UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2020

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

96 South George Street, Suite 520

York, Pennsylvania 17401

(Address of principal executive offices)

(717) ~~225-4711~~850-0170

(Registrant's telephone number, including area code)

Commission file

number

Exact name of registrant as

specified in its charter

IRS Employer

Identification No.

State or other jurisdiction of

incorporation or organization

1-03560

P. H. Glatfelter Company

23-0628360

Pennsylvania

N/A

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

GLT

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒			Accelerated filer	☐
Non-accelerated filer	☐	~~(Do not check if a smaller reporting company)~~		Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.						☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒.

Common Stock outstanding on ~~October 25, 2017~~April 30, 2020 totaled ~~43,586,355~~44,311,663 shares.

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

REPORT ON FORM 10-Q

For the QUARTERLY PERIOD ENDED

~~September 30, 2017~~March 31, 2020

Table of Contents

~~Page~~

PART I - FINANCIAL INFORMATION

Item 1
Financial Statements

Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2017 and 2016 (unaudited)

2

Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2017 and 2016 (unaudited)

3

Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 (unaudited)

4

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (unaudited)

5

Notes to Condensed Consolidated Financial Statements (unaudited)

6

1.
Organization

6

2.
Accounting Policies

6

3.
Earnings Per Share

7

4.
Accumulated Other Comprehensive Income

8

5.
Income Taxes

10

6.
Stock-based Compensation

10

7.
Retirement Plans and Other Post- Retirement Benefits

11

8.
Inventories

12

9.
Capitalized Interest

12

10.
Long-term Debt

12

11.
Fair Value of Financial Instruments

13

12.
Financial Derivatives and Hedging Activities

13

13.
Commitments, Contingencies and Legal Proceedings

15

14.
Segment Information

18

15.
Condensed Consolidating Financial Statements

19

Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations

24
Item 3
Quantitative and Qualitative Disclosures About Market Risks

34
Item 4
Controls and Procedures

34

PART II – OTHER INFORMATION

35

Item 6
Exhibits

35

SIGNATURES

35

			Page
PART I - FINANCIAL INFORMATION

Item 1	Financial Statements
	Condensed Consolidated Statements of Income for the three months ended March 31, 2020 and 2019 (unaudited)		2
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019 (unaudited)		3
	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)		5
	Statements of Shareholders’ Equity for the three months ended March 31, 2020 and 2019 (unaudited)		6
	Notes to Condensed Consolidated Financial Statements (unaudited)		7
	1.	Organization	7
	2.	Accounting Policies	7
	3.	Restructuring	8
	4.	Revenue	8
	5.	Discontinued Operations	9
	6.	Gain on Disposition of Plant, Equipment and Timberlands	10
	7.	Earnings Per Share	10
	8.	Accumulated Other Comprehensive Income	11
	9.	Income Taxes	11
	10.	Stock-based Compensation	13
	11.	Retirement Plans and Other Post- Retirement Benefits	14
	12.	Inventories	15
	13.	Leases	15
	14.	Long-term Debt	16
	15.	Fair Value of Financial Instruments	17
	16.	Financial Derivatives and Hedging Activities	17
	17.	Commitments, Contingencies and Legal Proceedings	20
	18.	Segment Information	21

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3	Quantitative and Qualitative Disclosures About Market Risks		32
Item 4	Controls and Procedures		33

PART II – OTHER INFORMATION

Item 1A	Risk Factors		33
Item 6	Exhibits		34

	SIGNATURES		35

~~PAR~~TPART I

Item 1 – Financial Statements

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

	Three months ended September 30						Nine months ended September 30						Three months ended March 31
In thousands, except per share	2017			2016			2017			2016			2020			2019

Net sales	$	413,325		$	405,301		$	1,191,380		$	1,213,932		$	231,560		$	229,133
Energy and related sales, net		1,236			1,346			3,346			4,013
Total revenues		414,561			406,647			1,194,726			1,217,945
Costs of products sold		359,826			345,477			1,052,626			1,056,209			194,685			193,516
Gross profit		54,735			61,170			142,100			161,736			36,875			35,617
Selling, general and administrative expenses		33,399			35,747			100,484			104,796			24,594			24,622
(Gains) losses on dispositions of plant, equipment and timberlands, net		(24	)		5			(50	)		31
Gains on dispositions of plant, equipment and timberlands, net														—			(669	)
Operating income		21,360			25,418			41,666			56,909			12,281			11,664
Non-operating income (expense)
Interest expense		(4,547	)		(3,895	)		(13,031	)		(11,964	)		(1,778	)		(4,746	)
Interest income		51			52			209			204			264			505
Other, net		(478	)		(573	)		(906	)		(956	)		(753	)		(962	)
Total non-operating expense		(4,974	)		(4,416	)		(13,728	)		(12,716	)		(2,267	)		(5,203	)
Income from continuing operations before income taxes														10,014			6,461
Income tax provision														2,608			1,858
Income from continuing operations														7,406			4,603

Discontinued operations:
Income before income taxes		16,386			21,002			27,938			44,193			—			714
Income tax provision		4,281			1,401			9,944			6,459			—			31
Income from discontinued operations														—			683
Net income	$	12,105		$	19,601		$	17,994		$	37,734		$	7,406		$	5,286
Earnings per share
Basic	$	0.28		$	0.45		$	0.41		$	0.87
Diluted		0.27			0.44			0.41			0.86

Basic earnings per share
Income from continuing operations													$	0.17		$	0.10
Income from discontinued operations														—			0.02
Basic earnings per share													$	0.17		$	0.12

Diluted earnings per share
Income from continuing operations													$	0.17		$	0.10
Income from discontinued operations														—		$	0.02
Diluted earnings per share													$	0.17		$	0.12

Cash dividends declared per common share	$	0.13		$	0.125		$	0.39		$	0.375		$	0.13		$	0.13

Weighted average shares outstanding
Basic		43,617			43,576			43,601			43,552			44,275			44,027
Diluted		44,182			44,133			44,410			44,059			44,530			44,279

The accompanying notes are an integral part of these condensed consolidated financial statements.

- 2 -

GLATFELTER

~~09.30.17~~ Form 10-Q

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Three months ended
September 30

Nine months ended
September 30

In thousands

2017

2016

2017

2016

Net income

$
12,105

$
19,601

$
17,994

$
37,734

Foreign currency translation adjustments

16,559

(1,530
)

50,128

(2,975
)
Net change in:

Deferred (gains) losses on cash flow hedges, net of taxes

of $111, $289, $2,031 and $88, respectively

(1,514
)

(858
)

(6,111
)

152

Unrecognized retirement obligations, net of taxes

of $(1,340), $(1,405), $(4,018) and $(4,214), respectively

2,285

2,319

6,838

6,957

Other comprehensive income (loss)

17,330

(69
)

50,855

4,134

Comprehensive income

$
29,435

$
19,532

$
68,849

$
41,868

	Three months ended March 31
In thousands	2020			2019
Net income	$	7,406		$	5,286
Foreign currency translation adjustments		(13,903	)		(5,163	)
Net change in:
Deferred gains (losses) on cash flow hedges, net of taxes of $401 and $(834), respectively		(1,317	)		2,222
Unrecognized retirement obligations, net of taxes of $51 and $(145), respectively		(101	)		846
Other comprehensive loss		(15,321	)		(2,095	)
Comprehensive income (loss)	$	(7,915	)	$	3,191

The accompanying notes are an integral part of these condensed consolidated financial statements.

- 3 -

GLATFELTER

~~09.30.17~~ Form 10-Q

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	September 30			December 31			March 31			December 31
In thousands	2017			2016			2020			2019
Assets
Cash and cash equivalents	$	84,287		$	55,444		$	104,225		$	126,201
Accounts receivable, net		186,310			152,989			128,738			124,442
Inventories		256,764			249,669			189,449			190,415
Prepaid expenses and other current assets		44,134			36,157			38,982			36,274
Total current assets		571,495			494,259			461,394			477,332

Plant, equipment and timberlands, net		856,017			775,898			517,431			537,421
Goodwill		81,497			73,094			146,986			150,816
Intangible assets, net		59,199			56,259			79,709			83,735
Other assets		128,586			121,749			38,672			34,490
Total assets	$	1,696,794		$	1,521,259		$	1,244,192		$	1,283,794

Liabilities and Shareholders' Equity
Current portion of long-term debt	$	11,122		$	8,961		$	24,952		$	22,940
Accounts payable		168,848			164,345			112,905			130,039
Dividends payable		5,675			5,455			5,761			5,752
Environmental liabilities		20,000			25,000			8,000			9,000
Other current liabilities		130,368			119,250			60,197			62,772
Total current liabilities		336,013			323,011			211,815			230,503

Long-term debt		459,025			363,647			325,532			336,919
Deferred income taxes		65,597			54,995			72,369			76,374
Other long-term liabilities		125,563			125,780			91,566			84,039
Total liabilities		986,198			867,433			701,282			727,835

Commitments and contingencies		—			—			-			-

Shareholders’ equity
Common stock		544			544			544			544
Capital in excess of par value		62,346			57,917			59,623			59,900
Retained earnings		963,853			962,884			727,440			725,795
Accumulated other comprehensive loss		(153,751	)		(204,606	)		(93,217	)		(77,896	)
		872,992			816,739			694,390			708,343
Less cost of common stock in treasury		(162,396	)		(162,913	)		(151,480	)		(152,384	)
Total shareholders’ equity		710,596			653,826			542,910			555,959
Total liabilities and shareholders’ equity	$	1,696,794		$	1,521,259		$	1,244,192		$	1,283,794

The accompanying notes are an integral part of these condensed consolidated financial statements.

- 4 -

GLATFELTER

~~09.30.17~~ Form 10-Q

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine months ended September 30						Three months ended March 31
In thousands	2017			2016			2020			2019
Operating activities
Net income	$	17,994		$	37,734		$	7,406		$	5,286
Adjustments to reconcile to net cash provided by operations:
Income from discontinued operations, net of taxes								—			(683	)

Adjustments to reconcile to net cash provided (used) by continuing operations:
Depreciation, depletion and amortization		56,343			49,725			15,402			12,788
Amortization of debt issue costs		868			864
Pension expense, net of unfunded benefits paid		3,707			2,908
Deferred income tax provision (benefit)		4,282			(4,266	)
(Gains) losses on dispositions of plant, equipment and timberlands, net		(50	)		31
Amortization of debt issue costs and original issue discount								147			1,236
Deferred income tax benefit								(2,612	)		(1,240	)
Gains on dispositions of plant, equipment and timberlands, net								—			(669	)
Share-based compensation		4,868			4,218			1,085			477
Change in operating assets and liabilities
Accounts receivable		(23,753	)		(12,927	)		(7,203	)		(10,364	)
Inventories		2,906			(17,897	)		(3,688	)		(13,233	)
Prepaid and other current assets		(7,185	)		(4,205	)		(2,315	)		(4,149	)
Accounts payable		(4,001	)		(9,662	)		(11,605	)		2,066
Accruals and other current liabilities		(3,702	)		10,257			(2,931	)		(15,956	)
Other		519			2,657			711			296
Net cash provided by operating activities		52,796			59,437


Net cash used by operating activities from continuing operations								(5,603	)		(24,145	)
Investing activities
Expenditures for purchases of plant, equipment and timberlands		(102,172	)		(116,948	)		(7,014	)		(5,865	)
Proceeds from disposals of plant, equipment and timberlands, net		217			55			—			689
Acquisition, net of cash acquired								—			(1,974	)
Other		(100	)		(400	)		—			(90	)
Net cash used by investing activities		(102,055	)		(117,293	)


Net cash used by investing activities from continuing operations								(7,014	)		(7,240	)
Financing activities
Repayments of note offerings		—			(136	)
Net borrowings (repayments) under revolving credit facility		96,534			(642	)
Net (repayments) borrowings under revolving credit facility								2,452			(11,488	)
Repayment of 5.375% Notes								—			(250,000	)
Proceeds from term loans		—			19,428			—			248,644
Payments of borrowing costs								—			(1,757	)
Repayment of term loans		(6,947	)		(3,803	)		(3,089	)		(2,646	)
Payments of dividends		(16,805	)		(16,134	)		(5,752	)		(5,720	)
Proceeds from government grants		—			5,251
Payments related to share-based compensation awards and other		(128	)		(990	)		(458	)		(644	)
Net cash provided by financing activities		72,654			2,974
Net cash used by financing activities from continuing operations								(6,847	)		(23,611	)
Effect of exchange rate changes on cash		5,448			330			(937	)		(658	)
Net increase (decrease) in cash and cash equivalents		28,843			(54,552	)
Cash and cash equivalents at the beginning of period		55,444			105,304
Net decrease in cash, cash equivalents and restricted cash								(20,401	)		(55,654	)
Change in cash, cash equivalents and restricted cash from discontinued operations								(316	)		(10,365	)
Cash, cash equivalents and restricted cash at the beginning of period								126,201			142,685
Cash, cash equivalents and restricted cash at the end of period								105,484			76,666
Less: restricted cash included in "Prepaid expenses and other current assets"								(1,259	)		—
Cash and cash equivalents at the end of period	$	84,287		$	50,752		$	104,225		$	76,666

Supplemental cash flow information
Cash paid for:
Interest, net of amounts capitalized	$	8,719		$	7,376
Interest							$	1,443		$	5,989
Income taxes, net		7,567			11,609			3,446			2,956

The accompanying notes are an integral part of these condensed consolidated financial statements.

- 5 -

GLATFELTER

~~09.30.17~~ Form 10-Q

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)

In thousands	Common stock		Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at January 1, 2020	$	544	$	59,900		$	725,795		$	(77,896	)	$	(152,384	)	$	555,959
Net income							7,406									7,406
Other comprehensive loss										(15,321	)					(15,321	)
Comprehensive loss																(7,915	)
Cash dividends declared ($0.13 per share)							(5,761	)								(5,761	)
Share-based compensation expense				1,085												1,085
Delivery of treasury shares
RSUs and PSAs				(1,213	)								807			(406	)
Employee stock options exercised — net				(149	)								97			(52	)
Balance at March 31, 2020	$	544	$	59,623		$	727,440		$	(93,217	)	$	(151,480	)	$	542,910

Balance at January 1, 2019	$	544	$	62,239		$	770,305		$	(137,440	)	$	(156,750	)	$	538,898
Net income							5,286									5,286
Other comprehensive loss										(2,095	)					(2,095	)
Comprehensive income																3,191
Cash dividends declared ($0.13 per share)							(5,734	)								(5,734	)
Share-based compensation expense				477												477
Delivery of treasury shares
RSUs and PSAs				(992	)								670			(322	)
Employee stock options exercised — net				(1,159	)								837			(322	)
Balance at March 31, 2019	$	544	$	60,565		$	769,857		$	(139,535	)	$	(155,243	)	$	536,188

The accompanying notes are an integral part of these condensed consolidated financial statements.

- 6 -

GLATFELTER

Form 10-Q

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	ORGANIZATION

P. H. Glatfelter Company and subsidiaries (“Glatfelter”) is a ~~manufacturer~~leading global supplier of ~~specialty papers and fiber-based~~ engineered materials. ~~Headquartered~~Its high-quality, innovative and customizable solutions are found in tea and single-serve coffee filtration, personal hygiene as well as in many diverse packaging, home improvement and industrial applications. We are headquartered in York, PA, ~~U.S. operations include~~and operate facilities in ~~Spring Grove, PA and Chillicothe and Fremont, OH. International operations include facilities in~~the United States, Canada, Germany, France, the United Kingdom and the ~~Philippines, and~~Philippines. We have sales and distribution offices in the U.S., Europe, Russia and ~~China.~~China and our products are marketed worldwide, either directly to customers or through brokers and agents. The terms “we,” “us,” “our,” “the Company,” or “Glatfelter,” refer to P. H. Glatfelter Company and subsidiaries unless the context indicates otherwise. ~~Our products are marketed worldwide, either through wholesale paper merchants, brokers and agents, or directly to customers.~~

2.	ACCOUNTING POLICIES

Basis of Presentation The unaudited condensed consolidated financial statements (“financial statements”) include the accounts of Glatfelter and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. In our opinion, the financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these financial statements, we have assumed ~~that~~ you have read the audited consolidated financial statements included in our ~~2016~~2019 Annual Report on Form 10-K.

Discontinued Operations The results of operations for our former Specialty Papers business have been classified as discontinued operations for all periods presented in the condensed consolidated statements of income.

Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Management believes the estimates and assumptions used in the preparation of these financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes ~~that~~ actual results may differ from those estimates and assumptions.

Recently Issued Accounting Pronouncements ~~In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09,~~ ~~Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting~~ ~~designed to simplify certain aspects of accounting for share-~~

based awards. The new ASU requires entities to recognize as a component of income tax expense all excess tax benefits or deficiencies arising from the difference between compensation costs recognized and the intrinsic value at the time an option is exercised or, in the case of restricted stock and similar awards, the fair value upon vesting of an award. Previously such differences were recognized in additional paid in capital as part of an “APIC pool.” The ASU also requires entities to exclude excess tax benefits and tax deficiencies from the calculation of common share equivalents for purposes of calculating earnings per share. In addition, as permitted by the ASU, we have elected to account for the impact of forfeitures as they occur rather to estimate forfeitures for purposes of recognizing compensation expense. We adopted this standard effective January 1, 2017, on a prospective basis; however, the adoption of the new standard did not have a material impact on our reported results of operations or financial position.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~ which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards. The new standard is required to be adopted retrospectively for fiscal years beginning after December 15, 2017. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The guidance allows for both retrospective and modified retrospective methods of adoption. We will apply the modified retrospective method of adoption. We continue to perform our assessment of the impact of the ASU on our policies, processes, systems and controls and are developing processes to obtain the information necessary for the new disclosures. This assessment requires, among others, a review of a substantial amount of the contracts we have with our customers.

Substantially all of our revenue is earned pursuant to contracts under which we have one performance obligation that is satisfied at a point-in-time. We have completed our review of a substantial portion of our contracts and we do not expect this ASU will have a significant impact on the timing or amount of revenue recognition, our results of operations or our financial position.

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~ (“ASU 2017-07”). The update requires entities to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. All other components are to be presented below the determination of

~~- 6 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

operating income. Entities will be required to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-07 is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. We do not expect the adoption of ASU 2017-07 will have a material impact on our consolidated financial statements.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~. This ASU will require organizations such as us that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance will be effective for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. We are in the process of assessing the impact this standard will have on us and expect to follow a modified retrospective method provided for under the standard.

~~In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities~~" (“ASU 2017-12”), which simplifies the application of hedge accounting and more closely aligns hedge accounting with an entity’s risk management strategies. ASU 2017-12 also amends the manner in which hedge effectiveness may be performed and changes the presentation of hedge ineffectiveness in the financial statements. ASU 2017-12 is effective for us beginning January 1, 2019, with early adoption permitted. ASU 2017-12 requires a cumulative-effect adjustment for certain items upon adoption. We are currently evaluating the impact the adoption of ASU 2017-12 will have on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments~~Instruments” that changes the impairment model for most financial instruments, including trade receivables from an incurred loss method to a new forward-looking approach, based on expected losses. Under the new guidance, an allowance is recognized based on an estimate of expected credit losses. ~~This~~We adopted this standard effective January 1, 2020 using a modified retrospective approach. The adoption of this standard did not impact our results of operations or financial position.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update eliminates, clarifies, and modifies certain guidance related to the accounting for income taxes. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact this ASU will have on our financial statements and related disclosures as well as the timing of adoption.

- 7 -

GLATFELTER

Form 10-Q

3.	RESTRUCTURING

In the first quarter of 2020 we announced restructuring actions within the Composite Fibers operating segment. The actions primarily consisted of the consolidation of our metallizing operation from Gernsbach, Germany to our Caerphilly, U.K. site. In connection with this we recorded a non-cash charge of $2.5 million associated with accelerated depreciation and cash severance costs totaling $3.5 million. The restructuring charge is recorded under the caption “Costs of product sold” in the accompanying condensed consolidated statements of income for the three months ended March 31, 2020.

We expect to record additional non-cash charges and severance costs in the second and third quarters of 2020 aggregating approximately $4.0 million to $5.0 million.

REVENUE

The following tables set forth disaggregated information pertaining to our net sales:

	Three months ended March 31
In thousands	2020		2019
Composite Fibers
Food & beverage	$	71,458	$	71,453
Wallcovering		19,893		18,550
Technical specialties		20,007		19,288
Composite laminates		9,763		8,475
Metallized		11,590		10,951
		132,711		128,717
Airlaid Materials
Feminine hygiene		50,096		54,988
Specialty wipes		17,212		17,332
Table top		15,052		13,331
Adult incontinence		6,145		5,488
Home care		5,212		3,964
Other		5,132		5,313
		98,849		100,416

Total	$	231,560	$	229,133

	Three months ended March 31
In thousands	2020		2019
Composite Fibers
Europe, Middle East and Africa	$	79,586	$	77,914
Americas		32,721		31,640
Asia Pacific		20,404		19,163
		132,711		128,717

Airlaid Materials
Europe, Middle East and Africa		52,720		54,439
Americas		44,386		44,334
Asia Pacific		1,743		1,643
		98,849		100,416

Total	$	231,560	$	229,133

- 8 -

GLATFELTER

Form 10-Q

5.	DISCONTINUED OPERATIONS

On October 31, 2018, we completed the previously announced sale of our Specialty Papers business on a cash free and debt free basis to Pixelle Specialty Solutions LLC, an affiliate of Lindsay Goldberg (the “Purchaser”) for $360 million. Cash proceeds from the sale were approximately $323 million in cash reflecting estimated purchase price adjustments as of the closing date and the assumption by the Purchaser of approximately $38 million in retiree healthcare liabilities. In addition, the Purchaser assumed approximately $210 million of pension liabilities relating to Specialty Papers’ employees and received approximately $274 million of related assets from the Company’s existing pension plan.

In connection with the sale of Specialty Papers, we entered into a Transition Services Agreement with Purchaser pursuant to which we agreed to provide various back-office and information technology support until the business is fully separated from us, which was completed in the third quarter of 2019.

The following table sets forth a summary of discontinued operations included in the condensed consolidated statements of income:

	Three months ended March 31
In thousands	2020		2019
Net sales	$	—	$	—
Energy and related sales, net		—		—
Total revenues		—		—
Costs of products sold		—		—
Gross profit		—		—
Selling, general and administrative expenses		—		(714	)
Gains on dispositions of plant, equipment and timberlands, net		—		—
Operating income		—		714
Non-operating income (expense)
Interest expense		—		—
Other, net		—		—
Impairment charge		—		—
Income before income taxes		—		714
Income tax (provision)		—		31
Income from discontinued operations	$	—	$	683

The following table sets forth a summary of cash flows from discontinued operations which is included in the condensed consolidated statements of cash flows:

	Three months ended March 31
In thousands	2020			2019
Net cash (provided) used by operating activities	$	(316	)	$	(8,931	)
Net cash (used) provided by investing activities		—			(1,434	)
Net cash provided by financing activities		—			—
Change in cash and cash equivalents from discontinued operations	$	(316	)	$	(10,365	)

- 9 -

GLATFELTER

Form 10-Q

6.	GAINS ON DISPOSITION OF PLANT, EQUIPMENT AND TIMBERLANDS

The following table sets forth sales of timberlands and other assets completed during the first three months of 2019. There were no such sales in the first quarter of ~~2020 and must be adopted using a modified retrospective transition approach. We are currently assessing the impact this standard may have on our results of operations and financial position.~~2020.

Dollars in thousands	Acres		Proceeds		Gain
2019
Timberlands		218	$	475	$	458
Other	n/a			214		211
Total			$	689	$	669

3.7.	EARNINGS PER SHARE

The following table sets forth the details of basic and diluted earnings per share (“EPS”): from continuing operations:

	Three months ended September 30				Three months ended March 31
In thousands, except per share	2017		2016		2020		2019
Net income	$	12,105	$	19,601
Income from continuing operations					$	7,406	$	4,603
Weighted average common shares
outstanding used in basic EPS		43,617		43,576		44,275		44,027
Common shares issuable upon
exercise of dilutive stock options
and PSAs / RSUs		565		557
Effect of dilutive SOSARs,
PSAs and RSUs						255		252
Weighted average common shares
outstanding and common share
equivalents used in diluted EPS		44,182		44,133		44,530		44,279
Earnings per share

Earnings per share from continuing operations
Basic	$	0.28	$	0.45	$	0.17	$	0.10
Diluted		0.27		0.44		0.17		0.10

Nine months ended
September 30

In thousands, except per share
2017

2016

Net income
$
17,994

$
37,734

Weighted average common shares

outstanding used in basic EPS

43,601

43,552

Common shares issuable upon

exercise of dilutive stock options

and PSAs / RSUs

809

507

Weighted average common shares

outstanding and common share

equivalents used in diluted EPS

44,410

44,059

Earnings per share

Basic
$
0.41

$
0.87

Diluted

0.41

0.86

The numerator used to compute income per share from discontinued operations was $0.683 million for the first quarter 2019. The denominator used to compute per share amounts of loss from discontinued operations is the same as the denominator used for per share amounts of income from continuing operations.

The following table sets forth potential common shares outstanding that were not included in the computation of diluted EPS for the ~~period~~periods indicated, because their effect would be anti-dilutive:

	September 30				March 31
In thousands	2017		2016		2020		2019
Three months ended		967		681		1,231		1,582
Nine months ended		593		683

- 710 -

GLATFELTER

~~09.30.17~~ Form 10-Q

4.8.	ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the three months ended March 31, 2020 and ~~nine months ended September 30, 2017 and 2016.~~2019.

In thousands
Currency translation adjustments

Unrealized gain (loss) on cash flow hedges

Change in pensions

Change in other postretirement defined benefit plans

Total

Balance at July 1, 2017
$
(66,879
)

$
(3,097
)

$
(105,824
)

$
4,719

$
(171,081
)
Other comprehensive income
   before reclassifications  (net of tax)

16,559

(1,533
)

—

—

15,026

Amounts reclassified from accumulated
   other comprehensive income  (net of tax)

—

19

2,424

(139
)

2,304

Net current period other comprehensive
   income (loss)

16,559

(1,514
)

2,424

(139
)

17,330

Balance at September 30, 2017
$
(50,320
)

$
(4,611
)

$
(103,400
)

$
4,580

$
(153,751
)
Balance at July 1, 2016
$
(74,486
)

$
785

$
(115,786
)

$
3,204

$
(186,283
)
Other comprehensive income
   before reclassifications  (net of tax)

(1,530
)

(1,195
)

—

—

(2,725
)
Amounts reclassified from accumulated
   other comprehensive income  (net of tax)

—

337

2,464

(145
)

2,656

Net current period other comprehensive
   income (loss)

(1,530
)

(858
)

2,464

(145
)

(69
)
Balance at September 30, 2016
$
(76,016
)

$
(73
)

$
(113,322
)

$
3,059

$
(186,352
)

In thousands	Currency translation adjustments			Unrealized gain (loss) on cash flow hedges			Change in pensions			Change in other postretirement defined benefit plans			Total

Balance at January 1, 2020	$	(76,346	)	$	4,316		$	(7,253	)	$	1,387		$	(77,896	)
Other comprehensive income (loss) before reclassifications (net of tax)		(13,903	)		283			—			—			(13,620	)
Amounts reclassified from accumulated other comprehensive income (net of tax)		—			(1,600	)		148			(249	)		(1,701	)
Net current period other comprehensive income (loss)		(13,903	)		(1,317	)		148			(249	)		(15,321	)
Balance at March 31, 2020	$	(90,249	)	$	2,999		$	(7,105	)	$	1,138		$	(93,217	)

Balance at January 1, 2019	$	(69,622	)	$	2,199		$	(71,431	)	$	1,414		$	(137,440	)
Other comprehensive income (loss) before reclassifications (net of tax)		(4,805	)		2,641			—			—			(2,164	)
Amounts reclassified from accumulated other comprehensive income (net of tax)		—			(419	)		621			(133	)		69
Net current period other comprehensive income (loss)		(4,805	)		2,222			621			(133	)		(2,095	)
Balance at March 31, 2019	$	(74,427	)	$	4,421		$	(70,810	)	$	1,281		$	(139,535	)

In thousands
Currency translation adjustments

Unrealized gain (loss) on cash flow hedges

Change in pensions

Change in other postretirement defined benefit plans

Total

Balance at January 1, 2017
$
(100,448
)

$
1,500

$
(110,656
)

$
4,998

$
(204,606
)
Other comprehensive income
   before reclassifications  (net of tax)

50,128

(4,868
)

—

1

45,261

Amounts reclassified from accumulated
   other comprehensive income  (net of tax)

—

(1,243
)

7,256

(419
)

5,594

Net current period other comprehensive
   income (loss)

50,128

(6,111
)

7,256

(418
)

50,855

Balance at September 30, 2017
$
(50,320
)

$
(4,611
)

$
(103,400
)

$
4,580

$
(153,751
)
Balance at January 1, 2016
$
(73,041
)

$
(225
)

$
(120,714
)

$
3,494

$
(190,486
)
Other comprehensive income
   before reclassifications  (net of tax)

(2,975
)

(106
)

—

—

(3,081
)
Amounts reclassified from accumulated
   other comprehensive income  (net of tax)

—

258

7,392

(435
)

7,215

Net current period other comprehensive
   income (loss)

(2,975
)

152

7,392

(435
)

4,134

Balance at September 30, 2016
$
(76,016
)

$
(73
)

$
(113,322
)

$
3,059

$
(186,352
)

~~- 8 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

Reclassifications out of accumulated other comprehensive income and into the condensed consolidated statements of income were as follows:

	Three months ended September 30						Nine months ended September 30							Three months ended March 31
In thousands	2017			2016			2017			2016				2020			2019
Description													Line Item in Statements of Income							Line Item in Statements of Income
Cash flow hedges (Note 12)
(Gains) losses on cash flow hedges	$	29		$	347		$	(1,687	)	$	264		Costs of products sold
Tax expense (benefit)		(10	)		(10	)		444			(6	)	Income tax provision
Cash flow hedges (Note 16)																				��
Gains on cash flow hedges														$	(2,182	)	$	(585	)	Costs of products sold
Tax expense															582			166		Income tax provision
Net of tax		19			337			(1,243	)		258				(1,600	)		(419	)
Retirement plan obligations (Note 7)
Retirement plan obligations (Note 11)
Amortization of deferred benefit pension plans
Prior service costs		532			506			1,592			1,519		Costs of products sold		12			34		Other, net
		176			168			528			504		Selling, general and administrative
Actuarial losses		2,290			2,450			6,852			7,350		Costs of products sold		160			775		Other, net
		788			843			2,359			2,530		Selling, general and administrative
		3,786			3,967			11,331			11,903				172			809
Tax benefit		(1,362	)		(1,503	)		(4,075	)		(4,511	)	Income tax provision		(24	)		(188	)	Income tax provision
Net of tax		2,424			2,464			7,256			7,392				148			621
Amortization of deferred benefit other plans
Prior service costs		(37	)		(37	)		(112	)		(112	)	Costs of products sold		(116	)		(2	)	Other, net
		(8	)		(8	)		(24	)		(24	)	Selling, general and administrative
Actuarial losses		(77	)		(156	)		(233	)		(467	)	Costs of products sold
		(17	)		(33	)		(50	)		(100	)	Selling, general and administrative
Actuarial gains															(209	)		(173	)	Other, net
		(139	)		(234	)		(419	)		(703	)			(325	)		(175	)
Tax expense		—			89			—			268		Income tax provision		76		42			Income tax provision
Net of tax		(139	)		(145	)		(419	)		(435	)			(249	)		(133	)
Total reclassifications, net of tax	$	2,304		$	2,656		$	5,594		$	7,215			$	(1,701	)	$	69

~~- 9 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

5.~~INCOME TAXES~~
9.
INCOME TAXES

Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates.

- 11 -

GLATFELTER

Form 10-Q

In the first quarter of 2020, pretax income totaled $10.0 million and the provision for income taxes totaled $2.6 million. The effective income tax rate for the first quarter of 2020 benefited by $2.6 million recorded in connection with passage of the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) of 2020. This Act, which was signed into law on March 27, 2020, modified the net operating loss (“NOL”) provisions of previous law to allow losses arising in a taxable year beginning after December 31, 2017 and before January 1, 2021, to be carried back five years. We are in the process of evaluating additional tax planning opportunities which may allow us to carry back additional NOLs.

For the three months ended March 31, 2020, we recorded a decrease in our valuation allowance of $4.0 million against our net deferred tax assets in connection with passage of the CARES Act and the ability to carry our “net operating loss” back five years. In assessing the need for a valuation allowance, management considers all available positive and negative evidence in its analysis. Based on this analysis, we recorded a valuation allowance for the portion of deferred tax assets where the weight of the evidence indicated it is more likely than not that the deferred assets will not be realized.

As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, we had ~~$17.1~~$32.7 million and ~~$14.2~~$30.5 million of gross unrecognized tax benefits. As of ~~September 30, 2017,~~March 31, 2020, if such benefits were to be recognized, approximately ~~$11.5~~$21.9 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate.

We, or one of our subsidiaries, file income tax returns with the United States Internal Revenue Service, as well as various state and foreign authorities.

The following table summarizes, by major jurisdiction, tax years that remain subject to examination:

	Open Tax Years
Jurisdiction	Examinations not yet initiated	Examination in progress

United States
Federal	~~2014~~2016 - ~~2016~~2019	N/A
State	~~2012~~2015 - ~~2016~~2019	~~2013 -2014~~	2015 - 2018
Canada⁽¹⁾	~~2010-2013; 2016~~	~~2014 - 2015~~
~~Germany~~⁽¹⁾	~~2016~~	2012 - ~~2015~~
~~France~~	~~2014 - 2016~~	~~2011 - 2012~~
~~United Kingdom~~	~~2015 - 2016~~2019	N/A
~~Philippines~~Germany⁽¹⁾	~~2015 -2016~~2016 - 2019	N/A
France	2018 - 2019	N/A
United Kingdom	2018 - 2019	N/A
Philippines	2019	2016 - 2018

(1)	includes provincial or similar local jurisdictions, as applicable

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the lapse of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of ~~zero~~0 to ~~$0.7~~$1.2 million. Substantially all of this range relates to tax positions taken in ~~the United Kingdom~~Canada and the U.S.

- 12 -

GLATFELTER

Form 10-Q

We recognize interest and penalties related to uncertain tax positions as income tax expense. The following table summarizes information included in continuing operations related to interest ~~and penalties~~ on uncertain tax positions:

	Nine months ended September 30				Three months ended March 31
In millions	2017		2016		2020		2019
Interest expense (income)	$	0.3	$	0.2	$	0.1	$	0.1
Penalties		—		—

September 30

December 31

2017

2016

Accrued interest payable
$
0.8

$
0.5

	March 31		December 31
	2020		2019
Accrued interest payable	$	0.5	$	0.4

6.10.

STOCK-BASED COMPENSATION

The P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the “LTIP”) provides for the issuance of Glatfelter common stock to eligible participants in the form of restricted stock units, restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units.

Pursuant to terms of the LTIP, we have issued to eligible participants restricted stock units (“RSUs”), performance share awards (“PSAs”) and stock only stock appreciation rights.

~~Restricted Stock Units (“RSU”) and Performance Share Awards (“PSAs”)~~ Awards of RSUs and PSAs are made under our LTIP. ~~On May 4, 2017, our shareholders approved a 1,840,000 share increase in the shares available to be awarded under the LTIP.~~ The vesting of RSUs ~~vest~~is generally based on the passage of time, generally ~~on a graded scale~~ over a three ~~four, and five-year~~-year period or in certain instances the RSUs were issued with ~~five year~~five-year cliff vesting. PSAs are issued to members of management and vesting is based on achievement of cumulative financial performance targets covering a two year period followed by an additional one-year service period. The performance measures include a minimum, target and maximum performance level providing the grantees an opportunity to receive more or less shares than targeted depending on actual financial performance. In addition, PSA awards include a modifier based on the three-year total shareholder return relative to a broad market index. For ~~both~~ RSUs ~~and PSAs,~~ the grant date fair value of the awards, ~~which is equal to~~or the closing price per common share on the date of the award, is used to determine the amount of expense to be recognized over the applicable service period. For PSAs, the grant date fair value is estimated using a lattice model. The significant inputs include the stock price, volatility, dividend yield, and risk-free rate of return. Settlement of RSUs and PSAs will be made in shares of our common stock currently held in treasury.

~~- 10 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

The following table summarizes RSU and PSA activity during periods indicated:

Units	2017			2016			2020			2019
Balance at January 1,		679,038			674,523			896,463			756,786
Granted		370,458			298,832			294,315			384,766
Forfeited		(93,045	)		(146,327	)		(17,455	)		(122,444	)
Shares delivered		(26,352	)		(149,975	)		(78,509	)		(67,646	)
Balance at September 30,		930,099			677,053
Balance at March 31,								1,094,814			951,462

The amount granted in ~~2017~~2020 and ~~2016~~2019 includes ~~PSAs~~168,663 and 214,899, respectively, of ~~163,274 and 199,693, respectively,~~PSAs exclusive of reinvested dividends.

The following table sets forth aggregate RSU and PSA compensation expense included in continuing operations for the periods indicated:

	September 30				March 31
In thousands	2017		2016		2020		2019
Three months ended	$	1,658	$	765	$	1,085	$	434
Nine months ended		3,746		2,167

Stock Only Stock Appreciation Rights (“SOSARs”) Under terms of the SOSAR, a recipient receives the right to a payment in the form of shares of common stock equal to the difference, if any, in the fair market value of one share of common stock at the time of exercising the SOSAR and the exercise price. The SOSARs vest ratably over a three year period and have a term of ten years.

No NaN SOSARs were ~~granted in 2017.~~ awarded since 2016.

- 13 -

GLATFELTER

Form 10-Q

The following table sets forth information related to outstanding ~~SOSARS for the nine months ended September 30, 2017 and 2016;~~SOSARS:

2017

2016

SOSARS
Shares

Wtd Avg
Exercise
Price

Shares

Wtd Avg
Exercise
Price

Outstanding at January 1,

2,736,616

$
17.64

2,199,742

$
17.82

Granted

—

—

743,925

17.54

Exercised

(33,050
)

14.65

(61,190
)

10.70

Canceled / forfeited

(17,630
)

18.46

(143,932
)

17.87

Outstanding at September 30,

2,685,936

$
17.67

2,738,545

$
17.64

SOSAR Grants

Weighted average grant date
fair value per share
$
-

$
4.07

Aggregate grant date
fair value (in thousands)
$
-

$
3,013

Black-Scholes assumptions

Dividend yield

-

2.85
%

Risk free rate of return

-

1.34
%

Volatility

-

31.97
%

Expected life
-

6 yrs

	2020					2019
SOSARS	Shares			Wtd Avg Exercise Price		Shares			Wtd Avg Exercise Price
Outstanding at January 1,		1,291,947		$	20.05		2,334,742		$	18.08
Granted		—			—		—			—
Exercised		(44,710	)		12.94		(283,060	)		13.95
Canceled / forfeited		(2,841	)		17.27		(258,439	)		20.82
Outstanding at March 31,		1,244,396		$	20.31		1,793,243		$	18.96

The following table sets forth SOSAR compensation expense included in continuing operations for the periods indicated:

	September 30				March 31
In thousands	2017		2016		2020		2019
Three months ended	$	254	$	650	$	—	$	43
Nine months ended		1,122		2,051

7.11.

RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

The following tables provide information with respect to the net periodic costs of our pension and post-retirement medical benefit ~~plans.~~plans included in continuing operations.

	Three months ended September 30						Three months ended March 31
In thousands	2017			2016			2020			2019
Pension Benefits
Service cost	$	2,695		$	2,614		$	44		$	484
Interest cost		5,929			6,120			301			3,450
Expected return on plan assets		(10,749	)		(11,331	)		—			(3,696	)
Amortization of prior service cost		708			674			12			34
Amortization of unrecognized loss		3,078			3,293			160			775
Total net periodic benefit cost	$	1,661		$	1,370		$	517		$	1,047

Other Benefits
Service cost	$	289		$	287		$	7		$	9
Interest cost		499			498			46			84
Amortization of prior service credit		(45	)		(45	)		(116	)		(2	)
Amortization of actuarial gain		(94	)		(189	)		(209	)		(173	)
Total net periodic benefit cost	$	649		$	551
Total net periodic benefit credit							$	(272	)	$	(82	)

Nine months ended
September 30

In thousands

2017

2016

Pension Benefits

Service cost

$
8,065

$
7,855

Interest cost

17,825

18,360

Expected return on plan assets

(32,246
)

(33,992
)
Amortization of prior service
   cost

2,120

2,023

Amortization of unrecognized
   loss

9,211

9,880

Total net periodic benefit cost

$
4,975

$
4,126

Other Benefits

Service cost

$
868

$
860

Interest cost

1,497

1,494

Amortization of prior
   service credit

(136
)

(136
)
Amortization of
   actuarial gain

(283
)

(567
)
Total net periodic
   benefit cost

$
1,946

$
1,651

During 2019, our qualified pension plan was terminated, and all plan liabilities were settled by either a lump sum distribution or assumed by a third-party in exchange for a transfer of assets from the pension plan trust fund. For active participants, the pension benefit was replaced with an enhance defined contribution plan, or 401(k), to which we contributed a percent of eligible compensation. Currently we contribute 10%.

As of March 31, 2020, $51.1 million of assets remained in the pension trust and was included in cash and cash equivalents in the accompanying condensed consolidated balance sheet. We expect to complete the reversion of the qualified pension plan assets in the second quarter of 2020, after a portion of the assets are transferred to a trust fund to be used to make contributions over the next seven years to the 401(k) plan and satisfying excise tax obligations, approximately $33 million is expected to revert to us and will be available for general corporate purposes.

In December 2019, our Board of Directors approved the freezing of benefit accruals in the non-qualified pension plan for active participants effective December 31, 2019. As of January 1, 2020, each active participant’s frozen non-qualified pension benefit was transferred to a newly approved Deferred Compensation Plan non-qualified benefit plan and earns interest credits going forward. The Deferred Compensation Plan also provides for employer contributions and, in the future, the Plan may provide for elective employee deferrals. Under the Deferred Compensation Plan, participants are eligible to receive annual Company contributions that such

- 14 -

GLATFELTER

Form 10-Q

participants would have received under the P. H. Glatfelter 401(k) Savings Plan but for certain limitations imposed by the Internal Revenue Code on 401(k) plan contributions (“Company Contributions”).

The remaining non-contributory pension plans are unfunded non-qualified plans.

~~- 11 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

8.12.

~~INVENTORIES~~INVENTORIES

Inventories, net of reserves, were as follows:

	September 30		December 31		March 31		December 31
In thousands	2017		2016		2020		2019
Raw materials	$	64,088	$	66,359	$	55,940	$	59,164
In-process and finished		117,490		112,507		94,059		92,231
Supplies		75,186		70,803		39,450		39,020
Total	$	256,764	$	249,669	$	189,449	$	190,415

9.13.

~~CAPITALIZED INTEREST~~LEASES

We enter into a variety of arrangements in which we are the lessee for the use of automobiles, forklifts and other production equipment, production facilities, warehouses and office space. We determine if an arrangement contains a lease at inception. All our lease arrangements are operating leases and are recorded in the condensed consolidated balance sheet under the caption “Other assets” and the lease obligation is under “Other current liabilities” and “Other long-term liabilities.” We currently do not have any finance leases.

Operating lease right of use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. We use our incremental borrowing rate based on information available at the commencement date in determining the lease liabilities as our leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when we are reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.

The following table sets forth information related to our leases as of the periods indicated.

	March 31			December 31
in thousands	2020			2019
Right of use asset	$	15,240		$	11,701
Weighted average discount rate		3.31	%		2.92	%
Weighted average remaining maturity (months)		66			34

	Three months ended March 31
	2020			2019
Operating lease expense	$	1,442		$	1,606

The following table sets forth ~~details of interest incurred, capitalized and expensed:~~

Three months ended
September 30

Nine months ended
September 30

In thousands

2017

2016

2017

2016

Interest cost incurred

$
5,079

$
4,334

$
14,556

$
12,962

Interest capitalized

532

439

1,525

998

Interest expense

$
4,547

$
3,895

$
13,031

$
11,964

~~Capitalized interest primarily relates to spending~~required future minimum lease payments for ~~Specialty Papers’ environmental compliance and~~ the ~~Airlaid capacity expansion projects.~~years indicated:

In thousands
2020	$	3,553
2021		4,076
2022		2,641
2023		1,343
2024		939
Thereafter		4,218

- 15 -

GLATFELTER

Form 10-Q

~~10.~~14.

LONG-TERM DEBT

Long-term debt is summarized as follows:

	September 30			December 31			March 31			December 31
In thousands	2017			2016			2020			2019
Revolving credit facility, due Mar. 2020	$	158,298		$	61,595
5.375% Notes, due Oct. 2020		250,000			250,000
Revolving credit facility, due Feb. 2024							$	84,622		$	84,255
Term loan, due Feb. 2024								231,993			240,969
2.40% Term Loan, due Jun. 2022		8,012			8,282			3,912			4,012
2.05% Term Loan, due Mar. 2023		34,659			35,163			19,006			19,487
1.30% Term Loan, due Jun. 2023		9,698			9,788			5,478			5,617
1.55% Term Loan, due Sep. 2025		11,574			10,333			7,719			7,915
Total long-term debt		472,241			375,161			352,730			362,255
Less current portion		(11,122	)		(8,961	)		(24,952	)		(22,940	)
Unamortized deferred issuance costs		(2,094	)		(2,553	)		(2,246	)		(2,396	)
Long-term debt, net of current portion	$	459,025		$	363,647		$	325,532		$	336,919

On ~~March 12, 2015,~~February 8, 2019, we entered into an amended ~~our revolving credit agreement~~and restated $400 million Revolving Credit Facility and a €220 million Term Loan with a consortium of banks ~~(the “Revolving Credit Facility”) which increased~~(together, the ~~amount available for borrowing to $400 million, extended the maturity~~“Credit Agreement”). The proceeds of the ~~facility~~Term Loan due Feb. 2024 were used to ~~March 12, 2020,~~redeem in its entirety the 5.375% Notes. The principal amount of the Term Loan amortizes in consecutive quarterly installments of principal, with each such quarterly installment to be in an amount equal to 1.25% of the Term Loan funded, commencing on July 1, 2019 and instituted a revised interest rate pricing grid. On February 1, 2017, the Revolving Credit Facility was further amended to, among other things, change the definition of earnings before interest, taxes, depreciation and amortization (“EBITDA”) for purposes of calculating covenant compliance.continuing quarterly thereafter.

For all USU.S. dollar denominated borrowings under the Revolving Credit Facility, the borrowing rate is, at our option, either, (a) the bank’s base rate which is equal to the greater of i) the prime rate; ii) the federal funds rate plus 50 basis points; or iii) the ~~daily~~ Euro-rate plus 100 basis points plus an applicable spread over either i), ii) or iii) ranging from 12.5 basis points to 100 basis points based on the Company’s leverage ratio and its corporate credit ratings determined by Standard & Poor’s Rating Services and Moody’s Investor Service, Inc. (the “Corporate Credit Rating”); or (b) the ~~daily~~ Euro-rate plus an applicable margin ranging from 112.5 basis points to 200 basis points based on the Company’s leverage ratio and the Corporate Credit Rating. For non-US dollar denominated borrowings, ~~interest~~the borrowing rate is, at our option, based on (b) ~~above.~~above or for Euro denominated borrowings, the Euro Interbank Offering Rate (“EURIBOR”) plus an applicable margin ranging from 112.5 basis points to 200 basis points based on the Company’s leverage ratio and the Corporate Credit Rating.

In October 2019, we entered into a €180 million notional value floating-to-fixed interest rate swap agreement with certain financial institutions. Under the terms of the swap, we will pay a fixed interest rate of the applicable margin plus 0.0395% on €180 million of the underlying variable rate term loan. We will receive the greater of 0.00% or EURIBOR.

The ~~Revolving~~ Credit ~~Facility~~Agreement contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, limits certain intercompany financing arrangements, make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios including: i) maximum net debt to EBITDA ratio (the “leverage ratio”); and ii) a consolidated EBITDA to interest expense ratio. The most restrictive of our covenants is a maximum leverage ratio of ~~3.5x.~~4.0x provided that such ratio increases to 4.5x during the period of four fiscal quarters immediately following a material acquisition such as Steinfurt. As of ~~September 30, 2017,~~March 31, 2020, the leverage ratio, as calculated in accordance with the definition in our ~~amended credit agreement,~~Credit Agreement, was ~~2.6x.~~2.2x. A breach of these requirements would give rise to certain remedies under the Revolving Credit Facility, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the ~~credit facility.~~Credit Agreement.

~~On October 3, 2012, we completed a private placement offering of $250.0 million aggregate~~All remaining principal ~~amount of 5.375% Senior Notes~~outstanding and accrued interest under the Credit Agreement will be due ~~2020 (the “5.375% Notes”). The 5.375% Notes, which are now publically registered, are fully~~ and unconditionally guaranteed, jointly and severally, by PHG Tea Leaves, Inc., Mollanvick, Inc., Glatfelter Composite Fibers N. A., Inc., Glatfelter Advanced Materials N.A., LLC., and Glatfelter Holdings, LLC (the “Guarantors”). Interestpayable on ~~the 5.375% Notes is payable semiannually in arrears on April 15 and October 15.~~February 8, 2024.

The 5.375% Notes are redeemable, in whole or in part, at any time at the redemption prices specified in the applicable Indenture. These Notes and the guarantees of the notes are senior obligations of the Company and the Guarantors, respectively, rank equally in right of payment with future senior indebtedness of the Company and the Guarantors and will mature on October 15, 2020.

The 5.375% Notes contain various covenants customary to indebtedness of this nature including limitations on i) the amount of indebtedness that may be incurred; ii) certain restricted payments including common stock dividends; iii)

- 1216 -

GLATFELTER

~~09.30.17~~ Form 10-Q

distributions from certain subsidiaries; iv) sales of assets; v) transactions amongst subsidiaries; and vi) incurrence of liens on assets. In addition, the 5.375% Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the Revolving Credit Facility at maturity or a default under the Revolving Credit Facility that accelerates the debt outstanding thereunder. As of September 30, 2017, we met all of the requirements of our debt covenants.

Glatfelter Gernsbach GmbH & Co. KG (“Gernsbach”), a wholly-owned subsidiary of ours, entered into a series of borrowing agreements with IKB Deutsche Industriebank AG, Düsseldorf (“IKB”) as summarized below:

Amounts in thousands	Original Principal		Interest Rate			Maturity	Original Principal		Interest Rate			Maturity
Borrowing date
Apr. 11, 2013	€	42,700		2.05	%	Mar. 2023	€	42,700		2.05	%	Mar. 2023
Sep. 4, 2014		10,000		2.40	%	Jun. 2022		10,000		2.40	%	Jun. 2022
Oct. 10, 2015		2,608		1.55	%	Sep. 2025		2,608		1.55	%	Sep. 2025
Apr. 26, 2016								10,000		1.30	%	Jun. 2023
May 4, 2016		7,195		1.55	%	Sep. 2025		7,195		1.55	%	Sep. 2025
Apr. 26, 2016		10,000		1.30	%	Jun. 2023

Each of the borrowings require quarterly repayments of principal and interest and provide for representations, warranties and covenants customary for financings of these types. The financial covenants contained in each of the IKB loans, which relate to the minimum ratio of consolidated EBITDA to consolidated interest expense and the maximum ratio of consolidated total net debt to consolidated adjusted EBITDA, are calculated by reference to our ~~Revolving~~ Credit ~~Facility.~~Agreement.

P. H. Glatfelter Company guarantees all debt obligations of its subsidiaries. All such obligations are recorded in these condensed consolidated financial statements.

Letters of credit issued to us by certain financial institutions totaled ~~$5.2~~$7.3 million as of ~~September 30, 2017~~March 31, 2020 and ~~$5.1 million as of~~ December 31, ~~2016.~~2019. The letters of credit, which reduce amounts available under our ~~revolving credit facility,~~Revolving Credit Facility, primarily provide financial assurances for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance ~~program.~~program and for performance of certain remediation activity related to the Fox River matter. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. NoNaN amounts are outstanding under the letters of credit.

~~11.~~15.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The amounts reported on the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value. The following table sets forth carrying value and fair value of long-term debt:

��

	September 30, 2017				December 31, 2016				March 31, 2020				December 31, 2019
In thousands	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Variable rate debt	$	158,298	$	158,298	$	61,595	$	61,595	$	84,622	$	84,622	$	84,255	$	84,255
Fixed-rate bonds		250,000		254,265		250,000		256,563
Term loan, due Feb. 2024										231,993		231,993		240,969		240,969
2.40% Term loan		8,012		8,207		8,282		8,877		3,912		3,598		4,012		4,076
2.05% Term loan		34,659		35,223		35,163		37,089		19,006		17,906		19,487		19,764
1.30% Term Loan		9,698		9,644		9,788		10,062		5,478		5,131		5,617		5,624
1.55% Term loan		11,574		11,509		10,333		10,082		7,719		7,504		7,915		7,975
Total	$	472,241	$	477,146	$	375,161	$	384,268	$	352,730	$	350,754	$	362,255	$	362,663

~~As of September 30, 2017, and December 31, 2016, we had $250.0 million of 5.375% fixed rate bonds. These bonds are publicly registered, but thinly traded. Accordingly, the~~The values set forth above ~~for the bonds, as well as our other debt instruments,~~ are based on observable inputs and other relevant market data (Level 2). The fair value of financial derivatives is set forth below in Note ~~12.~~16.

~~12.~~16.

FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES

As part of our overall risk management practices, we enter into financial derivatives primarily designed to either i) hedge foreign currency risks associated with forecasted transactions ~~– “cash~~(“cash flow hedges”); or ii) mitigate the impact that changes in currency exchange rates have on intercompany financing transactions and foreign currency denominated receivables and payables ~~– “foreign~~(“foreign currency ~~hedges."~~hedges”); or iii) convert variable-interest-rate debt to fixed rates.

Derivatives Designated as Hedging Instruments - Cash Flow Hedges We use currency forward contracts as cash flow hedges to manage our exposure to fluctuations in the currency exchange rates on certain forecasted production ~~costs or capital expenditures expected to be incurred.~~costs. Currency forward contracts involve fixing the exchange for delivery of a specified amount of foreign currency on a specified date. As of ~~September 30, 2017,~~March 31, 2020, the maturity of currency forward contracts ranged from one month to 18 months.

- 17 -

GLATFELTER

Form 10-Q

We designate certain currency forward contracts as cash flow hedges of forecasted raw material purchases, certain production costs or capital expenditures with exposure to changes in foreign currency exchange rates. ~~The effective portion of changes~~Changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk is deferred as a component of accumulated other comprehensive income in the accompanying condensed consolidated balance sheets. With respect to hedges of forecasted raw material purchases or production costs, the

~~- 13 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

amount deferred is subsequently reclassified into costs of products sold in the period that inventory produced using the hedged transaction affects earnings. For hedged capital expenditures, deferred gains or losses are reclassified and included in the historical cost of the capital asset and subsequently affect earnings as depreciation is recognized. The ineffective portion of the change in fair value of the derivative is recognized directly to earnings and reflected in the accompanying condensed consolidated statements of income as non-operating income (expense) under the caption “Other, net.”

We had the following outstanding derivatives that were used to hedge foreign exchange risks associated with forecasted transactions and designated as hedging instruments:

In thousands	September 30 2017		December 31 2016		March 31, 2020		December 31, 2019
Derivative
Sell/Buy - sell notional
Philippine Peso / British Pound		19,047		—
Euro / British Pound		11,428		10,373		18,121		17,702
U.S. Dollar / Euro		1,471		—		10,446		5,347
Canadian Dollar / U.S. Dollar		20		—
U.S. Dollar / Canadian Dollar						1,160		1,523

Sell/Buy - buy notional
Euro / Philippine Peso		857,103		699,279		956,431		1,039,432
British Pound / Philippine Peso		644,076		557,025		1,082,044		1,077,871
U.S. Dollar / Euro		7,799		15,379
Euro / U.S. Dollar		54,135		43,951		76,032		82,317
U.S. Dollar / Canadian Dollar		32,760		35,290		34,079		34,094
British Pound / Euro		335		—
Canadian Dollar / U.S. Dollar						1,160		1,523

The €220 million Term Loan is designated as a net investment hedge of our Euro functional currency foreign subsidiaries. During the first three months of 2020, we recognized a pre-tax gain of $5.9 million from changes in currency exchange rates through Other Comprehensive Income (Loss)

Derivatives Not Designated as Hedging Instruments - Foreign Currency Hedges We also ~~enter~~entered into forward foreign exchange contracts to mitigate the impact changes in currency exchange rates have on balance sheet monetary assets and liabilities. None of these contracts are designated as hedges for financial accounting purposes and, accordingly, changes in value of the foreign exchange forward contracts and in the offsetting underlying on-balance-sheet transactions are reflected in the accompanying condensed consolidated statements of income under the caption “Other, net.”

The following sets forth derivatives used to mitigate the impact changes in currency exchange rates have on balance sheet monetary assets and liabilities:

In thousands	September 30 2017		December 31 2016		March 31, 2020		December 31, 2019
Derivative

Sell/Buy - sell notional
U.S. Dollar / British Pound		17,500		10,500		20,000		25,500
British Pound / Euro		1,000		2,500		3,000		3,000

Sell/Buy - buy notional
Euro / U.S. Dollar		4,500		3,500		2,000		8,000
British Pound / Euro		12,000		18,500		3,000		7,000

These contracts have maturities of one month from the date originally entered into.

- 18 -

GLATFELTER

Form 10-Q

Fair Value Measurements The following table summarizes the fair values of derivative instruments for the period indicated and the line items in the accompanying condensed consolidated balance sheets where the instruments are recorded:

In thousands	September 30 2017		December 31 2016		September 30 2017		December 31 2016		March 31 2020		December 31 2019		March 31 2020		December 31 2019
	Prepaid Expenses and Other				Other				Prepaid Expenses and Other				Other
Balance sheet caption	Current Assets				Current Liabilities				Current Assets				Current Liabilities
Designated as hedging:
Forward foreign currency
exchange contracts	$	1,416	$	2,625	$	5,672	$	1,493

Forward foreign currency exchange contracts									$	4,351	$	4,314	$	1,481	$	34
Not designated as hedging:
Forward foreign currency
exchange contracts	$	679	$	60	$	780	$	104

Forward foreign currency exchange contracts									$	402	$	566	$	591	$	205

The amounts set forth in the table above represent the net asset or liability giving effect to rights of offset with each counterparty. The effect of netting the amounts presented above did not have a material effect on our consolidated financial position.

The following table summarizes the amount of income or (loss) from derivative instruments recognized in our results of operations for the periods indicated and the line items in the accompanying condensed consolidated statements of income where the results are recorded:

Three months ended
September 30

Nine months ended
September 30

In thousands

2017

2016

2017

2016

Designated as hedging:

Forward foreign currency exchange contracts:

Effective portion – cost of products sold

$
(29
)

$
(347
)

$
1,687

$
(264
)
Ineffective portion – other – net

40

(69
)

126

(399
)
Not designated as hedging:

Forward foreign currency

exchange contracts:

Other – net

$
328

$
332

$
719

$
1,396

~~The impact of activity not designated as hedging was substantially all offset by the remeasurement of the underlying on-balance-sheet item.~~

~~The~~ fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in

~~- 14 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The fair values of the foreign exchange forward contracts are considered to be Level 2. Foreign currency forward contracts are valued using foreign currency forward and interest rate curves. The fair value of each contract is determined by comparing the contract rate to the forward rate and discounting to present value. Contracts in a gain position are recorded in the condensed consolidated balance sheets under the caption “Prepaid expenses and other current assets” and the value of contracts in a loss position is recorded under the caption “Other current liabilities.”

	Three months ended March 31
In thousands	2020			2019
Designated as hedging:
Forward foreign currency exchange contracts:
Cost of products sold	$	2,182		$	585

Not designated as hedging:
Forward foreign currency exchange contracts:
Other – net	$	(619	)	$	292

The impact of activity not designated as hedging was substantially all offset by the remeasurement of the underlying on-balance-sheet item.

A rollforward of fair value amounts recorded as a component of accumulated other comprehensive income (loss), before taxes, is as follows:

In thousands	2017			2016			2020			2019
Balance at January 1,	$	1,882		$	(178	)	$	5,859		$	3,004
Deferred (losses) gains
on cash flow hedges		(6,455	)		(200	)
Deferred gains on cash flow hedges								463			3,641
Reclassified to earnings		(1,687	)		264			(2,182	)		(585	)
Balance at September 30,	$	(6,260	)	$	(114	)
Balance at March 31,							$	4,140		$	6,060

We expect substantially all of the amounts recorded as a component of accumulated other comprehensive income will be recorded ~~as a component of the capital asset or realized~~ in results of operations within the next 12 to 18 months and the amount ultimately recognized will vary depending on actual market rates.

- 19 -

GLATFELTER

Form 10-Q

Credit risk related to derivative activity arises in the event the counterparty fails to meet its obligations to us. This exposure is generally limited to the amounts, if any, by which the counterparty’s obligations exceed our obligation to them. Our policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings.

~~13.~~17.

COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

Fox River - Neenah, Wisconsin

Background. We have previously reported that we face significant uncertainties associated with environmental claims arising out of the presence of polychlorinated biphenyls (“PCBs”) in sediments in the lower Fox River, on which our former Neenah facility was located, and in the Bay of Green Bay, Wisconsin (collectively, the “Site”). Since the early 1990s, the United States, the State of Wisconsin and two Indian tribes (collectively, the “Governments”) have pursued a cleanup of a 39-mile stretch of river from Little Lake Butte des Morts into Green Bay and natural resource damages (“NRDs”).

~~The Site has been subject to certain studies, demonstration projects and interim cleanups. The permanent cleanup, known as a “remedial action” under the~~

Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), consists of sediment dredging, installation of engineered caps and placement of sand covers in various areas in the bed of the river.

The United States originally notified several entities that they were potentially responsible parties (“PRPs”); however, after giving effect to settlements reached with the Governments, the remaining PRPs exposed to continuing obligations to implement the remainder of the cleanup consist of us, Georgia Pacific Consumer Products, L.P. (“Georgia Pacific”) and NCR Corporation (“NCR”). ~~In addition to the government claims, Appvion, Inc. (“Appvion”) retains a claim against us and Georgia Pacific.~~

The United States Environmental Protection Agency (“EPA”) has divided the Site into ~~five~~5 “operable ~~units,”~~units”, including the most upstream portion of the Site on which our facility was located (“OU1”) and four downstream reaches of the river and bay (“OU2-5”).

We, ~~and WTM I Company, one~~with contributions of ~~the~~certain other PRPs, implemented the remedial action in OU1 under a consent decree with the ~~Governments; Menasha Corporation made a financial contribution to that work.~~Governments. That ~~project began in 2004 and the~~ work is complete, other than on-going monitoring and maintenance.

For OU2-5, work has proceeded primarily under a Unilateral Administrative Order (“UAO”) issued in November 2007 by the EPA to us and seven other respondents. The majority of ~~that~~the work ~~to date~~in OU 2-5 has been funded or conducted by parties other than ~~us, although before the UAO, we contributed to a project in that area and we have conducted about $13.4 million of cleanup work under the UAO in 2015 and 2016.~~us. The cleanup is expected to continue at least through ~~2018. However, as discussed below, under a consent decree between~~2020 and decommissioning thereafter.

In January 2019, we reached an agreement with the United States, the State of Wisconsin, ~~NCR~~ and ~~Appvion~~Georgia-Pacific to resolve all remaining claims among those parties. Under the Glatfelter consent decree, we ~~are not responsible~~settled the United States’ and Wisconsin’s claims for ~~any additional cleanup at the Site.~~

~~Litigation~~response costs paid by them before October 2018 and ~~Settlement~~. In 2008, in an allocation action, NCR and Appvion sued us and many other defendants in an effort to allocate among the liable parties the costs of cleaning up this Site and compensating the Governments for their costs and the natural resource trustees for NRDs. This case has been called the “Whiting litigation.” After several summary judgment rulings and a trial, the trial court entered judgment in the Whiting Litigation allocating to NCR 100% of the costs of (a) the OU2-5 cleanup, (b) NRDs, (c) past and future costs incurred by the Governments in OU2-5, and (d) past and future costs incurred by any of the other parties net of an appropriate equitable adjustment for insurance recoveries.

On appeal, the United States Court of Appeals for the Seventh Circuit affirmed the district court’s ruling, holding that if knowledge and fault were the only equitable factors governing allocation of costs and NRDs at the Site, NCR

~~- 15 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

would owe 100% of all costs and damages in OU2-5, but would not have a share of costs in OU1 -- which is upstream of the outfall of the facilities for which NCR is responsible -- solely as an “arranger for disposal” of PCB-containing waste paper by recycling it at our mill. However, the court of appeals vacated the judgment and remanded the case for the district court’s further consideration of whether any other equitable factors might cause the district court to alter its allocation.

In 2010, in an enforcement action, the Governments sued us and other defendants for (a) an injunction to require implementation of the cleanup ordered by the 2007 UAO, (b) recovery of the Governments’ past and future costs of response, (c) recovery of NRDs, and (d) recovery of a declaration of liability for the Site. After appeals, the Governments did not obtain an injunction and they withdrew their claims for NRDs. The Governments obtained a declaration of our liability to comply with the 2007 UAO. The Governments’ costs claims remained pending.

On January 17, 2017, the United States filed a consent decree with the federal district court among the United States, Wisconsin, NCR, and Appvion (the “NCR/Appvion consent decree”) under which NCR would agree to complete the remaining cleanup and both NCR and Appvion would agree not to seek to recover from us or anyone else any amounts they have spent or will spend, and we and others would be barred from seeking claims against NCR or Appvion. On March 29, 2017, the United States moved for entry of a somewhat revised version of the NCR/Appvion consent decree, which the federal district court entered on August 23, 2017. Under the consent decree, if it were to withstand any appeal, we would only face exposure to: (i) government past oversight costs, (ii) government future oversight costs, (iii) long term monitoring and maintenance, and (iv) depending on the reason, a further remedy if necessary in the event the currently ordered remedy fails, over 30 or more years, to achieve its objectives. As the result of earlier settlements, Georgia Pacific is only jointly liable with us to the Governments for monitoring and maintenance costs incurred in the most downstream three miles of the river (“OU4b”) and the bay of Green Bay (“OU5”).

In addition, we and Georgia Pacific had claims against each other to reallocate the costs that we have each incurred or will incur. We have settled those claims. Under this settlement, Georgia Pacific has agreed to implement theare primarily responsible for long-term monitoring and maintenance in ~~OU4b~~OU2-OU4a and ~~OU5 and~~for reimbursement of government oversight costs paid after October 2018. Finally, we ~~would be~~remain responsible for our obligation to continue long-term monitoring and maintenance under our OU1 consent decree.

Cost estimates. Under terms of ~~all other upstream Operable Units. We paid Georgia Pacific $9.5 million in August 2017.~~

~~The NCR/Appvion~~the Glatfelter consent decree, in January 2019 we paid $20.5 million to the United States in satisfaction of the governments’ claims for costs incurred prior to October 2018, and ~~our settlement with Georgia Pacific resulted in all claims among the responsible parties being barred, waived, or withdrawn. Accordingly, on October 10, 2017, the federal district court~~NRDs.

~~approved a stipulation dismissing all remaining claims in the Whiting litigation. Therefore, unless certain limited circumstances occur permitting reassertion of claims, we~~We are ~~not~~ subject to ~~claims for reallocation of costs or damages incurred by any of~~remaining obligations under the ~~other parties and we cannot seek contribution or reallocation from them.~~

~~On October 20, 2017, we appealed the district court’s approval of the NCR/Appvion consent decree. We contend that the court did not do what was required to properly conclude that the NCR/Appvion~~OU1 consent decree, ~~was substantially fair to us. We contend that the consent decree was unfair to us.~~

~~Cost estimates.~~ ~~The proposed NCR/Appvion consent decree, as revised, states that all parties combined have spent more than approximately $1 billion to date towards remedial actions~~which now consist primarily of long-term monitoring and NRDs, of which we have contributed approximately $75 million. In addition, work to complete the remaining site remedy under the UAO was anticipated to cost approximately $200 million at the beginning of the 2017 remediation season. With the consent decree being entered, we are no longer exposed to reallocation of any of those amounts.

~~Under the NCR/Appvion consent decree, we would remain responsible for the Governments’ unreimbursed past costs, which although in dispute, are represented to total approximately $34 million~~maintenance and ~~the Governments’ future costs. Furthermore, we, along with Georgia Pacific, would be responsible~~ for long term monitoring and maintenance required pursuant to the Lower Fox River 100% Remedial Design Report dated December 2009 – Long Term Monitoring Plan (the “Plan”). The Plan requires long term monitoring of each of OU1 through OU5in OU2-OU4a over a period of at least 30 years. The monitoring activities consist of, among others, testing fish tissue, sampling water quality and sediment, and inspections of the engineered caps. ~~Each operable unit is required to be monitored; however, because~~In the first quarter of 2018, we entered into a fixed-price, 30-year agreement with a third party for the performance of all of our ~~settlement~~monitoring and maintenance obligations in OU1 through OU4a with ~~Georgia Pacific,~~limited exceptions, such as, for extraordinary amounts of cap maintenance or replacement. Our obligation under this agreement is included in our ~~obligations are in OU1-OU4a. Although we are unable to determine with certainty the timing of cash expenditures~~total reserve for the ~~above matters, they~~Site. We are ~~reasonably likely~~obligated to ~~extend over~~make the regular payments under that fixed-price contract until the remaining amount due is less than the OU1 escrow account balance. We are permitted to pay for this contract using the remaining balance of the escrow account established by us and WTM I Company (“WTM I”) another PRP, under the OU1 consent decree during any period that the balance in the escrow account exceeds the amount due under our fixed-price contract. As of March 31, 2020, the balance in the escrow is less than amounts due under the fixed-price contract by approximately $1.8 million. We secured our obligation to pay that difference with a ~~period~~letter of ~~at least 30 years.~~credit.

At March 31, 2020, the escrow account balance totaled $9.0 million which is included in the condensed consolidated balance sheet under the caption “other assets.”

- 1620 -

GLATFELTER

~~09.30.17~~ Form 10-Q

Under the consent decree, we will be responsible for reimbursement of government oversight costs incurred from October 2018 and later over approximately the next 30 years. We anticipate that a significant portion of the oversight costs will be incurred until such time as remediation is completed. Once completed, costs will be an order of magnitude lower in most years during the period of long-term monitoring and maintenance.

Reserves for the Site.Our reserve for ~~all remaining claims against us relating to PCB contamination~~past and future government oversight costs and long-term monitoring and maintenance is set forth below:

	Nine months ended September 30						Three months ended March 31
In thousands		2017			2016			2020			2019
Balance at January 1,	$	52,788		$	17,105		$	21,870		$	45,001
Payments		(9,581	)		(4,193	)		(131	)		(20,535	)
Accruals		-			-
Balance at September 30,	$	43,207		$	12,912
Reserve adjustment								—			(2,509	)
Accretion								52		56
Balance at March 31,							$	21,791		$	22,013

The payments set forth above represent ~~cash~~the $20.5 million paid ~~towards completion of remediation activities~~ in ~~connection with~~2019 pursuant to the ~~2016~~Glatfelter consent decree and ~~2015 Work Plans,~~for amounts due under the ~~Georgia-Pacific settlement~~long-term monitoring and ~~ongoing monitoring activities.~~maintenance agreement. Of our total reserve for the Fox River, ~~$20.0~~$8.0 million is recorded in the accompanying ~~September 30, 2017~~March 31, 2020 condensed consolidated balance sheet under the caption “Environmental liabilities” and the remaining ~~$23.2~~$13.8 million is recorded under the caption “Other long term liabilities.”

Range of Reasonably Possible Outcomes. Based on our analysis of all available information, including but not limited to decisions of the courts, official documents such as records of decision, discussions with legal counsel, cost estimates for

future monitoring and maintenance and other post-remediation costs to be performed at the Site, we do not believe ~~it is reasonably possible~~ that our costs associated with the Fox River matter could exceed the aggregate amounts accrued by amounts ranging from insignificant to approximately $30 million. We believe the likelihood of an outcome in the upper end of the monetary range is less than other possible outcomes within the range and the possibility of an outcome in excess of the upper end of the monetary range is remote.

~~Summary~~. Our current assessment is we will be able to manage this environmental matter without a long-term, material adverse impact on the Company. This matter could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial position, liquidity and/or results of operations or could result in a default under our debt covenants. Moreover, there can be no assurance our reserves will be adequate to provide for future obligations related to this matter, or our share of costs and/or damages will not exceed our available resources, or those obligations will not have a material adverse effect on our consolidated financial position, liquidity and results of operations and might result in a default under our loan covenants.amount.

~~- 17 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

~~14.~~18.

~~SEGMENT~~SEGMENT INFORMATION

The following tables set forth financial and other information by ~~business unit~~segment for the period indicated:

Three months ended September 30					Advanced Airlaid								Other and
Dollars in millions	Composite Fibers				Materials				Specialty Papers				Unallocated						Total
Three months ended March 31																																	Other and
Dollars in thousands																									Composite Fibers				Airlaid Materials				Unallocated						Total
	2017		2016		2017		2016		2017		2016		2017			2016			2017			2016			2020		2019		2020		2019		2020			2019			2020			2019
Net sales	$	142.3	$	131.7	$	67.8	$	61.9	$	203.2	$	211.8	$	—		$	—		$	413.3		$	405.3		$	132,711	$	128,717	$	98,849	$	100,416	$	—		$	—		$	231,560		$	229,133
Energy and related sales, net		—	—			—	—			1.2		1.3		—			—			1.2			1.3
Total revenue		142.3		131.7		67.8	61.9			204.4		213.1		—			—			414.6			406.6
Cost of products sold		115.0		105.8		57.2		53.5		179.7		180.1		7.9			6.1			359.8			345.5			106,985		106,563		82,246		85,989		5,454			964			194,685			193,516
Gross profit (loss)		27.3		25.9		10.6		8.4		24.7		33.0		(7.9	)		(6.1	)		54.7			61.2			25,726		22,154		16,603		14,427		(5,454	)		(964	)		36,875			35,617
SG&A		10.9		11.9		2.4		2.0		12.2		14.3		7.9			7.5			33.4			35.7			10,624		10,805		4,581		4,389		9,389			9,428			24,594			24,622
(Gains) losses on dispositions of plant, equipment and timberlands, net		—		—		—		—		—		—		—			—			—			—
Gains on dispositions of plant, equipment and timberlands, net																										—		—		—		—		—			(669	)		—			(669	)
Total operating income (loss)		16.4		14.0		8.2		6.4		12.5		18.7		(15.8	)		(13.6	)		21.4			25.4			15,102		11,349		12,022		10,038		(14,843	)		(9,723	)		12,281			11,664
Non-operating expense		—		—		—		—		—		—		(5.0	)		(4.4	)		(5.0	)		(4.4	)		—		—		—		—		(2,267	)		(5,203	)		(2,267	)		(5,203	)
Income (loss) before income taxes	$	16.4	$	14.0	$	8.2	$	6.4	$	12.5	$	18.7	$	(20.8	)	$	(18.0	)	$	16.4		$	21.0		$	15,102	$	11,349	$	12,022	$	10,038	$	(17,110	)	$	(14,926	)	$	10,014		$	6,461
Supplementary Data
Net tons sold (thousands)		43.8		39.1		26.2		25.2		197.1		197.3		—			—			267.1			261.5			35,983		31,529		35,039		33,177		—			—			71,022			64,706
Depreciation, depletion and amortization	$	7.1	$	6.9	$	2.5	$	2.4	$	8.0	$	6.4	$	3.8		$	0.6		$	21.4		$	16.3
Depreciation, depletion and amortization⁽¹⁾																									$	6,466	$	6,674	$	5,451	$	5,268	$	3,485		$	846		$	15,402		$	12,788
Capital expenditures		3.8		5.1		12.6		4.3		10.2		26.7		4.5			0.5			31.1			36.6			3,956		3,188		2,103		2,192		955			485			7,014			5,865

Nine months ended September 30

Advanced Airlaid

Other and

Dollars in millions
Composite Fibers

Materials

Specialty Papers

Unallocated

Total

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

Net sales
$
400.6

$
391.6

$
190.4

$
183.4

$
600.3

$
638.9

$
—

$
—

$
1,191.4

$
1,213.9

Energy and related sales, net

—

—

—

—

3.3

4.0

—

—

3.3

4.0

Total revenue

400.6

391.6

190.4

183.4

603.6

642.9

—

—

1,194.7

1,217.9

Cost of products sold

322.2

316.0

160.7

157.5

555.7

574.1

14.0

8.6

1,052.6

1,056.2

Gross profit (loss)

78.4

75.6

29.7

25.9

47.9

68.8

(14.0
)

(8.6
)

142.1

161.7

SG&A

32.9

35.1

6.9

6.2

36.0

40.9

24.7

22.6

100.5

104.8

(Gains) losses on dispositions of plant,

equipment and timberlands, net

—

—

—

—

—

—

—

—

—

—

Total operating income (loss)

45.5

40.5

22.8

19.7

11.9

27.9

(38.7
)

(31.2
)

41.7

56.9

Non-operating expense

—

—

—

—

—

—

(13.7
)

(12.7
)

(13.7
)

(12.7
)
Income (loss) before
income taxes
$
45.5

$
40.5

$
22.8

$
19.7

$
11.9

$
27.9

$
(52.4
)

$
(43.9
)

$
27.9

$
44.2

Supplementary Data

Net tons sold (thousands)

124.5

116.7

76.6

74.1

578.4

597.7

—

—

779.5

788.5

Depreciation, depletion and
amortization
$
20.9

$
21.2

$
7.1

$
7.0

$
22.9

$
19.7

$
5.4

$
1.8

$
56.3

$
49.7

Capital expenditures

10.6

13.7

36.1

25.0

44.2

77.4

11.3

0.8

102.2

116.9

(1)

The amount presented in 2020 in the Other and unallocated column represents accelerated depreciation incurred in connection with the restructuring of our metallized operations.

- 21 -

GLATFELTER

Form 10-Q

~~The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.~~

~~Business Units~~Segments Results of individual ~~business units~~operating segments are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual ~~business units~~segments are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the ~~business units.~~segments. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the ~~business unit~~segment are allocated primarily based on an estimated utilization of support area services or are included in “Other and Unallocated” in the ~~Business Unit Performance table.~~table set forth above.

Management evaluates results of operations of the ~~business units~~operating segments before ~~pension expense,~~ certain corporate level costs and the effects of certain gains or losses not considered to be related to the core business operations. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of ~~business units~~the segments and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” In the evaluation of ~~business unit~~operating segments results, management does not use any measures of total assets. This presentation is aligned with the management and operating structure of our company. It is also on this basis that the Company’s performance is evaluated internally and by the Company’s Board of Directors.

~~- 18 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

~~15.~~

~~CONDENSED CONSOLIDATING FINANCIAL STATEMENTS~~

Our 5.375% Notes issued by P. H. Glatfelter Company (the “Parent”) are fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., Glatfelter Composite Fibers N. A., Inc. (“CFNA”), Glatfelter Advance Materials N.A., Inc. (“GAMNA”), and Glatfelter Holdings, LLC. The guarantees are subject to certain customary release provisions including i) the designation of such subsidiary as an unrestricted or excluded subsidiary; (ii) in connection with any sale or disposition of the capital stock of the subsidiary guarantor; or (iii) upon our exercise of our legal defeasance option or our covenant defeasance option, all of which are more fully described in the Indenture dated as of October 3, 2012 and the First Supplemental Indenture dated as of October 27, 2015, among us, the Guarantors and US Bank National Association, as Trustee, relating to the 5.375% Notes.

The following presents our condensed consolidating statements of income, including comprehensive income, for the three months and nine months ended September 30, 2017 and 2016, our condensed consolidating balance sheets as of September 30, 2017 and December 31, 2016, and our condensed consolidating cash flows for the nine months ended September 30, 2017 and 2016.

~~Condensed Consolidating Statement of Income for the three months ended September 30, 2017~~

In thousands
Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net sales
$
203,205

$
20,588

$
211,331

$
(21,799
)

$
413,325

Energy and related sales, net

1,236

—

—

—

1,236

Total revenues

204,441

20,588

211,331

(21,799
)

414,561

Costs of products sold

188,677

19,525

173,423

(21,799
)

359,826

Gross profit

15,764

1,063

37,908

—

54,735

Selling, general and administrative

expenses

18,730

536

14,133

—

33,399

(Gain) loss on dispositions of plant

equipment and timberlands, net

70

(114
)

20

—

(24
)
Operating income (loss)

(3,036
)

641

23,755

—

21,360

Other non-operating

income (expense)

Interest expense

(5,241
)

(300
)

(436
)

1,430

(4,547
)
Interest income

160

1,316

5

(1,430
)

51

Equity in earnings of subsidiaries

17,880

18,096

—

(35,976
)

—

Other, net

498

(1,920
)

944

—

(478
)
Total other non-operating

income (expense)

13,297

17,192

513

(35,976
)

(4,974
)
Income before income taxes

10,261

17,833

24,268

(35,976
)

16,386

Income tax provision (benefit)

(1,844
)

(47
)

6,172

—

4,281

Net income

12,105

17,880

18,096

(35,976
)

12,105

Other comprehensive income

17,330

14,812

14,959

(29,771
)

17,330

Comprehensive income
$
29,435

$
32,692

$
33,055

$
(65,747
)

$
29,435

~~- 19 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

~~Condensed Consolidating Statement of Income for the nine months ended September 30, 2017~~

In thousands
Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net sales
$
600,346

$
63,173

$
591,926

$
(64,065
)

$
1,191,380

Energy and related sales, net

3,346

—

—

—

3,346

Total revenues

603,692

63,173

591,926

(64,065
)

1,194,726

Costs of products sold

568,067

60,158

488,466

(64,065
)

1,052,626

Gross profit

35,625

3,015

103,460

—

142,100

Selling, general and administrative

expenses

55,976

846

43,662

—

100,484

(Gain) loss on dispositions of plant

equipment and timberlands, net

118

(188
)

20

—

(50
)

Operating income (loss)

(20,469
)

2,357

59,778

—

41,666

Other non-operating

income (expense)

Interest expense

(15,084
)

(619
)

(1,377
)

4,049

(13,031
)

Interest income

451

3,714

93

(4,049
)

209

Equity in earnings of subsidiaries

50,298

51,197

—

(101,495
)

—

Other, net

1,525

(6,445
)

4,014

—

(906
)

Total other non-operating

income (expense)

37,190

47,847

2,730

(101,495
)

(13,728
)

Income before income taxes

16,721

50,204

62,508

(101,495
)

27,938

Income tax provision (benefit)

(1,273
)

(94
)

11,311

—

9,944

Net income

17,994

50,298

51,197

(101,495
)

17,994

Other comprehensive income

50,855

43,878

43,344

(87,222
)

50,855

Comprehensive income
$
68,849

$
94,176

$
94,541

$
(188,717
)

$
68,849

~~Condensed Consolidating Statement of Income for the three months ended September 30, 2016~~

In thousands
Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net sales
$
211,761

$
18,086

$
192,214

$
(16,760
)

$
405,301

Energy and related sales, net

1,346

—

—

—

1,346

Total revenues

213,107

18,086

192,214

(16,760
)

406,647

Costs of products sold

186,297

16,732

159,208

(16,760
)

345,477

Gross profit

26,810

1,354

33,006

—

61,170

Selling, general and administrative

expenses

21,048

(25
)

14,724

—

35,747

(Gain) loss on dispositions of plant

equipment and timberlands, net

7

—

(2
)

—

5

Operating income

5,755

1,379

18,284

—

25,418

Other non-operating

income (expense)

Interest expense

(4,332
)

(1
)

(751
)

1,189

(3,895
)
Interest income

173

1,063

5

(1,189
)

52

Equity in earnings of subsidiaries

17,228

16,225

—

(33,453
)

—

Other, net

(670
)

(819
)

916

—

(573
)
Total other non-operating

income (expense)

12,399

16,468

170

(33,453
)

(4,416
)
Income before income taxes

18,154

17,847

18,454

(33,453
)

21,002

Income tax provision (benefit)

(1,447
)

619

2,229

—

1,401

Net income

19,601

17,228

16,225

(33,453
)

19,601

Other comprehensive loss

(69
)

(2,307
)

(2,462
)

4,769

(69
)
Comprehensive income
$
19,532

$
14,921

$
13,763

$
(28,684
)

$
19,532

~~- 20 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

~~Condensed Consolidating Statement of Income for the nine months ended September 30, 2016~~

In thousands
Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net sales
$
638,918

$
54,293

$
573,355

$
(52,634
)

$
1,213,932

Energy and related sales, net

4,013

—

—

—

4,013

Total revenues

642,931

54,293

573,355

(52,634
)

1,217,945

Costs of products sold

582,751

51,493

474,599

(52,634
)

1,056,209

Gross profit

60,180

2,800

98,756

—

161,736

Selling, general and administrative

expenses

62,115

(246
)

42,927

—

104,796

Loss on dispositions of plant

equipment and timberlands, net

11

—

20

—

31

Operating income (loss)

(1,946
)

3,046

55,809

—

56,909

Other non-operating

income (expense)

Interest expense

(13,036
)

(1
)

(2,352
)

3,425

(11,964
)

Interest income

523

3,056

50

(3,425
)

204

Equity in earnings of subsidiaries

46,485

44,050

—

(90,535
)

—

Other, net

(1,787
)

(2,220
)

3,051

—

(956
)

Total other non-operating

income (expense)

32,185

44,885

749

(90,535
)

(12,716
)

Income before income taxes

30,239

47,931

56,558

(90,535
)

44,193

Income tax provision (benefit)

(7,495
)

1,446

12,508

—

6,459

Net income

37,734

46,485

44,050

(90,535
)

37,734

Other comprehensive income (loss)

4,134

(2,691
)

(2,835
)

5,526

4,134

Comprehensive income
$
41,868

$
43,794

$
41,215

$
(85,009
)

$
41,868

~~Condensed Consolidating Balance Sheet as of September 30, 2017~~

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Assets

Cash and cash equivalents

$
374

$
682

$
83,231

$
—

$
84,287

Other current assets

226,678

287,440

289,956

(316,866
)

487,208

Plant, equipment and timberlands, net

383,014

70,093

402,910

—

856,017

Investments in subsidiaries

885,734

634,893

—

(1,520,627
)

—

Other assets

129,617

—

139,665

—

269,282

Total assets

$
1,625,417

$
993,108

$
915,762

$
(1,837,493
)

$
1,696,794

Liabilities and Shareholders' Equity

Current liabilities

$
436,791

$
58,602

$
157,486

$
(316,866
)

$
336,013

Long-term debt

357,441

49,000

52,584

—

459,025

Deferred income taxes

14,478

(541
)

51,660

—

65,597

Other long-term liabilities

106,111

313

19,139

—

125,563

Total liabilities

914,821

107,374

280,869

(316,866
)

986,198

Shareholders’ equity

710,596

885,734

634,893

(1,520,627
)

710,596

Total liabilities and shareholders’ equity

$
1,625,417

$
993,108

$
915,762

$
(1,837,493
)

$
1,696,794

~~- 21 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

~~Condensed Consolidating Balance Sheet as of December 31, 2016~~

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Assets

Cash and cash equivalents

$
5,082

$
1,461

$
48,901

$
—

$
55,444

Other current assets

206,002

256,289

242,187

(265,663
)

438,815

Plant, equipment and timberlands, net

360,521

31,455

383,922

—

775,898

Investments in subsidiaries

789,565

540,029

—

(1,329,594
)

—

Other assets

123,010

—

128,092

—

251,102

Total assets

$
1,484,180

$
829,234

$
803,102

$
(1,595,257
)

$
1,521,259

Liabilities and Shareholders' Equity

Current liabilities

$
426,628

$
26,085

$
135,961

$
(265,663
)

$
323,011

Long-term debt

283,686

14,000

65,961

—

363,647

Deferred income taxes

10,221

(729
)

45,503

—

54,995

Other long-term liabilities

109,819

313

15,648

—

125,780

Total liabilities

830,354

39,669

263,073

(265,663
)

867,433

Shareholders’ equity

653,826

789,565

540,029

(1,329,594
)

653,826

Total liabilities and shareholders’ equity

$
1,484,180

$
829,234

$
803,102

$
(1,595,257
)

$
1,521,259

~~Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2017~~

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net cash provided (used) by

Operating activities

$
(17,066
)

$
(3,241
)

$
73,103

$
—

$
52,796

Investing activities

Expenditures for purchases of plant, equipment and timberlands

(55,415
)

(32,847
)

(13,910
)

—

(102,172
)

Proceeds from disposals of plant, equipment and timberlands, net

8

209

—

—

217

Repayments from intercompany loans

—

12,000

—

(12,000
)

—

Advances of intercompany loans

—

(13,500
)

—

13,500

—

Intercompany capital contributed

(2,000
)

(400
)

—

2,400

—

Other

(100
)

—

—

—

(100
)

Total investing activities

(57,507
)

(34,538
)

(13,910
)

3,900

(102,055
)

Financing activities

Net long-term borrowings

73,298

35,000

(18,711
)

—

89,587

Payment of dividends to shareholders

(16,805
)

—

—

—

(16,805
)

Repayments of intercompany loans

—

—

(12,000
)

12,000

—

Borrowings of intercompany loans

13,500

—

—

(13,500
)

—

Intercompany capital received

—

2,000

400

(2,400
)

—

Payment of intercompany dividend

—

—

—

—

—

Payments related to share-based compensation awards and other

(128
)

—

—

—

(128
)

Total financing activities

69,865

37,000

(30,311
)

(3,900
)

72,654

Effect of exchange rate on cash

—

—

5,448

—

5,448

Net increase (decrease) in cash

(4,708
)

(779
)

34,330

—

28,843

Cash at the beginning of period

5,082

1,461

48,901

—

55,444

Cash at the end of period

$
374

$
682

$
83,231

$
—

$
84,287

- 22 -

GLATFELTER

~~09.30.17~~ Form 10-Q

~~Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2016~~

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net cash provided (used) by

Operating activities

$
41,753

$
3,748

$
13,936

$
—

$
59,437

Investing activities

Expenditures for purchases of plant, equipment and timberlands

(78,187
)

(21,066
)

(17,695
)

—

(116,948
)

Proceeds from disposals of plant, equipment and timberlands, net

41

—

14

—

55

Repayments from intercompany loans

—

11,101

—

(11,101
)

—

Advances of intercompany loans

—

(12,330
)

—

12,330

—

Intercompany capital (contributed) returned

(17,000
)

(500
)

—

17,500

—

Other

(400
)

—

—

—

(400
)

Total investing activities

(95,546
)

(22,795
)

(17,681
)

18,729

(117,293
)

Financing activities

Net long-term borrowings

—

—

14,983

—

14,983

Payments of borrowing costs

(136
)

—

—

—

(136
)

Payment of dividends to shareholders

(16,134
)

—

—

—

(16,134
)

Repayments of intercompany loans

—

—

(11,101
)

11,101

—

Borrowings of intercompany loans

12,330

—

—

(12,330
)

—

Intercompany capital (returned) received

—

17,000

500

(17,500
)

—

Proceeds from government grants

3,251

2,000

—

—

5,251

Payments related to share-based compensation awards and other

(990
)

—

—

—

(990
)

Total financing activities

(1,679
)

19,000

4,382

(18,729
)

2,974

Effect of exchange rate on cash

—

—

330

—

330

Net increase (decrease) in cash

(55,472
)

(47
)

967

—

(54,552
)

Cash at the beginning of period

59,130

465

45,709

—

105,304

Cash at the end of period

$
3,658

$
418

$
46,676

$
—

$
50,752

~~- 23 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and Glatfelter’s Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2016~~2019 Annual Report on Form 10-K.

Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-Q are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements ~~regarding expectations of, among others, shipping volumes, selling prices, input costs, non-cash pension expense, environmental costs, capital expenditures and liquidity,~~ all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

risks associated with the impact of the COVID-19 pandemic including global and regional economic conditions, changes in demand for our products, interruptions in our global supply chain, ability to continue production by our facilities, credit conditions of our customers or suppliers, or potential legal actions that could arise due to our operations during the pandemic;

ii.

variations in demand for our products including the impact of unplanned market-related downtime, variations in product pricing, or product substitution;

~~ii.~~

iii.

the impact of competition, ~~both domestic and international,~~ changes in industry production capacity, including the construction of new mills or new machines, the closing of mills and incremental changes due to capital expenditures or productivity increases;

~~iii.~~

iv.

risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;

~~iv.~~

geopolitical matters, including any impact to our operations from events ~~including the impact of conflicts such as~~in Russia, Ukraine and ~~Ukraine;~~Philippines;

vi.

our ability to develop new, high value-added products;

~~vi.~~

vii.

changes in the ~~cost~~price or availability of raw materials we use, ~~in particular pulpwood, pulp,~~particularly woodpulp, pulp substitutes, ~~caustic soda,~~synthetic pulp, and abaca fiber;

~~vii.~~

viii.

changes in energy-related ~~costs~~prices and commodity raw materials with an energy component;

~~viii.~~

ix.

the impact of unplanned production ~~interruption;~~interruption at our facilities or at any of our key suppliers;

~~ix.~~

disruptions in production and/or increased costs due to labor ~~disputes including an inability to renew our collective bargaining arrangement for the Spring Grove, PA facility which expired in February 2017;~~disputes;

x.	~~the impact of exposure to volatile market-based pricing for sales of excess electricity;~~

xi.	the gain or loss of significant customers and/or on-going viability of such customers;

~~xii.~~

cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls ("PCBs") in the lower Fox River on which our former Neenah mill was located;

~~xiii.~~

~~our ability to successfully complete the implementation of new manufacturing and business systems to support Advanced Airlaid Materials;~~

~~xiv.~~

~~adverse results in litigation in the Fox River matter;~~

~~xv.~~xii.

the impact of war and terrorism;

~~xvi.~~

xiii.

the impact of unfavorable outcomes of audits by various state, federal or international tax authorities or changes in pre-tax income and its impact on the valuation of deferred taxes;

~~xvii.~~

xiv.

enactment of adverse state, federal or foreign tax or other legislation or changes in government legislation, policy or regulation; and

~~xviii.~~

xv.

our ability to finance, consummate and integrate acquisitions.

COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic as the virus spread throughout the world. As the virus continued its rapid spread, a significant portion of the world’s economies was significantly impacted, and will continue to be so, by government mandates that all “non-essential” businesses close and that residents “shelter-in-place” or practice “social distancing.” These actions have had, and are likely to have, a significant adverse impact on a wide range of economies and industries throughout the world, including certain markets we serve. As disclosed in Item 1A – Risk Factors of our 2019 Annual Report on Form 10-K, we included a risk factor stating, “Our business and financial performance may be adversely affected by a weak global economic environment or downturns in the target markets that we serve. - Adverse global economic conditions could impact our target markets resulting in decreased demand for our products. Our results could be adversely affected if economic conditions weaken.” The COVID-19 pandemic and the actions undertaken throughout the world in an attempt to contain the virus have had an unprecedented and significant adverse impact on global economies in terms of reduced GDP, increased unemployment, and insolvencies in a variety of industries and markets. As a result, we have experienced and expect to continue to experience weaker demand for certain of our products due to the effects of the pandemic.

Through the end of the first quarter of 2020, our financial performance and results of operations have not been meaningfully impacted by the weaker economic conditions as our business was determined to be “essential or life-sustaining” and we continued to produce products used in the global response effort to the pandemic. We believe demand for certain of our products, such as Airlaid

- 23 -

GLATFELTER

Form 10-Q

Materials’ personal hygiene and wipes, will remain strong in the next quarter. To date, we have successfully maintained our global supply chain securing critical raw materials with minimal disruptions or incremental costs and the demand for substantially all products has been stable as our customers continued to serve critical products to end-user consumers.

Although we anticipate a decline in overall economic activity, we believe demand for the majority of our products remains strong. As disclosed in Item 1A – Risk Factors to our 2019 Annual Report, “approximately $68 million of our revenue in 2019, was earned from customers located in Ukraine, Russia and members of the Commonwealth of Independent States.” The large majority of our revenue from this region consists of wallcover base material. If the governmental authorities continue aggressive actions to fight the spread of COVID-19 in these regions, or if economic hardships continue, we expect sales to some of our customers, such as wallpaper printers, will be adversely impacted.

The health and safety of our employees and their families are a top priority, and we are taking all the necessary measures to protect them. We have instituted several new safety, hygiene and communication protocols throughout our facilities to ensure we maintain our ability to produce product. Accordingly, we are proactively working to identify and mitigate risks to safeguard the continuity of our business. We believe we are well positioned from a liquidity and leverage perspective following the successful cost optimization initiatives and debt refinancing in 2019. As a result, we believe we are able to supply our customers high-quality engineered materials necessary to manufacture a variety of essential and life-sustaining consumer staples including wipes, health and hygiene products, and food and beverage items during this challenging time.

RESULTS OF OPERATIONS

Introduction We manufacture a wide array of ~~specialty papers~~engineered materials and ~~engineered materials. We manage~~report our ~~company~~results along ~~three business units:~~two segments:

~~Composite Fibers~~ with revenue from the sale of single-serve tea and coffee filtration papers, nonwoven wallcovering base materials, metallized products, composite laminate papers, and many technically special papers including substrates for electrical applications;
•
Composite Fibers with revenue from the sale of single-serve tea and coffee filtration products, wallcovering base materials, composite laminates, technical specialties including substrates for electrical applications, and metallized products; and

•

Airlaid Materials with revenue from the sale of airlaid nonwoven fabric-like materials used in feminine hygiene and adult incontinence products, specialty wipes, home care products and other airlaid applications.

~~Advanced Airlaid Materials~~ ~~with revenue from the sale of airlaid nonwoven fabric-like materials used in feminine hygiene and adult incontinence products, specialty wipes, home care products and other airlaid applications; and~~

The former Specialty Papers ~~with revenue from~~business’ results of operations and financial condition are reported as discontinued operations. Following is a discussion and analysis primarily of the ~~sale~~financial results of ~~papers for carbonless~~operations and other forms, envelopes, book publishing, and engineered products such as papers for high-speed ink jet printing, office specialty products, greeting cards, packaging, casting, release, transfer, playing card, postal, FDA-compliant food, and other niche specialty applications.financial condition of our continuing operations.

~~- 24 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

~~RESULTS OF OPERATIONS~~

~~Nine~~Three months ended ~~September 30, 2017~~March 31, 2020 versus the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2019

Overview For the first ~~nine~~three months of ~~2017 net~~2020, we reported income ~~totaled $18.0~~from continuing operations of $7.4 million, or ~~$0.41~~$0.17 per ~~diluted~~ share compared with ~~$37.7~~$4.6 million and ~~$0.86~~$0.10 per diluted share in the year earlier period.

The results were driven by year-over year improved results of both of our segments. Composite Fibers’ shipments increased by 14.1% and operating profit improved by 33.1% and in Airlaid Materials, shipments increased 5.6% year over year and operating profit increased 19.8%. In addition, interest expense, net declined $2.7 million reflecting the benefits of our debt refinancing in 2019. The following table sets forth summarized consolidated results of operations:

	Nine months ended September 30				Three months ended March 31
In thousands, except per share	2017		2016		2020		2019
Net sales	$	1,191,380	$	1,213,932	$	231,560	$	229,133
Gross profit		142,100		161,736		36,875		35,617
Operating income		41,666		56,909		12,281		11,664
Continuing operations
Income						7,406		4,603
Earnings per share						0.17		0.10
Discontinued operations
Income from discontinued operations						—		683
Earnings per share						—		0.02
Net income		17,994		37,734		7,406		5,286
Earnings per diluted share		0.41	0.86
Earnings per share					$	0.17	$	0.12

Reported results in the first nine months of 2017 and 2016 include on a pre-tax basis $19.5 million and $8.0 million, respectively, of net costs considered to be unusual or non-core business in nature. The decline in our results summarized in the table above reflects the $11.5 million increase in such costs. Our Composite Fibers and Advanced Airlaid Materials businesses, which combined represented approximately 50% of consolidated net sales, reported higher operating income and operating margin expansion in the comparison driven by higher shipping volumes and improved productivity. Specialty Papers’ results declined significantly in the comparison reflecting challenging market conditions.- 24 -

GLATFELTER

Form 10-Q

In addition to the results reported in accordance with GAAP, we evaluate our performance using adjusted earnings and adjusted earnings per diluted share. We disclose this information to allow investors to evaluate our performance exclusive of certain items that impact the comparability of results from period to period and we believe it is helpful in understanding underlying operating trends and cash flow generation.

Adjusted earnings from continuing operations for the first three months of 2020 were $10.8 million, or $0.24 per diluted share compared with $7.3 million, or $0.16 per diluted share, for the same period a year ago. Adjusted earnings consists of net income determined in accordance with GAAP adjusted to exclude the impact of the following:

Restructuring charge – Metallized operations. This adjustment represents the charges incurred in connection with the decision to restructure a portion of the Composite Fibers segment, primarily consisting of the consolidation of our metallizing operation from Gernsbach, Germany to our Caerphilly, U.K. site. The charge includes a non-cash charge of $2.5 million associated with accelerated depreciation on machinery that will no longer be used and cash severance costs totaling $3.5 million.

Cost optimization actions. These adjustments ~~reflects~~reflect charges incurred in connection with initiatives to optimize the cost structure of ~~certain business units in response~~the Company including costs related to ~~changes in business conditions.~~the organizational change to a functional operating model. The costs are primarily related to executive separation, other headcount ~~reduction efforts,~~reductions, professional fees, asset write-offs and certain contract termination costs.

~~Specialty Papers environmental compliance.~~ These adjustments, ~~reflect non-capitalized, one-time costs incurred by~~which have occurred at various times in the ~~business unit directly~~past, are irregular in timing and relate to specific identified programs to reduce or optimize the cost structure of a particular operating segment or the corporate function.

Qualified pension plan termination. This adjustment reflects professional fees recorded in connection with the Company’s termination of its qualified pension plan and the related actions to settle all obligations to the ~~compliance~~plan’s participants. In the fourth quarter of 2019, the Company incurred a $75.3 million pension settlement charge in connection with the ~~U.S. EPA Best Available Retrofit Technology rule and~~termination of the ~~Boiler Maximum Achievable Control Technology rule. This adjustment includes costs incurred during~~plan. Since the ~~transition period in which~~pension plan was fully funded, the ~~newly installed equipment~~settlement of the pension obligations did not require the use of the Company’s cash, but instead was ~~brought on-line.~~accomplished with plan assets.

Airlaid capacity expansion costs. These adjustments reflect non-capitalized, one-time costs incurred related to the start-up of a new airlaid production facility in Fort Smith, ~~Arkansas.~~Arkansas and implementation of a new business system.

Debt refinancing costs. Represents a charge to write-off unamortized debt issuance costs in connection with the redemption of the Company’s $250 million, 5.375% Notes.

Strategic initiatives. These adjustments primarily reflect professional and legal fees incurred directly related to evaluating and executing certain strategic initiatives including costs associated with acquisitions and the related integration.

Fox River environmental matter. This adjustment excludes a gain for a decrease in the Company’s overall reserve for the Fox River matter primarily due to the resolution of the litigation in the first quarter of 2019.

Timberland sales and related costs. These adjustments exclude gains from the sales of timberlands as these items are not considered to be part of our core business, ongoing results of operations or cash flows. These adjustments are irregular in timing and amount and may significantly impact our operating ~~performance.~~results.

Coronavirus Aid, Relief, and Economic Security (CARES) Act 2020. This adjustment reflects the tax benefit recognized as a result of the March 27, 2020 change in U.S. tax law which, among others, allowing net operating losses to be carried back five years.

Adjusted earnings and adjusted earnings per ~~diluted~~ share are considered measures not calculated in accordance with GAAP, and therefore are non-GAAP measures. The non-GAAP financial information should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP. The following table sets forth the reconciliation of net income to adjusted earnings for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019:

- 25 -

GLATFELTER

Form 10-Q

	Nine months ended September 30										Year to date ended March 31
	2017					2016					2020					2019
In thousands, except per share	Amount			Diluted EPS		Amount			Diluted EPS		Amount			EPS		Amount			EPS
Net income	$	17,994		$	0.41	$	37,734		$	0.86	$	7,406		$	0.17	$	5,286		$	0.12
Exclude: Net income from discontinued operations												—			—		(683	)		(0.02	)
Income from continuing operations												7,406			0.17		4,603			0.10
Adjustments (pre-tax)
Restructuring charge - Metallized operations												5,987					—
Cost optimization actions		9,627					88					1,748					3,923
Specialty Papers' environmental compliance		3,076					6,645
Qualified pension plan termination												73					—
Airlaid capacity expansion costs		7,034					1,308					—					1,014
Debt refinancing												—					992
Strategic initiatives												—					107
Fox River environmental matter												—					(2,509	)
Timberland sales and related costs		(188	)				-					—					(458	)
Total adjustments (pre-tax)		19,549					8,041					7,808					3,069
Income taxes (1)		(1,122	)				(2,736	)				(1,835	)				(389	)
CARES Act of 2020 tax benefit ⁽²⁾												(2,569	)				-
Total after-tax adjustments		18,427			0.41		5,305			0.12		3,404			0.07		2,680			0.06
Adjusted earnings	$	36,421		$	0.82	$	43,039		$	0.98	$	10,810		$	0.24	$	7,283		$	0.16

(1)

Tax effect on adjustments calculated based on the incremental effective tax rate of the jurisdiction in which each adjustment ~~originated and the related impact of valuation allowances.~~originated.

(2)

Tax benefit recorded in connection with passage of the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) related to provisions that modified the “net operating loss” provisions of previous law to allow certain losses to be carried back five years.

The sum of individual per share amounts set forth above may not agree to adjusted earnings per share due to rounding.

Segment Financial Performance

Three months ended March 31									Other and
Dollars in thousands	Composite Fibers				Airlaid Materials				Unallocated						Total
	2020		2019		2020		2019		2020			2019			2020			2019
Net sales	$	132,711	$	128,717	$	98,849	$	100,416	$	—		$	—		$	231,560		$	229,133
Cost of products sold		106,985		106,563		82,246		85,989		5,454			964			194,685			193,516
Gross profit (loss)		25,726		22,154		16,603		14,427		(5,454	)		(964	)		36,875			35,617
SG&A		10,624		10,805		4,581		4,389		9,389			9,428			24,594			24,622
Gains on dispositions of plant, equipment and timberlands, net		—		—		—		—		—			(669	)		—			(669	)
Total operating income (loss)		15,102		11,349		12,022		10,038		(14,843	)		(9,723	)		12,281			11,664
Non-operating expense		—		—		—		—		(2,267	)		(5,203	)		(2,267	)		(5,203	)
Income (loss) before income taxes	$	15,102	$	11,349	$	12,022	$	10,038	$	(17,110	)	$	(14,926	)	$	10,014		$	6,461
Supplementary Data
Net tons sold (thousands)		35,983		31,529		35,039		33,177		—			—			71,022			64,706
Depreciation, depletion and amortization⁽¹⁾	$	6,466	$	6,674	$	5,451	$	5,268	$	3,485		$	846		$	15,402		$	12,788
Capital expenditures		3,956		3,188		2,103		2,192		955			485			7,014			5,865

(1)

The amount presented in 2020 in the Other and unallocated column represents accelerated depreciation incurred in connection with the restructuring of the metallized operations.

- 2526 -

GLATFELTER

~~09.30.17~~ Form 10-Q

~~Business Unit Performance~~

~~The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.~~

~~- 26 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

Sales and Costs of Products Sold

	Nine months ended September 30									Three months ended March 31
In thousands	2017			2016			Change			2020			2019			Change
Net sales	$	1,191,380		$	1,213,932		$	(22,552	)	$	231,560		$	229,133		$	2,427
Energy and related sales, net		3,346			4,013			(667	)
Total revenues		1,194,726			1,217,945			(23,219	)
Costs of products sold		1,052,626			1,056,209			(3,583	)		194,685			193,516			1,169
Gross profit	$	142,100		$	161,736		$	(19,636	)	$	36,875		$	35,617		$	1,258
Gross profit as a percent of Net sales		11.9	%		13.3	%					15.9	%		15.5	%

The following table sets forth the contribution to consolidated net sales by each ~~business unit:~~segment:

	Nine months ended September 30						Three months ended March 31
Percent of Total	2017			2016			2020			2019
Business Unit
Segment
Composite Fibers		33.6	%		32.3	%		57.3	%		56.2	%
Advanced Airlaid Material		16.0			15.1
Specialty Papers		50.4			52.6
Airlaid Materials								42.7			43.8
Total		100.0	%		100.0	%		100.0	%		100.0	%

Net sales totaled ~~$1,191.4~~$231.6 million and ~~$1,213.9~~$229.1 million in the first ~~nine~~three months of ~~2017~~2020 and ~~2016,~~2019, respectively. ~~The $22.5 million decrease~~On a constant currency basis, and Composite Fibers’ net sales increased by 5.5% and Airlaid Material’s net sales increased 0.1%, which in each segment was primarily ~~driven by $22.4 million of lower selling prices. Shipping volumes decreased 1.1%.~~due to higher shipping volumes.

Composite Fibers’ net sales increased ~~$9.0~~$4.0 million or ~~2.3%. Shipping volumes increased 6.7%. However,~~3.1%, compared to the year-ago first quarter, driven by stronger shipments in all product categories which was partially offset by unfavorable foreign currency translation of $3.1 million.

Composite Fibers’ first quarter 2020 operating income of $15.1 million and was $3.8 million, or 33.1%, higher than the first quarter of 2019. Higher shipping volumes across all product categories favorably impacted results by $1.2 million. Operations added $1.0 million primarily driven by higher production rates to meet demand, as well as cost reduction initiatives. A $4.0 million benefit from lower prices for wood pulp and energy was partially offset by a $2.6 million impact from lower selling prices ~~adversely~~in certain product categories. Currency favorably impacted ~~the comparison~~results by ~~$6.7 million and $6.3 million, respectively.~~

~~Composite Fibers’ operating income for the first nine months of 2017 increased $5.0 million to $45.5~~$0.2 million compared to the year-ago period primarily due to a $9.7 million benefit from improved operations including the impact of our cost optimization program initiated in late 2016 and the benefit of higher shipping volumes, improved machine utilization rates and reduced downtime. quarter.

- 27 -

GLATFELTER

Form 10-Q

The primary drivers of the change in Composite Fibers’ operating income are summarized in the following chart:

~~Advanced~~

Airlaid Materials’ net sales ~~increased $7.0~~decreased $1.6 million, or 1.6%, in the year-over-year ~~comparison primarily due to higher shipping volumes which increase 3.4% due to higher~~comparison. Strong shipments of table top, home care and wipes products increased volume by 5.6%, while lower selling prices of $4.8 million for contractual pass-through arrangements and ~~personal hygiene products.~~a $1.7 million impact from currency translation exceeded the benefits of favorable volume.

~~Advanced~~ Airlaid Materials’ operating income for the first three months of 2020 totaled ~~$22.8~~$12.0 million, ~~an increase of $3.1 million compared to~~or 19.8% higher than the ~~same~~comparable period a year ago. Higher shipping volumes contributed $1.0 million of additional earnings while price declines due to raw material pass-through provisions were more than offset by lower raw material and energy prices, adding net $0.5 million of profit. Operations were $0.4 million favorable, mainly driven by higher production to support the stronger demand. The primary drivers are summarized in the following chart:

~~Specialty Papers’ net sales decreased $38.6 million, or 6.0%, due to a 3.2% decrease~~

Other and Unallocated The amount of “Other and Unallocated” operating expense in ~~shipping volumes and a $16.4 million impact from lower selling prices.~~

~~Operating income~~our table of Segment Financial Information totaled ~~$11.9~~$14.8 million in the first ~~nine~~three months of ~~2017,~~2020 compared with ~~$27.9~~$9.7 million in the first three months of 2019. Excluding the items identified to present “adjusted earnings,” unallocated expenses for the first ~~nine months~~quarter of 2016. The business unit continues to be adversely impacted by a supply/demand imbalance affecting the broader uncoated freesheet market as reflected as lower pricing and volume in the chart below. Aggressive cost control actions, lower maintenance spending and improved operating performance contributed2020 declined $0.6 million compared to the ~~$8.3 million benefit from operations. The primary drivers~~first quarter of ~~the change are summarized in the following chart:~~2019, primarily reflecting lower corporate costs.

- 2728 -

GLATFELTER

~~09.30.17~~ Form 10-Q

~~We sell excess power generated by the Spring Grove, PA facility. The following table summarizes this activity for~~Income taxes In the first ~~nine months~~quarter of ~~2017~~2020, income from continuing operations totaled $10.0 million and ~~2016:~~income tax expense totaled $2.6 million. The income tax expense in the first quarter of 2020 includes a $2.6 million tax benefit recorded in connection with passage of the Coronavirus Aid, Relief, and Economic Security Act (“CARES”). This Act, which was signed into law on March 27, 2020, modified the “net operating loss” provisions of previous law to allow certain losses to be carried back five years. This tax benefit is excluded from net income when arriving at adjusted earnings. We are in the process of evaluating additional tax planning opportunities which may allow us to carry back additional NOLs.

Nine months ended
September 30

In thousands
2017

2016

Change

Energy sales
$
2,379

$
2,919

$
(540
)
Costs to produce

(3,121
)

(3,229
)

108

Net

(742
)

(310
)

(432
)
Renewable energy credits

4,088

4,323

(235
)
Total
$
3,346

$
4,013

$
(667
)

~~Renewable energy credits (“RECs”) represent sales~~On adjusted pre-tax income of certified credits earned related to burning renewable sources of energy such as black liquor and wood waste. We sell RECs into an illiquid market. The extent and value of future revenues from REC sales is dependent on many factors outside of management’s control. Therefore, we may not be able to generate consistent additional sales of RECs in future periods.

~~Other and Unallocated~~ ~~The amount of net operating expenses not allocated to a business unit and reported as “Other and Unallocated” in our table of Business Unit Performance totaled $38.7~~$17.8 million, income tax expense was $7.0 million in the first ~~nine months~~quarter of 2017 compared with $31.2 million in the first nine months of 2016. The increase in Other and Unallocated expenses primarily related to costs incurred in connection with our cost optimization actions and the Airlaid capacity expansion project, partially offset by lower costs for Specialty Papers’ environmental compliance project and the legal costs for the Fox River matter.

~~Pension Expense~~ ~~The following table summarizes the amounts of pension expense recognized for the periods indicated:~~

Nine months ended
September 30

In thousands
2017

2016

Change

Recorded as:

Costs of products sold
$
2,534

$
1,761

$
773

SG&A expense

2,441

2,365

76

Total
$
4,975

$
4,126

$
849

The amount of pension expense recognized each year is dependent on various actuarial assumptions and certain other factors, including discount rates and the fair value of our pension assets. Pension expense for the full year of 2017 is expected to be approximately $6.6 million compared with $5.5 million in 2016 (which excludes a $7.3 million settlement charge).

~~Income taxes~~ ~~For the first nine months of 2017, we recorded a provision for income taxes of $9.9 million on pre-tax income of $27.9 million.~~2020. The comparable amounts in the ~~first nine months~~same quarter of ~~2016~~2019 were ~~$6.5~~$9.5 million and ~~$44.2~~$2.2 million,

respectively. The effective tax rate on adjusted earnings was ~~35.5%~~39.3% in the first ~~nine months~~quarter of 2017 compared with 14.6% in the same period of 2016. This year’s tax provision includes a benefit of $2.4 million primarily from a tax loss carryback opportunity and the release of U.S. tax reserves due to the lapse of statute of limitations. The tax provision also reflects the adverse impact of an increase in unrecognized tax benefits and in our valuation allowances for U.S. deferred tax assets. We currently expect to record valuation allowances of between $13 million and $16 million for the full year 2017. The effective tax rate in future periods may be affected by changes in U.S.-based pre-tax income, including pension expense, and the related impact on the valuation of deferred taxes.2020.

Foreign Currency We own and operate facilities in Canada, Germany, France, the United Kingdom and the Philippines. The functional currency of our Canadian operations is the U.S. dollar. However, in Germany and France it is the Euro, in the UK, it is the British Pound Sterling, and in the Philippines the functional currency is the Peso. On an annual basis, our ~~euro~~Euro denominated revenue exceeds ~~euro~~Euro expenses by ~~approximately €125 million to €130~~an estimated €140 million. For the first ~~nine~~three months of ~~2017,~~2020, the average currency exchange rate ~~for euro to the U.S. dollar~~ was ~~1.113~~1.10 dollar/euro compared with ~~1.116 for~~1.14 in the same period of ~~2016.~~2019. With respect to the British Pound Sterling, Canadian ~~dollar,~~Dollar, and Philippine Peso, we have differing amounts of inflows and outflows of these currencies, although to a lesser degree than the ~~euro.~~Euro. As a result, we are exposed to changes in currency exchange rates and such changes could be significant. The translation of the results from international operations into U.S. dollars is subject to changes in foreign currency exchange rates.

The table below summarizes the translation impact on reported results that changes in currency exchange rates had on our non-U.S. based operations from the conversion of these operation’s results for the first ~~nine~~three months of ~~2017.~~2020.

In thousands	Nine months ended September 30, 2017				Three months ended March 31, 2020
	Favorable (unfavorable)				Favorable (unfavorable)
Net sales		$	(6,752	)		$	(4,811	)
Costs of products sold			7,366				4,656
SG&A expenses			615				364
Income taxes and other			320				190
Net income		$	1,549			$	399

The above table only presents the financial reporting impact of foreign currency translations assuming currency exchange rates in ~~2017~~2020 were the same as ~~2016.~~2019. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

~~- 28 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

~~Three months ended September 30, 2017 versus~~Discontinued Operations We completed the sale of our Specialty Papers business on October 31, 2018. Its results of operations are reported as discontinued operations for all periods presented. For the first three months ~~ended September 30, 2016~~

~~Overview~~ ~~For the third quarter~~2020 there was no activity in results of ~~2017, net income totaled $12.1 million, or $0.27 per diluted share compared with net income of $19.6 million, or $0.44 per diluted share~~discontinued operations and in the third quarter of 2016. On an adjusted basis earnings for the third quarter of 2017 was $21.9 million, or $0.50 per diluted share compared with $24.0 million, or $0.54 per diluted share, for the same period a year ago.

~~The following table sets forth summarized results of operations:~~

Three months ended
September 30

In thousands, except per share
2017

2016

Net sales
$
413,325

$
405,301

Gross profit

54,735

61,170

Operating income

21,360

25,418

Net income

12,105

19,601

Earnings per share

0.27

0.44

~~The following table sets forth the reconciliation of net income to adjusted earnings for the~~first three months ~~ended September 30, 2017 and 2016:~~

Three months ended September 30

2017

2016

In thousands, except per share
Amount

Diluted EPS

Amount

Diluted EPS

Net income
$
12,105

$
0.27

$
19,601

$
0.44

Adjustments (pre-tax)

Cost optimization

6,839

-

Specialty Papers' environmental compliance and other

596

5,520

Airlaid capacity expansion costs

2,581

1,051

Timberland sales and related costs

(114
)

-

Total adjustments (pre-tax)

9,902

6,571

Income taxes (1)

(123
)

(2,193
)

Total after-tax adjustments

9,779

0.22

4,378

0.10

Adjusted earnings
$
21,884

$
0.50

$
23,979

$
0.54

~~(1)~~

~~Tax effect on adjustments calculated based on the incremental effective tax rate of the jurisdiction in which each adjustment originated and the related impact of valuation allowances.~~

~~Business Unit Performance~~

Three months ended September 30

Advanced Airlaid

Other and

Dollars in millions
Composite Fibers

Materials

Specialty Papers

Unallocated

Total

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

Net sales
$
142.3

$
131.7

$
67.8

$
61.9

$
203.2

$
211.8

$
—

$
—

$
413.3

$
405.3

Energy and related sales, net

—

—

—

—

1.2

1.3

—

—

1.2

1.3

Total revenue

142.3

131.7

67.8

61.9

204.4

213.1

—

—

414.6

406.6

Cost of products sold

115.0

105.8

57.2

53.5

179.7

180.1

7.9

6.1

359.8

345.5

Gross profit (loss)

27.3

25.9

10.6

8.4

24.7

33.0

(7.9
)

(6.1
)

54.7

61.2

SG&A

10.9

11.9

2.4

2.0

12.2

14.3

7.9

7.5

33.4

35.7

(Gains) losses on dispositions of plant,
   equipment and timberlands, net

—

—

—

—

—

—

—

—

—

—

Total operating income (loss)

16.4

14.0

8.2

6.4

12.5

18.7

(15.8
)

(13.6
)

21.4

25.4

Non-operating expense

—

—

—

—

—

—

(5.0
)

(4.4
)

(5.0
)

(4.4
)
Income (loss) before
   income taxes
$
16.4

$
14.0

$
8.2

$
6.4

$
12.5

$
18.7

$
(20.8
)

$
(18.0
)

$
16.4

$
21.0

Supplementary Data

Net tons sold (thousands)

43.8

39.1

26.2

25.2

197.1

197.3

—

—

267.1

261.5

Depreciation, depletion and
   amortization
$
7.1

$
6.9

$
2.5

$
2.4

$
8.0

$
6.4

$
3.8

$
0.6

$
21.4

$
16.3

Capital expenditures

3.8

5.1

12.6

4.3

10.2

26.7

4.5

0.5

31.1

36.6

~~The sum~~ of ~~individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.~~

2019 we reported income from discontinued operations of $0.7 million.

- 29 -

GLATFELTER

~~09.30.17~~ Form 10-Q

~~Sales and Costs of Products Sold~~

Three months ended
September 30

In thousands
2017

2016

Change

Net sales
$
413,325

$
405,301

$
8,024

Energy and related sales,
net

1,236

1,346

(110
)

Total revenues

414,561

406,647

7,914

Costs of products sold

359,826

345,477

14,349

Gross profit
$
54,735

$
61,170

$
(6,435
)

Gross profit as a percent
of Net sales

13.2
%

15.1
%

~~The following table sets forth the contribution to consolidated net sales by each business unit:~~

Three months ended
September 30

Percent of Total
2017

2016

Business Unit

Composite Fibers

34.4
%

32.5
%

Advanced Airlaid Material

16.4

15.3

Specialty Papers

49.2

52.2

Total

100.0
%

100.0
%

~~Net sales~~ totaled $413.3 million and $405.3 million in the third quarters of 2017 and 2016, respectively. Shipping volumes increased 2.1% and foreign currency translation favorably impacted the quarter-over-quarter comparison by $6.0 million. Lower selling prices unfavorably impacted the comparison by $8.0 million.

Composite Fibers’ net sales increased $10.7 million, or 8.1%, primarily due to higher shipping volumes and $4.2 million of favorable currency translation partially offset by $2.3 million from lower selling prices.

Composite Fibers’ third quarter of 2017 operating income increased to $16.4 million, an increase of $2.4 million compared to the year ago quarter. Higher shipping volumes combined with higher machine utilization rates and solid operating performance improved earnings by $5.8 million. The primary drivers are summarized in the following chart:

Advanced Airlaid Materials’ net sales increased $5.9 million in the quarter-over-quarter comparison. Shipping volumes increased 4.2% primarily due to continued growth of personal hygiene and wipes products and $1.8 million favorable impact from currency translation.

~~Advanced Airlaid Materials’ operating income totaled $8.2 million compared with $6.4 million in the third quarter of 2016. The primary drivers are summarized in the following chart:~~

~~Specialty Papers’ net sales decreased $8.6 million, or 4.0%, as its markets continued to be impacted by a supply-demand imbalance resulting in $6.5 million of lower selling prices.~~

Specialty Papers’ operating income totaled $12.5 million in the third quarter of 2017, compared with $18.7 million in the same period a year ago. The primary drivers are summarized in the following chart:

~~Aggressive cost control actions and lower maintenance spending more than offset the adverse impact of market-related downtime and higher depreciation, and increased operating income by $1.8 million.~~

~~- 30 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

~~We sell excess power generated by the Spring Grove, PA facility. The following table summarizes this activity for the third quarters of 2017 and 2016:~~

Three months ended
September 30

In thousands
2017

2016

Change

Energy sales
$
586

$
1,101

$
(515
)

Costs to produce

(754
)

(1,187
)

433

Net

(168
)

(86
)

(82
)

Renewable energy credits

1,404

1,432

(28
)

Total
$
1,236

$
1,346

$
(110
)

~~Other and Unallocated~~ The amount of net operating expenses not allocated to a business unit and reported as “Other and Unallocated” in our table of Business Unit Performance excluding gains from sales of timberlands, totaled $15.8 million in the third quarter of 2017 compared with $13.6 million in the third quarter of 2016. The increase in Other and Unallocated expenses primarily related to costs incurred in connection with our cost optimization actions and the Airlaid capacity expansion project, partially offset by lower costs for Specialty Papers’ environmental compliance project and the legal costs for the Fox River matter.

During the third quarter the Company recorded $6.8 million of one-time costs of actions primarily related to the permanent shutdown of a machine and a 15% reduction in salaried workforce in the Specialty Papers business unit. The costs incurred consisted of $4.5 million related to the write-off of the machine and associated spares parts and the balance represented severance costs for the salaried positions. These costs have been excluded from the business unit results and from adjusted earnings.

~~Pension Expense~~ ~~The following table summarizes the amounts of pension expense recognized for the periods indicated:~~

Three months ended
September 30

In thousands
2017

2016

Change

Recorded as:

Costs of products sold
$
842

$
582

$
260

SG&A expense

819

788

31

Total
$
1,661

$
1,370

$
291

~~Income taxes~~ For the third quarter of 2017, we recorded a $4.3 million provision for income tax pre-tax income of $16.4 million. The comparable amounts in the third quarter of 2016 were $1.4 million of tax provision on pre-tax income of $21.0 million. The current quarter’s tax provision includes a benefit of $2.4 million primarily from a tax loss carryback opportunity and the release of U.S. tax reserves due to the lapse of statute of limitations.

~~Foreign Currency~~ ~~The table below summarizes the translation impact on reported results that changes in currency~~

~~exchange rates had on our non-U.S. based operations from the conversion of these operation’s results for the third quarter of 2017.~~

In thousands
Three months ended
September 30, 2017

Favorable (unfavorable)

Net sales

$
6,047

Costs of products sold

(4,340
)

SG&A expenses

(448
)

Income taxes and other

(47
)

Net income

$
1,212

The above table only presents the financial reporting impact of foreign currency translations assuming currency exchange rates in 2017 were the same as 2016. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

LIQUIDITY AND CAPITAL RESOURCES

Our business ~~is capital intensive and~~ requires significant expenditures for new or enhanced equipment, to support our research and development efforts, ~~for environmental compliance matters including, but not limited to, the Clean Air Act,~~ and to support our business strategy. In addition, we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the periods presented:

Nine months ended
September 30

In thousands
2017

2016

Cash and cash equivalents at

beginning of period
$
55,444

$
105,304

Cash provided (used) by

Operating activities

52,796

59,437

Investing activities

(102,055
)

(117,293
)
Financing activities

72,654

2,974

Effect of exchange rate

changes on cash

5,448

330

Net cash provided (used)

28,843

(54,552
)
Cash and cash equivalents at

end of period
$
84,287

$
50,752

	Three months ended March 31
In thousands	2020			2019
Cash, cash equivalents and restricted cash at the beginning of period	$	126,201		$	142,685
Cash used by
Operating activities		(5,603	)		(24,145	)
Investing activities		(7,014	)		(7,240	)
Financing activities		(6,847	)		(23,611	)
Effect of exchange rate changes on cash		(937	)		(658	)
Change in cash and cash equivalents from discontinued operations		(316	)		(10,365	)
Net cash used		(20,717	)		(66,019	)
Cash, cash equivalents and restricted cash at the end of period		105,484			76,666
Less: restricted cash included in "Prepaid expenses and other current assets"		(1,259	)		—
Cash and cash equivalents at the end of period	$	104,225		$	76,666

At ~~September 30, 2017,~~March 31, 2020, we had ~~$84.3~~$104.2 million in cash and cash equivalents held by both domestic and foreign subsidiaries. Unremitted earnings of our foreign subsidiaries as of January 1, 2018 and forward are deemed to be indefinitely reinvested and therefore no U.S. tax liability is reflected in the accompanying condensed consolidated financial statements. AsApproximately 47% of ~~September 30, 2017, the majority of our cash is held by our international subsidiaries and the repatriation of such funds would result in additional tax liability. In addition to~~ our cash and cash equivalents ~~$93.2 million~~ is ~~available under~~held by our ~~revolving credit agreement, which matures in March 2020.~~foreign subsidiaries but could be repatriated without incurring a significant amount of additional taxes.

~~- 31 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

Cash ~~provided~~used by operating activities ~~totaled $52.8 million~~ in the first ~~nine~~three months of ~~2017~~2020 totaled $5.6 million compared with ~~$59.4~~a use of $24.1 million in the same period a year ago. The improvement in operating cash flow was primarily due to improved profitability, a decrease in cash ~~from operations primarily reflects lower cash earnings~~used for inventory and other working capital and the ~~$9.5~~effect on the comparison of using $20.5 million ~~payment related to certain claims~~ in the first three months of 2019 to settle Fox River ~~matter, partially offset by $4.0~~related claims. In addition, cash used for interest payments declined $4.5 million ~~of lower income tax payments.~~in the year-over-year comparison reflecting savings from our debt refinancing in early 2019.

Net cash used by investing activities ~~decreased by $15.2 million~~was essentially unchanged in the year-over-year ~~comparison primarily due to lower capital expenditures.~~comparison. Capital expenditures totaled $7.0 million and $5.9 million for the three months ended March 31, 2020 and 2019, respectively, and are expected to ~~total between $130~~be $30 million ~~and $135 million for 2017, including approximately $13~~to $35 million for the ~~Specialty Papers’ environmental compliance projects and approximately $49 million for the Airlaid capacity expansion.~~full year 2020.

Net cash ~~provided~~used by financing activities totaled ~~$72.7~~$6.8 million in the first ~~nine~~three months of ~~2017~~2020 compared with ~~$3.0~~$23.6 million in the same period of ~~2016.~~2019. The ~~increase~~change in cash ~~provided~~used by financing activities primarily reflects ~~additional~~$2.5 million of net borrowings ~~under~~in the first three months of 2020 compared with a net repayment of $11.5 million in the first three months of 2019.

In the first quarter of 2019, we significantly changed our debt capital structure. On February 8, 2019, we entered into a new credit ~~agreement.~~

facility with a consortium of financial institutions. The ~~following table sets forth~~new five-year facility (the “2019 Facility”) replaces our ~~outstanding long-term indebtedness:~~

September 30

December 31

In thousands
2017

2016

Revolving credit facility, due Mar. 2020
$
158,298

$
61,595

5.375% Notes, due Oct. 2020

250,000

250,000

2.40% Term Loan, due Jun. 2022

8,012

8,282

2.05% Term Loan, due Mar. 2023

34,659

35,163

1.30% Term Loan, due Jun. 2023

9,698

9,788

1.55% Term Loan, due Sep. 2025

11,574

10,333

Total long-term debt

472,241

375,161

Less current portion

(11,122
)

(8,961
)
Unamortized deferred issuance costs

(2,094
)

(2,553
)
Long-term debt, net of current portion
$
459,025

$
363,647

~~Our~~then existing revolving credit facility and consists of a $400 million variable rate revolver and a €220 million, amortizing term loan. The other terms of the 2019 Facility are substantially similar to our previous revolving credit facility. On February 28, 2019, we redeemed all outstanding 5.375% Notes with proceeds from the new term loan.

- 30 -

GLATFELTER

Form 10-Q

The 2019 Facility contains a number of customary compliance covenants, the most restrictive of which is a maximum leverage ratio of ~~3.5x.~~4.0x provided that such ratio increases to 4.5x during the period of four fiscal quarters immediately following a material acquisition. As of ~~September 30, 2017,~~March 31, 2020, the leverage ratio, as calculated in accordance with the definition in our amended credit agreement, was ~~2.6x,~~2.2x, within the limits set forth in our credit agreement. As part of our proactive management of potential risks presented by the COVID-19 pandemic we assessed our liquidity position in a number of more severe scenarios projecting potential implications of the economic crises. We believe the strength of our balance sheet and our production of engineered materials essential to the global response effort provides adequate financial flexibility in this challenging time. Based on our expectations of future results of operations and capital needs, we do not believe the debt covenants will impact our operations or limit our ability to undertake financings that may be necessary to meet our capital needs.

The ~~5.375% Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt~~following table sets forth our outstanding under the credit agreement at maturity, or a default under the credit agreement that accelerates the debt outstanding thereunder. As of September 30, 2017, we met all of the requirements of our debt covenants. The significant terms of the debt instrumentslong-term indebtedness:

	March 31			December 31
In thousands	2020			2019
Revolving credit facility, due Feb. 2024	$	84,622		$	84,255
Term loan, due Feb. 2024		231,993			240,969
2.40% Term Loan, due Jun. 2022		3,912			4,012
2.05% Term Loan, due Mar. 2023		19,006			19,487
1.30% Term Loan, due Jun. 2023		5,478			5,617
1.55% Term Loan, due Sep. 2025		7,719			7,915
Total long-term debt		352,730			362,255
Less current portion		(24,952	)		(22,940	)
Unamortized deferred issuance costs		(2,246	)		(2,396	)
Long-term debt, net of current portion	$	325,532		$	336,919

~~are more fully discussed in Item 1 - Financial Statements – Note 10.~~

Financing activities ~~includes~~include cash used for common stock ~~dividends which increased in the comparison reflecting a 4% increase in our quarterly cash dividend.~~dividends. In both the first ~~nine~~three months of ~~2017,~~2020 and 2019, we used ~~$16.8~~$5.8 million and $5.7 million, respectively, of cash for dividends on our common ~~stock compared with $16.1 million in the same period of 2016.~~stock. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments.

We are subject to various federal, state and local laws and regulations intended to protect the environment as well as human health and safety. At various times, we have incurred significant costs to comply with these regulations and we could incur additional costs as new regulations are developed or regulatory priorities change.

~~As more fully discussed in Item 1 - Financial Statements – Note 13 – Commitments, Contingencies~~At March 31, 2020, we had ample liquidity consisting of $104.2 million of cash on hand and Legal Proceedings (“Note 13”), we are involved in the Lower Fox River in Wisconsin (the “Fox River”), an EPA Superfund site for which we remain potentially liable for certain response costs and long-term monitoring and maintenance related matters. Based on the recent developments more fully discussed in Note 13, it is conceivable the resolution$108.0 million of this matter may require us to spend in excess of $20.0 million in the next twelve months. Although we are unable to determine with any degree of certainty the amount we may be required to spend the recent developments provide greater clarity to the extent of such amounts.

capacity under our revolving credit facility. We expect to meet all of our near and long-term cash needs from a combination of operating cash flow, cash and cash equivalents, our existing credit facility and other long-term debt. ~~However, as discussed in Note 13, an unfavorable outcome of the Fox River matters could have a material adverse impact on our consolidated financial position, liquidity and/or results of operations.~~

Off-Balance-Sheet Arrangements As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, we had not entered into any off-balance-sheet arrangements. Financial derivative instruments, to which we are a party, and guarantees of indebtedness, which solely consist of obligations of subsidiaries, are reflected in the condensed consolidated balance sheets included herein in Item 1 – Financial Statements.

~~Outlook~~ Composite Fibers’ shipping volumes in the fourth quarter of 2017 are expected to be approximately 10% lower than the third quarter driven by normal seasonality with the majority of the impact of lower shipping volumes expected to be offset by improved product mix. Selling prices and overall raw material and energy prices are expected to be in-line with the third quarter.

- 3231 -

GLATFELTER

~~09.30.17~~ Form 10-Q

Advanced Airlaid Materials’ shipping volumes in the fourth quarter are expected to be approximately 3% lower than the third quarter due to normal seasonality. Selling prices and raw material and energy prices are expected to increase slightly compared with the third quarter. For 2018, we anticipate shipping volumes to be 10% to 15% higher than 2017 driven by the start-up of the Fort Smith, Arkansas facility.

Specialty Papers’ shipping volumes in the fourth quarter are expected to be approximately 5% lower than the third quarter of 2017 due to normal seasonality. Selling prices are expected to be in-line and raw material and energy prices are expected to increase compared to the third quarter. Specialty Papers will also benefit by $1 million more than the third quarter from the cost reduction actions.

In addition, costs associated with the Specialty Papers environmental compliance projects and Advanced Airlaid Materials capacity expansion are expected to be $1 million and $3 million, respectively, during the fourth quarter and zero and $3 million in 2018.

~~Consolidated capital expenditures are expected to total between $130 million and $135 million for 2017 and approximately between $65 million to $70 million in 2018.~~

~~The effective tax rate on adjusted earnings is expected to be approximately 35% for the fourth quarter of 2017 and for 2018.~~

~~- 33 -~~

~~GLATFELTER~~

~~09.30.17 Form 10-Q~~

ITEM 3. QUANTITATIVE AND ~~QUALITATI~~VEQUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Year Ended December 31

September 30, 2017

Dollars in thousands

2017

2018

2019

2020

2021

Carrying Value

Fair Value

Long-term debt

Average principal outstanding

At fixed interest rates – Bond

$
250,000

$
250,000

$
250,000

$
218,750

$
—

$
250,000

$
254,265

At fixed interest rates – Term Loans

63,942

55,963

44,841

33,720

22,598

63,943

64,583

At variable interest rates

158,298

158,298

158,298

32,979

—

158,298

158,298

$
472,241

$
477,146

Weighted-average interest rate

On fixed rate debt – Bond

5.375
%

5.375
%

5.375
%

5.375
%

—

On fixed rate debt – Term Loans

1.89
%

1.89
%

1.88
%

1.86
%

1.82
%

On variable rate debt

2.74
%

2.74
%

2.74
%

2.74
%

—

	Year Ended December 31															March 31, 2020
In thousands, except percentages	2020			2021			2022			2023			2024			Carrying Value		Fair Value
Long-term debt
Average principal outstanding
At variable interest rates	$	309,083		$	298,538		$	286,486		$	274,435		$	28,680		$	316,615	$	316,615
At fixed interest rates – Term Loans		39,986			30,954			20,635			10,901			5,070			36,115		34,139
																$	352,730	$	350,754
Weighted-average interest rate
On variable rate debt		1.50	%		1.50	%		1.50	%		1.50	%		1.50	%
On fixed rate debt – Term Loans		1.87	%		1.86	%		1.82	%		1.77	%		1.67	%

Interest rate swap
Pay fixed/received variable (notional)	€	180,000		€	180,000		€	180,000			—			—
Rate paid		0.0395	%		0.0395	%		0.0395	%		—			—
Rate received		—			—			—			—			—

The table above presents the average principal outstanding and related interest rates for the next five years for debt outstanding as of ~~September 30, 2017.~~March 31, 2020. Fair values included herein have been determined based upon rates currently available to us for debt with similar terms and remaining maturities.

Our market risk exposure primarily results from changes in interest rates and currency exchange rates. At ~~September 30, 2017,~~March 31, 2020, we had ~~$470.2~~$350.5 million of long-term debt, net of unamortized debt issuance costs, of which ~~33.7%~~90.3% was at variable interest rates. After giving effect to the interest rate swap agreement, approximately 33.4% of our debt was at variable interest rates. The fixed rate Term Loans and the variable rate debt are all euro-based borrowings and thus the value of which is also subject to currency risk. Variable-rate debt outstanding represents borrowings under our revolving credit agreement that accrues interest based on ~~LIBOR~~one-month EURIBOR, but in no event less than zero, plus athe applicable margin. At ~~September 30, 2017,~~March 31, 2020, the weighted average EURIBOR on our outstanding debt was (0.38)%. Accordingly, the interest rate paid was ~~approximately 2.74%~~equal to the margin, or 1.50%. A hypothetical 100 basis point increase ~~or decrease~~ in the interest rate on variable rate debt would increase ~~or decrease~~ annual interest expense by ~~$1.6~~$0.7 million. In the event rates are lower, interest expense would be unchanged.

We entered into a €180 million notional value floating-to-fixed interest rate swap agreement with certain financial institutions. Under the terms of the swap, we will pay a fixed interest rate of 0.0395% on €180 million of the underlying variable rate term loan. We will receive the greater of 0.00% or EURIBOR.

As part of our overall risk management practices, we enter into financial derivatives primarily designed to either i) hedge foreign currency risks associated with forecasted transactions – “cash flow hedges”; or ii) mitigate the impact that changes in currency exchange rates have on intercompany financing transactions and foreign currency denominated receivables and payables – “foreign currency hedges.” For a more complete discussion of this activity, refer to Item 1 – Financial Statements – Note ~~12.~~16.

We are subject to certain risks associated with changes in foreign currency exchange rates to the extent our operations are conducted in currencies other than the U.S. Dollar. On an annual basis, our ~~euro~~Euro denominated revenue exceeds euro expenses by ~~approximately €125 million to €130~~an estimated €140 million. With respect to the British Pound Sterling, Canadian ~~dollar,~~Dollar, and Philippine Peso, we have differing amounts of inflows and outflows of these currencies, although to a lesser degree than the ~~euro.~~Euro. As a result, particularly with respect to the ~~euro,~~Euro, we are exposed to changes in currency exchange rates and such changes could be significant.

- 32 -

GLATFELTER

Form 10-Q

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures Our chief executive officer and our principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of ~~September 30, 2017,~~March 31, 2020, have concluded that, as of the evaluation date, our disclosure controls and procedures are effective.

Changes in Internal Controls There were no changes in our internal control over financial reporting during the three months ended ~~September 30, 2017,~~March 31, 2020, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II

ITEM 1A. RISK FACTORS

The following additional risk factor relating to COVID-19 should be read in conjunction with the risk factors set forth under “Item 1A. Risk Factors” (“Item 1A”) in our 2019 Annual Report on Form 10-K (“2019 Form 10-K”). The developments described in this additional risk factor have heightened, or in some cases developed since the filing of our 2019 Form 10-K, certain of the risks disclosed in Item 1A. Except as described herein, there have been no material changes with respect to the risk factors disclosed in our 2019 Form 10-K.

The risks described below and in our 2019 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may occur or become material in the future and adversely affect our business, reputation, financial condition or results of operations. Therefore, historical operating results, financial and business performance, events and trends are often not a reliable indicator of future operating results, financial and business performance, events or trends.

The COVID-19 pandemic outbreak could impact our ability to operate our facilities in an economical manner or could adversely impact demand for our products, which could have a material adverse effect on our operations and business.

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic as the virus spread throughout the world. As the virus continued its rapid spread, a significant portion of the world’s economies was significantly impacted, and will continue to be so, by government mandates that all “non-essential” businesses close and that residents “shelter-in-place” or practice “social distancing.” The actions undertaken across the globe in an attempt to contain the spread of the virus have had an unprecedented and significant adverse impact on global economies in terms of reduced GDP, increased unemployment, and insolvencies in a variety of industries and markets.

In the event economic activity continues to be adversely impacted, or the impact intensifies, due to the spread of COVID-19 or due to actions to control the spread, we could be forced to curtail operations due to reduced customer demand, compliance with government mandates or the inability to adequately staff production facilities due to a widespread or sustained outbreak of COVID-19 at one or more of our facilities. In addition, our global supply chain could be disrupted, demand for our products, or the prices the products are sold, could be adversely impacted if economic conditions in the target markets that we serve remain weak or weaken further. We also could face potential legal actions that could arise due to our operations during the pandemic.

In addition, the COVID-19 pandemic’s impact on various economies throughout the world could lead to financial instabilities or insolvencies of some of our customers or the customers they in turn serve which could impact our ability to sell our products.

As we cannot predict the duration or scope of the COVID-19 pandemic, in the event the spread continues or the government actions intensify, our results of operations and/or financial position could be adversely impacted.

- 3433 -

GLATFELTER

~~09.30.17~~ Form 10-Q

~~PART~~ II

ITEM 6. EXHIBITS

The following exhibits are filed herewith or incorporated by reference as indicated.


31.1	Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002, filed ~~herewith~~herewith.

31.2	Certification of ~~John P. Jacunski, Executive~~Samuel L. Hillard, Senior Vice President and Chief Financial Officer, pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002, filed ~~herewith~~herewith.

32.1	Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, furnished ~~herewith~~herewith.

32.2	Certification of ~~John P. Jacunski, Executive~~Samuel L. Hillard, Senior Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, furnished ~~herewith~~herewith.

101.INS	Inline XBRL Instance Document - – the instance document does not appear in the Interactive Data file because its iXBRL tags are embedded within the Inline XBRL document, filed ~~herewith~~herewith.

101.SCH	XBRL Taxonomy Extension Schema, filed ~~herewith~~herewith.

101.CAL	XBRL Extension Calculation Linkbase, filed ~~herewith~~herewith.

101.DEF	XBRL Extension Definition Linkbase, filed ~~herewith~~herewith.

101.LAB	XBRL Extension Label Linkbase, filed ~~herewith~~herewith.

101.PRE	XBRL Extension Presentation Linkbase, filed ~~herewith~~herewith.

104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, has been formatted in Inline XBRL.

- 34 -

GLATFELTER

Form 10-Q

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)

~~October 31, 2017~~May 5, 2020

	By	/s/ David C. Elder
		David C. Elder
		Vice President, Finance and Chief Accounting Officer

- 35 -

GLATFELTER

~~09.30.17~~ Form 10-Q

	7.	Retirement Plans and Other Post- Retirement Benefits	11
	8.	Inventories	12
	9.	Capitalized Interest	12
	10.	Long-term Debt	12
	11.	Fair Value of Financial Instruments	13
	12.	Financial Derivatives and Hedging Activities	13
	13.	Commitments, Contingencies and Legal Proceedings	15
	14.	Segment Information	18
	15.	Condensed Consolidating Financial Statements	19

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3	Quantitative and Qualitative Disclosures About Market Risks		34
Item 4	Controls and Procedures		34

PART II – OTHER INFORMATION			35

Item 6	Exhibits		35

	SIGNATURES		35

In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated
Net sales	$	203,205		$	20,588		$	211,331		$	(21,799	)	$	413,325
Energy and related sales, net		1,236			—			—			—			1,236
Total revenues		204,441			20,588			211,331			(21,799	)		414,561
Costs of products sold		188,677			19,525			173,423			(21,799	)		359,826
Gross profit		15,764			1,063			37,908			—			54,735
Selling, general and administrative
expenses		18,730			536			14,133			—			33,399
(Gain) loss on dispositions of plant
equipment and timberlands, net		70			(114	)		20			—			(24	)
Operating income (loss)		(3,036	)		641			23,755			—			21,360
Other non-operating
income (expense)
Interest expense		(5,241	)		(300	)		(436	)		1,430			(4,547	)
Interest income		160			1,316			5			(1,430	)		51
Equity in earnings of subsidiaries		17,880			18,096			—			(35,976	)		—
Other, net		498			(1,920	)		944			—			(478	)
Total other non-operating
income (expense)		13,297			17,192			513			(35,976	)		(4,974	)
Income before income taxes		10,261			17,833			24,268			(35,976	)		16,386
Income tax provision (benefit)		(1,844	)		(47	)		6,172			—			4,281
Net income		12,105			17,880			18,096			(35,976	)		12,105
Other comprehensive income		17,330			14,812			14,959			(29,771	)		17,330
Comprehensive income	$	29,435		$	32,692		$	33,055		$	(65,747	)	$	29,435

In thousands	Three months ended September 30, 2017
	Favorable (unfavorable)
Net sales		$	6,047
Costs of products sold			(4,340	)
SG&A expenses			(448	)
Income taxes and other			(47	)
Net income		$	1,212