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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, 1993 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 S. Main Street
Spring Grove, Pennsylvania 17362
- --------------------------------- --------------
(Address of principal (Zip Code)
executive offices)
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. [X] [Check]
The aggregate market value of the Common Stock of the Registrant held by non-
affiliates at March 2, 1994 was $447,110,330.
Common Stock outstanding at March 2, 1994: 43,987,328 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 17, 1994 (Part III)
PART I
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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 ("Bergstrom") 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 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 present papermaking operations 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's products are used principally for case bound and quality paperback
books, commercial and financial printing, converting and cigarette
manufacturing.
The Registrant sells its products throughout the United States and in
a number of foreign countries. Net export sales in 1993, 1992 and 1991 were
$38,577,000, $48,830,000 and $60,311,000, respectively. In 1993, sales of paper
for book publishing and commercial printing generally were made through
wholesale paper merchants, whereas sales of paper to cigarette manufacturers,
financial printers and converters generally were made directly. No single user
of the Registrant's products accounted for more than 10% of the Registrant's
1993 net dollar sales. In 1993, the Registrant did not supply tobacco paper
products to the domestic tobacco operations of Philip Morris Companies, Inc., in
accordance with a decision communicated by Philip Morris to the Registrant on
October 29, 1992. Philip Morris had been one of Registrant's six domestic
customers for tobacco paper products. Sales to Philip Morris amounted to 7.5%
of the Registrant's total sales in 1992. During 1993, the Registrant succeeded
in redirecting the lost Philip Morris product volume to printing paper
customers. However, these sales were not as profitable as sales to Philip
Morris in 1992. In addition, due to increased competitive pressure and cost-
cutting measures within the tobacco industry, sales to remaining tobacco paper
customers in 1993 were less profitable than in 1992. As a result, the 1993
profit performance of the Registrant's Pisgah Forest mill was sharply below that
of 1992. The Registrant
continues its efforts to maximize utilization of its Pisgah Forest mill assets
by attempting to direct sales volume to its most profitable grades and by
controlling costs. Even with these efforts, the 1994 profit performance of the
Pisgah Forest mill is not expected to improve over that of 1993.
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, 1993, 1992 and 1991.
Year Ended December 31,
1993 1992 1991
---- ---- ----
Net Sales % Net Sales % Net Sales %
--------- -- --------- -- --------- --
Printing
Papers $341,528 72% $348,497 64% $365,224 64%
Tobacco
and Other
Specialty
Papers 131,981 28% 191,560 36% 202,540 36%
-------- --- -------- --- -------- ---
Total $473,509 100% $540,057 100% $567,764 100%
Printing and specialty papers are manufactured in each of the
Registrant's mills. Tobacco papers are manufactured in the Registrant's Pisgah
Forest mill.
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
expected to increase in the first quarter of 1994. Industry operating rates
should improve, particularly in the latter half of the year, once the new
capacity is absorbed by the market. In the interim, competition with respect to
printing papers is likely to be intense with continuing pressure on prices. In
the tobacco papers business, while there is only one significant domestic
competitor, there are numerous international competitors. Despite recent events
described above, the Registrant remains a major tobacco papers supplier to the
domestic tobacco products industry. Declining consumption of cigarettes in the
United States, the shift to lower-priced and lower-cost cigarettes and lower-
priced tobacco paper products from foreign manufacturers caused tobacco
companies to pressure the Registrant to reduce prices, but have not, and are not
expected to, affect the Registrant's relative competitive
2
position. Increasing foreign production of tobacco products by U.S. companies
may have an adverse effect on the Registrant's overall competitive position.
Service, product performance and technological advances are important
competitive factors in the Registrant's business. The Registrant believes its
reputation in these areas continues to be excellent.
Backlogs are not significant in the Registrant's business.
The principal raw material used at the Spring Grove mill is pulpwood.
In 1993, the Registrant acquired approximately 83% of its pulpwood from saw
mills and independent logging contractors and 17% from Company-owned
timberlands. Hardwood purchases constituted slightly more than half of the
pulpwood acquired and softwood the balance. Hardwoods are growing in abundance
within a relatively short distance of the Registrant's Spring Grove mill.
Softwood is obtained primarily from Maryland, Delaware and Virginia. In order
to protect its sources of pulpwood, the Registrant has actively promoted
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 sufficient softwood growing on its lands to provide a significant portion
of the Spring Grove mill's future softwood requirements. Wood chips produced
from sawmill waste also accounted for a substantial amount of the Registrant's
pulpwood purchases for the Spring Grove mill.
The Neenah mill uses high-grade recycled wastepaper as its principal
raw material. There is currently an adequate supply of wastepaper.
The major raw materials used at the Pisgah Forest mill are purchased
wood pulp and processed flax straw, which is derived from linseed flax plants.
Flax has become a less important raw material as a result of the loss of
business of Philip Morris (referred to above), since it was the Registrant's
major customer for flax-based products. In addition, declining consumption of
cigarettes in the United States and the shift to lower-priced and lower-cost
cigarettes, which are manufactured using predominately wood pulp-based tobacco
papers, has caused further deterioration in demand for flax-based papers. This
has necessitated the purchase of additional wood pulp to manufacture products to
replace the lost flax-based business. The current supply of flax and wood pulp
is sufficient for the present and anticipated future operations at the Pisgah
Forest mill.
3
Due to sufficient levels of processed flax straw inventory, the
Registrant elected not to contract for the purchase of flax straw for 1994. The
Registrant's future operations in North Dakota and Canada are contingent upon
the Registrant's ongoing review of the demand for and profitability of its flax-
based tobacco papers.
Wood pulp purchased from others comprised approximately 109,000 short
tons or 25% of the total 1993 fiber requirements of the Registrant. Wood pulp
is currently in more than adequate supply.
The Registrant is subject to numerous Federal, state and foreign laws
and rules and regulations thereunder with respect to solid waste disposal and
the abatement of air and water pollution and noise. 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 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 expects that compliance with
the laws and the rules and regulations thereunder relating to solid waste
disposal and the abatement of air and water pollution could become increasingly
difficult and that such compliance, when and if technologically feasible, will
require additional capital expenditures and operating expenses. 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 is
the Spring Grove pulpmill modernization. The related construction cost for all
of these projects, based on presently available information, is estimated to be
$34 million in 1994 and $7 million in 1995, including approximately $31 million
in 1994 for the Spring Grove pulpmill modernization project. The pulpmill
modernization project began in 1990 and is expected to be completed in 1994.
The total cost of the pulpmill modernization project is expected to be $170
million (exclusive of capitalized interest) of which $20 million was expended in
1991 or prior thereto, $48 million in 1992 and $71 million in 1993. Since
capital expenditures for pollution abatement generally do not increase the
productivity or efficiency of the Registrant's mills, the Registrant's earnings
will be adversely affected to the extent that selling prices cannot be increased
to offset incremental operating costs, including depreciation, resulting from
such capital expenditures,
4
additional interest expense or the loss of any income which otherwise could have
been earned on the amounts expended for environmental purposes. The Registrant
does not expect, however, that its capital expenditures for, or operating costs
of, pollution abatement facilities for its present mills will have a significant
adverse effect on its competitive position.
The Registrant's Spring Grove mill generates all of its steam
requirements and is 100% self-sufficient in electrical energy generation. It
also produces excess electricity which is sold to the local power company under
a long-term co-generation contract, which resulted in 1993 net energy sales of
$5,602,000. Principal fuel sources used by the Registrant's Spring Grove mill
are coal, spent chemicals, bark and wood waste, and oil which in 1993 were used
to produce approximately 66%, 27%, 6% and 1%, respectively, of the total energy
internally generated at the Spring Grove mill.
The Pisgah Forest mill generates all of its steam requirements and a
majority of its electrical requirements (63% in 1993) and purchases electric
power for the remainder. The principal fuel source used at the Pisgah Forest
mill is coal (98.5% in 1993).
The Neenah mill generates all of its steam requirements and a portion
of its electric power requirements (13% in 1993) and purchases the remainder of
its electric power requirements. Gas and oil were used to produce 81% and 19%,
respectively, of the mill's internally generated energy during 1993.
At December 31, 1993, the Registrant had 3,019 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
labor agreement covering approximately 1,025 employees at the Pisgah Forest mill
expires in October 1996. Under this agreement, wages increased 2.75% in 1993
and are to increase 3% in both 1994 and 1995. A five-year labor agreement
covering approximately 770 hourly employees in Spring Grove was ratified in 1993
and expires in January 1998. Under this agreement, wages increased by 2.5% in
1993 and are to increase by 3% in each of the four years, 1994 through 1997. In
January 1994, a new five-year labor agreement covering Neenah employees
(approximately 320) was ratified. Under this agreement, which expires in August
1997, wages increased 2.75% in 1993 and are to increase 3% in each of 1994, 1995
and 1996.
5
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, Pennsylvania, Pisgah Forest, North Carolina and Neenah,
Wisconsin.
The Spring Grove facilities include seven uncoated paper machines with
a daily capacity ranging from 11 to 273 tons and an aggregate annual capacity of
about 279,000 tons of finished paper. The machines have been rebuilt and
modernized from time to time. A high speed off-machine coater gives the
Registrant a potential annual production capacity for coated paper of
approximately 48,000 tons. Since uncoated paper is used in producing coated
paper, this does not represent an increase in the Spring Grove plant capacity.
The pulpmill has a production capacity of approximately 550 tons of bleached
pulp per day.
The Pisgah Forest facilities include twelve paper machines, stock
preparation equipment and a modified kraft bleached flax pulpmill with thirteen
rotary digesters. The annual light weight paper capacity is approximately
98,000 tons. This represents a recent 7,000 ton increase due to a shift from
tobacco paper to printing paper. 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 156,000 tons, a wastepaper processing and warehousing building, a
wastepaper de-inking and bleaching plant, stock preparation equipment, power
plant, water treatment and waste treatment plants, and warehousing space. 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 109,000 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 and storage
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. The Registrant considers that all of its buildings are in good
6
structural condition and well maintained and its properties are suitable and
adequate for present operations.
Item 3. Pending Legal Proceedings.
- ------ -------------------------
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 ("DER") 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.
During 1990 and again in 1991, the Pennsylvania DER proposed to
reissue the Registrant's waste water discharge permit on terms with which the
Registrant does not agree. The Registrant is contesting these terms. Among
those terms is an unacceptable term concerning a suspected discharge of 2,3,7,8
tetrachlorodibenzo-p-dioxin ("dioxin"). At the behest of the United States
Environmental Protection Agency ("EPA"), DER has included the Registrant's
Spring Grove mill on the list of dischargers submitted to and approved by EPA
pursuant to Section 304(l) of the Clean Water Act. EPA has approved that list
because EPA suspects that the Spring Grove mill may discharge dioxin in
concentrations of concern. The Registrant believes that the Spring Grove mill
should not be included on the discharger list.
The Registrant has been identified by EPA and the Ohio Environmental
Protection Agency as one of 34 potentially responsible parties ("PRP") for the
clean-up of the Cardington Road Landfill in Montgomery County, Ohio. EPA has
selected a remedy estimated to cost approximately $8.2 million and, by letter
dated February 9, 1994, demanded that the PRPs perform a remedial design.
Appleton Paper, Inc., which purchased the Registrant's West Carrolton, Ohio
mill, was previously identified as a PRP and has demanded that the Company
indemnify it for costs incurred in connection with this landfill, but did not
receive the February 9 letter. On March 25, 1994 the Registrant received
notice that the court in Cardington Road Site Coalition v. Snyder Properties,
------------------------------ ------------------
Inc. (Case No. C-3-88-632 S.D. Ohio), a superfund cost recovery action brought
- ----
by the PRPs who implemented the remedial investigation, had authorized the
filing of a complaint naming the Registrant as a third-party defendant in such
action.
7
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.
The Registrant has been named as a fourth-party defendant in an action
captioned United States v. Modern Trash Removal of York, Inc., Civil No.
---------------------------------------------------
92-0819, pending in the United States District Court for the Middle District of
Pennsylvania. The action, brought pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act and the Pennsylvania Hazardous Sites
Cleanup Act, seeks contribution from the Registrant for its alleged share of
past and future costs incurred during the cleanup of the Modern Sanitation
Landfill (the "Landfill") located in Windsor and Lower Windsor Townships, York
County, Pennsylvania. Modern Trash Removal York, Inc., a subsidiary of Waste
Management, Inc., has agreed in principle to defend and to indemnify the
Registrant against any liability the Registrant may have with respect to the
cleanup of the Landfill. The terms of a definitive agreement are currently
being negotiated.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
Not Applicable.
Executive Officers of the Registrant.
- ------------------------------------
Executive Officers Office (a) Age
- ------------------ ------ ---
T. C. Norris Chairman of the Board, 55
President and Chief
Executive Officer and
Director
R. W. Wand Vice President - 54
Administration
R. P. Newcomer Vice President and 45
Treasurer (b)
R. S. Lawrence Vice President - General 54
Manager, Ecusta Division (c)
J. F. Myers Vice President - 55
Manufacturing Technology (d)
8
G. H. Glatfelter II Vice President - General 42
Manager, Glatfelter Paper
Division (e)
C. M. Smith Comptroller (f) 35
R. S. Wood Secretary and 36
Assistant Treasurer (g)
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) Unless otherwise indicated, the offices listed have been held for five or
more years.
(b) Mr. Newcomer became Vice President and Treasurer on May 1, 1993. From June
1, 1989 to April 30, 1993 he was Assistant Comptroller. From January 1,
1988 to May 31, 1989 he was Corporate Manager, Budgets and Financial
Analysis.
(c) Mr. Lawrence became Vice President - General Manager, Ecusta Division on
May 1, 1993. From February 1, 1989 to April 30, 1993 he was Director of
Planning, Acquisitions and Governmental Affairs.
(d) Dr. Myers became Vice President - Manufacturing Technology on April 26,
1989. From April 27, 1988 to April 26, 1989, he was Vice President -
Manufacturing, Glatfelter Paper Division.
(e) Mr. Glatfelter became Vice President - General Manager, Glatfelter Paper
Division on May 1, 1993. From April 1989 until May 1993, he was General
Manager, Glatfelter Paper Division. From April 1988 to April 1989, he was
Assistant to the Chief Executive Officer.
(f) Mr. Smith became Comptroller on May 1, 1993. From December 1990 to May
1993, he was a Financial Analyst. From January 1988 to December 1990, he
was Comptroller for Flagship Cleaning Services, Inc.
(g) Mr. Wood became Secretary and Assistant Treasurer on September 23, 1992.
From December 22, 1987 to September 22, 1992 he was Assistant Secretary and
Assistant Treasurer.
9
PART II
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Item 5. Market for the Registrant's Common Stock and Related Stockholder
- ------ ---------------------------------------------------- -----------
Matters.
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Common Stock Prices and Dividends Paid Information
The table below shows the high and low prices of the Company's common stock on
the American Stock Exchange (Ticker Symbol "GLT") and the dividends paid per
share for each quarter during the past two years. Stock prices and dividends
paid per share have been adjusted to reflect the two-for-one common stock
split effected April 22, 1992.
1993 1992
_________________________________________________________________
_________________________________________________________________
Quarter High Low Dividends High Low Dividends
1st $19 1/8 $16 3/4 $.175 $29 1/2 $26 7/8 $.15
2nd 19 1/2 15 3/4 .175 28 5/8 23 .175
3rd 19 15 3/8 .175 25 1/2 21 1/4 .175
4th 19 1/8 15 1/8 .175 24 3/4 17 3/8 .175
As of December 31, 1993, the Company had 5,030 shareholders of record. A
number of the shareholders of record are nominees.
Item 6. Selected Financial Data.
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Five-Year Summary of Selected Consolidated Financial Data
Year Ended December 31
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
(in thousands except per share amounts)
Net sales $473,509 $540,057 $567,764 $625,429 $598,777
Income before
accounting
changes 20,409(a) 56,544 76,049 88,332 92,864
Income per
common share
before
accounting
changes $ .46(a) $ 1.27 $ 1.67 $ 1.88 $ 1.93
Total assets 842,087(b) 648,464 630,115 598,842 550,015
Debt 150,000 10,100 _ _ 1,100
Cash dividends
declared per
common share $ .70 $ .70 $ .60 $ .575 $ .50
(a) After impact of an after tax charge for 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.
(b) Includes an increase of $61,062,000 for the adoption of Statement of
Financial Accounting Standard No. 109.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ ------------------------------------------------- -------------
Results of Operations.
---------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Liquidity:
During 1993, the primary source of cash and marketable securities was the
Company's issuance of $150,000,000 principal amount of its 5 7/8% Notes.
The Notes will mature on March 1, 1998, and may not be redeemed prior to
maturity. In addition to the proceeds of such issuance, the Company
generated $45,380,000 of cash from operations. These funds were used for,
among other things, capital spending of $112,820,000, the payment of
$30,847,000 in dividends and the retirement of $41,100,000 of short-term
debt, $10,100,000 of which was outstanding as of December 31, 1992. During
1993, the Company's cash and cash equivalents increased by $16,089,000. In
addition, the Company's marketable securities increased by $27,184,000.
The Company expects to meet all its near and long-term cash needs from
internally generated funds, cash, cash equivalents, marketable securities
and bank lines of credit, as discussed in Note 12 of the Notes to
Consolidated Financial Statements, or a combination of these sources.
Capital Resources:
Capital spending in 1993 of $112,820,000 was $22,504,000 higher than in
1992, due primarily to the Company's pulpmill modernization project at its
Spring Grove mill. Capital spending in 1994 is expected to decrease
significantly from 1993 due to the completion of the pulpmill modernization
project, offset somewhat by an estimated $15,000,000 of cash
expenditures related to the purchase and installation of a new turbine
generator. The new turbine generator is expected to be operational in the
first quarter of 1995 at a total cost in excess of $20,000,000.
10
Results of Operations
The Company classifies its sales into two product groups: 1) printing
papers; and 2) tobacco and other specialty papers. Significant production
capacity increases have occurred in the printing paper industry in 1991,
1992 and 1993. As a result, printing paper prices were down slightly in
1993 compared to 1992. The Company's printing paper volume was up slightly
in 1993, as printing paper volume gains at the Pisgah Forest mill offset
volume decreases at the Neenah mill.
The trend of declining domestic tobacco consumption continued in 1993, with
no change in the trend expected. On October 29, 1992, Philip Morris
Companies, Inc. informed the Company that, effective January 1, 1993, it
would cease to make purchases from the Company for its domestic tobacco
operations. Sales to this customer in 1992 were 7.5% of total sales for the
year. The Company's dollar amount of sales of tobacco paper products direct
to foreign tobacco product manufacturers declined in 1993 as a result of
sharply lower unit prices due to increased foreign competition.
Most of the Company's printing paper sales are directed at the uncoated
free-sheet segment of the industry. Industry uncoated free-sheet capacity
is expected to increase in the first quarter of 1994. Industry operating
rates should improve, particularly in the latter half of the year once the
new capacity is absorbed by the market. Product pricing is expected to be
relatively flat compared to 1993, with any significant improvements not
anticipated until the third or fourth quarter. Profit from operations for
the Spring Grove and Neenah mills is expected to decline modestly in 1994
as a result of unchanged selling prices and increases in wood costs, pulp
costs, depreciation, salaries, wages and other manufacturing costs.
During 1993, the Company succeeded in redirecting the lost Philip Morris
product volume to printing paper customers. These sales were not as
profitable as sales to Philip Morris were in 1992. In addition, due to
increased competitive pressure and cost-cutting measures within the tobacco
industry, sales to remaining tobacco customers in 1993 were less profitable
than in 1992. As a result, the 1993 profit performance of the Company's
Pisgah Forest mill was sharply below that of 1992. The Company continues
its efforts to maximize utilization of its Pisgah Forest mill assets by
attempting to direct sales volume to its most profitable grades and by
controlling costs. Even with these efforts, the 1994 profit performance of
the Pisgah Forest mill is not expected to improve over that of 1993.
Effective January 1, 1993, the Company adopted the provisions of Statements
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pension" ("SFAS No. 106"), No. 109
"Accounting for Income Taxes" ("SFAS No. 109"), and No. 112 "Employers'
Accounting for Postemployment Benefits" ("SFAS No. 112"). The combined 1993
net of tax charge due to the adoption of these standards was approximately
$4.2 million, or $.09 per common share. Note 1(h) of the Notes to
Consolidated Financial Statements further describes the expected effects of
implementing these Standards.
During 1993, the Company incurred net unusual charges of $13,229,000, or $.19
per common share, due to rightsizing and restructuring costs of $16,363,000,
partially offset by a gain of $1,492,000 on the disposal of its Ecusta
Division's airplane and a credit of $1,642,000 resulting from the updating of
estimates relating to SFAS No. 106, subsequent to its adoption on January 1,
1993. The rightsizing and restructuring costs include provisions for the costs
of early retirements and other terminations in 1993 and other one-time net
costs relating to the rightsizing and restructuring of the Company's
operations.
During 1993, the Company's inventory level increased approximately
$10,500,000. This increase was primarily due to an increase in the
Company's finished goods inventory. This increase was the result of
increased stocking levels to meet customer demand, primarily in the
financial printing market. The Company also purchased a large quantity of
pulp near the end of 1993 at an attractively low price. This purchase also
resulted in an increase in the Company's accounts payable balance at
December 31, 1993.
1993 Compared to 1992
Net sales in 1993 decreased $66,548,000 from 1992 with lower tobacco paper
sales accounting for 94% of this decrease. Tobacco paper sales were
adversely impacted by the loss of the Philip Morris domestic tobacco paper
business. Increased competitive pressure and cost-cutting measures taken by
the remaining domestic and foreign customers resulted in lower unit prices
and lower revenues.
Profit from operations, before restructuring charges, accounting changes,
interest income and expense and taxes, was $48,563,000 compared to
$90,302,000 in 1992, a decrease of 46.2%.
The Company's Pisgah Forest mill showed a decline in profits from
operations of $29,018,000 in 1993 compared to 1992. Net sales decreased
$47,707,000 for the reasons noted above.
Profit from operations at the Neenah mill showed a decline of $6,997,000 in
1993 compared to 1992. Net sales declined $8,651,000 in 1993 due primarily
to lower sales volume.
The Spring Grove mill had a decrease in its profits from operations of
$5,724,000 in 1993 compared to 1992. Net sales were $10,190,000 lower in
1993. The Spring Grove mill had a 4% decrease in average net selling price,
primarily as a result of less favorable product mix.
Selling, administrative and general expenses decreased $3,728,000 in 1993,
$3,640,000 of which was the result of lower management incentive bonuses
and profit sharing expenses.
Net interest income increased by $2,414,000 in 1993 due to increased cash
available for investment as a result of the $150,000,000 debt issuance.
Interest on debt increased by $2,824,000, net of an increase in capitalized
interest of $4,050,000.
1992 Compared to 1991
Net sales in 1992 decreased $27,707,000 from 1991. Lower printing paper
sales accounted for 60% of this decrease with lower sales of tobacco and
other specialty papers accounting for the balance. Higher unit sales were
more than offset by lower unit prices and unfavorable mix changes within
both product categories.
In 1992, profit from operations, before net interest income and income
taxes, was $90,302,000 compared to $120,912,000 in 1991, a decrease of
25.3%.
The Company's Pisgah Forest mill showed a decline in profit from operations
of $12,278,000 in 1992 compared to 1991. Net sales declined $12,814,000 as
a result of a less favorable mix of product sales and lower international
and domestic tobacco paper sales.
Profit from operations at the Neenah mill showed a decline of $9,999,000 in
1992. Net sales declined $9,187,000 in 1992 due mainly to lower unit prices
as volume was virtually the same.
The Spring Grove mill had a decrease in its profits from operations of
$8,333,000 in 1992. Net sales were $5,706,000 lower in 1992. Volume increased
by 2.1% in 1992, but lower unit prices and a less favorable product mix more
than offset the increased volume. Increases in salaries, wages, depreciation
and other manufacturing costs were also contributing factors.
Selling, administrative and general expenses decreased by $6,999,000 in
1992; $4,406,000 of which was the result of lower management incentive
11
bonus and profit sharing expenses. The balance was as a result of the
Company's ongoing cost control measures.
Net interest income declined by $1,814,000 in 1992 due to reduced
investment in interest-bearing securities and lower interest rates.
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 can be maintained through an
increase in selling prices.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
Consolidated Statements of Income and Retained Earnings
P. H. Glatfelter Company and subsidiaries
For the Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
--------- -------- --------
(in thousands except
per share amounts)
NET SALES $473,509 $540,057 $567,764
OTHER INCOME:
Interest on investments and other - net 2,873 459 2,273
Energy sales - net 5,602 5,870 6,236
Gain from property dispositions, etc. - net 21 1,453 727
--------- -------- --------
Total 482,005 547,839 577,000
--------- -------- --------
COSTS AND EXPENSES:
Cost of products sold 399,252 422,033 411,771
Selling, administrative and general expenses 31,317 35,045 42,044
Interest on debt (Notes 1(g)and 12) 2,824 -
--------- -------- --------
433,393 457,078 453,815
Unusual items (Note 2) 13,229 - -
--------- -------- --------
Total costs and expenses 446,622 457,078 453,815
--------- -------- --------
INCOME BEFORE INCOME TAXES
AND ACCOUNTING CHANGES 35,383 90,761 123,185
--------- -------- --------
INCOME TAXES (Note 8):
Current 8,167 24,536 43,801
Deferred 3,220 9,681 3,335
Impact of federal tax rate change 3,587 - -
--------- -------- --------
Total 14,974 34,217 47,136
--------- -------- --------
INCOME BEFORE ACCOUNTING CHANGES 20,409 56,544 76,049
ACCOUNTING CHANGES (Note 1(h)) (4,193) - -
--------- -------- --------
NET INCOME 16,216 56,544 76,049
RETAINED EARNINGS AT BEGINNING OF YEAR 560,388 534,755 485,711
--------- -------- --------
Total 576,604 591,299 561,760
CASH DIVIDENDS DECLARED:
Common stock (per share: 1993, $.70; 1992, $.70;
1991, $.60) and preferred stock (Note 3) 30,834 30,911 27,005
--------- -------- --------
RETAINED EARNINGS AT END OF YEAR $545,770 $560,388 $534,755
========= ======== ========
INCOME PER COMMON SHARE (Notes 1(b) and 3):
Income before accounting changes $ .46 $ 1.27 $ 1.67
Impact of accounting changes (.09) - -
--------- -------- --------
Net income $ .37 $ 1.27 $ 1.67
========= ======== ========
See notes to consolidated financial statements.
Consolidated Balance Sheets
P. H. Glatfelter Company and subsidiaries
December 31, 1993 and 1992
ASSETS
1993 1992
---------- ----------
(in thousands)
CURRENT ASSETS:
Cash and cash equivalents (Note 1(c)) $ 19,182 $ 3,093
Marketable securities (Notes 1(c) and 12) 27,184 -
Accounts receivable (less allowance for
doubtful accounts -
1993, $1,838,000; 1992, $890,000) 34,340 38,540
Inventories (Note 1(d)) 98,930 88,423
Prepaid expenses 1,305 471
---------- ----------
Total current assets 180,941 130,527
---------- ----------
PLANT, EQUIPMENT AND TIMBERLANDS AT COST (Notes 1(e), 1(g) and 9):
Land and buildings 94,330 82,764
Machinery and equipment 626,322 542,915
Other 26,234 27,563
Less accumulated depreciation (296,925) (265,264)
---------- ----------
Total 449,961 387,978
Construction in progress 154,545 82,403
Timberlands, less depletion 16,607 16,389
---------- ----------
Plant, equipment and timberlands - net 621,113 486,770
---------- ----------
OTHER ASSETS (Note 6) 40,033 31,167
---------- ----------
Total $ 842,087 $ 648,464
========== ==========
LIABILITIES
1993 1992
---------- ----------
(in thousands)
CURRENT LIABILITIES:
Short-term bank borrowings (Note 12) $ - $ 10,100
Accounts payable 39,935 33,430
Dividends payable 7,698 7,711
Federal, state and local taxes 4,872 8,275
Accrued compensation, other expenses
and deferred income taxes 28,972 26,335
---------- ----------
Total current liabilities 81,477 85,851
---------- ----------
LONG-TERM DEBT (Note 12) 150,000 -
DEFERRED INCOME TAXES (Notes 1(f), 1(h) and 8) 130,509 89,269
12
OTHER LONG-TERM LIABILITIES (Notes 5 and 7) 38,701 16,295
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
SHAREHOLDERS' EQUITY (Notes 3, 4 and 5):
Capital Stock:
4 5/8 % preferred - 250
Common, $.01 par value; authorized - 120,000,000
shares; issued (including shares in treasury:
1993, 10,374,652; 1992, 10,304,707) -
54,361,980 shares 544 544
Capital in excess of par value 39,323 38,633
Retained earnings 545,770 560,388
---------- ----------
Total 585,637 599,815
Less cost of common and preferred
stock in treasury (144,237) (142,766)
---------- ----------
Shareholders' equity 441,400 457,049
---------- ----------
Total $ 842,087 $ 648,464
========== ==========
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
P. H. Glatfelter Company and subsidiaries
For the Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
---- ---- ----
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $16,216 $56,544 $76,049
Accounting changes 4,193 - -
Items included in net income not using (providing) cash:
Depreciation and depletion 38,132 31,893 30,694
Expense related to employee stock
purchase plans 855 879 800
(Gain) loss on disposition
of fixed assets (541) (172) 518
Changes in assets and liabilities:
Accounts receivable 4,200 4,237 7,038
Inventories (10,507) 769 (3,176)
Other assets and prepaid expenses (10,919) (8,074) (3,774)
Accounts payable, accrued compensation, other expenses,
deferred income taxes and other
long-term liabilities 7,057 (8,535) 294
Federal, state and local taxes (3,403) (5,751) (1,601)
Deferred income taxes - noncurrent 97 9,682 3,363
------- ------- -------
Net cash provided by
operating activities 45,380 81,472 110,205
CASH FLOWS FROM INVESTING ACTIVITIES: ------- ------- -------
Purchase of marketable securities - net (27,184) - -
Proceeds from disposal of fixed assets 1,841 1,213 256
Additions to plant, equipment
and timberlands (112,820) (90,316) (46,582)
Increase (decrease) in liabilities
related to fixed asset acquisitions 1,705 3,294 (5,201)
------- ------- -------
Net cash used in investing activities (136,458) (85,809) (51,527)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt issuance 150,000 - -
Borrowing (repayment) of short-term debt (10,100) 10,100 -
Dividends paid (30,847) (29,896) (27,087)
Purchases of common and preferred stock (4,281) (19,683) (17,305)
Employees' contribution - common stock
issued under employee stock purchase plans 2,395 2,149 1,925
------- ------- -------
Net cash provided by (used in)
financing activities 107,167 (37,330) (42,467)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents 16,089 (41,667) 16,211
CASH AND CASH EQUIVALENTS:
At beginning of year 3,093 44,760 28,549
------- ------- -------
At end of year $19,182 $ 3,093 $44,760
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid For:
Interest (net of amount capitalized) $ 155 $ - $ -
Income taxes 11,716 30,354 45,446
======= ======= =======
See notes to consolidated financial statements.
1. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accounts of the Company, and its wholly-owned, significant
subsidiaries, are included in the consolidated financial statements. All
intercompany transactions have been eliminated. Certain reclassifications
have been made of previously reported amounts in order to conform with
classifications used in the current year.
(b) Earnings per Share
Net income 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 5) outstanding during each year.
The 1993 net income per share of common stock of $.37, as presented in the
Consolidated Statements of Income and Retained Earnings, appropriately
reflects the negative impact of rightsizing and restructuring charges (Note
2), adopting certain Statements of Financial Accounting Standards (Note
1(h)) and the increase in the federal corporate income tax rate from 34% to
35% (Note 8). The 1993 net income per share of common stock, exclusive of
these items, would have been $.73. A reconciliation of these amounts
follows:
Net income per share of common
stock reported $ .37
After tax impact of:
Rightsizing and restructuring charges .19
Accounting changes .09
Increase in federal corporate income tax rate .08
-------
Net income per share of common stock
exclusive of the above items $ .73
=======
13
(c) Cash Equivalents and Investments
The Company considers all highly liquid financial instruments with
effective maturities at date of purchase of three months or less to be cash
equivalents. Highly liquid financial instruments with maturities in excess
of three months but which the Company considers available for sale are
classified as marketable securities on the Company's Consolidated Balance
Sheets.
Effective January 1, 1994, the Company changed its accounting for
investments in debt and equity securities to conform to Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS No. 115"). All of the Company's
securities are either "available for sale" or "held to maturity" as defined
by SFAS No. 115. As noted in Note 1(i), the Company's marketable securities
approximate fair value. The adoption of this standard is not expected to
have a material impact on the Company's Consolidated Balance Sheets or
Consolidated Statements of Income and Retained Earnings.
(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 as follows:
1993 1992 1991
---- ---- ----
(in thousands)
Raw materials $37,340 $32,473 $29,329
In-process
and finished 33,503 28,039 33,133
Supplies 28,087 27,911 26,730
------- ------- -------
Total $98,930 $88,423 $89,192
======= ======= =======
If the Company had valued all inventories using the average cost method,
inventories would have been $2,141,000 lower than reported at December 31,
1993, and $1,105,000 and $3,168,000 greater than reported at December 31,
1992 and 1991, respectively. Net income would not have been significantly
different than that reported.
At December 31, 1993, the value of the above inventories exceeded
inventories for income tax purposes by approximately $27,000,000.
(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.
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.
(f) Income Tax Accounting
Effective January 1, 1993, the Company changed its policy of accounting for
income taxes to conform to Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS No. 109") (Note 8). The Company
previously followed Accounting Principles Board Opinion No. 11, "Accounting
for Income Taxes". 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.
(g) Interest Expense Capitalized
The Company capitalizes interest expense incurred in connection with
qualified additions to property. The Company capitalized $4,138,000 and
$88,000 of interest in 1993 and 1992, respectively. No interest was
capitalized in 1991.
(h) Accounting Changes for Statements of Financial
Accounting Standards
Effective January 1, 1993, the Company adopted the provisions of Statements
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS No. 106"), No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS No. 112"), and
No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). The cumulative
effect of the accounting changes, net of tax charges (credits) due to the
adoption of these Standards, is as follows:
SFAS No. 106 $ 12,850,000
SFAS No. 112 1,967,000
SFAS No. 109 (10,624,000)
------------
$ 4,193,000
============
SFAS No. 106 requires recognition of the cost of retiree health and
insurance benefits during an employee's active service. The cumulative
effect, as of January 1, 1993, of the adoption of SFAS No. 106 was a
one-time charge for postretirement health care costs of $20,900,000 which,
after deferred income tax benefits of $8,050,000, resulted in a 1993 first
quarter net charge of $12,850,000.
The Company had previously recognized the cost of postretirement benefits
in the period benefits were paid. The effect of this change in accounting
for the year ended December 31, 1993 was an additional pre-tax expense of
approximately $770,000. The postretirement expense for the years ended
December 31, 1992 and 1991 were approximately $1,320,000 and $1,358,000,
respectively.
The pro forma effect on operations of this change for the years ended
December 31, 1992 and 1991 would have been an additional pre-tax expense of
approximately $855,000 and $647,000, respectively.
SFAS No. 112 requires employers to recognize the obligation to provide
postemployment benefits under certain conditions. Such benefits, relating
primarily to disability-related benefits, were not previously recognized by
the Company until paid. The cumulative effect as of January 1, 1993 of the
adoption of SFAS No. 112 was a provision for accrued postemployment
benefits of $3,201,000 which, after deferred income tax benefits of
$1,234,000, resulted in a 1993 first quarter net charge of $1,967,000. The
pro forma effect on operations of this change for the years ended December
31, 1992 and 1991 would not have been significant.
SFAS No. 109 requires a remeasurement of the Company's Ecusta Division
acquisition which results in an increase in the fair value of the acquired
assets and the establishment of a deferred income tax liability for the
difference between the book and tax values of such assets. The adoption of
SFAS No. 109 also resulted in a reversal of deferred income taxes provided
during years when the effective income tax rates were higher than those
currently in effect. The cumulative effect of these changes was an increase
in plant and equipment of approximately $61,062,000; an increase in
deferred income taxes of approximately $50,438,000; and a credit to
operations as a cumulative effect of the change in method of accounting for
income taxes of approximately $10,624,000. The pro forma effect on
14
operations of this change for the years ended December 31, 1992 and 1991,
would not have been significant.
(i) Fair Market Value of Financial Instruments
In 1993, the Company adopted SFAS 107, "Disclosures About Fair Value of
Financial Instruments". This Statement requires that fair values be
disclosed for most of the Company's financial instruments. The amounts
reported in the Consolidated Balance Sheets for cash and cash equivalents,
marketable securities, trade receivables, certain other current assets and
long-term debt approximate fair value.
2. Rightsizing and Restructuring (Unusual Items)
During 1993, the Company incurred net pre-tax unusual charges of
$13,229,000, including rightsizing and restructuring costs of $16,363,000,
partially offset by a gain of $1,492,000 on the disposal of its Ecusta
Division's airplane and a credit of $1,642,000 resulting from the updating
of estimates relating to SFAS No. 106, subsequent to its adoption on
January 1, 1993. The rightsizing and restructuring costs include provisions
for the costs of early retirements and other terminations in 1993 and other
one-time net costs relating to the rightsizing and restructuring of the
Company's operations. The after tax impact of these charges was $8,430,000,
or $.19 per common share.
3. Capital Stock
A summary of the number of shares of common stock outstanding follows:
1993 1992 1991
---- ---- ----
Balance at
beginning of year 44,057,273 44,629,402 45,174,890
Delivery of
treasury shares:
Restricted
common stock
award plan
(Note 5) - 62,256 -
Employee stock
purchase plans 186,955 131,471 101,512
Purchase of stock
for treasury (256,900) (765,856) (647,000)
---------- ---------- ----------
Balance at
end of year 43,987,328 44,057,273 44,629,402
========== ========== ==========
Under the employee stock purchase plans, eligible 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, and the Company
will contribute, as specified in the plans, amounts up to 50% of the
employee's contribution but not more than 3% of the employee's
compensation, as defined.
On September 22, 1993, the Company's Board of Directors called for the
redemption of all 3,147 outstanding shares of 4 5/8 % preferred stock. The
preferred shares were redeemed on October 27, 1993 for $50.75 per share.
The redeemed shares of preferred stock and all shares of preferred stock
held in treasury were cancelled on October 27, 1993. At December 31, 1993,
the Company had 40,000 shares of preferred stock which are authorized but
not issued. A summary of preferred stock follows:
Cost of
Shares Treasury Treasury
Issued Shares Stock
------ ------ -----
(in thousands)
December 31, 1991 6,000 2,793 $ 85
1992 5,000 1,813 54
1993 - - -
4. Capital in Excess of Par Value
A summary of changes in capital in excess of par value follows:
1993 1992 1991
---- ---- ----
(in thousands)
Balance at
beginning of year $ 38,633 $ 37,758 $ 36,267
Two-for-one
common stock split - (272) -
Deficiency
of compensation value
net of tax benefits
under average cost
of treasury shares
delivered under restricted
common stock award
plan (Note 5 ) - (96) -
Excess of market value
over average cost of
treasury shares
delivered under
employee stock
purchase plans 656 1,225 1,473
Excess of par value
over cost of preferred
shares redeemed 34 18 18
--------- ---------- ---------
Balance at
end of year $ 39,323 $ 38,633 $ 37,758
========= ========== =========
5. Key Employee Long-Term Incentive Plan and Restricted Common Stock Award
Plan
On April 22, 1992, the common shareholders approved the 1992 Key Employee
Long-Term Incentive Plan which authorizes the issuance of up to 3,000,000
shares of the Company's common stock to eligible participants. The 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, 1993, the Company granted to certain key employees non-qualified
stock options to purchase an aggregate of up to 940,000 shares of common
stock. Subject to certain conditions, beginning on January 1, 1994, the
stock options are exercisable for 25% of such common stock and for an
additional 25% of such common stock beginning on January 1 of each of the
next three years. The stock options, which expire on April 30, 2003, were
granted at an exercise price of approximately $18 per share, representing
the average of the fair market values of the Company's common stock on
April 30, 1993 and May 3, 1993.
During 1988 and 1991, 755,000 and 76,000 shares, respectively, were awarded
under the 1988 Plan. Awarded shares will be subject to forfeiture, in whole
15
or in part, if the recipient ceases to be an employee within a specified
period of time. Compensation expense equal to the 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 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 market value of the shares that
would otherwise be required to be delivered. In conjunction with the Company's
rightsizing and restructuring, the vesting dates were accelerated to 1993 for
120,000 shares and to 1994 for 28,000 shares.
In 1993, under the 1988 Plan, in lieu of delivering 271,000 shares, the
Company elected to pay in cash an amount equal to market value of such
shares. On May 1, 1992, 62,256 shares were delivered from treasury (after
reduction of 33,744 shares for taxes). On December 1, 1992, the Company
paid cash in lieu of delivering 26,000 shares. In 1991, the Company paid
cash in lieu of delivering 36,000 shares. Shares awarded under the 1988
Plan cease to be subject to forfeiture as follows: 52,000 in 1994, 182,000
in 1996, and 20,000 in each of 1997, 1998, and 1999.
6. Pension Plans
The Company and its subsidiaries have trusteed, noncontributory 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 $4,205,000,
$2,760,000, and $1,868,000 was recognized in 1993, 1992 and 1991,
respectively.
As discussed in Note 2, during 1993, the Company incurred rightsizing and
restructuring costs, including provisions for the costs of termination
benefits. In accordance with Statement of Financial Accounting Standards
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits", the Company recognized
a charge of $7,978,000 related to early retirement termination benefits.
The following table sets forth the status of the Company's plans at
December 31, 1993 and 1992:
1993 1992
---- ----
Overfunded Underfunded Overfunded Underfunded
Plans Plans Plans Plans
---------- ----------- ---------- -----------
(in thousands)
Actuarial present value of
accumulated benefit
obligation:
Vested employees $(112,271) $ (10,750) $ (77,852) $ (21,856)
Nonvested employees (6,427) (559) (777) (1,280)
--------- --------- --------- ---------
Total $(118,698) $ (11,309) $ (78,629) $ (23,136)
========= ========= ========= =========
Projected benefit
obligation for services
rendered to date $(135,764) $ (12,296) $ (96,896) $ (24,249)
Plan assets at fair value
(primarily stocks,
bonds and cash equivalents) 230,436 - 194,197 13,561
--------- --------- --------- ---------
Plan assets in excess of
(less than)
projected benefit
obligation 94,672 (12,296) 97,301 (10,688)
Unrecognized net (gain)
loss from past
experience different
from that assumed (45,704) 1,481 (47,259) 55
Unrecognized prior
service cost 10,789 33 3,906 3,323
Unrecognized net (asset)
liability at January 1 (21,240) 3,464 (23,634) 3,857
--------- --------- --------- ---------
Prepaid (accrued) pension
cost $ 38,517 $ (7,318) $ 30,314 $ (3,453)
========= ========= ========= =========
Net pension income, excluding unusual charges, includes the following
components (in thousands):
1993 1992 1991
---- ---- ----
Service cost - benefits earned
during period $ (3,462) $ (3,795) $ (3,682)
Interest cost on projected
benefit obligation (9,529) (8,370) (7,864)
Actual return on plan assets 21,938 19,486 40,307
Net amortization and (deferral) (4,742) (4,561) (26,893)
-------- -------- ----------
Net pension income $ 4,205 $ 2,760 $ 1,868
======== ========= ==========
The assumed rates of discount, increase in long-term compensation levels
and expected long-term return on assets were 7.0%, 3.5% and 8.5%,
respectively, in 1993 and 7.5%, 3.5% and 8.0%, respectively, in 1992 and
1991.
7. 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 supplemental premium payments to
retirees over age 65 to help defray the costs of Medicare. As discussed in
Note 1(h), the Company adopted SFAS No. 106, effective January 1, 1993. The
plan is not funded; claims are paid as incurred.
The following table sets forth the plan's status as of December 31, 1993:
Accumulated postretirement
benefit obligation: (in thousands)
Retirees $ 9,978
Fully eligible active plan participants 3,770
Other active plan participants 11,254
---------
Accumulated postretirement
benefit obligation 25,002
Unrecognized net loss (2,384)
---------
Accrued postretirement benefit cost $ 22,618
=========
Net periodic postretirement benefit cost for 1993
included the following components:
16
(in thousands)
Service cost $ 586
Interest on accumulated
benefit obligation 1,587
---------
Net periodic postretirement
benefit cost $ 2,173
=========
The Company assumes an increase in the annual rate of per capita cost of
covered health benefits of 11.0% for 1994 decreasing by approximately 1%
per year to 5.5% in 2000. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation is 7.0%. An
increase in the assumed health care cost trend rate of 1% for each year
would increase the December 31, 1993 accumulated postretirement benefit
obligation by approximately $1,820,000 and the net periodic postretirement
benefit cost by approximately $215,000.
8. Income Taxes
As discussed in Note 1(f), effective January 1, 1993, the Company adopted
SFAS No. 109. Under SFAS No. 109, 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 financial statements or
tax returns. The effects of income taxes are measured based on effective
tax law and rates.
During 1993, federal tax legislation was enacted that significantly changed
the Company's 1993 income tax provisions. The principal provision of the
new law affecting the Company is an increase in the federal corporate
income tax rate from 34% to 35%. Taxes currently payable and deferred tax
liabilities increased by $226,000 and $3,361,000, respectively, as a result of
the new law. As a result, income tax expense from continuing operations for
the year was increased by $3,587,000, causing a reduction in net income by the
same amount and a reduction in earnings per share of $.08.
Set forth below are the domestic and foreign components of income before
income taxes and accounting changes:
1993 1992 1991
---- ---- ----
(in thousands)
United States $ 33,388 $ 86,405 $ 117,286
Foreign 1,995 4,356 5,899
-------- -------- ---------
Total pretax income $ 35,383 $ 90,761 $ 123,185
======== ======== =========
The income tax provision consists of the following:
1993 1992 1991
---- ---- ----
Current: (in thousands)
Federal $ 6,423 $ 19,688 $ 35,202
State 1,060 4,064 7,718
Foreign 684 784 881
-------- -------- ---------
Total current
tax provision $ 8,167 $ 24,536 $ 43,801
-------- -------- ---------
Deferred:
Federal $ 2,583 $ 8,657 $ 2,899
State 762 1,145 413
Foreign (125) (121) 23
-------- -------- ---------
Total deferred
tax provision $ 3,220 $ 9,681 $ 3,335
-------- -------- ---------
Impact of federal
tax rate change 3,587 - -
-------- -------- ---------
Total income tax provision $ 14,974 $ 34,217 $ 47,136
======== ======== =========
The net deferred tax amounts reported on the Company's Consolidated Balance
Sheet at December 31, 1993 are as follows:
Federal State Foreign Total
------- ----- ------- -----
(in thousands)
Current liability $ 5,555 $ 713 $ - $ 6,268
Long-term liability 114,752 14,720 1,037 130,509
Following are components of the net deferred tax balance at December 31,
1993:
Federal State Foreign Total
------- ----- ------- -----
(in thousands)
Deferred tax assets:
Current $ 3,791 $ 486 $ - $ 4,277
Long-term 13,877 1,781 - 15,658
-------- ------- ------- --------
$ 17,668 $ 2,267 $ - $ 19,935
======== ======= ======= ========
Deferred tax liabilities:
Current $ 9,346 $ 1,199 $ - $ 10,545
Long-term 128,629 16,501 1,037 146,167
-------- ------- ------- --------
$137,975 $17,700 $ 1,037 $156,712
======== ======= ======= ========
The tax effects of temporary differences at December 31, 1993 are as
follows:
Deferred tax assets: (in thousands)
Reserves $ 3,710
Compensation 5,697
Postretirement pension benefits 8,258
Postretirement healthcare benefits 1,264
Other 1,006
--------
$ 19,935
========
Deferred tax liabilities:
Property $131,667
Pension 11,069
Inventories 10,132
Other 3,844
--------
$156,712
========
A reconciliation between the provision for income taxes, computed by
applying the statutory federal income tax rate of 35% for 1993, and 34% for
1992 and 1991, to income before income taxes, and the actual provision for
17
income taxes follows:
1993 1992 1991
---- ---- ----
(in thousands)
Federal income tax provision
at statutory rate $ 12,384 $ 30,859 $ 41,883
State income taxes, net of
federal income tax benefit 1,156 3,864 5,705
Tax effect of non-deductible
depreciation - Ecusta property - 1,979 1,952
Tax effect of exempt earnings
of foreign sales corporation (218) (568) (825)
SFAS No. 109 impact of rate increase 2,977 -
Other, including tax-exempt interest (1,325) (1,917) (1,579)
--------- --------- ---------
Actual provision for income taxes $ 14,974 $ 34,217 $ 47,136
========= ========= =========
9. Commitments and Contingencies
In order to meet environmental requirements, the Company has undertaken
certain projects, the most significant of which relates to the
modernization of the Spring Grove pulpmill. The related construction cost
for all of these projects, based on presently available information, is
estimated to be $34 million in 1994 and $7 million in 1995, including
approximately $31 million in 1994 for the pulpmill modernization project.
The pulpmill modernization project began in 1990 and is expected to be
completed in 1994. The total cost of the project is expected to be $170
million (exclusive of capitalized interest) of which $20 million was
expended through 1991, $48 million in 1992 and $71 million in 1993.
On October 29, 1992, Philip Morris Companies, Inc. informed the Company
that, effective January 1, 1993, it would cease to make purchases from the
Company for its domestic tobacco operations. Sales to this customer in 1992
were 7.5% of total sales for the year. During 1993, the Company succeeded
in redirecting the lost Philip Morris product volume to printing paper
customers. These sales were not as profitable as sales to Philip Morris in
1992. In addition, due to increased competitive pressure and cost-cutting
measures within the tobacco industry, sales to remaining tobacco paper
customers in 1993 were less profitable than in 1992. As a result, the 1993
profit performance of the Company's Pisgah Forest mill was sharply below
that of 1992. The Company continues its efforts to maximize utilization of
its Pisgah Forest mill assets by attempting to direct sales volume to its
most profitable grades and by controlling costs. Even with these efforts,
the 1994 profit performance of the Pisgah Forest mill is not expected to
improve over that of 1993.
10. Legal Proceedings
The Company is involved in lawsuits and administrative proceedings under
the environmental protection laws and various lawsuits pertaining to other
matters. Although the ultimate outcome of these matters cannot be predicted
with certainty, the Company's management, after consultation with legal
counsel, does not expect that they will have a material adverse effect on the
Company's financial position or results of operations.
11. Foreign Sales
Net sales in dollars to foreign customers were 8.1%, 9.0% and 10.6% of total
net sales in 1993, 1992, and 1991, respectively.
12. Borrowings
The Company has available lines of credit from two different banks
aggregating $70,000,000 at interest rates approximating money market rates.
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 notational principal amount of $50,000,000. Under the
agreement, the Company receives a fixed rate of 5 7/8 % and pays a floating
rate, as determined at six-month intervals. The floating rate is 4.0375%
for the six-month period ending March 1, 1994. The agreement converts a
portion of the Company's debt obligation from a fixed rate to a floating
rate basis. During 1993, the Company recognized $2,448,000 of interest
income and $1,677,000 of interest expense, resulting in a net credit of
$771,000. This net amount is included in "Interest on debt" on the
Company's Consolidated Statements of Income and Retained Earnings. The
Company has pledged $2,500,000 of its marketable securities as security
under the swap agreement.
The Company has approximately $9,500,000 of letters of credit outstanding
as of December 31, 1993. 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.
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, 1993 and 1992, and
the related consolidated statements of income and retained earnings, and
cash flows for each of the three years in the period ended December 31,
1993. Our audits also included the financial statement schedules listed in the
Index at Item 14. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial statement
schedules 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, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 1(h) to the consolidated financial statements, the
Company changed its method of accounting for income taxes, postretirement
benefits other than pensions and postemployment benefits as of January 1,
1993.
Deloitte & Touche
Philadelphia, Pennsylvania
February 11, 1994
18
QUARTERLY FINANCIAL DATA
Income Before Income Per
Net Sales Gross Profit Accounting Changes Common Share
In Thousands In Thousands In Thousands Before Accounting
Changes
1993 1992 1993 1992 1993 1992 1993 1992
---- ---- ---- ---- ---- ---- ---- ----
First $122,529 $138,653 $19,985 $31,982 $(199)(b) $14,932 $(.01)(b) $ .33%(a)
Second 122,351 138,913 21,207 32,367 9,335 15,447 .21 .35
Third 116,270 133,437 16,423 25,951 2,879(c) 11,932 .07(c) .27
Fourth 112,359 129,054 16,642 27,724 8,394 14,233 .19 .32
-------- -------- ------- -------- ------- ------- ----- -----
Total $473,509 $540,057 $74,257 $118,024 $20,409(d) $56,544 $.46(d) $1.27
======== ======== ======= ======== ======= ======= ===== =====
(a) Adjusted for two-for-one common stock split effected April 22, 1992.
(b) After impact of an after tax charge for unusual items of $8,430,000 or $.19
per share.
(c) After impact of the effect of an increased federal corporate income tax
rate of $3,472,000 or $.08 per share.
(d) After impact of an after tax charge for 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.
19
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 1 through 3 of the
Registrant's Proxy Statement dated March 17, 1994.
(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 5 through 12 of the Registrant's Proxy Statement dated March
17, 1994.
20
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
The information required under this item is incorporated herein by
reference to pages 13 through 15 of the Registrant's Proxy Statement dated March
17, 1994.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
The information required under this item is incorporated herein by
reference to page 12 of the Registrant's Proxy Statement dated March 17, 1994.
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 and Retained
Earnings for the Years Ended December 31, 1993,
1992 and 1991
Consolidated Balance Sheets, December 31, 1993
and 1992
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements for
the Years Ended December 31, 1993, 1992 and
1991
B. Supplementary Data for each of the three years in the
period ended December 31, 1993.
2. Financial Statement Schedules (Consolidated):
For Each of the Three Years in the Period Ended December 31,
1993:
V - Plant, Equipment, and Timberlands
VI - Reserves for Depreciation of Plant and Equipment
IX - Short-term Borrowings
Schedules other than those listed above are omitted because of the
absence of conditions under which they
21
are required or because the required information is included in the
Notes to the Consolidated Financial Statements.
Individual financial statements of the Registrant are not presented
inasmuch as the Registrant is primarily an operating company and its
consolidated subsidiaries are wholly-owned.
3. Executive Compensation Plans and Arrangements: see Exhibits 10(a)
through 10(h), described below.
Exhibits:
Number Description of Documents
- ------ ------------------------
(3)(a) Articles of Amendment dated April 27, 1977, including restated
Articles of Incorporation, as amended by Articles of Merger dated
January 30, 1979, by Articles of Amendment dated April 25, 1984
(incorporated by reference to Exhibit (3) of Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1984) and 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 May
12, 1980; a Statement of Reduction of Authorized Shares dated
September 23, 1981; a Statement of Reduction of Authorized Shares
dated August 2, 1982; a Statement of Reduction of Authorized
Shares dated July 29, 1983; 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); 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
22
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); and 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).
(3)(b) Articles of Amendment dated July 30, 1993 and dated January 26,
1994.
(3)(c) Articles of Incorporation, as amended through January 26, 1994
(restated for the purpose of filing on EDGAR).
(3)(d) By-Laws as amended through March 16, 1994.
(4)(a) Indenture between P. H. Glatfelter Company and Wachovia Bank of
Georgia, N.A. as Trustee dated as of January 15, 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).
(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 Plans, effective
January 1, 1982, as amended and restated effective January 1,
1994.
(10)(b) P. H. Glatfelter Company Management Incentive Plans, Operating
Rules, as revised through February 18, 1994.
23
(10)(c) 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)(d) P. H. Glatfelter Company Supplemental Executive Retirement Plan,
effective January 1, 1988, as amended and restated March 17, 1993
(incorporated by reference to Exhibit (10)(d) of Registrant's
Form 10-K for the year ended December 31, 1992).
(10)(e) 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)(f) 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)(g) 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)(h) 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).
(11) Computation of Earnings Per Share
(21) Subsidiaries of the Registrant
(23) Consent of Independent Certified Public Auditors
(b) The Registrant filed the following report on Form 8-K during the
quarter ended December 31, 1993:
N O N E
24
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 25, 1994
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 25, 1994 /s/ T. C. Norris Principal Executive
------------------------ Officer and Director
T. C. Norris
March 25, 1994 /s/ R. P. Newcomer Principal Financial
------------------------ Officer, Vice
R. P. Newcomer President and
Treasurer
March 25, 1994 /s/ C. M. Smith Comptroller
------------------------
C. M. Smith
March 25, 1994 /s/ G. Baldwin, Jr. Director
------------------------
G. Baldwin, Jr.
March 25, 1994 /s/ R. E. Chappell Director
------------------------
R. E. Chappell
March 25, 1994 /s/ G. H. Glatfelter Director
------------------------
G. H. Glatfelter
March 25, 1994 /s/ G. H. Glatfelter II Director
------------------------
G. H. Glatfelter II
March 25, 1994 /s/ P. H. Glatfelter III Director
------------------------
P. H. Glatfelter III
March , 1994 Director
------------------------
R. S. Hillas
March 25, 1994 /s/ M. A. Johnson II Director
------------------------
M. A. Johnson
25
March 25, 1994 /s/ J. W. Kennedy Director
------------------------
J. W. Kennedy
March 25, 1994 /s/ P. R. Roedel Director
------------------------
P. R. Roedel
March 25, 1994 /s/ J. M. Sanzo Director
------------------------
J. M. Sanzo
March , 1994 Director
------------------------
R.L. Smoot
26
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
Supplementary Data and
Financial Statement Schedules
For Each of the Three Years in the
Period Ended December 31, 1993
Prepared for Filing As Part of
Annual Report (Form 10-K)
to the Securities and Exchange Commission
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTARY DATA
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
- --------------------------------------------------------------------------------
A. PLANT, EQUIPMENT AND TIMBERLANDS
Plant and equipment are depreciated for financial reporting purposes over
the following estimated service lives:
Buildings 10 to 60 years
Machinery and equipment 5 to 25 years
Other:
Water storage - reservoirs, dams, etc. 15 to 40 years
Furniture, fixtures, automobiles, trucks,
airplane, etc. 3 to 20 years
Additions to buildings and machinery and equipment in 1993 include $3.8
million relating to the precision sheeter and $1.0 million relating to
the sludge water treatment project at the Spring Grove Mill; $6.5 million
for the #5 paper machine rebuild at the Neenah Mill; and $4.7 million for
the refining stock blend system and $2.0 million related to the #10 paper
machine dryer rebuild at the Pisgah Forest Mill. Additions to
construction in progress in 1993 include $71.1 million relating to the
ongoing Pulp Mill Modernization project at the Spring Grove Mill.
Retirements in 1993 include $1.5 million related to the disposal of the
Pisgah Forest Mill's airplane and $0.4 million related to the #10 paper
machine dryer at the Pisgah Forest Mill.
Additions to buildings and machinery and equipment in 1992 include $4.2
million for the Mill Information Processing System, $3.3 million relating
to upgrades of one of the largest paper machines, and $2.2 million
relating to the woodwaste/sludge/bark project, all at the Spring Grove
Mill. Additions to construction in progress in 1992 include $47.7 million
relating to the ongoing Pulp Mill Modernization project at the Spring
Grove Mill. Retirements in 1992 include $3.6 million for retirement of
equipment being removed as part of the Pulp Mill Modernization project
and $2.4 million for trade-in of an airplane.
Additions to buildings and machinery and equipment in 1991 include $5.2
million relating to the sludge combustor at the Neenah Mill and $1.8
million for the rebuild of one of the largest paper machines at the
Pisgah Forest Mill. Net additions to construction in progress in 1991
included approximately $17.4 million primarily relating to the new wood
yard currently under construction at the Spring Grove Mill.
F-2
B. ALLOWANCES FOR DOUBTFUL ACCOUNTS AND SALES DISCOUNTS
Allowances for
-------------------------------------------------------------------------------
Doubtful Accounts Sales Discounts
------------------------------------- ---------------------------------------
1993 1992 1991 1993 1992 1991
Balance, beginning
of year $ 890,000 $880,000 $ 875,000 $ 490,000 $ 557,000 $ 602,000
Provision 981,000 10,000 26,000 6,524,800 6,454,000 6,390,000
Write-offs, recoveries
and discounts allowed (33,000) (21,000) (6,460,500) (6,521,000) (6,435,000)
---------- -------- ---------- ---------- ---------- ----------
Balance, end of year $1,838,000 $890,000 $ 880,000 $ 554,300 $ 490,000 $ 557,000
========== ======== ========== ========== ========== ==========
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.
C. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance and repairs charged to costs and expenses for each of the three
years in the period ended December 31, 1993 were: 1993 - $48,156,000;
1992 - $49,111,000; and 1991 - $47,045,000.
Depreciation and amortization of intangible assets, taxes (other than
payroll and income taxes), royalties and advertising costs have not been
shown since each does not exceed 1% of total net sales as reported in the
consolidated statements of income and retained earnings.
F-3
FINANCIAL STATEMENT SCHEDULE V
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
PLANT, EQUIPMENT AND TIMBERLANDS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
Balance at Other Balance
Beginning Changes - at End
CLASSIFICATION of Year Additions Retirements Add (Deduct) of Year
Year Ended December 31, 1993:
Land (other than land included
in items below) $ 4,845,868 $ 6,668 $ 13,833 $ (14,493) (d) $ 4,824,210
Buildings 77,917,930 1,900,721 (c) 75,755 9,762,529 (e) 89,505,425
Machinery and equipment 542,915,791 36,944,943 (c) 4,365,446 (c) 50,826,663 (e) 626,321,951
Other:
Water storage - reservoirs, dams, etc. 6,515,774 6,515,774
Furniture, fixtures, automobiles, trucks,
airplane, etc. 21,047,333 676,711 2,075,102 69,497 (e) 19,718,439
Construction in progress 82,403,017 72,142,310 (b)(c) (84) (d) 154,545,243
Timberlands, less depletion 16,389,950 1,148,228 71,419 (859,392) (a) 16,607,367
------------ ------------ ----------- ----------- ------------
TOTAL $752,035,663 $112,819,581 $ 6,601,555 $59,784,720 $918,038,409
============ ============ =========== =========== ============
Year Ended December 31, 1992:
Land (other than land included
in items below) $ 4,912,980 $ 296 $ 11,400 $ (56,008) (d) $ 4,845,868
Buildings 77,541,897 1,870,031 (c) 1,405,539 (88,459) (d) 77,917,930
Machinery and equipment 520,442,475 30,988,198 (c) 7,680,496 (c) (834,386) (d) 542,915,791
Other:
Water storage - reservoirs, dams, etc. 6,515,774 6,515,774
Furniture, fixtures, automobiles, trucks,
airplane, etc. 19,152,432 4,968,580 3,104,538 (c) 30,859 (d) 21,047,333
Construction in progress 30,673,746 51,730,055 (b)(c) (784) (d) 82,403,017
Timberlands, less depletion 16,530,526 758,704 28,808 (870,472) (a) 16,389,950
------------ ------------ ----------- ----------- ------------
TOTAL $675,769,830 $ 90,315,864 $12,230,781 $(1,819,250) $752,035,663
============ ============ =========== =========== ============
Year Ended December 31, 1991:
Land (other than land included
in items below) $ 4,818,161 $ 142,293 $ 52,419 $ 4,945 (d) $ 4,912,980
Buildings 71,927,015 3,206,824 (c) 32,932 2,440,990 (d) 77,541,897
Machinery and equipment 500,512,627 24,446,213 (c) 2,086,313 (2,430,052) (d) 520,442,475
Other:
Water storage - reservoirs, dams, etc. 6,515,774 6,515,774
Furniture, fixtures, automobiles, trucks,
airplane, etc. 18,738,432 794,874 441,150 60,276 (d) 19,152,432
Construction in progress 14,529,411 16,143,917 (b)(c) 418 (d) 30,673,746
Timberlands, less depletion 15,625,325 1,847,915 19,370 (923,344) (a) 16,530,526
------------ ------------ ----------- ----------- ------------
TOTAL $632,666,745 $ 46,582,036 $ 2,632,184 $ (846,767) $675,769,830
============ ============ =========== =========== ============
(a) Depletion credited directly to asset account and charged to costs and
expenses.
(b) Net change during year.
(c) See supplementary data (Note A) for description of significant additions
and retirements.
(d) Reclassification and other.
(e) Adjustment for the implementation of FASB Statement No. 109 Accounting for
Income Taxes.
F-4
FINANCIAL STATEMENT SCHEDULE VI
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
RESERVES FOR DEPRECIATION OF PLANT AND EQUIPMENT
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
Additions
Balance at Charged to Other Balance
Beginning Costs and Changes - at End
CLASSIFICATION of Year Expenses Retirements Add (Deduct) of Year
Year Ended December 31, 1993:
Buildings $ 27,966,103 $ 2,601,787 $ 65,394 $ (6,001) (a) $ 30,496,495
Machinery and equipment 220,068,543 32,422,460 3,345,064 (b) (120,921) (a) 249,025,018
Other:
Water storage - reservoirs, dams, etc. 4,476,239 156,991 4,633,230
Furniture, fixtures, automobiles, trucks,
airplane, etc. 12,753,133 2,091,467 2,058,423 (16,198) (a) 12,769,979
------------ ------------- ----------- ----------- ------------
TOTAL $265,264,018 $ 37,272,705 $ 5,468,881 $ (143,120) $296,924,722
============ ============= =========== =========== ============
Year Ended December 31, 1992:
Buildings $ 26,947,577 $ 2,195,147 $ 1,159,147 $ (17,608) (a) $ 27,966,103
Machinery and equipment 200,471,039 26,549,333 6,602,927 (b) (348,902) (a) 220,068,543
Other:
Water storage - reservoirs, dams, etc. 4,307,650 168,589 4,476,239
Furniture, fixtures, automobiles, trucks,
airplane, etc. 13,799,134 2,109,255 3,190,418 (b) 35,162 (a) 12,753,133
Reserve for retirements 422,148 422,148
------------ ------------- ----------- ----------- ------------
TOTAL $245,947,548 $ 31,022,458 $11,374,640 $ (331,348) $265,264,018
============ ============= =========== =========== ============
Year Ended December 31, 1991:
Buildings $ 24,674,172 $ 2,298,171 $ 25,793 $ 1,027 (a) $ 26,947,577
Machinery and equipment 176,903,806 24,926,966 1,366,068 6,335 (a) 200,471,039
Other:
Water storage - reservoirs, dams, etc. 4,139,041 168,609 4,307,650
Furniture, fixtures, automobiles, trucks,
airplane, etc. 11,855,327 2,376,905 432,754 (344) (a) 13,799,134
Reserve for retirements 422,148 422,148
------------ ------------- ----------- ----------- ------------
TOTAL $217,994,494 $ 29,770,651 $ 1,824,615 $ 7,018 $245,947,548
============ ============= =========== =========== ============
(a) Reclassification and other.
(b) Accumulated depreciation with respect to retirements. See supplementary
data (Note A).
F-5
FINANCIAL STATEMENT SCHEDULE IX
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
SCHEDULE OF SHORT-TERM BORROWINGS
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------
Weighted
Maximum Average Average
Category Weighted Amount Amount Interest
of Aggregate Balance Average Outstanding Outstanding Rate
Short-Term at End Interest During During During
Borrowings (d) of Period Rate the Period the Period the Period
Year ended December 31, 1993
Represents short-term borrowings
under line of credit agreements
at money market rates determined
at time of advance. N/A N/A $ 39,100,000 (a) $ 5,308,000 (b) 3.32% (c)
Year ended December 31, 1992
Represents short-term borrowings
under line of credit agreement
at money market rates determined
at time of advance. $ 10,100,000 3.61% 10,100,000 (a) 2,217,000 (b) 3.61% (c)
(a) Maximum amount outstanding at any month end during period.
(b) Average computed by summing amount outstanding at month end during the year
and dividing by 12.
(c) Weighted average computed using balance outstanding at end of each month
and interest rate in place at that time.
(d) No short-term borrowings during the year ended December 31, 1991.
Note - In March of 1993 the Company issued $150,000,000 principal amount of
notes and used a portion of the proceeds to repay the outstanding balance
of short-term borrowings of $41,100,000.
N/A - Not applicable.
F-6
Index to Exhibits
-----------------
Number
- ------
(3)(a) Articles of Amendment dated April 27, 1977, including restated
Articles of Incorporation, as amended by Articles of Merger dated
January 30, 1979, by Articles of Amendment dated April 25, 1984
(incorporated by reference to Exhibit (3) of Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1984) and 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 May
12, 1980; a Statement of Reduction of Authorized Shares dated
September 23, 1981; a Statement of Reduction of Authorized Shares
dated August 2, 1982; a Statement of Reduction of Authorized
Shares dated July 29, 1983; 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); a Statement of Reduction of
Authorized Shares dated July 11, 1986 (incorporated by reference
to Exhibit (3)(b) of Registrant's Form 10-K for the year ended
December 31, 1986); a Statement of Reduction of Authorized Shares
dated March 25, 1988 (incorporated by reference to Exhibit (3)(b)
of Registrant's Form 10-K for the year ended December 31, 1987);
a Statement of Reduction of Authorized Shares dated November 9,
1988 (incorporated by reference to Exhibit (3)(b) of Registrant's
Form 10-K for the year ended December 31, 1988); a Statement of
Reduction of Authorized Shares dated April 24, 1989 (incorporated
by reference to Exhibit 3(b) of Registrant's Form 10-K for the
year ended December 31, 1989); Articles of Amendment dated
November 29, 1990 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1990);
Articles of Amendment dated June 26, 1991 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for the year
ended December 31, 1991); and 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).
(3)(b) Articles of Amendment dated July 30, 1993 and dated January 26,
1994.
(3)(c) Articles of Incorporation, as amended through January 26, 1994
(restated for the purpose of filing on EDGAR).
(3)(d) By-Laws as amended through March 16, 1994.
(4)(a) Indenture between P. H. Glatfelter Company and Wachovia Bank of
Georgia, N.A. as Trustee dated as of January 15, 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).
(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 Plans, effective
January 1, 1982, as amended and restated effective January 1,
1994.
(10)(b) P. H. Glatfelter Company Management Incentive Plans, Operating
Rules, as revised through February 18, 1994.
(10)(c) 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)(d) P. H. Glatfelter Company Supplemental Executive Retirement Plan,
effective January 1, 1988, as amended and restated March 17, 1993
(incorporated by reference to Exhibit (10)(d) of Registrant's
Form 10-K for the year ended December 31, 1992).
(10)(e) 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)(f) 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)(g) 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)(h) 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).
(11) Computation of Earnings Per Share
(21) Subsidiaries of the Registrant
(23) Consent of Independent Certified Public Auditors