UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended SeptemberJune 30, 20152016
or
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
96 South George Street, Suite 520
York, Pennsylvania 17401
(Address of principal executive offices)
(717) 225-4711
(Registrant’s telephone number, including area code)
Commission file number | Exact name of registrant as specified in its charter | IRS Employer Identification No. | State or other jurisdiction of incorporation or organization | |||
1-03560 | P. H. Glatfelter Company | 23-0628360 | Pennsylvania |
N/A
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at the past 90 days. Yes þx No ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þx No ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.þ Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Small reporting company (Do not check if a smaller reporting company).
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company). | Small reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No þx.
Common Stock outstanding on October 30, 2015July 29, 2016 totaled 43,406,54643,547,739 shares.
P. H. GLATFELTER COMPANY AND
SUBSIDIARIES
REPORT ON FORM 10-Q
For the QUARTERLY PERIOD ENDED
SeptemberJune 30, 20152016
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Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||
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Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 29 | ||||
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SIGNATURES | 40 |
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended September 30 | Nine months ended September 30 | Three months ended June 30 | Six months ended June 30 | |||||||||||||||||||||||||||||
In thousands, except per share | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
Net sales | $ | 419,960 | $ | 465,092 | $ | 1,248,232 | $ | 1,366,154 | $ | 406,413 | $ | 410,803 | $ | 808,631 | $ | 828,272 | ||||||||||||||||
Energy and related sales, net | 1,153 | 860 | 3,936 | 6,912 | 2,001 | 715 | 2,667 | 2,783 | ||||||||||||||||||||||||
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Total revenues | 421,113 | 465,952 | 1,252,168 | 1,373,066 | 408,414 | 411,518 | 811,298 | 831,055 | ||||||||||||||||||||||||
Costs of products sold | 361,205 | 385,439 | 1,107,319 | 1,196,076 | 365,691 | 378,685 | 710,732 | 746,114 | ||||||||||||||||||||||||
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Gross profit | 59,908 | 80,513 | 144,849 | 176,990 | 42,723 | 32,833 | 100,566 | 84,941 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 39,792 | 37,886 | 100,201 | 103,751 | 37,191 | 29,137 | 69,049 | 60,409 | ||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | (123 | ) | (1,590 | ) | (2,888 | ) | (3,881 | ) | ||||||||||||||||||||||||
(Gains) losses on dispositions of plant, equipment and timberlands, net | 2 | (111 | ) | 26 | (2,765 | ) | ||||||||||||||||||||||||||
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Operating income | 20,239 | 44,217 | 47,536 | 77,120 | 5,530 | 3,807 | 31,491 | 27,297 | ||||||||||||||||||||||||
Non-operating income (expense) | ||||||||||||||||||||||||||||||||
Interest expense | (4,317 | ) | (4,671 | ) | (13,177 | ) | (14,245 | ) | (3,953 | ) | (4,352 | ) | (8,069 | ) | (8,860 | ) | ||||||||||||||||
Interest income | 90 | 30 | 232 | 143 | 61 | 77 | 152 | 142 | ||||||||||||||||||||||||
Other, net | (220 | ) | (167 | ) | (192 | ) | 105 | 317 | 215 | (383 | ) | 28 | ||||||||||||||||||||
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Total non-operating expense | (4,447 | ) | (4,808 | ) | (13,137 | ) | (13,997 | ) | (3,575 | ) | (4,060 | ) | (8,300 | ) | (8,690 | ) | ||||||||||||||||
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Income before income taxes | 15,792 | 39,409 | 34,399 | 63,123 | ||||||||||||||||||||||||||||
Income tax provision | 2,288 | 9,037 | 4,122 | 13,434 | ||||||||||||||||||||||||||||
Income (loss) before income taxes | 1,955 | (253 | ) | 23,191 | 18,607 | |||||||||||||||||||||||||||
Income tax (benefit) provision | (10 | ) | (3,101 | ) | 5,058 | 1,834 | ||||||||||||||||||||||||||
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Net income | $ | 13,504 | $ | 30,372 | $ | 30,277 | $ | 49,689 | $ | 1,965 | $ | 2,848 | $ | 18,133 | $ | 16,773 | ||||||||||||||||
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Earnings per share | ||||||||||||||||||||||||||||||||
Basic | $ | 0.31 | $ | 0.71 | $ | 0.70 | $ | 1.15 | $ | 0.05 | $ | 0.07 | $ | 0.42 | $ | 0.39 | ||||||||||||||||
Diluted | 0.31 | 0.69 | 0.69 | 1.13 | 0.04 | 0.06 | 0.41 | 0.38 | ||||||||||||||||||||||||
Cash dividends declared per common share | $ | 0.12 | $ | 0.11 | $ | 0.36 | $ | 0.33 | $ | 0.125 | $ | 0.12 | $ | 0.25 | $ | 0.24 | ||||||||||||||||
Weighted average shares outstanding | ||||||||||||||||||||||||||||||||
Basic | 43,457 | 43,049 | 43,363 | 43,233 | 43,558 | 43,377 | 43,539 | 43,315 | ||||||||||||||||||||||||
Diluted | 43,865 | 43,841 | 43,949 | 44,111 | 44,062 | 44,032 | 43,963 | 43,992 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 2 -
GLATFELTER
9.30.156.30.16 Form 10-Q
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three months ended September 30 | Nine months ended September 30 | Three months ended June 30 | Six months ended June 30 | |||||||||||||||||||||||||||||
In thousands | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
Net income | $ | 13,504 | $ | 30,372 | $ | 30,277 | $ | 49,689 | $ | 1,965 | $ | 2,848 | $ | 18,133 | $ | 16,773 | ||||||||||||||||
Foreign currency translation adjustments | (3,262 | ) | (33,450 | ) | (27,895 | ) | (33,255 | ) | (14,864 | ) | 16,704 | (1,445 | ) | (24,633 | ) | |||||||||||||||||
Net change in: | ||||||||||||||||||||||||||||||||
Deferred gains (losses) on cash flow hedges, net of taxes of $1,045, $(593), $938, and $(974), respectively | (2,823 | ) | 1,475 | (2,558 | ) | 2,476 | ||||||||||||||||||||||||||
Unrecognized retirement obligations, net of taxes of $(1,895), $(1,463), $(5,675), and $(4,391), respectively | 3,083 | 2,398 | 9,253 | 7,193 | ||||||||||||||||||||||||||||
Deferred gains on cash flow hedges, net of taxes of $(258), $956, $(201) and $(107), respectively | 944 | (2,501 | ) | 1,010 | 265 | |||||||||||||||||||||||||||
Unrecognized retirement obligations, net of taxes of $(1,442), $(1,769), $(2,809) and $(3,779), respectively | 2,381 | 2,884 | 4,638 | 6,170 | ||||||||||||||||||||||||||||
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Other comprehensive loss | (3,002 | ) | (29,577 | ) | (21,200 | ) | (23,586 | ) | ||||||||||||||||||||||||
Other comprehensive income (loss) | (11,539 | ) | 17,087 | 4,203 | (18,198 | ) | ||||||||||||||||||||||||||
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Comprehensive income | $ | 10,502 | $ | 795 | $ | 9,077 | $ | 26,103 | ||||||||||||||||||||||||
Comprehensive income (loss) | $ | (9,574 | ) | $ | 19,935 | $ | 22,336 | $ | (1,425 | ) | ||||||||||||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
GLATFELTER
9.30.156.30.16 Form 10-Q
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30 | December 31 | June 30 | December 31 | |||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 73,665 | $ | 99,837 | $ | 58,532 | $ | 105,304 | ||||||||
Accounts receivable, net | 177,917 | 163,760 | 175,336 | 167,199 | ||||||||||||
Inventories | 248,086 | 248,705 | 257,623 | 247,214 | ||||||||||||
Prepaid expenses and other current assets | 59,776 | 62,320 | 33,094 | 32,650 | ||||||||||||
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Total current assets | 559,444 | 574,622 | 524,585 | 552,367 | ||||||||||||
Plant, equipment and timberlands, net | 697,324 | 697,608 | 748,036 | 698,864 | ||||||||||||
Goodwill | 78,126 | 84,137 | 77,044 | 76,056 | ||||||||||||
Intangible assets | 66,212 | 77,098 | 61,625 | 63,057 | ||||||||||||
Other assets | 136,641 | 128,039 | 113,894 | 110,072 | ||||||||||||
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Total assets | $ | 1,537,747 | $ | 1,561,504 | $ | 1,525,184 | $ | 1,500,416 | ||||||||
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Liabilities and Shareholders’ Equity | ||||||||||||||||
Current portion of long-term debt | $ | 7,580 | $ | 5,734 | $ | 9,098 | $ | 7,366 | ||||||||
Accounts payable | 151,751 | 157,070 | 169,869 | 172,735 | ||||||||||||
Dividends payable | 5,228 | 4,775 | 5,455 | 5,231 | ||||||||||||
Environmental liabilities | 16,022 | 1,075 | 11,361 | 12,544 | ||||||||||||
Other current liabilities | 111,769 | 111,077 | 115,610 | 106,444 | ||||||||||||
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Total current liabilities | 292,350 | 279,731 | 311,393 | 304,320 | ||||||||||||
Long-term debt | 381,535 | 398,878 | 358,366 | 353,296 | ||||||||||||
Deferred income taxes | 101,207 | 104,016 | 75,155 | 76,458 | ||||||||||||
Other long-term liabilities | 116,539 | 129,770 | 104,047 | 103,095 | ||||||||||||
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Total liabilities | 891,631 | 912,395 | 848,961 | 837,169 | ||||||||||||
Commitments and contingencies | — | — | — | — | ||||||||||||
Shareholders’ equity | ||||||||||||||||
Common stock | 544 | 544 | 544 | 544 | ||||||||||||
Capital in excess of par value | 52,852 | 54,342 | 54,530 | 54,912 | ||||||||||||
Retained earnings | 934,077 | 919,468 | 970,374 | 963,143 | ||||||||||||
Accumulated other comprehensive loss | (176,070 | ) | (154,870 | ) | (186,283 | ) | (190,486 | ) | ||||||||
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811,403 | 819,484 | 839,165 | 828,113 | |||||||||||||
Less cost of common stock in treasury | (165,287 | ) | (170,375 | ) | (162,942 | ) | (164,866 | ) | ||||||||
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Total shareholders’ equity | 646,116 | 649,109 | 676,223 | 663,247 | ||||||||||||
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Total liabilities and shareholders’ equity | $ | 1,537,747 | $ | 1,561,504 | $ | 1,525,184 | $ | 1,500,416 | ||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
GLATFELTER
9.30.156.30.16 Form 10-Q
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended September 30 | Six months ended June 30 | |||||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Operating activities | ||||||||||||||||
Net income | $ | 30,277 | $ | 49,689 | $ | 18,133 | $ | 16,773 | ||||||||
Adjustments to reconcile to net cash provided by operations: | ||||||||||||||||
Depreciation, depletion and amortization | 47,423 | 53,547 | 33,411 | 31,602 | ||||||||||||
Amortization of debt issue costs | 893 | 985 | 574 | 599 | ||||||||||||
Pension expense, net of unfunded benefits paid | 5,541 | 4,575 | 1,964 | 3,699 | ||||||||||||
Charge for impairment of intangible asset | 1,200 | 3,262 | ||||||||||||||
Charge for environmental matter | 10,000 | — | ||||||||||||||
Deferred income tax benefit | (2,043 | ) | (4,434 | ) | ||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | (2,888 | ) | (3,881 | ) | ||||||||||||
Deferred income tax (benefit) provision | (2,672 | ) | 2,501 | |||||||||||||
Losses (gains) on dispositions of plant, equipment and timberlands, net | 26 | (2,765 | ) | |||||||||||||
Share-based compensation | 5,502 | 5,811 | 2,803 | 3,663 | ||||||||||||
Change in operating assets and liabilities | ||||||||||||||||
Accounts receivable | (21,572 | ) | (35,528 | ) | (8,471 | ) | (20,783 | ) | ||||||||
Inventories | (5,714 | ) | (19,982 | ) | (12,295 | ) | (8,609 | ) | ||||||||
Prepaid and other current assets | 420 | (2,367 | ) | (163 | ) | (1,678 | ) | |||||||||
Accounts payable | 5,561 | (25,576 | ) | (3,027 | ) | (989 | ) | |||||||||
Accruals and other current liabilities | 797 | (6,214 | ) | 5,252 | 2,735 | |||||||||||
Environmental matters | (5,617 | ) | (39 | ) | ||||||||||||
Other | 743 | 1,532 | 1,105 | (1,235 | ) | |||||||||||
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Net cash provided by operating activities | 70,523 | 21,380 | 36,640 | 25,513 | ||||||||||||
Investing activities | ||||||||||||||||
Expenditures for purchases of plant, equipment and timberlands | (74,280 | ) | (47,036 | ) | (80,391 | ) | (44,575 | ) | ||||||||
Proceeds from disposals of plant, equipment and timberlands, net | 3,181 | 4,051 | 53 | 3,051 | ||||||||||||
Acquisition, net of cash acquired | (224 | ) | — | |||||||||||||
Other | (1,600 | ) | (600 | ) | (300 | ) | (1,600 | ) | ||||||||
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Net cash used by investing activities | (72,923 | ) | (43,585 | ) | (80,638 | ) | (43,124 | ) | ||||||||
Financing activities | ||||||||||||||||
Net repayments of revolving credit facility | — | (30,720 | ) | (11,403 | ) | — | ||||||||||
Payments of borrowing costs | (1,329 | ) | — | (136 | ) | (1,329 | ) | |||||||||
Proceeds from term loans | 19,428 | — | ||||||||||||||
Repayment of term loans | (3,387 | ) | — | (3,803 | ) | (1,492 | ) | |||||||||
Proceeds from term loans | — | 12,592 | ||||||||||||||
Repurchases of common stock | — | (12,180 | ) | |||||||||||||
Payments of dividends | (15,215 | ) | (13,935 | ) | (10,679 | ) | (9,992 | ) | ||||||||
Proceeds from government grants | 4,443 | — | ||||||||||||||
Payments related to share-based compensation awards and other | (2,015 | ) | (1,764 | ) | (976 | ) | (2,000 | ) | ||||||||
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Net cash used by financing activities | (21,946 | ) | (46,007 | ) | (3,126 | ) | (14,813 | ) | ||||||||
Effect of exchange rate changes on cash | (1,826 | ) | (1,015 | ) | 352 | (1,651 | ) | |||||||||
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Net decrease in cash and cash equivalents | (26,172 | ) | (69,227 | ) | (46,772 | ) | (34,075 | ) | ||||||||
Cash and cash equivalents at the beginning of period | 99,837 | 122,882 | 105,304 | 99,837 | ||||||||||||
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Cash and cash equivalents at the end of period | $ | 73,665 | $ | 53,655 | $ | 58,532 | $ | 65,762 | ||||||||
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Supplemental cash flow information | ||||||||||||||||
Cash paid for: | ||||||||||||||||
Interest, net of amounts capitalized | $ | 8,943 | $ | 9,959 | $ | 7,509 | $ | 8,281 | ||||||||
Income taxes, net | 14,566 | 19,928 | 8,486 | 10,234 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
GLATFELTER
9.30.156.30.16 Form 10-Q
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. | ORGANIZATION |
P. H. Glatfelter Company and subsidiaries (“Glatfelter”) is a manufacturer of specialty papers and fiber-based engineered materials. Headquartered in York, PA, U.S. operations include facilities in Spring Grove, PA and Chillicothe and Fremont, OH. International operations include facilities in Canada, Germany, France, the United Kingdom and the Philippines, and sales and distribution offices in Russia and China. Our products are marketed worldwide, either through wholesale paper merchants, brokers and agents, or directly to customers.
2. | ACCOUNTING POLICIES |
Basis of Presentation The unaudited condensed consolidated financial statements (“financial statements”) include the accounts of Glatfelter and its wholly ownedwholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. In our opinion, the financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these financial statements, we have assumed that you have read the audited consolidated financial statements included in our 20142015 Annual Report on Form 10-K.
Accounting EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Management believes the estimates and assumptions used in the preparation of these financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes that actual results may differ from those estimates and assumptions.
Recently Issued Accounting Pronouncements In May 2014,March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09,Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment
Accounting designed to simplify certain aspects of accounting for share-based awards. The new ASU requires entities to recognize as a component of income tax expense all excess tax benefits or deficiencies arising from the difference between compensation costs recognized and the intrinsic value at the time an option is exercised or, in the case of restricted stock and similar awards, the fair value upon vesting of an award. Previously such differences were recognized in additional paid in capital as part of an “APIC pool.” In addition, the ASU also requires entities to exclude excess tax benefits and tax deficiencies from the calculation of common share equivalents for purposes of calculating earnings per share. The new standard is required to be adopted, either prospectively or retrospectively, in the first quarter of 2017 and early adoption is permitted. We do not believe the adoption of this standard will have a material impact on our reported results of operations or financial position.
In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842). This ASU will require organizations such as us that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance will be effective for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. We are in the process of assessing the impact this standard will have on us and expect to follow a modified retrospective method provided for under the standard.
In May 2014, the FASB issued ASU No. 2014-09, - Revenue from Contracts with Customers which clarifies the principles for recognizing revenue and develops a
common revenue standard for GAAP and International Financial Reporting Standards. The FASB deferred the effective date to provide adequate time to effectively implement the new revenue standard. The new standard is now required to be adopted retrospectively for fiscal years beginning after December 15, 2017.2017 and early adoption is permitted only for reporting periods beginning after December 31, 2016. We are in the process of evaluating the impact this standard may have, if any, on our reported results of operations or financial position.
On October 1, 2014, we completedIn June 2016, the acquisitionFASB issued ASU No. 2016-13Financial Instruments—Credit Losses (Topic 326): Measurement of allCredit Losses on Financial Instruments that changes the impairment model for most financial instruments, including trade receivables from an incurred loss method to a new forward-looking approach, based on expected losses. Under the new guidance, an allowance is recognized based on an estimate of the outstanding equity of Spezialpapierfabrik Oberschmitten GmbH (SPO) from FINSPO Beteiligungs-GmbHexpected credit losses. This standard is effective for $8.2 million. SPO has annual sales of approximately $33 million. SPO, located near Frankfurt, Germany, primarily produces highly technical papers for a wide range of capacitors usedus in consumer and industrial products; insulation papers for cables and transformers; and materials for industrial power inverters, electromagnetic current filters and electric rail traction. SPO also produces glassine products, which are used in cosmetics packaging, food packaging, and pharmaceutical dosage bags. SPO is operated as part of the Composite Fibers business unit, and complements other technical specialties.
During the first nine monthsquarter of 20152020 and 2014, we completed sales of assets as summarized in the following table:must be adopted using a modified retrospective
Dollars in thousands | Acres | Proceeds | Gain | |||||||||
2015 | ||||||||||||
Timberlands | 1,398 | $ | 2,794 | $ | 2,704 | |||||||
Other | n/a | 387 | 184 | |||||||||
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Total | $ | 3,181 | $ | 2,888 | ||||||||
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2014 | ||||||||||||
Timberlands | 2,030 | $ | 4,041 | $ | 3,876 | |||||||
Other | n/a | 10 | 5 | |||||||||
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Total | $ | 4,051 | $ | 3,881 | ||||||||
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- 6 -
GLATFELTER
9.30.156.30.16 Form 10-Q
On October 9, 2015, we completedtransition approach. We are currently assessing the saleimpact this standard may have on our results of 9,803 acres of timberlands for $17.0 million in cash. We expect to realize an after-tax gain on the transaction of approximately $9.1 million in the fourth quarter of 2015.operations and financial position.
EARNINGS PER SHARE |
The following table sets forth the details of basic and diluted earnings per share (“EPS”):
Three months ended September 30 | Three months ended June 30 | |||||||||||||||
In thousands, except per share | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Net income | $ | 13,504 | $ | 30,372 | $ | 1,965 | $ | 2,848 | ||||||||
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Weighted average common shares outstanding used in basic EPS | 43,457 | 43,049 | 43,558 | 43,377 | ||||||||||||
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs | 408 | 792 | 504 | 655 | ||||||||||||
|
|
|
| |||||||||||||
Weighted average common shares outstanding and common share equivalents used in diluted EPS | 43,865 | 43,841 | 44,062 | 44,032 | ||||||||||||
|
|
|
| |||||||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.31 | $ | 0.71 | $ | 0.05 | $ | 0.07 | ||||||||
Diluted | 0.31 | 0.69 | 0.04 | 0.06 | ||||||||||||
|
|
Nine months ended September 30 | Six months ended June 30 | |||||||||||||||
In thousands, except per share | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Net income | $ | 30,277 | $ | 49,689 | $ | 18,133 | $ | 16,773 | ||||||||
|
|
|
| |||||||||||||
Weighted average common shares outstanding used in basic EPS | 43,363 | 43,233 | 43,539 | 43,315 | ||||||||||||
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs | 586 | 878 | 424 | 677 | ||||||||||||
|
|
|
| |||||||||||||
Weighted average common shares outstanding and common share equivalents used in diluted EPS | 43,949 | 44,111 | 43,963 | 43,992 | ||||||||||||
|
|
|
| |||||||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.70 | $ | 1.15 | $ | 0.42 | $ | 0.39 | ||||||||
Diluted | 0.69 | 1.13 | 0.41 | 0.38 | ||||||||||||
|
|
The following table sets forth potential common shares outstanding for stock options and restricted stock units that were not included in the computation of diluted EPS for the period indicated, because their effect would be anti-dilutive:
September 30 | June 30 | |||||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Three months ended | 696 | 282 | 1,368 | 687 | ||||||||||||
Nine months ended | 696 | 282 | ||||||||||||||
Six months ended | 1,451 | 687 |
- 7 -
GLATFELTER
9.30.156.30.16 Form 10-Q
ACCUMULATED OTHER COMPREHENSIVE INCOME |
The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the three months and ninesix months ended SeptemberJune 30, 20152016 and 2014.2015.
in thousands | Currency translation adjustments | Unrealized gain (loss) on cash flow hedges | Change in pensions | Change in other postretirement defined benefit plans | Total | |||||||||||||||
Balance at July 1, 2015 | $ | (58,857 | ) | $ | 2,621 | $ | (114,076 | ) | $ | (2,756 | ) | $ | (173,068 | ) | ||||||
Other comprehensive income before reclassifications (net of tax) | (3,262 | ) | (1,381 | ) | — | — | (4,643 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | (1,442 | ) | 3,090 | (7 | ) | 1,641 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net current period other comprehensive income (loss) | (3,262 | ) | (2,823 | ) | 3,090 | (7 | ) | (3,002 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at September 30, 2015 | $ | (62,119 | ) | $ | (202 | ) | $ | (110,986 | ) | $ | (2,763 | ) | $ | (176,070 | ) | |||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at July 1, 2014 | $ | 15,336 | $ | 60 | $ | (84,822 | ) | $ | 60 | $ | (69,366 | ) | ||||||||
Other comprehensive income before reclassifications (net of tax) | (33,450 | ) | 1,379 | — | — | (32,071 | ) | |||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | 96 | 2,363 | 35 | 2,494 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net current period other comprehensive income (loss) | (33,450 | ) | 1,475 | 2,363 | 35 | (29,577 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at September 30, 2014 | $ | (18,114 | ) | $ | 1,535 | $ | (82,459 | ) | $ | 95 | $ | (98,943 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
in thousands | Currency translation adjustments | Unrealized gain (loss) on cash flow hedges | Change in pensions | Change in other postretirement defined benefit plans | Total | Currency translation adjustments | Unrealized gain (loss) on cash flow hedges | Change in pensions | Change in other postretirement defined benefit plans | Total | ||||||||||||||||||||||||||||||
Balance at April 1, 2016 | $ | (59,622 | ) | $ | (159 | ) | $ | (118,399 | ) | $ | 3,436 | $ | (174,744 | ) | ||||||||||||||||||||||||||
Other comprehensive income before reclassifications (net of tax) | (14,864 | ) | 837 | — | — | (14,027 | ) | |||||||||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | 107 | 2,613 | (232 | ) | 2,488 | ||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net current period other comprehensive income (loss) | (14,864 | ) | 944 | 2,613 | (232 | ) | (11,539 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2016 | $ | (74,486 | ) | $ | 785 | $ | (115,786 | ) | $ | 3,204 | $ | (186,283 | ) | |||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at April 1, 2015 | $ | (75,561 | ) | $ | 5,122 | $ | (116,994 | ) | $ | (2,722 | ) | $ | (190,155 | ) | ||||||||||||||||||||||||||
Other comprehensive income before reclassifications (net of tax) | 16,704 | (1,220 | ) | — | — | 15,484 | ||||||||||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | (1,281 | ) | 2,918 | (34 | ) | 1,603 | |||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net current period other comprehensive income (loss) | 16,704 | (2,501 | ) | 2,918 | (34 | ) | 17,087 | |||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2015 | $ | (58,857 | ) | $ | 2,621 | $ | (114,076 | ) | $ | (2,756 | ) | $ | (173,068 | ) | ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
in thousands | Currency translation adjustments | Unrealized gain (loss) on cash flow hedges | Change in pensions | Change in other postretirement defined benefit plans | Total | |||||||||||||||||||||||||||||||||||
Balance at January 1, 2016 | $ | (73,041 | ) | $ | (225 | ) | $ | (120,714 | ) | $ | 3,494 | $ | (190,486 | ) | ||||||||||||||||||||||||||
Other comprehensive income before reclassifications (net of tax) | (1,445 | ) | 1,089 | — | — | (356 | ) | |||||||||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | (79 | ) | 4,928 | (290 | ) | 4,559 | |||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net current period other comprehensive income (loss) | (1,445 | ) | $ | 1,010 | 4,928 | (290 | ) | 4,203 | ||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2016 | $ | (74,486 | ) | $ | 785 | $ | (115,786 | ) | $ | 3,204 | $ | (186,283 | ) | |||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2015 | $ | (34,224 | ) | $ | 2,356 | $ | (120,260 | ) | $ | (2,742 | ) | $ | (154,870 | ) | $ | (34,224 | ) | $ | 2,356 | $ | (120,260 | ) | $ | (2,742 | ) | $ | (154,870 | ) | ||||||||||||
Other comprehensive income before reclassifications (net of tax) | (27,895 | ) | 793 | — | — | (27,102 | ) | (24,633 | ) | 2,174 | — | — | (22,459 | ) | ||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | (3,351 | ) | 9,274 | (21 | ) | 5,902 | — | (1,909 | ) | 6,184 | (14 | ) | 4,261 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net current period other comprehensive income (loss) | (27,895 | ) | $ | (2,558 | ) | 9,274 | (21 | ) | (21,200 | ) | (24,633 | ) | 265 | 6,184 | (14 | ) | (18,198 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Balance at September 30, 2015 | $ | (62,119 | ) | $ | (202 | ) | $ | (110,986 | ) | $ | (2,763 | ) | $ | (176,070 | ) | |||||||||||||||||||||||||
Balance at June 30, 2015 | $ | (58,857 | ) | $ | 2,621 | $ | (114,076 | ) | $ | (2,756 | ) | $ | (173,068 | ) | ||||||||||||||||||||||||||
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|
|
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|
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| |||||||||||||||||||||||||||||||
Balance at January 1, 2014 | $ | 15,141 | $ | (941 | ) | $ | (89,547 | ) | $ | (10 | ) | $ | (75,357 | ) | ||||||||||||||||||||||||||
Other comprehensive income before reclassifications (net of tax) | (33,255 | ) | 1,594 | — | — | (31,661 | ) | |||||||||||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | 882 | 7,088 | 105 | 8,075 | |||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||
Net current period other comprehensive income (loss) | (33,255 | ) | 2,476 | 7,088 | 105 | (23,586 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at September 30, 2014 | $ | (18,114 | ) | $ | 1,535 | $ | (82,459 | ) | $ | 95 | $ | (98,943 | ) | |||||||||||||||||||||||||||
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- 8 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Reclassifications out of accumulated other comprehensive income were as follows:
Three months ended September 30 | Nine months ended September 30 | Three months ended June 30 | Six months ended June 30 | |||||||||||||||||||||||||||||||||
In thousands | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||||||
Description | Line Item in Statements of Income | Line Item in Statements of Income | ||||||||||||||||||||||||||||||||||
Cash flow hedges (Note 15) | ||||||||||||||||||||||||||||||||||||
Cash flow hedges (Note 12) | ||||||||||||||||||||||||||||||||||||
(Gains) losses on cash flow hedges | $ | (1,972 | ) | $ | 137 | $ | (4,595 | ) | $ | 1,227 | Costs of products sold | $ | 215 | $ | (1,750 | ) | $ | (83 | ) | $ | (2,623 | ) | Costs of products sold | |||||||||||||
Tax (benefit) expense | 530 | (41 | ) | 1,244 | (345 | ) | Income tax provision | |||||||||||||||||||||||||||||
Tax expense (benefit) | (108 | ) | 469 | 4 | 714 | Income tax provision | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Net of tax | (1,442 | ) | 96 | (3,351 | ) | 882 | 107 | (1,281 | ) | (79 | ) | (1,909 | ) | |||||||||||||||||||||||
Retirement plan obligations (Note 9) | ||||||||||||||||||||||||||||||||||||
Retirement plan obligations (Note 7) | ||||||||||||||||||||||||||||||||||||
Amortization of deferred benefit pension plan items | ||||||||||||||||||||||||||||||||||||
Prior service costs | 571 | 621 | 1,713 | 1,864 | Costs of products sold | 509 | 574 | 1,013 | 1,142 | Costs of products sold | ||||||||||||||||||||||||||
189 | 206 | 568 | 618 | Selling, general and administrative | 166 | 187 | 336 | 379 | Selling, general and administrative | |||||||||||||||||||||||||||
Actuarial losses | 3,144 | 2,215 | 9,432 | 6,644 | Costs of products sold | 2,618 | 2,924 | 4,900 | 6,288 | Costs of products sold | ||||||||||||||||||||||||||
1,082 | 762 | 3,247 | 2,287 | Selling, general and administrative | 915 | 1,023 | 1,687 | 2,165 | Selling, general and administrative | |||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
4,986 | 3,804 | 14,960 | 11,413 | 4,208 | 4,708 | 7,936 | 9,974 | |||||||||||||||||||||||||||||
Tax benefit | (1,896 | ) | (1,441 | ) | (5,686 | ) | (4,325 | ) | Income tax provision | (1,595 | ) | (1,790 | ) | (3,008 | ) | (3,790 | ) | Income tax provision | ||||||||||||||||||
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|
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|
|
|
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| |||||||||||||||||||||||||||||
Net of tax | 3,090 | 2,363 | 9,274 | 7,088 | 2,613 | 2,918 | 4,928 | 6,184 | ||||||||||||||||||||||||||||
Amortization of deferred benefit other plan items | ||||||||||||||||||||||||||||||||||||
Prior service costs | (58 | ) | (59 | ) | (173 | ) | (178 | ) | Costs of products sold | (38 | ) | (57 | ) | (75 | ) | (115 | ) | Costs of products sold | ||||||||||||||||||
(12 | ) | (13 | ) | (37 | ) | (38 | ) | Selling, general and administrative | (8 | ) | (13 | ) | (16 | ) | (25 | ) | Selling, general and administrative | |||||||||||||||||||
Actuarial losses | 48 | 106 | 142 | 319 | Costs of products sold | (269 | ) | 12 | (311 | ) | 94 | Costs of products sold | ||||||||||||||||||||||||
10 | 23 | 31 | 68 | Selling, general and administrative | (58 | ) | 3 | (67 | ) | 21 | Selling, general and administrative | |||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
(12 | ) | 57 | (37 | ) | 171 | (373 | ) | (55 | ) | (469 | ) | (25 | ) | |||||||||||||||||||||||
Tax benefit | 5 | (22 | ) | 16 | (66 | ) | Income tax provision | |||||||||||||||||||||||||||||
Tax expense | 141 | 21 | 179 | 11 | Income tax provision | |||||||||||||||||||||||||||||||
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|
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|
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|
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| |||||||||||||||||||||||||||||
Net of tax | (7 | ) | 35 | (21 | ) | 105 | (232 | ) | (34 | ) | (290 | ) | (14 | ) | ||||||||||||||||||||||
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|
|
|
|
|
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| |||||||||||||||||||||||||||||
Total reclassifications, net of tax | $ | 1,641 | $ | 2,494 | $ | 5,902 | $ | 8,075 | $ | 2,488 | $ | 1,603 | $ | 4,559 | $ | 4,261 | ||||||||||||||||||||
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INCOME TAXES |
Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates.
As of SeptemberJune 30, 20152016 and December 31, 2014,2015, we had $12.0$13.2 million and $14.9$12.2 million of gross unrecognized tax benefits. As of SeptemberJune 30, 2015,2016, if such benefits were to be recognized, approximately $12.0$10.6 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate. Gross unrecognized tax benefits reflected a net decrease of $2.9 million during the nine months ended September 30, 2015, primarily due to the completion of federal and state examinations during the second quarter.
We, or one of our subsidiaries, file income tax returns with the United States Internal Revenue Service, as well as various state and foreign authorities.
The following table summarizes, by major jurisdiction, tax years that remain subject to examination:
Open Tax Years | ||||||||
Jurisdiction | Examinations not yet initiated | Examination in progress | ||||||
United States | ||||||||
Federal | 2013 - | N/A | ||||||
State | ||||||||
Canada (1) | 2010 - | N/A | ||||||
Germany (1) | 2012 - | 2007 - 2011 | ||||||
France | 2013 - | 2011 - 2012 | ||||||
United Kingdom | N/A | |||||||
Philippines | 2013, 2014 |
(1) |
- 9 -
GLATFELTER
9.30.15 Form 10-Q
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these
- 9 -
GLATFELTER
6.30.16 Form 10-Q
reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the lapse of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of zero to $1.7 million. Substantially all of this range relates to tax positions taken in the U.S. and Germany.
We recognize interest and penalties related to uncertain tax positions as income tax expense. The following table summarizes information related to interest and penalties on uncertain tax positions:
Nine months ended September 30 | Six months ended June 30 | |||||||||||||||
In millions | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Interest expense | $ | — | $ | 0.1 | $ | 0.2 | $ | — | ||||||||
Penalties | — | — | — | — | ||||||||||||
September 30 2015 | December 31 2014 | June 30 | December 31 | |||||||||||||
2016 | 2015 | |||||||||||||||
Accrued interest payable | $ | 0.6 | $ | 0.6 | $ | 0.8 | $ | 0.6 |
STOCK-BASED COMPENSATION |
The P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the “LTIP”) provides for the issuance of Glatfelter common stock to eligible participants in the form of restricted stock units, restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units.
Pursuant to terms of the LTIP, we have issued to eligible participants restricted stock units, performance share awards and stock only stock appreciation rights.
Restricted Stock Units (“RSU”) and Performance Share Awards (“PSAs”)Awards of RSUs and PSAs are made under our LTIP. The RSUs vest on the passage of time, generally on a graded scale over a three, four, and five-year period, or in certain instances the RSUs were issued with five year cliff vesting. PSAs are issued annually to members of management and each respective grant cliff vests each December 31 of the third year following the grant, assuming the achievement of predetermined, three-year cumulative financial performance targets.targets covering two or three year periods. The performance measures include a minimum, target and maximum performance level providing the grantees an opportunity to receive more or less shares than targeted depending on actual financial performance. For both RSUs and PSAs, the grant date fair value of the awards, which is equal to the closing price per common share on the date of the award, is used to determine the amount of expense to be recognized over the applicable service period. Settlement of RSUs and PSAs will be made in shares of our common stock currently held in treasury.
The following table summarizes RSU and PSA activity during periods indicated:
Units | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Balance at January 1, | 888,942 | 1,001,814 | 674,523 | 888,942 | ||||||||||||
Granted | 160,514 | 173,206 | 295,654 | 152,531 | ||||||||||||
Forfeited | (87,567 | ) | (45,355 | ) | (143,209 | ) | (77,652 | ) | ||||||||
Shares delivered | (286,857 | ) | (239,394 | ) | (149,475 | ) | (283,627 | ) | ||||||||
|
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|
| |||||||||||||
Balance at September 30, | 675,032 | 890,271 | ||||||||||||||
Balance at June 30, | 677,493 | 680,194 | ||||||||||||||
|
|
|
|
The amount granted in 20152016 and 20142015 includes PSAs of 105,017199,693 and 95,691100,801, respectively, exclusive of reinvested dividends.
- 10 -
GLATFELTER
9.30.156.30.16 Form 10-Q
The following table sets forth aggregate RSU and PSA compensation expense for the periods indicated:
September 30 | June 30 | |||||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Three months ended | $ | 395 | $ | 854 | $ | 935 | $ | 453 | ||||||||
Nine months ended | 1,214 | 1,874 | ||||||||||||||
Six months ended | 1,402 | 820 |
Stock Only Stock Appreciation Rights (“SOSARs”) Under terms of the SOSAR, a recipient receives the right to a payment in the form of shares of common stock equal to the difference, if any, in the fair market value of one share of common stock at the time of exercising the SOSAR and the exercise price. The SOSARs vest ratably over a three year period and have a term of ten years.
The following table sets forth information related to outstanding SOSARS.
2015 | 2014 | 2016 | 2015 | |||||||||||||||||||||||||||||
SOSARS | Shares | Wtd Avg Exercise Price | Shares | Wtd Avg Exercise Price | Shares | Wtd Avg Exercise Price | Shares | Wtd Avg Exercise Price | ||||||||||||||||||||||||
Outstanding at January 1, | 1,864,707 | $ | 16.20 | 1,977,133 | $ | 13.91 | 2,199,742 | $ | 17.82 | 1,864,707 | $ | 16.20 | ||||||||||||||||||||
Granted | 423,590 | 24.62 | 281,881 | 29.22 | 743,925 | 17.54 | 406,142 | 24.94 | ||||||||||||||||||||||||
Exercised | (70,347 | ) | 14.12 | (26,245 | ) | 15.67 | (53,190 | ) | 9.91 | (58,343 | ) | 13.52 | ||||||||||||||||||||
Canceled / forfeited | (17,559 | ) | 25.24 | (29,842 | ) | 19.36 | (108,945 | ) | 21.81 | (3,349 | ) | 26.53 | ||||||||||||||||||||
|
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|
| |||||||||||||||||||||||||||||
Outstanding at September 30, | 2,200,391 | $ | 17.82 | 2,202,927 | $ | 15.77 | ||||||||||||||||||||||||||
Outstanding at June 30, | 2,781,532 | $ | 17.74 | 2,209,157 | $ | 17.87 | ||||||||||||||||||||||||||
SOSAR Grants | ||||||||||||||||||||||||||||||||
Weighted average grant date fair value per share | $ | 7.46 | $ | 9.81 | $ | 4.07 | $ | 7.54 | ||||||||||||||||||||||||
Aggregate grant date fair value(in thousands) | $ | 3,134 | $ | 2,764 | $ | 3,013 | $ | 3,063 | ||||||||||||||||||||||||
Black-Scholes assumptions | ||||||||||||||||||||||||||||||||
Dividend yield | 1.94 | % | 1.48 | % | 2.85 | % | 1.92 | % | ||||||||||||||||||||||||
Risk free rate of return | 1.64 | % | 1.74 | % | 1.34 | % | 1.64 | % | ||||||||||||||||||||||||
Volatility | 36.38 | % | 37.59 | % | 31.97 | % | 36.48 | % | ||||||||||||||||||||||||
Expected life | 6 yrs | 6 yrs | 6 yrs | 6 yrs |
The following table sets forth SOSAR compensation expense for the periods indicated:
September 30 | June 30 | |||||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Three months ended | $ | 671 | $ | 577 | $ | 669 | $ | 680 | ||||||||
Nine months ended | 1,940 | 1,585 | ||||||||||||||
Six months ended | 1,401 | 1,268 |
RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS |
The following tables provide information with respect to the net periodic costs of our pension and post retirement medical benefit plans.
Three months ended September 30 | ||||||||
In thousands | 2015 | 2014 | ||||||
Pension Benefits | ||||||||
Service cost | $ | 2,850 | $ | 2,602 | ||||
Interest cost | 5,868 | 6,216 | ||||||
Expected return on plan assets | (11,498 | ) | (10,969 | ) | ||||
Amortization of prior service cost | 760 | 827 | ||||||
Amortization of unrecognized loss | 4,226 | 2,977 | ||||||
|
|
|
| |||||
Net periodic benefit cost | $ | 2,206 | $ | 1,653 | ||||
|
|
|
| |||||
Other Benefits | ||||||||
Service cost | $ | 358 | $ | 614 | ||||
Interest cost | 499 | 597 | ||||||
Amortization of prior service cost | (70 | ) | (72 | ) | ||||
Amortization of unrecognized loss | 58 | 129 | ||||||
|
|
|
| |||||
Net periodic benefit cost | $ | 845 | $ | 1,268 | ||||
|
|
|
|
Nine months ended September 30 | Three months ended June 30 | |||||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Pension Benefits | ||||||||||||||||
Service cost | $ | 8,546 | $ | 7,810 | $ | 2,510 | $ | 2,561 | ||||||||
Interest cost | 17,606 | 18,696 | 6,153 | 5,788 | ||||||||||||
Expected return on plan assets | (34,495 | ) | (32,907 | ) | (11,275 | ) | (11,454 | ) | ||||||||
Amortization of prior service cost | 2,281 | 2,482 | 675 | 761 | ||||||||||||
Amortization of unrecognized loss | 12,679 | 8,931 | 3,533 | 3,947 | ||||||||||||
|
|
|
| |||||||||||||
Net periodic benefit cost | $ | 6,617 | $ | 5,012 | $ | 1,596 | $ | 1,603 | ||||||||
|
|
|
| |||||||||||||
Other Benefits | ||||||||||||||||
Service cost | $ | 1,074 | $ | 1,844 | $ | 250 | $ | 303 | ||||||||
Interest cost | 1,498 | 1,793 | 456 | 436 | ||||||||||||
Amortization of prior service cost | (210 | ) | (216 | ) | (46 | ) | (70 | ) | ||||||||
Amortization of unrecognized (gain)/loss | (327 | ) | 15 | |||||||||||||
|
| |||||||||||||||
Net periodic benefit cost | $ | 333 | $ | 684 | ||||||||||||
|
| |||||||||||||||
Six months ended June 30 | ||||||||||||||||
In thousands | 2016 | 2015 | ||||||||||||||
Pension Benefits | ||||||||||||||||
Service cost | $ | 5,240 | $ | 5,696 | ||||||||||||
Interest cost | 12,240 | 11,738 | ||||||||||||||
Expected return on plan assets | (22,661 | ) | (22,997 | ) | ||||||||||||
Amortization of prior service cost | 1,349 | 1,521 | ||||||||||||||
Amortization of unrecognized loss | 173 | 387 | 6,587 | 8,453 | ||||||||||||
|
|
|
| |||||||||||||
Net periodic benefit cost | $ | 2,535 | $ | 3,808 | $ | 2,755 | $ | 4,411 | ||||||||
|
|
|
| |||||||||||||
Other Benefits | ||||||||||||||||
Service cost | $ | 573 | $ | 716 | ||||||||||||
Interest cost | 996 | 999 | ||||||||||||||
Amortization of prior service cost | (91 | ) | (140 | ) | ||||||||||||
Amortization of unrecognized (gain)/loss | (378 | ) | 115 | |||||||||||||
|
| |||||||||||||||
Net periodic benefit cost | $ | 1,100 | $ | 1,690 | ||||||||||||
|
|
- 11 -
GLATFELTER
9.30.156.30.16 Form 10-Q
During the third quarters of 2015 and 2014, in connection with our annual test of potential impairment of indefinite lived intangible assets, we recorded $1.2 million and $3.3 million, respectively, of non-cash asset impairment charges related to a trade name intangible asset acquired in connection with our Composite Fibers business unit’s 2013 Dresden acquisition. The charges were due to changes in the estimated fair value of the trade name, primarily driven by lower forecasted revenues associated with the business, an increase in discount rates related to Dresden’s business in Russia and Ukraine and this region’s political and economic instability. The charges are recorded in the accompanying condensed consolidated statements of income under the caption “Selling, general and administrative expenses.” The fair value of the asset was estimated using a discounted cash flow model, Level 3 fair value classification.
INVENTORIES |
Inventories, net of reserves, were as follows:
September 30 | December 31 | June 30 | December 31 | |||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Raw materials | $ | 59,985 | $ | 61,266 | $ | 62,881 | $ | 60,098 | ||||||||
In-process and finished | 117,980 | 117,580 | 122,322 | 115,874 | ||||||||||||
Supplies | 70,121 | 69,859 | 72,420 | 71,242 | ||||||||||||
|
|
|
| |||||||||||||
Total | $ | 248,086 | $ | 248,705 | $ | 257,623 | $ | 247,214 | ||||||||
|
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|
|
LONG-TERM DEBT |
Long-term debt is summarized as follows:
September 30 | December 31 | June 30 | December 31 | |||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Revolving credit facility, due Mar. 2020 | $ | 83,464 | $ | — | $ | 48,851 | $ | 58,792 | ||||||||
Revolving credit facility, due Nov. 2016 | — | 90,555 | ||||||||||||||
5.375% Notes, due Oct. 2020 | 250,000 | 250,000 | 250,000 | 250,000 | ||||||||||||
2.40% Term Loan, due Jun. 2022 | 10,803 | 12,155 | 9,516 | 10,109 | ||||||||||||
2.05% Term Loan, due Mar. 2023 | 44,848 | 51,902 | 40,000 | 42,130 | ||||||||||||
1.30% Term Loan, due Jun. 2023 | 11,102 | — | ||||||||||||||
1.55% Term Loan, due Sep. 2025 | 10,884 | 2,839 | ||||||||||||||
|
|
|
| |||||||||||||
Total long-term debt | 389,115 | 404,612 | 370,353 | 363,870 | ||||||||||||
Less current portion | (7,580 | ) | (5,734 | ) | (9,098 | ) | (7,366 | ) | ||||||||
Unamortized deferred issuance costs | (2,889 | ) | (3,208 | ) | ||||||||||||
|
|
|
| |||||||||||||
Long-term debt, net of current portion | $ | 381,535 | $ | 398,878 | $ | 358,366 | $ | 353,296 | ||||||||
|
|
|
|
The amount set forth for Long-term debt, net of current portion as of December 31, 2015, has been restated to retroactively adopt ASU No. 2015-03,Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs to be presented as a direct deduction from the carrying value of the related debt instrument rather than as a deferred asset except for costs associated with a revolving line of credit. We adopted this standard in the first quarter of 2016 retroactive to December 31, 2015.
On March 12, 2015, we amended our revolving credit agreement with a consortium of banks (the “Revolving Credit Facility”) which increased the amount available for borrowing to $400 million, extended the maturity of the facility to March 12, 2020, and instituted a revised interest rate pricing grid.
For all US dollar denominated borrowings under the Revolving Credit Facility, the borrowing rate is, at our option, either, (a) the bank’s base rate which is equal to the greater of i) the prime rate; ii) the federal funds rate
plus 50 basis points; or iii) the daily Euro-rate plus 100 basis points plus an applicable spread over either i), ii) or iii) ranging from 12.5 basis points to 100 basis points based on the Company’s leverage ratio and its corporate credit ratings determined by Standard & Poor’s Rating Services and Moody’s Investor Service, Inc. (the “Corporate Credit Rating”); or (b) the daily Euro-rate plus an applicable margin ranging from 112.5 basis points to 200 basis points based on the Company’s leverage ratio and the Corporate Credit Rating. For non-US dollar denominated borrowings, interest is based on (b) above.
The Revolving Credit Facility contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, limits certain intercompany financing arrangements, make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios including: i) maximum net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio (the “leverage ratio”); and ii) a consolidated EBITDA to interest expense ratio. The most restrictive of our covenants is a maximum leverage ratio of 3.5x. As of SeptemberJune 30, 2015,2016, the leverage ratio, as calculated in accordance with the definition in our credit agreement, was 2.2x which is within the limits set forth in our credit agreement.1.9x. A breach of these requirements would give rise to certain remedies under the Revolving Credit Facility, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility.
On October 3, 2012, we completed a private placement offering of $250.0 million aggregate principal amount of 5.375% Senior Notes due 2020 (the “5.375% Notes”). The 5.375% Notes, which are now publically registered, are fully and unconditionally guaranteed, jointly and severally, by PHG Tea Leaves, Inc., Mollanvick, Inc., Glatfelter Composite Fibers N. A., Inc., Glatfelter Advanced Materials N.A., LLC., and Glatfelter Holdings, LLC (the “Guarantors”). Interest on the 5.375% Notes is payable semiannually in arrears on April 15 and October 15.
The 5.375% Notes are redeemable, in whole or in part, at anytime on or after October 15, 2016 at the redemption prices specified in the applicable Indenture. Prior to October 15, 2016, we may redeem some or all of the Notes at a “make-whole” premium as specified in the Indenture. These Notes and the guarantees of the notes are senior obligations of the Company and the Guarantors, respectively, rank equally in right of payment with future senior indebtedness of the Company and the Guarantors and will mature on October 15, 2020.
- 12 -
GLATFELTER
9.30.156.30.16 Form 10-Q
The 5.375% Notes contain various covenants customary to indebtedness of this nature including limitations on i) the amount of indebtedness that may be incurred; ii) certain restricted payments including common stock dividends; iii) distributions from certain subsidiaries; iv) sales of assets; v) transactions amongst subsidiaries; and vi) incurrence of liens on assets. In addition, the 5.375% Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the Revolving Credit Agreement at maturity or a default under the Revolving Credit Agreement that accelerates the debt outstanding thereunder. As of SeptemberJune 30, 2015,2016, we met all of the requirements of our debt covenants.
Glatfelter Gernsbach GmbH & Co. KG (“Gernsbach”), a wholly-owned subsidiary of ours, has two separateentered into a series of borrowing agreements with IKB Deutsche Industriebank AG, Düsseldorf (“IKB”). Pursuant to as summarized below:
Amounts in thousands | Original Principal | Interest Rate | Maturity | |||||||||
Borrowing date | ||||||||||||
Apr. 11, 2013 | € | 42,700 | 2.05 | % | Mar. 2023 | |||||||
Sep. 4, 2014 | 10,000 | 2.40 | % | Jun. 2022 | ||||||||
Oct. 10, 2015 | 2,608 | 1.55 | % | Sep. 2025 | ||||||||
May 4, 2016 | 7,195 | 1.55 | % | Sep. 2025 | ||||||||
Apr. 26, 2016 | 10,000 | 1.30 | % | Jun. 2023 |
Each of the first agreement, dated April 11, 2013, Gernsbach borrowed €42.7 million (or $57.6 million) aggregateborrowings require quarterly repayments of principal amount (the “2013 IKB Loan”). The 2013 IKB Loan is repayable in 32 quarterly installments beginning on June 30, 2015 and ending on March 31, 2023interest and bears interest at a rate of 2.05% per annum.
Pursuant to the second agreement with IKB dated September 4, 2014, Gernsbach borrowed €10.0 million (or $12.6 million) aggregate principal amount (the “2014 IKB Loan”). The 2014 IKB Loan is repayable in 27 quarterly installments beginning on September 30, 2015 and ending on June 30, 2022 and bears interest at a rate of 2.40% per annum. Interest on the IKB Loan or portion thereof is payable quarterly.
The IKB loans provide for representations, warranties and covenants customary for financings of these types. The financial covenants contained in each of the IKB loans, which relate to the minimum ratio of consolidated EBITDA to consolidated interest expense and the maximum ratio of consolidated total net debt to consolidated adjusted EBITDA, will beare calculated by reference to our Revolving Credit Agreement.
Aggregated unamortized deferred debt issuance costs incurred in connection with all of our outstanding debt totaled $5.6 million at September 30, 2015 and are reported under the caption “Other assets” in the accompanying condensed consolidated balance sheets. The deferred costs are being amortized on a straight line basis over the life of the underlying instruments.
P. H. Glatfelter Company guarantees all debt obligations of its subsidiaries, including each of the IKB loans.subsidiaries. All such obligations are recorded in these condensed consolidated financial statements.
As of September 30, 2015 and December 31, 2014, we had $5.3 million of lettersLetters of credit issued to us by certain financial institutions.institutions totaled $5.1 million and $5.3 million as of June 30, 2016 and December 31, 2015, respectively. The letters of credit, which reduce amounts available under our revolving credit facility, primarily provide financial assurances for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. No amounts are outstanding under the letters of credit.
ASSET RETIREMENT OBLIGATION |
During 2008, we recorded $11.5 million, net present value, of asset retirement obligations related to the legal requirement to close several lagoons at the Spring Grove, PA facility. Historically, lagoons were used to dispose of residual waste material. Closure of the lagoons is expected to behas been substantially completed in 2016 and will be accomplishedprimarily by filling the lagoons, installing a non-permeable liner which will be covered with soil to construct the required cap over the lagoons. The retirement obligation was accrued with a corresponding increase in the carrying value of the property, equipment and timberlands caption on the condensed consolidated balance sheet. The amount capitalized is being amortized as a charge to operations on the straight-line basis in relation to the expected closure period.
Following is a summary of activity recorded during the first ninesix months of 20152016 and 2014:2015:
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Balance at January 1, | $ | 4,114 | $ | 5,032 | $ | 419 | $ | 4,114 | ||||||||
Accretion | 59 | 115 | — | 59 | ||||||||||||
Payments | (2,384 | ) | (767 | ) | (16 | ) | (1,905 | ) | ||||||||
Downward revision | (1,000 | ) | — | — | (1,000 | ) | ||||||||||
Gain | (359 | ) | (128 | ) | (2 | ) | (286 | ) | ||||||||
|
|
|
| |||||||||||||
Balance at September 30, | $ | 430 | $ | 4,252 | ||||||||||||
Balance at June 30, | $ | 401 | $ | 982 | ||||||||||||
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|
|
|
During the second quarterThe amount set forth above as of 2015 weJune 30, 2016, is recorded a downward revision to our estimated cost of closing the lagoons. The revision was recorded as an adjustment to both the carrying value of the associated property, equipment and timberlands as well as the asset retirement obligation.
The following table summarizes the line itemsin other current liabilities in the accompanying condensed consolidated balance sheets where the asset retirement obligations are recorded:sheet.
September 30 | December 31 | |||||||
In thousands | 2015 | 2014 | ||||||
Other current liabilities | $ | 430 | $ | 2,855 | ||||
Other long-term liabilities | — | 1,259 | ||||||
|
|
|
| |||||
Total | $ | 430 | $ | 4,114 | ||||
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- 13 -
GLATFELTER
9.30.15 Form 10-Q
FAIR VALUE OF FINANCIAL INSTRUMENTS |
The amounts reported on the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts receivablepayable approximate fair value. The following table sets forth carrying value and fair value of long-term debt:
September 30, 2015 | December 31, 2014 | June 30, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||
In thousands | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||||
Variable rate debt | $ | 83,464 | $ | 83,464 | $ | 90,555 | $ | 90,555 | $ | 48,851 | $ | 48,851 | $ | 58,792 | $ | 58,792 | ||||||||||||||||
Fixed-rate bonds | 250,000 | 253,908 | 250,000 | 255,470 | 250,000 | 255,625 | 250,000 | 250,938 | ||||||||||||||||||||||||
2.40% Term loan | 10,803 | 10,729 | 12,155 | 12,626 | 9,516 | 9,406 | 10,109 | 10,535 | ||||||||||||||||||||||||
2.05% Term loan | 44,848 | 43,611 | 51,902 | 53,106 | 40,000 | 38,724 | 42,130 | 42,886 | ||||||||||||||||||||||||
1.30% Term Loan | 11,102 | 10,403 | — | — | ||||||||||||||||||||||||||||
1.55% Term loan | 10,884 | 9,554 | 2,839 | 2,524 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | $ | 389,115 | $ | 391,712 | $ | 404,612 | $ | 411,757 | $ | 370,353 | $ | 372,563 | $ | 363,870 | $ | 365,675 | ||||||||||||||||
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|
|
|
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|
|
As of SeptemberJune 30, 2015,2016, and December 31, 2014,2015, we had $250.0 million of 5.375% fixed rate bonds. These bonds
- 13 - GLATFELTER 6.30.16 Form 10-Q |
are publicly registered, but thinly traded. Accordingly, the values set forth above for the bonds, as well as our other debt instruments, are based on observable inputs and other relevant market data (Level 2). The fair value of financial derivatives is set forth below in Note 15.12.
FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES |
As part of our overall risk management practices, we enter into financial derivatives primarily designed to either i) hedge foreign currency risks associated with forecasted transactions – “cash flow hedges”; or ii) mitigate the impact that changes in currency exchange rates have on intercompany financing transactions and foreign currency denominated receivables and payables – “foreign currency hedges.”
Derivatives Designated as Hedging Instruments—Instruments - Cash Flow HedgesWe use currency forward contracts as cash flow hedges to manage our exposure to fluctuations in the currency exchange rates on certain forecasted production costs or capital expenditures expected to be incurred over a twelve month to eighteen month period of time.incurred. Currency forward contracts involve fixing the exchange rate for delivery of a specified amount of foreign currency on a specified date. As of June 30, 2016, the maturity of currency forward contracts ranged from one month to 25 months.
We designate certain currency forward contracts as cash flow hedges of forecasted raw material purchases, or certain production costs or capital expenditures with exposure to changes in foreign currency exchange rates. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk is deferred as a component of accumulated other comprehensive income in the accompanying condensed consolidated balance sheets andsheets. With respect to hedges of forecasted raw material purchases or production costs, the amount deferred is subsequently reclassified into costs of products sold in the period that inventory produced using the hedged transaction affects earnings. For hedged capital expenditures, deferred gains or losses are reclassified and included in the historical cost of the capital asset and subsequently affect earnings as depreciation is recognized. The ineffective portion of the change in fair value of the derivative is recognized directly to earnings and reflected in the accompanying condensed consolidated statements of income as non-operating income (expense) under the caption “Other, net.”
We had the following outstanding derivatives that were used to hedge foreign exchange risks associated with forecasted transactions and designated as hedging instruments:
In thousands | September 30 2015 | December 31 2014 | June 30 2016 | December 31 2015 | ||||||||||||
Derivative | ||||||||||||||||
Sell/Buy - sell notional | ||||||||||||||||
Euro / British Pound | 9,189 | 4,592 | 9,237 | 10,527 | ||||||||||||
Sell/Buy - buy notional | ||||||||||||||||
Euro / Philippine Peso | 661,453 | 523,313 | 670,402 | 758,634 | ||||||||||||
British Pound / Philippine Peso | 471,607 | 260,535 | 486,437 | 542,063 | ||||||||||||
Euro / U.S. Dollar | 47,751 | 32,527 | 48,574 | 51,433 | ||||||||||||
U.S. Dollar / Canadian Dollar | 19,205 | 10,036 | 33,839 | 34,649 | ||||||||||||
U.S. Dollar / Euro | 20,202 | — |
These contracts have maturities of between twelve months and eighteen months from the date originally entered into.
Derivatives Not Designated as Hedging Instruments—Instruments - Foreign Currency Hedges We also enter into forward foreign exchange contracts to mitigate the impact changes in currency exchange rates have on balance sheet monetary assets and liabilities. None of these contracts are designated as hedges for financial accounting purposes and, accordingly, changes in value of the foreign exchange forward contracts and in the offsetting underlying on-balance-sheet transactions are reflected in the accompanying condensed consolidated statements of income under the caption “Other, net.”
- 14 -
GLATFELTER
9.30.156.30.16 Form 10-Q
The following sets forth derivatives used to mitigate the impact changes in currency exchange rates have on balance sheet monetary assets and liabilities:
In thousands | September 30 2015 | December 31 2014 | June 30 2016 | December 31 2015 | ||||||||||||
Derivative | ||||||||||||||||
Sell/Buy - sell notional | ||||||||||||||||
U.S. Dollar / Euro | — | 4,000 | ||||||||||||||
U.S. Dollar / British Pound | 7,000 | 9,000 | 10,500 | 10,000 | ||||||||||||
Euro / British Pound | — | 2,000 | ||||||||||||||
British Pound / Euro | 2,000 | — | 2,500 | 3,500 | ||||||||||||
Sell/Buy - buy notional | ||||||||||||||||
Euro / U.S. Dollar | 7,000 | — | 3,500 | 12,500 | ||||||||||||
British Pound / Euro | 15,500 | 3,000 | 19,000 | 13,500 |
These contracts have maturities of one month from the date originally entered into.
Fair Value Measurements The following table summarizes the fair values of derivative instruments for the period indicated and the line items in the accompanying condensed consolidated balance sheets where the instruments are recorded:
In thousands | September 30 2015 | December 31 2014 | September 30 2015 | December 31 2014 | June 30 2016 | December 31 2015 | June 30 2016 | December 31 2015 | ||||||||||||||||||||||||
Balance sheet caption | Prepaid Expenses and Other Current Assets | Other Current Liabilities | Prepaid Expenses and Other Current Assets | Other Current Liabilities | ||||||||||||||||||||||||||||
Designated as hedging: | ||||||||||||||||||||||||||||||||
Forward foreign currency exchange contracts | $ | 693 | $ | 3,106 | $ | 1,676 | $ | 394 | $ | 915 | $ | 955 | $ | 15 | $ | 1,545 | ||||||||||||||||
Not designated as hedging: | ||||||||||||||||||||||||||||||||
Forward foreign currency exchange contracts | $ | 91.0 | $ | 70 | $ | 0 | $ | 161 | $ | 124 | $ | 68 | $ | — | $ | 49 |
The amounts set forth in the table above represent the net asset or liability giving effect to rights of offset with each counterparty. The effect of netting the amounts presented above did not have a material effect on our consolidated financial position.
The following table summarizes the amount of income or (loss) from derivative instruments recognized in our results of operations for the periods indicated and the line items in the accompanying condensed consolidated statements of income where the results are recorded:
Three months ended September 30 | Nine months ended September 30 | |||||||||||||||
In thousands | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Designated as hedging: | ||||||||||||||||
Forward foreign currency exchange contracts: | ||||||||||||||||
Effective portion – cost of products sold | $ | 1,972 | $ | (137 | ) | $ | 4,595 | $ | (1,227 | ) | ||||||
Ineffective portion – other – net | (184 | ) | 81 | 104 | 181 | |||||||||||
Not designated as hedging: | ||||||||||||||||
Forward foreign currency exchange contracts: | ||||||||||||||||
Other – net | $ | 621 | $ | 595 | $ | 1,028 | $ | 1,792 |
Three months June 30 | Six months June 30 | |||||||||||||||
In thousands | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Designated as hedging: | ||||||||||||||||
Forward foreign currency exchange contracts: | ||||||||||||||||
Effective portion – cost of products sold | $ | (215 | ) | $ | 1,750 | $ | 83 | $ | 2,623 | |||||||
Ineffective portion – other – net | 73 | (62 | ) | (330 | ) | 288 | ||||||||||
Not designated as hedging: | ||||||||||||||||
Forward foreign currency exchange contracts: | ||||||||||||||||
Other – net | $ | 475 | $ | (313 | ) | $ | 1,064 | $ | 407 |
The impact of activity not designated as hedging was substantially all offset by the remeasurement of the underlying on-balance sheeton-balance-sheet item.
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The fair values of the foreign exchange forward contracts are considered to be Level 2. Foreign currency forward contracts are valued using foreign currency forward and interest rate curves. The fair value of each contract is determined by comparing the contract rate to the forward rate and discounting to present value. Contracts in a gain position are recorded in the condensed consolidated balance sheets under the caption “Prepaid expenses and other current assets” and the value of contracts in a loss position is recorded under the caption “Other current liabilities.”
A rollforward of fair value amounts recorded as a component of accumulated other comprehensive income (loss) is as follows:
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Balance at January 1, | $ | 3,282 | $ | (1,296 | ) | $ | (178 | ) | $ | 3,282 | ||||||
Deferred gains on cash flow hedges | 1,100 | 2,223 | 1,294 | 2,995 | ||||||||||||
Reclassified to earnings | (4,595 | ) | 1,227 | (83 | ) | (2,623 | ) | |||||||||
|
|
|
| |||||||||||||
Balance at September 30, | $ | (213 | ) | $ | 2,154 | |||||||||||
Balance at June 30, | $ | 1,033 | $ | 3,654 | ||||||||||||
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|
|
We expect substantially all of the amounts recorded as a component of accumulated other comprehensive income will be recorded as a component of the capital asset or realized in results of operations within the next twelve to twenty-five months and the amount ultimately recognized will vary depending on actual market rates.
- 15 - GLATFELTER 6.30.16 Form 10-Q |
Credit risk related to derivative activity arises in the event the counterparty fails to meet its obligations to us.
- 15 -
GLATFELTER
9.30.15 Form 10-Q
This exposure is generally limited to the amounts, if any, by which the counterparty’s obligations exceed our obligation to them. Our policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings.
COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS |
Fox River—River - Neenah, Wisconsin
Background. We have significant uncertainties associated with environmental claims arising out of the presence of polychlorinated biphenyls (“PCBs”) in sediments in the lower Fox River, on which our former Neenah facility was located, and in the Bay of Green Bay Wisconsin (collectively, the “Site”). Since the early 1990s, the United States, the State of Wisconsin and two Indian tribes (collectively, the “Governments”) have pursued a cleanup of a 39-mile stretch of river from Little Lake Butte des Morts into Green Bay and natural resource damages (“NRDs”).
The United States notified the following parties (“PRPs”) of their potential responsibility to implement response actions, to pay response costs, and to compensate for NRDs at this site: us, Appvion, Inc. (formerly known as Appleton Papers Inc.), CBC Coating, Inc. (formerly known as Riverside Paper Corporation), Georgia-Pacific Consumer Products, L.P. (“Georgia-Pacific”, formerly known as Fort James Operating Company), Menasha Corporation, NCR Corporation (“NCR”), U.S. Paper Mills Corp., and WTM I Company. As described below, many other parties have been joined in litigation. After giving effect to settlements reached with the Governments, the remaining PRPs exposed to continuing obligations to implement the remainder of the cleanup consist of us, Georgia-Pacific and NCR.
The Site has been subject to certain studies and the parties conducted certain demonstration projects and completed certain interim cleanups. The permanent cleanup, known as a “remedial action” under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”), consists of sediment dredging, installation of engineered caps, and placement of sand covers in various areas in the bed of the river.
The United States Environmental Protection Agency (“EPA”) has divided the Site into five “operable units”,
including the most upstream portion of the Site on which our facility was located (“OU1”) and four downstream reaches of the river and bay (“OU2-5”).
We and WTM I Company implemented the remedial action in OU1 under a consent decree with the Governments; Menasha Corporation made a financial contribution to that work. That project began in 2004 and the work is complete other than on-going monitoring and maintenance.
For OU2-5, work has proceeded primarily under a Unilateral Administrative Order (“UAO”) issued in November 2007 by the EPA to us and seven other respondents. The remedial actions from 2007 through 2014 were funded primarily by NCR and its indemnitors, including Appvion, Inc. In late June 2015, we began placing sand covers andplaced certain other covering and capping in OU4b as a response to the Government’s demands. We expect thedemands at a cost of the remediation we will perform in 2015 to be approximately $10$9.7 million. Georgia Pacific and NCR are fundingfunded work in 2015 pursuant to a proposed consent decree.decree that the United States did not move to enter until April 12, 2016; the court has not yet ruled on that motion. Work is scheduled to continue in OU2-5 through 2017; although work may be required into 2018, to complete the project, with monitoring and maintenance to follow.
Although we have not contributed significant funds towards remedial actions other than in OU1 until 2015, asAs more fully discussed below, significant uncertainties exist pertaining to the ultimate allocation of OU2-5 remediation costs as well as the shorter term funding of the remedial actions for OU2-5.
Cost estimates.Estimates of the Site remediation change over time as we, or others, gain additional data and experience at the Site. In addition, disagreement exists over the likely costs for some of this work. On October 14, 2014, the Governments represented to the United States District Court in Green Bay that $1.1 billion provided an “upper end estimate of total past and future response costs” including a $100 million “uncertainty premium for future response costs.” Based upon estimates made by the Governments and independent estimates commissioned by various potentially responsible parties, we have no reason to disagree with the Governments’ assertion. Much of that amount has already been incurred, including approximately $100 million for OU1 and what we believe to be approximately $500$575 million for OU2-5 prior to the 20152016 remediation season.
In previous years,2016, the Governments indicated their expectation wasagain seek approximately $100 million of work to be completed in OU2-5. The exact work and a more precise estimate of its cost depend on certain unresolved technical issues. We have begun an effort to place the final layer on certain caps. We do not yet know to what extent we will undertake additional work in OU2-5 completed at a rate estimated2016; however, we expect to cost at least $70 million annually in 2015 and 2016, and at lower rates thereafter. However, the Governments have revised their estimate per year and the cost for the 2015 dredging season was increased to be approximately $100spend less than $10 million.
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6.30.16 Form 10-Q
As the result of a partial settlement, Georgia-Pacific has no obligation to pay for work upstream of a line near
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GLATFELTER
9.30.15 Form 10-Q
Georgia-Pacific’s Green Bay West Mill located in OU4. We believe substantially all in-water work upstream of this line had been completed as of the end of the 2014 dredging season.
Allocation Litigation.In January 2008, NCR and Appvion brought an action in the federal district court in Green Bay to allocate among all parties responsible for this Site all of the costs incurred by the Governments, all of the costs incurred by the parties, and all of the NRDs owed to the Natural Resource Trustees. We have previously referred to this case as the “Whiting Litigation.” After several summary judgment rulings and a trial, the trial court entered judgment in the Whiting Litigation allocating to NCR 100% of the costs of (a) theOU2-5 cleanup, (b) NRDs, (c) past and future costs incurred by the Governments in OU2-5, and (d) past and future costs incurred by any of the other parties net of an appropriate equitable adjustment for insurance recoveries. As to Glatfelter, NCR was judged liable to us for $4.28 million and any future costs or damages we may incur. NCR was held not responsible for costs incurred in OU1.
All parties appealed the Whiting Litigation judgment to the United States Court of Appeals for the Seventh Circuit. On September 25, 2014, that court affirmed, holding that if knowledge and fault were the only equitable factors governing allocation of costs and NRDs at the Site, NCR would owe 100% of all costs and damages in OU2-5, but would not have a share of costs in OU1 — which is upstream of the outfall of the facilities for which NCR is responsible — solely as an “arranger for disposal” of PCB-containing waste paper by recycling it at our mill. However, the court of appeals vacated the judgment and remanded the case for the district court’s further consideration of whether any other equitable factors might cause the district court to alter its allocation.
We contend the district court should, after further consideration, reinstate the 100%, or some similar very high, allocation to NCR of all the costs, and should hold that we should bear no share or a very small share. However, NCR has taken a contrary position and has sought contributions from others for future work until all allocation issues are resolved.
In addition, we take the position that the “single site” theory on which the courts held us responsible for cleaning up parts of the Site far downstream of our former mill should, if applied to NCR, make it liable for costs incurred in OU1. The district court agreed with us in an order dated March 3, 2015. On March 31, 2015, NCR sought review of that order by the court of appeals which review was denied on May 1, 2015. However, on May 15, 2015, the district court issued an opinion in the Government Action, described below, containing a sentence suggesting that NCR would not be liable for
OU1. Also as described below, on October 19, 2015, the district court reconsidered its May 15 opinion and ruled against NCR generally, although with no specific reference to OU1.
Appvion and NCR have had a cost-sharing agreement since at least 1998. The court of appeals held if Appvion incurred any recoverable costs because the Governments had named Appvion as a potentially responsible party, then Appvion may have a right to recover those costs under CERCLA. We and Appvion disagree over the proper treatment of amounts that Appvion incurred while a PRP that were also subject to a cost-sharing agreement with NCR; we contend Appvion may not recover costs it was contractually obligated to incur, that it has no other costs, and if it did, we would have a right to contribution of any recovery against NCR and others. However, Appvion takes a contrary position and claims in excess of $170approximately $200 million.
The district court has established a schedule for the Whiting Litigation under which it would hold a trial beginning in July 2016March 2017 on remaining issues.
Enforcement Litigation.In October 2010, the United States and the State of Wisconsin brought an action (“Government Action”) in the federal district court in Green Bay against us and 13 other defendants seeking (a) to recover all of theirthe United States’ and the State of Wisconsin’s unreimbursed past costs, (b) to obtain a declaration of joint and several liability for all of their future costs, (c) to recover NRDs, and (d) to obtain a declaration of liability of all of the respondents on the UAO to perform the remedy in OU2-5 as required by the UAO and a mandatory permanent injunction to the same effect. The last of these claims was tried in 2012, and in May 2013, the district court enjoined us, NCR, WTM I, and Menasha Corp. to perform the work under the UAO. As the result of partial settlements, U.S. Paper Mills Corp. and Georgia-Pacific Consumer Products L.P. agreed to joint and several liability for some of the work. Appvion was held not liable for this Site under CERCLA.
All other potentially responsible parties, including the United States and the State of Wisconsin, have settled with the Governments. As a result, the remaining defendants consist of us, NCR, and Georgia-Pacific.
We appealed the injunction to the United States Court of Appeals for the Seventh Circuit, as did NCR, WTM I, and Menasha. On September 25, 2014, the court of appeals decided our and NCR’s appeals; the others’ appeals were not decided because they entered into a settlement. The court of appeals vacated the injunction as to us and NCR. However, it affirmed the district court’s ruling that we are liable for response actions in OU2-5 and for complying with the UAO. The court of appeals vacated and remanded the district court’s decision that
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9.30.15 Form 10-Q
NCR had failed to prove that liability for OU2-5 could be apportioned, directing the lower court to consider issues it had not considered initially.
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6.30.16 Form 10-Q
On remand, the district court issued an opinion on May 15, 2015, (“May 15 Decision”) in which it held that the existing trial record allowed it to apportion NCR’s liability for OU4 at 28% of the total OU4 costs. The district court did not apportion liability for OU2 or OU3. The court’s opinion contains a sentence stating that NCR would not be liable for OU1 because the facilities formerly owned by NCR discharged downstream. We moved for reconsideration of the May 15 Decision, as did the United States, Georgia-Pacific, and certain other parties. On October 19, 2015, the district court reconsidered its May 15 Decision and heldholding that NCR had not shown a reasonable basis for apportionment of its liability for the site. On January 25, 2016, the court denied NCR’s request to certify that decision for immediate appeal.
We do not knowAs described below, the United States has withdrawn its natural resources damages claim against us. The Governments’ intentions concerning further litigationremaining claims principally consist of claims for (1) unreimbursed past costs of the United States totaling $35.1 million (as incurred through September 30, 2015) and unreimbursed past costs of the Wisconsin Department of Natural Resources totaling $3.9 million (as incurred through June 30, 2015), and (2) costs incurred and/or to be incurred after September 30, 2015 and June 30, 2015, respectively. The remaining issues in the Government Action nor do we knoware set for trial to commence after the schedule for any further proceedings. We cannot now predict when it will be resolved.conclusion of the 2017 trial in the Whiting Litigation.
Interim Funding of Ongoing Work.As described above, the court of appeals vacated the allocation judgment in the Whiting Litigation on September 25, 2014, but neither court has since replaced that allocation with any other. The 2007 UAO requires the PRPs to submit annual remediation work plans. For 2015, the EPA approved the 2015 Work Plan for $100 million of remediation activities. NCR, GP, and we were not able to reach agreement on a division of the costs of that work on an interim basis, subject to reallocation in the Whiting Litigation. NCR and GP have entered into a proposed consent decree with the United States under which they willagreed to fund certain work estimated to cost approximately $67 million in 2015, and they willwould not be responsible for completing the remainder of the work in 2015, estimated to cost approximately $33 million. However, NCR and GP did not complete all of the work assigned to them under the consent decree. The United States hasdid not movedmove to enter that consent decree.decree until April 12, 2016, and the court has not yet ruled on that motion. Through the issuance of the 2015 Work Plan the EPA assigned to us those remaining tasks. Under the proposed consent decree, all parties would remain jointly and severally liable for work in the 2015 Work Plan not completed in 2015, except for a small amount of work upstream of the area for which GP is responsible. We contracted for remediation work in OU4 estimated toat a total approximately $10cost of $9.7 million, an amount of work less than the amount assigned to us in the 2015 Work Plan.
We anticipate that $10 millionthe amount of work performed by us in 2015 would satisfysatisfied our share of the obligation if NCR and GP perform the work assigned to them in the 2015 Work Plan. The United States disagrees. We cannot predict the outcome of these disagreements or any possible resulting litigation.
With respectThe 2016 Work Plan similarly calls for completion of work that is estimated to cost in the range of $100 million. However, unlike the 2015 Work Plan, we disagree with the United States over i) whether it does not allocate
the work purportedly assignedamong NCR, GP, and us. The parties have again not come to
us could be completed in agreement on an interim allocation among them of responsibility for completing the specified timeframe; ii) whether the EPA has the legal authority to assign remedial tasks as it purports to have done under the terms of the UAO; iii) whether we have available to us avenueswork called for relief from the purported obligation to perform the assigned work in 2015; iv) whether we have any other responses of which we may avail our self; v) whether an arbitrary per capita allocation of one-third can be imposed on us in light of the multiple rulings by the courts since 2009 that appear inconsistent with a per capita allocation; and vi) whether the 2015 Work Plan affects the Company’s ultimate liability for this Site.
In September 2015, the U.S. Department of Justice notified us that we, along with Georgia - Pacific, should be prepared to participate in the remediation activities during 2016. In addition, we understand NCR has submitted a draft 2016 Work Plan. Although we do notNCR and GP have an estimatebegun certain work. We have begun placement of the costs of completing the work NCR proposes be completed in 2016, we expect the cost could approximate $100 million. The draft does not assign work to particular parties.certain capping material.
Because we may not be able to obtain an agreement with the other parties or a ruling in litigation defining our obligation to contribute to work in 2016 prior to the time that work would have to be implemented, it is conceivable that we may have to choose an amount of work that we believe satisfies any obligation we may have to complete work in 2016, which selection we will have to defend after the fact. ItWe expect to spend less than $10 million in connection with the 2016 Work Plan. In addition, it is also conceivable we may be in the same position with respect to work in OU2-5 beyond the 2016 season. Although we are unable to determine with any degree of certainty the amount we may be required to complete or to fund, those amounts could be significant. Any amounts we pay or any other party pays in the interim may be subject to reallocation when the Whiting Litigation is resolved.
NRDs.The Governments’ NRD assessment documents originally claimed we are jointly and severally responsible for NRDs with a value between $176 million and $333 million. The Governments claimed this range should be inflated to current dollars and then certain unreimbursed past assessment costs should be added, so the range of their claim was $287 million to $423 million in 2009.
However, on October 14, 2014, the Governments represented to the district court that if certain settlements providing $45.9 million toward compensation of NRDs were approved, the total NRD recovery would amount to $105 million. The Governments stated they would consider those recoveries adequate and they would withdraw their claims against us and NCR for additional compensation of NRDs. On October 19, 2015, the district court granted the Governments leave to withdraw their
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9.30.15 Form 10-Q
NRD claims against us without prejudice to re-filing them at some later time. Some of the settling parties, including all of the settling parties contributing the $45.9 million, have waived their rights to seek contribution from us of the settlement amounts. We previously paid a portion of the earlier settlements that the Governments value at $59 million and that we contend may be somewhat more.
Reserves for the Site.Our reserve including ongoing monitoring obligations in OU1, our share of remediation of the downstream portions of the Site, NRDs and all pending, threatened or asserted and unasserted claims against us relating to PCB contamination is set forth below:
In thousands | 2015 | 2014 | ||||||
Balance at January 1, | $ | 16,223 | $ | 16,276 | ||||
Payments | (5,617 | ) | (39 | ) | ||||
Accruals | 10,000 | — | ||||||
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Balance at September 30, | $ | 20,606 | $ | 16,237 | ||||
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6.30.16 Form 10-Q
Six months ended | ||||||||
June 30 | ||||||||
In thousands | 2016 | 2015 | ||||||
Balance at January 1, | $ | 17,105 | $ | 16,223 | ||||
Payments | (1,189 | ) | (21 | ) | ||||
Accruals | — | — | ||||||
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Balance at June 30, | $ | 15,916 | $ | 16,202 | ||||
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The payments set forth above represent cash paid towards completion of remediation activities in connection with the 2015 and 2016 Work Plan,Plans. Our reserve as of which approximately $4.5 million will be paid during the fourth quarter of 2015. In addition, in the third quarter of 2015 we increased our reserve by $10.0 million to reflectJune 30, 2016, includes our estimate of costs to be incurred related tofor remediation work, pending clarity from the 2016 Work Plan. The charge is recorded in the accompanying condensed consolidated financial statements under the caption “Selling, general and administrative expenses.”Whiting litigation. If we are unsuccessful in the allocation litigation or in the enforcement litigation described above, we may be required to record additional charges and such charges could be significant.
Of our total reserve for the Fox River, $16.0$11.4 million is recorded in the accompanying SeptemberJune 30, 20152016 condensed consolidated balance sheet under the caption “Environmental liabilities” and the remainder is recorded under the caption “Other long term liabilities.”
As described above, the appellate court vacated and remanded for reconsideration the district court’s ruling in the Whiting Litigation that NCR would bear 100% of costs for the downstream portion of the Site. We continue to believe we will not be allocated a significant share of liability in any final equitable allocation of the response costs for OU2-5 or for NRDs. The accompanying condensed consolidated financial
statements do not include reserves for any future defense costs, which could be significant, related to our involvement at the Site.
In setting our reserve for the Site, we have assessed our legal defenses, including our successful defenses to the allegations made in the Whiting Litigation and the original determination in the Whiting Litigation that NCR owes us “full contribution” for response costs and for NRDs that we may become obligated to pay except in OU1. We assume we will not bear the entire cost of remediation or damages to the exclusion of other known parties at the Site, who are also jointly and severally liable. The existence and ability of other parties to participate has also been taken into account in setting our reserve, and setting our reserve is generally based on our evaluation of recent publicly available financial information on certain of the responsible parties and any known insurance, indemnity or cost sharing agreements between responsible parties and third parties. In addition, we have considered the magnitude, nature, location and circumstances associated with the various discharges of PCBs to the river and the relationship of those discharges to identified contamination. We will continue to evaluate
our exposure and the level of our reserves associated with the Site.
Other Information.The Governments have published studies estimating the amount of PCBs discharged by each identified potentially responsible party to the lower Fox River and Green Bay. These reports estimate our Neenah mill’s share of the mass of PCBs discharged to be as high as 27%. The district court has found the discharge mass estimates used in these studies not to be accurate. We believe the Neenah mill’s absolute and relative contribution of PCB mass is significantly lower than the estimates set forth in these studies. The district court in the Government Action has found that the Neenah mill discharged an unknown amount of PCBs.
Based upon the rulings in the Whiting Litigation and the Government Action, neither of which endorsed an equitable allocation in proportion to the mass of PCBs discharged, we continue to believe an allocation in proportion to mass of PCBs discharged would not constitute an equitable allocation of the potential liability for the contamination at the Fox River. We contend other factors, such as a party’s role in causing costs, the location of discharge, and the location of contamination must be considered in order for the allocation to be equitable.
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9.30.15 Form 10-Q
Range of Reasonably Possible Outcomes. Based on our analysis of all available information, including but not limited to decisions of the courts, official documents such as records of decision, as well as discussions with legal counsel and cost estimates for work to be performed at the Site, and substantially dependent on the resolution of the allocation issues discussed above, we believe it is reasonably possible that our costs associated with the Fox River matter could exceed the aggregate amounts accrued for the Fox River matter by amounts ranging from insignificant to $175$190 million. We believe the likelihood of an outcome in the upper end of the monetary range is less than other possible outcomes within the range and the possibility of an outcome in excess of the upper end of the monetary range is remote.
We expect remediation costs to be incurred primarily over the next two to three years, although we are unable to determine with any degree of certainty the amount we may be required to fund for interim remediation work. To the extent we provide such interim funding, we contend that NCR or another party would be required to reimburse us once the final allocation is determined.
Summary.Our current assessment is we will be able to manage this environmental matter without a long-term, material adverse impact on the Company. This matter could, however, at any particular time or for any particular year or years, have a material adverse effect on
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6.30.16 Form 10-Q
our consolidated financial position, liquidity and/or results of operations or could result in a default under our debt covenants. Moreover, there can be no assurance our reserves will be adequate to provide for future obligations related to this matter, or our share of costs and/or damages will not exceed our available resources, or those obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations. Should a court grant the United States or the State of Wisconsin relief requiring us
individually either to perform directly or to contribute significant amounts towards remedial action downstream of Little Lake Butte des Morts those developments could have a material adverse effect on our consolidated financial position, liquidity and results of operations and might result in a default under our loan covenants.
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9.30.156.30.16 Form 10-Q
SEGMENT INFORMATION |
The following tables set forth financial and other information by business unit for the period indicated:
Three months ended September 30 Dollars in millions | Composite Fibers | Advanced Airlaid Materials | Specialty Papers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended June 30 | Composite Fibers | Advanced Airlaid Materials | Specialty Papers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dollars in millions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 133.9 | $ | 154.5 | $ | 63.2 | $ | 74.4 | $ | 222.8 | $ | 236.2 | $ | — | $ | — | $ | 420.0 | $ | 465.1 | $ | 136.4 | $ | 140.4 | $ | 60.8 | $ | 57.5 | $ | 209.3 | $ | 212.9 | $ | — | $ | — | $ | 406.4 | $ | 410.8 | ||||||||||||||||||||||||||||||||||||||||
Energy and related sales, net | — | — | — | — | 1.2 | 0.9 | — | — | 1.2 | 0.9 | — | — | — | — | 2.0 | 0.7 | — | — | 2.0 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total revenue | 133.9 | 154.5 | 63.2 | 74.4 | 224.0 | 237.1 | — | — | 421.1 | 466.0 | 136.4 | 140.4 | 60.8 | 57.5 | 211.3 | 213.6 | — | — | 408.4 | 411.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of products sold | 108.4 | 123.7 | 54.6 | 64.7 | 196.1 | 195.2 | 2.1 | 1.8 | 361.2 | 385.4 | 109.0 | 112.4 | 51.8 | 52.3 | 202.9 | 211.9 | 2.0 | 2.1 | 365.7 | 378.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Gross profit (loss) | 25.5 | 30.8 | 8.6 | 9.7 | 27.9 | 41.9 | (2.1 | ) | (1.8 | ) | 59.9 | 80.5 | 27.4 | 28.0 | 9.0 | 5.2 | 8.4 | 1.7 | (2.0 | ) | (2.1 | ) | 42.7 | 32.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SG&A | 11.5 | 12.6 | 1.8 | 2.2 | 10.4 | 14.1 | 16.2 | 9.0 | 39.8 | 37.9 | 12.1 | 11.3 | 2.2 | 2.1 | 14.2 | 11.7 | 8.7 | 4.0 | 37.2 | 29.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | — | — | — | — | — | — | (0.1 | ) | (1.6 | ) | (0.1 | ) | (1.6 | ) | — | — | — | — | — | — | — | (0.1 | ) | — | (0.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total operating income (loss) | 14.0 | 18.1 | 6.8 | 7.5 | 17.5 | 27.8 | (18.2 | ) | (9.2 | ) | 20.2 | 44.2 | 15.3 | 16.7 | 6.8 | 3.1 | (5.8 | ) | (10.0 | ) | (10.7 | ) | (6.0 | ) | 5.5 | 3.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-operating expense | — | — | — | — | — | — | (4.4 | ) | (4.8 | ) | (4.4 | ) | (4.8 | ) | — | — | — | — | — | — | (3.6 | ) | (4.1 | ) | (3.6 | ) | (4.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Income (loss) before income taxes | $ | 14.0 | $ | 18.1 | $ | 6.8 | $ | 7.5 | $ | 17.5 | $ | 27.8 | $ | (22.6 | ) | $ | (14.0 | ) | $ | 15.8 | $ | 39.4 | $ | 15.3 | $ | 16.7 | $ | 6.8 | $ | 3.1 | $ | (5.8 | ) | $ | (10.0 | ) | $ | (14.3 | ) | $ | (10.1 | ) | $ | 2.0 | $ | (0.3 | ) | |||||||||||||||||||||||||||||||||
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Net tons sold(thousands) | 38.9 | 40.1 | 24.8 | 26.3 | 203.6 | 208.4 | — | — | 267.2 | 274.7 | 40.7 | 39.4 | 24.4 | 22.6 | 194.7 | 191.3 | — | — | 259.7 | 253.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | $ | 6.7 | $ | 7.4 | $ | 2.2 | $ | 2.3 | $ | 6.4 | $ | 6.5 | $ | 0.5 | $ | 0.5 | $ | 15.8 | $ | 16.7 | $ | 7.2 | $ | 6.7 | $ | 2.4 | $ | 2.1 | $ | 6.5 | $ | 6.3 | $ | 0.7 | $ | 0.5 | $ | 16.8 | $ | 15.6 | ||||||||||||||||||||||||||||||||||||||||
Capital expenditures | 5.8 | 5.4 | 1.8 | 1.3 | 22.1 | 9.7 | — | 0.5 | 29.7 | 16.9 | 2.3 | 5.6 | 6.1 | 1.5 | 28.7 | 15.6 | — | 0.1 | 37.1 | 22.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine months ended September 30 Dollars in millions | Composite Fibers | Advanced Airlaid Materials | Specialty Papers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended June 30 | Composite Fibers | Advanced Airlaid Materials | Specialty Papers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 409.6 | $ | 470.1 | $ | 183.0 | $ | 216.2 | $ | 655.6 | $ | 679.9 | $ | — | $ | — | $ | 1,248.2 | $ | 1,366.2 | $ | 259.9 | $ | 275.7 | $ | 121.5 | $ | 119.8 | $ | 427.2 | $ | 432.8 | $ | — | $ | — | $ | 808.6 | $ | 828.3 | ||||||||||||||||||||||||||||||||||||||||
Energy and related sales, net | — | — | — | — | 3.9 | 6.9 | — | — | 3.9 | 6.9 | — | — | — | — | 2.7 | 2.8 | — | — | 2.7 | 2.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total revenue | 409.6 | 470.1 | 183.0 | 216.2 | 659.5 | 686.8 | — | — | 1,252.2 | 1,373.1 | 259.9 | 275.7 | 121.5 | 119.8 | 429.9 | 435.6 | — | — | 811.3 | 831.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of products sold | 329.8 | 376.7 | 162.0 | 189.9 | 608.4 | 624.3 | 7.1 | 5.2 | 1,107.3 | 1,196.1 | 210.3 | 221.5 | 104.1 | 107.3 | 394.0 | 412.3 | 2.3 | 5.0 | 710.7 | 746.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Gross profit (loss) | 79.8 | 93.4 | 21.0 | 26.3 | 51.1 | 62.5 | (7.1 | ) | (5.2 | ) | 144.8 | 177.0 | 49.6 | 54.2 | 17.4 | 12.5 | 35.9 | 23.3 | (2.3 | ) | (5.0 | ) | 100.6 | 84.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SG&A | 34.4 | 38.8 | 5.8 | 6.8 | 34.2 | 39.5 | 25.7 | 18.7 | 100.2 | 103.8 | 23.2 | 22.9 | 4.2 | 4.0 | 26.6 | 23.9 | 15.0 | 9.5 | 69.0 | 60.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | — | — | — | — | — | — | (2.9 | ) | (3.9 | ) | (2.9 | ) | (3.9 | ) | — | — | — | — | — | — | — | (2.8 | ) | — | (2.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total operating income (loss) | 45.4 | 54.6 | 15.2 | 19.5 | 16.9 | 23.0 | (29.9 | ) | (20.0 | ) | 47.5 | 77.1 | 26.4 | 31.3 | 13.2 | 8.5 | 9.3 | (0.6 | ) | (17.3 | ) | (11.7 | ) | 31.5 | 27.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-operating expense | — | — | — | — | — | — | (13.1 | ) | (14.0 | ) | (13.1 | ) | (14.0 | ) | — | — | — | — | — | — | (8.3 | ) | (8.7 | ) | (8.3 | ) | (8.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Income (loss) before income taxes | $ | 45.4 | $ | 54.6 | $ | 15.2 | $ | 19.5 | $ | 16.9 | $ | 23.0 | $ | (43.0 | ) | $ | (34.0 | ) | $ | 34.4 | $ | 63.1 | $ | 26.4 | $ | 31.3 | $ | 13.2 | $ | 8.5 | $ | 9.3 | $ | (0.6 | ) | $ | (25.6 | ) | $ | (20.4 | ) | $ | 23.2 | $ | 18.6 | |||||||||||||||||||||||||||||||||||
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Supplementary Data | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net tons sold(thousands) | 116.2 | 119.5 | 71.4 | 76.0 | 593.6 | 601.3 | — | — | 781.2 | 796.8 | 77.6 | 77.3 | 48.9 | 46.7 | 400.5 | 390.0 | — | — | 527.0 | 514.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | $ | 20.1 | $ | 22.7 | $ | 6.5 | $ | 6.9 | $ | 19.3 | $ | 22.6 | $ | 1.5 | $ | 1.3 | $ | 47.4 | $ | 53.5 | $ | 14.3 | $ | 13.4 | $ | 4.7 | $ | 4.3 | $ | 13.2 | $ | 12.9 | $ | 1.2 | $ | 1.0 | $ | 33.4 | $ | 31.6 | ||||||||||||||||||||||||||||||||||||||||
Capital expenditures | 17.3 | 16.7 | 4.6 | 4.1 | 51.0 | 24.5 | 1.4 | 1.7 | 74.3 | 47.0 | 8.6 | 11.5 | 20.7 | 2.8 | 50.8 | 28.8 | 0.3 | 1.5 | 80.4 | 44.6 |
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
Business UnitsResults of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services or are included in “Other and Unallocated” in the Business Unit Performance table.
Management evaluates results of operations of the business units before pension expense, certain corporate level costs, and the effects of certain gains or losses not considered to be related to the core business operations. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of business units and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” In the evaluation of business unit results, management does not use any measures of total assets. This presentation is aligned with the management and operating structure of our company. It is also on this basis that the Company’s performance is evaluated internally and by the Company’s Board of Directors.
- 21 -
GLATFELTER
9.30.156.30.16 Form 10-Q
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS |
Our 5.375% Notes issued by P. H. Glatfelter Company (the “Parent”) are fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., Glatfelter Composite Fibers N. A., Inc. (“CFNA”), Glatfelter AdvancedAdvance Materials N.A., Inc. (“GAMNA”), and Glatfelter Holdings, LLC. The guarantees are subject to certain customary release provisions including i) the designation of such subsidiary as an unrestricted or excluded subsidiary; (ii) in connection with any sale or disposition of the capital stock of the subsidiary guarantor; and (iii) upon our exercise of our legal defeasance option or our covenant defeasance option, all of which are more fully described in the Indenture dated as of October 3, 2012 and the First Supplemental Indenture dated as of October 27, 2015, among us, the Guarantors and US Bank National Association, as Trustee, relating to the 5.375% Notes.
The following presents theour condensed consolidating statements of income, including comprehensive income for the three months and ninesix months ended SeptemberJune 30, 2016, our condensed consolidating cash flows for the six months ended June 30, 2016 and 2015 and 2014, theour condensed consolidating balance sheets as of SeptemberJune 30, 20152016 and December 31, 2014 and the condensed consolidating cash flows for the nine months ended September 30, 2015 and 2014. These financial statements reflect the Parent, the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and elimination entries necessary to combine such entities on a consolidated basis.2015. The condensed consolidating financial statements set forth below include the addition of CFNA and GAMNA as guarantors effective September 30, 2015 and all prior periods have been restated to retroactively effect this change. In addition, our presentation of the Guarantors’ statement of income for the three months and nine months ended September 30, 2014 has been restated to correctly apply the equity method of accounting to reflect the Guarantors’ equity interests in certain Non Guarantors. Such changes are reflected under the caption “Equity in earnings of subsidiaries” in the accompanying condensed consolidating statements of income. The correction had no impact on any financial information of the Parent Company, the Non Guarantors or on the condensed consolidating balance sheet or the statement of cash flows.during 2015.
Condensed Consolidating Statement of Income for the
three Three months ended SeptemberJune 30, 20152016
In thousands | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net sales | $ | 222,803 | $ | 19,005 | $ | 197,589 | $ | (19,437 | ) | $ | 419,960 | $ | 209,269 | $ | 17,561 | $ | 196,675 | $ | (17,092 | ) | $ | 406,413 | ||||||||||||||||||
Energy and related sales, net | 1,153 | — | — | — | 1,153 | 2,001 | — | — | — | 2,001 | ||||||||||||||||||||||||||||||
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Total revenues | 223,956 | 19,005 | 197,589 | (19,437 | ) | 421,113 | 211,270 | 17,561 | 196,675 | (17,092 | ) | 408,414 | ||||||||||||||||||||||||||||
Costs of products sold | 197,906 | 17,299 | 165,437 | (19,437 | ) | 361,205 | 204,495 | 16,711 | 161,577 | (17,092 | ) | 365,691 | ||||||||||||||||||||||||||||
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Gross profit | 26,050 | 1,706 | 32,152 | — | 59,908 | 6,775 | 850 | 35,098 | — | 42,723 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 24,764 | (8 | ) | 15,036 | — | 39,792 | 22,622 | (36 | ) | 14,605 | — | 37,191 | ||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | (4 | ) | — | (119 | ) | — | (123 | ) | ||||||||||||||||||||||||||||||||
Loss on dispositions of plant, equipment and timberlands, net | 2 | — | — | — | 2 | |||||||||||||||||||||||||||||||||||
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Operating income | 1,290 | 1,714 | 17,235 | — | 20,239 | |||||||||||||||||||||||||||||||||||
Operating income (loss) | (15,849 | ) | 886 | 20,493 | — | 5,530 | ||||||||||||||||||||||||||||||||||
Other non-operating income (expense) | ||||||||||||||||||||||||||||||||||||||||
Interest expense | (4,346 | ) | — | (23,201 | ) | 23,230 | (4,317 | ) | (4,289 | ) | — | (814 | ) | 1,150 | (3,953 | ) | ||||||||||||||||||||||||
Interest income | 181 | 23,129 | 11 | (23,231 | ) | 90 | 169 | 1,001 | 41 | (1,150 | ) | 61 | ||||||||||||||||||||||||||||
Equity in earnings of subsidiaries | 14,173 | (9,366 | ) | — | (4,808 | ) | — | 16,385 | 16,071 | — | (32,456 | ) | — | |||||||||||||||||||||||||||
Other, net | (961 | ) | 23 | 718 | — | (220 | ) | (575 | ) | (1,421 | ) | 2,313 | — | 317 | ||||||||||||||||||||||||||
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Total other non-operating income (expense) | 9,047 | 13,786 | (22,472 | ) | (4,809 | ) | (4,447 | ) | 11,690 | 15,651 | 1,540 | (32,456 | ) | (3,575 | ) | |||||||||||||||||||||||||
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Income (loss) before income taxes | 10,337 | 15,500 | (5,237 | ) | (4,809 | ) | 15,792 | (4,159 | ) | 16,537 | 22,033 | (32,456 | ) | 1,955 | ||||||||||||||||||||||||||
Income tax provision (benefit) | (3,167 | ) | 1,270 | 4,185 | — | 2,288 | (6,124 | ) | 152 | 5,962 | — | (10 | ) | |||||||||||||||||||||||||||
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Net income (loss) | 13,504 | 14,230 | (9,422 | ) | (4,809 | ) | 13,504 | |||||||||||||||||||||||||||||||||
Net income | 1,965 | 16,385 | 16,071 | (32,456 | ) | 1,965 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | (3,002 | ) | (5,954 | ) | (7,752 | ) | 13,706 | (3,002 | ) | (11,539 | ) | (13,937 | ) | (13,490 | ) | 27,427 | (11,539 | ) | ||||||||||||||||||||||
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Comprehensive income (loss) | $ | 10,502 | $ | 8,276 | $ | (17,174 | ) | $ | 8,897 | $ | 10,502 | $ | (9,574 | ) | $ | 2,448 | $ | 2,581 | $ | (5,029 | ) | $ | (9,574 | ) | ||||||||||||||||
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- 22 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Condensed Consolidating Statement of Income for the
three Six months ended SeptemberJune 30, 20142016
In thousands | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net sales | $ | 236,182 | $ | 17,735 | $ | 228,699 | $ | (17,524 | ) | $ | 465,092 | $ | 427,157 | $ | 36,207 | $ | 381,141 | $ | (35,874 | ) | $ | 808,631 | ||||||||||||||||||
Energy and related sales, net | 860 | — | — | — | 860 | 2,667 | — | — | — | 2,667 | ||||||||||||||||||||||||||||||
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Total revenues | 237,042 | 17,735 | 228,699 | (17,524 | ) | 465,952 | 429,824 | 36,207 | 381,141 | (35,874 | ) | 811,298 | ||||||||||||||||||||||||||||
Costs of products sold | 197,182 | 17,019 | 188,762 | (17,524 | ) | 385,439 | 396,454 | 34,761 | 315,391 | (35,874 | ) | 710,732 | ||||||||||||||||||||||||||||
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Gross profit | 39,860 | 716 | 39,937 | — | 80,513 | 33,370 | 1,446 | 65,750 | — | 100,566 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 19,352 | 589 | 17,946 | — | 37,886 | 41,067 | (221 | ) | 28,203 | — | 69,049 | |||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | (1,590 | ) | — | — | — | (1,590 | ) | |||||||||||||||||||||||||||||||||
Loss on dispositions of plant, equipment and timberlands, net | 4 | — | 22 | — | 26 | |||||||||||||||||||||||||||||||||||
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Operating income | 22,098 | 127 | 21,991 | — | 44,217 | |||||||||||||||||||||||||||||||||||
Operating income (loss) | (7,701 | ) | 1,667 | 37,525 | — | 31,491 | ||||||||||||||||||||||||||||||||||
Other non-operating income (expense) | ||||||||||||||||||||||||||||||||||||||||
Interest expense | (4,790 | ) | — | (90,098 | ) | 90,217 | (4,671 | ) | (8,704 | ) | — | (1,601 | ) | 2,236 | (8,069 | ) | ||||||||||||||||||||||||
Interest income | 152 | 89,951 | 145 | (90,218 | ) | 30 | 350 | 1,993 | 45 | (2,236 | ) | 152 | ||||||||||||||||||||||||||||
Equity in earnings of subsidiaries | 14,935 | (74,502 | ) | — | 59,566 | — | 29,257 | 27,825 | — | (57,082 | ) | — | ||||||||||||||||||||||||||||
Other, net | (383 | ) | 9 | 202 | 5 | (167 | ) | (1,117 | ) | (1,401 | ) | 2,135 | — | (383 | ) | |||||||||||||||||||||||||
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Total other non-operating income (expense) | 9,914 | 15,458 | (89,751 | ) | 59,570 | (4,808 | ) | 19,786 | 28,417 | 579 | (57,082 | ) | (8,300 | ) | ||||||||||||||||||||||||||
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Income (loss) before income taxes | 32,012 | 15,585 | (67,760 | ) | 59,570 | 39,409 | ||||||||||||||||||||||||||||||||||
Income before income taxes | 12,085 | 30,084 | 38,104 | (57,082 | ) | 23,191 | ||||||||||||||||||||||||||||||||||
Income tax provision (benefit) | 1,640 | 1,091 | 6,306 | — | 9,037 | (6,048 | ) | 827 | 10,279 | — | 5,058 | |||||||||||||||||||||||||||||
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Net income (loss) | 30,372 | 14,494 | (74,066 | ) | 59,570 | 30,372 | ||||||||||||||||||||||||||||||||||
Net income | 18,133 | 29,257 | 27,825 | (57,082 | ) | 18,133 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | (29,577 | ) | (25,843 | ) | 16,924 | 8,919 | (29,577 | ) | 4,203 | (384 | ) | (373 | ) | 757 | 4,203 | |||||||||||||||||||||||||
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Comprehensive income (loss) | $ | 795 | $ | (11,349 | ) | $ | (57,142 | ) | $ | 68,489 | $ | 795 | ||||||||||||||||||||||||||||
Comprehensive income | $ | 22,336 | $ | 28,873 | $ | 27,452 | $ | (56,325 | ) | $ | 22,336 | |||||||||||||||||||||||||||||
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- 23 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Condensed Consolidating Statement of Income for the
nine Three months ended SeptemberJune 30, 2015
In thousands | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net sales | $ | 655,599 | $ | 61,822 | $ | 590,466 | $ | (59,655 | ) | $ | 1,248,232 | $ | 212,920 | $ | 22,667 | $ | 194,779 | $ | (19,563 | ) | $ | 410,803 | ||||||||||||||||||
Energy and related sales, net | 3,936 | — | — | — | 3,936 | 715 | — | — | — | 715 | ||||||||||||||||||||||||||||||
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Total revenues | 659,535 | 61,822 | 590,466 | (59,655 | ) | 1,252,168 | 213,635 | 22,667 | 194,779 | (19,563 | ) | 411,518 | ||||||||||||||||||||||||||||
Costs of products sold | 614,060 | 58,554 | 494,360 | (59,655 | ) | 1,107,319 | 212,472 | 21,921 | 163,855 | (19,563 | ) | 378,685 | ||||||||||||||||||||||||||||
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Gross profit | 45,475 | 3,268 | 96,106 | — | 144,849 | 1,163 | 746 | 30,924 | — | 32,833 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 57,607 | 947 | 41,647 | — | 100,201 | 15,661 | 458 | 13,018 | — | 29,137 | ||||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | (1,526 | ) | (1,183 | ) | (179 | ) | — | (2,888 | ) | |||||||||||||||||||||||||||||||
Loss on dispositions of plant, equipment and timberlands, net | (51 | ) | — | (60 | ) | — | (111 | ) | ||||||||||||||||||||||||||||||||
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Operating income (loss) | (10,606 | ) | 3,504 | 54,638 | — | 47,536 | (14,447 | ) | 288 | 17,966 | — | 3,807 | ||||||||||||||||||||||||||||
Other non-operating income (expense) | ||||||||||||||||||||||||||||||||||||||||
Interest expense | (13,771 | ) | — | (35,965 | ) | 36,559 | (13,177 | ) | (4,608 | ) | — | (6,370 | ) | 6,626 | (4,352 | ) | ||||||||||||||||||||||||
Interest income | 513 | 36,226 | 52 | (36,559 | ) | 232 | 169 | 6,498 | 36 | (6,625 | ) | 77 | ||||||||||||||||||||||||||||
Equity in earnings of subsidiaries | 48,775 | 11,879 | — | (60,654 | ) | — | 17,478 | 11,305 | — | (28,783 | ) | — | ||||||||||||||||||||||||||||
Other, net | (2,423 | ) | (136 | ) | 2,367 | — | (192 | ) | (746 | ) | (29 | ) | 990 | — | 215 | |||||||||||||||||||||||||
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Total other non-operating income (expense) | 33,094 | 47,969 | (33,546 | ) | (60,654 | ) | (13,137 | ) | 12,293 | 17,774 | (5,344 | ) | (28,782 | ) | (4,060 | ) | ||||||||||||||||||||||||
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Income before income taxes | 22,488 | 51,473 | 21,092 | (60,654 | ) | 34,399 | ||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | (2,154 | ) | 18,062 | 12,622 | (28,782 | ) | (253 | ) | ||||||||||||||||||||||||||||||||
Income tax provision (benefit) | (7,789 | ) | 2,586 | 9,325 | — | 4,122 | (5,002 | ) | 584 | 1,317 | — | (3,101 | ) | |||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||
Net income | 30,277 | 48,887 | 11,767 | (60,654 | ) | 30,277 | 2,848 | 17,478 | 11,305 | (28,782 | ) | 2,848 | ||||||||||||||||||||||||||||
Other comprehensive income (loss) | (21,200 | ) | (30,607 | ) | 21,156 | 9,451 | (21,200 | ) | 17,087 | 13,680 | (9,958 | ) | (3,722 | ) | 17,087 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive income | $ | 9,077 | $ | 18,280 | $ | 32,923 | $ | (51,203 | ) | $ | 9,077 | $ | 19,935 | $ | 31,158 | $ | 1,347 | $ | (32,504 | ) | $ | 19,935 | ||||||||||||||||||
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- 24 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Condensed Consolidating Statement of Income for the
nine Six months ended SeptemberJune 30, 20142015
In thousands | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net sales | $ | 679,877 | $ | 56,138 | $ | 685,350 | $ | (55,211 | ) | $ | 1,366,154 | $ | 432,796 | $ | 42,817 | $ | 392,877 | $ | (40,218 | ) | $ | 828,272 | ||||||||||||||||||
Energy and related sales, net | 6,912 | — | — | — | 6,912 | 2,783 | — | — | — | 2,783 | ||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total revenues | 686,789 | 56,138 | 685,350 | (55,211 | ) | 1,373,066 | 435,579 | 42,817 | 392,877 | (40,218 | ) | 831,055 | ||||||||||||||||||||||||||||
Costs of products sold | 629,984 | 53,491 | 567,812 | (55,211 | ) | 1,196,076 | 416,154 | 41,255 | 328,923 | (40,218 | ) | 746,114 | ||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||
Gross profit | 56,805 | 2,647 | 117,538 | — | 176,990 | 19,425 | 1,562 | 63,954 | — | 84,941 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 53,699 | 1,431 | 48,622 | — | 103,751 | 32,843 | 955 | 26,611 | — | 60,409 | ||||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | (2,565 | ) | (1,316 | ) | — | — | (3,881 | ) | (1,522 | ) | (1,183 | ) | (60 | ) | — | (2,765 | ) | |||||||||||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Operating income | 5,671 | 2,532 | 68,916 | — | 77,120 | |||||||||||||||||||||||||||||||||||
Operating income (loss) | (11,896 | ) | 1,790 | 37,403 | — | 27,297 | ||||||||||||||||||||||||||||||||||
Other non-operating income (expense) | ||||||||||||||||||||||||||||||||||||||||
Interest expense | (14,284 | ) | — | (95,643 | ) | 95,682 | (14,245 | ) | (9,425 | ) | — | (12,764 | ) | 13,329 | (8,860 | ) | ||||||||||||||||||||||||
Interest income | 468 | 95,165 | 193 | (95,683 | ) | 143 | 331 | 13,097 | 41 | (13,327 | ) | 142 | ||||||||||||||||||||||||||||
Equity in earnings of subsidiaries | 56,784 | (38,229 | ) | — | (18,555 | ) | — | 34,562 | 21,499 | — | (56,061 | ) | — | |||||||||||||||||||||||||||
Other, net | (1,603 | ) | 30 | 1,673 | 5 | 105 | (1,460 | ) | (159 | ) | 1,649 | (2 | ) | 28 | ||||||||||||||||||||||||||
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|
|
|
|
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| |||||||||||||||||||||||||||||||
Total other non-operating income (expense) | 41,365 | 56,966 | (93,777 | ) | (18,551 | ) | (13,997 | ) | 24,008 | 34,437 | (11,074 | ) | (56,061 | ) | (8,690 | ) | ||||||||||||||||||||||||
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|
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|
|
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| |||||||||||||||||||||||||||||||
Income (loss) before income taxes | 47,036 | 59,498 | (24,861 | ) | (18,551 | ) | 63,123 | |||||||||||||||||||||||||||||||||
Income before income taxes | 12,112 | 36,227 | 26,329 | (56,061 | ) | 18,607 | ||||||||||||||||||||||||||||||||||
Income tax provision (benefit) | (2,653 | ) | 2,719 | 13,368 | — | 13,434 | (4,661 | ) | 1,665 | 4,830 | — | 1,834 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income (loss) | 49,689 | 56,779 | (38,229 | ) | (18,551 | ) | 49,689 | |||||||||||||||||||||||||||||||||
Net income | 16,773 | 34,562 | 21,499 | (56,061 | ) | 16,773 | ||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | (23,586 | ) | (26,392 | ) | 18,907 | 7,485 | (23,586 | ) | (18,198 | ) | (24,870 | ) | 28,890 | (4,020 | ) | (18,198 | ) | |||||||||||||||||||||||
|
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|
|
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|
| |||||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | 26,103 | $ | 30,387 | $ | (19,322 | ) | $ | (11,066 | ) | $ | 26,103 | $ | (1,425 | ) | $ | 9,692 | $ | 50,389 | $ | (60,081 | ) | $ | (1,425 | ) | |||||||||||||||
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- 25 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Condensed Consolidating Balance Sheet as of
September June 30, 20152016
In thousands | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 28,626 | $ | 297 | $ | 44,742 | $ | — | $ | 73,665 | $ | 6,512 | $ | 2,545 | $ | 49,475 | $ | — | $ | 58,532 | ||||||||||||||||||||
Other current assets | 232,486 | 260,054 | 261,431 | (268,192 | ) | 485,779 | 207,168 | 255,574 | 266,025 | (262,714 | ) | 466,053 | ||||||||||||||||||||||||||||
Plant, equipment and timberlands, net | 283,712 | 1,005 | 412,607 | — | 697,324 | 329,041 | 18,507 | 400,488 | — | 748,036 | ||||||||||||||||||||||||||||||
Investments in subsidiaries | 734,303 | 504,783 | — | (1,239,086 | ) | — | 783,479 | 535,117 | — | (1,318,596 | ) | — | ||||||||||||||||||||||||||||
Other assets | 132,732 | — | 148,732 | (485 | ) | 280,979 | 112,876 | — | 139,687 | — | 252,563 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets | $ | 1,411,859 | $ | 766,139 | $ | 867,512 | $ | (1,507,763 | ) | $ | 1,537,747 | $ | 1,439,076 | $ | 811,743 | $ | 855,675 | $ | (1,581,310 | ) | $ | 1,525,184 | ||||||||||||||||||
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|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
Current liabilities | $ | 368,220 | $ | 31,720 | $ | 163,984 | $ | (271,574 | ) | $ | 292,350 | $ | 401,540 | $ | 28,180 | $ | 144,387 | $ | (262,714 | ) | $ | 311,393 | ||||||||||||||||||
Long-term debt | 250,000 | — | 131,535 | — | 381,535 | 247,381 | — | 110,985 | — | 358,366 | ||||||||||||||||||||||||||||||
Deferred income taxes | 48,226 | (505 | ) | 50,110 | 3,376 | 101,207 | 26,905 | (229 | ) | 48,479 | — | 75,155 | ||||||||||||||||||||||||||||
Other long-term liabilities | 99,297 | 33 | 17,209 | — | 116,539 | 87,027 | 313 | 16,707 | — | 104,047 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities | 765,743 | 31,248 | 362,838 | (268,198 | ) | 891,631 | 762,853 | 28,264 | 320,558 | (262,714 | ) | 848,961 | ||||||||||||||||||||||||||||
Shareholders’ equity | 646,116 | 734,891 | 504,674 | (1,239,565 | ) | 646,116 | 676,223 | 783,479 | 535,117 | (1,318,596 | ) | 676,223 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,411,859 | $ | 766,139 | $ | 867,512 | $ | (1,507,763 | ) | $ | 1,537,747 | $ | 1,439,076 | $ | 811,743 | $ | 855,675 | $ | (1,581,310 | ) | $ | 1,525,184 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of
December 31, 20142015
In thousands | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 42,208 | $ | 509 | $ | 57,120 | $ | — | $ | 99,837 | $ | 59,130 | $ | 465 | $ | 45,709 | $ | — | $ | 105,304 | ||||||||||||||||||||
Other current assets | 216,940 | 439,910 | 254,911 | (436,976 | ) | 474,785 | 199,690 | 238,515 | 239,367 | (230,509 | ) | 447,063 | ||||||||||||||||||||||||||||
Plant, equipment and timberlands, net | 255,255 | 996 | 441,357 | — | 697,608 | 286,334 | 1,114 | 411,416 | — | 698,864 | ||||||||||||||||||||||||||||||
Investments in subsidiaries | 826,084 | 401,540 | — | (1,227,624 | ) | — | 737,450 | 507,116 | — | (1,244,566 | ) | — | ||||||||||||||||||||||||||||
Other assets | 121,125 | — | 186,128 | (17,979 | ) | 289,274 | 106,586 | — | 142,599 | — | 249,185 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets | $ | 1,461,612 | $ | 842,955 | $ | 939,516 | $ | (1,682,579 | ) | $ | 1,561,504 | $ | 1,389,190 | $ | 747,210 | $ | 839,091 | $ | (1,475,075 | ) | $ | 1,500,416 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
Current liabilities | 403,662 | 13,143 | 307,184 | (444,258 | ) | 279,731 | $ | 363,037 | $ | 9,725 | $ | 162,081 | $ | (230,523 | ) | $ | 304,320 | |||||||||||||||||||||||
Long-term debt | 250,000 | — | 721,457 | (572,579 | ) | 398,878 | 247,075 | — | 106,221 | — | 353,296 | |||||||||||||||||||||||||||||
Deferred income taxes | 46,483 | (506 | ) | 70,328 | (12,289 | ) | 104,016 | 28,561 | (79 | ) | 47,976 | — | 76,458 | |||||||||||||||||||||||||||
Other long-term liabilities | 112,358 | 24 | 11,608 | 5,780 | 129,770 | 87,270 | — | 15,825 | — | 103,095 | ||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total liabilities | 812,503 | 12,661 | 1,110,577 | (1,023,346 | ) | 912,395 | 725,943 | 9,646 | 332,103 | (230,523 | ) | 837,169 | ||||||||||||||||||||||||||||
Shareholders’ equity | 649,109 | 830,294 | (171,061 | ) | (659,233 | ) | 649,109 | 663,247 | 737,564 | 506,988 | (1,244,552 | ) | 663,247 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,461,612 | $ | 842,955 | $ | 939,516 | $ | (1,682,579 | ) | $ | 1,561,504 | $ | 1,389,190 | $ | 747,210 | $ | 839,091 | $ | (1,475,075 | ) | $ | 1,500,416 | ||||||||||||||||||
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|
|
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|
|
|
|
|
- 26 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Condensed Consolidating Statement of Cash Flows for the
nine Six months ended SeptemberJune 30, 20152016
In thousands | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net cash provided (used) by | ||||||||||||||||||||||||||||||||||||||||
Operating activities | $ | 9,927 | $ | 152 | $ | 60,444 | $ | — | $ | 70,523 | $ | 17,067 | $ | 2,821 | $ | 16,752 | $ | — | $ | 36,640 | ||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||||||||||||||
Expenditures for purchases of plant, equipment and timberlands | (52,331 | ) | (42 | ) | (21,907 | ) | — | (74,280 | ) | (51,043 | ) | (18,861 | ) | (10,487 | ) | — | (80,391 | ) | ||||||||||||||||||||||
Proceeds from disposal plant, equipment and timberlands, net | 1,584 | 1,213 | 384 | — | 3,181 | |||||||||||||||||||||||||||||||||||
Proceeds from disposals of plant, equipment and timberlands, net | 41 | — | 12 | — | 53 | |||||||||||||||||||||||||||||||||||
Repayments from intercompany loans | 1,465 | 53,855 | — | (55,320 | ) | — | — | 7,500 | — | (7,500 | ) | — | ||||||||||||||||||||||||||||
Advances of intercompany loans | — | (44,590 | ) | — | 44,590 | — | — | (7,880 | ) | — | 7,880 | — | ||||||||||||||||||||||||||||
Intercompany capital (contributed) returned | 10,500 | (300 | ) | — | (10,200 | ) | — | |||||||||||||||||||||||||||||||||
Acquisitions, net of cash acquired | — | — | (224 | ) | — | (224 | ) | |||||||||||||||||||||||||||||||||
Intercompany capital contributed | (17,000 | ) | (500 | ) | — | 17,500 | — | |||||||||||||||||||||||||||||||||
Other | (1,600 | ) | — | — | — | (1,600 | ) | (300 | ) | — | — | — | (300 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total investing activities | (40,382 | ) | 10,136 | (21,747 | ) | (20,930 | ) | (72,923 | ) | (68,302 | ) | (19,741 | ) | (10,475 | ) | 17,880 | (80,638 | ) | ||||||||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||||||||||||||
Net repayments of indebtedness | — | — | (3,387 | ) | — | (3,387 | ) | |||||||||||||||||||||||||||||||||
Net long-term borrowings | — | — | 4,222 | — | 4,222 | |||||||||||||||||||||||||||||||||||
Payments of borrowing costs | (1,329 | ) | — | — | — | (1,329 | ) | (51 | ) | — | (85 | ) | — | (136 | ) | |||||||||||||||||||||||||
Payment of dividends to shareholders | (15,215 | ) | — | — | — | (15,215 | ) | (10,679 | ) | — | — | — | (10,679 | ) | ||||||||||||||||||||||||||
Repayments of intercompany loans | (9,158 | ) | — | (46,162 | ) | 55,320 | — | — | — | (7,500 | ) | 7,500 | — | |||||||||||||||||||||||||||
Borrowings of intercompany loans | 44,590 | — | — | (44,590 | ) | — | 7,880 | — | — | (7,880 | ) | — | ||||||||||||||||||||||||||||
Intercompany capital received (returned) | — | (10,500 | ) | 300 | 10,200 | — | ||||||||||||||||||||||||||||||||||
Intercompany capital (returned) received | — | 17,000 | 500 | (17,500 | ) | — | ||||||||||||||||||||||||||||||||||
Proceeds from government grants | 2,443 | 2,000 | — | — | 4,443 | |||||||||||||||||||||||||||||||||||
Payments related to share-based compensation awards and other | (2,015 | ) | — | — | — | (2,015 | ) | (976 | ) | — | — | — | (976 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total financing activities | 16,873 | (10,500 | ) | (49,249 | ) | 20,930 | (21,946 | ) | (1,383 | ) | 19,000 | (2,863 | ) | (17,880 | ) | (3,126 | ) | |||||||||||||||||||||||
Effect of exchange rate on cash | — | — | (1,826 | ) | — | (1,826 | ) | — | — | 352 | — | 352 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net decrease in cash | (13,582 | ) | (212 | ) | (12,378 | ) | — | (26,172 | ) | |||||||||||||||||||||||||||||||
Net increase (decrease) in cash | (52,618 | ) | 2,080 | 3,766 | — | (46,772 | ) | |||||||||||||||||||||||||||||||||
Cash at the beginning of period | 42,208 | 509 | 57,120 | — | 99,837 | 59,130 | 465 | 45,709 | — | 105,304 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Cash at the end of period | $ | 28,626 | $ | 297 | $ | 44,742 | $ | — | $ | 73,665 | $ | 6,512 | $ | 2,545 | $ | 49,475 | $ | — | $ | 58,532 | ||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
- 27 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Condensed Consolidating Statement of Cash Flows for the
nine Six months ended SeptemberJune 30, 20142015
In thousands | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | Parent Company | Guarantors | Non Guarantors | Adjustments/ Eliminations | Consolidated | ||||||||||||||||||||||||||||||
Net cash provided (used) by | ||||||||||||||||||||||||||||||||||||||||
Operating activities | $ | 712 | $ | 3,371 | $ | 17,297 | $ | — | $ | 21,380 | $ | (4,343 | ) | $ | (695 | ) | $ | 30,551 | $ | — | $ | 25,513 | ||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||||||||||||||
Expenditures for purchases of plant, equipment and timberlands | (26,368 | ) | — | (20,668 | ) | — | (47,036 | ) | (30,241 | ) | — | (14,334 | ) | — | (44,575 | ) | ||||||||||||||||||||||||
Proceeds from disposal plant, equipment and timberlands, net | 2,687 | 1,355 | 9 | — | 4,051 | |||||||||||||||||||||||||||||||||||
Proceeds from disposals of plant, equipment and timberlands, net | 1,581 | 1,213 | 257 | — | 3,051 | |||||||||||||||||||||||||||||||||||
Repayments from intercompany loans | — | 10,409 | — | (10,409 | ) | — | — | 48,855 | — | (48,855 | ) | — | ||||||||||||||||||||||||||||
Advances of intercompany loans | — | (15,540 | ) | — | 15,540 | — | — | (38,690 | ) | — | 38,690 | — | ||||||||||||||||||||||||||||
Intercompany capital (contributed) returned | 10,500 | (300 | ) | — | (10,200 | ) | — | |||||||||||||||||||||||||||||||||
Other | (600 | ) | — | — | — | (600 | ) | (1,600 | ) | — | — | — | (1,600 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total investing activities | (24,281 | ) | (3,776 | ) | (20,659 | ) | 5,131 | (43,585 | ) | (19,760 | ) | 11,078 | (14,077 | ) | (20,365 | ) | (43,124 | ) | ||||||||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||||||||||||||
Net proceeds from indebtedness | — | — | (18,128 | ) | — | (18,128 | ) | |||||||||||||||||||||||||||||||||
Net repayments of indebtedness | — | — | (1,492 | ) | — | (1,492 | ) | |||||||||||||||||||||||||||||||||
Payments of borrowing costs | (1,329 | ) | — | — | — | (1,329 | ) | |||||||||||||||||||||||||||||||||
Payment of dividends to shareholders | (13,935 | ) | — | — | — | (13,935 | ) | (9,992 | ) | — | — | — | (9,992 | ) | ||||||||||||||||||||||||||
Repurchases of common stock | (12,180 | ) | — | — | — | (12,180 | ) | |||||||||||||||||||||||||||||||||
Repayments of intercompany loans | (9,158 | ) | — | (39,697 | ) | 48,855 | — | |||||||||||||||||||||||||||||||||
Borrowings of intercompany loans | 15,540 | — | — | (15,540 | ) | — | 38,690 | — | — | (38,690 | ) | — | ||||||||||||||||||||||||||||
Repayments of intercompany loans | — | — | (10,409 | ) | 10,409 | — | ||||||||||||||||||||||||||||||||||
Intercompany capital (returned) received | — | (10,500 | ) | 300 | 10,200 | — | ||||||||||||||||||||||||||||||||||
Payments related to share-based compensation awards and other | (1,764 | ) | — | — | — | (1,764 | ) | (2,000 | ) | — | — | — | (2,000 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total financing activities | (12,339 | ) | — | (28,537 | ) | (5,131 | ) | (46,007 | ) | 16,211 | (10,500 | ) | (40,889 | ) | 20,365 | (14,813 | ) | |||||||||||||||||||||||
Effect of exchange rate on cash | — | — | (1,015 | ) | — | (1,015 | ) | — | — | (1,651 | ) | — | (1,651 | ) | ||||||||||||||||||||||||||
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Net decrease in cash | (35,908 | ) | (405 | ) | (32,914 | ) | — | (69,227 | ) | (7,892 | ) | (117 | ) | (26,066 | ) | — | (34,075 | ) | ||||||||||||||||||||||
Cash at the beginning of period | 56,216 | 495 | 66,171 | — | 122,882 | 42,208 | 509 | 57,120 | — | 99,837 | ||||||||||||||||||||||||||||||
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Cash at the end of period | $ | 20,308 | $ | 90 | $ | 33,257 | $ | — | $ | 53,655 | $ | 34,316 | $ | 392 | $ | 31,054 | $ | — | $ | 65,762 | ||||||||||||||||||||
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- 28 -
GLATFELTER
9.30.156.30.16 Form 10-Q
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and Glatfelter’s Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 20142015 Annual Report onForm 10-K.
Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-Q are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among others, shipping volumes, selling prices, input costs, non-cash pension expense, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:
i. | variations in demand for our products including the impact of unplanned market-related downtime, variations in product pricing, or product substitution; |
ii. |
the impact of competition, both domestic and international, changes in industry production capacity, including the construction of new mills or new machines, the closing of mills and incremental changes due to capital expenditures or productivity increases; |
iii. | risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates; |
iv. | geopolitical events, including the impact of conflicts such as Russia and Ukraine; |
v. | our ability to develop new, high value-added products; |
vi. | changes in the cost or availability of raw materials we use, in particular pulpwood, pulp, pulp substitutes, caustic soda, and abaca fiber; |
vii. | changes in energy-related costs and commodity raw materials with an energy component; |
viii. | the impact of unplanned production interruption; |
ix. | disruptions in production and/or increased costs due to labor disputes; |
x. | the impact of exposure to volatile market-based pricing for sales of excess electricity; |
xi. | the gain or loss of significant customers and/or on-going viability of such customers; |
cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls (“PCBs”) in the lower Fox River on which our former Neenah mill was located; |
adverse results in litigation |
the impact of war and terrorism; |
xv. | the impact of unfavorable outcomes of audits by various state, federal or international tax authorities; |
xvi. | enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation; and |
xvii. | our ability to finance, consummate and integrate acquisitions. |
We manufacture a wide array of specialty papers and fiber-based engineered materials. We manage our company along three business units:
• | Composite Fibers with revenue from the sale of single-serve |
• | Advanced Airlaid Materials with revenue from the sale of airlaid |
• | Specialty Papers with revenue from the sale of papers for carbonless |
- 29 -
GLATFELTER
9.30.156.30.16 Form 10-Q
RESULTS OF OPERATIONS
NineSix months ended SeptemberJune 30, 20152016 versus the ninesix months ended SeptemberJune 30, 20142015
OverviewFor the first ninesix months of 2015,2016 net income was $30.3$18.1 million, or $0.69$0.41 per diluted share compared with $49.7$16.8 million, or $1.13$0.38 per diluted share in the first ninesix months of 2014. On an adjusted2015. Adjusted earnings, basis, a non-GAAP measure, that excludes non-core business items discussed below, earningswere $19.1 million, or $0.43 per diluted share were $0.82for the first six months of 2016 compared with $1.11 in 2014. The year-over-year comparison of results of operations reflects$15.2 million, or $0.35 per diluted share, for the adverse impact of i) the stronger U.S. dollar on our euro-denominated businesses; ii) weaker demandsame period a year ago. Our Advanced Airlaid Materials and pricing for nonwoven wallcover products primarily due to economic conditions in Russia and Ukraine; iii) pricing pressures in our Specialty Papers business; and iv) weakerbusinesses reported significantly higher operating income in the comparison driven by higher demand, for certainimproved operations within Advanced Airlaid Materials’ products.Materials, and, with respect to Specialty Papers, less costly annual maintenance outages and lower input costs. The improved performance of these two businesses was partially offset by lower operating income in the Composite Fibers business, which was impacted by lower average selling prices. The following table sets forth summarized results of operations:
Nine months ended September 30 | Six months ended June 30 | |||||||||||||||
In thousands, except per share | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Net sales | $ | 1,248,232 | $ | 1,366,154 | $ | 808,631 | $ | 828,272 | ||||||||
Gross profit | 144,849 | 176,990 | 100,566 | 84,941 | ||||||||||||
Operating income | 47,536 | 77,120 | 31,491 | 27,297 | ||||||||||||
Net income | 30,277 | 49,689 | 18,133 | 16,773 | ||||||||||||
Earnings per diluted share | 0.69 | 1.13 | 0.41 | 0.38 |
In addition to the results reported in accordance with GAAP, we evaluate our performance using adjusted net income and adjusted earnings per diluted share. We disclose this information to allow investors to evaluate our performance exclusive of certain items that impact the comparability of results from period to period and we believe it is helpful in understanding underlying operating trends and cash flow generation. Adjusted net income consists of net income determined in accordance with GAAP adjusted to exclude the impact of the following:
Specialty Papers environmental compliance.These adjustments reflect non-capitalized costs incurred by the business unit directly related to the compliance with the U.S. EPA Best Available Retrofit Technology rule (BART; otherwise known as the Regional Haze Rule) and the Boiler Maximum Achievable Control Technology rule (Boiler MACT).
Airlaid capacity expansion costs.These adjustments reflect non-capitalized costs incurred directly related to the start-up of a new production facility for Advanced Airlaid Materials.
Timberland sales and related costs. These adjustments exclude gains from the sales of timberlands as these items are not considered to be part of our core business, ongoing results of operations or cash flows. These adjustments are irregular in timing and amount and may significantly impact our operating performance. As such, these items may not be indicative of past orand future performance of the Company and therefore are excluded for comparability purposes.
Workforce efficiency charges. These adjustments includeThis includes costs that are directly related to actions undertaken to reduce costs and improve operating efficiencies. Such costs were specifically incurred as part of our initiative to reduce global headcount as part of a more broad based cost reduction effort initiated in the fourth quarter of 2014.
Acquisition and integration related costs. These adjustments include costs directly related to the consummation of the acquisition process and those related to integrating recently acquired businesses. These costs are irregular in timing and as such may not be indicative of our past or future performance.
Fox River environmental matter. This adjustment reflects a charge incurred to increase our reserve for estimated costs to remediate environmental contamination at the Fox River site. These costs are irregular in timing and as such may not be indicative of our past or future performance.
Asset impairment charges. This adjustment represents a non-cash charge required to adjust to its estimated fair value the carrying value of a trade name intangible asset. Charges of this nature are irregular in timing and as such may not be indicative of our past and future performance.
Alternative fuel mixture/Cellulosic biofuel credits. These adjustments reflect the release of reserves for uncertain tax position due to the lapse of statutes of limitation.
Adjusted earnings per diluted share is calculated by dividing adjusted net income by diluted weighted-average shares outstanding. Adjusted earnings and adjusted earnings per diluted share are considered measures not calculated in accordance with GAAP, and therefore are non-GAAP measures. These non-GAAP measures may differ from other companies. The non-GAAP financial information should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP. The following table sets forthfor the reconciliation of net income to adjusted earnings for the ninesix months ended SeptemberJune 30, 20152016 and 2014:2015:
2016 | 2015 | |||||||||||||||||||||||
In thousands, except per share | After-tax amounts | Diluted EPS | Amount | Diluted EPS | Amount | Diluted EPS | ||||||||||||||||||
2015 | ||||||||||||||||||||||||
Net income | $ | 30,277 | $ | 0.69 | $ | 18,133 | $ | 0.41 | $ | 16,773 | $ | 0.38 | ||||||||||||
Adjustments(pre-tax) | ||||||||||||||||||||||||
Specialty Papers’ environmental compliance | 1,125 | — | ||||||||||||||||||||||
Airlaid capacity expansion costs | 257 | — | ||||||||||||||||||||||
Timberland sales and related costs | (3,078 | ) | (0.07 | ) | — | (2,705 | ) | |||||||||||||||||
Fox River environmental matter | 6,222 | 0.14 | ||||||||||||||||||||||
Workforce efficiency charges | 1,621 | 0.04 | 88 | 1,953 | ||||||||||||||||||||
Asset impairment charge | 857 | 0.02 | ||||||||||||||||||||||
Acquisition and integration related costs | 126 | — | — | 160 | ||||||||||||||||||||
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Adjusted earnings (non-GAAP) | $ | 36,025 | $ | 0.82 | ||||||||||||||||||||
Total adjustments(pre-tax) | 1,470 | (592 | ) | |||||||||||||||||||||
Income taxes(1) (2) | (543 | ) | (963 | ) | ||||||||||||||||||||
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Net income | $ | 49,689 | $ | 1.13 | ||||||||||||||||||||
Timberland sales and related costs | (2,381 | ) | (0.05 | ) | ||||||||||||||||||||
Asset impairment charge | 2,356 | 0.05 | ||||||||||||||||||||||
Acquisition and integration related costs | 115 | — | ||||||||||||||||||||||
Alternative fuel mixture/Cellulosic biofuel credits | (1,032 | ) | (0.02 | ) | ||||||||||||||||||||
Total after-tax adjustments | 927 | 0.02 | (1,555 | ) | (0.04 | ) | ||||||||||||||||||
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Adjusted earnings (non-GAAP) | $ | 48,747 | $ | 1.11 | ||||||||||||||||||||
Adjusted earnings | $ | 19,060 | $ | 0.43 | $ | 15,218 | $ | 0.35 | ||||||||||||||||
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(1) | Tax effect for adjustments calculated based on the tax rate of the jurisdiction in which each adjustment originated. |
(2) | Includes release of $1.4 million of tax reserves on timberland sales in 2015. |
The sum of individual per share amounts set forth above may not agree to adjusted earnings per share due to rounding.
- 30 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Business Unit Performance
Nine months ended September 30 Dollars in millions | Composite Fibers | Advanced Airlaid Materials | Specialty Papers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Six months ended June 30 | Composite Fibers | Advanced Airlaid Materials | Specialty Papers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dollars in millions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 409.6 | $ | 470.1 | $ | 183.0 | $ | 216.2 | $ | 655.6 | $ | 679.9 | $ | — | $ | — | $ | 1,248.2 | $ | 1,366.2 | $ | 259.9 | $ | 275.7 | $ | 121.5 | $ | 119.8 | $ | 427.2 | $ | 432.8 | $ | — | $ | — | $ | 808.6 | $ | 828.3 | ||||||||||||||||||||||||||||||||||||||||
Energy and related sales, net | — | — | — | — | 3.9 | 6.9 | — | — | 3.9 | 6.9 | — | — | — | — | 2.7 | 2.8 | — | — | 2.7 | 2.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total revenue | 409.6 | 470.1 | 183.0 | 216.2 | 659.5 | 686.8 | — | — | 1,252.2 | 1,373.1 | 259.9 | 275.7 | 121.5 | 119.8 | 429.9 | 435.6 | — | — | 811.3 | 831.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of products sold | 329.8 | 376.7 | 162.0 | 189.9 | 608.4 | 624.3 | 7.1 | 5.2 | 1,107.3 | 1,196.1 | 210.3 | 221.5 | 104.1 | 107.3 | 394.0 | 412.3 | 2.3 | 5.0 | 710.7 | 746.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Gross profit (loss) | 79.8 | 93.4 | 21.0 | 26.3 | 51.1 | 62.5 | (7.1 | ) | (5.2 | ) | 144.8 | 177.0 | 49.6 | 54.2 | 17.4 | 12.5 | 35.9 | 23.3 | (2.3 | ) | (5.0 | ) | 100.6 | 84.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SG&A | 34.4 | 38.8 | 5.8 | 6.8 | 34.2 | 39.5 | 25.7 | 18.7 | 100.2 | 103.8 | 23.2 | 22.9 | 4.2 | 4.0 | 26.6 | 23.9 | 15.0 | 9.5 | 69.0 | 60.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | — | — | — | — | — | — | (2.9 | ) | (3.9 | ) | (2.9 | ) | (3.9 | ) | — | — | — | — | — | — | — | (2.8 | ) | — | (2.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total operating income (loss) | 45.4 | 54.6 | 15.2 | 19.5 | 16.9 | 23.0 | (29.9 | ) | (20.0 | ) | 47.5 | 77.1 | 26.4 | 31.3 | 13.2 | 8.5 | 9.3 | (0.6 | ) | (17.3 | ) | (11.7 | ) | 31.5 | 27.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-operating expense | — | — | — | — | — | — | (13.1 | ) | (14.0 | ) | (13.1 | ) | (14.0 | ) | — | — | — | — | — | — | (8.3 | ) | (8.7 | ) | (8.3 | ) | (8.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Income (loss) before income taxes | $ | 45.4 | $ | 54.6 | $ | 15.2 | $ | 19.5 | $ | 16.9 | $ | 23.0 | $ | (43.0 | ) | $ | (34.0 | ) | $ | 34.4 | $ | 63.1 | $ | 26.4 | $ | 31.3 | $ | 13.2 | $ | 8.5 | $ | 9.3 | $ | (0.6 | ) | $ | (25.6 | ) | $ | (20.4 | ) | $ | 23.2 | $ | 18.6 | |||||||||||||||||||||||||||||||||||
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Net tons sold(thousands) | 116.2 | 119.5 | 71.4 | 76.0 | 593.6 | 601.3 | — | — | 781.2 | 796.8 | 77.6 | 77.3 | 48.9 | 46.7 | 400.5 | 390.0 | — | — | 527.0 | 514.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | $ | 20.1 | $ | 22.7 | $ | 6.5 | $ | 6.9 | $ | 19.3 | $ | 22.6 | $ | 1.5 | $ | 1.3 | $ | 47.4 | $ | 53.5 | $ | 14.3 | $ | 13.4 | $ | 4.7 | $ | 4.3 | $ | 13.2 | $ | 12.9 | $ | 1.2 | $ | 1.0 | $ | 33.4 | $ | 31.6 | ||||||||||||||||||||||||||||||||||||||||
Capital expenditures | 17.3 | 16.7 | 4.6 | 4.1 | 51.0 | 24.5 | 1.4 | 1.7 | 74.3 | 47.0 | 8.6 | 11.5 | 20.7 | 2.8 | 50.8 | 28.8 | 0.3 | 1.5 | 80.4 | 44.6 |
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
Business UnitsResults of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services or are included in “Other and Unallocated” in the Business Unit Performance table.
Management evaluates results of operations of the business units before pension expense, certain corporate level costs, and the effects of certain gains or losses not considered to be related to the core business operations. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of business units and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” In the evaluation of business unit results, management does not use any measures of total assets. This presentation is aligned with the management and operating structure of our company. It is also on this basis that the Company’s performance is evaluated internally and by the Company’s Board of Directors.
- 31 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Sales and Costs of Products Sold
Nine months ended September 30 | Six months ended June 30 | |||||||||||||||||||||||
In thousands | 2015 | 2014 | Change | 2016 | 2015 | Change | ||||||||||||||||||
Net sales | $ | 1,248,232 | $ | 1,366,154 | $ | (117,922 | ) | $ | 808,631 | $ | 828,272 | $ | (19,641 | ) | ||||||||||
Energy and related sales, net | 3,936 | 6,912 | (2,976 | ) | 2,667 | 2,783 | (116 | ) | ||||||||||||||||
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Total revenues | 1,252,168 | 1,373,066 | (120,898 | ) | 811,298 | 831,055 | (19,757 | ) | ||||||||||||||||
Costs of products sold | 1,107,319 | 1,196,076 | (88,757 | ) | 710,732 | 746,114 | (35,382 | ) | ||||||||||||||||
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Gross profit | $ | 144,849 | $ | 176,990 | $ | (32,141 | ) | $ | 100,566 | $ | 84,941 | $ | 15,625 | |||||||||||
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Gross profit as a percent of Net sales | 11.6 | % | 13.0 | % | 12.4 | % | 10.3 | % |
The following table sets forth the contribution to consolidated net sales by each business unit:
Nine months ended September 30 | Six months ended June 30 | |||||||||||||||
Percent of Total | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Business Unit | ||||||||||||||||
Composite Fibers | 32.8 | % | 34.4 | % | 32.1 | % | 33.3 | % | ||||||||
Advanced Airlaid Material | 14.7 | 15.8 | 15.0 | 14.5 | ||||||||||||
Specialty Papers | 52.5 | 49.8 | 52.9 | 52.2 | ||||||||||||
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Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
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Net sales totaled $1,248.2$808.6 million and $828.3 million in the first nine monthshalf of 2016 and 2015, compared with $1,366.2respectively. The $19.7 million in the first nine monthsdecline was primarily driven by $18.1 million of 2014. Currency translation adjustments unfavorably impacted the year-over-year comparison by $82.7lower selling prices and $4.5 million reflecting a significantly stronger U.S. dollar.of currency translation. Shipping volumes increased 2.5%.
Composite Fibers’ net sales declined $60.5$15.8 million, or 12.9%5.7%, primarily due to $62.1$4.7 million of lower selling prices and $4.5 million of unfavorable currency translation together with lower shipping volumes and $7.8 million from lower selling prices, partially offset by the inclusion of Spezialpapierfabrik (SPO), which was acquired in the fourth quarter of 2014. Shipping volumes declined 2.8% primarily due to a 21.4% decline in shipments of nonwoven wallcover, partially offset by higher shipments of technical specialties and food and beverage segments. The weakness in sales to the wallcover segment is directly related to economic conditions in Russia and Ukraine, a region that accounts for roughly 50% of sales of this business unit’s wallcover products.translation.
Composite Fibers’ operating income for the first nine monthshalf of 20152016 decreased $9.2$4.9 million to $45.4 million.$26.4 million compared to the year-ago period. The declineprimary drivers are summarized in operating income was primarily related to lower selling prices and shipping volumes and $6.6 million of unfavorable currency translation. These factors were partially offset by a $4.7 million benefit from lower raw material and energy prices and $2.5 million from improved operations.the following chart:
On a year-over-year basis,
Advanced Airlaid Materials’ net sales decreased $33.2increased $1.7 million largelyin the year-over-year comparison as $5.6 million of lower selling prices from the contractual pass through of lower raw material costs more than offset higher shipping volumes. Shipping volumes increased 4.7% primarily due to $20.6 millionhigher shipments of unfavorable foreign currency translation and a 6.1% decline in shipping volumes. These factors were partially offset by $1.5 million of higher selling prices.hygiene products.
Advanced Airlaid Materials’ operating income for the first nine monthstotaled $13.2 million, an increase of 2015 declined $4.3$4.7 million, or 55.3% compared to the same period a year-ago asyear ago. The primary drivers are summarized in the combined impact of softer market demand and related production downtime and $1.5 million from the adverse impact of foreign currency translation more than offset the benefit of higher selling prices.following chart:
On a year-over-year basis,
Specialty Papers’ net sales declined $24.3decreased $5.6 million, or 3.6%1.3% due to lower shipping volumes and $6.4a $7.9 million impact from lower selling.
This business unit’s operating income totaled $16.9 million for the first nine months of 2015 compared to $23.0 million a year ago. The decline in operating income was due to lower selling prices andpartially offset by a 2.7% increase in shipping volumes together with $4.3volumes. The business unit again outperformed the broader uncoated free sheet market which increased 0.1%.
Operating income totaled $9.3 million, an increase of operating cost penalties primarily related$9.9 million compared to the expanded scopefirst six months of 2015. The primary drivers are summarized in the following chart:
The $5.7 million improvement in “Operations & Other” in the chart above includes the $7.1 million lower cost of the annual maintenance outages. These unfavorable factors were partially offset by a $9.3 million benefit from lower raw material and energy costs.
Energy and related sales decreased $3.0 million in the comparison as severe weather conditions in 2014 resulted in higher selling prices for excess power and a boiler outage in the first quarter of 2015 reduced power sales.
- 32 -
GLATFELTER
6.30.16 Form 10-Q
We sell excess power generated by the Spring Grove, PA facility. The following table summarizes this activity for the first ninesix months of 20152016 and 2014:2015:
Nine months ended September 30 | Six months ended June 30 | |||||||||||||||||||||||
In thousands | 2015 | 2014 | Change | 2016 | 2015 | Change | ||||||||||||||||||
Energy sales | $ | 4,375 | $ | 10,714 | $ | (6,339 | ) | $ | 1,818 | $ | 3,328 | $ | (1,510 | ) | ||||||||||
Costs to produce | (3,387 | ) | (5,288 | ) | 1,901 | (2,042 | ) | (2,256 | ) | 214 | ||||||||||||||
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Net | 988 | 5,426 | (4,438 | ) | (224 | ) | 1,072 | (1,296 | ) | |||||||||||||||
Renewable energy credits | 2,948 | 1,486 | 1,462 | 2,891 | 1,711 | 1,180 | ||||||||||||||||||
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Total | $ | 3,936 | $ | 6,912 | $ | (2,976 | ) | $ | 2,667 | $ | 2,783 | $ | (116 | ) | ||||||||||
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Renewable energy credits (“RECs”) represent sales of certified credits earned related to burning renewable sources of energy such as black liquor and wood waste. We sell RECs into an illiquid market. The extent and value of future revenues from REC sales is dependent on many factors outside of management’s control. Therefore, we may not be able to generate consistent additional sales of RECs in future periods.
- 32 -
GLATFELTER
9.30.15 Form 10-Q
Other and Unallocated The amount of net operating expenses not allocated to a business unit and reported as “Other and Unallocated” in our table of Business Unit Performance, totaled $29.9$17.3 million in the first ninesix months of 20152016 compared with $20.0$11.7 million in the first ninesix months of 2014.2015. Excluding the$2.8 million of gains in 2015 from sales of timberlands in the comparison, unallocated net operating expenses increased $8.9$2.8 million primarily due to the $10.0 million Fox River environmental matter chargehigher incentive compensation and severance costs related to our workforce efficiency initiativeprofessional services partially offset by lower corporate spending.pension expense.
Pension Expense The following table summarizes the amounts of pension expense recognized for the periods indicated:
Nine months ended September 30 | Six months ended June 30 | |||||||||||||||||||||||
In thousands | 2015 | 2014 | Change | 2016 | 2015 | Change | ||||||||||||||||||
Recorded as: | ||||||||||||||||||||||||
Recorded as: | ||||||||||||||||||||||||
Costs of products sold | $ | 5,247 | $ | 4,957 | $ | 290 | $ | 1,178 | $ | 3,495 | $ | (2,317 | ) | |||||||||||
SG&A expense | 1,370 | 55 | 1,315 | 1,577 | 916 | 661 | ||||||||||||||||||
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Total | $ | 6,617 | $ | 5,012 | $ | 1,605 | $ | 2,755 | $ | 4,411 | $ | (1,656 | ) | |||||||||||
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The amount of pension expense recognized each year is dependent on various actuarial assumptions and certain other factors, including discount rates and the fair value of our pension assets. Pension expense for the full year of 20152016 is expected to be approximately $9.1$5.5 million compared with $6.7$9.1 million in 2014.2015. The increasedecrease reflects the higher amortizationimpact of deferred actuarial losses related to lowerhigher discount rates and mortality assumptions.partially offset by a lower assumed long term rate of return on plan assets.
Income taxes For the first ninesix months of 2015,2016, we recorded a provision for income taxes of $4.1$5.1 million on pretax income of $34.4$23.2 million. The comparable amounts in the first nine monthsperiod of 20142015 were $1.8 million and $18.6 million, respectively. The effective tax rate in 2015 includes the impact of a $2.6 million release of income tax expensereserves in connection with the completion of $13.4 million on $63.1 million of pretax income. The amount of taxes recorded in 2014 included a $1.0 million benefit from the release ofcertain federal and state tax reserves related to alternative fuel mixture credits earned in 2009, due to the lapse of the applicable statutes of limitation.examinations.
Foreign CurrencyWe own and operate facilities in Canada, Germany, France, the United Kingdom and the Philippines. The functional currency of our Canadian operations is the U.S. dollar. However, in Germany and France it is the Euro, in the UK, it is the British Pound Sterling, and in the Philippines the functional currency is the Peso. On an annual basis, our euro denominated revenue exceeds euro expenses by approximately €120 million. For the six months ended June 30, 2016, the average currency exchange rate increased slightly to 1.12 U.S. dollars to 1.00 euro compared with 1.11 to 1.00 for the first six months of 2015. With respect to the British Pound Sterling, Canadian dollar, and Philippine Peso, we have greaterdiffering amounts of inflows and outflows than inflows of these currencies, although to a lesser degree.degree than the euro. As a result, particularly with respect to the euro, we are exposed to changes in currency exchange rates and such changes could be significant. The translation of the results from international operations into U.S. dollars is subject to changes in foreign currency exchange rates.
The table below summarizes the translation impact on reported results that changes in currency exchange rates had on our non-U.S. based operations from the conversion of these operation’s results for the first ninesix months of 2015.2016.
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In thousands | Six months ended June 30, 2016 | |||
Favorable (unfavorable) | ||||
Net sales | $ | (4,518 | ) | |
Costs of products sold | 3,211 | |||
SG&A expenses | 375 | |||
Income taxes and other | 37 | |||
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Net income | $ | (895 | ) | |
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The above table only presents the financial reporting impact of foreign currency translations assuming currency exchange rates in 20152016 were the same as 2014 before giving effect to foreign currency hedges.2015. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.
- 33 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Three months ended SeptemberJune 30, 20152016 versus the three months ended SeptemberJune 30, 20142015
OverviewFor the third quartersecond-quarter of 2015,2016, net income totaled $13.5$2.0 million, or $0.31$0.04 per diluted share compared with $30.4$2.8 million, or $0.69$0.06 per diluted share in the thirdsecond quarter of 2014.2015. Adjusted earnings for the second quarter of 2016 were $2.8 million, or $0.06 per diluted share compared with $1.8 million, or $0.04 per diluted share, for the same period a year ago.
The following table sets forth summarized results of operations:
Three months ended September 30 | Three months ended June 30 | |||||||||||||||
In thousands, except per share | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Net sales | $ | 419,960 | $ | 465,092 | $ | 406,413 | $ | 410,803 | ||||||||
Gross profit | 59,908 | 80,513 | 42,723 | 32,833 | ||||||||||||
Operating income | 20,239 | 44,217 | 5,530 | 3,807 | ||||||||||||
Net income | 13,504 | 30,372 | 1,965 | 2,848 | ||||||||||||
Earnings per diluted share | 0.31 | 0.69 | 0.04 | 0.06 |
Adjusted earnings, a non-GAAP financial measure, is set forth in theThe following table sets for the third quartersreconciliation of 2015net income to adjusted earnings for the three months ended June 30, 2016 and 2014:2015:
In thousands, except per share | After-tax amounts | Diluted EPS | ||||||
2015 | ||||||||
Net income | $ | 13,504 | $ | 0.31 | ||||
Fox River environmental matter | 6,222 | 0.14 | ||||||
Asset impairment charge | 857 | 0.02 | ||||||
Workforce efficiency charges | 211 | — | ||||||
Acquisition and integration related costs | 13 | — | ||||||
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Adjusted earnings (non-GAAP) | $ | 20,807 | $ | 0.47 | ||||
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Net income | $ | 30,372 | $ | 0.69 | ||||
Asset impairment charge | 2,356 | 0.05 | ||||||
Acquisition and integration related costs | 115 | — | ||||||
Timberland sales and related costs | (1,004 | ) | (0.02 | ) | ||||
Alternative fuel mixture/ Cellulosic biofuel credits | (1,032 | ) | (0.02 | ) | ||||
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Adjusted earnings (non-GAAP) | $ | 30,807 | $ | 0.70 | ||||
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In thousands, except per share | Amount | Diluted EPS | Amount | Diluted EPS | ||||||||||||
Net income | $ | 1,965 | $ | 0.04 | $ | 2,848 | $ | 0.06 | ||||||||
Adjustments(pre-tax) | ||||||||||||||||
Specialty Papers’ environmental compliance | 1,088 | — | ||||||||||||||
Airlaid capacity expansion costs | 201 | — | ||||||||||||||
Timberland sales and related costs | — | (51 | ) | |||||||||||||
Workforce efficiency charges | — | 614 | ||||||||||||||
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Total adjustments(pre-tax) | 1,289 | 563 | ||||||||||||||
Income taxes(1) (2) | (487 | ) | (1,567 | ) | ||||||||||||
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Total after-tax adjustments | 802 | 0.02 | (1,004 | ) | (0.02 | ) | ||||||||||
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Adjusted earnings | $ | 2,767 | $ | 0.06 | $ | 1,844 | $ | 0.04 | ||||||||
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(1) | Tax effect for adjustments calculated based on the tax rate of the jurisdiction in which each adjustment originated. |
(2) | Includes release of $1.4 million of tax reserves on timberland sales in 2015. |
Business Unit Performance
Three months ended September 30 Dollars in millions | Composite Fibers | Advanced Airlaid Materials | Specialty Papers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended June 30 | Composite Fibers | Advanced Airlaid Materials | Specialty Papers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dollars in millions | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 133.9 | $ | 154.5 | $ | 63.2 | $ | 74.4 | $ | 222.8 | $ | 236.2 | $ | — | $ | — | $ | 420.0 | $ | 465.1 | $ | 136.4 | $ | 140.4 | $ | 60.8 | $ | 57.5 | $ | 209.3 | $ | 212.9 | $ | — | $ | — | $ | 406.4 | $ | 410.8 | ||||||||||||||||||||||||||||||||||||||||
Energy and related sales, net | — | — | — | — | 1.2 | 0.9 | — | — | 1.2 | 0.9 | — | — | — | — | 2.0 | 0.7 | — | — | 2.0 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total revenue | 133.9 | 154.5 | 63.2 | 74.4 | 224.0 | 237.1 | — | — | 421.1 | 466.0 | 136.4 | 140.4 | 60.8 | 57.5 | 211.3 | 213.6 | — | — | 408.4 | 411.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of products sold | 108.4 | 123.7 | 54.6 | 64.7 | 196.1 | 195.2 | 2.1 | 1.8 | 361.2 | 385.4 | 109.0 | 112.4 | 51.8 | 52.3 | 202.9 | 211.9 | 2.0 | 2.1 | 365.7 | 378.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Gross profit (loss) | 25.5 | 30.8 | 8.6 | 9.7 | 27.9 | 41.9 | (2.1 | ) | (1.8 | ) | 59.9 | 80.5 | 27.4 | 28.0 | 9.0 | 5.2 | 8.4 | 1.7 | (2.0 | ) | (2.1 | ) | 42.7 | 32.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SG&A | 11.5 | 12.6 | 1.8 | 2.2 | 10.4 | 14.1 | 16.2 | 9.0 | 39.8 | 37.9 | 12.1 | 11.3 | 2.2 | 2.1 | 14.2 | 11.7 | 8.7 | 4.0 | 37.2 | 29.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | — | — | — | — | — | — | (0.1 | ) | (1.6 | ) | (0.1 | ) | (1.6 | ) | — | — | — | — | — | — | — | (0.1 | ) | — | (0.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total operating income (loss) | 14.0 | 18.1 | 6.8 | 7.5 | 17.5 | 27.8 | (18.2 | ) | (9.2 | ) | 20.2 | 44.2 | 15.3 | 16.7 | 6.8 | 3.1 | (5.8 | ) | (10.0 | ) | (10.7 | ) | (6.0 | ) | 5.5 | 3.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-operating expense | — | — | — | — | — | — | (4.4 | ) | (4.8 | ) | (4.4 | ) | (4.8 | ) | — | — | — | — | — | — | (3.6 | ) | (4.1 | ) | (3.6 | ) | (4.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Income (loss) before income taxes | $ | 14.0 | $ | 18.1 | $ | 6.8 | $ | 7.5 | $ | 17.5 | $ | 27.8 | $ | (22.6 | ) | $ | (14.0 | ) | $ | 15.8 | $ | 39.4 | $ | 15.3 | $ | 16.7 | $ | 6.8 | $ | 3.1 | $ | (5.8 | ) | $ | (10.0 | ) | $ | (14.3 | ) | $ | (10.1 | ) | $ | 2.0 | $ | (0.3 | ) | |||||||||||||||||||||||||||||||||
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Supplementary Data | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net tons sold(thousands) | 38.9 | 40.1 | 24.8 | 26.3 | 203.6 | 208.4 | — | — | 267.2 | 274.7 | 40.7 | 39.4 | 24.4 | 22.6 | 194.7 | 191.3 | — | — | 259.7 | 253.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | $ | 6.7 | $ | 7.4 | $ | 2.2 | $ | 2.3 | $ | 6.4 | $ | 6.5 | $ | 0.5 | $ | 0.5 | $ | 15.8 | $ | 16.7 | $ | 7.2 | $ | 6.7 | $ | 2.4 | $ | 2.1 | $ | 6.5 | $ | 6.3 | $ | 0.7 | $ | 0.5 | $ | 16.8 | $ | 15.6 | ||||||||||||||||||||||||||||||||||||||||
Capital expenditures | 5.8 | 5.4 | 1.8 | 1.3 | 22.1 | 9.7 | — | 0.5 | 29.7 | 16.9 | 2.3 | 5.6 | 6.1 | 1.5 | 28.7 | 15.6 | — | 0.1 | 37.1 | 22.8 |
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
- 34 -
GLATFELTER
9.30.156.30.16 Form 10-Q
Sales and Costs of Products Sold
Three months ended September 30 | Three months ended June 30 | |||||||||||||||||||||||
In thousands | 2015 | 2014 | Change | 2016 | 2015 | Change | ||||||||||||||||||
Net sales | $ | 419,960 | $ | 465,092 | $ | (45,132 | ) | $ | 406,413 | $ | 410,803 | $ | (4,390 | ) | ||||||||||
Energy and related sales, net | 1,153 | 860 | 293 | 2,001 | 715 | 1,286 | ||||||||||||||||||
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Total revenues | 421,113 | 465,952 | (44,839 | ) | 408,414 | 411,518 | (3,104 | ) | ||||||||||||||||
Costs of products sold | 361,205 | 385,439 | (24,234 | ) | 365,691 | 378,685 | (12,994 | ) | ||||||||||||||||
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Gross profit | $ | 59,908 | $ | 80,513 | $ | (20,605 | ) | $ | 42,723 | $ | 32,833 | $ | 9,890 | |||||||||||
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Gross profit as a percent of Net sales | 14.3 | % | 17.3 | % | 10.5 | % | 8.0 | % |
The following table sets forth the contribution to consolidated net sales by each business unit:
Three months ended September 30 | Three months ended June 30 | |||||||||||||||
Percent of Total | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Business Unit | ||||||||||||||||
Composite Fibers | 31.9 | % | 33.2 | % | 33.6 | % | 34.2 | % | ||||||||
Advanced Airlaid Material | 15.0 | 16.0 | 15.0 | 14.0 | ||||||||||||
Specialty Papers | 53.1 | 50.8 | 51.4 | 51.8 | ||||||||||||
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Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
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Net sales totaled $420.0$406.4 million and $410.8 million in the third quartersecond quarters of 2016 and 2015, comparedrespectively, with $465.1 million in the third quarter of 2014. Thedecline primarily reflecting lower average selling prices. Currency translation of non-U.S. dollar sales unfavorablyadjustments favorably impacted the year-over-year comparison by $25.2$0.7 million reflecting the weaker Euro.
NetComposite Fibers’ net sales for Composite Fibers declined $20.6$4.0 million, or 13.3%2.9%, primarily due to $18.8 million of unfavorable currency translation and $3.9$1.6 million from lower selling prices, partially offset by the inclusion of Spezialpapierfabrik Oberschmitten GmbH (SPO), which was acquiredprices. Shipping volumes were higher in the fourth quarter of 2014. Shipping volumes declined 3.0%comparison primarily due to a 23.2% decline in nonwovenimproved demand for wallcover.
Composite Fibers’ third-quarter 2015second-quarter 2016 operating income totaled $14.1decreased $1.4 million a $4.0to $15.3 million decline compared to the year-ago period. The negative impact of lower selling prices and wallcover shipping volumes was partially offset by $2.2 million of improved operations and $1.2 million of lower raw material and energy costs. The changeprimary drivers are summarized in foreign currency exchange rates negatively impacted results by $1.3 million.the following chart:
On a year-over-year basis,
Advanced Airlaid Materials’ net sales decreased $11.2increased $3.3 million largelyin the year-over-year comparison as shipping volumes increased 7.8% primarily due to $6.4 million of unfavorable currency translation and a 5.8% decline in shipping volumes.
higher shipments
Third-quarter 2015of hygiene products. Lower selling prices impacted the comparison by $1.8 million.
Advanced Airlaid Materials’ operating income declined $0.7totaled $6.8 million, compared tomore than double the same quarter a year-ago primarily due to approximately $1.7 million related to lower shipping volumes and downtime to align production with demand, partially offset by $1.5 million of lower raw material and energy costs.year ago. The primary drivers are summarized in the following chart:
On a year-over-year basis,
Specialty Papers’ net sales decreased $13.4$3.7 million, or 5.7%1.7%, due to a $3.7 million impact from lower average selling prices totaling $5.7 million and a decline in shipping volumes.prices.
Specialty Papers’ third-quarter 2015 operating income totaled $17.5loss narrowed by $4.2 million a $10.2 million decrease in the year-over-year comparison primarily due toand totaled $5.8 million in the second quarter of 2016. The primary drivers are summarized in the following chart:
Operating results for both quarters reflect the cost of annual maintenance outages at the Company’s Chillicothe, OH and Spring Grove, PA facilities. The outages adversely impacted second-quarter 2016 results by $26.3 million, which was $7.1 million less than the cost of the outages in 2015. The $0.9 million improvement in “Operations & Other” in the chart above includes the lower selling prices, $3.1 millioncost of market downtime and $3.7 million fromthe annual maintenance outages which was offset by lower pulp production partially offset by $2.9 million of lower raw material and energyan increase in incentive compensation and other costs.
- 35 -
GLATFELTER
6.30.16 Form 10-Q
We sell excess power generated by the Spring Grove, PA facility. The following table summarizes this activity for the thirdsecond quarters of 20152016 and 2014:2015:
Three months ended September 30 | Three months ended June 30 | |||||||||||||||||||||||
In thousands | 2015 | 2014 | Change | 2016 | 2015 | Change | ||||||||||||||||||
Energy sales | $ | 1,047 | $ | 1,513 | $ | (466 | ) | $ | 836 | $ | 1,163 | $ | (327 | ) | ||||||||||
Costs to produce | (1,131 | ) | (1,268 | ) | 137 | (934 | ) | (1,211 | ) | 277 | ||||||||||||||
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Net | (84 | ) | 245 | (329 | ) | (98 | ) | (48 | ) | (50 | ) | |||||||||||||
Renewable energy credits | 1,237 | 615 | 622 | 2,099 | 763 | 1,336 | ||||||||||||||||||
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Total | $ | 1,153 | $ | 860 | $ | 293 | $ | 2,001 | $ | 715 | $ | 1,286 | ||||||||||||
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Renewable energy credits (“RECs”) represent sales of certified credits earned related to burning renewable sources of energy such as black liquor and wood waste. We sell RECs into an illiquid market. The extent and value of future revenues from REC sales is dependent on many factors outside of management’s control. Therefore, we may not be able to generate consistent additional sales of RECs in future periods.
- 35 -
GLATFELTER
9.30.15 Form 10-Q
Other and Unallocated The amount of net operating expenses not allocated to a business unit and reported as “Other and Unallocated” in our table ofBusiness Unit Performance, totaled $18.2$10.7 million in the thirdsecond quarter of 20152016 compared with $9.1$6.0 million in the thirdsecond quarter of 2014. Excluding the impact of sales of timberlands in the comparison, unallocated net operating expenses increased $7.6 million2015. The increase was primarily due to the $10.0 million Fox River environmental matter charge partially offset by lower corporate spending.higher incentive compensation and professional service fees.
Pension Expense The following table summarizes the amounts of pension expense recognized for the periods indicated:
Three months ended September 30 | Three months ended June 30 | |||||||||||||||||||||||
In thousands | 2015 | 2014 | Change | 2016 | 2015 | Change | ||||||||||||||||||
Recorded as: | ||||||||||||||||||||||||
Costs of products sold | $ | 1,752 | $ | 1,650 | $ | 102 | $ | 742 | $ | 1,468 | $ | (726 | ) | |||||||||||
SG&A expense | 454 | 3 | 451 | 854 | 135 | 719 | ||||||||||||||||||
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Total | $ | 2,206 | $ | 1,653 | $ | 553 | $ | 1,596 | $ | 1,603 | $ | (7 | ) | |||||||||||
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Income taxes For the thirdsecond quarter of 2015,2016, we recorded zero tax on a provision for income taxes of $2.3 million on pretax income of $15.8 million.$2.0 million due to the jurisdiction in which taxable earnings and discrete items were generated. The comparable amounts in the thirdsecond quarter of 20142015 were an income tax expensebenefit of $9.0$3.1 million on $39.4 milliona pretax loss of pretax income. In the third quarter of 2014, we recorded a $1.0 million$0.3 million. The tax benefit from the release of tax reserves related to alternative fuel mixture credits earned in 2009,was primarily due to the lapserelease income tax reserves in connection with the completion of the applicable statutes of limitation.certain federal and state tax examinations.
Foreign CurrencyThe table below summarizes the translation impact on reported results that changes in currency exchange rates had on our non-U.S. based operations from the conversion of these operation’s results for the thirdsecond quarter of 2015 compared to the third quarter of 2014:2016.
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In thousands | Three months ended June 30, 2016 | |||
Favorable (unfavorable) | ||||
Net sales | $ | 709 | ||
Costs of products sold | (1,354 | ) | ||
SG&A expenses | (22 | ) | ||
Income taxes and other | (9 | ) | ||
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Net income | $ | (676 | ) | |
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The above table only presents the financial reporting impact of foreign currency translations assuming currency exchange rates in 20152016 were the same as 2014 before giving effect to foreign currency hedges.2015. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and requires significant expenditures for new or enhanced equipment, to support our research and development efforts, for environmental compliance matters including, but not limited to, the Clean Air Act, and to support our business strategy. In addition, we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the periods presented:
September 30 | Six months ended June 30 | |||||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Cash and cash equivalents at beginning of period | $ | 99,837 | $ | 122,882 | $ | 105,304 | $ | 99,837 | ||||||||
Cash provided (used) by | ||||||||||||||||
Operating activities | 70,523 | 21,380 | 36,640 | 25,513 | ||||||||||||
Investing activities | (72,923 | ) | (43,585 | ) | (80,638 | ) | (43,124 | ) | ||||||||
Financing activities | (21,946 | ) | (46,007 | ) | (3,126 | ) | (14,813 | ) | ||||||||
Effect of exchange rate changes on cash | (1,826 | ) | (1,015 | ) | 352 | (1,651 | ) | |||||||||
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Net cash used | (26,172 | ) | (69,227 | ) | (46,772 | ) | (34,075 | ) | ||||||||
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Cash and cash equivalents at end of period | $ | 73,665 | $ | 53,655 | $ | 58,532 | $ | 65,762 | ||||||||
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At SeptemberJune 30, 2015,2016, we had $73.7$58.5 million in cash and cash equivalents held by both domestic and foreign subsidiaries. Although unremittedUnremitted earnings of our foreign subsidiaries are deemed to be permanently reinvested, substantially allindefinitely reinvested; however, as of June 30, 2016, the majority of our cash and cash equivalents
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6.30.16 Form 10-Q
is either held by domestic entities or is available for use domestically. In addition to our cash and cash equivalents, $157.2$258.4 million is available under our revolving credit agreement, which matures in March 2020.
Cash provided by operating activities totaled $70.5$36.6 million in the first ninesix months of 20152016 compared with $21.4$25.5 million in the same period a year ago. The increase in cash from operations primarily reflects a decrease in cash used for working capital primarily related to lower inventory and improved payment terms with suppliers together with lower income tax payments partially offset by cash used for Fox River environmental remediation activities.capital.
Net cash used by investing activities increased by $29.3$37.5 million in the year-over-year comparison primarily due to capital expenditures largely related tofor Specialty Papers’ environmental compliance projects.and Advanced Airlaid Materials’ capacity expansion projects which totaled $55.6 million in 2016. Capital expenditures during the first nine months of 2015 and 2014, include $19.0 million and $2.9 million, respectively, related to environmental compliance projects. Capital expenditures in 2015 are expected to betotal between $150 million and $170 million for 2016, including approximately $105$45 million to $115 million including approximately $35$50 million for Specialty Papers’ environmental compliance projects.projects and approximately $40 million to $45 million for the Airlaid capacity expansion.
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9.30.15 Form 10-Q
Net cash used by financing activities totaled $21.9$3.1 million in the first ninesix months of 20152016 compared with $46.0$14.8 million in the same period of 2014. In 2014, we used $30.72015. The net decline in use of cash for financing activities primarily reflects lower revolver borrowings, offset by additional term loan borrowings and receipt of $4.4 million of cashgovernment grants primarily related to reduce amounts outstanding on our revolving credit facility compared with no changes in the first nine months of 2015.Airlaid capacity expansion and Specialty Papers’ compliance projects.
At September 30, 2015, our net debt (defined as total debt less cash) totaled $315.5 million compared to $304.8 million at the end of 2014. The following table sets forth our outstanding long-term indebtedness:
September 30 | December 31 | June 30 | December 31 | |||||||||||||
In thousands | 2015 | 2014 | 2016 | 2015 | ||||||||||||
Revolving credit facility, due Mar. 2020 | $ | 83,464 | $ | — | $ | 48,851 | $ | 58,792 | ||||||||
Revolving credit facility, due Nov. 2016 | — | 90,555 | ||||||||||||||
5.375% Notes, due Oct. 2020 | 250,000 | 250,000 | 250,000 | 250,000 | ||||||||||||
2.40% Term Loan, due Jun. 2022 | 10,803 | 12,155 | 9,516 | 10,109 | ||||||||||||
2.05% Term Loan, due Mar. 2023 | 44,848 | 51,902 | 40,000 | 42,130 | ||||||||||||
1.30% Term Loan, due Jun. 2023 | 11,102 | — | ||||||||||||||
1.55% Term Loan, due Sep. 2025 | 10,884 | 2,839 | ||||||||||||||
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Total long-term debt | 389,115 | 404,612 | 370,353 | 363,870 | ||||||||||||
Less current portion | (7,580 | ) | (5,734 | ) | (9,098 | ) | (7,366 | ) | ||||||||
Unamortized deferred issuance costs | (2,889 | ) | (3,208 | ) | ||||||||||||
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Long-term debt, net of current portion | $ | 381,535 | $ | 398,878 | $ | 358,366 | $ | 353,296 | ||||||||
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Our revolving credit facility contains a number of customary compliance covenants, the most restrictive of which is a maximum leverage ratio of 3.5x. As of SeptemberJune 30, 2015,2016, the leverage ratio, as calculated in accordance with the definition in our credit agreement, was 2.2x,1.9x, within the limits set forth in our
credit agreement. Based on our expectations of future results of operations and capital needs, we do not believe the debt covenants will impact our operations or limit our ability to undertake financings that may be necessary to meet our capital needs.
The 5.375% Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the credit agreement at maturity, or a default under the credit agreement that accelerates the debt outstanding thereunder. As of SeptemberJune 30, 2015,2016, we met all of the requirements of our debt covenants. The significant terms of the debt instruments are more fully discussed in Item 1—1 - Financial Statements – Note 12.9.
Our long-term debt includes two term loans with mandatory principal repayments that have used $3.4 million of cash in the first nine months of 2015. Principal repayments will total approximately $4.7 million and $6.8 million, in 2015 and 2016, respectively.
Cash used for financingFinancing activities includes cash used for common stock dividends and, with respect towhich increased in the first nine months of 2014, stock repurchases. In February 2015, our Board of Directors authorizedcomparison reflecting a 9%4% increase in our quarterly cash dividend. In the first ninesix months of 2015,2016, we used $15.2$10.7 million of cash for dividends on our common stock compared with $13.9$10.0 million in the same period of 2014. The2015. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments.
On May 1, 2014, we announced that our Board of Directors approved a $25 million increase to our share repurchase program and extended the expiration date to May 1, 2016. Under the revised program, we may repurchase up to $50 million of our outstanding common stock of which $33.4 million remains available as of September 30, 2015. No repurchases were made in the first nine months of 2015 and repurchases totaled $12.2 million in the first nine months of 2014.
We are subject to various federal, state and local laws and regulations intended to protect the environment as well as human health and safety. At various times, we have incurred significant costs to comply with these regulations and we could incur additional costs as new regulations are developed or regulatory priorities change. We will incur material capital costs to comply with new air quality regulations including the U.S. EPA Best Available Retrofit Technology rule (BART; otherwise known as the Regional Haze Rule) and the Boiler Maximum Achievable Control Technology rule (Boiler MACT). These rules will require process modifications and/or installation of air pollution controls on boilers at two of our facilities. We have begun converting or replacing fourfive coal-fired boilers to natural gas and upgrading site infrastructure to accommodate the new boilers, including connecting to gas pipelines. TheNet of government grants, the total cost of these projects is estimated at $85 million to $90 million, of which $25.1approximately $67.9 million has been spent to date.incurred through the end of the second quarter of 2016. The balance of the costsrelated spending will be incurred substantially over the next eighteen months. The amount of capital spending ultimately incurred may differ, and the difference could be material. Enactment of new environmental laws or regulations or changescompleted in existing laws or regulations could significantly change our estimates.2016.
As more fully discussed in Item 1 - Financial Statements – Note 1613 – Commitments, Contingencies and Legal Proceedings during the fourth quarter of 2015,(“Note 13”), we expect to spend approximately $5 million to remediate a portion ofare involved in the Lower Fox River in Wisconsin (the “Fox River”), an EPA Superfund site.site for which we remain potentially liable for contributions to the clean-up activity. During 2015, we used $9.7 million and expect to spend less than $10.0 million in 2016 for remediation activities. It is conceivable we may need to fund amounts in excess of this to fund a
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6.30.16 Form 10-Q
portion of the on-going costs beyond 2015.in 2016 or beyond. Although we are unable to determine with any degree of certainty the amount we may
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9.30.15 Form 10-Q
be required to fund for interim remediation work, such amounts could be significant. The ultimate allocation of such costs is the subject of extensive ongoing litigation amongst three potentially responsible parties. See Item 1 – Financial Statements – Note 1613 for a summary of significant environmental matters.
During 2016, we expect our use of cash for capital expenditures, strategic investments and environmental compliance projects will exceed cash generated from operations. We expect to meet all of our near-near and longer-termlong-term cash needs from a combination of operating cash flow, cash and cash equivalents, our existing credit facility or other bank lines of credit and other long-term debt. However, as discussed in Item 1 – Financial Statements – Note 16,13, an unfavorable outcome of the Fox River matters could have a material adverse impact on our consolidated financial position, liquidity and/or results of operations.
Off-Balance-Sheet ArrangementsAs of SeptemberJune 30, 20152016 and December 31, 2014,2015, we had not entered into any off-balance-sheet arrangements. Financial derivative instruments, to which we are a party, and guarantees of indebtedness, which solely consist of obligations of subsidiaries, and a partnership, are reflected in the condensed consolidated balance sheets included herein in Item 1 – Financial Statements.
OutlookComposite Fibers’ shipping volumes and selling prices in the fourththird quarter are expected to approximatebe slightly higher than the third quarter of 2015 levels. Rawsecond quarter. Selling prices and raw material and energy prices are expected to be in-line with the second quarter.
Advanced Airlaid Materials’ shipping volumes are expected to increase slightly higher thanin the third quarter.
Shipping volumes for Advanced Airlaid Materials in the fourth quarter of 2015 are expected to be down slightly compared with the third quarter. Average Customer selling prices and raw material and energy prices in the fourth quarter are expected to be in-line with the thirdsecond quarter.
For Specialty Papers, we expect shipping volumes in the fourththird quarter of 2015 to be in-lineincrease by approximately 5% compared with the thirdsecond quarter. Overall, sellingSelling prices are expected to declinebe slightly higher while increases in the fourth quarter comparedraw material and energy prices are expected to the third quarter dueslightly outpace selling price increases. We also expect maintenance spending to continued pressure on commodity products and inputdecrease by approximately $23 million reflecting normal patterns of maintenance expense.
Corporate costs are expected to be in-line withapproximately $1 million to $2 million less in the third quarter of 2015. We do not expect any market downtime in Specialty Papersthan in the fourthsecond quarter.
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GLATFELTER
9.30.156.30.16 Form 10-Q
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Year Ended December 31 | September 30, 2015 | Year Ended December 31 | June 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dollars in thousands | 2015 | 2016 | 2017 | 2018 | 2019 | Carrying Value | Fair Value | 2017 | 2018 | 2019 | 2020 | 2021 | Carrying Value | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average principal outstanding | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At fixed interest rates – Bond | $ | 250,000 | $ | 250,000 | $ | 250,000 | $ | 250,000 | $ | 250,000 | $ | 250,000 | $ | 253,908 | $ | 250,000 | $ | 250,000 | $ | 250,000 | $ | 250,000 | $ | 250,000 | $ | 250,000 | $ | 255,625 | ||||||||||||||||||||||||||||||
At fixed interest rates – Term Loans | 57,547 | 52,261 | 44,681 | 37,101 | 29,521 | 55,651 | 54,340 | 62,403 | 52,625 | 42,166 | 31,708 | 21,249 | 71,502 | 68,087 | ||||||||||||||||||||||||||||||||||||||||||||
At variable interest rates | 83,464 | 83,464 | 83,464 | 83,464 | 83,464 | 83,464 | 83,464 | 48,851 | 48,851 | 48,851 | 48,851 | 48,851 | 48,851 | 48,851 | ||||||||||||||||||||||||||||||||||||||||||||
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$ | 389,115 | $ | 391,712 | $ | 370,353 | $ | 372,563 | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Weighted-average interest rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
On fixed rate debt – Bond | 5.375 | % | 5.375 | % | 5.375 | % | 5.375 | % | 5.375 | % | 5.375 | % | 5.375 | % | 5.375 | % | 5.375 | % | 5.375 | % | ||||||||||||||||||||||||||||||||||||||
On fixed rate debt – Term Loans | 2.12 | % | 2.12 | % | 2.12 | % | 2.12 | % | 2.12 | % | 2.17 | % | 2.17 | % | 2.17 | % | 2.17 | % | 2.17 | % | ||||||||||||||||||||||||||||||||||||||
On variable rate debt | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | ||||||||||||||||||||||||||||||||||||||
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The table above presents the average principal outstanding and related interest rates for the next five years for debt outstanding as of SeptemberJune 30, 2015.2016. Fair values included herein have been determined based upon rates currently available to us for debt with similar terms and remaining maturities.
Our market risk exposure primarily results from changes in interest rates and currency exchange rates. At SeptemberJune 30, 2015,2016, we had $389.1$370.4 million of long-term debt, of which 21.5%13.2% was at variable interest rates. Variable-rate debt outstanding consists ofrepresents borrowings under our revolving credit agreement that accrues interest based on LIBOR plus a margin. At SeptemberJune 30, 2015,2016, the interest rate paid was approximately 1.50%1.25%. A hypothetical 100 basis point increase or decrease in the interest rate on variable rate debt would increase or decrease annual interest expense by $0.8$0.5 million.
As part of our overall risk management practices, we enter into financial derivatives primarily designed to either i) hedge foreign currency risks associated with forecasted transactions – “cash flow hedges”; or ii) mitigate the impact that changes in currency exchange rates have on intercompany financing transactions and foreign currency denominated receivables and payables – “foreign currency hedges.” For a more complete discussion of this activity, refer to Item 1 – Financial Statements – Note 15.12.
We are subject to certain risks associated with changes in foreign currency exchange rates to the extent our operations are conducted in currencies other than the U.S. Dollar. OurOn an annual basis, our euro denominated revenue exceeds euro expenses by approximately €120 million. With respect to the British Pound Sterling, Canadian dollar, and Philippine Peso, we have greaterdiffering amounts of inflows and outflows than inflows of these currencies, although to a lesser degree.degree than the euro. As a result, particularly with respect to the euro, we are exposed to changes in currency exchange rates and such changes have been and could continue to be significant.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and ProceduresOur chief executive officer and our principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of SeptemberJune 30, 2015,2016, have concluded that, as of the evaluation date, our disclosure controls and procedures are effective.
Changes in Internal ControlsThere were no changes in our internal control over financial reporting during the three months ended SeptemberJune 30, 2015,2016, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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GLATFELTER
9.30.156.30.16 Form 10-Q
The following exhibits are filed herewith or incorporated by reference as indicated.
31.1 | Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of John P. Jacunski, Executive Vice President, | |
32.1 | Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. | |
32.2 | Certification of John P. Jacunski, Executive Vice President, | |
101.INS | XBRL Instance Document, filed herewith | |
101.SCH | XBRL Taxonomy Extension Schema, filed herewith | |
101.CAL | XBRL Extension Calculation Linkbase, filed herewith | |
101.DEF | XBRL Extension Definition Linkbase, filed herewith | |
101.LAB | XBRL Extension Label Linkbase, filed herewith | |
101.PRE | XBRL Extension Presentation Linkbase, filed herewith |
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) | ||||||
By | /s/ David C. Elder | |||||
David C. Elder | ||||||
Vice President, Finance |
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GLATFELTER
9.30.156.30.16 Form 10-Q
EXHIBIT INDEX
Exhibit | Description | |
| ||
31.1 | Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 – Chief Executive Officer, filed herewith. | |
31.2 | Certification of John P. Jacunski, Executive Vice President, | |
32.1 | Certification of Dante C. Parrini, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer, filed herewith. | |
32.2 | Certification of John P. Jacunski, Executive Vice President, | |
101.INS | XBRL Instance Document, filed herewith | |
101.SCH | XBRL Taxonomy Extension Schema, filed herewith | |
101.CAL | XBRL Extension Calculation Linkbase, filed herewith | |
101.DEF | XBRL Extension Definition Linkbase, filed herewith | |
101.LAB | XBRL Extension Label Linkbase, filed herewith | |
101.PRE | XBRL Extension Presentation Linkbase, filed herewith |
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9.30.156.30.16 Form 10-Q