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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 2000 1-3560
P. H. GLATFELTER COMPANY
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-0628360
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
96 South George Street, Suite 500
York, Pennsylvania 17401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (717) 225-4711
including area code -------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock New York Stock Exchange
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(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates at March 1, 2001 was $313,227,001.
Common Stock outstanding at March 1, 2001: 42,435,131 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference in this Report on Form 10-K: Proxy Statement dated March 19, 2001
(Part III)
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PART I
Item 1. Business.
The Registrant, a paper manufacturing company, began operations
in Spring Grove, Pennsylvania in 1864 and was incorporated as a Pennsylvania
corporation in 1905. The Registrant has three paper mills located in the United
States: Spring Grove, Pennsylvania; Pisgah Forest, North Carolina; and Neenah,
Wisconsin. The Registrant also has paper mills in Gernsbach, Germany and
Scaer, France. The Registrant also owns and operates a manufacturing facility in
Wisches, France and an abaca pulpmill in the Philippines. The Registrant
manufactures engineered papers and specialized printing papers.
The Registrant's engineered papers are used in the manufacture of
a variety of products, including tea bags, cigarette papers, cigarette tipping
and plug wrap papers, metalized beverage labels, decorative laminates, food
product casings, stencil papers, photo-glossy ink jet papers, greeting cards,
medical dressings, highway signs and striping, billboard graphics, decorative
shopping bags, playing cards, postage stamps, filters, labels and surgical
gowns. Sales of these papers are generally made directly to the converter of the
paper. Engineered papers are manufactured in each of the Registrant's mills.
Most of the Registrant's specialized printing paper products are
directed at the uncoated free-sheet portion of the industry. The Registrant's
specialized printing paper products are used principally for the printing of
case bound and quality paperback books, commercial and financial printing and
envelope converting. Specialized printing papers are manufactured in each of the
Registrant's mills except the Scaer mill.
In 2000, sales of paper for book publishing and commercial
printing generally were made through wholesale paper merchants, whereas sales of
paper to financial printers and converters generally were made directly. Net
sales to each of the Registrant's customers were less than 10% of the
Registrant's net sales during 1998, 1999 and 2000.
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A significant portion of the Pisgah Forest mill's sales and a
modest portion of the sales from the Gernsbach and Scaer mills are made to a
limited number of major tobacco companies. Legal, regulatory and competitive
pressures on the tobacco industry in the United States and elsewhere could have
a material adverse effect on future tobacco paper sales. The profitability of
these mills has already been negatively affected by these pressures. In that
regard, in December 1999, the Registrant announced that it would begin reducing
its tobacco paper manufacturing capacity at its Pisgah Forest mill during 2000.
As a result, the Registrant has eliminated approximately 200 salaried and
hourly jobs and has shut down three paper machines.
See Note 11 to the Registrant's 2000 consolidated financial
statements in Item 8 for other sales and geographic disclosure.
For more than a year, the Registrant has been developing
strategies to position its business for the future. Execution of these
strategies is intended to result in a reorganization of the Registrant's
business to capitalize on its strengths in customer relationships, technology
and people and its leadership positions in certain markets. Internally, the
Registrant is working to improve the efficiency of its operations. Externally,
the Registrant is looking to strengthen its business through strategic alliances
and joint ventures, as well as potential acquisition opportunities or
dispositions of under-performing or non-strategic assets.
The competitiveness of the markets in which the Registrant sells
its products varies. The necessity for technical expertise limits the number of
competitors for the Registrant's engineered papers. Despite the technical
expertise required to make tobacco papers, competition for such papers is
currently intense as a result of excess worldwide capacity. There are a number
of companies in the United States manufacturing specialized printing papers, and
no one company holds a dominant position. Capacity in the worldwide uncoated
free-sheet industry, which includes uncoated specialized printing papers, is not
expected to increase significantly for the next few years.
Service, product performance and technological advances are
important competitive factors with respect to all of the Registrant's products.
The Registrant believes its reputation in these areas continues to be excellent.
Backlogs are generally not significant in the Registrant's
business, as substantially all of the Registrant's customer orders are produced
within 30 days of receipt. A backlog of unmade customer orders is monitored
primarily for purposes of scheduling production to optimize paper machine
performance. From time to time, the Registrant may determine that the backlog of
unmade orders, along with high finished goods inventory levels, may be
insufficient to warrant a full schedule of paper machine production. In these
circumstances, certain paper machines may be temporarily shut down until backlog
and inventory levels justify a resumption of operations.
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The principal raw material used at the Spring Grove mill is
pulpwood. In 2000, the Registrant acquired approximately 75% of its pulpwood
from saw mills and independent logging contractors and 25% from Company-owned
timberlands. Hardwood and softwood purchases constituted 49% and 51% of the
pulpwood acquired, respectively. Hardwoods are available within a relatively
short distance of the Registrant's Spring Grove mill. Softwood is obtained
primarily from Maryland, Delaware and Virginia. To protect its sources of
pulpwood, the Registrant actively promotes conservation and forest management
among suppliers and woodland owners. In addition, its subsidiary, The Glatfelter
Pulp Wood Company has acquired woodlands, particularly softwood growing land,
with the objective of having a significant portion of the Registrant's softwood
requirement available from Company-owned woodlands.
The Spring Grove pulpmill converts pulpwood into wood pulp for
use in its papermaking operations. In addition to the pulp it produces, the
Spring Grove mill purchases market pulp from others.
The principal raw material used by the Neenah mill is high-grade
recycled wastepaper. The quality of different types of high-grade wastepaper
varies significantly depending on the amount of contamination. Wastepaper prices
rose early in 2000 and then dropped throughout the remainder of 2000 and in
early 2001. The Registrant expects such prices to continue dropping until
mid-year 2001 and to remain steady for the remainder of 2001. It is anticipated
that there will be an adequate supply of wastepaper in the future.
The major raw materials used at the Pisgah Forest mill are
purchased wood pulp and processed flax straw, which is derived from linseed flax
plants. The current supply of wood pulp and flax straw is sufficient for the
present and anticipated future operations at the Pisgah Forest mill. The Pisgah
Forest mill receives a majority of its processed flax straw from the
Registrant's Canadian operation.
The principal raw materials used by the Schoeller & Hoesch
("S&H") mills in Gernsbach and Scaer are purchased wood pulp and abaca pulp
provided by S&H's Philippine pulpmill. The current supply of such materials is
sufficient for the present and anticipated future operations of these mills.
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Wood pulp purchased from others comprised approximately 122,000
short tons or 26% of the total 2000 fiber requirements of the Registrant. The
average cost of purchased pulp during 2000 was higher than in 1999. Market pulp
prices decreased in February and March 2001. The Registrant expects one
additional price decrease in the second quarter of 2001.
The Registrant's Spring Grove mill generates all of its steam
requirements and is 100% self-sufficient in electrical energy generation. The
mill also produces excess electricity which is sold to the local power company
under a long-term co-generation contract. These net energy sales were $9,243,000
in 2000. Principal fuel sources used by the Spring Grove mill are coal, spent
chemicals, bark and wood waste, and oil, which were used to produce
approximately 57%, 36%, 7% and less than 1%, respectively, of the total energy
internally generated at the Spring Grove mill in 2000.
The Pisgah Forest mill generates all of its steam requirements
and a majority of its electric power requirements (64% in 2000) and purchases
the remainder of its electric power requirements. Coal was used to produce
essentially all of the mill's internally generated energy during 2000.
During 1998, the Neenah mill began to purchase steam under a
twenty-year contract from a facility of Minergy Corporation. The facility, which
is located adjacent to the Neenah mill, processes paper mill sludge from the
Neenah mill as well as other mills in the Neenah area. During 2000, the Neenah
mill purchased 68% of its steam from Minergy Corporation and generated 32% of
its steam requirements. The Neenah mill generates a portion of its electric
power requirements (14% in 2000) and purchases the remainder of its electric
power requirements. Gas was used to produce almost all of the mill's internally
generated steam during 2000 with fuel oil being used to generate the remainder.
The Gernsbach and Scaer mills both generate all of their own
steam requirements. The Gernsbach mill generated approximately 34% of its 2000
electric power requirements and purchased the balance. Gas was used to produce
almost all of the mill's internally generated energy during 2000. The Scaer mill
purchased all of its 2000 electric power requirements.
The Registrant has approximately 3,400 active full-time
employees.
Hourly employees at the Registrant's U.S. mills are represented
by different locals of the Paper, Allied-Industrial,
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Chemical and Energy Workers International Union. In October 1996, a five-year
labor agreement that covers approximately 730 employees at the Pisgah Forest
mill was ratified. A five-year labor agreement that covers approximately 300
employees at the Neenah mill was ratified in August 1997. A five-year labor
agreement that covers approximately 700 employees in Spring Grove was ratified
in January 2000. Under all of these agreements, wages increased by 3% in 2000
and will increase by 3% per year for the duration of the agreements.
Approximately 810 hourly employees at the Registrant's S&H
locations are represented by various unions. A two-year labor agreement that
covers approximately 620 hourly employees at the Gernsbach mill was ratified in
March 2000. Under this agreement, salaries will increase by 2.2% in 2001 and
2.0% in 2002.
ENVIRONMENTAL MATTERS
The Registrant is subject to loss contingencies resulting from
regulation by various federal, state, local and foreign governmental authorities
with respect to the environmental impact of air and water emissions and noise
from its mills, as well as the disposal of solid waste generated by its
operations. To comply with environmental laws and regulations, the Registrant
has incurred substantial capital and operating expenditures in past years. The
Registrant anticipates that environmental regulation of its operations will
continue to become more burdensome and that capital and operating expenditures
will continue, and perhaps increase, in the future. In addition, the Registrant
may incur obligations to remove or mitigate any adverse effects on the
environment resulting from its operations, including the restoration of natural
resources, and liability for personal injury and damage to property, including
natural resources. Because environmental regulations are not consistent
worldwide, the Registrant's ability to compete in the world marketplace may be
adversely affected by capital and operating expenditures required for
environmental compliance. For further information with respect to such
compliance, reference is made to Item 3 of this report.
Subject to permit approval, the Registrant has undertaken an
initiative under the Voluntary Advanced Technical Incentive Program of the
United States Environmental Protection Agency ("EPA") to comply with new
"Cluster Rule" regulations. This initiative is part of the Registrant's "New
Century Project," which will require capital expenditures currently estimated at
approximately $30,000,000 to be incurred before April 2004.
Compliance with government environmental regulations is a matter
of high priority to the Registrant. To meet environmental requirements, the
Registrant has undertaken a variety of projects.
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During 2000, the Registrant expended approximately $2,600,000 on environmental
capital projects. The Registrant estimates that projects requiring total
expenditures of $8,900,000 and $22,300,000 for environmental-related capital
will be initiated in 2001 and 2002, respectively. Since capital expenditures for
pollution abatement generally do not increase the productivity or efficiency of
the Registrant's mills, the Registrant's earnings have been and will be
adversely affected to the extent that selling prices have not been and cannot be
increased to offset additional incremental operating costs, including
depreciation, resulting from such capital expenditures and to offset additional
interest expense on the amounts expended for environmental purposes.
In 1999, EPA and the Pennsylvania Department of Environmental
Protection ("DEP") issued to the Registrant separate Notices of Violation
("NOVs") alleging violations of the federal and state air pollution control
laws, primarily for purportedly failing to obtain appropriate preconstruction
air quality permits in conjunction with certain modifications to the
Registrant's Spring Grove mill. EPA announced that the Registrant was one of
seven pulp and paper mill operators to have received contemporaneously an NOV
alleging this kind of violation. EPA and DEP alleged that the Registrant's
modifications produced (1) significant net emissions increases in certain air
pollutants which should have been covered by appropriate permits imposing new
emissions limitations, and (2) certain other violations.
For all but one of the modifications cited by EPA, the Registrant
applied for and obtained from DEP the preconstruction permits which the
Registrant concluded were required by applicable law. EPA reviewed those
applications before the permits were issued. DEP's NOV only pertained to the
modification for which the Registrant did not receive a preconstruction permit.
The Registrant conducted an evaluation at the time of this modification, and
determined that the preconstruction permit cited by EPA and DEP was not
required. The Registrant has been informed that EPA and DEP will seek
substantial emissions reductions, as well as civil penalties, to which the
Registrant believes it has meritorious defenses. Nevertheless, the Registrant is
unable to predict the ultimate outcome of these matters or the costs involved,
and there can be no assurance that such costs would not have a material adverse
effect on the Registrant's consolidated financial condition, liquidity or
results of operations.
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The Registrant faces a set of related threatened claims arising
out of the presence of polychlorinated biphenyls ("PCBs") in sediments in the
Fox River below Lake Winnebago and in Green Bay, downstream of the Registrant's
Neenah mill. As described below, various sovereigns have formally notified seven
parties ("PRPs"), of which the Registrant is one, that they are potentially
responsible for investigation, cleanup and natural resource damages arising from
this contamination under the federal Comprehensive Environmental Response,
Compensation and Liability Act and other laws.
The Wisconsin Department of Natural Resources ("DNR") notified
the Registrant and other PRPs informally in 1990 that it wished to pursue
cleanup of certain sediments in the Fox River under state law. DNR subsequently
asserted claims under federal law as well for cleanup and for natural resource
damages. Since 1998, DNR has been performing a remedial investigation and
feasibility study ("RI/FS") of the Fox River and Green Bay under contract to the
EPA. In February 1999, DNR issued a draft RI/FS report estimating the costs of
potential remedies for the Fox River at between $0 and $721,000,000, but did not
select a preferred remedy. The Registrant does not believe that the no action
remedy will be selected. The largest components of the costs of certain of the
remedial alternatives are attributable to large-scale sediment removal by
dredging. There is no assurance that the cost estimates in the draft RI/FS will
not differ significantly from actual costs. Under ordinary procedures, the final
RI/FS report will be issued along with a proposed remedial action plan ("PRAP").
EPA will consider comments on the PRAP and then will select a remedy for the
site. EPA and DNR have stated publicly that the RI/FS would be issued in 2000.
The expected date of issuance was subsequently delayed to the spring of 2001 and
has now been further delayed.
Based on current information and advice from its environmental
consultants, the Registrant continues to believe that an aggressive effort, as
included in certain remedial alternatives in the draft RI/FS, to remove
PCB-contaminated sediment, much of which is buried under cleaner material or is
otherwise unlikely to move and which is abating naturally, would be
environmentally detrimental and, therefore, inappropriate.
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In January 1997, DNR, the Wisconsin Department of Justice
("WDOJ"), and the seven PRPs entered into an agreement to conduct a cooperative
natural resource damages assessment ("NRDA"). While that NRDA has not been
completed, based upon work conducted to date, DNR and WDOJ have proposed to
enter into a settlement with another PRP of its share of the natural resource
damages liability. The proposed settlement does not state explicitly the total
amount of natural resource damages, but it calls for such other PRP to spend
$7,000,000 on resource restoration projects.
The United States Fish and Wildlife Service ("FWS"), the National
Oceanic and Atmospheric Administration ("NOAA"), four Indian tribes and the
Michigan Attorney General claim to be trustees for natural resources injured by
the PCBs in the Fox River and Green Bay. In June 1994, FWS notified the
Registrant and other PRPs that it considered them potentially responsible for
natural resource damages. The federal, tribal and Michigan agencies claiming to
be trustees have proceeded with the preparation of an NRDA separate from the
work performed by DNR. While the final report of assessment will be delayed
until after selection of a remedy for the site, on October 25, 2000, the federal
trustees released a restoration and compensation determination plan ("RCDP")
that estimates natural resource damages for the site at between $176,000,000 and
$333,000,000.
The Registrant is seeking settlement with the Wisconsin agencies
and EPA for all of its liabilities for response actions and natural resource
damages associated with the site. The Registrant believes that the federal,
tribal and Michigan natural resource damages claims are without merit, and that
the federal NRDA is technically and procedurally flawed. The Registrant further
maintains that its share of any liability as among the seven identified PRPs is
much less than one-seventh and that additional responsible parties exist other
than the seven identified by the governments.
The Registrant currently is unable to predict the ultimate costs
to the Registrant related to this matter, because the Registrant cannot predict
which remedy will be selected for the site or the ultimate amount of natural
resource damages nor can the Registrant predict its share of these costs or
damages.
The Registrant continues to believe it is likely that this matter
will result in litigation; however, the Registrant believes it will be able to
persuade a court that removal of a substantial amount of PCB-contaminated
sediments is not an appropriate remedy. There can be no assurance, however, that
the Registrant will be successful in arguing that removal of PCB-contaminated
sediments is inappropriate or that it would prevail in any resulting litigation.
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The amount and timing of future expenditures for environmental
compliance, cleanup, remediation and personal injury, natural resource damage
and property damage liability, including but not limited to those related to the
lower Fox River and the Bay of Green Bay, cannot be ascertained with any
certainty due to, among other things, the unknown extent and nature of any
contamination, the extent and timing of any technological advances for pollution
control, the remedial actions which may be required and the number and financial
resources of any other responsible parties. The Registrant continues to evaluate
its exposure and the level of its reserves, including, but not limited to, its
share of the costs and damages (if any) associated with the lower Fox River and
the Bay of Green Bay. The Registrant believes that it is insured against certain
losses related to the lower Fox River, depending on the nature and amount
thereof. Coverage, which is currently being investigated under reservation of
rights by various insurance companies, is dependent upon the identity of the
plaintiff, the procedural posture of the claims asserted and how such claims are
characterized. The Registrant does not know when the insurers' investigation as
to coverage will be completed.
The Registrant's current assessment, after consultation with
legal counsel, is that ultimately it should be able to resolve these
environmental matters without a long-term, material adverse impact on the
Registrant. In the meantime, however, these matters could, at any particular
time or for any particular period, have a material adverse effect on the
Registrant's consolidated financial condition, liquidity or results of
operations or result in a default under the Registrant's loan covenants.
Moreover, there can be no assurance that the Registrant's reserves will be
adequate to provide for future obligations related to these matters, that the
Registrant's share of costs and/or damages for these matters will not exceed its
available resources or that such obligations will not have a long-term, material
adverse effect on the Registrant's consolidated financial condition, liquidity
or results of operations.
Item 2. Properties.
The Registrant's executive offices are located in York,
Pennsylvania. The Registrant's paper mills are located in Spring Grove,
Pennsylvania; Pisgah Forest, North Carolina; Neenah, Wisconsin; Gernsbach,
Germany; and Scaer, France.
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The Spring Grove facilities include six uncoated paper machines
with a daily capacity ranging from 12 to 308 tons and an aggregate annual
capacity of about 302,000 tons of finished paper. The machines have been rebuilt
and modernized from time to time. The Spring Grove mill has a Gravure Coater
("G-Coater") and an off-line combi-blade coater, which give the Registrant a
potential annual production capacity for coated paper of approximately 53,000
tons. Since uncoated paper is used in producing coated paper, this does not
represent an increase in the Spring Grove mill capacity. The Registrant views
the G-Coater as an important asset which will allow it to expand its more
profitable engineered paper products. The Spring Grove facilities also include a
pulpmill, which has a production capacity of approximately 650 tons of bleached
pulp per day.
During the first quarter of 1998, the Registrant completed
construction of a precipitated calcium carbonate ("PCC") plant at its Spring
Grove mill. This plant reduced the cost of PCC at this mill as well as lowered
the need for higher-priced raw materials used for increasing the opacity and
brightness of certain papers.
The Pisgah Forest facilities currently include eleven paper
machines, stock preparation equipment, a modified kraft bleached flax pulpmill
with thirteen rotary digesters, a PCC plant and a small recycled pulping
operation. The annual lightweight paper capacity is approximately 99,000 tons.
Eight paper machines are essentially identical while the newer, larger three
remaining machines have design variations specific to the products produced.
Converting equipment includes winders, calendars, slitters, perforators and
printing presses. As explained in Item 7 of this report, in December 1999, the
Registrant announced it would begin reducing its tobacco paper manufacturing
capacity at this facility during 2000. As a result, the Registrant is currently
operating the three larger paper machines and five of the smaller paper machines
for a total capacity of 86,000 tons.
The Neenah facilities, consisting of a paper manufacturing mill
and offices, are located at two sites. The Neenah mill includes three paper
machines, with an aggregate annual capacity of approximately 162,000 tons and a
wastepaper de-inking and bleaching plant with an annual capacity of
approximately 97,000 tons.
The Registrant's subsidiary, S&H, currently owns and operates
paper mills in Gernsbach, Germany and Scaer, France, as well as a manufacturing
facility in Wisches, France. S&H also owns a pulpmill in the Philippines which
supplies abaca pulp to S&H's paper mills.
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The Gernsbach facility includes five uncoated paper machines with
an aggregate annual lightweight capacity of about 37,500 tons. In addition, the
Gernsbach facility has the capacity to produce 8,800 tons of metalized papers
annually, using a lacquering machine and two metalizers. The base paper used to
manufacture the metalized paper is purchased. The Scaer facility includes two
paper machines with an aggregate annual lightweight capacity of approximately
4,600 tons of finished paper. The Philippine pulpmill has an aggregate annual
capacity of approximately 8,500 tons of abaca pulp. Of this amount,
approximately 7,700 tons are supplied to the Gernsbach and Scaer paper mills,
with the remainder being sold to outside parties. The Gernsbach and Scaer paper
mills obtain substantially all of their abaca pulp from the Philippine pulpmill.
The Glatfelter Pulp Wood Company, a subsidiary of the Registrant,
owns and manages approximately 114,000 acres of land, most of which is
timberland.
The Registrant owns substantially all of the properties used in
its papermaking operations, except for certain land leased from the City of
Neenah under leases expiring in 2050, on which wastewater treatment, storage and
other facilities and a parking lot are located. All of the Registrant's
properties, other than those which are leased, are free from any material liens
or encumbrances. The Registrant considers that all of its buildings are in good
structural condition and well-maintained and its properties are suitable and
adequate for present operations.
Item 3. Pending Legal Proceedings.
For a discussion of the separate NOVs issued to the Registrant by
EPA and DEP and the potential legal proceedings involving the lower Fox River,
see "Environmental Matters" in Item 1 of Part I of this report. The Registrant
does not believe that the other environmental matters discussed below will have
a material adverse effect on its business or consolidated financial position,
liquidity or results of operations, although there is no assurance that such a
material adverse effect will not result therefrom.
On September 7, 2000, DEP issued to the Registrant a renewed
wastewater discharge permit for the Spring Grove mill with an effective date of
October 1, 2000. The renewed permit calls for reductions in the mill's discharge
of color that the Registrant believes cannot be achieved at this time without a
curtailment of operations. On September 7, 2000, DEP also issued to the
Registrant an administrative order calling for achievement of the limitations in
the permit on a schedule extending until 2007. Both the permit and the order
contemplate adoption of an alternative limitation on color which would be less
stringent. The Registrant expects to be able to meet the alternative limitation
without a
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curtailment of operations under the schedule set forth in the order. Under the
schedule set forth in the permit, however, the Registrant may not be able to
meet the alternative limitation without a curtailment of operations. The
Registrant has appealed the permit and the order to the Pennsylvania
Environmental Hearing Board. After an evidentiary hearing, the Board granted a
stay of the permit limitation during the pendency of the appeal. The Board did
not grant a stay of the alternative limitation because it is not yet in effect,
and will not come into effect until a change in the Pennsylvania Water Quality
Standard for color is approved; in this case, "approval" includes an approval by
EPA. The Pennsylvania Public Interest Research Group and several other parties
(collectively "Penn PIRG") have appealed the alternative limitation and have
also intervened in the Registrant's appeal of the permit. The Registrant is
engaged in settlement discussion with Penn PIRG and DEP, but also continues to
litigate all appeals vigorously.
In June 1999, Penn PIRG brought a citizen suit under the Federal
Clean Water Act and Pennsylvania Clean Streams Law seeking a reduction in the
Spring Grove mill's discharge of color, civil penalties and costs of litigation.
On February 7, 2001, the United States District Court granted partial summary
judgment on liability to plaintiffs as to certain claims and granted summary
judgment to the Registrant on others. The court has not scheduled further
proceedings with respect to any remedy until after it resolves the Registrant's
pending motion for reconsideration.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Executive Officers Office Age
- ------------------ ------ ---
G. H. Glatfelter II Chairman and Chief Executive Officer (a) 49
R. P. Newcomer President and Chief Operating Officer (b) 52
C. M. Smith Chief Financial Officer (c) 42
R. S. Wood Chief Strategy Officer (d) 43
J. R. Anke Treasurer (e) 55
T. D. D'Orazio Corporate Controller (f) 42
G. K. Federer Vice President - Finance and Business Support (g) 43
L. R. Hall Vice President - New Product Development (h) 63
R. L. Inners II Vice President - Operations & Supply 42
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Chain (i)
R. L. Miller Vice President - Special Projects (j) 54
C. L. Missimer Vice President - Environmental Affairs (k) 49
M. R. Mueller Corporate Counsel and Secretary, Director of 40
Policy and Compliance (l)
D. C. Parrini Vice President - Sales and Marketing (m) 36
P. M. Yaffe Vice President - Government and Public Affairs (n) 52
W. T. Yanavitch Vice President - Human Resources (o) 40
Officers are elected to serve at the pleasure of the Board of
Directors. Except in the case of officers elected to fill a new position or a
vacancy occurring at some other date, officers are generally elected at the
annual meeting of the Board held immediately after the annual meeting of
shareholders.
- --------------------------------------------------------------------------------
(a) Mr. Glatfelter became Chairman in April 2000 and has served as Chief
Executive Officer since June 1998. He was also President from June 1998
to February 2001. Prior to June 1998, he was Senior Vice President.
(b) Mr. Newcomer became President and Chief Operating Officer in February
2001. From June 1998 to February 2001, he was Executive Vice President.
From June 1998 to June 2000, he was also Chief Financial Officer. Prior
to June 1998, he was Senior Vice President and Chief Financial Officer.
Prior to April 1997, he was also Treasurer.
(c) Mr. Smith became Chief Financial Officer in June 2000. From August 1998
to June 2000, he was Vice President - Finance. Prior to August 1998, he
was Corporate Controller.
(d) Mr. Wood became Chief Strategy Officer in June 2000. From December 1999
to June 2000, he was Vice President - Administration. From August 1998
to December 1999, he was Vice President - Administration and Secretary.
From May 1997 to August 1998, he was Secretary and Treasurer. Prior to
May 1997, he was Secretary and Assistant Treasurer.
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(e) Mr. Anke became Treasurer in September 1998. From June 1997 to September
1998, he was Chief Financial Officer for the Senator John Heinz History
Center. From September 1996 to June 1997, he was a consultant to AMSCO
International, Inc. Prior to September 1996, he was Vice
President and Treasurer of AMSCO International, Inc., where he was
responsible for treasury, insurance, retirement plan and international
functions and supervised approximately forty employees.
(f) Mr. D'Orazio became Corporate Controller in December 1998. Prior to
December 1998, he was Assistant Corporate Controller of Mohawk
Industries, Inc., where he was responsible for corporate accounting
functions and supervised approximately twenty employees.
(g) Mr. Federer became Vice President - Finance and Business Support in
December 2000. From June 2000 to December 2000, he was Vice President -
International Business. From June 1997 to June 2000, he was Managing
Director, Papierfabrik Schoeller & Hoesch GmbH & Co. KG. Prior to June
1997, he was Director of Finance, Papierfabrik Schoeller & Hoesch GmbH &
Co. KG.
(h) Mr. Hall became Vice President - New Product Development in June 2000.
From August 1998 to June 2000, he was Vice President and General
Manager, Glatfelter Division. Prior to August 1998, he was Director of
Operations - Glatfelter Division.
(i) Mr. Inners became Vice President - Operations and Supply Chain in June
2000. From August 1998 to June 2000, he was Director of Operations,
Glatfelter Division. Prior to August 1998, he was Spring Grove Mill
Manager.
(j) Mr. Miller became Vice President - Special Projects in June 2000. From
August 1998 to June 2000, he was Vice President - International
Business. Prior to August 1998, he was Vice President - Administration.
(k) Mr. Missimer became Vice President - Environmental Affairs in July 2000.
From January 1999 to July 2000, he was Corporate Environmental Director.
Prior to January 1999, he was Assistant Corporate Environmental Manager.
(l) Mr. Mueller became Corporate Counsel and Director of Policy and
Compliance in June 2000 and has served as Secretary since December 1999.
He was Associate Counsel from June 1998 to June 2000. From September
1996 to June 1998, he was a co-owner and Vice President of Scheller,
Inc., where he was responsible for the administration of the company.
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(m) Mr. Parrini became Vice President - Sales and Marketing in December
2000. From July 2000 to December 2000, he was Vice President - Sales
and Marketing, Glatfelter Division and Corporate Strategic Marketing.
From June 1999 to December 2000, he was Vice President - Sales and
Marketing, Glatfelter Division. From August 1998 to June 1999, he was
National Sales and Marketing Manager, Glatfelter Division. From December
1997 to August 1998, he was National Sales Manager, Glatfelter Division.
Prior to 1997, he was North American Sales Manager - Technical Products
& ARC Divisions, A.W. Chesterton Company, where he was responsible for
sales, marketing and business development for the specialty chemical and
polymer composite divisions and supervised approximately thirty
employees.
(n) Mr. Yaffe became Vice President - Government and Public Affairs in
September 2000. From March 1997 to September 2000, he was Vice President
- Public Policy of Philadelphia Gas Works, where he was responsible for
establishing advocacy communications and corporate responsibility
programs and supervised approximately ten employees. Prior to March
1997, he was owner of the Yaffe Group, where he consulted with clients
on government relations and public affairs.
(o) Mr. Yanavitch became Vice President - Human Resources in July 2000. From
October 1998 to July 2000, he was Director of Human Resources for the
Ceramco and Trubyte Divisions of Dentsply, where he was responsible for
all human resources activities and acted as chief spokesperson for union
contracts and employee benefits. Prior to October 1998, he was Director
of Human Resources for the Trubyte Division of Dentsply, where he was
responsible for daily human resources activities. In his positions with
Dentsply, Mr. Yanavitch supervised approximately ten employees.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
Common Stock Prices and Dividends Paid Information
The table below shows the high and low prices of the Registrant's
common stock on the New York Stock Exchange (Ticket Symbol "GLT") and the
dividends paid per share for each quarter during the past two years.
2000 1999
-------------------------------- ----------------------------------
Quarter High Low Dividends High Low Dividends
1ST $14-5/8 $10-1/8 $.175 $12-1/2 $9-5/8 $.175
2nd 11-13/16 9-13/16 .175 14-13/16 11 .175
3rd 12-3/16 10 .175 16-7/16 13-3/16 .175
4th 13-3/4 9-7/8 .175 15-3/4 12-3/8 .175
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As of December 31, 2000, the Registrant had 2,826 shareholders of
record. A number of the shareholders of record are nominees.
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Item 6. Selected Financial Data.
Summary of Selected Consolidated Financial Data
Years Ended December 31
(in thousands except per share amounts)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales $ 724,720 $ 705,491(a) $ 727,312(a) $ 585,520(a) $ 583,505(a)
Income (loss)
before accounting
changes 44,000(b) 41,425 36,133(c) 45,284 60,399
Basic earnings
(loss) per share
before accounting
changes 1.04(b) .98 .86(c) 1.07 1.41
Diluted earnings
(loss) per share
before accounting
changes 1.04(b) .98 .86(c) 1.07 1.41
Total assets 1,013,191 1,003,780 990,738 937,583 715,310
Debt 306,822 329,770 356,459 348,665 150,000
Cash dividends
declared per
common share $ .70 $ .70 $ .70 $ .70 $ .70
(a) Reflects reclassification of prior-period shipping and handling costs
from net sales to cost of products sold in accordance with recent
accounting pronouncements.
(b) After impact of an after-tax restructuring charge (unusual item) of
$2,120,000.
(c) After impact of an after-tax charge for voluntary early retirement
enhancement program (unusual item) of $5,988,000.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD-LOOKING STATEMENTS
Any statements set forth in this annual report or otherwise made
in writing or orally by the Company with regard to its goals for
revenues, cost reductions and return on capital, expectations as to
industry conditions and the Company's financial results and cash flow,
demand for or pricing of its products, development of new products,
environmental matters and other aspects of its business may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company makes such
statements based on assumptions that it believes to be reasonable,
there can be no assurance that actual results will not differ
materially from the Company's expectations. Accordingly, the Company
identifies the following important factors, among others, which could
cause its results to differ from any results which might be projected,
forecasted or estimated by the Company in any such forward-looking
statements: (i) variations in demand for or pricing of its products;
(ii) the Company's ability to identify, finance and consummate future
alliances or acquisitions; (iii) the Company's ability to develop new,
high value-added engineered products; (iv) the Company's ability to
identify and implement its planned cost reductions pursuant to its
DRIVE project and changes to its business processes contemplated by its
IMPACT project; (v) changes in the cost or availability of raw
materials used by the Company, in particular market pulp, pulp
substitutes and wastepaper, and changes in energy-related costs; (vi)
changes in industry paper production capacity, including the
construction of new mills, the closing of mills and incremental changes
due to capital expenditures or productivity increases; (vii) the gain
or loss of significant customers; (viii) cost and other effects of
environmental compliance, cleanup, damages, remediation or restoration,
or personal injury or property damage related thereto, such as costs
associated with the NOVs issued by EPA and DEP, the costs of natural
resource restoration or damages related to the presence of PCBs in the
lower Fox River on which the Company's Neenah mill is located and the
effect of complying with the wastewater discharge limitations of the
Spring Grove mill permit which the Company is currently appealing; (ix)
significant changes in cigarette consumption, both domestically and
internationally; (x) enactment of adverse state, federal or foreign
legislation or changes in government policy or regulation; (xi) adverse
results in litigation; (xii) fluctuations in currency exchange rates;
and (xiii) disruptions in production and/or increased costs due to
labor disputes.
OVERVIEW
The Company classifies its sales into two product groups: (1)
specialized printing papers and (2) engineered papers (including
tobacco papers). The Glatfelter Division, which includes the Spring
Grove, Pennsylvania and Neenah, Wisconsin paper mills, produces both
specialized printing and engineered papers. The Ecusta Division is
comprised of the Pisgah Forest, North Carolina paper mill ("Ecusta") as
well as other various supporting facilities. S&H, acquired on January
2, 1998, includes paper mills in Gernsbach, Germany and Scaer, France.
Both Ecusta and S&H produce specialized printing papers and engineered
papers (including tobacco papers). The Company is in the process of
changing its organization and information systems to manage its
business in four separate business units: (1) engineered products, (2)
printing and converting papers, (3) long fiber and overlay papers and
(4) tobacco papers. The Company's information systems do not currently
provide the information necessary for reporting by business unit. Such
information is expected to be available by the end of 2002.
Despite some market-related downtime in the first and second
quarters and a decrease in the backlog at the end of the fourth
quarter, demand for the Company's products overall remained stable
throughout 2000. Demand for the Company's tobacco papers, however,
continued to be weak during 2000. This portion of the Company's
business has suffered from extremely low pricing in recent years as a
result of overcapacity in the tobacco papers industry and declining
domestic consumption of tobacco products. To combat such depressed
pricing, the Company announced in September 1999 that, effective
January 1, 2000, prices would be increased for certain of its tobacco
paper products. This initiative was required for the Company to remain
a viable, high-quality supplier to its customers. As the Company
expected, certain of these customers sought other suppliers after this
announcement. As a result, the Company announced in December 1999 that
it would begin reducing its tobacco paper manufacturing capacity at its
Ecusta mill during 2000. In the first quarter of 2000, the
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Company recognized a one-time, pre-tax restructuring charge of
$3,336,000 related primarily to the cost of offering early retirement
to 42 salaried employees. To date, approximately 200 salaried and
hourly jobs have been eliminated. The Company does not expect to
complete the restructuring until April 2001 with an ultimate reduction
estimated at approximately 220 jobs.
Despite the decline in the Company's tobacco papers business,
demand has not diminished as swiftly as expected, and the announced
price increases have held relatively firm. The Company expects,
however, that in the long run net sales of tobacco papers will continue
to trend downward. Future price changes will be determined based on
contractual provisions to reflect changes in market pulp prices.
To offset the loss of tobacco paper volume, the Company has been
growing its specialized printing papers business. It also plans to grow
its engineered papers business and has invested resources into its new
product development area. Despite the Company's expectations that the
reduction of its tobacco paper producing capacity would reduce its
total sales volume in the near term, sales of the Glatfelter and S&H
divisions more than offset such capacity reduction. The Company is
continuing to remove costs associated with the lost tobacco papers
business.
The Company's other engineered papers, excluding tobacco papers,
are often difficult to characterize because the products vary widely.
Overall, markets for such papers remained steady throughout 2000, and
the short-term outlook appears stable. Nevertheless, volume for these
papers decreased slightly in 2000 compared to 1999.
Most of the Company's specialized printing paper products are
directed at the uncoated free sheet portion of the industry. With the
exception of some second-quarter softening in demand for envelope
papers, demand for the Company's printing papers remained strong
through most of 2000. Backlogs decreased in December 2000 and remained
weak through January 2001. This is not uncommon during the winter
months; however, current domestic and worldwide economic conditions
create some concern regarding demand for the next several months. The
Company expects demand to improve and backlogs to increase later in the
year.
The Company announced a price increase for a substantial number of
its specialized printing papers effective in early February 2000. The
Company had anticipated additional price increases through the
remainder of 2000, but softening demand in the second quarter resulted
in some slippage in pricing. By early in the fourth quarter of 2000
pricing recovered somewhat, particularly in the Company's trade book
papers.
2000 COMPARED TO 1999
Overall, net sales in 2000 increased $19,229,000, or 2.7%,
compared to 1999. Though net sales volume was slightly higher in 2000
versus 1999, the majority of the net sales increase in 2000 was due to
an increase in average net selling price.
Sales of specialized printing papers were higher in 2000 than 1999
by 14.4%, primarily due to a 9.3% increase in average net selling
prices resulting from improved pricing and product mix. Increased
demand for these papers resulted in increased net sales volume.
Sales of engineered papers (including tobacco papers) fell by 8.2%
in 2000 versus 1999, as a decrease in net sales volume was slightly
offset by a small increase in average net selling price. This decrease
was largely due to a 17.6% decrease in net sales of tobacco papers.
The cost of products sold increased by 1.8% in 2000 compared to
1999. With energy costs abnormally high and market pulp price increases
uncharacteristically outpacing selling price increases, the Company
would have expected cost of products sold from 1999 to 2000 to have
increased more than the 2.7% net sales increase. Pension income reduced
cost of products sold by $28,300,000 in 2000 compared to $20,100,000 in
1999. In addition, implementation of the Company's DRIVE project has
reduced cost of products sold. As of December 31, 2000, the Company had
implemented portions of the DRIVE project that will realize over
$20,000,000 per year in sustainable cash cost savings. The Company's
ultimate goal is to realize over $50,000,000 per year in such savings.
Primarily as a result of the increase in pension income and cost
savings associated with the DRIVE project, gross margin as a percentage
of net sales increased to 18.4% for 2000 from 17.7% for 1999.
The increase in selling, general and administrative expenses of
$4,011,000 in 2000 versus 1999 was due primarily to increased spending
on outside consulting services relating to the Company's DRIVE and
IMPACT projects.
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21
Profit from operations before interest income and expense and
taxes was $84,524,000 (excluding the unusual item) in 2000 compared to
$81,582,000 in 1999. This increase was driven primarily by improved
profit margins at the Glatfelter and S&H divisions as increased sales
volume spread fixed costs over a greater number of tons produced and
sold. The Ecusta Division experienced lower sales volume, which
decreased profit margins, thus partially negating the gains of the
other divisions. The strengthening of the U.S. dollar with respect to
the Deutsche Mark ("DM") in 2000 also adversely affected earnings as
foreign profits translated into fewer dollars. Finally, savings from
the Company's DRIVE project contributed significantly to profits, but
such savings were offset by the additional consulting costs incurred in
2000. The Company expects that its DRIVE savings will continue to
increase through 2001. Additionally, a significant portion of the
consulting costs incurred for the Company's IMPACT project will be
capitalized during 2001.
Interest on investments and other - net nearly doubled in 2000
from 1999 from $1,994,000 to $3,820,000. The Company's average cash
holdings in 2000 were significantly higher than in 1999, yielding
higher interest income. Additionally, cash was invested in higher
yielding debt instruments throughout 2000 as compared to 1999.
Gain from property dispositions, etc. - net for 2000 decreased
to about half of the 1999 gain from $4,076,000 to $2,029,000. In the
first quarter of 1999, the Company sold a tract of timberland,
realizing a gain of $976,000. During the remainder of 1999, the Company
sold various fully-depreciated items, in addition to the rights to
standing timber on select tracts of land. Subsequent to the first
quarter of 1999, no single sale was material to the Company's results
of operations. No significant sales of such properties occurred in
2000. From time to time, the Company divests certain tracts of its
timberlands when it is offered attractive prices. The Company does not
actively solicit the sale of its timberlands as it currently intends to
maintain its own sources of raw materials.
Interest on debt was $16,405,000 in 2000 compared to
$18,424,000 in 1999. This decrease was a result of lower average
borrowings, offset partially by higher interest rates. Such lower
average borrowings were related to an 80% decrease in short-term debt
stemming from payments made. Additionally, a stronger U.S. dollar
relative to the DM during 2000 caused lower reported interest expense.
1999 COMPARED TO 1998
Overall, net sales in 1999 decreased $21,821,000, or 3.0%,
compared to 1998. Though net sales volume was higher in 1999 versus
1998, average net pricing was lower in 1999.
Sales of specialized printing papers were lower in 1999 than
1998 by 6.4% as a result of weak demand and pricing for such products
early in 1999. Throughout the remainder of 1999, the Company was able
to implement several price increases as demand and pricing improved
during the year. As a result of these price increases, average net
pricing for such products was 7.2% higher in the fourth quarter of 1999
versus the fourth quarter of 1998.
Sales of engineered papers (including tobacco papers)
increased by less than 1% in 1999 versus 1998, as an increase in net
sales volume was substantially offset by a decrease in average net
selling price. The increase in volume was largely a result of
successfully marketing certain of the Company's existing products. As
mentioned above, the Company, along with much of the rest of the paper
industry, experienced weakness in demand for many of its products early
in 1999. As a result, the Company accepted orders for certain of its
products with lower average net selling prices. The decrease in average
net selling price for the year 1999, therefore, was almost entirely a
result of a change in mix of products sold and not a weakening of
prices for specific products.
The cost of products sold decreased by 2.8% in 1999 compared
to 1998, in part due to aggressive steps taken to remove costs from its
business. Further, an increase in operational efficiency at many of the
Company's operating locations was realized as a result of an improving
and more stable order pattern for many of the Company's products. In
addition, market pulp prices, a key raw material in the Company's
business, were lower, on average, than in 1998. Pension income reduced
cost of products sold by $20,100,000 in 1999 compared to $13,800,000 in
1998.
The increase in selling, general and administrative expenses
of $4,457,000 in 1999 versus 1998 was primarily a result of additional
spending on legal and professional services relating to certain
environmental and other matters.
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22
Profit from operations before interest income and expense and
taxes was $81,582,000 in 1999 compared to $88,599,000 excluding the
unusual item in 1998. This decrease was largely due to the decrease in
net sales in 1999 versus 1998, partially offset by a decrease in cost
of products sold.
Interest on investments and other--net remained flat from 1998
to 1999. The Company's average cash holdings in 1999 were higher than
in 1998, yielding higher interest income. Offsetting this was interest
income realized in 1998 on a trust held to defease certain of the
Company's debt. The defeasance trust was liquidated early in 1998, and
no such income was realized in 1999.
Gain from property dispositions, etc.--net increased from
$1,019,000 in 1998 to $4,076,000 in 1999. In the first quarter of 1999,
the Company sold a tract of timberland, realizing a gain of $976,000.
During the remainder of 1999, the Company sold various fully
depreciated items, in addition to the rights to standing timber on
select tracts of land. Subsequent to the first quarter of 1999, no
single sale was material to the Company's results of operations. No
significant sales of such property occurred in 1998.
Interest on debt was $18,424,000 in 1999 compared to
$22,007,000 in 1998. This decrease was a result of lower average
reported borrowings and generally lower interest rates experienced in
1999 versus 1998. Such lower average borrowings were partially a result
of the Company's repayment of its $150,000,000 principal amount of 5
7/8% Notes early in 1998 as well as strengthening of the U.S. dollar
relative to the DM during 1999.
UNUSUAL ITEMS
2000 The Company's tobacco papers business has suffered from
extremely low pricing in recent years as a result of overcapacity in
the tobacco papers industry and declining domestic consumption of
tobacco products. To combat such depressed pricing, the Company
announced in September 1999 that, effective January 1, 2000, prices
would be increased for certain of its tobacco paper products. This
initiative was required for the Company to remain a viable,
high-quality supplier to its tobacco paper customers. As the Company
expected, certain of these customers sought other suppliers after this
announcement. As a result, the Company announced in December 1999 that
it would begin reducing its tobacco paper manufacturing capacity at its
Ecusta mill during 2000.
During the first quarter of 2000, the Company finalized its
plan of restructuring and shortly thereafter began to reduce the
workforce at Ecusta. The workforce reduction is substantially completed
and will ultimately result in the reduction of over 200 salaried and
hourly jobs associated with the Company's tobacco paper production
capacity. This reduction in jobs is lower than originally estimated due
to stronger customer demand than anticipated. The Company accrued and
charged to expense $3,336,000 ($2,120,000 after tax, or $.05 per share)
in the first quarter of 2000 primarily as a result of the voluntary
portion, specifically 42 salaried employees, of this restructuring. The
amount of actual termination benefits paid and charged against the
liability as of December 31, 2000 was $316,000, covering 31 salaried
employees.
1998 During 1998, the Company recognized a charge of
$9,816,000 related primarily to the accrual of pension and medical
benefits for certain salaried and hourly employees of the Ecusta
Division and certain salaried employees of the Glatfelter Division who
elected to participate in a voluntary early retirement enhancement
program. The charge also included the cost of termination of several
Glatfelter Division salaried employees, which was necessary to achieve
the Company's cost-savings goals. The total after-tax effect of the
unusual item for the year was $5,988,000, or $.14 per share.
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ACQUISITION OF SCHOELLER AND HOESCH
On January 2, 1998, the Company acquired S&H which
currently owns and operates paper mills in Gernsbach, Germany and
Scaer, France, as well as a facility in Wisches, France. S&H also owns
a pulpmill in the Philippines which supplies abaca pulp to S&H's paper
mills. S&H primarily manufactures long fiber and overlay papers and has
the leading position in the world tea bag paper market. It also
manufactures tobacco papers and other engineered products such as
metalized papers, as well as some specialized printing papers. The
acquisition of S&H has provided the Company with a strong business
position in the world tea bag paper market and a presence in other long
fiber markets, such as stencil, filter and casing papers. It also has
strengthened the Company's tobacco papers business by providing a
manufacturing presence in Europe and a significant share of the
European tobacco papers market, plus the ability to manufacture and
market ultraporous plug wrap, a growing segment of the world tobacco
papers market.
FINANCIAL CONDITION
LIQUIDITY During 2000, the Company's cash and cash
equivalents increased by $34,517,000, principally due to cash provided
from operations of $103,408,000. Such cash generation was partially
offset by cash used in investing activities of $29,072,000, mainly for
additions to plant, equipment and timberlands, and cash used in
financing activities of $40,142,000, primarily for dividend payments
and net payment of debt.
The Company expects to meet all its near- and
long-term cash needs from a combination of internally generated funds,
cash, cash equivalents and its existing Revolving Credit Facility or
other bank lines of credit and, if prudent, other long-term debt. The
Company is subject to certain financial covenants under the Revolving
Credit Facility and is in compliance with all such covenants.
INTEREST RATE RISK The Company uses its Revolving
Credit Facility and proceeds from the issuance of its 6 7/8% Notes to
finance a significant portion of its operations. The Revolving Credit
Facility provides for variable rates of interest and exposes the
Company to interest rate risk resulting from changes in the DM London
Interbank Offered Rate. The Company uses off-balance sheet interest
rate swap agreements to partially hedge interest rate exposure
associated with the Revolving Credit Facility. All of the Company's
derivative financial instrument transactions are entered into for
non-trading purposes.
To the extent that the Company's financial instruments
expose the Company to interest rate risk and market risk, they are
presented in the table below. The table presents principal cash flows
and related interest rates by year of maturity for the Company's
Revolving Credit Facility and 6 7/8% Notes as of December 31, 2000. For
interest rate swap agreements, the table presents notional amounts and
the related reference interest rates by year of maturity. Fair values
included herein have been determined based upon (1) rates currently
available to the Company for debt with similar terms and remaining
maturities, and (2) estimates obtained from dealers to settle interest
rate swap agreements. The table should be read in conjunction with
Notes 6 and 7 to the consolidated financial statements (dollar amounts
in thousands).
Year of Maturity Fair Value
------------------------------------------------------------------- at
2001 2002 2003 2004 2005 Thereafter Total 12/31/00
----------------------------------------------------------------------------------------------
Debt:
Fixed rate $ 1,419 $ 1,267 $1,112 $ 929 $ 560 $150,128 $155,415 $158,667
Average interest rate 6.86% 6.86% 6.86% 6.87% 6.87% 6.87%
Variable rate $ -- $146,249 $ -- $ -- $ -- $ -- $146,249 $146,249
Average interest rate 4.63% 4.63% -- -- -- --
Interest rate swap agreements:
Variable to fixed swaps $25,025 $ 47,576 $ -- $ -- $ -- $ -- $ 72,601 $ 1,317
Average pay rate 3.42% 3.42% -- -- -- --
Average receive rate 5.20% 5.20% -- -- -- --
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As required by Statement of Financial Accounting
Standards (SFAS) No. 133,"Accounting for Derivative Instruments and
Hedging Activities," the Company is required to record the interest
rate swaps from the table above on the balance sheet at fair value
beginning January 1, 2001. SFAS No. 133, as amended and interpreted,
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. Because these swaps are
designated in a cash-flow hedge, changes in the fair value of the
derivative will be recorded in other comprehensive income ("OCI") and
will be recognized in the income statement when the hedged item affects
earnings. Effective January 1, 2001, the Company recorded $845,000 in
OCI as a cumulative transition adjustment for derivatives designated in
cash flow-type hedges prior to adopting SFAS No. 133.
CAPITAL RESOURCES During 2000, the Company expended
$29,215,000 on capital projects compared to $24,160,000 in 1999. Of the
2000 capital spending, approximately $5,200,000 was spent on the
Company's IMPACT project. Capital spending is expected to be
approximately $67,000,000, of which approximately $24,000,000 will be
for the IMPACT project, in 2001.
ENVIRONMENTAL MATTERS The Company is subject to loss
contingencies resulting from regulation by various federal, state,
local and foreign governmental authorities with respect to the
environmental impact of air and water emissions and noise from its
mills, as well as the disposal of solid waste generated by its
operations. To comply with environmental laws and regulations, the
Company has incurred substantial capital and operating expenditures in
past years. During 2000, 1999 and 1998, the Company incurred
approximately $16,700,000, $15,800,000, and $17,700,000, respectively,
in operating costs related to complying with environmental laws and
regulations. The Company anticipates that environmental regulation of
its operations will continue to become more burdensome and that capital
and operating expenditures will continue, and perhaps increase, in the
future. In addition, the Company may incur obligations to remove or
mitigate any adverse effects on the environment resulting from its
operations, including the restoration of natural resources, and
liability for personal injury and damage to property, including natural
resources. In particular, the Company remains open to negotiations with
EPA and DEP regarding the NOVs under the federal and state air
pollution control laws. The Company continues to negotiate with the
State of Wisconsin and the United States regarding natural resources
damages and response costs related to the discharge of PCBs and other
hazardous substances in the lower Fox River, on which the Company's
Neenah mill is located. The Company also is in settlement discussions
with DEP, the Pennsylvania Public Interest Research Group and several
other parties regarding the wastewater discharge permit for its Spring
Grove mill. The costs associated with such matters are presently
unknown but could be substantial and perhaps exceed the Company's
available resources. The Company's current assessment, after
consultation with legal counsel, is that ultimately it should be able
to resolve these environmental matters without a long-term, material
adverse impact on the Company. In the meantime, however, these matters
could, at any particular time or for any particular period, have a
material adverse effect on the Company's consolidated financial
condition, liquidity or results of operations. Moreover, there can be
no assurance that the Company's reserves will be adequate to provide
for future obligations related to these matters or that such
obligations will not have a long-term, material adverse effect on the
Company's consolidated financial condition, liquidity or results of
operations.
ENVIRONMENTAL ACHIEVEMENTS On April 19, 2000, the
Company's Neenah, Wisconsin paper mill achieved ISO 14001 certification
for its environmental management system and its commitment to
environmental excellence. ISO 14001 requires that an organization have
an environmental policy that includes commitments to prevention of
pollution, compliance with environmental laws and regulations and
continual improvements in its environmental management system. The
Company's Spring Grove, Pennsylvania and Gernsbach, Germany paper mills
are already ISO 14001 certified. As a part of maintaining its
certification, the mills' environmental management systems will be
audited by an independent third party on an ongoing, periodic basis.
The Company's Pisgah Forest, North Carolina paper mill is currently
working on achieving ISO 14001 certification. The Company expects its
Pisgah Forest mill to be certified by the end of 2001 and plans to have
all of its paper mills certified by the end of 2002.
On April 20, 1999, the Company announced its "New
Century Project." The New Century Project is a commitment by the
Company to participate at its Spring Grove mill in EPA's Advanced
Technology Incentive Program under the "Cluster Rules."As a result, the
Company expects to spend approximately $30,000,000 prior to April 2004
to eliminate the use of elemental chlorine in its bleaching process,
reduce odor emissions and improve water quality. The New Century
Project demonstrates the Company's commitment to minimizing its impact
on natural resources.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See the discussion under the heading "Interest Rate Risk" in Item
7 as well as Notes 6 and 7 to the Registrant's consolidated financial statements
in Item 8.
Item 8. Financial Statements and Supplementary Data.
P. H. GLATFELTER COMPANY and SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income
For the Years Ended December 31, 2000, 1999 and 1998
(in thousands except per share amounts) 2000 1999 1998
- --------------------------------------------------------------------------------------------------
NET SALES (Note 1 (p)) $ 724,720 $705,491 $ 727,312
OTHER INCOME:
Energy sales - net (Note 1 (j)) 9,243 9,176 9,652
Interest on investments and other - net (Note 6) 3,820 1,994 1,956
Gain from property dispositions, etc. - net 2,029 4,076 1,019
--------- -------- ---------
Total 739,812 720,737 739,939
--------- -------- ---------
COSTS AND EXPENSES:
Cost of products sold (Note 1 (p)) 591,201 580,905 597,585
Selling, general and administrative expenses 60,267 56,256 51,799
Interest on debt (Notes 6 and 7) 16,405 18,424 22,007
Unusual item (Note 3) 3,336 -- 9,816
--------- -------- ---------
Total costs and expenses 671,209 655,585 681,207
--------- -------- ---------
INCOME BEFORE INCOME TAXES 68,603 65,152 58,732
--------- -------- ---------
INCOME TAX PROVISION (NOTE 5):
Current 11,366 10,973 14,488
Deferred 13,237 12,754 8,111
--------- -------- ---------
Total 24,603 23,727 22,599
--------- -------- ---------
NET INCOME $ 44,000 $ 41,425 $ 36,133
========= ======== =========
BASIC AND DILUTED EARNINGS PER SHARE (Notes 4 and 8) $ 1.04 $ .98 $ .86
COMPREHENSIVE INCOME, NET OF TAX:
NET INCOME $ 44,000 $ 41,425 $ 36,133
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (Note 1 (n)) (1,451) 219 (553)
--------- -------- ---------
COMPREHENSIVE INCOME $ 42,549 $ 41,644 $ 35,580
========= ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
25
26
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
(in thousands except share information) 2000 1999
- ------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1(b)) $ 110,552 $ 76,035
Accounts receivable (less allowance for doubtful accounts:
2000, $1,515; 1999, $1,227) 72,231 74,638
Inventories (Note 1(c)) 101,294 115,100
Prepaid expenses and other current assets 2,547 2,354
----------- -----------
Total current assets 286,624 268,127
PLANT, EQUIPMENT AND TIMBERLANDS - NET (Notes 1(d) and 10) 552,768 582,213
OTHER ASSETS (Notes 1(e), 5 and 9) 173,799 153,440
----------- -----------
Total assets $ 1,013,191 $ 1,003,780
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt (Note 6) $ 1,419 $ 1,824
Short-term debt (Note 2) 5,158 26,566
Accounts payable 45,869 40,047
Dividends payable 7,430 7,393
Income taxes payable 7,328 9,601
Accrued compensation and other expenses and
deferred income taxes 51,980 47,200
----------- -----------
Total current liabilities 119,184 132,631
LONG-TERM DEBT (Note 6) 300,245 301,380
DEFERRED INCOME TAXES (Notes 1(f) and 5) 155,360 147,698
OTHER LONG-TERM LIABILITIES (Notes 1(k), 2, 8 and 9) 65,699 63,947
----------- -----------
Total liabilities 640,488 645,656
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY (Note 8):
Common stock, $.01 par value; authorized- 120,000,000 shares;
issued (including shares in treasury: 2000, 11,971,208;
1999, 12,115,725)- 54,361,980 shares 544 544
Capital in excess of par value 41,669 42,296
Retained earnings 511,019 496,680
Accumulated other comprehensive income (2,843) (1,392)
----------- -----------
Total 550,389 538,128
Less cost of common stock in treasury (177,686) (180,004)
----------- -----------
Total shareholders' equity 372,703 358,124
----------- -----------
Total liabilities and shareholders' equity $ 1,013,191 $ 1,003,780
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
26
27
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
Accumulated
Common Capital in Other Total
(in thousands except Shares Common Excess of Retained Comprehensive Treasury Shareholders'
shares outstanding) Outstanding Stock Par Value Earnings Income Stock Equity
------------------------------------------------------------------------------------------------
Balance,
January 1, 1998 42,149,608 $ 544 $ 42,623 $478,073 $ (1,058) $(180,824) $ 339,358
Net income 36,133 36,133
Foreign currency
translation adjustments (553) (553)
Cash dividends declared (29,413) (29,413)
Delivery of treasury shares:
Employee stock
purchase and
401(k) plans 182,528 (13) 2,713 2,700
Employee stock options
exercised - net 3,100 2 46 48
Purchase of stock for
treasury (250,000) (4,344) (4,344)
---------- ----- -------- -------- -------- --------- ---------
Balance,
December 31, 1998 42,085,236 544 42,612 484,793 (1,611) (182,409) 343,929
Net income 41,425 41,425
Foreign currency
translation adjustments 219 219
Cash dividends declared (29,538) (29,538)
Delivery of treasury shares:
Performance shares 11,440 (28) 170 142
401(k) plans 143,579 (273) 2,146 1,873
Employee stock options
exercised-net 6,000 (15) 89 74
---------- ----- -------- -------- -------- --------- ---------
Balance,
December 31, 1999 42,246,255 544 42,296 496,680 (1,392) (180,004) 358,124
Net income 44,000 44,000
Foreign currency
translation adjustments (1,451) (1,451)
Cash dividends declared (29,661) (29,661)
Delivery of treasury shares:
Performance shares 6,048 (2) 90 88
401(k) plans 167,769 (606) 2,498 1,892
Employee stock options
exercised- net 7,500 (19) 112 93
Purchase of stock for
treasury (36,800) (382) (382)
---------- ----- -------- -------- -------- --------- ---------
BALANCE,
DECEMBER 31, 2000 42,390,772 $ 544 $ 41,669 $511,019 $ (2,843) $(177,686) $ 372,703
========== ===== ======== ======== ======== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
27
28
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
(in thousands) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 44,000 $ 41,425 $ 36,133
Items included in net income not using (providing) cash:
Depreciation, depletion and amortization 46,106 47,766 47,738
Loss (gain) on disposition of fixed assets 467 (1,339) 481
Expense related to employee stock purchase
and 401(k) plans 2,073 2,303 1,652
Changes in assets and liabilities, net of effect
of acquisitions:
Accounts receivable 483 (7,170) 8,703
Inventories 11,351 (1,965) 16,437
Other assets and prepaid expenses (22,304) (37,259) (2,328)
Accounts payable, accrued compensation and
other expenses, deferred income taxes and
other long-term liabilities 14,694 13,999 (8,272)
Income taxes payable (1,735) (543) (4,341)
Deferred income taxes- noncurrent 8,273 24,441 4,214
--------- -------- ---------
Net cash provided by operating activities 103,408 81,658 100,417
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale or maturity of investments- net -- 401 158,475
Proceeds from disposal of fixed assets 143 1,929 319
Additions to plant, equipment and timberlands (29,215) (24,160) (40,531)
Acquisition of S&H- net of cash acquired -- -- (147,491)
Acquisition of Cascadec -- (7,399) --
--------- -------- ---------
Net cash used in investing activities (29,072) (29,229) (29,228)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payment) of debt (10,136) 2,828 (5,591)
Repayment of 5 7/8% Notes -- -- (150,000)
Acquisition-related borrowings -- -- 101,500
Dividends paid (29,624) (29,510) (29,436)
Purchases of common stock (382) -- (4,344)
Proceeds from issuance of common stock under
employee stock purchase plans and key employee
long-term incentive plan -- -- 1,088
--------- -------- ---------
Net cash used in financing activities (40,142) (26,682) (86,783)
--------- -------- ---------
Effect of exchange rate changes on cash 323 (619) (418)
Net increase (decrease) in cash and cash equivalents 34,517 25,128 (16,012)
CASH AND CASH EQUIVALENTS:
At beginning of year 76,035 50,907 66,919
--------- -------- ---------
At end of year $ 110,552 $ 76,035 $ 50,907
========= ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 16,848 $ 23,273 $ 22,722
Income taxes 12,626 12,119 19,573
The accompanying notes are an integral part of these consolidated financial
statements.
28
29
P. H. GLATFELTER COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2000, 1999 and 1998
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION P.H.
Glatfelter Company and subsidiaries are manufacturers of engineered
papers and specialized printing papers. Headquartered in York,
Pennsylvania, the Company's paper mills are located in Spring Grove,
Pennsylvania; Neenah, Wisconsin; Pisgah Forest, North Carolina;
Gernsbach, Germany; and Scaer, France. The Company's products are
marketed in most parts of the United States and in many foreign
countries, either through wholesale paper merchants, brokers and agents
or direct to customers. The accounts of the Company, and those of its
subsidiaries, are included in the consolidated financial statements.
All intercompany transactions have been eliminated. The Company's
operating locations have been aggregated into a single reportable
segment since they have similar economic characteristics, products,
production processes, types of customers and distribution methods.
Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to those classifications
used in 2000.
(b) CASH AND CASH EQUIVALENTS The Company considers all highly liquid
financial instruments with effective maturities at date of purchase of
three months or less to be cash equivalents.
(c) INVENTORIES Inventories are stated at the lower of cost or market.
Raw materials and in-process and finished inventories of the Company's
domestic operations are valued using the last-in, first-out (LIFO)
method, and the supplies inventories are valued principally using the
average-cost method. Certain of the Company's inventories are valued
using a method which approximates average cost. Inventories at December
31 are summarized as follows:
2000 1999
----------------------
(in thousands)
Raw materials $ 27,789 $ 41,013
In-process and finished 43,819 42,463
Supplies 29,686 31,624
-------- --------
Total $101,294 $115,100
======== ========
If the Company had valued all inventories using the average-cost
method, inventories would have been $8,121,000 and $3,790,000 higher
than reported at December 31, 2000 and 1999, respectively. During 2000
and 1998, the Company liquidated certain LIFO inventories. The effect
of the liquidations did not have a significant impact on net income.
At December 31, 2000 and 1999, the recorded value of the above
inventories exceeded inventories for income tax purposes by
approximately $22,400,000 and $22,200,000, respectively.
(d) PLANT, EQUIPMENT AND TIMBERLANDS Depreciation is computed for
financial reporting using the straight-line method over the estimated
useful lives of the respective assets and for income taxes principally
using accelerated methods over lives established by statute or
Treasury Department procedures. Provision is made for deferred income
taxes applicable to this difference. See Notes 1(f) and 5.
The range of estimated service lives used to calculate financial
reporting depreciation for principal items of property, plant and
equipment are as follows:
Buildings 10 - 45 Years
Machinery and equipment 7 - 35 Years
Other 4 - 40 Years
Depletion of the cost of timber is computed on a unit rate of usage by
growing area based on estimated quantities of recoverable material.
Maintenance and repairs are charged to income and major renewals and
betterments are capitalized. At the time property is retired or sold,
the cost and related reserve are eliminated and any resultant gain or
loss is included in income.
Property, equipment and timberlands accounts, as of December 31, are
summarized as follows:
2000 1999
-----------------------------
(in thousands)
Land and buildings $ 145,323 $ 145,898
Machinery and
equipment 1,073,396 1,071,656
Other 38,842 37,745
Less accumulated
depreciation (737,985) (699,557)
---------- ------------
Total 519,576 555,742
Construction in progress 14,674 7,893
Timberlands, less
depletion 18,518 18,578
---------- ------------
Plant, equipment and
timberlands - net $ 552,768 $ 582,213
========== ============
(e) INVESTMENTS IN DEBT SECURITIES Long-term investments, which are due
over a remaining 14-year period and are classified as held-to-
maturity, are included in "Other assets" on the Consolidated Balance
Sheets at December 31, 2000 and 1999. The investments consist of
approximately $10,300,000 and $10,400,000 in U.S. Treasury and
government obligations at December 31, 2000 and 1999, respectively. The
fair market value of such investments approximated the amortized cost,
and therefore, there were no significant unrealized gains or losses as
of December 31, 2000 and 1999.
29
30
(f) INCOME TAX ACCOUNTING The Company recognizes deferred tax assets
and liabilities for temporary differences between the financial
reporting basis and the tax basis of the Company's assets and
liabilities. The impact on deferred taxes of changes in tax rates and
laws, if any, applied to the years during which temporary differences
are expected to be settled, are reflected in the consolidated financial
statements in the period of enactment. See Note 5.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS The amounts reported on the
Consolidated Balance Sheets for cash and cash equivalents, accounts
receivable, other assets, short-term debt and long-term debt
approximate fair value.
(h) VALUATION OF LONG-LIVED ASSETS The Company evaluates long-lived
assets for impairment periodically or when a specific event indicates
that the carrying value of an asset may not be recoverable.
Recoverability is assessed based on estimates of future cash flows
expected to result from the use and eventual disposition of the asset.
If the sum of expected undiscounted cash flows is less than the
carrying value of the asset, an impairment loss is recognized. The
impairment loss is measured as the amount by which the carrying amount
of the asset exceeds its fair value.
(i) ACCOUNTING ESTIMATES The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires the use of management's estimates
and assumptions. Management believes the estimates and assumptions used
in the preparation of these consolidated financial statements are
reasonable, based upon currently available facts and known
circumstances, but recognizes that actual results may differ from those
estimates and assumptions. See Note 10.
(j) REVENUE RECOGNITION The Company recognizes revenue on product
sales upon shipment and on energy sales when electricity is delivered
to its customer. Certain costs associated with the production of
electricity, such as fuel, labor, depreciation and maintenance are
netted against the energy sales for presentation on the Consolidated
Statements of Income and Comprehensive Income. The Company's current
contract to sell electricity generated in excess of its own use expires
in the year 2010 and requires that the customer purchase all of the
Company's excess electricity up to a certain level. The price for the
electricity is determined pursuant to a formula and varies depending
upon the amount sold in any given year.
(k) ENVIRONMENTAL LIABILITIES Accruals for losses associated with
environmental obligations are recorded when it is probable that a
liability has been incurred and the amount of the liability can be
reasonably estimated based on existing legislation and remediation
technologies. These accruals are adjusted periodically as assessment
and remediation actions continue and/or further legal or technical
information develops. Accrued environmental liabilities are classified
as "Other long-term liabilities" on the Consolidated Balance Sheets.
Such undiscounted liabilities are exclusive of any insurance or other
claims against third parties.
Costs related to environmental remediation are charged to expense.
Environmental costs are capitalized if the costs extend the life of the
property, increase its capacity and/or mitigate or prevent
contamination from future operations. See Note 10.
(l) STOCK-BASED COMPENSATION The Company has adopted the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
encourages, but does not require, companies to record compensation cost
for stock-based compensation plans at fair value. The Company has
elected to continue to account for stock-based compensation in
accordance with APB Opinion No. 25,"Accounting for Stock Issued to
Employees," and related interpretations, as permitted by SFAS No. 123.
Compensation expense for stock options is measured as the excess, if
any, of the average quoted market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the
stock. Compensation expense for both restricted stock and performance
stock awards is recognized ratably over the performance period based
on changes in quoted market prices of the Company's stock and the
likelihood of achieving the performance goals. See Note 8.
(m) DERIVATIVE FINANCIAL INSTRUMENTS The Company uses interest rate
swap agreements to manage its exposure to fluctuations in interest
rates. Amounts to be paid or received under interest rate swap
agreements are recognized as interest expense or interest income during
the period in which they accrue. The Company does not hold any
derivative financial instruments for trading purposes. The credit risks
associated with the Company's interest rate swap agreements are
controlled through the evaluation and monitoring of creditworthiness of
the counterparties. Although the Company may be exposed to losses in
the event of nonperformance by counterparties, the Company does not
expect such losses, if any, to be significant. See Note 7.
(n) FOREIGN CURRENCY TRANSLATION The Company's subsidiaries outside the
United States use their local currency as the functional currency.
Accordingly, translation gains and losses and the effect of exchange
rate changes on transactions designated as hedges of net foreign
investments are included as a separate component of shareholders'
equity. Transaction gains and losses are included in income in the
period in which they occur.
30
31
(o) RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting
Standards (SFAS) No. 133,"Accounting for Derivative Instruments and
Hedging Activities," is effective for all fiscal years beginning after
June 15, 2000. SFAS No. 133, as amended and interpreted, establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. All derivatives, whether designated in
hedging relationships or not, will be required to be recorded on the
balance sheet at fair value. If the derivative is designated in a
fair-value hedge, changes in the fair value of the derivative and the
hedged item will be recognized in earnings. If the derivative is
designated in a cash-flow hedge, changes in the fair value of the
derivative will be recorded in other comprehensive income ("OCI") and
will be recognized in the income statement when the hedged item affects
earnings. SFAS No. 133 defines new requirements for designation and
documentation of hedging relationships as well as ongoing effectiveness
assessments to use hedge accounting. For a derivative that does not
qualify as a hedge, changes in fair value will be recognized in
earnings.
As of January 1, 2001, the Company had no derivatives that required a
cumulative transition adjustment to earnings under SFAS No. 133. The
Company recorded an $845,000 increase in OCI, as of January 1, 2001, as
a cumulative transition adjustment for derivatives designated in cash
flow-type hedges prior to adopting SFAS No. 133.
(p) RECLASSIFICATIONS During the fourth quarter of 2000, the Company
adopted the provisions of the Emerging Issues Task Force ("EITF") Issue
No. 00-10,"Accounting for Shipping and Handling Fees and Costs." In
accordance with the provisions of EITF 00-10, certain shipping and
handling costs that the Company had previously recorded as a
deduction in determining net sales have been reclassified to cost of
products sold. As a result of adopting EITF 00-10, the Company has
restated previous quarters of 2000 and previous years' financial
information to reflect comparable reporting of such shipping and
handling costs.
2 ACQUISITION OF THE SPECIALTY PAPER DIVISION OF THE SCHOELLER AND HOESCH GROUP
Effective January 2, 1998, the Company acquired all of the outstanding
common stock of S&H Papier-Holding GmbH ("S&H"), the specialty paper
division of the Schoeller and Hoesch Group, from RQPO Beteiligungs GmbH
& Co. Papier KG ("RQPO") and EVOBESTRA Vermogensverwaltungsgesellschaft
mbH, for DM 268,900,000 (approximately $150,000,000) in cash. The
purchase price was finalized in the fourth quarter of 1998. The
principal partners in RQPO were Deutsche Beteiligungs AG and S&H
management. The Company accounted for the S&H acquisition under the
purchase method of accounting, and S&H was consolidated with the
Company beginning in January 1998.
S&H was founded in 1881 in Gernsbach, Germany, where its corporate
offices and major paper production facilities are located. S&H produces
a range of paper products, including tea bag and other long fiber
products such as stencil, filter and casing paper, as well as overlay
papers, tobacco papers and printing papers. S&H owns an abaca pulpmill
in the Philippines and other facilities in France. The acquisition of
S&H initially included a 50% controlling ownership interest in
Papeteries de Cascadec S. A. ("Cascadec"), a French company, along with
the option to acquire the remaining 50% at a future time. For the year
ended December 31, 1998, the Company recognized $886,000 of minority
interest expense classified as "Gain from property dispositions,
etc.-net" on the Company's Consolidated Statement of Income and
Comprehensive Income. On April 9, 1999, the Company exercised its
option and purchased the remaining 50% of Cascadec for FF 45,181,233
($7,399,000) in cash. During 1999, the Company recognized $343,000 of
minority interest expense through the acquisition date of the remaining
50% of Cascadec.
The purchase price of S&H, including certain transaction costs, was
allocated to the assets acquired and liabilities assumed based upon
their fair values at the date of acquisition. The fair values allocated
were approximately $238,000,000 for the assets acquired and
approximately $101,000,000 for the liabilities assumed. The excess of
the purchase price over the fair value of net assets acquired of
approximately $13,000,000 was recorded as goodwill and is being
amortized on a straight-line basis over 20 years.
To finance the acquisition, on December 22, 1997, the Company entered
into a $200,000,000 multi-currency revolving credit facility
("Revolving Credit Facility") with a syndicate of major lending
institutions. The Revolving Credit Facility enables the Company to
borrow up to the equivalent of $200,000,000 in certain currencies in
the form of revolving credit loans with a final maturity date of
December 22, 2002, and with interest periods determined, at the
Company's option, on a daily or one- to six-month basis. Interest on
the revolving credit loans is at variable rates based, at the Company's
option, on the Eurocurrency Rate or the Base Rate (lender's prime
rate), plus applicable margins. Margins are based on the higher of the
Company's debt ratings as
31
32
published by Standard & Poor's and Moody's. The Company is subject to
certain financial covenants under the Revolving Credit Facility and is
in compliance with all such covenants as of December 31, 2000. The
Company must pay an annual administrative fee of $25,000 as well as an
annual facility fee which is 1% of the total credit commitment. As of
December 31, 2000, $53,751,000 of credit availability under the
Revolving Credit Facility was unused.
3 UNUSUAL ITEMS
The Company announced in September 1999 that, effective January 1,
2000, prices would be increased for certain of its tobacco paper
products. This initiative was required for the Company to remain a
viable, high-quality supplier to its tobacco paper customers. As the
Company expected, certain of these customers sought other suppliers
after this announcement. As a result, the Company announced in December
1999 that it would begin reducing its tobacco paper manufacturing
capacity at its Ecusta mill during 2000.
During the first quarter of 2000, the Company finalized its plan of
restructuring and shortly thereafter began to reduce the workforce at
Ecusta. The workforce reduction is substantially completed and will
ultimately result in the reduction of over 200 salaried and hourly jobs
associated with the Company's tobacco paper production capacity. The
Company accrued and charged to expense $3,336,000 ($2,120,000 after
tax) in the first quarter of 2000 primarily as a result of the
voluntary portion, specifically 42 salaried employees, of this
restructuring. The amount of actual termination benefits paid and
charged against the liability as of December 31, 2000 was $316,000
covering 31 salaried employees.
During 1998, the Company recognized a charge of $9,816,000 ($5,988,000
after tax) related primarily to the accrual of pension and medical
benefits for certain salaried and hourly employees of the Company's
Ecusta Division and certain salaried employees of the Company's
Glatfelter Division who elected to participate in a voluntary early
retirement enhancement program. The charge also included the cost of
termination of several Glatfelter Division salaried employees which was
necessary to achieve the Company's cost-savings goals.
4 EARNINGS PER SHARE("EPS")
Basic EPS excludes the dilutive impact of common stock equivalents
and is computed by dividing net income by the weighted-average number
of shares of common stock outstanding for the period. Diluted EPS
includes the effect of potential dilution from the issuance of common
stock, pursuant to common stock equivalents, using the treasury stock
method. A reconciliation of the Company's basic and diluted EPS follows
with the dollar and share amounts in thousands:
2000 1999 1998
Shares Shares Shares
---------------------------------
Basic EPS factors 42,342 42,173 42,047
Effect of potentially
dilutive employee
incentive plans:
Restricted stock
awards 82 3 16
Performance
stock awards 59 131 126
Employee stock
options -- 124 13
------- ------- -------
Diluted EPS factors 42,483 42,431 42,202
======= ======= =======
Net income $44,000 $41,425 $36,133
Basic and diluted EPS $ 1.04 $ .98 $ .86
The 2000 and 1998 basic and diluted EPS of $1.04 and $0.86,
respectively, as presented on the Consolidated Statements of Income and
Comprehensive Income, reflect the negative impact of an after-tax
restructuring charge (unusual item) of $.05 per share for 2000 and an
after-tax charge for a voluntary early retirement enhancement program
(unusual item) of $.14 per share for 1998 (see Note 3).
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33
5 INCOME TAXES
Income taxes are recognized for the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets
for the future tax consequences of events that have been recognized in
the Company's consolidated financial statements or tax returns. The
effects of income taxes are measured based on effective tax law and
rates.
The following are domestic and foreign components of pre-tax income
for the years ended December 31:
2000 1999 1998
--------------------------------
(in thousands)
United States $59,653 $55,911 $44,602
Foreign 8,950 9,241 14,130
------- ------- -------
Total pre-tax income $68,603 $65,152 $58,732
======= ======= =======
The income tax provision for the years ended December 31 consists of
the following:
2000 1999 1998
-----------------------------------
(in thousands)
Current:
Federal $ 9,939 $ 6,953 $ 10,789
State -- 217 (106)
Foreign 1,427 3,803 3,805
-------- -------- --------
Total current
tax provision 11,366 10,973 14,488
-------- -------- --------
Deferred:
Federal 9,729 11,735 6,647
State 1,822 2,197 1,244
Foreign 1,686 (1,178) 220
-------- -------- --------
Total deferred
tax provision 13,237 12,754 8,111
-------- -------- --------
Total income
tax provision $ 24,603 $ 23,727 $ 22,599
======== ======== ========
The Company has provided deferred income taxes of $1,217,000 and
$57,000 on undistributed earnings of foreign subsidiaries as of
December 31, 2000 and 1999, respectively.
The net deferred tax amounts reported on the Company's Consolidated
Balance Sheets as of December 31 are as follows:
2000 1999
------------------------------------------------------------
Federal State Foreign Total Total
------------------------------------------------------------
(in thousands)
Current asset $ -- $ -- $ 1,295 $ 1,295 $ 1,225
Current liability 2,829 534 670 4,033 4,988
Long-term asset -- -- 20,917 20,917 27,666
Long-term liability 113,246 21,390 20,724 155,360 147,698
The following are components of the net deferred tax balances as of
December 31:
2000 1999
------------------------------------------------------------
Federal State Foreign Total Total
------------------------------------------------------------
(in thousands)
Deferred tax assets:
Current $ 4,520 $ 852 $ 1,295 $ 6,667 $ 5,737
Long-term 21,848 4,121 20,917 46,886 52,859
-------- -------- -------- -------- --------
$ 26,368 $ 4,973 $ 22,212 $ 53,553 $ 58,596
======== ======== ======== ======== ========
Deferred tax liabilities:
Current $ 7,349 $ 1,386 $ 670 $ 9,405 $ 9,500
Long-term 135,094 25,511 20,724 181,329 172,891
-------- -------- -------- -------- --------
$142,443 $ 26,897 $ 21,394 $190,734 $182,391
======== ======== ======== ======== ========
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The tax effects of temporary differences as of December 31 are as
follows:
2000 1999
-------------------------
(in thousands)
Deferred tax assets:
Reserves $ 15,484 $ 13,469
Compensation 7,334 7,068
Postretirement benefits 10,349 10,752
Property 8,626 16,104
Pension 2,906 3,164
Net operating loss
carryforwards 9,366 7,947
Other 1,320 1,339
--------- ---------
Subtotal 55,385 59,843
Valuation allowance (1,832) (1,247)
--------- ---------
Total deferred tax assets 53,553 58,596
--------- ---------
Deferred tax liabilities:
Property 127,906 131,873
Pension 50,745 39,450
Inventories 8,735 8,648
Inventories 3,348 2,420
--------- ---------
Total deferred tax liabilities 190,734 182,391
--------- ---------
Net deferred tax liabilities $ 137,181 $ 123,795
========= =========
A reconciliation between the income tax provision, computed by
applying the statutory federal income tax rate of 35% to income before
income taxes, and the actual income tax provision for the years ended
December 31 follows:
2000 1999 1998
------------------------------------
(in thousands)
Federal income tax
provision at
statutory rate $ 24,011 $ 22,803 $ 20,556
State income taxes,
net of federal
income tax benefit 1,185 1,569 740
Tax effect of exempt
earnings of foreign
sales corporation (90) (713) (1,313)
Other (503) 68 2,616
-------- -------- --------
Actual income
tax provision $ 24,603 $ 23,727 $ 22,599
======== ======== ========
At December 31, 2000, the Company had net operating loss ("NOL")
carryforwards for foreign and state income tax purposes of $38,128,000
and $16,478,000, respectively, which relate to foreign and state NOL
deferred tax assets of $7,939,000 and $1,427,000, respectively. These
foreign and state NOL carryforwards are available to offset future
taxable income, if any. A valuation allowance of $1,832,000 has been
recorded against these NOL deferred tax assets due to the uncertainty
regarding the Company's ability to utilize the NOL carryforwards. The
foreign NOL carryforwards do not expire, and the state NOL
carryforwards expire between 2004 and 2020.
6 BORROWINGS
Long-term debt at December 31 is summarized as follows:
2000 1999
-------------------------
(in thousands)
Revolving Credit Facility,
due December 22, 2002 $ 146,249 $ 145,545
6-7/8% Notes, due July 15,
2007, interest payable
semiannually 150,000 150,000
Other Notes, various 5,415 7,659
--------- ---------
Total long-term debt 301,664 303,204
Less current portion (1,419) (1,824)
--------- ---------
Long-term debt, excluding
current portion $ 300,245 $ 301,380
========= =========
The aggregate maturities of long-term debt as of December 31, 2000 are
as follows (in thousands):
2001 $ 1,419
2002 147,516
2003 1,112
2004 929
2005 560
Thereafter 150,128
---------
$ 301,664
=========
The Company has $3,030,000 of letters of credit outstanding as of
December 31, 2000. The Company bears the credit risk on this amount to
the extent that it does not comply with the provisions of certain
agreements. The letters of credit do not reduce the amount available
under the Company's lines of credit.
On July 22, 1997, the Company issued $150,000,000 principal amount of
6-7/8% Notes due July 15, 2007. Interest on the 6-7/8% Notes is payable
semiannually on January 15 and July 15. The 6-7/8% Notes are
redeemable, in whole or in part, at the option of the Company at any
time at a calculated redemption price plus accrued and unpaid interest
to the date of redemption, and constitute unsecured and unsubordinated
indebtedness of the Company. The net proceeds from the sale of the
6-7/8% Notes were used primarily to repay certain short-term unsecured
debt and related interest.
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35
7 INTEREST RATE SWAP AGREEMENTS
In January 1998, the Company entered into two interest rate swap
agreements, each having a total notional principal amount of DM
52,600,000 (approximately $25,000,000 as of December 31, 2000). One
such agreement expired January 6, 2000. Under the remaining agreement,
which expired January 2, 2001, the Company received a floating rate of
the six-month DM London Interbank Offered Rate ("LIBOR") and paid a
fixed rate of 4.45% for the term of the agreement. The six-month DM
LIBOR applicable for the first and second half of 2000 was approxi-
mately 3.60% and 5.01%, respectively. The Company recognized net
interest expense of $85,000, $770,000 and $638,000 in 2000, 1999 and
1998, respectively, related to these agreements.
In January 1999, the Company entered into two additional interest rate
swap agreements, each having a total notional principal amount of DM
50,000,000 (approximately $23,800,000 as of December 31, 2000). Under
these agreements, which were effective April 6, 1999 and July 6, 1999
and which expire December 22, 2002, the Company receives a floating
rate of the three- month DM LIBOR plus twenty basis points and pays a
fixed rate of 3.41% and 3.43%, respectively, for the term of the
agreements. The Company recognized net interest income of $461,000 in
2000 and net interest expense of $167,000 in 1999 related to these
agreements. As of December 31, 2000, the Company's proceeds from
termination of these interest rate swap agreements would have been
$1,273,000.
The Company had other interest rate swap agreements outstanding, which
do not have a material impact on the Company's consolidated financial
statements. All of the Company's interest rate swap agreements
convert a portion of the Company's borrowings from a floating rate to a
fixed-rate basis. Although the Company can terminate any of its swap
agreements at any time, the Company intends to hold all of its swap
agreements until their respective maturities.
8 KEY EMPLOYEE LONG-TERM INCENTIVE PLAN, RESTRICTED COMMON STOCK AWARD PLAN AND
EMPLOYEE STOCK PURCHASE PLANS
On April 23, 1997, the common shareholders amended the 1992 Key
Employee Long-Term Incentive Plan ("1992 Plan") to authorize, among
other things, the issuance of up to 5,000,000 shares of the Company's
common stock to eligible participants. The 1992 Plan provides for
incentive stock options, non-qualified stock options, restricted stock
awards, performance shares and performance units. To date, there have
been no grants of incentive stock options or performance units.
RESTRICTED STOCK AWARDS During December 2000, December 1999 and
December 1998, 81,780, 101,730 and 60,465 shares, respectively, of
common stock were awarded under the 1992 Plan. Awarded shares are
subject to forfeiture, in whole or in part, if the recipient ceases to
be an employee within a specified time period. The shares awarded under
the 1992 Plan are also subject to forfeiture if defined minimum
earnings levels are not met. The Company may reduce the number of
shares otherwise required to be delivered by an amount that would have
a fair market value equal to the taxes withheld by the Company on
delivery. The Company may also, at its sole discretion, elect to pay to
the recipients in cash an amount equal to the fair market value of the
shares that would otherwise be required to be delivered.
The Company recognized expense of $936,000 in 2000, including $512,000
related to "Unusual Items" described in Note 3, expense of $262,000 in
1999 and income of $64,000 in 1998 related to these awards. The shares
awarded under the 1992 Plan all cease to be subject to forfeiture by
the end of 2004.
PERFORMANCE SHARES On May 1, 1995, January 1, 1996, January 1, 1997 and
January 1, 1998, the Company awarded, under the 1992 Plan, 59,620,
44,860, 40,060 and 45,740 shares, respectively, subject to certain
conditions, to certain key employees to be issued in whole or in part
depending on the Company's degree of success in achieving certain
financial performance goals during defined four-year performance
periods. The May 1, 1995 award was for the four-year performance period
ended December 31, 1998. Based upon the financial performance levels
achieved during the periods ended December 31, 1998, 1999 and 2000,
45,751, 27,668 and 16,492 shares, respectively, were earned for
distribution. During February 1999, in lieu of delivering 45,751 shares
of common stock, the Company elected to pay cash equal to the fair
value of 34,311 shares as of December 31, 1998, and deliver 11,440
shares from treasury. During February 2000, in lieu of delivering
27,668 shares of common stock, the Company elected to pay cash equal to
the fair value of 21,620 shares as of December 31, 1999, and deliver
6,048 shares from treasury. During February 2001, in lieu of delivering
16,492 shares of common stock, the Company elected to pay cash equal to
the fair value of 13,003 shares as of December 31, 2000, and deliver
3,489 shares from treasury. The January 1, 1998 award is for the
performance period ending December 31, 2001 and if earned will be
distributed in 2002.
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36
The Company recognized income of $169,000 in 2000, expense of $357,000
in 1999 and income of $25,000 in 1998 related to these performance
stock awards. The quoted market value per share of the shares granted
during 1998, 1997, 1996 and 1995 was $18.38, $17.88, $17.16 and $17.81,
respectively.
NON-QUALIFIED STOCK OPTIONS The following summarizes the activity with
respect to non-qualified options to purchase shares of common stock
granted under the 1992 Plan during the years ended December 31, 2000,
1999 and 1998:
2000 1999 1998
-----------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-----------------------------------------------------------------------------------------------
Outstanding at beginning
of year 3,293,215 $14.86 3,216,580 $15.32 1,621,165 $17.61
Options granted 636,600 12.90 467,850 13.28 1,659,115 13.19
Options exercised (7,500) 12.34 (6,000) 12.40 (3,100) 15.44
Options canceled (271,633) 15.37 (385,215) 16.82 (60,600) 18.03
--------- --------- ---------
Outstanding at end of year 3,650,682 14.49 3,293,215 14.86 3,216,580 15.32
========= ========= =========
Exercisable at end of year 1,921,332 15.82 1,293,709 17.54 1,264,973 17.54
The following table summarizes information about stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding as Remaining Average Exercisable as Average
Exercise Price of 12/31/00 Contractual Life Exercise Price of 12/31/00 Exercise Price
- --------------------------------------------------------------------------------------------------------------------
$10.78- $12.95 1,922,140 8.4 years $12.53 605,388 $12.35
$12.96- $18.78 1,728,542 5.1 years 16.66 1,315,944 17.41
---------- ----------
3,650,682 6.8 years 14.49 1,921,332 15.82
========== ==========
An additional 364,153 options became exercisable January 1, 2001, at a
weighted-average exercise price of $13.34. The weighted-average fair
value of options granted during 2000, 1999 and 1998 was $2.60, $3.06,
and $3.12, respectively, on the date of grant. The fair value of each
option on the date of grant is estimated using the Black-Scholes option
pricing model with expected lives of ten years and the following
weighted-average assumptions:
2000 1999 1998
-------------------------------
Risk-free interest rate 5.61% 6.26% 4.98%
Expected dividend yield 7.61% 5.36% 4.44%
Expected volatility 42.0% 30.0% 28.6%
Options typically become exercisable for 25% of the shares of common
stock issuable on exercise thereof, beginning January 1 of the year
following the date of grant, assuming six months has passed, with
options for an additional 25% of such shares becoming exercisable on
January 1 of each of the next three years. Options not exercisable in
this format are exercisable in full either six months or one year from
the date of grant. All options expire on the earlier of termination of
employment or, in some instances, a defined period subsequent to
termination of employment, or ten years from the date of grant.
The exercise price represents the average quoted market price of the
Company's common stock on the date of grant, or the average quoted
market prices of the Company's common stock on the first day before and
after the date of grant for which quoted market price information was
available if such information was not available on the date of grant.
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37
PRO FORMA INFORMATION The Company accounts for these plans under APB
Opinion No. 25, under which no compensation cost has been recognized
for the non-qualified stock options and for which compensation cost has
been recognized for stock awards, as described in Note 1(I). Had
compensation cost for these plans been determined consistent with
SFAS No. 123, the Company's net income and EPS for the years ended
December 31, 2000, 1999 and 1998 would have been reduced to the
following pro forma amounts:
2000 1999 1998
-------------------------------------------
(in thousands except per share information)
Net income:
As reported $ 44,000 $ 41,425 $ 36,133
Pro forma 42,656 39,960 35,554
EPS:
Reported- basic and diluted $ 1.04 $ .98 $ .86
Pro forma- basic 1.01 .95 .85
Pro forma- diluted 1.00 .94 .84
EMPLOYEE STOCK PURCHASE PLANS Through 1998, under the Company's
employee stock purchase plans, eligible hourly employees could acquire
shares of the Company's common stock at its fair market value.
Employees could contribute up to 10% of their compensation, as defined.
For employee contributions up to 6% of their compensation, the Company
would contribute, as specified in the plans, 15% of the employee's
contribution.
As of January 1999, benefits offered to eligible hourly employees under
the Company's stock purchase plans were replaced with similar benefits
under a 401(k) plan. See Note 9.
9 RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS
The Company has trusteed noncontributory defined benefit pension plans
covering substantially all of its employees. The benefits are based, in
the case of certain plans, on average salary and years of service and,
in the case of other plans, on a fixed amount for each year of service.
Plan provisions and funding meet the requirements of the Employee
Retirement Income Security Act of 1974. Pension income of $25,927,000,
$20,490,000 and $5,502,000 was recognized in 2000, 1999 and 1998,
respectively. The pension income for 2000 and 1998 was after the
impact of pre-tax charges of $2,182,000 and $8,486,000, respectively,
related to the unusual items discussed in Note 3. The Company provides
certain health care benefits to eligible retired employees. These
benefits include a comprehensive medical plan for retirees prior to age
65 and fixed supplemental premium payments to retirees over age 65 to
help defray the costs of Medicare. The plan is not funded; claims are
paid as incurred.
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38
The following table sets forth the status of the Company's defined
benefit pension plans and other post-retirement benefit plans at
December 31, 2000 and 1999 (in thousands):
Pension Benefits Other Benefits
------------------------ ------------------------
2000 1999 2000 1999
------------------------ ------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 241,563 $ 230,921 $ 32,221 $ 31,291
Service cost 5,254 4,877 806 741
Interest cost 16,016 15,977 2,140 2,153
Plan amendments 1,281 -- -- --
Actuarial (gain) loss (5,451) 3,904 7,243 456
Benefits paid (14,822) (14,116) (4,119) (2,420)
Unusual item (Note 3) 2,182 -- -- --
--------- --------- --------- ---------
Benefit obligation at end of year $ 246,023 $ 241,563 $ 38,291 $ 32,221
========= ========= ========= =========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 564,271 $ 504,185 $ -- $ --
Actual return on plan assets 5,774 72,677 -- --
Employer contributions 2,687 1,525 4,119 2,420
Benefits paid (14,822) (14,116) (4,119) (2,420)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 557,910 $ 564,271 $ -- $ --
========= ========= ========= =========
RECONCILIATION OF THE FUNDED STATUS:
Funded status $ 311,887 $ 322,708 $ (38,291) $ (32,221)
Unrecognized transition asset (5,753) (7,477) -- --
Unrecognized prior service cost 19,148 19,695 (1,422) (1,634)
Unrecognized (gain) loss (200,500) (239,733) 13,193 6,297
--------- --------- --------- ---------
Net amount recognized $ 124,782 $ 95,193 $ (26,520) $ (27,558)
========= ========= ========= =========
AMOUNTS RECOGNIZED ON THE CONSOLIDATED
BALANCE SHEETS CONSIST OF:
Prepaid benefit cost $ 158,152 $ 125,603 $ -- $ --
Accrued benefit liability (33,370) (30,410) (26,520) (27,558)
--------- --------- --------- ---------
Prepaid (accrued) benefit cost $ 124,782 $ 95,193 $ (26,520) $ (27,558)
========= ========= ========= =========
The net prepaid pension cost is included in "Other assets", and accrued
postretirement benefit costs are principally included in "Other
long-term liabilities" on the Consolidated Balance Sheets at December
31, 2000 and 1999.
Net periodic benefit (income) cost includes the following components
(in thousands):
Pension Benefits Other Benefits
------------------------------------ ------------------------------------
2000 1999 1998 2000 1999 1998
------------------------------------ ------------------------------------
Service cost $ 5,254 $ 4,877 $ 4,838 $ 806 $ 741 $ 728
Interest cost 16,016 15,977 14,355 2,140 2,153 2,005
Expected return on plan assets (42,350) (35,735) (29,607) -- -- --
Amortization of transition asset (1,724) (1,724) (1,724) -- -- --
Amortization of prior service cost 1,829 1,746 1,333 (212) (212) (175)
Recognized actuarial (gain) loss (7,134) (5,631) (3,183) 280 351 123
-------- -------- -------- -------- -------- --------
Net periodic benefit (income) cost (28,109) (20,490) (13,988) 3,014 3,033 2,681
Unusual item (Note 3) 2,182 -- 8,486 -- -- 1,294
-------- -------- -------- -------- -------- --------
Total net periodic benefit (income) cost $(25,927) $(20,490) $ (5,502) $ 3,014 $ 3,033 $ 3,975
======== ======== ======== ======== ======== ========
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $23,271,000,
$20,708,000 and $0, respectively, as of December 31, 2000 and
$20,602,000, $18,972,000 and $0, respectively, as of December 31, 1999.
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The assumptions used in computing the information above were as
follows:
Pension Benefits Other Benefits
--------------------- ---------------------
2000 1999 & 1998 2000 1999 & 1998
--------------------- ---------------------
Discount rate- benefit expense 7.0% 7.5% 7.0% 7.5%
Expected long-term rate of return on plan assets 9.0% 9.0% -- --
Discount rate- benefit obligation 7.0% 7.0% 7.0% 7.0%
Future compensation growth rate 3.5% 3.5% -- --
For measurement purposes, a 6% and 5.5% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 1999
and 2000, respectively. The rate is assumed to remain level at 5.5%
going forward.
A one percentage-point change in assumed health care cost trend rates
would have the following effects:
2000 1999
-------------------------------- ----------------------------
1% Increase 1% Decrease 1% Increase 1% Decrease
-------------------------------- ----------------------------
(in thousands)
Effect on postretirement benefit obligation $2,793 $(2,429) $2,295 $(1,999)
Effect on total of service and interest
cost components 273 (233) 266 (226)
The Company maintains 401(k) plans for certain hourly and salaried
employees. Employees may contribute up to 15% of their salary to
these plans, subject to certain restrictions. The Company will match a
portion of the employee's contribution, subject to certain limitations,
in the form of shares of the Company's common stock into the Company
stock fund maintained under the 401(k) plans. During 2000, 1999 and
1998, the Company contributed shares of its common stock valued at
$1,681,000, $1,626,000, and $1,541,000, respectively, to these 401(k)
plans.
10 COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
The Company is subject to loss contingencies resulting from regulation
by various federal, state, local and foreign governmental authorities
with respect to the environmental impact of air and water emissions
and noise from its mills, as well as the disposal of solid waste
generated by its operations. To comply with environmental laws and
regulations, the Company has incurred substantial capital and operating
expenditures in past years. The Company anticipates that environmental
regulation of its operations will continue to become more burdensome
and that capital and operating expenditures will continue, and perhaps
increase, in the future. In addition, the Company may incur obligations
to remove or mitigate any adverse effects on the environment resulting
from its operations, including the restoration of natural resources,
and liability for personal injury and damage to property, including
natural resources. Because environmental regulations are not
consistent worldwide, the Company's ability to compete in the world
marketplace may be adversely affected by capital and operating
expenditures required for environmental compliance.
Subject to permit approval, the Company has undertaken an initiative
under the Voluntary Advanced Technical Incentive Program of the United
States Environmental Protection Agency ("EPA") to comply with the
new "Cluster Rule" regulations. This initiative, the Company's "New
Century Project," will require capital expenditures currently estimated
at approximately $30,000,000 to be incurred before April 2004.
On September 7, 2000, the Pennsylvania Department of Environmental
Protection ("DEP") issued to the Company a renewed wastewater discharge
permit for the Spring Grove mill with an effective date of October 1,
2000. The renewed permit calls for reductions in the mill's discharge
of color that the Company believes cannot be achieved at this time
without a curtailment of operations. On September 7, 2000, DEP also
issued to the Company an administrative order calling for achievement
of the limitations in the permit on a schedule extending until 2007.
Both the permit and the order contemplate adoption of an alternative
limitation on color which would be less stringent. The Company expects
to be able to meet the alternative limitation without a curtailment of
operations under the schedule set forth in the order. Under the
schedule set forth in the permit, however, the Company may not be able
to
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40
meet the alternative limitation without a curtailment of operations.
The Company has appealed the permit and the order to the Pennsylvania
Environmental Hearing Board. After an evidentiary hearing, the Board
granted a stay of the permit limitation during the pendency of the
appeal. The Board did not grant a stay of the alternative limitation
because it is not yet in effect, and will not come into effect until a
change in the Pennsylvania Water Quality Standard for color is
approved; in this case, "approval" includes an approval by EPA. The
Pennsylvania Public Interest Research Group and several other parties
(collectively "Penn PIRG") have appealed the alternative limitation and
have also intervened in the Company's appeal of the permit. The
Company is engaged in settlement discussions with Penn PIRG and DEP,
but also continues to litigate all appeals vigorously.
In June 1999, Penn PIRG brought a citizen suit under the Federal Clean
Water Act and Pennsylvania Clean Streams Law seeking a reduction in the
Spring Grove mill's discharge of color, civil penalties and costs of
litigation. On February 7, 2001, the United States District Court
granted partial summary judgment on liability to plaintiffs as to
certain claims and granted summary judgment to the Company on others.
The court has not scheduled further proceedings with respect to any
remedy until after it resolves the Company's pending motion for
reconsideration.
In 1999, EPA and DEP issued to the Company separate Notices of
Violation ("NOVs") alleging violations of the federal and state air
pollution control laws, primarily for purportedly failing to obtain
appropriate preconstruction air quality permits in conjunction with
certain modifications to the Company's Spring Grove mill. EPA announced
that the Company was one of seven pulp and paper mill operators to have
received contemporaneously an NOV alleging this kind of violation. EPA
and DEP alleged that the Company's modifications produced (1)
significant net emissions increases in certain air pollutants which
should have been covered by appropriate permits imposing new emissions
limitations, and (2) certain other violations.
For all but one of the modifications cited by EPA, the Company applied
for and obtained from DEP the preconstruction permits which the Company
concluded were required by applicable law. EPA reviewed those
applications before the permits were issued. DEP's NOV pertained only
to the modification for which the Company did not receive a
preconstruction permit. The Company conducted an evaluation at the time
of this modification, and determined that the preconstruction
permit cited by EPA and DEP was not required. The Company has been
informed that EPA and DEP will seek substantial emissions reductions,
as well as civil penalties, to which the Company believes it has
meritorious defenses. Nevertheless, the Company is unable to predict
the ultimate outcome of these matters or the costs involved.
The Company faces a set of related threatened claims arising out of the
presence of polychlorinated biphenyls ("PCBs") in sediments in the
Fox River below Lake Winnebago and in Green Bay, downstream of the
Company's Neenah mill. As described below, various sovereigns have for-
mally notified seven parties ("PRPs"), of which the Company is one,
that they are potentially responsible for investigation, cleanup and
natural resource damages arising from this contamination under the
federal Comprehensive Environmental Response, Compensation and
Liability Act and other laws.
The Wisconsin Department of Natural Resources ("DNR") notified the
Company and other PRPs informally in 1990 that it wished to pursue
cleanup of certain sediments in the Fox River under state law. DNR
subsequently asserted claims under federal law as well for cleanup and
for natural resource damages. Since 1998, DNR has been performing a
remedial investigation and feasibility study ("RI/FS") of the Fox River
and Green Bay under contract to the EPA. In February 1999, DNR issued a
draft RI/FS report estimating the costs of potential remedies for the
Fox River at between $0 and $721,000,000, but did not select a
preferred remedy. The Company does not believe that the no action
remedy will be selected. The largest components of the costs of certain
of the remedial alternatives are attributable to large-scale sediment
removal by dredging. There is no assurance that the cost estimates in
the draft RI/FS will not differ significantly from actual costs.
Under ordinary procedures, the final RI/FS report will be issued
along with a proposed remedial action plan ("PRAP"). EPA will consider
comments on the PRAP and then will select a remedy for the site. EPA
and DNR have stated publicly that the RI/FS would be issued in 2000.
The expected date of issuance was subsequently delayed to the spring of
2001 and has now been further delayed.
Based on current information and advice from its environmental
consultants, the Company continues to believe that an aggressive
effort, as included in certain remedial alternatives in the draft
RI/FS, to remove PCB-contaminated sediment, much of which is buried
under cleaner material or is otherwise unlikely to move and which is
abating naturally, would be environmentally detrimental and,
therefore, inappropriate.
In January 1997, DNR, the Wisconsin Department of Justice ("WDOJ"), and
the seven PRPs entered into an agreement to conduct a cooperative
natural resource damages assessment ("NRDA"). While that NRDA has not
been completed, based upon work conducted to date, DNR and WDOJ have
proposed to enter into a
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41
settlement with another PRP of its share of the natural resource
damages liability. The proposed settlement does not state explicitly
the total amount of natural resource damages, but it calls for such
other PRP to spend $7,000,000 on resource restoration projects.
The United States Fish and Wildlife Service ("FWS"), the National
Oceanic and Atmospheric Administration ("NOAA"), four Indian tribes and
the Michigan Attorney General claim to be trustees for natural
resources injured by the PCBs in the Fox River and Green Bay. In June
1994, FWS notified the Company and other PRPs that it considered them
potentially responsible for natural resource damages. The federal,
tribal, and Michigan agencies claiming to be trustees have proceeded
with the preparation of an NRDA separate from the work performed by
DNR. While the final report of assessment will be delayed until after
selection of a remedy for the site, on October 25, 2000, the federal
trustees released a restoration and compensation determination plan
("RCDP") that estimates natural resource damages for the site at
between $176,000,000 and $333,000,000.
The Company is seeking settlement with the Wisconsin agencies and with
EPA for all of its liabilities for response actions and natural
resource damages associated with the site. The Company believes that
the federal, tribal, and Michigan natural resource damages claims are
without merit, and that the federal NRDA is technically and
procedurally flawed. The Company further maintains that its share of
any liability as among the seven identified PRPs is much less than
one-seventh and that additional responsible parties exist other than
the seven identified by the governments.
The Company currently is unable to predict the ultimate costs to the
Company related to this matter, because the Company cannot predict
which remedy will be selected for the site or the ultimate amount of
natural resource damages nor can the Company predict its share of these
costs or damages.
The Company continues to believe it is likely that this matter will
result in litigation; however, the Company believes it will be able to
persuade a court that removal of a substantial amount of
PCB-contaminated sediments is not an appropriate remedy. There can be
no assurance, however, that the Company will be successful in arguing
that removal of PCB-contaminated sediments is inappropriate or that
it would prevail in any resulting litigation.
The amount and timing of future expenditures for environmental
compliance, cleanup, remediation and personal injury, natural resource
damage and property damage liability, including but not limited to
those related to the lower Fox River and the Bay of Green Bay, cannot
be ascertained with any certainty due to, among other things, the
unknown extent and nature of any contamination, the extent and timing
of any technological advances for pollution control, the remedial
actions which may be required and the number and financial resources of
any other responsible parties. The Company continues to evaluate its
exposure and the level of its reserves, including, but not limited to,
its share of the costs and damages (if any) associated with the lower
Fox River and the Bay of Green Bay. The Company believes that it is
insured against certain losses related to the lower Fox River,
depending on the nature and amount thereof. Coverage, which is
currently being investigated under reservation of rights by various
insurance companies, is dependent upon the identity of the plaintiff,
the procedural posture of the claims asserted and how such claims are
characterized. The Company does not know when the
insurers' investigation as to coverage will be completed.
The Company's current assessment, after consultation with legal
counsel, is that ultimately it should be able to resolve these
environmental matters without a long-term, material adverse impact on
the Company. In the meantime, however, these matters could, at any
particular time or for any particular period, have a material adverse
effect on the Company's consolidated financial condition, liquidity or
results of operations or result in a default under the Company's loan
covenants. Moreover, there can be no assurance that the Company's
reserves will be adequate to provide for future obligations related to
these matters, that the Company's share of costs and/or damages for
these matters will not exceed its available resources or that such
obligations will not have a long-term, material adverse effect on the
Company's consolidated financial condition, liquidity or results of
operations.
During 2000, 1999 and 1998, the Company expended approximately
$2,600,000, $2,600,000 and $4,900,000, respectively, on environmental
capital projects. The Company estimates that projects requiring total
expenditures of $8,900,000 and $22,300,000 for environmental-related
capital will be initiated in 2001 and 2002, respectively. During 2000,
1999 and 1998, the Company incurred approximately $16,700,000,
41
42
$15,800,000, and $17,700,000, respectively, in operating costs related
to complying with environmental laws and regulations.
The Company is also involved in other lawsuits. Although the ultimate
outcome of these lawsuits cannot be predicted with certainty, the
Company's management, after consultation with legal counsel, does not
expect that such lawsuits will have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity.
11 OTHER SALES AND GEOGRAPHIC INFORMATION
The Company sells a significant portion of its specialized printing
papers through wholesale paper merchants. No individual customer
accounted for 10% or more of the Company's net sales in 2000, 1999 or
1998. The Company's 2000, 1999 and 1998 net sales to external customers
and location of net plant, equipment and timberlands as of December 31,
2000, 1999 and 1998 are summarized below. Net sales are attributed to
countries based upon origin of shipment.
2000 1999 1998
--------------------------------------------------------------------------------------------------------
Plant, Plant, Plant,
Equipment and Equipment and Equipment and
Net Sales Timberlands-Net Net Sales Timberlands-Net Net Sales Timberlands-Net
----------------------------- ------------------------------- --------------------------------
United States $567,520 $432,499 $543,436(a) $445,376 $551,988(a) $464,384
Germany 121,352 103,286 128,969(a) 118,053 133,683(a) 141,743
Other foreign
countries 35,848 16,983 33,086(a) 18,784 41,641(a) 22,029
-------- -------- -------- -------- -------- --------
Total $724,720 $552,768 $705,491(a) $582,213 $727,312(a) $628,156
======== ======== ======== ======== ======== ========
Net sales information by the Company's product groups for the years
ending December 31 follows:
2000 1999 1998
-----------------------------------------------------------------------------------------
(in thousands)
Specialized Printing Papers $391,087 54% $341,990(a) 48% $365,411(a) 50%
Engineered Papers
(including tobacco papers) 333,633 46% 363,501(a) 52% 361,901(a) 50%
-------- --- -------- --- -------- ---
Total $724,720 100% $705,491(a) 100% $727,312(a) 100%
======== === ======== === ======== ===
(a) Reflects reclassification of shipping and handling costs. See
Note 1(p).
42
43
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
MANAGEMENT'S RESPONSIBILITY REPORT
The management of P. H. Glatfelter Company has prepared and is
responsible for the Company's consolidated financial statements and
other corroborating information contained herein. Management bears
responsibility for the integrity of these statements which have been
prepared in accordance with accounting principles generally accepted in
the United States of America and include management's best judgments
and estimates. All information in this annual report consistently
reflects the data contained in the consolidated financial statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance that assets are safeguarded, transactions are
executed and recorded in accordance with their authorizations, and
financial records are maintained so as to permit the preparation of
reliable financial statements. The system of internal controls is
enhanced by written policies and procedures, an organizational
structure providing appropriate segregation of duties, careful
selection and training of qualified people, and periodic reviews
performed by both its internal audit department and independent public
auditors.
The Audit Committee of the Board of Directors, consisting exclusively
of directors who are not Company employees, provides oversight of
financial reporting. The Company's internal audit department and
independent auditors meet with the Audit Committee on a periodic basis
to discuss financial reporting, audit and internal control issues and
have completely free access to the Audit Committee.
/S/ George H. Glatfelter, II
------------------------------------
George H. Glatfelter II
Chairman and Chief Executive Officer
/s/ C. Matthew Smith
------------------------------------
C. Matthew Smith
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
P. H. Glatfelter Company,
Its Shareholders and Directors:
We have audited the accompanying consolidated balance sheets of P. H.
Glatfelter Company and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of income and comprehensive
income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. Our audits also included
the financial statement schedule listed in the Index at Item 14. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of P. H. Glatfelter
Company and subsidiaries at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. Also, in
our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 2, 2001
43
44
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA
Net Sales Gross Profit Net Income Basic and Diluted
In Thousands In Thousands In Thousands Earnings Per Share
--------------------------- --------------------- ------------------------ ----------------------
2000 1999 2000 1999 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
First $187,658(a) $171,732(a) $ 33,507 $ 27,683 $ 10,644(b) $ 8,140 $ .25(b) $ .19
Second 184,397(a) 173,275(a) 39,844 34,456 14,038 12,543 .33 .30
Third 178,042(a) 176,295(a) 25,777 24,074 7,179 6,400 .17 .15
Fourth 174,623 184,189(a) 34,391 38,373 12,139 14,342 .29 .34
-------- -------- -------- -------- -------- -------- ------- -----
Total $724,720 $705,491(a) $133,519 $124,586 $ 44,000(b) $ 41,425 $ 1.04(b) $ .98
======== ======== ======== ======== ======== ======== ======= =====
(a) Reflects reclassification of prior-period shipping and handling costs
from net sales to cost of products sold in accordance with recent
accounting pronouncements.
(b) After impact of an after-tax restructuring charge (unusual item) of
$2,120,000.
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45
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Directors. The information with respect to directors
required under this Item is incorporated herein by reference to pages 3, 4 and
21 of the Registrant's Proxy Statement, dated March 19, 2001.
(b) Executive Officers of the Registrant. The information
with respect to the executive officers required under this Item is set forth in
Part I of this report.
Item 11. Item 11. Executive Compensation.
The information required under this Item is incorporated herein
by reference to pages 7 through 17 of the Registrant's Proxy Statement, dated
March 19, 2001.
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46
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required under this Item is incorporated herein
by reference to pages 18 through 20 of the Registrant's Proxy Statement, dated
March 19, 2001.
Item 13. Certain Relationships and Related Transactions.
The information required under this Item is incorporated herein
by reference to page 17 of the Registrant's Proxy Statement, dated March 19,
2001.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. A. The following Consolidated Financial
Statements of the Registrant are included in Part II, Item 8:
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Balance Sheets, December 31, 2000 and 1999
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements for the Years
Ended December 31, 2000, 1999 and 1998
B. Supplemental Financial Information for each
of the two years in the period ended December 31, 2000 is included in Part II,
Item 8.
2. Financial Statement Schedules (Consolidated) are
included in Part IV:
For Each of the Three Years in the Period Ended December
31, 2000:
46
47
II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted
because of the absence of conditions under which they are
required or because the required information is included
in the Notes to the Consolidated Financial Statements.
Individual financial statements of the Registrant are not
presented inasmuch as the Registrant is primarily an
operating company and its consolidated subsidiaries are
essentially wholly-owned.
3. Executive Compensation Plans and Arrangements: see
Exhibits 10(a) through 10(j), described below.
Exhibits:
Number Description of Documents
- ------ ------------------------
(2) Stock Purchase Agreement dated as of November 14, 1997 by and
among certain subsidiaries of P. H. Glatfelter Company, the
Stockholders of S&H Papier-Holding GmbH, Deutsche Beteiligungs
Aktiengesellschaft Unternehmensbeteiligungsgesellschaft and P.
H. Glatfelter Company (incorporated by reference to Exhibit 2.1
of Registrant's Form 8-K dated January 2, 1998).
(3)(a) Articles of Amendment dated April 27, 1977, including restated
Articles of Incorporation (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993) as amended by Articles of Merger dated
January 30, 1979 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993); a Statement of Reduction of Authorized Shares
dated May 12, 1980 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993); a Statement of Reduction of Authorized Shares
dated September 23, 1981 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of Authorized
Shares dated August 2, 1982 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of
47
48
Authorized Shares dated July 29, 1983 (incorporated by reference
to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993); by Articles of Amendment dated
April 25, 1984 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994); a Statement of Reduction of Authorized Shares
dated October 15, 1984 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1984); a Statement of Reduction of Authorized Shares dated
December 24, 1985 (incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31, 1985); by
Articles of Amendment dated April 23, 1986 (incorporated by
reference to Exhibit (3) of Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1986); a Statement of
Reduction of Authorized Shares dated July 11, 1986 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form 10-K for the
year ended December 31, 1986); a Statement of Reduction of
Authorized Shares dated March 25, 1988 (incorporated by reference
to Exhibit (3)(b) of Registrant's Form 10-K for the year ended
December 31, 1987); a Statement of Reduction of Authorized Shares
dated November 9, 1988 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1988); a Statement of Reduction of Authorized Shares dated April
24, 1989 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1989);
Articles of Amendment dated November 29, 1990 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for the year
ended December 31, 1990); Articles of Amendment dated June 26,
1991 (incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1991); Articles of
Amendment dated August 7, 1992 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1992); Articles of Amendment dated July 30, 1993
(incorporated by reference to Exhibit 3(b) of Registrant's Form
10-K for the year ended December 31, 1993); and Articles of
Amendment dated January 26, 1994 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1993).
48
49
(3)(b) Articles of Incorporation, as amended through January 26, 1994
(restated for the purpose of filing on EDGAR) (incorporated by
reference to Exhibit 3(c) of Registrant's Form 10-K for the year
ended December 31, 1993).
(3)(c) By-Laws as amended through March 14, 2001.
4(a) Indenture, dated as of July 22, 1997, between P. H. Glatfelter
Company and The Bank of New York, relating to the 6-7/8% Notes
due 2007 (incorporated by reference to Exhibit 4.1 to the
Registrant's Form S-4 Registration Statement, Reg. No.
333-36395).
4(b) Registration Rights Agreement, dated as of July 22, 1997, among
P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and BT
Securities Corporation, relating to the 6-7/8% Notes due 2007
(incorporated by reference to Exhibit 4.3 to the Registrant's
Form S-4 Registration Statement, Reg. No. 333-36395).
(9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1,
1993 (incorporated by reference to Exhibit 1 of the Schedule 13D
filed by P. H. Glatfelter Family Shareholders' Voting Trust dated
July 1, 1993).
(10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of
January 1, 1994, as amended and restated December 19, 2000 and
effective January 1, 2001.
(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan,
as amended and restated June 24, 1992 (incorporated by reference
to Exhibit (10)(c) of Registrant's Form 10-K for the year ended
December 31, 1992).
(10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan,
as amended and restated effective April 23, 1998 and further
amended December 20, 2000.
49
50
(10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May
22, 1986 (incorporated by reference to Exhibit (10)(e) of
Registrant's Form 10-K for the year ended December 31, 1987).
(10)(e) Description of Executive Salary Continuation Plan (incorporated
by reference to Exhibit (10)(g) of Registrant's Form 10-K for the
year ended December 31, 1990).
(10)(f) P. H. Glatfelter Company Supplemental Management Pension Plan,
effective as of April 23, 1998 (incorporated by reference to
Exhibit 10(f) of Registrant's Form 10-K for the year ended
December 31, 1998).
(10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive
Plan, as amended December 20, 2000.
(10)(h) P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998 (incorporated by
reference to Exhibit 10(h) of Registrant's Form 10-K for the year
ended December 31, 1998).
(10)(i) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and George H. Glatfelter II, dated as of
December 31, 2000.
(10)(j) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and Robert P. Newcomer, dated as of December
31, 2000 (along with a Schedule of Change in Control Employment
Agreements by and between P. H. Glatfelter Company and other
employees which have not been filed as exhibits to this Form
10-K).
(10)(k) Loan Agreement, dated February 24, 1997, between P. H. Glatfelter
Company, as borrower, and GWS Valuch, Inc., as lender
(incorporated by reference to Exhibit (10)(h) of Registrant's
Form 10-K for the year ended December 31, 1996).
(10)(l) Agreement between the State of Wisconsin and Certain Companies
Concerning the Fox River, dated as of January 31, 1997, among P.
H. Glatfelter Company, Fort Howard Corporation, NCR Corporation,
Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper
Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin
(incorporated by reference to Exhibit (10)(i) of
50
51
Registrant's Form 10-K for the year ended December 31, 1996).
(10)(m) Credit Agreement, dated as of December 22, 1997, among P. H.
Glatfelter Company, various subsidiary borrowers, Bankers Trust
Company, as Agent, and various lending institutions with Deutsche
Bank AG, as Documentation Agent, PNC Bank, National Association,
as Syndication Agent, and First National Bank of Maryland and
Wachovia Bank, N.A., as Managing Agents (incorporated by
reference to Exhibit (10)(j) of Registrant's Form 10-K for the
year ended December 31, 1997).
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
(b) The Registrant did not file any reports on Form 8-K during
the quarter ended December 31, 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
P. H. GLATFELTER COMPANY
(Registrant)
March 19, 2001
By /s/ G. H. Glatfelter II
-----------------------
G. H. Glatfelter II
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated:
Date Signature Capacity
---- --------- --------
March 19, 2001 /s/ G. H. Glatfelter II Principal Executive Officer
----------------------- and Director
G. H. Glatfelter II
March 19, 2001 /s/ C. M. Smith Principal Financial Officer
-----------------------
C. M. Smith
March 19, 2001 /s/ T. D. D'Orazio Principal Accounting Officer
-----------------------
T. D. D'Orazio
March 19, 2001 /s/ R. E. Chappell Director
-----------------------
R. E. Chappell
March 19, 2001 /s/ N. DeBenedictis Director
-----------------------
N. DeBenedictis
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53
March 19, 2001 /s/ P. G. Foulkrod Director
-----------------------
P. G. Foulkrod
March 19, 2001 /s/ G. H. Glatfelter Director
-----------------------
G. H. Glatfelter
March 19, 2001 /s/ R. S. Hillas Director
-----------------------
R. S. Hillas
March 19, 2001 /s/ M. A. Johnson II Director
-----------------------
M. A. Johnson II
March 19, 2001 /s/ R. J. Naples Director
-----------------------
R. J. Naples
March 19, 2001 /s/ R. P. Newcomer Director
-----------------------
R. P. Newcomer
March 19, 2001 /s/ P. R. Roedel Director
-----------------------
P. R. Roedel
March 19, 2001 /s/ J. M. Sanzo Director
-----------------------
J. M. Sanzo
March 19, 2001 /s/ R. L. Smoot Director
-----------------------
R. L. Smoot
53
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SCHEDULE II
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2000
- -----------------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
Amounts in Thousands
Allowances for
- ------------------------------------------------------------------------------------------------------------------------------------
Doubtful Accounts Sales Discounts & Deductions
----------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
Balance, beginning of year $ 1,227 $ 1,532 $ 1,973 $ 2,152 $ 2,135 $ 542
Other(1) -- -- 325 -- -- 1,126
Provision 809 111 90 17,845 15,076 14,995
Write-offs, recoveries and
discounts allowed (521) (416) (856) (18,928) (15,059) (14,528)
-------- -------- -------- -------- -------- --------
Balance,
End of year $ 1,515 $ 1,227 $ 1,532 $ 1,069 $ 2,152 $ 2,135
======== ======== ======== ======== ======== ========
The provision for doubtful accounts is included in administrative expense and
the provision for sales discounts and deductions is deducted from sales. The
related allowances are deducted from accounts receivable.
(1) Relates primarily to the acquisition of S&H.
54
55
EXHIBIT INDEX
Number
- ------
(2) Stock Purchase Agreement dated as of November 14, 1997 by and
among certain subsidiaries of P. H. Glatfelter Company, the
Stockholders of S&H Papier-Holding GmbH, Deutsche Beteiligungs
Aktiengesellschaft Unternehmensbeteiligungsgesellschaft and P. H.
Glatfelter Company (incorporated by reference to Exhibit 2.1 of
Registrant's Form 8-K dated January 2, 1998).
(3)(a) Articles of Amendment dated April 27, 1977, including restated
Articles of Incorporation (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993) as amended by Articles of Merger dated
January 30, 1979 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993); a Statement of Reduction of Authorized Shares
dated May 12, 1980 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993); a Statement of Reduction of Authorized Shares
dated September 23, 1981 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of Authorized
Shares dated August 2, 1982 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of Authorized
Shares dated July 29, 1983 (incorporated by reference to Exhibit
3(a) of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); by Articles of Amendment dated April
25, 1984 (incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994); a Statement of Reduction of Authorized Shares
dated October 15, 1984 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1984); a Statement of Reduction of Authorized Shares dated
December 24, 1985 (incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31, 1985); by
Articles of Amendment dated April 23, 1986 (incorporated by
reference to Exhibit (3) of Registrant's Quarterly Report on Form
55
56
10-Q for the quarter ended March 31, 1986); a Statement of
Reduction of Authorized Shares dated July 11, 1986 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form 10-K for the
year ended December 31, 1986); a Statement of Reduction of
Authorized Shares dated March 25, 1988 (incorporated by reference
to Exhibit (3)(b) of Registrant's Form 10-K for the year ended
December 31, 1987); a Statement of Reduction of Authorized Shares
dated November 9, 1988 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1988); a Statement of Reduction of Authorized Shares dated April
24, 1989 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1989);
Articles of Amendment dated November 29, 1990 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for the year
ended December 31, 1990); Articles of Amendment dated June 26,
1991 (incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1991); Articles of
Amendment dated August 7, 1992 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1992); Articles of Amendment dated July 30, 1993
(incorporated by reference to Exhibit 3(b) of Registrant's Form
10-K for the year ended December 31, 1993); and Articles of
Amendment dated January 26, 1994 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1993).
(3)(b) Articles of Incorporation, as amended through January 26, 1994
(restated for the purpose of filing on EDGAR) (incorporated by
reference to Exhibit 3(c) of Registrant's Form 10-K for the year
ended December 31, 1993).
(3)(c) By-Laws as amended through March 14, 2001.
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57
(4)(a) Indenture, dated as of July 22, 1997, between P. H. Glatfelter
Company and The Bank of New York, relating to the 6-7/8% Notes
due 2007 (incorporated by reference to Exhibit 4.1 to the
Registrant's Form S-4 Registration Statement, Reg. No.
333-36395).
(4)(b) Registration Rights Agreement, dated as of July 22, 1997, among
P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and BT
Securities Corporation, relating to the 6-7/8% Notes due 2007
(incorporated by reference to Exhibit 4.3 to the Registrant's
Form S-4 Registration Statement, Reg. No. 333-36395).
(9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1,
1993 (incorporated by reference to Exhibit 1 of the Schedule 13D
filed by P. H. Glatfelter Family Shareholders' Voting Trust dated
July 1, 1993).
(10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of
January 1, 1994, as amended and restated December 19, 2000 and
effective January 1, 2001.
(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan,
as amended and restated June 24, 1992 (incorporated by reference
to Exhibit (10)(c) of Registrant's Form 10-K for the year ended
December 31, 1992).
(10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan,
as amended and restated effective April 23, 1998 and further
amended December 20, 2000.
(10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May
22, 1986 (incorporated by reference to Exhibit (10)(e) of
Registrant's Form 10-K for the year ended December 31, 1987).
(10)(e) Description of Executive Salary Continuation Plan (incorporated
by reference to Exhibit (10)(g) of Registrant's Form 10-K for the
year ended December 31, 1990).
(10)(f) P. H. Glatfelter Company Supplemental Management Pension Plan,
effective as of April 23, 1998 (incorporated by reference to
Exhibit 10(f) of Registrant's Form 10-K for the year ended
December 31, 1998).
57
58
(10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive
Plan, as amended December 20, 2000.
(10)(h) P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998 (incorporated by
reference to Exhibit 10(h) of Registrant's Form 10-K for the
year ended December 31, 1998).
(10)(i) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and George H. Glatfelter II, dated as of
December 31, 2000.
(10)(j) Change in Control Employment Agreement by and between P. H.
Glatfelter Company and Robert P. Newcomer, dated as of December
31, 2000 (along with a Schedule of Change in Control Employment
Agreements by and between P. H. Glatfelter Company and other
employees which have not been filed as exhibits to this Form
10-K).
(10)(k) Loan Agreement, dated February 24, 1997, between P. H. Glatfelter
Company, as borrower, and GWS Valuch, Inc., as lender
(incorporated by reference to Exhibit (10)(h) of Registrant's
Form 10-K for the year ended December 31, 1996).
(10)(l) Agreement between the State of Wisconsin and Certain Companies
Concerning the Fox River, dated as of January 31, 1997, among P.
H. Glatfelter Company, Fort Howard Corporation, NCR Corporation,
Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper
Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin
(incorporated by reference to Exhibit (10)(i) of Registrant's
Form 10-K for the year ended December 31, 1996).
(10)(m) Credit Agreement, dated as of December 22, 1997, among P. H.
Glatfelter Company, various subsidiary borrowers, Bankers Trust
Company, as Agent, and various lending institutions with Deutsche
Bank AG, as Documentation Agent, PNC Bank, National Association,
as Syndication Agent, and First National Bank of Maryland and
Wachovia Bank, N.A., as Managing Agents (incorporated by
reference to Exhibit (10)(j) of Registrant's Form 10-K for the
year ended December 31, 1997).
(21) Subsidiaries of the Registrant
58
59
(23) Consent of Independent Auditors
59