,000 on undistributed
earnings of foreign subsidiaries as of December 31, 2001 and 2000, respectively.
At December 31, 2001, unremitted earnings of subsidiaries outside the United
States totaling $7,071,000 were deemed to be permanently reinvested. No deferred
tax liability has been recognized with regard to the remittance of such
earnings. It is not practicable to estimate the income tax liability that might
be incurred if such earnings were remitted to the United States.
The net deferred tax amounts reported on our Consolidated Balance Sheets as
of December 31 are as follows:
2001 2000
--------------------------------------- --------
FEDERAL STATE FOREIGN TOTAL TOTAL
-------- ------- ------- -------- --------
(IN THOUSANDS)
Current asset..................... $ 2,546 $ 480 $ 441 $ 3,467 $ 1,295
Current liability................. -- -- 381 381 4,033
Long-term asset................... -- -- 13,666 13,666 20,917
Long-term liability............... 126,481 23,912 17,230 167,623 155,360
35
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are components of the net deferred tax balances as of
December 31:
2001 2000
--------------------------------------- --------
FEDERAL STATE FOREIGN TOTAL TOTAL
-------- ------- ------- -------- --------
(IN THOUSANDS)
Deferred tax assets:
Current......................... $ 2,546 $ 480 $ 441 $ 3,467 $ 6,667
Long-term....................... 21,815 4,120 13,666 39,601 46,886
-------- ------- ------- -------- --------
$ 24,361 $ 4,600 $14,107 $ 43,068 $ 53,553
======== ======= ======= ======== ========
Deferred tax liabilities:
Current......................... $ -- $ -- $ 381 $ 381 $ 9,405
Long-term....................... 148,296 28,032 17,230 193,558 181,329
-------- ------- ------- -------- --------
$148,296 $28,032 $17,611 $193,939 $190,734
======== ======= ======= ======== ========
The tax effects of temporary differences as of December 31 are as follows:
2001 2000
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Reserves.................................................. $ 13,390 $ 15,484
Compensation.............................................. 5,496 7,334
Post-retirement benefits.................................. 9,974 10,349
Property.................................................. 6,527 8,626
Pension................................................... 804 2,906
Inventories............................................... 136 --
Net operating loss carryforwards.......................... 9,100 9,366
Other..................................................... 992 1,320
-------- --------
Subtotal.................................................... 46,419 55,385
Valuation allowance....................................... (3,351) (1,832)
-------- --------
Total deferred tax assets................................... 43,068 53,553
-------- --------
Deferred tax liabilities:
Property.................................................. 122,994 127,906
Pension................................................... 69,275 50,745
Inventories............................................... -- 8,735
Other..................................................... 1,670 3,348
-------- --------
Total deferred tax liabilities.............................. 193,939 190,734
-------- --------
Net deferred tax liabilities................................ $150,871 $137,181
======== ========
36
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the income tax provision, computed by applying the
statutory federal income tax rate of 35% to income before income taxes, and the
actual income tax provision for the years ended December 31 follows:
2001 2000 1999
------ ------- -------
(IN THOUSANDS)
Federal income tax provision at statutory rate........... $4,102 $24,011 $22,803
State income taxes, net of federal income tax benefit.... 1,043 1,185 1,569
Tax effect of exempt earnings of foreign sales
corporation............................................ (33) (90) (713)
Other.................................................... (350) (503) 68
------ ------- -------
Actual income tax provision.............................. $4,762 $24,603 $23,727
====== ======= =======
At December 31, 2001, we had net operating loss ("NOL") carryforwards for
foreign and state income tax purposes of $26,360,000 and $35,777,000,
respectively, which relate to foreign and state NOL deferred tax assets of
$5,749,000 and $3,351,000, respectively. These foreign and state NOL
carryforwards are available to offset future taxable income, if any. A valuation
allowance of $3,351,000 has been recorded against these NOL deferred tax assets
due to the uncertainty regarding our ability to utilize the state NOL
carryforwards. The foreign NOL carryforwards do not expire, and the state NOL
carryforwards expire between 2004 and 2021.
NOTE 5. BORROWINGS
Long-term debt at December 31 is summarized as follows:
2001 2000
--------- --------
(IN THOUSANDS)
Revolving Credit Facility, due December 22, 2002............ $ 122,515 $146,249
6 7/8% Notes, due July 15, 2007, interest payable
semiannually.............................................. 150,000 150,000
Other Notes, various........................................ 3,787 5,415
--------- --------
Total long-term debt........................................ 276,302 301,664
Less current portion........................................ (123,709) (1,419)
--------- --------
Long-term debt, excluding current portion................... $ 152,593 $300,245
========= ========
The aggregate maturities of long-term debt as of December 31, 2001 are as
follows (in thousands):
2002...................................................... $123,709
2003...................................................... 1,058
2004...................................................... 883
2005...................................................... 530
2006...................................................... 122
Thereafter................................................ 150,000
--------
$276,302
========
On December 22, 1997, we entered into a $200,000,000 multi-currency
revolving credit facility ("Revolving Credit Facility") with a syndicate of
major lending institutions. The Revolving Credit Facility enables us to borrow
up to the equivalent of $200,000,000 in certain currencies in the form of
revolving credit loans with a final maturity date of December 22, 2002, and with
interest periods determined, at our option, on a daily or one- to six-month
basis. Interest on the revolving credit loans is at variable rates based, at our
option,
37
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the Eurocurrency Rate or the Base Rate (lender's prime rate), plus applicable
margins. Margins are based on the higher of our debt ratings as published by
Standard & Poor's and Moody's. We are subject to certain financial covenants
under the Revolving Credit Facility and are in compliance with all such
covenants as of December 31, 2001. We must pay an annual administrative fee of
$25,000 as well as an annual facility fee of $200,000. As of December 31, 2001,
we had $122,515,000 of borrowings under the Revolving Credit Facility and thus
$77,485,000 was available under the Revolving Credit Facility. We intend to
repay the Revolving Credit Facility during 2002 using a portion of our cash and
cash equivalents as well as through borrowings under a new debt facility to be
negotiated.
We had $3,030,000 of letters of credit outstanding as of December 31, 2001.
We bear the credit risk on this amount to the extent that we do not comply with
the provisions of certain agreements. The letters of credit do not reduce the
amount available under our lines of credit.
On July 22, 1997, we issued $150,000,000 principal amount of 6 7/8% Notes
due July 15, 2007. Interest on the 6 7/8% Notes is payable semiannually on
January 15 and July 15. The 6 7/8% Notes are redeemable, in whole or in part, at
our option at any time at a calculated redemption price plus accrued and unpaid
interest to the date of redemption, and constitute unsecured and unsubordinated
indebtedness. The net proceeds from the sale of the 6 7/8% Notes were used
primarily to repay certain short-term unsecured debt and related interest.
NOTE 6. INTEREST RATE SWAP AGREEMENTS
In January 1999, we entered into two interest rate swap agreements, each
having a total notional principal amount of DM 50,000,000 (approximately
$22,549,000 as of December 31, 2001). Under these agreements, which were
effective April 6, 1999 and July 6, 1999 and which expire December 22, 2002, we
receive a floating rate of the three-month DM/Euro LIBOR plus twenty basis
points and pay a fixed rate of 3.41% and 3.43%, respectively, for the term of
the agreements. We recognized net interest income of $783,000 and $461,000 in
2001 and 2000, respectively, and net interest expense of $167,000 in 1999
related to these agreements. As of December 31, 2001, our gain from termination
of these interest rate swap agreements would have been $32,000. Both of our
interest rate swap agreements convert a portion of our borrowings from a
floating rate to fixed-rate basis. Although we can terminate either of our swap
agreements at any time, we intend to hold both of our swap agreements until
maturity.
NOTE 7. KEY EMPLOYEE LONG-TERM INCENTIVE PLAN
On April 23, 1997, the common shareholders amended the 1992 Key Employee
Long-Term Incentive Plan ("1992 Plan") to authorize, among other things, the
issuance of up to 5,000,000 shares of Glatfelter common stock to eligible
participants. The 1992 Plan provides for restricted stock awards, non-qualified
stock options, performance shares, incentive stock options and performance
units. To date, there have been no grants of incentive stock options or
performance units.
RESTRICTED STOCK AWARDS During December 2001, December 2000, December 1999
and December 1998, 64,430, 81,780, 101,730 and 60,465 shares, respectively, of
common stock were awarded under the 1992 Plan. Awarded shares are subject to
forfeiture, in whole or in part, if the recipient ceases to be an employee
within a specified time period. The shares awarded under the 1992 Plan are also
subject to forfeiture if defined minimum earnings levels are not met. We may
reduce the number of shares otherwise required to be delivered by an amount that
would have a fair market value equal to the taxes we withhold on delivery. We
may also, at our discretion, elect to pay to the recipients in cash an amount
equal to the fair market value of the shares that would otherwise be required to
be delivered.
We recognized expense of $856,000 in 2001, $936,000 in 2000, including
$512,000 related to "Unusual Items" described in Note 2, and $262,000 in 1999
related to these awards. Each Restricted Stock Award has a
38
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
four-year vesting period. The shares awarded in December 2001 under the 1992
Plan cease to be subject to forfeiture by the end of 2005.
PERFORMANCE SHARES On January 1, 1996, January 1, 1997 and January 1,
1998, we awarded, under the 1992 Plan, 44,860, 40,060 and 45,740 shares,
respectively, subject to certain conditions, to certain key employees to be
issued in whole or in part depending on our degree of success in achieving
certain financial performance goals during defined four-year performance
periods. Based upon the financial performance levels achieved during the periods
ended December 31, 1999, 2000 and 2001, 27,668, 16,492 and 16,178 shares,
respectively, were earned for distribution. During February 2000, in lieu of
delivering 27,668 shares of common stock, we elected to pay cash equal to the
fair value of 21,620 shares as of December 31, 1999, and deliver 6,048 shares
from treasury. During February 2001, in lieu of delivering 16,492 shares of
common stock, we elected to pay cash equal to the fair value of 13,003 shares as
of December 31, 2000, and deliver 3,489 shares from treasury. During February
2002, in lieu of delivering 16,178 shares of common stock, we elected to pay
cash equal to the fair value of 10,139 shares as of December 31, 2001, and
deliver 6,039 shares from treasury.
We recognized income of $127,000 and $169,000 in 2001 and 2000,
respectively, and expense of $357,000 in 1999 related to these performance stock
awards. The fair market value per share of the shares granted during 1998, 1997
and 1996 was $18.38, $17.88 and $17.16, respectively.
NON-QUALIFIED STOCK OPTIONS The following summarizes the activity with
respect to non-qualified options to purchase shares of common stock granted
under the 1992 Plan during the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
------------------------------------------------------------------------------------------------------------------------------------------ ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ---------------- --------- ----------------
Outstanding at beginning of
year......................... 3,650,682 $14.49 3,293,215 $14.86 3,216,580 $15.32
Options granted.............. 569,100 15.45 636,600 12.90 467,850 13.28
Options exercised............ (237,771) 12.40 (7,500) 12.34 (6,000) 12.40
Options canceled............. (245,829) 14.26 (271,633) 15.37 (385,215) 16.82
--------- --------- ---------
Outstanding at end of year..... 3,736,182 14.79 3,650,682 14.49 3,293,215 14.86
========= ========= =========
Exercisable at end of year..... 1,982,233 15.72 1,921,332 15.82 1,293,709 17.54
The following table summarizes information about stock options outstanding
at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
NUMBER WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AS REMAINING AVERAGE EXERCISABLE AS AVERAGE
EXERCISE PRICE OF 12/31/01 CONTRACTUAL LIFE EXERCISE PRICE OF 12/31/01 EXERCISE PRICE
- -------------- -------------- ---------------- -------------- -------------- --------------
$10.78 - $12.95.......... 1,539,237 7.4 years $12.56 587,971 $12.31
$12.96 - $18.78.......... 2,196,945 5.5 years 16.34 1,394,262 17.15
--------- ---------
3,736,182 6.3 years 14.79 1,982,233 15.72
========= =========
An additional 409,705 options became exercisable January 1, 2002, at a
weighted-average exercise price of $12.73. The weighted-average fair value of
options granted during 2001, 2000, and 1999 was $3.84, $2.60 and $3.06,
respectively, on the date of grant. The fair value of each option on the date of
grant is estimated
39
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
using the Black-Scholes option pricing model with expected lives of ten years
and the following weighted-average assumptions:
2001 2000 1999
---- ---- ----
Risk-free interest rate..................................... 5.57% 5.61% 6.26%
Expected dividend yield..................................... 4.58% 7.61% 5.36%
Expected volatility......................................... 29.7% 42.0% 30.0%
Options typically become exercisable for 25% of the shares of common stock
issuable on exercise thereof, beginning January 1 of the year following the date
of grant, assuming six months has passed, with options for an additional 25% of
such shares becoming exercisable on January 1 of each of the next three years.
Options not exercisable in this format are exercisable in full either six months
or one year from the date of grant. All options expire on the earlier of
termination or, in some instances, a defined period subsequent to termination of
employment, or ten years from the date of grant.
The exercise price represents the average quoted market price of Glatfelter
common stock on the date of grant, or the average quoted market prices of
Glatfelter common stock on the first day before and after the date of grant for
which quoted market price information was available if such information was not
available on the date of grant.
PRO FORMA INFORMATION We account for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized for the non-qualified stock
options and for which compensation cost has been recognized for stock awards, as
described in Note 1(l). Had compensation cost for these plans been determined
consistent with SFAS No. 123, our net income and EPS for the years ended
December 31, 2001, 2000, and 1999 would have been reduced to the following pro
forma amounts:
2001 2000 1999
-------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE
INFORMATION)
Net income:
As reported............................................ $6,958 $44,000 $41,425
Pro forma.............................................. 5,444 42,656 39,960
EPS:
Reported -- basic and diluted.......................... $ 0.16 $ 1.04 $ .98
Pro forma -- basic..................................... 0.13 1.01 .95
Pro forma -- diluted................................... 0.13 1.00 .94
NOTE 8. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS
We have trusteed noncontributory defined benefit pension plans covering
substantially all our employees. The benefits are based, in the case of certain
plans, on average salary and years of service and, in the case of other plans,
on a fixed amount for each year of service. Plan provisions and funding meet the
requirements of the Employee Retirement Income Security Act of 1974. Pension
income of $44,702,000, $25,927,000 and $20,490,000 was recognized in 2001, 2000,
and 1999, respectively. Before the impact of unusual items discussed in Note 2,
pension income for 2001 and 2000 was $30,678,000 and $28,109,000, respectively.
We provide certain health care benefits to eligible retired employees. These
benefits include a comprehensive medical plan for retirees prior to age 65 and
fixed supplemental premium payments to retirees over age 65 to help defray the
costs of Medicare. The plan is not funded; claims are paid as incurred.
40
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the status of our defined benefit pension
plans and other post-retirement benefit plans at December 31, 2001 and 2000 (in
thousands):
PENSION BENEFITS OTHER BENEFITS
-------------------- -------------------
2001 2000 2001 2000
-------- --------- -------- --------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year........... $246,023 $ 241,563 $ 38,291 $ 32,221
Service cost...................................... 4,630 5,254 854 806
Interest cost..................................... 16,084 16,016 2,320 2,140
Plan amendments................................... 1,175 1,281 -- --
Actuarial (gain) loss............................. 6,827 (5,451) 2,044 7,243
Benefits paid..................................... (15,557) (14,822) (4,283) (4,119)
Unusual items (Note 2)............................ (35,412) 2,182 (5,966) --
-------- --------- -------- --------
Benefit obligation at end of year................. $223,770 $ 246,023 $ 33,260 $ 38,291
======== ========= ======== ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year.... $557,910 $ 564,271 $ -- $ --
Actual return on plan assets...................... (40,826) 5,774 -- --
Employer contributions............................ 2,483 2,687 4,283 4,119
Benefits paid..................................... (15,557) (14,822) (4,283) (4,119)
Unusual items (Note 2)............................ (45,412) -- -- --
-------- --------- -------- --------
Fair value of plan assets at end of year.......... $458,598 $ 557,910 $ -- $ --
======== ========= ======== ========
RECONCILIATION OF THE FUNDED STATUS:
Funded status..................................... $234,828 $ 311,887 $(33,260) $(38,291)
Unrecognized transition asset..................... (4,029) (5,753) -- --
Unrecognized prior service cost................... 13,077 19,148 (882) (1,422)
Unrecognized (gain) loss.......................... (72,187) (200,500) 9,419 13,193
-------- --------- -------- --------
Net amount recognized............................. $171,689 $ 124,782 $(24,723) $(26,520)
======== ========= ======== ========
AMOUNTS RECOGNIZED ON THE CONSOLIDATED BALANCE
SHEETS CONSIST OF:
Prepaid benefit cost.............................. $182,524 $ 134,916 $ -- $ --
Accrued benefit liability......................... (10,835) (10,134) (24,723) (26,520)
-------- --------- -------- --------
Prepaid (accrued) benefit cost.................... $171,689 $ 124,782 $(24,723) $(26,520)
======== ========= ======== ========
The net prepaid pension cost for qualified pension plans is included in
"Other assets," and the accrued pension cost for non-qualified pension plans and
accrued post-retirement benefit costs are principally included in "Other
long-term liabilities" on the Consolidated Balance Sheets at December 31, 2001
and 2000.
41
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic benefit (income) cost includes the following components (in
thousands):
PENSION BENEFITS OTHER BENEFITS
------------------------------ ------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- ------ ------ ------
Service cost........................ $ 4,630 $ 5,254 $ 4,877 $ 854 $ 806 $ 741
Interest cost....................... 16,084 16,016 15,977 2,320 2,140 2,153
Expected return on plan assets...... (45,806) (42,350) (35,735) -- -- --
Amortization of transition asset.... (1,725) (1,724) (1,724) -- -- --
Amortization of prior service
cost.............................. 1,540 1,829 1,746 (169) (212) (212)
Recognized actuarial (gain) loss.... (5,401) (7,134) (5,631) 445 280 351
-------- -------- -------- ------ ------ ------
Net periodic benefit (income)
cost.............................. (30,678) (28,109) (20,490) 3,450 3,014 3,033
Unusual item (Note 2)............... (14,024) 2,182 -- (964) -- --
-------- -------- -------- ------ ------ ------
Total net periodic benefit (income)
cost.............................. $(44,702) $(25,927) $(20,490) $2,486 $3,014 $3,033
======== ======== ======== ====== ====== ======
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $25,055,000, $22,083,000 and $0, respectively, as
of December 31, 2001 and $23,271,000, $20,708,000 and $0, respectively, as of
December 31, 2000.
The assumptions used in computing the information above were as follows:
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Discount rate -- benefit expense....................... 7.0% 7.0% 7.5% 7.0% 7.0% 7.5%
Expected long-term rate of return on plan assets....... 9.0% 9.0% 9.0% -- -- --
Discount rate -- benefit obligation.................... 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Future compensation growth rate........................ 3.5% 3.5% 3.5% -- -- --
For measurement purposes, a 5.5%, 5.5% and 6.0% annual rate of increase in
the per capita cost of covered health care benefits was assumed for 2001, 2000
and 1999 respectively. The rate is assumed to remain level at 5.5% going
forward.
A one percentage-point change in assumed health care cost trend rates would
have the following effects:
2001 2000
------------------------- -------------------------
1% INCREASE 1% DECREASE 1% INCREASE 1% DECREASE
----------- ----------- ----------- -----------
(IN THOUSANDS)
Effect on post-retirement benefit obligation... $2,822 $(2,465) $2,793 $(2,429)
Effect on total of service and interest cost
components................................... 330 (282) 273 (233)
We maintain 401(k) plans for certain hourly and salaried employees.
Employees may contribute up to 15% of their salary to these plans, subject to
certain restrictions. We will match a portion of the employee's contribution,
subject to certain limitations, in the form of shares of Glatfelter common stock
into the Glatfelter stock fund maintained under the 401(k) plans. During 2001,
2000 and 1999, we contributed shares of Glatfelter common stock valued at
$1,409,000, $1,681,000, and $1,626,000, respectively, to these 401(k) plans.
NOTE 9. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
We are subject to loss contingencies resulting from regulation by various
federal, state, local and foreign governmental authorities with respect to the
environmental impact of our mills. To comply with environmental
42
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
laws and regulations, we have incurred substantial capital and operating
expenditures in past years. We anticipate that environmental regulation of our
operations will continue to become more burdensome and that capital and
operating expenditures necessary to comply with environmental regulations will
continue, and perhaps increase, in the future. In addition, we may incur
obligations to remove or mitigate any adverse effects on the environment
resulting from our operations, including the restoration of natural resources,
and liability for personal injury and for damages to property and natural
resources. Because environmental regulations are not consistent worldwide, our
ability to compete in the world marketplace may be adversely affected by capital
and operating expenditures required for environmental compliance.
Subject to permit approvals, we have undertaken an initiative at our Spring
Grove facility under the Voluntary Advanced Technical Incentive Program set
forth by the United States Environmental Protection Agency ("EPA") in the
"Cluster Rule." This initiative, the "New Century Project," will require capital
expenditures currently estimated at approximately $32,500,000 to be incurred
before April 2004. Through 2001, we have invested approximately $2,400,000 in
this project including $900,000 in 2001. We estimate that $6,700,000,
$18,000,000 and $5,400,000 will be spent on this project during 2002, 2003 and
2004, respectively. The Cluster Rule is a 1998 federal regulation in which the
EPA aims to regulate air and water emissions from certain pulp and paper mills,
including kraft pulp mills such as our Spring Grove facility. Issued under both
the Clean Air Act and the Clean Water Act, the Cluster Rule establishes baseline
emissions limits for toxic and non-conventional pollutant releases to both water
and air.
SPRING GROVE, PENNSYLVANIA -- WATER. We intend the New Century Project,
among other things, to achieve by April 2004 a level of color in the receiving
stream consistent with the level required in all similar streams in
Pennsylvania. In June 1999, the Pennsylvania Public Interest Research Group and
several other parties (collectively, "PennPIRG") filed a citizens suit under the
federal Clean Water Act and the Pennsylvania Clean Streams Law alleging that we
had been operating our Spring Grove facility in violation of a 1984 wastewater
discharge permit. We disagreed with this allegation; however, the parties
settled the litigation, as described below, prior to the issuance of a final
adjudication. In its citizens suit, PennPIRG sought civil penalties,
reimbursement for costs of litigation and a reduction in the Spring Grove
facility's discharge of color (a) immediately and (b) to a level lower than that
achievable with the New Century Project.
A "discharge of color" describes the presence in the facility's water
effluent of materials, primarily lignins and tannins, which are natural glues
and saps, found in trees, which discolor the water. The lignins and tannins are
not themselves toxic, and we believe that the receiving stream is not
environmentally impacted by the color. In September 2000, the Pennsylvania
Department of Environmental Protection ("Pennsylvania DEP") issued a renewed
permit that required us to comply with more stringent limits on color discharges
than had been in place. We appealed the permit, as did PennPIRG.
On October 26, 2001, the United States District Court for the Middle
District of Pennsylvania approved a settlement between the parties to the
citizens suit to which the Pennsylvania DEP joined. Under this settlement, the
Court established a compliance schedule that would require achievement of water
quality limits consistent with those contemplated under the New Century Project
by April 2004. We also agreed to the implementation of certain projects
encompassed by the New Century Project consistent with the timetable set forth
in our water discharge permit requiring completion of the projects by April
2004. These projects include improvements in brownstock washing, installation of
an oxygen delignification bleaching process and 100 percent chlorine dioxide
substitution. We believe these projects will enable us to achieve compliance
with the final permit limits. We presently do not anticipate difficulties in
implementing the New Century Project; however, we have not yet received all the
required governmental approvals, nor have we installed all the necessary
equipment.
In addition to these projects, under the terms of the settlement, we have
created a permanent endowment for certain environmental and recreational
improvement projects in the Codorus Creek watershed, and have
43
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paid PennPIRG certain litigation costs related to this lawsuit. Our total cost
accrued and paid under this settlement was $2,500,000 (see Note 2). The
administrative appeals filed by Glatfelter and PennPIRG have been dismissed as
moot.
We are voluntarily cooperating with an investigation by the Pennsylvania
DEP, which commenced in February 2002, of our Spring Grove facility related to
certain discharges, which are alleged to be unpermitted, to the Codorus Creek.
There is no indication that these discharges had an impact on human health or on
the environment. Although this investigation could result in the imposition of a
fine or other punitive measures, we currently do not know what, if any, actions
will be taken.
SPRING GROVE, PENNSYLVANIA -- AIR. In 1999, EPA and the Pennsylvania DEP
issued to us separate Notices of Violation ("NOVs") alleging violations of air
pollution control laws, primarily for purportedly failing to obtain appropriate
pre-construction air quality permits in conjunction with certain modifications
to our Spring Grove facility. EPA and the Pennsylvania DEP primarily alleged
that our modifications produced significant net emissions increases in certain
air pollutants that should have been covered by permits containing reduced
emissions limitations.
For all but one of the modifications cited by EPA, we applied for and
obtained from the Pennsylvania DEP the pre-construction permits that we
concluded were required by applicable law. EPA reviewed those applications
before the permits were issued. The Pennsylvania DEP's NOV pertained only to the
modification for which we did not receive a pre-construction permit. We
conducted an evaluation at the time of this modification and determined that the
pre-construction permit cited by EPA and the Pennsylvania DEP was not required.
We have been informed that EPA and the Pennsylvania DEP will seek substantial
emissions reductions, as well as civil penalties, to which we believe we have
meritorious defenses. Nevertheless, we are unable to predict the ultimate
outcome of these matters or the costs involved.
NEENAH, WISCONSIN -- WATER. We have previously reported with respect to
potential 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, downstream of our Neenah, Wisconsin facility. We acquired the Neenah
facility in 1979 as part of the acquisition of the Bergstrom Paper Company. In
part, this facility uses wastepaper as a source of fiber. At no time did the
Neenah facility utilize PCBs in the pulp and paper making process, but
discharges from the facility containing PCBs from wastepaper may have occurred
from 1954 to the late 1970s. Any PCBs that the Neenah facility discharged into
the Fox River resulted from the presence of NCR(R)-brand carbonless copy paper
in the wastepaper that was received from others and recycled.
As described below, various state and federal governmental agencies have
formally notified seven potentially responsible parties ("PRPs"), including
Glatfelter, that they are potentially responsible for response costs and
"natural resource damages" ("NRDs") arising from PCB contamination in the lower
Fox River and in the Bay of Green Bay, under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") and other statutes. The six
other identified PRPs include NCR Corporation, Appleton Papers Inc., Georgia
Pacific Corp., WTM I Co. (a subsidiary of Chesapeake Corp.), Riverside Paper
Company, and U.S. Paper Mills Corp. (now owned by Sonoco Products Company).
CERCLA establishes a two-part liability structure that makes responsible
parties liable for (1) "response costs" associated with the remediation of a
release of hazardous substances and (2) NRDs related to that release. Courts
have interpreted CERCLA to impose joint and several liability on responsible
parties, subject to equitable allocation in certain instances. Prior to a final
settlement by all responsible parties and the final cleanup of the
contamination, uncertainty regarding the application of such liability will
persist.
On October 2, 2001, the Wisconsin Department of Natural Resources
("Wisconsin DNR") and EPA issued drafts of the reports resulting from the
remedial investigation and the feasibility study of the PCB contamination of the
lower Fox River and the Bay of Green Bay. On that same day, the Wisconsin DNR
and EPA issued a Proposed Remedial Action Plan ("PRAP") for the cleanup of the
lower Fox River and the Bay
44
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Green Bay, estimating the total costs associated with the proposed response
action at $307,600,000 (without a contingency factor) over a 7-to-18-year time
period. The most significant component of the estimated costs is attributable to
large-scale sediment removal by dredging. Based on cost estimates of large-
scale dredging response actions at other sites, we believe that the PRAP's cost
projections may underestimate actual costs of the proposed remedy by over
$800,000,000.
We do not believe that the response action proposed by the Wisconsin DNR
and EPA is appropriate or cost effective. We believe that a protective remedy
for Little Lake Butte des Morts, the portion of the river that is closest of our
Neenah facility, can be implemented at a much lower actual cost than would be
incurred performing large-scale dredging. We also believe that an aggressive
effort to remove the PCB-contaminated sediment, much of which is buried under
cleaner sediment or is otherwise unlikely to move and which is abating
naturally, would be environmentally detrimental and, therefore, inappropriate at
all locations of the river. We have proposed to dredge and cap certain
delineated areas with relatively higher concentrations of PCBs in Little Lake
Butte des Morts. We have accrued an amount to cover this project, potential NRD
claims, claims for reimbursement of expenses of other parties and residual
liabilities.
We have submitted comments to the PRAP that advocate vigorously for the
implementation of environmentally protective alternatives that do not rely upon
large-scale dredging. EPA, in consultation with the Wisconsin DNR, will consider
comments on the PRAP and will then select a remedy to address the contaminated
sediment. Because we have thus far been unable to persuade the EPA and the
Wisconsin DNR of the correctness of our assessment (as evidenced by the issuance
of the PRAP), we are becoming less confident that an alternative remedy totally
excluding large-scale dredging will be implemented. Therefore, we have increased
the reasonably possible estimate of our potential cost in this matter. The
issuance of the PRAP has not materially impacted the amount we have accrued for
this matter, however, as we continue to believe that ultimately we will be able
to convince the EPA and the Wisconsin DNR that large-scale dredging is
inappropriate.
As noted above, NRD claims are theoretically distinct from costs related to
the primary remediation of a Superfund site. Calculating the value of NRD claims
is difficult, especially in the absence of a completed remedy of the underlying
contamination. The State of Wisconsin has informally asserted claims for NRDs
against the identified PRPs regarding alleged injuries to natural resources
under its alleged trusteeship in the lower Fox River and the Bay of Green Bay.
To date, Wisconsin has not prepared any estimates of the alleged value of its
NRD claims settlements nor finalized any settlements from which that value could
be estimated. Based on available information, we believe that any NRD claims
that Wisconsin may bring will likely be legally and factually without merit.
The United States Fish and Wildlife Service ("FWS"), the National Oceanic
and Atmospheric Administration ("NOAA"), four Indian tribes and the Michigan
Attorney General also assert that they possess NRD claims related to the lower
Fox River and the Bay of Green Bay. In June 1994, FWS notified the seven
identified PRPs that it considered them potentially responsible for NRDs. The
federal, tribal and Michigan agencies claiming to be NRD trustees have proceeded
with the preparation of an NRD assessment separate from the Wisconsin DNR. While
the final assessment will be delayed until after the selection of a remedy, the
federal trustees released a plan on October 25, 2000 that values their NRDs for
injured natural resources between $176,000,000 and $333,000,000. We believe that
the federal NRD assessment is technically and procedurally flawed. We also
believe that the NRD claim alleged by the federal, tribal and Michigan entities
are legally and factually without merit.
We are seeking settlement with the Wisconsin agencies and with the federal
government for all of our potential liabilities for response costs and NRDs
associated with the contamination. The Wisconsin DNR and FWS have published
studies, the latter in draft form, estimating the amount of PCBs discharged by
each PRP that estimate the volumetric share of the discharge from our Neenah
facility to be as high as 27%. We do not believe the volumetric estimates used
in these studies are accurate because the studies themselves disclose
45
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that they are not accurate and are based on assumptions for which there is no
evidence. We believe that our volumetric contribution is significantly lower. We
further maintain that we do not believe that a volumetric allocation would
constitute an equitable distribution of the potential liability for the
contamination. Other factors, such as the location of contamination, location of
discharge and a party's role in causing discharge must be considered in order
for the allocation to be equitable. We have entered into interim cost-sharing
agreements with four of the other six PRPs, pursuant to which the PRPs have
agreed to share both defense costs and costs for scientific studies relating to
PCBs discharged into the Lower Fox River. These interim cost-sharing agreements
have no bearing on the final allocation of costs related to this matter. Based
upon our evaluation of the magnitude, nature and location of the various
discharges of PCBs to the river and the relationship of those discharges to
identified contamination, we believe our share of any liability among the seven
identified PRPs is much less than one-seventh of the whole.
We also believe that additional potentially responsible parties exist other
than the seven identified PRPs, which are all paper companies. For instance,
certain of the identified PRPs discharged their wastewater through public
wastewater treatment facilities, which we believe makes the owners of such
facilities potentially responsible in this matter. We also believe that entities
providing wastepaper containing PCBs to each of the recycling mills, including
our Neenah facility, are also potentially responsible for this matter.
We currently are unable to predict our ultimate cost related to this
matter, because we cannot predict which remedy will be selected for the site,
the costs thereof, the ultimate amount of NRDs, or our share of these costs or
NRDs.
We continue to believe it is likely that this matter will result in
litigation. We maintain that the removal of a substantial amount of
PCB-contaminated sediments is not an appropriate remedy. There can be no
assurance, however, that we will be successful in arguing that removal of
PCB-contaminated sediments is inappropriate or that we would prevail in any
resulting litigation.
The amount and timing of future expenditures for environmental compliance,
cleanup, remediation and personal injury, NRDs and property damage liability,
including but not limited to those related to the lower Fox River and the Bay of
Green Bay, cannot be ascertained with any certainty due to, among other things,
the unknown extent and nature of any contamination, the extent and timing of any
technological advances for pollution abatement, the response actions that may be
required, the availability of qualified remediation contractors, equipment and
landfill space and the number and financial resources of any other PRPs. We have
established reserves, relating to unasserted claims, for environmental
remediation and other environmental liabilities for those environmental matters
for which it is probable that an assertion will be made and an obligation exists
and for which the amount of the obligation is reasonably estimable. As of
December 31, 2001 and December 31, 2000, we have accrued reserves of
approximately $28,800,000 and $26,400,000, respectively, representing our best
estimate within a range of possible outcomes, which would cover the cost of our
proposed project regarding Little Lake Butte des Morts, potential NRD claims,
claims for reimbursement of expenses of other parties and residual liabilities.
This accrual is included in "Other long-term liabilities" on the Consolidated
Balance Sheets. Changes to the accrual reflect our best estimate of the ultimate
outcome and considers changes in the extent and cost of the remedy, the status
of negotiations with the various parties, including other PRPs, and our
assessment of potential NRD claims, claims for reimbursement of expenses of
other parties and residual liabilities. Based upon our assessment as to the
ultimate outcome to this matter, we accrued and charged $2,400,000 to pre-tax
earnings each year in 2001, 2000 and 1999.
Based on analysis of currently available information and experience with
respect to the cleanup of hazardous substances, we believe that it is reasonably
possible that our costs associated with these matters may exceed current
reserves by amounts that may prove to be insignificant or that could range, in
the aggregate, up to approximately $200,000,000 over a period that is
undeterminable but could range between 10 to 20 years or beyond. The upper limit
of such range is substantially larger than the amount of our reserves. The
estimate of the range of reasonably possible additional costs is less certain
than the estimates upon which
46
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reserves are based. In order to establish the upper limit of such range, we used
assumptions that are the least favorable to us among the range of assumptions
pertinent to reasonably possible outcomes. We believe that the likelihood of an
outcome in the upper end of the 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 range is remote.
In our estimate of the upper end of the range, we have assumed full-scale
dredging as set forth in the PRAP, at a significantly higher cost than estimated
in the PRAP. We have also assumed our share of the ultimate liability to be 18%,
which is significantly higher than we believe is appropriate or will occur, and
a level of NRD claims and claims for reimbursement of expenses from other
parties that, although reasonably possible, is unlikely. In estimating both our
current reserve for environmental remediation and other environmental
liabilities and the possible range of additional costs, we have not assumed that
we will bear the entire cost of remediation and damages to the exclusion of
other known PRPs who may be jointly and severally liable. The ability of other
PRPs to participate has been taken into account, based generally on their
financial condition and probable contribution. Our evaluation of the other PRPs'
financial condition included the review of publicly disclosed financial
information. The relative probable contribution is based upon our knowledge that
at least two PRPs manufactured the paper that included the PCBs and as such, in
our opinion, bear a higher level of responsibility. In addition, our assessment
is based upon the magnitude, nature and location of the various discharges of
PCBs to the river and the relationship of those discharges to identified
contamination. We did not consider the financial condition of a smaller,
non-public PRP as financial information is not available, and we do not believe
its contribution to be material. We have also considered that over a number of
years, certain PRPs were under the ownership of large multinational companies,
who appear to retain some liability for this matter. We 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 lower Fox
River and the Bay of Green Bay.
We believe that we are insured against certain losses related to the lower
Fox River and the Bay of Green Bay, depending on the nature and amount of the
losses. Insurance coverage, which is currently being investigated under
reservation of rights by various insurance companies, is dependent upon the
identity of the plaintiff, the procedural posture of the claims asserted and how
such claims are characterized. We do not know when the insurers' investigations
as to coverage will be completed, and we are uncertain as to what the ultimate
recovery will be and whether it will be significant in relation to the losses
for which we have accrued.
SUMMARY. Our current assessment is that we should be able to manage these
environmental matters without a long-term, material adverse impact on us. These
matters could, however, at any particular time or for any particular year or
years, have a material adverse effect on our consolidated financial condition,
liquidity or results of operations or could result in a default under our loan
covenants. Moreover, there can be no assurance that our reserves will be
adequate to provide for future obligations related to these matters, that our
share of costs and/or damages for these matters will not exceed our available
resources, or that such obligations will not have a long-term, material adverse
effect on our consolidated financial condition, liquidity or results of
operations. With regard to the lower Fox River and the Bay of Green Bay, if we
are not successful in managing the matter and are ordered to implement the
remedy proposed in the PRAP, such an order would have a material adverse effect
on our consolidated financial condition, liquidity and results of operations and
would result in a default under our loan covenants.
During 2001, 2000 and 1999, we expended approximately $1,700,000,
$2,600,000 and $2,600,000, respectively, on environmental capital projects. We
estimate total expenditures of $7,400,000 and $19,900,000 for environmental
capital projects in 2002 and 2003, respectively. During 2001, 2000 and 1999, we
incurred approximately $15,600,000, $16,700,000 and $15,800,000, respectively,
in operating costs related to complying with environmental laws and regulations.
47
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We are also involved in other lawsuits. The ultimate outcome of these
lawsuits cannot be predicted with certainty, however, we do not expect that such
lawsuits will have a material adverse effect on our consolidated financial
position, results of operations or liquidity.
NOTE 10. OTHER SALES AND GEOGRAPHIC INFORMATION
We sell a significant portion of our specialized printing papers through
wholesale paper merchants. No individual customer accounted for more than 10% of
our net sales in 2001, 2000 or 1999. Excluding the net sales of the Ecusta
Division, net sales to one customer in 2001 were approximately 11% of total net
sales.
Our 2001, 2000 and 1999 net sales to external customers and location of net
plant, equipment and timberlands as of December 31, 2001, 2000 and 1999 are
summarized below. Net sales are attributed to countries based upon origin of
shipment. The net sales information below includes the results of the Ecusta
Division through August 9, 2001. Plant and equipment -- net for the Ecusta
Division at December 31, 2000 and 1999 were $52,577,000 and $52,876,000,
respectively. See Note 2.
2001 2000 1999
------------------------------ ------------------------------ ------------------------------
PLANT, EQUIPMENT PLANT, EQUIPMENT PLANT, EQUIPMENT
AND AND AND
NET SALES TIMBERLANDS -- NET NET SALES TIMBERLANDS -- NET NET SALES TIMBERLANDS -- NET
--------- ------------------ --------- ------------------ --------- ------------------
United States........ $477,437 $390,869 $567,520 $432,499 $543,436 $445,376
Germany.............. 129,228 89,473 121,352 103,286 128,969 118,053
Other foreign
countries.......... 29,026 16,886 35,848 16,983 33,086 18,784
-------- -------- -------- -------- -------- --------
Total........... $635,691 $497,228 $724,720 $552,768 $705,491 $582,213
======== ======== ======== ======== ======== ========
Net sales information by product groups for the years ending December 31
follows:
2001 2000 1999
-------------- -------------- --------------
(IN THOUSANDS)
Specialized Printing Papers.................. $341,955 54% $391,087 54% $341,990 48%
Engineered Papers (including tobacco
papers).................................... 293,736 46% 333,633 46% 363,501 52%
-------- --- -------- --- -------- ---
Total................................... $635,691 100% $724,720 100% $705,491 100%
======== === ======== === ======== ===
NOTE 11. QUARTERLY RESULTS (UNAUDITED)
GROSS PROFIT IN BASIC AND DILUTED
NET SALES IN THOUSANDS THOUSANDS NET INCOME IN THOUSANDS EARNINGS PER SHARE
----------------------- ------------------- ------------------------ ------------------
2001 2000 2001 2000 2001 2000 2001 2000
---------- ---------- -------- -------- ---------- --------- ------- ------
First $187,658(a) $171,732(a)First................ $185,646 $187,658 $ 39,725 $ 33,507 $ 27,68315,364 $10,644(d) $ 10,644(b) $ 8,140 $ .25(b) $ .19
Second 184,397(a) 173,275(a)0.36 $0.25(d)
Second............... 170,287 184,397 32,227 39,844 34,456(22,472)(a) 14,038 12,543 .33 .30
Third 178,042(a) 176,295(a)(0.53)(a) 0.33
Third................ 145,301 178,042 29,357 25,777 24,0744,541(b) 7,179 6,400 .17 .15
Fourth0.11(b) 0.17
Fourth............... 134,457 174,623 184,189(a)30,813 34,391 38,3739,525 12,139 14,342 .29 .34
--------0.22 0.29
-------- -------- -------- -------- -------- ------- ------ -----
TotalTotal................ $635,691 $724,720 $705,491(a)$132,122 $133,519 $124,586 $ 44,000(b)6,958(c) $44,000(d) $ 41,425 $ 1.04(b) $ .98
========0.16(c) $1.04(d)
======== ======== ======== ======== ======== ======= ====== =====
- ---------------
(a) Reflects reclassificationAfter impact of prior-period shipping and handling costs
from net sales to costan after-tax charge primarily for the impairment of products sold in accordance with recent
accounting pronouncements.Ecusta
assets (unusual item) of $33,595,000.
(b) After impact of an after-tax charge for the loss on the sale of Ecusta
(unusual item) of $6,114,000.
(c) After impact of an after-tax charge primarily for the loss on the sale of
Ecusta (unusual item) of $39,709,000.
(d) After impact of an after-tax charge for restructuring charge (unusual item)
of $2,120,000.
4448
45
ItemITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ItemITEM 10. Directors and Executive Officers of the Registrant.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Directors. The information with respect to directors required under
this Item is incorporated herein by reference to pages 3, 4, 5 and 2125 of the Registrant'sour Proxy
Statement, dated March 19, 2001.April 9, 2002.
(b) Executive Officers of the Registrant. The information with respect to
the executive officers required under this Item is set forth in Part I of this
report.
ItemITEM 11. Item 11. Executive Compensation.EXECUTIVE COMPENSATION.
The information required under this Item is incorporated herein by
reference to pages 79 through 1721 of the Registrant'sour Proxy Statement, dated March 19, 2001.
45
46
ItemApril 9, 2002.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this Item is incorporated herein by
reference to pages 1822 through 2024 of the Registrant'sour Proxy Statement, dated March 19, 2001.
ItemApril 9, 2002.
ITEM 13. Certain Relationships and Related Transactions.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this Item is incorporated herein by
reference to page 1721 of the Registrant'sour Proxy Statement, dated March 19,
2001.April 9, 2002.
49
PART IV
ItemITEM 14. Exhibits, Financial Statement Schedules, and Reports on FormEXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. A. The followingOur Consolidated Financial Statements of the Registrantas follows are included in
Part II, Item 8:
Consolidated Statements of Income and Comprehensive Income for the
Years Ended December 31, 2001, 2000 1999 and 19981999
Consolidated Balance Sheets, December 31, 20002001 and 19992000
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2001, 2000 1999 and 19981999
Consolidated Statements of Cash Flows for the Years Ended December
31, 2001, 2000 1999 and 19981999
Notes to Consolidated Financial Statements for the Years Ended
December 31, 2001, 2000 1999 and 1998
B. Supplemental Financial Information for each
of the two years in the period ended December 31, 2000 is included in Part II,
Item 8.1999
2. Financial Statement Schedules (Consolidated) are included in Part
IV:
For Each of the Three Years in the Period Ended December 31, 2000:
46
472001:
II --- Valuation and Qualifying Accounts (see S-1)
Schedules other than those listed above are omitted because of the
absence of conditions under which they are required or because the
required information is included in the Notes to the Consolidated
Financial Statements.
IndividualOur individual financial statements of the Registrant are not presented inasmuch as the Registrant iswe
are primarily an operating company and itsour consolidated subsidiaries
are essentially wholly-owned.
3. Executive Compensation Plans and Arrangements: see Exhibits 10(a)(10)(a)
through 10(j)(10)(n), described below.
Exhibits:
Number Description of Documents
- ------ ------------------------
(2) Stock Purchase Agreement dated as of November 14, 1997 by and
among certain subsidiaries of P. H. Glatfelter Company, the
Stockholders of S&H Papier-Holding GmbH, Deutsche Beteiligungs
Aktiengesellschaft Unternehmensbeteiligungsgesellschaft and P.
H. Glatfelter Company (incorporated by reference to Exhibit 2.1
of Registrant's Form 8-K dated January 2, 1998).
(3)(a) Articles of Amendment dated April 27, 1977, including restated
Articles of Incorporation (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993) as amended by Articles of Merger dated
January 30, 1979 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993); a Statement of Reduction of Authorized Shares
dated May 12, 1980 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993); a Statement of Reduction of Authorized Shares
dated September 23, 1981 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of Authorized
Shares dated August 2, 1982 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of
47
48
Authorized Shares dated July 29, 1983 (incorporated by reference
to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993); by Articles of Amendment dated
April 25, 1984 (incorporated by reference to Exhibit 3(a) of
Registrant's
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
(2) Amended and Restated Acquisition Agreement dated as of
August 9, 2001 by and among Purico (IOM) Limited, RF & Son
Inc., RFS US Inc. and RFS Ecusta Inc., as Buyers, and P. H.
Glatfelter Company and Mollanvick, Inc., as Sellers
(incorporated by reference to Exhibit 2 of our Form 8-K
dated August 24, 2001).
(3)(a) Articles of Amendment dated April 27, 1977, including
restated Articles of Incorporation (incorporated by
reference to Exhibit (3)(a) of our Annual Report on Form
10-K for the year ended December 31, 1993) as amended by
Articles of Merger dated January 30, 1979 (incorporated by
reference to Exhibit (3)(a) of our Annual Report on Form
10-K for the year ended December 31, 1993); a Statement of
Reduction of Authorized Shares dated May 12, 1980
(incorporated by reference to Exhibit (3)(a) of our Annual
Report on Form 10-K for the year ended December 31, 1993); a
Statement of Reduction of Authorized Shares dated September
23, 1981 (incorporated by reference to Exhibit (3)(a) of our
Annual Report on Form 10-K for the year ended December 31,
1993); a Statement of Reduction of Authorized Shares dated
August 2, 1982 (incorporated by reference to Exhibit (3)(a)
of our Annual Report on Form 10-K for the year ended
December 31, 1993); a Statement of Reduction of Authorized
Shares dated July 29, 1983 (incorporated by reference to
Exhibit (3)(a) of our Annual Report on Form 10-K for the
year ended December 31, 1993); by Articles of Amendment
dated April 25, 1984 (incorporated by reference to Exhibit
(3)(a) of our Annual Report on Form 10-K for the year ended
December 31, 1994); a Statement of Reduction of Authorized
Shares dated October 15, 1984 (incorporated by reference to
Exhibit (3)(b)
of Registrant's Form 10-K for the year ended December 31,
1984); a Statement of Reduction of Authorized Shares dated
December 24, 1985 (incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31, 1985); by
Articles of Amendment dated April 23, 1986 (incorporated by
reference to Exhibit (3) of Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1986); a Statement of
Reduction of Authorized Shares dated July 11, 1986 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form 10-K for the
year ended December 31, 1986); a Statement of Reduction of
Authorized Shares dated March 25, 1988 (incorporated by reference
to Exhibit (3)(b) of Registrant's Form 10-K for the year ended
December 31, 1987); a Statement of Reduction of Authorized Shares
dated November 9, 1988 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1988); a Statement of Reduction of Authorized Shares dated April
24, 1989 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1989);
Articles of Amendment dated November 29, 1990 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for the year
ended December 31, 1990); Articles of Amendment dated June 26,
1991 (incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1991); Articles of
Amendment dated August 7, 1992 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1992); Articles of Amendment dated July 30, 1993
(incorporated by reference to Exhibit 3(b) of Registrant's Form
10-K for the year ended December 31, 1993); and Articles of
Amendment dated January 26, 1994 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1993).
48
50
49
(3)(b) Articles of Incorporation, as amended through January 26, 1994
(restated for the purpose of filing on EDGAR) (incorporated by
reference to Exhibit 3(c) of Registrant's Form 10-K for the year
ended December 31, 1993).
(3)(c) By-Laws as amended through March 14, 2001.
4(a) Indenture, dated as of July 22, 1997, between P. H. Glatfelter
Company and The Bank of New York, relating to the 6-7/8% Notes
due 2007 (incorporated by reference to Exhibit 4.1 to the
Registrant's Form S-4 Registration Statement, Reg. No.
333-36395).
4(b) Registration Rights Agreement, dated as of July 22, 1997, among
P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and BT
Securities Corporation, relating to the 6-7/8% Notes due 2007
(incorporated by reference to Exhibit 4.3 to the Registrant's
Form S-4 Registration Statement, Reg. No. 333-36395).
(9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1,
1993 (incorporated by reference to Exhibit 1 of the Schedule 13D
filed by P. H. Glatfelter Family Shareholders' Voting Trust dated
July 1, 1993).
(10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of
January 1, 1994, as amended and restated December 19, 2000 and
effective January 1, 2001.
(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan,
as amended and restated June 24, 1992 (incorporated by reference
to Exhibit (10)(c) of Registrant's Form 10-K for the year ended
December 31, 1992).
(10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan,
as amended and restated effective April 23, 1998 and further
amended December 20, 2000.
49
50
(10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May
22, 1986 (incorporated by reference to Exhibit (10)(e) of
Registrant's
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
of our Form 10-K for the year ended December 31, 1984); a
Statement of Reduction of Authorized Shares dated December
24, 1985 (incorporated by reference to Exhibit (3)(b) of our
Form 10-K for the year ended December 31, 1985); by Articles
of Amendment dated April 23, 1986 (incorporated by reference
to Exhibit (3) of our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1986); a Statement of Reduction of
Authorized Shares dated July 11, 1986 (incorporated by
reference to Exhibit (3)(b) of our Form 10-K for the year
ended December 31, 1986); a Statement of Reduction of
Authorized Shares dated March 25, 1988 (incorporated by
reference to Exhibit (3)(b) of our Form 10-K for the year
ended December 31, 1987); a Statement of Reduction of
Authorized Shares dated November 9, 1988 (incorporated by
reference to Exhibit (3)(b) of our Form 10-K for the year
ended December 31, 1988); a Statement of Reduction of
Authorized Shares dated April 24, 1989 (incorporated by
reference to Exhibit 3(b) of our Form 10-K for the year
ended December 31, 1989); Articles of Amendment dated
November 29, 1990 (incorporated by reference to Exhibit
(3)(b) of our Form 10-K for the year ended December 31,
1990); Articles of Amendment dated June 26, 1991
(incorporated by reference to Exhibit (3)(b) of our Form
10-K for the year ended December 31, 1991); Articles of
Amendment dated August 7, 1992 (incorporated by reference to
Exhibit (3)(b) of our Form 10-K for the year ended December
31, 1992); Articles of Amendment dated July 30, 1993
(incorporated by reference to Exhibit (3)(b) of our Form
10-K for the year ended December 31, 1993); and Articles of
Amendment dated January 26, 1994 (incorporated by reference
to Exhibit (3)(b) of our Form 10-K for the year ended
December 31, 1993).
(3)(b) Articles of Incorporation, as amended through January 26,
1994 (restated for the purpose of filing on EDGAR)
(incorporated by reference to Exhibit (3)(c) of our Form
10-K for the year ended December 31, 1993).
(3)(c) By-Laws as amended through March 8, 2002.
(4)(a) Indenture, dated as of July 22, 1997, between P. H.
Glatfelter Company and The Bank of New York, relating to the
6 7/8% Notes due 2007 (incorporated by reference to Exhibit
4.1 to our Form S-4 Registration Statement, Reg. No.
333-36395).
(4)(b) Registration Rights Agreement, dated as of July 22, 1997,
among P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and
BT Securities Corporation, relating to the 6 7/8% Notes due
2007 (incorporated by reference to Exhibit 4.3 to our Form
S-4 Registration Statement, Reg. No. 333-36395).
(9) P. H. Glatfelter Family Shareholders' Voting Trust dated
July 1, 1993 (incorporated by reference to Exhibit 1 of the
Schedule 13D filed by P. H. Glatfelter Family Shareholders'
Voting Trust dated July 1, 1993).
(10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted
as of January 1, 1994, as amended and restated December 19,
2000 and effective January 1, 2001 (incorporated by
reference to Exhibit (10)(a) of our Form 10-K for the year
ended December 31, 2000).
(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award
Plan, as amended and restated June 24, 1992 (incorporated by
reference to Exhibit (10)(c) of our Form 10-K for the year
ended December 31, 1992).
(10)(c) P. H. Glatfelter Company Supplemental Executive Retirement
Plan, as amended and restated effective April 23, 1998 and
further amended December 20, 2000 (incorporated by reference
to Exhibit (10)(c) of our Form 10-K for the year ended
December 31, 2000).
(10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective
May 22, 1986 (incorporated by reference to Exhibit (10)(e)
of our Form 10-K for the year ended December 31, 1987).
(10)(e) Description of Executive Salary Continuation Plan (incorporated
by reference to Exhibit (10)(g) of Registrant's Form 10-K for the
year ended December 31, 1990).
(10)(f) P. H. Glatfelter Company Supplemental Management Pension Plan,
effective as of April 23, 1998 (incorporated by reference to
Exhibit 10(f) of Registrant's Form 10-K for the year ended
December 31, 1998).
(10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive
Plan, as amended December 20, 2000.
(10)(h) P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998 (incorporated by
reference to Exhibit 10(h) of Registrant's Form 10-K for the year
ended December 31, 1998).
(10)(i) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and George H. Glatfelter II, dated as of
December 31, 2000.
(10)(j) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and Robert P. Newcomer, dated as of December
31, 2000 (along with a Schedule of Change in Control Employment
Agreements by and between P. H. Glatfelter Company and other
employees which have not been filed as exhibits to this Form
10-K).
(10)(k) Loan Agreement, dated February 24, 1997, between P. H. Glatfelter
Company, as borrower, and GWS Valuch, Inc., as lender
(incorporated by reference to Exhibit (10)(h) of Registrant's
Form 10-K for the year ended December 31, 1996).
(10)(l) Agreement between the State of Wisconsin and Certain Companies
Concerning the Fox River, dated as of January 31, 1997, among P.
H. Glatfelter Company, Fort Howard Corporation, NCR Corporation,
Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper
Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin
(incorporated by reference to Exhibit (10)(i) of
50
51
51
Registrant's Form 10-K for the year ended December 31, 1996).
(10)(m) Credit Agreement, dated as of December 22, 1997, among P. H.
Glatfelter Company, various subsidiary borrowers, Bankers Trust
Company, as Agent, and various lending institutions with Deutsche
Bank AG, as Documentation Agent, PNC Bank, National Association,
as Syndication Agent, and First National Bank of Maryland and
Wachovia Bank, N.A., as Managing Agents (incorporated by
reference to Exhibit (10)(j) of Registrant's
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
(10)(e) Description of Executive Salary Continuation Plan
(incorporated by reference to Exhibit (10)(g) of our Form
10-K for the year ended December 31, 1990).
(10)(f) P. H. Glatfelter Company Supplemental Management Pension
Plan, effective as of April 23, 1998 (incorporated by
reference to Exhibit (10)(f) of our Form 10-K for the year
ended December 31, 1998).
(10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term
Incentive Plan, as amended December 20, 2000 (incorporated
by reference to Exhibit (10)(g) of our Form 10-K for the
year ended December 31, 2000).
(10)(h) P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998 (incorporated by
reference to Exhibit (10)(h) of our Form 10-K for the year
ended December 31, 1998).
(10)(i) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and George H. Glatfelter II, dated as of
December 31, 2000 (incorporated by reference to Exhibit
(10)(i) of our Form 10-K for the year ended December 31,
2000).
(10)(j) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and Robert P. Newcomer, dated as of
December 31, 2000 (along with a Schedule of Change in
Control Employment Agreements by and between P. H.
Glatfelter Company and other employees which have not been
filed as exhibits to this Form 10-K.
(10)(k) Employment Agreement by and between P. H. Glatfelter Company
and Gerhard K. Federer, dated as of January 31, 2001.
(10)(l) Termination of Employment Contract by and between P. H.
Glatfelter Company and Robert L. Miller, dated as of March
22, 2001.
(10)(m) Termination of Employment Contract by and between P. H.
Glatfelter Company and Leland R. Hall, dated as of April 24,
2001.
(10)(n) Termination of Employment Contract by and between P. H.
Glatfelter Company and Robert S. Wood, dated as of February
13, 2002.
(10)(o) Loan Agreement, dated February 24, 1997, between P. H.
Glatfelter Company, as borrower, and GWS Valuch, Inc., as
lender (incorporated by reference to Exhibit (10)(h) of our
Form 10-K for the year ended December 31, 1996).
(10)(p) Agreement between the State of Wisconsin and Certain
Companies Concerning the Fox River, dated as of January 31,
1997, among P. H. Glatfelter Company, Fort Howard
Corporation, NCR Corporation, Appleton Papers Inc.,
Riverside Paper Corporation, U.S. Paper Mills, Wisconsin
Tissue Mills Inc. and the State of Wisconsin (incorporated
by reference to Exhibit (10)(i) of our Form 10-K for the
year ended December 31, 1996).
(10)(q) Credit Agreement, dated as of December 22, 1997, among P. H.
Glatfelter Company, various subsidiary borrowers, Bankers
Trust Company, as Agent, and various lending institutions
with Deutsche Bank AG, as Documentation Agent, PNC Bank,
National Association, as Syndication Agent, and First
National Bank of Maryland and Wachovia Bank, N.A., as
Managing Agents (incorporated by reference to Exhibit
(10)(j) of our Form 10-K for the year ended December 31,
1997).
(10)(r) First Amendment to Credit Agreement dated as of August 6,
2001 by and among P. H. Glatfelter Company, various
subsidiaries of the Company party hereto, the financial
institutions party to the Credit Agreement dated as of
December 22, 1997 in their capacities as lenders, and
Bankers Trust Company, as agent for the lenders
(incorporated by reference to Exhibit 10 of our Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001).
(10)(s) Supply and Service Agreement dated as of August 1, 2001 by
and among Purico GmbH, Purico (IOM) Limited and Papierfabrik
Schoeller & Hoesch GmbH & Co.
52
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
(10)(t) Arrangement Letter by and between P. H. Glatfelter Company
and Accenture LLP, dated as of January 16, 2001.
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(b) The Registrant did not file any reports onOn October 2, 2001, we filed a Form 8-K during
the quarter ended December 31, 2000.
51dated October 2, 2001 to update
certain environmental matters disclosed in prior periodic filings.
53
52
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)
March 19, 200127, 2002
By /s/ G. H. GlatfelterGLATFELTER II
-----------------------------------------------------------
G. H. Glatfelter II
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
Date Signature Capacity
---- --------- --------
March 19, 2001 /s/ G. H. Glatfelter II Principal Executive Officer
----------------------- and Director
G. H. Glatfelter II
March 19, 2001 /s/ C. M. Smith Principal Financial Officer
-----------------------
C. M. Smith
March 19, 2001 /s/ T. D. D'Orazio Principal Accounting Officer
-----------------------
T. D. D'Orazio
March 19, 2001 /s/ R. E. Chappell Director
-----------------------
R. E. Chappell
March 19, 2001 /s/ N. DeBenedictis Director
-----------------------
N. DeBenedictis
52
53
March 19, 2001 /s/ P. G. Foulkrod Director
-----------------------
P. G. Foulkrod
March 19, 2001 /s/ G. H. Glatfelter Director
-----------------------
G. H. Glatfelter
March 19, 2001 /s/ R. S. Hillas Director
-----------------------
R. S. Hillas
March 19, 2001 /s/ M. A. Johnson II Director
-----------------------
M. A. Johnson II
March 19, 2001
DATE SIGNATURE CAPACITY
- ---- --------- --------
March 27, 2002 /s/ G. H. GLATFELTER II Principal Executive Officer and Director
------------------------------------------
G. H. Glatfelter II
March 27, 2002 /s/ G. MACKENZIE Principal Financial Officer
------------------------------------------
G. MacKenzie
March 27, 2002 /s/ C. M. SMITH Principal Accounting Officer
------------------------------------------
C. M. Smith
March 27, 2002 /s/ R. E. CHAPPELL Director
------------------------------------------
R. E. Chappell
March 27, 2002 /s/ K. DAHLBERG Director
------------------------------------------
K. Dahlberg
March 27, 2002 /s/ N. DEBENEDICTIS Director
------------------------------------------
N. DeBenedictis
March 27, 2002 /s/ P. G. FOULKROD Director
------------------------------------------
P. G. Foulkrod
March 27, 2002 /s/ G. H. GLATFELTER Director
------------------------------------------
G. H. Glatfelter
March 27, 2002 /s/ R. S. HILLAS Director
------------------------------------------
R. S. Hillas
March 27, 2002 /s/ M. A. JOHNSON II Director
------------------------------------------
M. A. Johnson II
March 27, 2002 /s/ R. J. NAPLES Director
------------------------------------------
R. J. Naples
Director
-----------------------
R. J. Naples
March 19, 2001 /s/ R. P. Newcomer Director
-----------------------
R. P. Newcomer
March 19, 2001 /s/ P. R. Roedel Director
-----------------------
P. R. Roedel
March 19, 2001 /s/ J. M. Sanzo Director
-----------------------
J. M. Sanzo
March 19, 2001
DATE SIGNATURE CAPACITY
- ---- --------- --------
March 27, 2002 /s/ R. P. NEWCOMER Director
------------------------------------------
R. P. Newcomer
March 27, 2002 /s/ R. L. SMOOT Director
------------------------------------------
R. L. Smoot
Director
-----------------------
R. L. Smoot
53
54
SCHEDULE II
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- -----------------------------------------------------------------2001
VALUATION AND QUALIFYING ACCOUNTS
Amounts in Thousands
Allowances for
- ------------------------------------------------------------------------------------------------------------------------------------
Doubtful Accounts Sales Discounts & Deductions
----------------------------------------------------------------------------------------------ALLOWANCES FOR
---------------------------------------------------------
DOUBTFUL ACCOUNTS SALES DISCOUNTS AND DEDUCTIONS
------------------------ ------------------------------
2001 2000 1999 19982001 2000 1999
1998------ ------ ------ -------- -------- --------
(IN THOUSANDS)
Balance, beginning of year $ 1,227 $ 1,532 $ 1,973 $ 2,152 $ 2,135 $ 542
Other(1) -- -- 325 -- -- 1,126
Provision 809 111 90 17,845 15,076 14,995
Write-offs, recoveries and
discounts allowed (521) (416) (856) (18,928) (15,059) (14,528)
-------- -------- -------- -------- -------- --------
Balance,
End of year $ 1,515 $ 1,227 $ 1,532year.......... $1,515 $1,227 $1,532 $ 1,069 $ 2,152 $ 2,135
======== ======== ========Other(a)............................ (240) (70)
PROVISION........................... 861 809 111 11,499 17,845 15,076
Write-offs, recoveries and discounts
allowed........................... (585) (521) (416) (10,874) (18,928) (15,059)
------ ------ ------ -------- -------- --------
Balance, end of year................ $1,551 $1,515 $1,227 $ 1,624 $ 1,069 $ 2,152
====== ====== ====== ======== ======== ========
- ---------------
(a) Relates primarily to the disposition of the Ecusta Division.
The provision for doubtful accounts is included in administrative expense and
the provision for sales discounts and deductions is deducted from sales. The
related allowances are deducted from accounts receivable.
(1) Relates primarily to the acquisition of S&H.
54S-1
55
EXHIBIT INDEX
Number
- ------
(2) Stock Purchase Agreement dated as of November 14, 1997 by and
among certain subsidiaries of P. H. Glatfelter Company, the
Stockholders of S&H Papier-Holding GmbH, Deutsche Beteiligungs
Aktiengesellschaft Unternehmensbeteiligungsgesellschaft and P. H.
Glatfelter Company (incorporated by reference to Exhibit 2.1 of
Registrant's Form 8-K dated January 2, 1998).
(3)(a) Articles of Amendment dated April 27, 1977, including restated
Articles of Incorporation (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993) as amended by Articles of Merger dated
January 30, 1979 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993); a Statement of Reduction of Authorized Shares
dated May 12, 1980 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993); a Statement of Reduction of Authorized Shares
dated September 23, 1981 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of Authorized
Shares dated August 2, 1982 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of Authorized
Shares dated July 29, 1983 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); by Articles of Amendment dated April
25, 1984 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994); a Statement of Reduction of Authorized Shares
dated October 15, 1984 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1984); a Statement of Reduction of Authorized Shares dated
December 24, 1985 (incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31, 1985); by
Articles of Amendment dated April 23, 1986 (incorporated by
reference to Exhibit (3) of Registrant's Quarterly Report on Form
55
56
10-Q for the quarter ended March 31, 1986); a Statement of
Reduction of Authorized Shares dated July 11, 1986 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form 10-K for the
year ended December 31, 1986); a Statement of Reduction of
Authorized Shares dated March 25, 1988 (incorporated by reference
to Exhibit (3)(b) of Registrant's Form 10-K for the year ended
December 31, 1987); a Statement of Reduction of Authorized Shares
dated November 9, 1988 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1988); a Statement of Reduction of Authorized Shares dated April
24, 1989 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1989);
Articles of Amendment dated November 29, 1990 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for the year
ended December 31, 1990); Articles of Amendment dated June 26,
1991 (incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1991); Articles of
Amendment dated August 7, 1992 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1992); Articles of Amendment dated July 30, 1993
(incorporated by reference to Exhibit 3(b) of Registrant's Form
10-K for the year ended December 31, 1993); and Articles of
Amendment dated January 26, 1994 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1993).
(3)(b) Articles of Incorporation, as amended through January 26, 1994
(restated for the purpose of filing on EDGAR) (incorporated by
reference to Exhibit 3(c) of Registrant's Form 10-K for the year
ended December 31, 1993).
(3)(c) By-Laws as amended through March 14, 2001.
56
57
(4)(a) Indenture, dated as of July 22, 1997, between P. H. Glatfelter
Company and The Bank of New York, relating to the 6-7/8% Notes
due 2007 (incorporated by reference to Exhibit 4.1 to the
Registrant's
EXHIBIT INDEX
(2) Amended and Restated Acquisition Agreement dated as of August
9, 2001 by and among Purico (IOM) Limited, RF & Son Inc., RFS US
Inc. and RFS Ecusta Inc., as Buyers, and P. H. Glatfelter Company
and Mollanvick, Inc., as Sellers (incorporated by reference to
Exhibit 2 of our Form 8-K dated August 24, 2001).
(3)(a) Articles of Amendment dated April 27, 1977, including
restated Articles of Incorporation (incorporated by reference to
Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended
December 31, 1993) as amended by Articles of Merger dated January
30, 1979 (incorporated by reference to Exhibit (3)(a) of our Annual
Report on Form 10-K for the year ended December 31, 1993); a
Statement of Reduction of Authorized Shares dated May 12, 1980
(incorporated by reference to Exhibit (3)(a) of our Annual Report on
Form 10-K for the year ended December 31, 1993); a Statement of
Reduction of Authorized Shares dated September 23, 1981
(incorporated by reference to Exhibit (3)(a) of our Annual Report on
Form 10-K for the year ended December 31, 1993); a Statement of
Reduction of Authorized Shares dated August 2, 1982 (incorporated by
reference to Exhibit (3)(a) of our Annual Report on Form 10-K for
the year ended December 31, 1993); a Statement of Reduction of
Authorized Shares dated July 29, 1983 (incorporated by reference to
Exhibit (3)(a) of our Annual Report on Form 10-K for the year ended
December 31, 1993); by Articles of Amendment dated April 25, 1984
(incorporated by reference to Exhibit (3)(a) of our Annual Report on
Form 10-K for the year ended December 31, 1994); a Statement of
Reduction of Authorized Shares dated October 15, 1984 (incorporated
by reference to Exhibit (3)(b) of our Form 10-K for the year ended
December 31, 1984); a Statement of Reduction of Authorized Shares
dated December 24, 1985 (incorporated by reference to Exhibit (3)(b)
of our Form 10-K for the year ended December 31, 1985); by Articles
of Amendment dated April 23, 1986 (incorporated by reference to
Exhibit (3) of our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1986); a Statement of Reduction of Authorized Shares
dated July 11, 1986 (incorporated by reference to Exhibit (3)(b) of
our Form 10-K for the year ended December 31, 1986); a Statement of
Reduction of Authorized Shares dated March 25, 1988 (incorporated by
reference to Exhibit (3)(b) of our Form 10-K for the year ended
December 31, 1987); a Statement of Reduction of Authorized Shares
dated November 9, 1988 (incorporated by reference to Exhibit (3)(b)
of our Form 10-K for the year ended December 31, 1988); a Statement
of Reduction of Authorized Shares dated April 24, 1989 (incorporated
by reference to Exhibit (3)(b) of our Form 10-K for the year ended
December 31, 1989); Articles of Amendment dated November 29, 1990
(incorporated by reference to Exhibit (3)(b) of our Form 10-K for
the year ended December 31, 1990); Articles of Amendment dated June
26, 1991 (incorporated by reference to Exhibit (3)(b) of our Form
10-K for the year ended December 31, 1991); Articles of Amendment
dated August 7, 1992 (incorporated by reference to Exhibit (3)(b) of
our Form 10-K for the year ended December 31, 1992); Articles of
Amendment dated July 30, 1993 (incorporated by reference to Exhibit
(3)(b) of our Form 10-K for the year ended December 31, 1993); and
Articles of Amendment dated January 26, 1994 (incorporated by
reference to Exhibit (3)(b) of our Form 10-K for the year ended
December 31, 1993).
(3)(b) Articles of Incorporation, as amended through January 26,
1994 (restated for the purpose of filing on EDGAR) (incorporated by
reference to Exhibit (3)(c) of our Form 10-K for the year ended
December 31, 1993).
(3)(c) By-Laws as amended through March 8, 2002.
(4)(a) Indenture, dated as of July 22, 1997, between P. H. Glatfelter
Company and The Bank of New York, relating to the 6-7/8%
Notes due 2007 (incorporated by reference to Exhibit 4.1 to our Form
S-4 Registration Statement, Reg. No. 333-36395).
(4)(b) Registration Rights Agreement, dated as of July 22, 1997, among P. H.
Glatfelter Company, Bear, Stearns & Co. Inc. and BT Securities
Corporation, relating to the 6-7/8% Notes due 2007
(incorporated by reference to Exhibit 4.3 to the Registrant's
(incorporated by reference to Exhibit 4.3 to our Form S-4
Registration Statement, Reg. No. 333-36395).
(9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1,
1993 (incorporated by reference to Exhibit 1 of the Schedule 13D
filed by P. H. Glatfelter Family Shareholders' Voting Trust dated
July 1, 1993).
(10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted
as of January 1, 1994, as amended and restated December 19, 2000 and
effective January 1, 2001 (incorporated by reference to Exhibit
(10)(a) of our Form 10-K for the year ended December 31, 2000).
(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award
Plan, as amended and restated June 24, 1992 (incorporated by
reference to Exhibit (10)(c) of our Form 10-K for the year ended
December 31, 1992).
(10)(c) P. H. Glatfelter Company Supplemental Executive Retirement
Plan, as amended and restated effective April 23, 1998 and further
amended December 20, 2000 (incorporated by reference to Exhibit
(10)(c) of our Form 10-K for the year ended December 31, 2000).
(10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective
May 22, 1986 (incorporated by reference to Exhibit (10)(e) of our
Form 10-K for the year ended December 31, 1987).
(10)(e) Description of Executive Salary Continuation Plan
(incorporated by reference to Exhibit (10)(g) of our Form 10-K for
the year ended December 31, 1990).
(10)(f) P. H. Glatfelter Company Supplemental Management Pension
Plan, effective as of April 23, 1998 (incorporated by reference to
Exhibit (10)(f) of our Form 10-K for the year ended December 31,
1998).
(10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term
Incentive Plan, as amended December 20, 2000 (incorporated by
reference to Exhibit (10)(g) of our Form 10-K for the year ended
December 31, 2000).
(10)(h) P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998 (incorporated by reference
to Exhibit (10)(h) of our Form 10-K for the year ended December 31,
1998).
(10)(i) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and George H. Glatfelter II, dated as of December
31, 2000 (incorporated by reference to Exhibit (10)(i) of our Form
10-K for the year ended December 31, 2000).
(10)(j) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and Robert P. Newcomer, dated as of December 31,
2000 (along with a Schedule of Change in Control Employment
Agreements by and between P. H. Glatfelter Company and other
employees which have not been filed as exhibits to this Form 10-K).
(10)(k) Employment Agreement by and between P. H. Glatfelter Company
and Gerhard K. Federer, dated as of January 31, 2001.
(10)(l) Termination of Employment Contract by and between P. H.
Glatfelter Company and Robert L. Miller, dated as of March 22, 2001.
(10)(m) Termination of Employment Contract by and between P. H.
Glatfelter Company and Leland R. Hall, dated as of April 24, 2001.
(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan,
as amended and restated June 24, 1992 (incorporated by reference
to Exhibit (10)(c) of Registrant's Form 10-K for the year ended
December 31, 1992).
(10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan,
as amended and restated effective April 23, 1998 and further
amended December 20, 2000.
(10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May
22, 1986 (incorporated by reference to Exhibit (10)(e) of
Registrant's Form 10-K for the year ended December 31, 1987).
(10)(e) Description of Executive Salary Continuation Plan (incorporated
by reference to Exhibit (10)(g) of Registrant's Form 10-K for the
year ended December 31, 1990).
(10)(f) P. H. Glatfelter Company Supplemental Management Pension Plan,
effective as of April 23, 1998 (incorporated by reference to
Exhibit 10(f) of Registrant's Form 10-K for the year ended
December 31, 1998).
57
58
(10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive
Plan, as amended December 20, 2000.
(10)(h) P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998 (incorporated by
reference to Exhibit 10(h) of Registrant's Form 10-K for the
year ended December 31, 1998).
(10)(i) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and George H. Glatfelter II, dated as of
December 31, 2000.
(10)(j) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and Robert P. Newcomer, dated as of December
31, 2000 (along with a Schedule of Change in Control Employment
Agreements by and between P. H. Glatfelter Company and other
employees which have not been filed as exhibits to this Form
10-K).
(10)(k) Loan Agreement, dated February 24, 1997, between P. H. Glatfelter
Company, as borrower, and GWS Valuch, Inc., as lender
(incorporated by reference to Exhibit (10)(h) of Registrant's
Form 10-K for the year ended December 31, 1996).
(10)(l) Agreement between the State of Wisconsin and Certain Companies
Concerning the Fox River, dated as of January 31, 1997, among P.
H. Glatfelter Company, Fort Howard Corporation, NCR Corporation,
Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper
Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin
(incorporated by reference to Exhibit (10)(i) of Registrant's
Form 10-K for the year ended December 31, 1996).
(10)(m) Credit Agreement, dated as of December 22, 1997, among P. H.
Glatfelter Company, various subsidiary borrowers, Bankers Trust
Company, as Agent, and various lending institutions with Deutsche
Bank AG, as Documentation Agent, PNC Bank, National Association,
as Syndication Agent, and First National Bank of Maryland and
Wachovia Bank, N.A., as Managing Agents (incorporated by
reference to Exhibit (10)(j) of Registrant's Form 10-K for the
year ended December 31, 1997).
(21) Subsidiaries of the Registrant
58
59
(23) Consent of Independent Auditors
59
(10)(n) Termination of Employment Contract by and between P. H.
Glatfelter Company and Robert S. Wood, dated as of February 13, 2002.
(10)(o) Loan Agreement, dated February 24, 1997, between P. H.
Glatfelter Company, as borrower, and GWS Valuch, Inc., as lender
(incorporated by reference to Exhibit (10)(h) of our Form 10-K for
the year ended December 31, 1996).
(10)(p) Agreement between the State of Wisconsin and Certain
Companies Concerning the Fox River, dated as of January 31, 1997,
among P. H. Glatfelter Company, Fort Howard Corporation, NCR
Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S.
Paper Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin
(incorporated by reference to Exhibit (10)(i) of our Form 10-K for
the year ended December 31, 1996).
(10)(q) Credit Agreement, dated as of December 22, 1997, among P. H.
Glatfelter Company, various subsidiary borrowers, Bankers Trust
Company, as Agent, and various lending institutions with Deutsche
Bank AG, as Documentation Agent, PNC Bank, National Association, as
Syndication Agent, and First National Bank of Maryland and Wachovia
Bank, N.A., as Managing Agents (incorporated by reference to Exhibit
(10)(j) of our Form 10-K for the year ended December 31, 1997).
(10)(r) First Amendment to Credit Agreement dated as of August 6,
2001 by and among P. H. Glatfelter Company, various subsidiaries of
the Company party hereto, the financial institutions party to the
Credit Agreement dated as of December 22, 1997 in their capacities
as lenders, and Bankers Trust Company, as agent for the lenders
(incorporated by reference to Exhibit 10 of our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001).
(10)(s) Supply and Service Agreement dated as of August 1, 2001 by
and among Purico GmbH, Purico (IOM) Limited and Papierfabrik
Schoeller & Hoesch GmbH & Co.
(10)(t) Arrangement Letter by and between P. H. Glatfelter Company
and Accenture LLP, dated as of January 16, 2001.
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(b) On October 2, 2001, we filed a Form 8-K dated October 2, 2001 to
update certain environmental matters disclosed in prior periodic
filings.