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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, 1996 1-3560
P. H. GLATFELTER COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0628360
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
228 South Main Street
Spring Grove, Pennsylvania 17362
(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 American Stock Exchange Inc.
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates at February 26, 1997 was $392,022,040.
Common Stock outstanding at February 26, 1997: 42,330,048 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference in this Report on Form 10-K.
1. Proxy Statement dated March 14, 1997 (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. On January 30, 1979 the Registrant acquired by
merger Bergstrom Paper Company with paper mills located in Wisconsin and Ohio.
The Ohio mill was sold on September 10, 1984. On May 7, 1987 the Registrant
acquired all of the outstanding capital stock of Ecusta Corporation ("Ecusta")
with a paper mill located in Pisgah Forest, North Carolina and other operations
in North Dakota, Canada and Australia. Ecusta was merged into and became a
division of the Registrant on June 30, 1987.
The Registrant's paper mills are located in Spring Grove,
Pennsylvania, Pisgah Forest, North Carolina and Neenah, Wisconsin. It
manufactures printing papers and tobacco and other specialty papers.
The Registrant sells its products throughout the United States
and in a number of foreign countries. Net export sales in 1996, 1995 and 1994
were $55,532,000, $54,961,000 and $44,821,000, respectively.
Most of the Registrant's printing paper products are directed
at the uncoated free-sheet portion of the industry. The Registrant's printing
paper products are used principally for the printing of case bound and quality
paperback books, commercial and financial printing and envelope converting.
Printing papers are manufactured in each of the Registrant's mills.
In 1996, 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. During
1994, one of the Registrant's wholesale paper merchants, Central National-
Gottesman Inc. (which buys paper through its division, Lindenmeyr Book
Publishing) acquired substantially all of the assets of Perkins & Squier,
another of the Registrant's wholesale paper merchants. As a result, during 1996,
1995 and 1994, Central National-Gottesman Inc. accounted for 12%, 14% and 13% of
the Registrant's net sales, respectively.
The Registrant's tobacco and other specialty papers are used
for cigarette manufacturing and other specialty uses such as the manufacture of
playing cards, stamps, labels and surgical gowns. Sales of these papers are
generally made directly to the converter of the paper. Tobacco papers are
manufactured in the Pisgah Forest mill. Other specialty papers are manufactured
in each of the Registrant's mills.
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A significant portion of the Pisgah Forest mill's sales are
made to a limited number of major tobacco companies. The current legal and
regulatory pressures on that industry could have an adverse effect on the future
tobacco paper sales and profitability of the Pisgah Forest mill. Under such
conditions, the Registrant would attempt to replace any lost sales and
profitability with lightweight printing and other specialty papers.
Set forth below is the amount (in thousands) and percentage of
net sales contributed by each of the Registrant's two classes of similar
products during each of the years ended December 31, 1996, 1995 and 1994. Sales
of certain paper grades have been reclassified during 1996 to be consistent with
the Registrant's definition of other specialty papers. Prior year amounts have
been restated to be in conformity with the 1996 classification.
Years Ended December 31,
1996 1995 1994
---- ---- ----
Net Sales % Net Sales % Net Sales %
--------- - --------- - --------- -
Printing
Papers $355,328 63% $421,868 68% $302,400 63%
Tobacco
and Other
Specialty
Papers 210,756 37% 201,841 32% 175,902 37%
-------- --- -------- --- -------- ---
Total $566,084 100% $623,709 100% $478,302 100%
The competitiveness of the markets in which the Registrant
sells its products varies. There are numerous concerns in the United States
manufacturing printing papers and no one company holds a dominant position.
Capacity in the uncoated free-sheet industry, which includes uncoated printing
papers, is not expected to increase significantly for the next few years. In the
tobacco papers business, while there is only one significant domestic
competitor, there are numerous international competitors. The Registrant is a
major tobacco papers supplier to the domestic tobacco products industry. If
foreign production of tobacco products by U.S. companies increases significantly
it may have an adverse effect on the Registrant's overall competitive position.
Service, product performance and technological advances are
important competitive factors in all of the Registrant's businesses. The
Registrant believes its reputation in these areas continues to be excellent.
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Backlogs are not significant in the Registrant's business.
The principal raw material used at the Spring Grove mill is
pulpwood. In 1996, the Registrant acquired approximately 78% of its pulpwood
from saw mills and independent logging contractors and 22% from Company-owned
timberlands. Hardwood and softwood purchases each constituted 50% of the
pulpwood acquired. Hardwoods are still available within a relatively short
distance of the Registrant's Spring Grove mill, but the radius within which the
Registrant has been acquiring hardwoods continues to increase. Softwood is
obtained primarily from Maryland, Delaware and Virginia. In order 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, and is acquiring, woodlands,
particularly softwood growing land, with the objective of having a significant
portion of its softwood requirement available from Company-owned woodlands.
The Spring Grove pulp mill converts the 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. During the fourth
quarter of 1994, the Registrant completed the pulp mill modernization project at
the Spring Grove mill. This project, undertaken primarily for environmental
reasons, resulted in an increase in total pulp production capacity at the mill.
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 were relatively stable throughout 1996. It is anticipated that
there will be an adequate supply of wastepaper in the future. During December
1996, the Neenah mill completed a project increasing its capacity to recycle
lower quality high-grade wastepapers. Although this project did not increase the
mill's total de-inking capacity, it is expected to reduce cost.
The major raw materials used at the Ecusta 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 Ecusta mill. Ecusta receives a majority of
its processed flax straw from the Registrant's Canadian operation.
Wood pulp consumed which was purchased from others comprised
approximately 106,000 short tons or 23% of the total 1996 fiber requirements of
the Registrant. The cost of market pulp decreased significantly during the first
four months of 1996, then increased moderately and finally decreased slightly at
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the end of the year. Pulp prices are expected to remain low with possible
increases in the second-half of 1997.
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. Such net energy sales were $8,559,000
in 1996. 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
58%, 35%, 6% and 1%, respectively, of the total energy internally generated at
the Spring Grove mill in 1996.
The Pisgah Forest mill generates all of its steam requirements
and a majority of its electrical requirements (64% in 1996) and purchases the
remainder of its electric power requirements. Coal was used to produce
essentially all of the mill's internally generated energy during 1996.
The Neenah mill generates all of its steam requirements and a
portion of its electric power requirements (13% in 1996) and purchases the
remainder of its electric power requirements. Gas was used to produce
essentially all of the mill's internally generated energy during 1996.
At December 31, 1996, the Registrant had 3,029 active
full-time employees.
Hourly employees at the Registrant's mills are represented by
different locals of the United Paperworkers International Union, AFL-CIO. A
five-year labor agreement covering approximately 320 employees at the Neenah
mill expires in August 1997. Under this agreement, wages increased 3% in 1996. A
five-year labor agreement covering approximately 740 employees in Spring Grove
expires in January 1998. Under this agreement, wages increased by 3% in 1996 and
are to increase by 3% in 1997. In October 1996 a five-year labor agreement
covering approximately 1,035 employees at the Pisgah Forest mill was ratified.
Under this agreement, which expires in October 2001, wages will increase by 3%
each year.
ENVIRONMENTAL MATTERS
The Registrant is subject to numerous federal, state, local
and foreign laws and rules and regulations thereunder with respect to air and
water emissions and noise from its mills, as well as disposal of solid waste
generated by its operations. It has been the Registrant's experience over many
years that directives with respect to the abatement of pollution have
periodically been made increasingly stringent. During the past twenty years or
more, the Registrant has taken a number of measures and spent substantial sums
of money both for the
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installation of facilities and operating expenses in order to abate air, water
and noise pollution and to alleviate the problem of disposal of solid waste. In
spite of the measures it has already taken, the Registrant anticipates that
environmental regulation of the Registrant's operations will continue to become
more burdensome and that compliance therewith, when and if technologically
feasible, will require additional capital expenditures and operating expenses.
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. For further information with respect
to such compliance, reference is made to Item 3 of this report.
Compliance with government environmental regulations is a
matter of high priority to the Registrant. In order to meet environmental
requirements, the Registrant has undertaken certain projects, the most
significant of which relates to the modernization of the Spring Grove pulpmill.
The pulpmill modernization project, which began in 1990, was completed during
the fourth quarter of 1994 for a total cost of $171,000,000 (exclusive of
capitalized interest). During 1996, the Registrant expended approximately
$2,000,000 on environmental capital projects. The Registrant estimates that
$12,000,000 and $8,000,000 will be expended for environmental capital projects
in 1997 and 1998, 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. Because other paper
companies located in the United States are generally subject to the same
environmental regulations, the Registrant does not believe that its competitive
position in the U.S. paper industry will be materially adversely affected by its
capital expenditures for, or operating costs of, pollution abatement facilities
for its present mills or the limitations which environmental compliance may
place on its operations.
The Registrant, along with six other companies which operate
or formerly operated facilities along the Fox River in Wisconsin, has been in
discussions with the Wisconsin Department of Natural Resources and the United
States Fish and Wildlife Service (the "USFWS") regarding the alleged discharge
of polychlorinated biphenyls ("PCBs") and other hazardous substances to the Fox
River below Lake Winnebago (the "lower Fox River") and the Bay of Green Bay.
Effective as of January 31, 1997, the Registrant and the six other companies
entered into an agreement with the State of Wisconsin establishing a framework
for the
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final resolution of claims for natural resources damages and other relief which
the State asserts against the companies.
Under the agreement, the companies will provide in the
aggregate $10 million in work and funds to facilitate natural resources damages
assessment activities, including, among other things, modelling and risk
assessment, as well as field scale demonstration of sediment dredging and the
enhancement of certain environmental amenities. The State will act as "lead
authorized official" under federal law for purposes of any assessment of damages
to natural resources within Wisconsin, except those within the administrative
jurisdiction of a federal agency. In general, the parties have agreed to toll
all limitations periods and to forbear from litigation during the term of the
agreement. The parties intend to conclude a final resolution of all of the
State's claims during the course of, or after completion of, the work called for
by the agreement.
By letter dated January 31, 1997, and received by the
Registrant on February 3, 1997, the USFWS provided 60 days' notice of the
intention of the United States Departments of the Interior and Commerce to
commence an action for natural resources damages against the Registrant and the
six other companies referred to above similarly relating to the discharge of
hazardous substances into the lower Fox River. The federal trustees invited the
Registrant to resume negotiations toward a non-litigated resolution of the
federal trustees' claims; the negotiations had been suspended at the federal
trustees' request.
In addition to the State and the federal trustees, the
Menominee Indian Tribe of Wisconsin ("MITW") and the Oneida Indian Tribe of
Wisconsin ("OITW") have asserted claims for natural resources damages against
the seven companies. The MITW commenced litigation in the United States District
Court for the Western District of Wisconsin against the State to establish the
Tribe's off-reservation usufructuary rights to natural resources, including the
Fox River. Those rights form the predicate to the MITW's natural resource damage
claims. On September 16, 1996, the district court dismissed the MITW's claims
and the MITW has filed an appeal to the United States Court of Appeals for the
Seventh Circuit.
Effective as of March 1, 1997, the Registrant, the six other
companies, the federal trustees, the MITW and the OITW entered into an agreement
which provides that between March 1, 1997 and May 29, 1997 all limitation
periods shall be tolled and the parties shall forbear from litigation. In the
event that the federal trustees commence an action after expiration of the
forbearance period, the Registrant does not know the amount which the federal
trustees will claim as natural resources damages, but the Registrant believes
that it will be substantial. The agreement with the State of Wisconsin
specifically contemplates a modification to address the claims of the federal
trustees and
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the roles of the State and the federal trustees. The parties to that agreement
have invited the federal trustees to begin negotiations towards such a
modification.
The amount and timing of future expenditures for environmental
compliance, clean-up, 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 or restoration 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 future negotiations with the State concerning Fox River and
Bay of Green Bay and the unknown amount which could be claimed by the federal
trustees as natural resource damages related to the lower Fox River. The
Registrant's current assessment, after consultation with legal counsel, is that
future expenditures for these matters are not likely to have a material adverse
impact on the Registrant's financial condition or liquidity, but could have a
material adverse effect on the Registrant's results from operations in a given
year; however, there can be no assurances that the Registrant's reserves will be
adequate or that a material adverse effect on the Registrant's financial
condition or liquidity will not occur at some future time.
Item 2. Properties.
The Registrant's executive offices are located in Spring
Grove, Pennsylvania, 11 miles southwest of York. The Registrant's paper mills
are located in Spring Grove, Pisgah Forest, North Carolina and Neenah,
Wisconsin.
The Spring Grove facilities include seven uncoated paper
machines with a daily capacity ranging from 12 to 298 tons and an aggregate
annual capacity of about 296,000 tons of finished paper. The machines have been
rebuilt and modernized from time to time. An off-machine coater gives the
Registrant a potential annual production capacity for coated paper of
approximately 51,000 tons. Since uncoated paper is used in producing coated
paper, this does not represent an increase in the Spring Grove mill capacity.
The Spring Grove facilities also include a pulpmill, which has a production
capacity of approximately 625 tons of bleached pulp per day.
The Pisgah Forest facilities include twelve paper machines,
stock preparation equipment, a modified kraft bleached flax pulpmill with
thirteen rotary digesters, a precipitated calcium carbonate plant and a small
recycled pulping operation.
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The annual light weight paper capacity is approximately 99,000 tons. Nine paper
machines are essentially identical while the newer three machines have design
variations specific for the products produced. Converting equipment includes
winders, calendars, slitters, perforators and printing presses.
The Neenah facilities, consisting of a paper manufacturing
mill, converting plant and offices, are located at two sites. The Neenah mill
includes three paper machines, with an aggregate annual capacity of
approximately 163,000 tons and a wastepaper de-inking and bleaching plant with
an annual capacity of approximately 97,000 tons. The converting plant contains a
paper processing area and warehouse space.
The Glatfelter Pulp Wood Company, a subsidiary of the
Registrant, owns and manages approximately 111,000 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 major liens or
encumbrances. In conjunction with a financing transaction completed in February
1997, however, the Registrant has agreed that by August 23, 1997 it will secure
the indebtedness incurred in the transaction with mortgages on real estate
assets having a value of approximately $300 million. 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 potential legal procedings involving the
lower Fox River, see "Environmental Matters" in Part I of this Report. The
Registrant does not believe that the environmental matters discussed below will
have a material effect on its business or consolidated financial position.
On May 16, 1989, the Pennsylvania Environmental Hearing Board
approved and entered an Amended Consent Adjudication between the Registrant and
the Pennsylvania Department of Environmental Resources, now known as the
Department of Environmental Protection ("DEP") in connection with the
Registrant's permit to discharge effluent into the West Branch of the Codorus
Creek. The Amended Consent Adjudication establishes limitations on in-stream
color, and requires the Registrant to conduct certain studies and to submit
certain reports regarding internal and external measures to control the
discharge of color and certain other adverse byproducts of chlorine bleaching to
the West Branch of the Codorus Creek.
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During 1990 and again in 1991, the Pennsylvania DEP proposed
to reissue the Registrant's waste water discharge permit on terms with which the
Registrant does not agree. On March 4, 1997 the Pennsylvania DEP sent to the
Registrant a revised proposed waste water discharge permit which still contains
some terms to which the Registrant ogjects. The Registrant plans to file
appropriate comments, and intends to contest those terms should
they be included in the final permit.
The Wisconsin DNR has reissued the Registrant's wastewater
discharge permit for the Neenah mill on terms unacceptable to the Registrant.
The Registrant has requested an adjudicatory hearing on the terms of that
permit. The Wisconsin Paper Council is presently engaged in joint negotiation of
some issues common to a number of permits issued at the same time to similar
mills. At the conclusion of those negotiations, the Registrant will litigate or
settle any remaining individual issues.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Executive Officers of the Registrant.
Executive Officers Office Age
- ------------------ ------ ---
T. C. Norris Chairman of the Board, 58
President and Chief Executive
Officer (a)
G. H. Glatfelter II Senior Vice President (b) 45
R. P. Newcomer Senior Vice President, 48
Treasurer and Chief Financial
Officer (c)
R. S. Lawrence Vice President - General 57
Manager, Ecusta Paper Division
(d)
R. L. Miller Vice President - Administration 50
(e)
J. F. Myers Vice President - Manufacturing 58
Technology (f)
E. J. Gillis Vice President - Marketing, 49
Glatfelter Paper Division (g)
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Executive Officers Office Age
- ------------------ ------ ---
C. M. Smith Comptroller (h) 38
R. S. Wood Secretary and Assistant 39
Treasurer (i)
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 elected at the annual meeting
of the Board held immediately after the annual meeting of shareholders.
- --------------------
(a) Mr. Norris became Chairman of the Board on April 27, 1988. Prior
thereto he was President and Chief Executive Officer.
(b) Mr. Glatfelter became Senior Vice President in September 1995. From May
1993 to September 1995, he was Vice President - General Manager,
Glatfelter Paper Division. Prior to May 1993, he was General Manager,
Glatfelter Paper Division.
(c) Mr. Newcomer became Senior Vice President, Treasurer and Chief
Financial Officer in September 1995. From April 1995 to September 1995,
he was Vice President, Treasurer and Chief Financial Officer; he was
Vice President and Treasurer from May 1993 to April 1995. Prior to May
1993, he was Assistant Comptroller.
(d) Mr. Lawrence became Vice President - General Manager, Ecusta Paper
Division in May 1993. Prior to May 1993, he was Director of Planning,
Acquisitions and Governmental Affairs.
(e) Mr. Miller became Vice President - Administration in September 1995.
From August 1994 to September 1995, he was Director of Planning,
Acquisitions and Governmental Affairs. He was Director, Marketing
Services from May 1993 to August 1994; prior to May 1993, he was
Director, Customer Services.
(f) Dr. Myers became Vice President - Manufacturing Technology on April 26,
1989.
(g) Mr. Gillis became Vice President - Marketing, Glatfelter Paper Division
in May 1993. Prior to May 1993, he was Vice President - Sales,
Glatfelter Paper Division.
(h) Mr. Smith became Comptroller in May 1993. Prior to May 1993, he was a
Financial Analyst.
(i) Mr. Wood became Secretary and Assistant Treasurer in September 1992.
Prior to September 1992, he was Assistant Secretary and Assistant
Treasurer.
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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 American Stock Exchange (Ticket Symbol "GLT") and the dividends paid per
share for each quarter during the past two years.
1996 1995
==============================================================================================================
Quarter High Low Dividends High Low Dividends
1st $18 $15 5/8 $.175 $18 3/8 $15 3/8 $.175
2nd 18 3/8 16 1/4 .175 20 1/4 17 1/2 .175
3rd 18 5/8 16 3/4 .175 23 5/8 19 3/4 .175
4th 19 5/8 16 3/4 .175 22 3/8 15 7/8 .175
As of December 31, 1996, the Registrant had 4,290 shareholders of record. A
number of the shareholders of record are nominees.
Item 6. Selected Financial Data.
Seven-Year Summary of Selected Consolidated Financial Data
Year Ended December 31
(in thousands except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------
Net Sales $566,084 $623,709 $ 478,302 $473,509 $540,057 $567,764 $625,429 $598,777
Income (loss) before 60,399 65,828 (118,251)(a) 20,409(c) 56,544 76,049 88,332 92,864
accounting changes
Income (loss) per 1.41 1.49 (2.67)(a) .46(c) 1.27 1.67 1.88 1.93
common share before
accounting changes
Total assets 715,310 673,107 650,810(b) 842,087(d) 648,464 630,115 598,842 550,015
Debt 150,000 150,000 174,100 150,000 10,100 __ __ 1,100
Cash dividends $ .70 $ .70 $ .70 $ .70 $ .70 $ .60 $ .575 $ .50
declared per
common share
- --------------
(a) After impact of an after tax charge for a writedown of impaired assets
(unusual items) of $127,981,000 or $2.89 per share.
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(b) After impact of writedown of impaired assets (unusual items)
of $208,949,000.
(c) After impact of an after tax charge for rightsizing and restructuring
(unusual items) of $8,430,000 or $.19 per share and the effect of an
increased federal corporate income tax rate of $3,587,000 or $.08 per
share.
(d) Includes an increase of $61,062,000 resulting from the adoption of
Statement of Financial Accounting Standards No. 109.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
OVERVIEW
The Company classifies its sales into two product groups: 1) printing papers;
and 2) tobacco and other specialty papers. The Spring Grove, Pennsylvania and
Neenah, Wisconsin mills produce printing papers and specialty papers. The Pisgah
Forest mill (hereinafter referred to as the "Ecusta Division" or "Ecusta")
produces printing papers and tobacco and other specialty papers. Sales of
certain paper grades have been reclassified during 1996 to be consistent with
the Company's definition of other specialty papers. Prior year amounts have been
restated to be in conformity with the 1996 classification.
Most of the Company's printing paper products are directed at the uncoated
free-sheet portion of the industry, which experienced weak demand in the
beginning of 1996. It is generally believed that this situation was caused by
abnormally high customer inventory levels at the beginning of the year. The
Company believes such customer inventory levels were lower at the end of 1996
than as of the beginning of the year. Prices for the Company's printing paper
products declined during the year. While demand for the Company's printing paper
products declined during 1996, the Company believes that demand and pricing for
papers sold to the book publishing industry, which is a significant part of the
Company's printing paper business, remained stronger as compared to paper sold
to the rest of the printing paper market. The Company expects that sluggish
conditions in the printing paper market will continue during the first half of
1997. The Company believes that demand will improve during the second half of
the year and that some price relief may occur during the last six months of
1997.
Demand and pricing for tobacco and other specialty products were not
significantly impacted by the softer printing paper market and remained fairly
constant during the year. Domestic cigarette consumption was flat in 1996
compared to 1995 and international cigarette consumption continued to grow.
Overall demand and pricing for tobacco and other specialty papers is expected to
remain relatively stable throughout the coming year. A significant portion of
Ecusta's sales are made to a limited number of major tobacco companies. The
current legal and regulatory pressures on that industry could have an adverse
effect on the future tobacco paper sales and profitability of Ecusta. Under such
conditions, the Company would attempt to replace any lost sales and
profitability with lightweight printing and other specialty papers.
1996 COMPARED TO 1995
Net sales in 1996 decreased $57,625,000, or 9.2%, compared to 1995. This
decrease was principally caused by a decrease in average selling prices at the
Spring Grove and Neenah mills. The sales volume at all the Company's mills was
also down slightly in 1996 compared to 1995.
Printing paper sales decreased by $66,540,000, or 15.8%, in 1996 compared to
1995. The annual average net printing paper selling price decreased 12.2% in
1996 from 1995 due to the decrease in demand for printing papers. Demand for
these papers was slow early in the year, improved in the second and third
quarters, and then slowed again in the fourth quarter.
Net tobacco and other specialty paper sales increased $8,915,000, or 4.4%, in
1996 compared to 1995. The Company had a slight decrease in tobacco paper sales
in 1996 compared to 1995. Tobacco paper sales volume was down 3.4% in 1996
versus 1995; however, demand was sufficient for the Company to improve its sales
mix for these papers. This resulted in a slight increase in average tobacco
paper selling price in 1996 compared to 1995. Other specialty paper sales
increased by 12.5% in 1996 compared to 1995 as sales volume increased by 7.3%.
The average selling price of other specialty papers increased by 4.9%, in part
due to improved product mix.
Profit from operations before interest income and expense and taxes was
$105,639,000 in 1996 compared to $116,501,000 in 1995. This decrease was the
result of decreased selling prices and sales volume. Despite these decreases,
gross margin increased from 22.7% in 1995 to 23.2% in 1996. The increase in
gross margin was primarily a result of lower costs for market pulp, pulp
substitutes and wastepaper. These cost reductions particularly benefited the
Ecusta and Neenah mills which rely more on purchased fiber than the Spring Grove
mill. These raw material price decreases more than offset the unfavorable impact
of lower production during 1996 compared to 1995. The Company's lower production
resulted in higher fixed costs per ton as fixed costs were absorbed over fewer
tons produced.
Selling, general and administrative expenses were $886,000 lower in 1996 than in
1995. This decrease was primarily the result of lower profit sharing and
incentive expenses, which were partially offset by increased miscellaneous
general and administrative expenses. Selling, general and administrative
expenses were 6.3% and 5.8% of net sales for 1996 and 1995, respectively.
Interest on debt in 1996 decreased $957,000 from 1995. This decrease was
primarily the result of reduced short-term bank borrowings. The Company had
average net short-term borrowings of $20,000 and $9,447,000 during 1996 and
1995, respectively, at an average interest rate of 6.1% and 6.2%, respectively.
The Company had no short-term borrowings at the end of 1996. Interest on debt
also decreased as a result of a lower variable interest rate on the Company's
interest rate swap agreement which has a total notional principal amount of
$50,000,000.
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15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
RESULTS BY MILL
The Spring Grove mill's profit from operations decreased by $27,073,000 in 1996
compared to 1995. Net sales decreased $32,738,000 in 1996 compared to 1995 due
primarily to a decrease in average selling price. Sales volume was less than 1%
lower in 1996 than 1995. Cost of sales decreased slightly, primarily due to
lower raw material costs, offsetting increases in other costs including
depreciation. Selling, general and administrative expenses also decreased,
primarily due to lower profit sharing and incentive expenses.
Despite a decrease in net sales of $24,185,000 in 1996 compared to 1995, profit
from operations at the Neenah mill increased by $2,404,000. The net sales
decrease was primarily the result of lower average selling price. Sales volume
was approximately 2% lower in 1996 than 1995. Neenah's cost of sales decreased
by $27,147,000, primarily due to significantly lower wastepaper, pulp and pulp
substitute costs. Wastepaper costs were extremely high in 1995 and the 1996
costs represented a return closer to historical levels.
Profit from operations at Ecusta increased $13,807,000 in 1996 compared to 1995.
Net sales were flat in 1996 compared to 1995. A slight increase in average
selling price due to improved product mix offset a slight reduction in sales
volume. Ecusta's cost of sales decreased significantly during the year,
primarily as a result of decreased pulp costs. During the second half of 1996,
the Ecusta mill purchased a significant amount of pulp, much of which remains in
the Company's inventory at the end of the year.
1995 COMPARED TO 1994
Net sales in 1995 increased $145,407,000, or 30.4%, over 1994. The Company's
sales volume also increased in 1995 compared to 1994. Overall demand for the
Company's products was very strong into the third quarter of 1995. The demand
for printing papers weakened towards the end of the third quarter and incoming
orders remained below normal levels during the fourth quarter of 1995. Strong
market conditions resulted in significant price increases during the first nine
months of 1995, tempered somewhat by a marginal decline during the fourth
quarter of 1995.
Printing paper sales increased by $119,468,000, or 39.5%, in 1995 compared to
1994. The annual average net printing paper selling price increased 29.4% in
1995 from 1994 due to the significant increase in demand for printing papers as
well as the Company's ability to offset increased raw material costs,
particularly for market pulp, pulp substitutes and wastepaper. The increased
demand for printing papers resulted in a 7.8% increase in sales volume in 1995
compared to 1994. Weakening demand resulted in some marginal price decreases
during the fourth quarter of 1995. Despite these decreases, the average selling
price during the fourth quarter of 1995 was significantly higher than the
average selling price during the fourth quarter of 1994.
Net tobacco and other specialty paper sales increased $25,939,000, or 14.7%, in
1995 compared to 1994. The Company had a 14.2% increase in tobacco paper sales
volume in 1995 over 1994. An increase in worldwide demand for tobacco paper
products in general and flax based tobacco papers specifically, and a lack of
industry capacity increases allowed the Company to sell more tobacco paper
volume and improve its sales mix. These factors also resulted in a slight
increase in average tobacco paper selling price in 1995, compared to 1994. Other
specialty paper sales increased by 13.3% in 1995 compared to 1994 due to a 13.9%
increase in average selling prices.
Increased sales volumes and selling prices led to a significant increase in
operating profit in 1995 compared to 1994. Profit from operations, before
unusual items, interest income and expense and taxes was $116,501,000 compared
to $21,541,000 in 1994. The increase in average selling prices more than offset
the increase in cost of products sold resulting in an increase in gross margin
from 8.5% in 1994 to 22.7% in 1995. The cost of products sold increased
primarily as a result of higher costs for market pulp, pulp substitutes and
wastepaper. These cost increases more than offset (i) the ability of the Company
to spread its fixed manufacturing costs over more tons of products manufactured
during 1995 compared to 1994, and (ii) the favorable impact of lower
depreciation expense of approximately $10,000,000 during 1995 compared to 1994.
Increased depreciation expense at the Spring Grove mill, due primarily to the
completion of the pulpmill modernization project in the fourth quarter of 1994,
was more than offset by a reduction in depreciation at Ecusta in 1995 of
approximately $14,400,000 compared to 1994. The decrease in Ecusta's
depreciation resulted from the writedown of the net assets of Ecusta in the
fourth quarter of 1994.
Selling, general and administrative expenses were $9,157,000 higher in 1995 than
in 1994. This increase occurred primarily from higher profit sharing and
incentive related expenses during 1995 compared to 1994. Selling, general and
administrative expenses were 5.8% and 5.7% of net sales for 1995 and 1994,
respectively.
Interest on debt in 1995 increased $3,901,000 over 1994. The Company capitalized
$3,066,000 of interest expense in 1994. No interest expense was capitalized
during 1995. The increase in interest on debt was also due to a higher variable
interest rate on the Company's interest rate swap agreement which has a total
notional principal amount of
14
16
$50,000,000. Interest on short-term borrowings during 1995 was $50,000 less than
in 1994. The Company had no short-term borrowings at the end of 1995.
RESULTS BY MILL
The Spring Grove mill's profit from operations increased by $56,792,000 in 1995
compared to 1994. Net sales increased $78,426,000 in 1995 compared to 1994 due
to a significant increase in sales volume and average selling price. Cost of
sales increased primarily due to increased depreciation. Depreciation increased
due to the completion of the pulpmill modernization project during the fourth
quarter of 1994. This project, undertaken primarily for environmental reasons,
resulted in an increase in total pulp production capacity at the mill. The
corresponding reduction in volume of purchased market pulp resulted in increased
profitability at Spring Grove during 1995.
Profit from operations at the Neenah mill increased by $9,298,000 in 1995
compared to 1994. Net sales increased $42,370,000 in 1995 due to a significant
increase in sales volume and average selling price. Neenah's 1995 profit from
operations was negatively impacted by a significant increase in the cost of
wastepaper. Wastepaper costs decreased during the second half of 1995 and by the
end of 1995 had returned closer to historical levels.
Profit from operations at Ecusta increased $28,870,000 in 1995 compared to 1994.
Net sales increased $24,611,000 in 1995, primarily due to an increase in average
selling price due to improved product mix and Ecusta's ability to offset
increased raw material costs, particularly for market pulp. Ecusta's increase in
raw material costs was more than offset through a combination of price increases
and by a decrease of approximately $14,400,000 in depreciation costs, due to the
writedown of the net assets of Ecusta in the fourth quarter of 1994. Ecusta's
profitability was also significantly enhanced through comprehensive cost
reduction efforts.
1994 - UNUSUAL CHARGES
During 1994, the Company closely monitored the Ecusta Division and continued its
efforts to maximize utilization of Ecusta's assets by attempting to direct sales
volume to its more profitable grades and by controlling costs. Despite these
efforts, Ecusta experienced a 1994 operating loss before an unfavorable LIFO
inventory charge, unusual items, interest expense and taxes of $4,921,000.
Ecusta continued to be negatively impacted by the continuing trend of declining
domestic tobacco consumption, a trend which was expected to continue. Increased
competition for foreign tobacco paper sales had also negatively impacted
Ecusta's profitability.
Based on 1994 Ecusta operating results, which indicated that market conditions
were unlikely to improve significantly in the near future, the Company
determined that its efforts to return Ecusta to an acceptable level of
profitability would not be successful. As a result, the Company decided to
evaluate other strategic alternatives. As part of its consideration of such
alternatives, the Company solicited offers to buy the Ecusta Division during the
fourth quarter of 1994. In January 1995, the Company rejected all offers which
it received to buy the Ecusta Division because the offers were less than the
Company's valuation of the net assets. Nevertheless, as a result of these
offers, as well as the Company's revised valuation of the net assets of Ecusta,
the Company concluded that the fair value of the net assets was less than the
book value. Accordingly, during the fourth quarter of 1994, the net assets of
Ecusta were written down to fair value, resulting in a $198,189,000 charge to
pre-tax earnings. This writedown had no cash impact on the Company.
The Company concluded that asset impairment recognition was required as the
revised projected undiscounted future cash flows of the Ecusta Division were
less than the carrying value. In developing the revised projections, the Company
considered 1994 actual results and the Company's conclusions concerning future
market conditions and the resulting impact on prices. To determine the fair
value of the Ecusta Division net assets, the Company projected the present value
of future cash flows using a 13% discount rate. The resulting fair value, which
exceeded the offers received, was used to determine the amount of the writedown.
The writedown of Ecusta's net assets reduced depreciation expense in 1995 by
approximately $14,400,000 and will reduce depreciation in subsequent periods by
declining amounts.
During the fourth quarter of 1994, the Company also identified impaired assets
at its Spring Grove and Neenah mills, resulting in a pre-tax charge of
$10,760,000. This writedown primarily related to solid waste disposal assets,
specifically, a sludge combustor at the Neenah mill and an unused landfill at
the Spring Grove mill. During the fourth quarter of 1994, the Company identified
more economical means, acceptable to the appropriate environmental agencies, by
which to dispose of its solid waste at these locations and concluded that the
significant additional expenditures necessary to make the assets operational
were not prudent, resulting in unusable assets.
FINANCIAL CONDITION
Liquidity
During 1996, the Company's cash and cash equivalents increased by $12,938,000.
This increase in cash and cash equivalents was due to cash generated by
operations of $96,608,000 which was largely offset by the funding of $35,644,000
for capital-related projects, the payment of
15
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$29,977,000 for dividends and the expenditure of $19,068,000 to purchase common
stock for the treasury. During 1996, the Company's inventory increased by
$14,153,000. This increase was primarily due to the purchase at low cost of a
significant amount of market pulp for the Ecusta mill. The Company plans to
reduce Ecusta's market pulp inventory to historical levels by the end of 1997.
The Company's interest rate risk is limited to its level of variable rate
borrowings. In March 1993, the Company issued $150,000,000 principal amount of
its 5-7/8% Notes due March 1, 1998 and immediately entered into an interest rate
swap agreement having a total notional principal amount of $50,000,000. Under
the agreement, the Company receives a fixed rate of 5-7/8% and pays a floating
rate (London Interbank Offered Rate (LIBOR) plus sixty basis points), as
determined at six month intervals. The floating rate is 6.37344% for the six
month period ending February 28, 1997. Although the Company can pay to terminate
the swap agreement at any time, the Company intends to hold the swap agreement
until its March 1, 1998 maturity. The cost to the Company to terminate the
agreement fluctuates with prevailing market interest rates. As of December 31,
1996, the cost to terminate the swap agreement was approximately $430,000.
In February 1997, the Company completed a transaction pursuant to which the
Company deposited approximately $155,500,000 into a trust to defease certain
covenants under the indenture under which the Company's $150,000,000 5-7/8%
Notes are outstanding. The amount deposited in the trust and the Company's
$150,000,000 5-7/8% Notes will continue to be reported on the Company's
Consolidated Balance Sheets.
The Company expects to meet all its near-term cash needs from a combination of
internally generated funds, cash, cash equivalents, marketable securities and
existing bank lines of credit.
Capital Resources
During 1996, the Company expended $35,644,000 for capital projects. Most of
these expenditures were for maintenance related capital projects; however,
approximately $2,000,000 was expended for environmental capital projects.
Capital spending in 1997 is expected to increase significantly as certain large
projects begun in 1996 are expected to be completed during 1997. The Company
expects to complete the installation of a gravure coater and a precipitated
calcium carbonate plant at the Spring Grove mill during the latter part of 1997.
These projects are expected to cost approximately $15,000,000 and $9,500,000,
respectively, including some minor expenditures made during 1996.
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 its disposal of solid waste generated by its operations. In order to
comply with environmental laws and regulations, the Company has incurred
substantial capital and operating expenditures over the past several years. The
Company anticipates that environmental regulation of the Company's 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, while the Company continues to
negotiate with the State of Wisconsin (and expects to resume negotiations with
the United States Fish and Wildlife Service) regarding natural resources
restoration and damages related to the discharge of polychlorinated biphenyls
(PCBs) and other hazardous substances into the lower Fox River, on which the
Company's Neenah mill is located, the cost of such restoration and damages is
presently unknown but could be substantial. Management's current assessment,
after consultation with legal counsel, is that such expenditures are not likely
to have a material adverse effect on the Company's financial condition or
liquidity, but could have a material adverse effect on the Company's results
from operations in a given year; however, there can be no assurance that the
Company's reserves will be adequate or that a material adverse effect on the
Company's financial condition or liquidity will not occur at some future time.
EFFECTS OF CHANGING PRICES
The moderate levels of inflation during recent years have not had a material
effect on the Company's net sales, revenues or income from operations. Although
the replacement cost of assets increases during inflationary periods, earnings
and cash flow may be maintained through an increase in selling prices.
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 expectations as to industry conditions
and its financial results, demand and pricing for its products 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 which it believes to be reasonable, there
can be no assurance that actual
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results will not differ materially from the Company's expectations. Accordingly,
the Company hereby 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 its products; (ii) changes in the cost
or availability of raw materials used by the Company, in particular market pulp,
pulp substitutes and wastepaper; (iii) 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; (iv)
the gain or loss of significant customers; (v) cost and other effects of
environmental compliance, cleanup, damages, remediation or restoration, or
personal injury or property damage related thereto, such as the cost 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; (vi) significant changes in
cigarette consumption, both domestically and internationally; (vii) enactment of
adverse state or federal legislation or changes in government policy or
regulation; (viii) adverse results in litigation; and (ix) disruptions in
production and/or increased costs due to labor disputes.
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Item 8. Financial Statements and Supplementary Data.
CONSOLIDATED STATEMENTS OF INCOME
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands except per share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
NET SALES $566,084 $623,709 $ 478,302
OTHER INCOME:
Interest on investments and other -- net 1,574 1,376 998
Energy sales -- net 8,559 9,455 5,645
Gain from property dispositions, etc. -- net 977 1,852 2,558
-------- -------- ---------
Total 577,194 636,392 487,503
-------- -------- ---------
COSTS AND EXPENSES:
Cost of products sold 434,491 482,139 437,745
Selling, administrative and general expenses 35,490 36,376 27,219
Interest on debt (Notes 1(h) and 10) 9,308 10,265 6,364
-------- -------- ---------
479,289 528,780 471,328
Unusual items (Note 2) -- -- 208,949
-------- -------- ---------
Total costs and expenses 479,289 528,780 680,277
-------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 97,905 107,612 (192,774)
-------- -------- ---------
INCOME TAX PROVISION (CREDIT) (Note 6):
Current 20,604 18,123 526
Deferred 16,902 23,661 (75,049)
-------- -------- ---------
Total 37,506 41,784 (74,523)
-------- -------- ---------
NET INCOME (LOSS) $ 60,399 $ 65,828 $(118,251)
======== ======== =========
INCOME (LOSS) PER COMMON SHARE (Notes 1(b) and 3): $ 1.41 $ 1.49 $ (2.67)
The accompanying notes are an integral part of these financial statements
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CONSOLIDATED BALANCE SHEETS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
December 31, 1996 and 1995
(in thousands except share information) 1996 1995
- -----------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1(c)) $ 31,802 $ 18,864
Marketable securities (Note 1(f)) 811 111
Accounts receivable (less allowance for doubtful accounts:
1996, $1,913; 1995, $1,979) 49,703 52,052
Inventories (Note 1(d)) 101,231 87,078
Prepaid expenses 4,522 2,318
--------- ---------
Total current assets 188,069 160,423
PLANT, EQUIPMENT AND TIMBERLANDS -- NET (Notes 1(e), 1(h), 2 and 7) 455,190 451,461
OTHER ASSETS (Notes 1(f) and 4) 72,051 61,223
--------- ---------
Total assets $ 715,310 $ 673,107
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 35,249 $ 34,623
Dividends payable 7,444 7,597
Federal, state and local taxes (Note 6) 4,305 235
Accrued compensation, other expenses and deferred income taxes 39,185 41,553
--------- ---------
Total current liabilities 86,183 84,008
LONG-TERM DEBT (Note 10) 150,000 150,000
DEFERRED INCOME TAXES (Notes 1(g) and 6) 99,139 80,682
OTHER LONG-TERM LIABILITIES (Notes 3 and 5) 48,958 43,011
--------- ---------
Total liabilities 384,280 357,701
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
SHAREHOLDERS' EQUITY (Note 3):
Common stock, $.01 par value; authorized -- 120,000,000 shares; issued
(including shares in treasury:
1996, 11,822,152; 1995, 10,926,668) -- 54,361,980 shares 544 544
Capital in excess of par value 41,601 40,921
Retained earnings 462,337 431,762
--------- ---------
Total 504,482 473,227
Less cost of common stock in treasury (173,452) (157,821)
--------- ---------
Total shareholders' equity 331,030 315,406
--------- ---------
Total liabilities and shareholders' equity $ 715,310 $ 673,107
========= =========
The accompanying notes are an integral part of these financial statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1996, 1995 and 1994
Common Capital in Total
(in thousands except Shares Common Excess of Par Retained Treasury Shareholders'
shares outstanding) Outstanding Stock Value Earnings Stock Equity
- ----------------------------------------------- -------------------------------------------------------------------
Balance, January 1, 1994 43,987,328 $544 $39,323 $ 545,770 $(144,237) $ 441,400
Net loss (118,251) (118,251)
Cash dividends declared (30,884) (30,884)
Delivery of treasury shares:
Restricted stock award plan 15,012 67 209 276
Employee stock purchase plans 197,489 448 2,745 3,193
---------- ---- ------- --------- --------- ---------
Balance, December 31, 1994 44,199,829 544 39,838 396,635 (141,283) 295,734
Net income 65,828 65,828
Cash dividends declared (30,701) (30,701)
Delivery of treasury shares:
Employee stock purchase and
401(k) plans 174,929 955 2,402 3,357
Employee stock options
exercised (net) 16,754 128 138 266
Purchase of stock for treasury (956,200) (19,078) (19,078)
---------- ---- ------- --------- --------- ---------
Balance, December 31, 1995 43,435,312 544 40,921 431,762 (157,821) 315,406
Net income 60,399 60,399
Cash dividends declared (29,824) (29,824)
Delivery of treasury shares:
Restricted stock award plan 72,193 223 1,054 1,277
Employee stock purchase and
401(k) plans 151,265 447 2,207 2,654
Employee stock options
exercised (net) 12,131 10 176 186
Purchase of stock for treasury (1,131,073) (19,068) (19,068)
---------- ---- ------- --------- --------- ---------
Balance, December 31, 1996 42,539,828 $544 $41,601 $ 462,337 $(173,452) $ 331,030
========== ==== ======= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 60,399 $ 65,828 $(118,251)
Unusual item -- writedown of impaired assets -- -- 208,949
Items included in net income (loss) not using (providing) cash:
Depreciation and depletion 33,570 32,599 42,906
Expense related to employee stock purchase and 401(k) plans 1,224 975 814
Loss (gain) on disposition of fixed assets 169 (476) (345)
Changes in assets and liabilities:
Accounts receivable 2,349 (3,140) (14,572)
Inventories (14,153) (5,247) 11,459
Other assets and prepaid expenses (13,032) (9,999) (11,116)
Accounts payable, accrued compensation, other expenses,
deferred income taxes and other long-term liabilities 3,555 17,096 (950)
Federal, state and local taxes 4,070 (2,254) (2,383)
Deferred income taxes -- noncurrent 18,457 20,369 (70,196)
-------- --------- ---------
Net cash provided by operating activities 96,608 115,751 46,315
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) or maturity of investments -- net (700) 2,861 22,073
Proceeds from disposal of fixed assets 102 987 1,569
Additions to plant, equipment and timberlands (37,477) (25,777) (83,499)
Increase (decrease) in liabilities related to fixed asset acquisitions 1,833 (6,716) 1,860
-------- --------- ---------
Net cash used in investing activities (36,242) (28,645) (57,997)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (repayment) of short-term debt -- net -- (24,100) 24,100
Dividends paid (29,977) (30,839) (30,847)
Purchases of common stock (19,068) (19,078) --
Employees' contribution -- common stock issued under
employee benefit plans 1,617 2,642 2,380
-------- --------- ---------
Net cash used in financing activities (47,428) (71,375) (4,367)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents 12,938 15,731 (16,049)
CASH AND CASH EQUIVALENTS
At beginning of year 18,864 3,133 19,182
-------- --------- ---------
At end of year $ 31,802 $ 18,864 $ 3,133
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid For:
Interest (net of amount capitalized) $ 9,684 $ 10,366 $ 5,832
Income taxes 20,480 21,571 2,899
The accompanying notes are an integral part of these financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations and Principles of Consolidation
P. H. Glatfelter Company and subsidiaries are principally manufacturers of
printing papers and tobacco and other specialty papers. Headquartered in Spring
Grove, Pennsylvania, the Company's paper mills are located in Spring Grove,
Pisgah Forest, North Carolina and Neenah, Wisconsin. The Pisgah Forest mill is
also known as the Ecusta Division. 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 its wholly-owned, significant subsidiaries, are
included in the consolidated financial statements. All inter-company
transactions have been eliminated.
(b) Income (Loss) per Common Share
Income (loss) per share of common stock is computed on the basis of the weighted
average number of shares of common stock and common stock equivalents (Note 3)
outstanding during each year.
(c) 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.
(d) Inventories
Inventories are stated at the lower of cost or market. Raw materials and
in-process and finished inventories are valued using the last-in, first-out
(LIFO) method, and the supplies inventory is valued principally using the
average cost method. Inventories at December 31 are summarized as follows:
1996 1995
-------- --------
(in thousands)
Raw materials $ 36,355 $ 25,577
In-process and finished 33,073 30,821
Supplies 31,803 30,680
-------- --------
Total $101,231 $ 87,078
======== ========
If the Company had valued all inventories using the average cost method,
inventories would have been $2,571,000 and $14,563,000 higher than reported at
December 31, 1996 and 1995, respectively. During 1994, the Company liquidated
certain LIFO inventories. The effect of the liquidation did not have a
significant impact on net income.
At December 31, 1996 and 1995, the value of the above inventories exceeded
inventories for income tax purposes by approximately $20,400,000 and
$22,800,000, respectively.
(e) Plant, Equipment, and Timberlands
Depreciation is computed for financial reporting on the straight-line method
over the estimated useful lives of the respective assets and for income taxes
principally on accelerated methods over lives established by statute or Treasury
Department procedures. Provision is made for deferred income taxes applicable to
this difference (Notes 1(g) and 6).
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.
Depletion of the cost of timber is computed on a unit rate of usage by growing
area based on estimated quantities of recoverable material.
Plant, equipment and timberlands accounts are summarized as follows:
1996 1995
--------- ---------
(in thousands)
Land and buildings $ 112,973 $ 110,348
Machinery and equipment 870,116 847,535
Other 28,286 27,557
Less accumulated
depreciation (Note 2) (585,954) (557,075)
--------- ---------
Total 425,421 428,365
Construction in progress 12,342 6,220
Timberlands, less depletion 17,427 16,876
--------- ---------
Plant, equipment and
timberlands -- net $ 455,190 $ 451,461
========= =========
(f) Investments in Debt and Equity Securities
The Company accounts for investments in debt and equity securities under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities".
Long-term investments, which are due ratably over an 18-year period and are
classified as held-to-maturity, are included in "Other assets" on the
Consolidated Balance Sheets at December 31, 1996 and 1995. The investments
consist of approximately $11,900,000 and $13,200,000 in U.S. Treasury and
government obligations in 1996 and 1995, respectively. The estimated fair value
of the investments in such securities approximated the amortized cost, and
therefore, there were no significant unrealized gains or losses as of December
31, 1996 and 1995. Investments in municipal debt and equity securities of
$811,000 and $111,000 classi-
22
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
fied as available-for-sale, are reported as "Marketable securities" on the
Consolidated Balance Sheets at December 31, 1996 and 1995, respectively. The
fair market value for such securities approximates cost.
(g) Income Tax Accounting
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Note 6).
Deferred taxes are provided for differences between amounts shown for financial
reporting purposes and those included with tax return filings that will reverse
in future periods.
(h) Capitalized Interest
The Company capitalizes interest incurred in connection with qualified additions
to property. The Company capitalized $3,066,000 of interest in 1994. The Company
did not capitalize any interest in 1996 or 1995.
(i) Fair Market Value of Financial Instruments
The amounts reported in the Consolidated Balance Sheets for cash and cash
equivalents, marketable securities, trade receivables, other assets and
long-term debt approximate fair value.
(j) Long-Lived Asset Impairment
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," assets are reviewed for impairment on an annual basis in
conjunction with the preparation of the annual budget 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.
(k) Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 7).
2. WRITEDOWN OF IMPAIRED ASSETS (UNUSUAL ITEMS)
During the fourth quarter of 1994, the Company recognized a noncash, pre-tax
writedown of impaired assets of $208,949,000. Of this amount, $198,189,000
related to the pre-tax writedown of the Company's Ecusta Division to its fair
value primarily due to writedowns related to property, plant and equipment of
$189,441,000 and inventory of $6,406,000.
The Company concluded that asset impairment recognition was required as the
revised projected undiscounted future cash flows of the Ecusta Division were
less than the carrying value. In developing the revised projections, the Company
considered 1994 actual results and the Company's conclusions concerning future
market conditions and the resulting impact on prices. To determine the fair
value of the Ecusta Division net assets, the Company projected the present value
of future cash flows using a 13% discount rate. The resulting fair value was
used to determine the amount of the writedown.
During the fourth quarter of 1994, the Company also identified impaired property
and equipment at its Spring Grove, Pennsylvania and Neenah, Wisconsin mills,
resulting in a pre-tax charge of $10,760,000. This writedown primarily related
to solid waste disposal assets, specifically, a sludge combustor at the Neenah
mill and an unused landfill at the Spring Grove mill. During the fourth quarter
of 1994, the Company identified more economical means, acceptable to the
appropriate environmental agencies, by which to dispose of its solid waste at
these locations and concluded that the significant additional expenditures
necessary to make the assets operational were not prudent, resulting in unusable
assets.
The aggregate after tax impact of this writedown in 1994 was $127,981,000, or
$2.89 per common share.
3. KEY EMPLOYEE LONG-TERM INCENTIVE PLAN, RESTRICTED COMMON STOCK AWARD PLAN AND
EMPLOYEE STOCK PURCHASE PLANS
On April 22, 1992, the common shareholders approved the 1992 Key Employee
Long-Term Incentive Plan ("1992 Plan") which authorizes the issuance of up to
3,000,000 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. The Company's
1988 Restricted Common Stock Award Plan ("1988 Plan") was simultaneously amended
to provide that no further awards of common shares may be made thereunder.
On May 1, 1995, January 1, 1996 and January 1, 1997, the Company awarded, under
the 1992 Plan, 59,620, 44,860 and 40,060 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,
January 1, 1996
23
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
and January 1, 1997 awards are for the performance periods ending December 31,
1998, 1999 and 2000, respectively, and if earned will be distributed the
following year. Compensation expense is recognized over the performance period
and is affected by the likelihood of achieving the performance goals and the
fair value of the Company's common stock at the end of each reporting period.
The Company expensed $504,000 and $186,000 related to these awards in 1996 and
1995, respectively. The fair market value of the shares awarded during 1997,
1996 and 1995 was $17.88, $17.16 and $17.81, respectively.
During 1988 and 1991, 755,000 and 76,000 shares of common stock, respectively,
were awarded under the 1988 Plan. Awarded shares are subject to forfeiture, in
whole or in part, if the recipient ceases to be an employee within a specified
period of time. Compensation expense equal to the fair market value of awarded
shares on the award date is recognized over the period from the award date to
the date the forfeiture provisions lapse. The Company may reduce the number of
shares otherwise required to be delivered by an amount which 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.
On March 1, 1994, under the 1988 Plan, in lieu of delivering 28,000 shares, the
Company elected to pay in cash an amount equal to the fair market value of such
shares. On May 2, 1994, 15,012 shares were delivered from treasury (after
reduction of 8,988 shares for taxes). On May 1, 1996, in lieu of delivering
60,303 shares, the Company elected to pay in cash an amount equal to the fair
value of such shares. Also on May 1, 1996, 72,193 shares were delivered from
treasury (after reduction of 49,504 shares for taxes). The Company expensed
$283,000, $615,000 and $740,000 related to these awards in 1996, 1995 and 1994,
respectively. Shares awarded under the 1988 Plan cease to be subject to
forfeiture as follows: 20,000 in each of 1997, 1998 and 1999.
The following summarizes the activity with respect to non-qualified options to
purchase shares of common stock for the years ended December 31, 1996, 1995 and
1994:
1996 1995 1994
--------------------------- ------------------------- ------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Exer. Price Shares Exer. Price Shares Exer. Price
--------- ----------- --------- ----------- --------- -----------
Outstanding at beginning of year 1,235,910 $17.48 1,115,000 $17.42 924,000 $17.97
Options granted 202,030 16.91 229,660 17.81 246,000 15.44
Options exercised (12,300) 15.44 (39,025) 17.42 -- --
Options canceled (22,000) 17.48 (69,725) 17.61 (55,000) 17.83
--------- --------- ---------
Outstanding at end of year 1,403,640 17.42 1,235,910 17.48 1,115,000 17.42
Exercisable at end of year 816,046 $17.39 556,362 $17.17 389,000 $16.86
An additional 317,991 options became exercisable January 1, 1997 at a weighted
average exercise price of $17.66. 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 have 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 under this schedule are
exercisable in full six months from the date of grant. All options expire on the
earlier of termination of employment or ten years from the date of grant.
The exercise price represents the fair market value of the Company's common
stock on the date of grant, or the average fair market value of the Company's
common stock on the first day before and after the date of grant for which fair
market value information was available if such information was not available on
the date of grant. The exercise prices presented above are rounded to the
nearest cent.
On January 1, 1997, the Company granted to certain key employees non-qualified
options to purchase an aggregate of 205,750 shares of common stock. Subject to
certain conditions, these stock options are exercisable as to 25% of such shares
beginning on January 1, 1998 and an additional 25% of such shares beginning on
January 1 of each of the next three years. These stock options, which expire on
December 31, 2006, were granted at an exercise price of $17.875 per share,
representing the average fair market value of the Company's common stock on
Tuesday, December 31, 1996 and Thursday, January 2, 1997.
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
above. Had compensation cost for these plans been determined consistent with
Statement of Financial Accounting Standards No. 123,
24
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
"Accounting for Stock-Based Compensation", the Company's net income and income
per common share for the years ended December 31, 1996 and 1995 would have been
reduced to the following pro forma amounts:
1996 1995
------- -------
(in thousands)
Net income: As Reported $60,399 $65,828
Pro Forma 60,289 65,793
Income per common
share: As Reported $ 1.41 $ 1.49
Pro Forma 1.41 1.49
The exercise price for the options outstanding as of December 31, 1996 is
between $15.44 and $17.97. Such options will expire on average in 7.2 years. The
weighted average fair value of options granted during 1996 and 1995 was $4.24
and $4.46, 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 the following weighted average
assumptions used for grants in 1996 and 1995: risk-free interest rate of 6.12%,
expected dividend yield of 3.99%; expected lives of 10 years and expected
volatility of 24%.
Under the employee stock purchase plans, eligible hourly employees may acquire
shares of the Company's common stock at its fair market value. Employees may
contribute up to 10% of their compensation, as defined. For employee
contributions up to 6% of their compensation, the Company shall contribute, as
specified in the plans, 15% of the employee's contribution.
4. RETIREMENT PLANS
The Company and its subsidiaries have trusteed noncontributory defined benefit
pension plans covering substantially all of their 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 met the requirements of the Employee Retirement Income
Security Act of 1974. Pension income of $9,246,000, $6,623,000 and $6,082,000
was recognized in 1996, 1995 and 1994, respectively.
The following table sets forth the status of the Company's defined benefit
pension plans at December 31, 1996 and 1995:
1996 1995
--------------------------- ---------------------------
Overfunded Underfunded Overfunded Underfunded
Plans Plans Plans Plans
---------- ----------- ---------- -----------
(in thousands)
Actuarial present value of accumulated benefit obligation:
Vested employees $(112,164) $(38,165) $(122,716) $(10,347)
Nonvested employees (5,583) (3,614) (7,352) (622)
--------- -------- --------- --------
Total $(117,747) $(41,779) $(130,068) $(10,969)
========= ======== ========= ========
Projected benefit obligation for services rendered to date $(134,657) $(42,202) $(145,766) $(11,936)
Plan assets at fair value (primarily stocks, bonds and
cash equivalents) 311,567 23,854 289,772 --
--------- -------- --------- --------
Plan assets in excess of (less than) projected benefit
obligation 176,910 (18,348) 144,006 (11,936)
Unrecognized net (gain) loss from past experience different
from that assumed (101,050) (420) (80,824) 1,302
Unrecognized prior service cost 6,910 9,142 9,978 --
Unrecognized net (asset) liability at January 1 (14,901) 2,251 (17,014) 2,639
--------- -------- --------- --------
Prepaid (accrued) pension cost $ 67,869 $ (7,375) $ 56,146 $ (7,995)
========= ======== ========= ========
Net pension income includes the following components: 1996 1995 1994
-------- --------- --------
(in thousands)
Service cost -- benefits earned during period $ (4,076) $ (3,671) $ (3,572)
Interest cost on projected benefit obligation (11,708) (10,951) (10,361)
Actual return on plan assets 51,210 68,583 2,676
Net amortization and deferral (26,180) (47,338) 17,339
-------- --------- --------
Net pension income $ 9,246 $ 6,623 $ 6,082
======== ========= ========
25
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
The assumptions used in computing the information above were as follows:
1996 1995 1994
---- ---- ----
Discount rate --
pension expense 7.5% 8.0% 8.0%
Expected long-term rate of
return on plan assets 9.0% 8.5% 8.5%
Discount rate -- projected
benefit obligation 7.5% 7.5% 8.0%
Future compensation
growth rate 3.5% 3.5% 3.5%
During 1995, the Company established a 401(k) plan for all salaried employees.
Salaried employees may contribute up to 15% of their salary to this plan,
subject to certain restrictions. The Company will contribute up to 50% of the
employee's contribution, but not more than 3% of the employee's compensation, as
defined, in the form of shares of the Company's common stock into the Company
stock fund maintained under the 401(k) plan. During 1996 and 1995, the Company
contributed shares of its common stock valued at $1,048,000 and $235,000,
respectively, to the 401(k) plan.
5. OTHER POSTRETIREMENT BENEFITS
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. The
following table sets forth the plan's status as of December 31 (in thousands):
1996 1995
-------- --------
Accumulated postretirement
benefit obligation:
Retirees $ 9,024 $ 9,753
Fully eligible active plan participants 5,414 4,718
Other active plan participants 13,392 13,860
-------- --------
Accumulated postretirement
benefit obligation 27,830 28,331
Unrecognized net loss (4,594) (5,970)
Unrecognized prior service cost 1,356 1,506
-------- --------
Accrued postretirement benefit cost $ 24,592 $ 23,867
======== ========
Net periodic postretirement benefit cost includes the following components (in
thousands):
1996 1995 1994
------ ------ ------
Service cost $ 732 $ 730 $ 585
Interest on accumulated
benefit obligation 2,003 2,171 1,740
Net amortization and
deferral 75 112 20
------ ------ ------
Net periodic
postretirement
benefit cost $2,810 $3,013 $2,345
====== ====== ======
The Company assumes an increase in the per capita cost of covered health
benefits of 8.0% for 1997 decreasing to 7.0%, 6.0% and 5.5% in 1998, 1999 and
2000, respectively. The weighted average discount rates used in determining the
accumulated postretirement benefit obligation were 7.5% in 1996 and 1995 and
8.0% in 1994. If the health care cost trend rate increased by 1.0%, the
accumulated postretirement benefit obligation as of December 31, 1996 would have
been approximately $2,190,000 greater and the net periodic postretirement
benefit cost would have been approximately $265,000 greater.
6. INCOME TAXES
Income taxes are recognized for (a) the amount of taxes payable or refundable
for the current year, and (b) 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 Company has a federal alternative minimum tax credit carryforward of
$1,168,000 which has no expiration period.
Following are the domestic and foreign components of pre-tax income (loss):
1996 1995 1994
------- -------- ---------
(in thousands)
United States $94,457 $104,989 $(194,512)
Foreign 3,448 2,623 1,738
------- -------- ---------
Total pre-tax income
(loss) $97,905 $107,612 $(192,774)
======= ======== =========
The income tax provision (credit) consists of the following:
1996 1995 1994
------- -------- --------
(in thousands)
Current:
Federal $17,816 $ 15,851 $ (202)
State 1,801 1,711 --
Foreign 987 561 728
------- -------- --------
Total current tax
provision 20,604 18,123 526
------- -------- --------
Deferred:
Federal 14,570 20,234 (67,446)
State 2,297 3,823 (7,515)
Foreign 35 (396) (88)
------- -------- --------
Total deferred tax
provision (credit) 16,902 23,661 (75,049)
------- -------- --------
Total income tax
provision (credit) $37,506 $ 41,784 $(74,523)
======= ======== ========
26
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
The net deferred tax amounts reported on the Company's Consolidated Balance
Sheets as of December 31 are as follows:
1996 1995
---------------------------------------- -------
Federal State Foreign Total Total
(in thousands)
Current liability $ 2,653 $ 499 $ -- $ 3,152 $ 4,708
Long-term liability $82,965 $15,587 $587 $99,139 $80,682
The following are components of the net deferred tax balances as of December 31:
1996 1995
---------------------------------------------------- --------
Federal State Foreign Total Total
(in thousands)
Deferred tax assets:
Current $ 4,237 $ 798 $ -- $ 5,035 $ 4,320
Long-term 20,236 3,591 -- 23,827 26,105
-------- ------- -------- -------- --------
$ 24,473 $ 4,389 $ -- $ 28,862 $ 30,425
======== ======= ======== ======== ========
Deferred tax liabilities:
Current $ 6,890 $ 1,297 $ -- $ 8,187 $ 9,028
Long-term 103,201 19,178 587 122,966 106,787
-------- ------- -------- -------- --------
$110,091 $20,475 $ 587 $131,153 $115,815
======== ======= ======== ======== ========
The tax effects of temporary differences as of December 31 are as follows:
1996 1995
-------- --------
Deferred tax assets: (in thousands)
Reserves $ 8,693 $ 6,570
Compensation 7,335 7,678
Postretirement benefits 9,558 9,308
Federal alternative minimum tax credit 1,168 5,090
Other 2,108 1,779
-------- --------
$ 28,862 $ 30,425
======== ========
Deferred tax liabilities:
Property $ 97,406 $ 85,640
Pension 23,433 18,363
Inventories 8,031 8,961
Other 2,283 2,851
-------- --------
$131,153 $115,815
======== ========
A reconciliation between the provision (credit) for income taxes, computed by
applying the statutory federal income tax rate of 35%, to income (loss) before
income taxes, and the actual provision (credit) for income taxes follows:
1996 1995 1994
-------- -------- --------
(in thousands)
Federal income tax provision (credit) at statutory rate $ 34,267 $ 37,664 $(67,471)
State income taxes, net of federal income tax benefit (provision) 2,663 4,201 (10,043)
Tax effect of exempt earnings of foreign sales corporation (431) (422) (19)
SFAS No. 109 impact of rate increase -- State -- -- 2,645
Other 1,007 341 365
-------- -------- --------
Actual provision (credit) for income taxes $ 37,506 $ 41,784 $(74,523)
======== ======== ========
27
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
7. COMMITMENTS AND CONTINGENCIES
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 its disposal of solid waste generated by its operations. In order to
comply with environmental laws and regulations, the Company has incurred
substantial capital and operating expenditures over the past several years. The
Company anticipates that environmental regulation of the Company's 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 other paper companies located in the United
States are generally subject to the same environmental regulations, the Company
does not believe that its competitive position in the United States paper
industry will be materially adversely affected by its capital expenditures for,
or operating costs of, pollution abatement facilities for its present mills or
the limitations which environmental compliance may place on its operations.
The Company, along with six other companies which operate or formerly operated
facilities along the Fox River in Wisconsin, has been in discussions with the
Wisconsin Department of Natural Resources and the United States Fish and
Wildlife Service ("USFWS") regarding the alleged discharge of polychlorinated
biphenyls ("PCBs") and other hazardous substances to the Fox River below Lake
Winnebago ("the lower Fox River") and the Bay of Green Bay.
On January 30, 1997, the Company and six other companies entered into an
agreement with the State of Wisconsin establishing a framework for the final
resolution of claims for natural resources damages and other relief which the
State asserts against the companies. Under the agreement, the companies will
provide in the aggregate $10 million in work and funds to facilitate natural
resources damages assessment activities, including, among other things, modeling
and risk assessment, as well as field scale demonstration of sediment dredging
and the enhancement of certain environmental amenities. The State will act as
"lead authorized official" under federal law for purposes of any assessment of
damages to natural resources within Wisconsin, except those within the
administrative jurisdiction of a federal agency. In general, the parties have
agreed to toll all limitations periods and to forbear from litigation during the
term of the agreement. The parties intend to conclude a final resolution of all
of the State's claims during the course of, or after completion of, the work
called for by the agreement.
By letter dated January 31, 1997, and received by the Company on February 3,
1997, the USFWS provided 60 days' notice of the intention of the United States
Departments of the Interior and Commerce to commence an action for natural
resources damages against the Company and the six other companies referred to
above similarly relating to the discharge of hazardous substances into the lower
Fox River. The federal trustees invited the Company to resume negotiations
toward a non-litigated resolution of the federal trustees' claims; the
negotiations had been suspended at the federal trustees' request. The Company
does not know the amount which the federal trustees will claim as natural
resources damages, but the Company believes that it will be substantial.
The agreement with the State of Wisconsin specifically contemplates a
modification to address the claims of the federal trustees and the roles of the
State and the federal trustees. The parties to that agreement have invited the
federal trustees to begin negotiations towards such a modification.
The amount and timing of future expenditures for environmental compliance,
cleanup, remediation and personal injury 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 agreement reached with
the State regarding the lower Fox River and the Bay of Green Bay, its future
negotiations with the State concerning these areas and the unknown amount which
could be claimed by the federal trustees as natural resource damages related to
the lower Fox River. The Company's current assessment, after consultation with
legal counsel, is that future expenditures for these matters are not likely to
have a material adverse impact on the Company's financial condition or
liquidity, but could have a material adverse effect on the Company's results
from operations in a given year; however, there can be no assurances that the
Company's reserves will be adequate or that a material adverse effect on the
Company's financial condition or liquidity will not occur at some future time.
During 1996, the Company expended approximately $2,000,000 on environmental
capital projects. The Company estimates that $12,000,000 and $8,000,000 will be
expended for environmental capital projects in 1997 and 1998, respectively.
28
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
8. LEGAL PROCEEDINGS
The Company is involved in various 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 financial position or results of
operations or liquidity.
9. SIGNIFICANT CUSTOMER AND FOREIGN SALES
The Company sells a significant portion of its printing and writing papers
through wholesale paper merchants. During 1994, two of the Company's wholesale
paper merchants merged into one company, and as a result, during 1996, 1995 and
1994, this customer accounted for 12.1%, 13.9% and 13.0% of the Company's net
sales, respectively. Net sales in dollars to foreign customers were 9.8%, 8.8%
and 9.4% of total net sales in 1996, 1995 and 1994, respectively.
10. BORROWINGS
At December 31, 1996, the Company had available lines of credit from two
different banks aggregating $100,000,000 at interest rates approximating money
market rates. The Company had no short-term borrowings as of December 31, 1996
and December 31, 1995. The Company had average net short-term borrowings of
$20,000 and $9,447,000 during 1996 and 1995, respectively, at an average
interest rate of 6.1% and 6.2%, respectively. Maximum short-term borrowings
during 1996 and 1995 were $4,000,000 and $29,400,000, respectively.
In March 1993, the Company issued $150,000,000 principal amount of its 5-7/8%
Notes. These Notes will mature on March 1, 1998 and may not be redeemed prior to
maturity. Interest on the Notes is payable semiannually on March 1 and September
1. The Notes are unsecured obligations of the Company.
In March 1993, the Company entered into an interest rate swap agreement having a
total notional principal amount of $50,000,000. Under the agreement, the Company
receives a fixed rate of 5-7/8% and pays a floating rate (London Interbank
Offered Rate (LIBOR) plus sixty basis points), as determined at six month
intervals. The floating rate is 6.37344% for the six month period ending
February 28, 1997. The agreement converts a portion of the Company's debt
obligation from a fixed rate to a floating rate basis. Under the agreement, the
Company recognized net interest expense of $174,000 and $453,000 in 1996 and
1995, respectively, and net interest income of $433,000 in 1994. These amounts
are included in "Interest on debt" on the Company's Consolidated Statements of
Income. The Company has pledged $2,100,000 of its other assets as security under
the swap agreement. Although the Company can pay to terminate the swap agreement
at any time, the Company intends to hold the swap agreement until its March 1,
1998 maturity. The cost to the Company to terminate the agreement fluctuates
with prevailing market interest rates. As of December 31, 1996, the cost to
terminate the swap agreement was approximately $430,000.
The Company has approximately $9,226,000 of letters of credit outstanding as of
December 31, 1996. The Company bears the credit risk on this amount to the
extent that the Company 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.
11. SUBSEQUENT EVENT
In February 1997, the Company invested approximately $122,500,000 to acquire
approximately 99.9% of the voting Class A common stock of a company that intends
to qualify as a qualified real estate investment trust (REIT). The REIT also
issued $150,000,000 of Step-Down Preferred Stock, with an initial dividend of
approximately 13.9%, to other investors. Prospectively, the REIT will be
consolidated in the Company's consolidated financial statements and a "minority
interest" will be reported. The REIT's dividend payments will include an
amortization component of the minority interest for financial reporting
purposes; the effective yield on the preferred stock is approximately 8.1%.
Also in February 1997, the Company borrowed $270,000,000 from the REIT under a
Note to be secured by certain of the Company's real estate assets with a value
of 110% of the principal amount of the Note.
Using the proceeds of the Note and other available cash, the Company immediately
repaid, with interest, the amount borrowed to purchase the common stock of the
REIT. The Company also deposited approximately $155,500,000 into a trust to
defease certain covenants under the Company's indenture dated as of January 15,
1993 under which the Company's $150,000,000 5-7/8% Notes due March 1, 1998, are
outstanding. The amount deposited will be applied solely to pay principal and
interest due on the 5-7/8% Notes. In accordance with Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", the amount deposited in
the trust and the Company's $150,000,000 5-7/8% Notes will be reported on the
Company's Consolidated Balance Sheets until March 1, 1998.
Subsequently, the Internal Revenue Service announced that it expects to issue
regulations that could cause the Company to lose certain expected benefits of
the transaction, but which would not otherwise materially adversely affect the
Company.
29
31
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 generally
accepted accounting principles 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 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 and
internal control issues and have completely free access to the Audit Committee.
T. C. Norris
Chairman of the Board, President
and Chief Executive Officer
R.P. Newcomer
Senior Vice President, Treasurer
and Chief Financial Officer
30
32
[DELOITTE & TOUCHE LLP LETTERHEAD]
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, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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 generally accepted auditing
standards. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. 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
Philadelphia, Pennsylvania
February 24, 1997
31
33
SUPPLEMENTAL FINANCIAL INFORMATION
P.H. GLATFELTER COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
Net Sales Gross Profit Net Income Income Per
In Thousands In Thousands In Thousands Common Share
1996 1995 1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- ------- ------- -------- --------
First $140,335 $155,037 $ 31,521 $ 29,938 $13,970 $12,514 $ .32 $ .28
Second 144,687 166,879 35,771 40,573 16,276 19,025 .38 .43
Third 139,748 160,771 30,437 36,561 13,237 17,103 .31 .39
Fourth 141,314 141,022 33,864 34,498 16,916 17,186 .40 .39
-------- -------- -------- -------- ------- ------- ----- ------
Total $566,084 $623,709 $131,593 $141,570 $60,399 $65,828 $1.41 $1.49
======== ======== ======== ======== ======= ======= ===== =====
32
34
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 2, 3 and
23 of the Registrant's Proxy Statement dated March 14, 1997.
(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. Executive Compensation.
The information required under this item is incorporated
herein by reference to pages 12 through 20 of the Registrant's Proxy Statement
dated March 14, 1997.
33
35
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required under this item is incorporated
herein by reference to pages 21 through 23 of the Registrant's Proxy Statement
dated March 14, 1997.
Item 13. Certain Relationships and Related Transactions.
The information required under this item is incorporated
herein by reference to page 20 of the Registrant's Proxy Statement dated March
14, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a) 1. A. Financial Statements filed as part of
this report:
Consolidated Statements of Income for the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Balance Sheets, December 31, 1996
and 1995
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1996, 1995 and
1994
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements for
the Years Ended December 31, 1996, 1995 and
1994
B. Supplementary Data for each of the three
years in the period ended December 31, 1996.
2. Financial Statement Schedules (Consolidated):
For Each of the Three Years in the Period Ended
December 31, 1996:
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.
34
36
Individual financial statements of the Registrant are not
presented inasmuch as the Registrant is primarily an operating
company and its consolidated subsidiaries are wholly-owned.
3. Executive Compensation Plans and Arrangements: see Exhibits
10(a) through 10(g), described below.
(b) Exhibits:
Number Description of Documents
- ------ ------------------------
(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 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
35
37
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, 1996.
(4)(a) Indenture between P. H. Glatfelter Company and Wachovia
Bank of Georgia, N.A. as Trustee dated as of
January 15, 1993 (incorporated by reference to Exhibit
4(a) of Registrant's Form 10-K for the year ended
December 31, 1993).
(4)(b) Form of Note issued to Purchasers of 5 7/8% Notes due
March 1, 1998 (incorporated by reference to Exhibit
4(b) of Registrant's Form 10-K for the year ended
December 31, 1992).
(4)(c) Escrow Agreement, dated as of February 24, 1997 between
P. H. Glatfelter Company and the Bank of New York
relating 5 7/8% Notes due March 1, 1998.
(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).
36
38
(10)(a) P. H. Glatfelter Company Management Incentive Plan,
adopted as of January 1, 1994, as amended and restated
effective March 13, 1997 (incorporated by reference to Exhibit
B of Registrant's Proxy Statement dated
March 14, 1997).
(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, effective January 1, 1988, as amended
and restated December 22, 1994 (incorporated by
reference to Exhibit 10(c) of Registrant's Form 10-K
for the year ended December 31, 1994).
(10)(d) Deferral Benefit Pension Plan of Ecusta Division,
effective May 22, 1986 (incorporated by reference to
Exhibit (10)(ee) 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 Plan of Supplemental
Retirement Benefits for the Management Committee, as
amended and restated effective June 28, 1989
(incorporated by reference to Exhibit (10)(h) of
Registrant's Form 10-K for the year ended December 31,
1989).
(10)(g) P.H. Glatfelter Company 1992 Key Employee Long-Term
Incentive Plan, effective April 22, 1992 (incorporated
by reference to Exhibit (10)(i) of Registrant's Form
10-K for the year ended December 31, 1992).
(10)(h) Loan Agreement, dated February 24, 1997 between P. H.
Glatfelter Company, as borrower, and GWS Valuch, Inc.,
as lender.
(10)(i) 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.
(11) Computation of Earnings Per Share
37
39
(21) Subsidiaries of the Registrant
(23) Consent of Independent Certified Public Auditors
(27) Financial Data Schedule
(b) The Registrant filed the following report on Form 8-K
during the quarter ended December 31, 1996:
Date of Report Item Reported
-------------- -------------
December 23, 1996 5
38
40
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 28, 1997
By /s/ T. C. Norris
----------------------------
T. C. Norris
Chairman of the Board
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 28, 1997 /s/ T. C. Norris Principal Executive
----------------------------
T. C. Norris Officer and Director
March 28, 1997 /s/ R. P. Newcomer Principal Financial
----------------------------
R. P. Newcomer Officer, Senior Vice
President and
Treasurer
March 28, 1997 /s/ C. M. Smith Comptroller
----------------------------
C. M. Smith
March 28, 1997 /s/ R. E. Chappell Director
----------------------------
R. E. Chappell
March 28, 1997 /s/ N. DeBenedictis Director
----------------------------
N. DeBenedictis
March 28, 1997 /s/ G. H. Glatfelter Director
----------------------------
G. H. Glatfelter
March 28, 1997 /s/ G. H. Glatfelter II Director
----------------------------
G. H. Glatfelter II
March 28, 1997 /s/ R. S. Hillas Director
----------------------------
R. S. Hillas
March 28, 1997 /s/ M. A. Johnson II Director
----------------------------
M. A. Johnson II
March 28, 1997 /s/ R. W. Kelso Director
----------------------------
R. W. Kelso
41
March 28, 1997 /s/ P. R. Roedel Director
----------------------------
P. R. Roedel
March 28, 1997 /s/ J. M. Sanzo Director
----------------------------
J. M. Sanzo
March 28, 1997 /s/ R. L. Smoot Director
----------------------------
R. L. Smoot
42
P. H. GLATFELTER COMPANY
AND SUBSIDIARIES
Financial Statement Schedule
For Each of the Three Years in the
Period Ended December 31, 1996 and
Independent Auditors' Report
Prepared for Filing As Part of
Annual Report (Form 10-K)
to the Securities and Exchange Commission
43
SCHEDULE II
P.H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCES FOR
--------------------------------------------------------------------------------------------
Doubtful Accounts Sales Discounts
---------------------------------------------- --------------------------------------------
1996 1995 1994 1996 1995 1994
Balance, beginning of year $ 1,979,000 $ 1,850,000 $ 1,838,000 $ 501,000 $ 560,100 $ 554,300
Provision 10,000 201,000 12,000 8,866,000 7,937,700 6,619,900
Write-offs, recoveries and
discounts allowed (76,000) (72,000) (8,816,000) (7,996,800) (6,614,100)
----------- ----------- ----------- ----------- ----------- ----------
Balance, end of year $ 1,913,000 $ 1,979,000 $ 1,850,000 $ 551,000 $ 501,000 $ 560,100
=========== =========== =========== =========== =========== ==========
The provision for doubtful accounts is included in administrative expense and
the provision for sales discounts is deducted from sales. The related
allowances are deducted from accounts receivable.
44
EXHIBIT INDEX
Number
(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 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
45
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, 1996.
(4)(a) Indenture between P. H. Glatfelter Company and Wachovia
Bank of Georgia, N.A. as Trustee dated as of
January 15, 1993 (incorporated by reference to Exhibit
4(a) of Registrant's Form 10-K for the year ended
December 31, 1993).
(4)(b) Form of Note issued to Purchasers of 5 7/8% Notes due
March 1, 1998 (incorporated by reference to Exhibit
4(b) of Registrant's Form 10-K for the year ended
December 31, 1992).
(4)(c) Escrow Agreement, dated as of February 24, 1997 between
P. H. Glatfelter Company and the Bank of New York
relating 5 7/8% Notes due March 1, 1998.
(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
effective March 13, 1997 (incorporated by reference to Exhibit
B of Registrant's Proxy Statement dated
March 14, 1997).
(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
46
Registrant's Form 10-K for the year ended December 31, 1992).
(10)(c) P. H. Glatfelter Company Supplemental Executive
Retirement Plan, effective January 1, 1988, as amended
and restated December 22, 1994 (incorporated by
reference to Exhibit 10(c) of Registrant's Form 10-K
for the year ended December 31, 1994).
(10)(d) Deferral Benefit Pension Plan of Ecusta Division,
effective May 22, 1986 (incorporated by reference to
Exhibit (10)(ee) 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 Plan of Supplemental
Retirement Benefits for the Management Committee, as
amended and restated effective June 28, 1989
(incorporated by reference to Exhibit (10)(h) of
Registrant's Form 10-K for the year ended December 31,
1989).
(10)(g) P.H. Glatfelter Company 1992 Key Employee Long-Term
Incentive Plan, effective April 22, 1992 (incorporated
by reference to Exhibit (10)(i) of Registrant's Form
10-K for the year ended December 31, 1992).
(10)(h) Loan Agreement, dated February 24, 1997 between P. H.
Glatfelter Company, as borrower, and GWS Valuch, Inc.,
as lender.
(10)(i) 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.
(11) Computation of Earnings Per Share
(21) Subsidiaries of the Registrant
(23) Consent of Independent Certified Public Auditors
(27) Financial Data Schedule