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SECURITIES AND EXCHANGE COMMISSION
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
from ______ to ______
Pennsylvania (State or other jurisdiction of incorporation or organization) | 23-0628360 (IRS Employer Identification No.) | |
96 South George Street, Suite 500 York, Pennsylvania 17401 (Address of principal executive offices) | (717) 225-4711 (Registrant’s telephone number, including area code) |
(Former name or former address, if changed since last report)
REPORT ON FORM 10-Q
for the QUARTERLY PERIOD ENDED
Page | ||||||||
PART I — FINANCIAL INFORMATION | ||||||||
Item 1Financial Statements | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
16 | ||||||||
Item 2 | 17 | |||||||
Item 3 | 24 | |||||||
Item 4 | 24 | |||||||
PART II — OTHER INFORMATION | ||||||||
Item 4 | 25 | |||||||
Item 6 | 26 | |||||||
SIGNATURES | 26 | |||||||
EXHIBIT INDEX | 27 | |||||||
LETTER IN LIEU OF CONSENT REGARDING REVIEW REPORT | ||||||||
CERTIFICATION PURSUANT TO SECTION 302 | ||||||||
CERTIFICATION PURSUANT TO SECTION 302 | ||||||||
CERTIFICATION PURSUANT TO SECTION 906 | ||||||||
CERTIFICATION PURSUANT TO SECTION 906 |
Table of Contents
Item 1 — Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30 | June 30 | |||||||||||||||||
In thousands, except per share | 2005 | 2004 | 2005 | 2004 | ||||||||||||||
Net sales | $ | 145,283 | $ | 129,029 | $ | 289,179 | $ | 261,106 | ||||||||||
Energy sales – net | 2,715 | 2,894 | 5,259 | 5,308 | ||||||||||||||
Total revenues | 147,998 | 131,923 | 294,438 | 266,414 | ||||||||||||||
Costs of products sold | 128,165 | 115,881 | 246,011 | 229,873 | ||||||||||||||
Gross profit | 19,833 | 16,042 | 48,427 | 36,541 | ||||||||||||||
Selling, general and administrative expenses | 16,974 | 15,691 | 34,364 | 30,513 | ||||||||||||||
Restructuring charges | — | 867 | — | 867 | ||||||||||||||
Gains on dispositions of plant, equipment and timberlands, net | (21 | ) | (392 | ) | (81 | ) | (33,430 | ) | ||||||||||
Gains from insurance recoveries | (2,200 | ) | (300 | ) | (2,200 | ) | (25,500 | ) | ||||||||||
Operating income | 5,080 | 176 | 16,344 | 64,091 | ||||||||||||||
Non-operating income (expense) Interest expense | (3,290 | ) | (3,280 | ) | (6,550 | ) | (6,695 | ) | ||||||||||
Interest income | 559 | 453 | 1,057 | 896 | ||||||||||||||
Other – net | (25 | ) | (271 | ) | 236 | (58 | ) | |||||||||||
Total other income (expense) | (2,756 | ) | (3,098 | ) | (5,257 | ) | (5,857 | ) | ||||||||||
Income (loss) before income taxes | 2,324 | (2,922 | ) | 11,087 | 58,234 | |||||||||||||
Income tax provision (benefit) | 615 | (1,293 | ) | 3,088 | 23,604 | |||||||||||||
Net income (loss) | $ | 1,709 | $ | (1,629 | ) | $ | 7,999 | $ | 34,630 | |||||||||
Basic and diluted earnings (loss) per share | $ | 0.04 | $ | (0.04 | ) | $ | 0.18 | $ | 0.79 | |||||||||
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CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30 | December 31 | |||||||||
In thousands | 2005 | 2004 | ||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 22,649 | $ | 39,951 | ||||||
Accounts receivable–net | 64,070 | 60,900 | ||||||||
Inventories | 81,912 | 78,836 | ||||||||
Prepaid expenses and other current assets | 22,183 | 18,765 | ||||||||
Total current assets | 190,814 | 198,452 | ||||||||
Plant, equipment and timberlands – net | 490,638 | 520,412 | ||||||||
Other assets | 336,234 | 333,406 | ||||||||
Total assets | $ | 1,017,686 | $ | 1,052,270 | ||||||
Liabilities and Shareholders’ Equity | ||||||||||
Current liabilities | ||||||||||
Current portion of long-term debt | $ | 18,263 | $ | 446 | ||||||
Short-term debt | 7,045 | 3,503 | ||||||||
Accounts payable | 36,613 | 30,174 | ||||||||
Dividends payable | 3,959 | 3,955 | ||||||||
Environmental liabilities | 7,595 | 7,715 | ||||||||
Other current liabilities | 62,134 | 58,214 | ||||||||
Total current liabilities | 135,609 | 104,007 | ||||||||
Long-term debt | 184,000 | 207,277 | ||||||||
Deferred income taxes | 212,584 | 212,074 | ||||||||
Other long-term liabilities | 72,886 | 108,542 | ||||||||
Total liabilities | 605,079 | 631,900 | ||||||||
Commitments and contingencies | — | — | ||||||||
Shareholders’ equity | ||||||||||
Common stock | 544 | 544 | ||||||||
Capital in excess of par value | 43,831 | 41,828 | ||||||||
Retained earnings | 525,136 | 525,056 | ||||||||
Deferred compensation | (2,916 | ) | (1,275 | ) | ||||||
Accumulated other comprehensive income (loss) | (73 | ) | 8,768 | |||||||
566,522 | 574,921 | |||||||||
Less cost of common stock in treasury | (153,915 | ) | (154,551 | ) | ||||||
Total shareholders’ equity | 412,607 | 420,370 | ||||||||
Total liabilities and shareholders’ equity | $ | 1,017,686 | $ | 1,052,270 | ||||||
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended | ||||||||||
June 30 | ||||||||||
In thousands | 2005 | 2004 | ||||||||
Operating activities | ||||||||||
Net income | $ | 7,999 | $ | 34,630 | ||||||
Adjustments to reconcile to net cash provided by operations: | ||||||||||
Depreciation, depletion and amortization | 25,656 | 26,380 | ||||||||
Pension income | (8,246 | ) | (8,683 | ) | ||||||
Deferred income tax provision | 2,504 | 17,243 | ||||||||
Gains on dispositions of plant, equipment and timberlands, net | (81 | ) | (33,430 | ) | ||||||
Other | 319 | 345 | ||||||||
Change in operating assets and liabilities | ||||||||||
Accounts receivable | (6,879 | ) | (4,609 | ) | ||||||
Inventories | (6,746 | ) | 593 | |||||||
Other assets and prepaid expenses | (2,251 | ) | (13,822 | ) | ||||||
Accounts payable and other liabilities | (7,364 | ) | (1,817 | ) | ||||||
Net cash provided by operating activities | 4,911 | 16,830 | ||||||||
Investing activities | ||||||||||
Purchases of plant, equipment and timberlands | (14,005 | ) | (11,121 | ) | ||||||
Proceeds from disposals of plant, equipment and timberlands | 130 | 34,108 | ||||||||
Net cash provided (used) by investing activities | (13,875 | ) | 22,987 | |||||||
Financing activities | ||||||||||
Net borrowings (repayments) of revolving credit facility and short-term debt | 1,338 | (36,078 | ) | |||||||
Payment of dividends | (7,914 | ) | (7,890 | ) | ||||||
Proceeds from stock options exercised | 116 | ? | ||||||||
Net cash used by financing activities | (6,460 | ) | (43,968 | ) | ||||||
Effect of exchange rate changes on cash | (1,878 | ) | (318 | ) | ||||||
Net decrease in cash and cash equivalents | (17,302 | ) | (4,469 | ) | ||||||
Cash and cash equivalents at the beginning of period | 39,951 | 15,566 | ||||||||
Cash and cash equivalents at the end of period | $ | 22,649 | $ | 11,097 | ||||||
Supplemental cash flow information | ||||||||||
Cash paid (received) for | ||||||||||
Interest expense | $ | 6,327 | $ | 8,128 | ||||||
Income taxes | 12,198 | (2,124 | ) | |||||||
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. | ORGANIZATION |
2. | ACCOUNTING POLICIES |
Three Months Ended | ||||||||||
June 30 | ||||||||||
In thousands, except per share | 2005 | 2004 | ||||||||
Net income (loss) as reported | $ | 1,709 | $ | (1,629 | ) | |||||
Add: stock-based compensation expense included in reported net income, net of tax | 135 | 147 | ||||||||
Less: stock-based compensation expense determined under fair value based method for awards, net of tax | (146 | ) | (499 | ) | ||||||
Pro forma | $ | 1,698 | $ | (1,981 | ) | |||||
Earnings (loss) per share | ||||||||||
Reported – basic and diluted | $ | 0.04 | $ | (0.04 | ) | |||||
Pro forma – basic and diluted | 0.04 | (0.05 | ) | |||||||
Six Months Ended | ||||||||||
June 30 | ||||||||||
In thousands, except per share | 2005 | 2004 | ||||||||
Net income as reported | $ | 7,999 | $ | 34,630 | ||||||
Add: stock-based compensation expense included in reported net income, net of tax | 253 | 360 | ||||||||
Less: stock-based compensation expense determined under fair value based method for awards, net of tax | (275 | ) | (520 | ) | ||||||
Pro forma | $ | 7,977 | $ | 34,470 | ||||||
Earnings per share Reported – basic and diluted | $ | 0.18 | $ | 0.79 | ||||||
Pro forma – basic and diluted | 0.18 | 0.78 | ||||||||
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3. | RECENT PRONOUNCEMENTS |
4. | GAIN ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS |
Dollars in thousands | Acres | Proceeds | Gain | |||||||||||
Six Months Ended June 30, 2004 | ||||||||||||||
Timberlands | 2,332 | $ | 30,283 | $ | 29,972 | |||||||||
Corporate Aircraft | n/a | 2,861 | 2,554 | |||||||||||
Other | n/a | 964 | 904 | |||||||||||
Total | $ | 34,108 | $ | 33,430 | ||||||||||
5. | EARNINGS PER SHARE |
Three Months Ended | ||||||||||
June 30 | ||||||||||
In thousands, except per share | 2005 | 2004 | ||||||||
Net income (loss) | $ | 1,709 | $ | (1,629 | ) | |||||
Weighted average common shares outstanding used in basic EPS | 43,983 | 43,834 | ||||||||
Common shares issuable upon exercise of dilutive stock options, restricted stock awards and performance awards | 311 | — | ||||||||
Weighted average common shares outstanding and common share equivalents used in diluted EPS | 44,294 | 43,834 | ||||||||
Basic and diluted EPS | $ | 0.04 | $ | (0.04 | ) | |||||
Six Months Ended | ||||||||||
June 30 | ||||||||||
In thousands, except per share | 2005 | 2004 | ||||||||
Net income | $ | 7,999 | $ | 34,630 | ||||||
Weighted average common shares outstanding used in basic EPS | 43,972 | 43,820 | ||||||||
Common shares issuable upon exercise of dilutive stock options, restricted stock awards and performance awards | 295 | 119 | ||||||||
Weighted average common shares outstanding and common share equivalents used in diluted EPS | 44,267 | 43,939 | ||||||||
Basic and diluted EPS | $ | 0.18 | $ | 0.79 | ||||||
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Three Months | Six Months | |||||||||||||||
Ended June 30 | Ended June 30 | |||||||||||||||
In thousands | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Potential common shares | 1,284 | 2,448 | 976 | 2,172 | ||||||||||||
6. | GAIN ON INSURANCE RECOVERIES |
7. | STOCK-BASED COMPENSATION |
8. | RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS |
Three Months Ended | ||||||||||
June 30 | ||||||||||
In thousands | 2005 | 2004 | ||||||||
Pension Benefits | ||||||||||
Service cost | $ | 817 | $ | 842 | ||||||
Interest cost | 4,149 | 4,007 | ||||||||
Expected return on plan assets | (9,966 | ) | (9,427 | ) | ||||||
Amortization of transition assets | — | (213 | ) | |||||||
Amortization of prior service cost | 922 | 425 | ||||||||
Recognized actuarial (gain) loss | (288 | ) | 101 | |||||||
Net periodic benefit cost (income) | (4,366 | ) | (4,265 | ) | ||||||
Special termination benefits | — | 96 | ||||||||
Total net periodic benefit (income) cost | $ | (4,366 | ) | $ | (4,169 | ) | ||||
Other Benefits | ||||||||||
Service cost | $ | 279 | $ | 198 | ||||||
Interest cost | 699 | 626 | ||||||||
Amortization of prior service cost | (186 | ) | (157 | ) | ||||||
Recognized actuarial (gain) loss | 351 | 324 | ||||||||
Net periodic benefit cost | $ | 1,143 | $ | 991 | ||||||
Six Months Ended | ||||||||||
June 30 | ||||||||||
In thousands | 2005 | 2004 | ||||||||
Pension Benefits | ||||||||||
Service cost | $ | 1,864 | $ | 1,929 | ||||||
Interest cost | 8,309 | 8,074 | ||||||||
Expected return on plan assets | (19,707 | ) | (19,634 | ) | ||||||
Amortization of transition assets | — | (426 | ) | |||||||
Amortization of prior service cost | 1,035 | 1,063 | ||||||||
Recognized actuarial (gain) loss | 253 | 214 | ||||||||
Net periodic benefit cost (income) | (8,246 | ) | (8,780 | ) | ||||||
Special termination benefits | — | 96 | ||||||||
Total net periodic benefit (income) cost | $ | (8,246 | ) | $ | (8,684 | ) | ||||
Other Benefits | ||||||||||
Service cost | $ | 568 | $ | 508 | ||||||
Interest cost | 1,347 | 1,204 | ||||||||
Amortization of prior service cost | (370 | ) | (369 | ) | ||||||
Recognized actuarial (gain) loss | 664 | 622 | ||||||||
Net periodic benefit cost | $ | 2,209 | $ | 1,965 | ||||||
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9. | COMPREHENSIVE INCOME |
Three Months Ended | ||||||||||
June 30 | ||||||||||
In thousands | 2005 | 2004 | ||||||||
Net income (loss) | $ | 1,709 | $ | (1,629 | ) | |||||
Foreign currency translation adjustment | (5,602 | ) | (502 | ) | ||||||
Comprehensive income (loss) | $ | (3,893 | ) | $ | (2,131 | ) | ||||
Six Months Ended | ||||||||||
June 30 | ||||||||||
In thousands | 2005 | 2004 | ||||||||
Net income | $ | 7,999 | $ | 34,630 | ||||||
Foreign currency translation adjustment | (8,841 | ) | (2,998 | ) | ||||||
Comprehensive income (loss) | $ | (842 | ) | $ | 31,632 | |||||
10. | INVENTORIES |
June 30, | December 31, | |||||||||
In thousands | 2005 | 2004 | ||||||||
Raw materials | $ | 16,740 | $ | 14,974 | ||||||
In-process and finished | 40,792 | 39,327 | ||||||||
Supplies | 24,380 | 24,535 | ||||||||
Total | $ | 81,912 | $ | 78,836 | ||||||
11. | LONG-TERM DEBT |
June 30, | December 31, | |||||||||
In thousands | 2005 | 2004 | ||||||||
Revolving credit facility, due June 2006 | $ | 18,256 | $ | 23,277 | ||||||
67/8% Notes, due July 2007 | 150,000 | 150,000 | ||||||||
Note payable – SunTrust, due March 2008 | 34,000 | 34,000 | ||||||||
Other notes, various | 7 | 446 | ||||||||
Total long-term debt | 202,263 | 207,723 | ||||||||
Less current portion | (18,263 | ) | (446 | ) | ||||||
Long-term debt, excluding current portion | $ | 184,000 | $ | 207,277 | ||||||
12. | CROSS-CURRENCY SWAP |
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13. | COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS |
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June 30, | December 31, | ||||||||||
In millions | 2005 | 2004 | |||||||||
Recorded as: | |||||||||||
Environmental liabilities | $ | 7.6 | $ | 7.7 | |||||||
Other long-term liabilities | 12.1 | 13.9 | |||||||||
Total | $ | 19.7 | $ | 21.6 | |||||||
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14. | SEGMENT INFORMATION |
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business unit for the periods indicated:
Business Unit Performance | For The Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
In thousands, except net tons sold | Specialty Papers | Long Fiber & Overlay | Other and Unallocated | Total | ||||||||||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||||||||
Net sales | $ | 187,227 | $ | 163,038 | $ | 101,924 | $ | 97,322 | $ | 28 | $ | 746 | $ | 289,179 | $ | 261,106 | ||||||||||||||||||||||
Energy sales, net | 5,259 | 5,308 | 5,259 | 5,308 | ||||||||||||||||||||||||||||||||||
Total revenue | 192,486 | 168,346 | 101,924 | 97,322 | 28 | 746 | 294,438 | 266,414 | ||||||||||||||||||||||||||||||
Cost of products sold | 169,353 | 157,508 | 84,041 | 79,398 | 30 | 945 | 253,424 | 237,851 | ||||||||||||||||||||||||||||||
Gross profit (loss) | 23,133 | 10,838 | 17,883 | 17,924 | (2 | ) | (199 | ) | 41,014 | 28,563 | ||||||||||||||||||||||||||||
SG&A | 20,069 | 19,492 | 12,270 | 10,968 | 2,858 | 759 | 35,197 | 31,219 | ||||||||||||||||||||||||||||||
Pension income | — | — | — | — | (8,246 | ) | (8,684 | ) | (8,246 | ) | (8,684 | ) | ||||||||||||||||||||||||||
Restructuring charges | — | — | — | — | — | 867 | — | 867 | ||||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands | — | — | — | — | (81 | ) | (33,430 | ) | (81 | ) | (33,430 | ) | ||||||||||||||||||||||||||
Gain on insurance recoveries | (2,200 | ) | (25,500 | ) | (2,200 | ) | (25,500 | ) | ||||||||||||||||||||||||||||||
Total operating income (loss) | 3,064 | (8,654 | ) | 5,613 | 6,956 | 7,667 | 65,789 | 16,344 | 64,091 | |||||||||||||||||||||||||||||
Non-operating income (expense) | — | — | — | — | (5,257 | ) | (5,857 | ) | (5,257 | ) | (5,857 | ) | ||||||||||||||||||||||||||
Income before income taxes | $ | 3,064 | $ | (8,654 | ) | $ | 5,613 | $ | 6,956 | $ | 2,410 | $ | 59,932 | $ | 11,087 | $ | 58,234 | |||||||||||||||||||||
Supplementary Data | ||||||||||||||||||||||||||||||||||||||
Net tons sold | 221,943 | 210,244 | 23,727 | 23,793 | 7 | 347 | 245,677 | 234,384 | ||||||||||||||||||||||||||||||
Depreciation expense | $ | 17,869 | $ | 19,041 | $ | 7,787 | $ | 7,339 | — | — | $ | 25,656 | $ | 26,380 | ||||||||||||||||||||||||
Business Unit Performance | For the Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
In thousands, except net tons sold | Specialty Papers | Long Fiber & Overlay | Other and Unallocated | Total | ||||||||||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||||||||
Net sales | $ | 94,497 | $ | 80,271 | $ | 50,779 | $ | 48,486 | $ | 7 | $ | 272 | $ | 145,283 | $ | 129,029 | ||||||||||||||||||||||
Energy sales, net | 2,715 | 2,894 | — | — | — | — | 2,715 | 2,894 | ||||||||||||||||||||||||||||||
Total revenue | 97,212 | 83,165 | 50,779 | 48,486 | 7 | 272 | 147,998 | 131,923 | ||||||||||||||||||||||||||||||
Cost of products sold | 89,202 | 79,641 | 42,831 | 39,748 | 9 | 364 | 132,042 | 119,753 | ||||||||||||||||||||||||||||||
Gross profit (loss) | 8,010 | 3,524 | 7,948 | 8,738 | (2 | ) | (92 | ) | 15,956 | 12,170 | ||||||||||||||||||||||||||||
SG&A | 9,707 | 9,796 | 6,125 | 5,614 | 1,631 | 578 | 17,463 | 15,988 | ||||||||||||||||||||||||||||||
Pension income | — | — | — | — | (4,366 | ) | (4,169 | ) | (4,366 | ) | (4,169 | ) | ||||||||||||||||||||||||||
Restructuring charges | — | — | — | — | — | 867 | — | 867 | ||||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands | — | — | — | — | (21 | ) | (392 | ) | (21 | ) | (392 | ) | ||||||||||||||||||||||||||
Gain on insurance recoveries | — | — | — | — | (2,200 | ) | (300 | ) | (2,200 | ) | (300 | ) | ||||||||||||||||||||||||||
Total operating income (loss) | (1,697 | ) | (6,272 | ) | 1,823 | 3,124 | 4,954 | 3,324 | 5,080 | 176 | ||||||||||||||||||||||||||||
Non-operating income (expense) | — | — | — | — | (2,756 | ) | (3,098 | ) | (2,756 | ) | (3,098 | ) | ||||||||||||||||||||||||||
Income (loss) before income taxes | $ | (1,697 | ) | $ | (6,272 | ) | $ | 1,823 | $ | 3,124 | $ | 2,198 | $ | 226 | $ | 2,324 | $ | (2,922 | ) | |||||||||||||||||||
Supplementary Data | ||||||||||||||||||||||||||||||||||||||
Net tons sold | 111,205 | 102,013 | 12,048 | 12,171 | 2 | 142 | 123,255 | 114,326 | ||||||||||||||||||||||||||||||
Depreciation expense | $ | 9,000 | $ | 9,545 | $ | 3,790 | $ | 3,603 | — | — | $ | 12,790 | $ | 13,148 | ||||||||||||||||||||||||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
P. H. Glatfelter Company:
We have reviewed the accompanying condensed consolidated balance sheet of P. H. Glatfelter Company and Subsidiaries as of June 30, 2005, and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2005 and 2004, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2005 and 2004. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of P. H. Glatfelter Company and Subsidiaries as of December 31, 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 15, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2004 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
August 9, 2005
GLATFELTER
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
i. | variations in demand for, or pricing of, our products; | ||
ii. | changes in the cost or availability of raw materials we use, in particular market pulp, pulp substitutes, and abaca fiber, and changes in energy-related costs; | ||
iii. | our ability to develop new, high value-added Specialty Papers and Long Fiber & Overlay Papers; | ||
iv. | the impact of competition, changes in industry paper production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases; | ||
v. | our ability to continue to execute our North American Restructuring Program, growth strategies and cost reduction initiatives; | ||
vi. | 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 Neenah mill is located; and the costs of environmental matters at our former Ecusta Division mill; | |||
viii. | risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates; | ||
ix. | geopolitical events, including war and terrorism; | ||
x. | enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation; | ||
xi. | adverse results in litigation; | ||
xii. | disruptions in production and/or increased costs due to labor disputes; | ||
xiii. | our ability to realize the value of our timberlands; | ||
xiv. | the recovery of environmental-related losses under our insurance policies; and | ||
xv. | our ability to identify, finance and consummate future alliances or acquisitions. |
1) | The North America Restructuring Program, an initiative focused on improving profitability by enhancing our product mix, increasing workforce productivity, and reducing costs by enhancing supply chain management strategies, was implemented beginning in the second half of 2004; | |
2) | Demand for products in our North America-based Specialty Papers business unit improved and selling prices strengthened beginning in the second quarter of 2004 benefiting the period-to-period comparison; | |
3) | The results of our Long Fiber & Overlay Papers business unit, based in Europe, declined in the comparison primarily due to increased competition and softer demand in the composite laminates market; | |
4) | Input costs, primarily fiber and energy related, increased in the comparison; and | |
5) | Selling, general & administrative expenses increased due to increased legal fees primarily related to actions to collect additional insurance proceeds covering certain environmental liabilities. |
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Six Months Ended June 30, 2004
Six Months Ended | |||||||||
June 30 | |||||||||
In thousands, except per share | 2005 | 2004 | |||||||
Net sales | $ | 289,179 | $ | 261,106 | |||||
Gross profit | 48,427 | 36,541 | |||||||
Operating income | 16,344 | 64,091 | |||||||
Net income | 7,999 | 34,630 | |||||||
Earnings per diluted share | 0.18 | 0.79 | |||||||
In thousands, except per share | After-tax | Diluted EPS | ||||||
2005 | Gain (loss) | |||||||
Insurance recoveries | $ | 1,430 | $ | 0.03 | ||||
2004 | ||||||||
Gains on sale of timberlands and corporate aircraft | 19,646 | 0.45 | ||||||
Insurance recoveries | 15,402 | 0.35 | ||||||
Restructuring charge | (524 | ) | (0.01 | ) | ||||
Business Unit Performance | For The Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
In thousands, except net tons sold | Specialty Papers | Long Fiber & Overlay | Other and Unallocated | Total | ||||||||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||||||
Net sales | $ | 187,227 | $ | 163,038 | $ | 101,924 | $ | 97,322 | $ | 28 | $ | 746 | $ | 289,179 | $ | 261,106 | ||||||||||||||||||||
Energy sales, net | 5,259 | 5,308 | 5,259 | 5,308 | ||||||||||||||||||||||||||||||||
Total revenue | 192,486 | 168,346 | 101,924 | 97,322 | 28 | 746 | 294,438 | 266,414 | ||||||||||||||||||||||||||||
Cost of products sold | 169,353 | 157,508 | 84,041 | 79,398 | 30 | 945 | 253,424 | 237,851 | ||||||||||||||||||||||||||||
Gross profit (loss) | 23,133 | 10,838 | 17,883 | 17,924 | (2 | ) | (199 | ) | 41,014 | 28,563 | ||||||||||||||||||||||||||
SG&A | 20,069 | 19,492 | 12,270 | 10,968 | 2,858 | 759 | 35,197 | 31,219 | ||||||||||||||||||||||||||||
Pension income | — | — | — | — | (8,246 | ) | (8,684 | ) | (8,246 | ) | (8,684 | ) | ||||||||||||||||||||||||
Restructuring charges | — | — | — | — | — | 867 | — | 867 | ||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands | — | — | — | — | (81 | ) | (33,430 | ) | (81 | ) | (33,430 | ) | ||||||||||||||||||||||||
Gain on insurance recoveries | (2,200 | ) | (25,500 | ) | (2,200 | ) | (25,500 | ) | ||||||||||||||||||||||||||||
Total operating income (loss) | 3,064 | (8,654 | ) | 5,613 | 6,956 | 7,667 | 65,789 | 16,344 | 64,091 | |||||||||||||||||||||||||||
Non-operating income (expense) | — | — | — | — | (5,257 | ) | (5,857 | ) | (5,257 | ) | (5,857 | ) | ||||||||||||||||||||||||
Income before income taxes | $ | 3,064 | $ | (8,654 | ) | $ | 5,613 | $ | 6,956 | $ | 2,410 | $ | 59,932 | $ | 11,087 | $ | 58,234 | |||||||||||||||||||
Supplementary Data | ||||||||||||||||||||||||||||||||||||
Net tons sold | 221,943 | 210,244 | 23,727 | 23,793 | 7 | 347 | 245,677 | 234,384 | ||||||||||||||||||||||||||||
Depreciation expense | $ | 17,869 | $ | 19,041 | $ | 7,787 | $ | 7,339 | — | — | $ | 25,656 | $ | 26,380 | ||||||||||||||||||||||
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Six Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2005 | 2004 | Change | ||||||||||
Net sales | $ | 289,179 | $ | 261,106 | $ | 28,073 | |||||||
Energy sales – net | 5,259 | 5,308 | (49 | ) | |||||||||
Total revenues | 294,438 | 266,414 | 28,024 | ||||||||||
Costs of products sold | 246,011 | 229,873 | 16,138 | ||||||||||
Gross profit | $ | 48,427 | $ | 36,541 | $ | 11,886 | |||||||
Gross profit as a percent of Net sales | 16.8 | % | 14.0 | % | |||||||||
Six Months Ended | |||||||||
Percent of Total | |||||||||
2005 | 2004 | ||||||||
Business Unit | |||||||||
Specialty Papers | 64.7 | % | 62.4 | % | |||||
Long-Fiber & Overlay Papers | 35.3 | % | 37.3 | % | |||||
Tobacco Papers | — | 0.3 | % | ||||||
Total | 100.0 | % | 100.0 | % | |||||
Six Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2005 | 2004 | Change | ||||||||||
Recorded as: | |||||||||||||
Costs of products sold | $ | 7,413 | $ | 7,978 | $ | (565 | ) | ||||||
SG&A expense | 833 | 706 | 127 | ||||||||||
Total | $ | 8,246 | $ | 8,684 | $ | (438 | ) | ||||||
Six Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2005 | 2004 | Change | ||||||||||
SG&A expenses | $ | 34,364 | $ | 30,513 | $ | 3,851 | |||||||
Restructuring charges | — | 867 | (867 | ) | |||||||||
Gains on dispositions of plant, equipment and timberlands | (81 | ) | (33,430 | ) | 33,349 | ||||||||
Gains from insurance recoveries | (2,200 | ) | (25,500 | ) | 23,300 | ||||||||
Dollars in thousands | Acres | Proceeds | Pre-tax Gain | |||||||||
Six Months Ended June 30, 2004 | ||||||||||||
Timberlands | 2,332 | $ | 30,283 | $ | 29,972 | |||||||
Corporate Aircraft | n/a | 2,861 | 2,554 | |||||||||
Other | 964 | 904 | ||||||||||
Total | $ | 34,108 | $ | 33,430 | ||||||||
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Six Months Ended | ||||
In thousands | June 30 | |||
Favorable | ||||
(unfavorable) | ||||
Net sales | $ | 3,725 | ||
Costs of products sold | (3,313 | ) | ||
SG&A expenses | (438 | ) | ||
Income taxes and other | 15 | |||
Net income | $ | (11 | ) | |
Three Months Ended June 30, 2004
Three Months Ended | |||||||||
June 30 | |||||||||
In thousands, except per share | 2005 | 2004 | |||||||
Net sales | $ | 145,283 | $ | 129,029 | |||||
Gross profit | 19,833 | 16,042 | |||||||
Operating income | 5,080 | 176 | |||||||
Net income (loss) | 1,709 | (1,629 | ) | ||||||
Earnings per diluted share | 0.04 | (0.04 | ) | ||||||
In thousands, except per share | After-tax | Diluted EPS | ||||||
2005 | Gain (loss) | |||||||
Insurance recoveries | $ | 1,430 | $ | 0.03 | ||||
2004 | ||||||||
Restructuring charge | (538 | ) | (0.01 | ) | ||||
Insurance recoveries | 186 | — | ||||||
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Business Unit Performance | For the Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
In thousands, except net tons sold | Specialty Papers | Long Fiber & Overlay | Other and Unallocated | Total | ||||||||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||||||
Net sales | $ | 94,497 | $ | 80,271 | $ | 50,779 | $ | 48,486 | $ | 7 | $ | 272 | $ | 145,283 | $ | 129,029 | ||||||||||||||||||||
Energy sales, net | 2,715 | 2,894 | — | — | — | — | 2,715 | 2,894 | ||||||||||||||||||||||||||||
Total revenue | 97,212 | 83,165 | 50,779 | 48,486 | 7 | 272 | 147,998 | 131,923 | ||||||||||||||||||||||||||||
Cost of products sold | 89,202 | 79,641 | 42,831 | 39,748 | 9 | 364 | 132,042 | 119,753 | ||||||||||||||||||||||||||||
Gross profit (loss) | 8,010 | 3,524 | 7,948 | 8,738 | (2 | ) | (92 | ) | 15,956 | 12,170 | ||||||||||||||||||||||||||
SG&A | 9,707 | 9,796 | 6,125 | 5,614 | 1,631 | 578 | 17,463 | 15,988 | ||||||||||||||||||||||||||||
Pension income | — | — | — | — | (4,366 | ) | (4,169 | ) | (4,366 | ) | (4,169 | ) | ||||||||||||||||||||||||
Restructuring charges | — | — | — | — | — | 867 | — | 867 | ||||||||||||||||||||||||||||
Gains on dispositions of plant, equipment and timberlands | — | — | — | — | (21 | ) | (392 | ) | (21 | ) | (392 | ) | ||||||||||||||||||||||||
Gain on insurance recoveries | — | — | — | — | (2,200 | ) | (300 | ) | (2,200 | ) | (300 | ) | ||||||||||||||||||||||||
Total operating income (loss) | (1,697 | ) | (6,272 | ) | 1,823 | 3,124 | 4,954 | 3,324 | 5,080 | 176 | ||||||||||||||||||||||||||
Non-operating income (expense) | — | — | — | — | (2,756 | ) | (3,098 | ) | (2,756 | ) | (3,098 | ) | ||||||||||||||||||||||||
Income (loss) before income taxes | $ | (1,697 | ) | $ | (6,272 | ) | $ | 1,823 | $ | 3,124 | $ | 2,198 | $ | 226 | $ | 2,324 | $ | (2,922 | ) | |||||||||||||||||
Supplementary Data | ||||||||||||||||||||||||||||||||||||
Net tons sold | 111,205 | 102,013 | 12,048 | 12,171 | 2 | 142 | 123,255 | 114,326 | ||||||||||||||||||||||||||||
Depreciation expense | $ | 9,000 | $ | 9,545 | $ | 3,790 | $ | 3,603 | — | — | $ | 12,790 | $ | 13,148 | ||||||||||||||||||||||
Three Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2005 | 2004 | Change | ||||||||||
Net sales | $ | 145,283 | $ | 129,029 | $ | 16,254 | |||||||
Energy sales – net | 2,715 | 2,894 | (179 | ) | |||||||||
Total revenues | 147,998 | 131,923 | 16,075 | ||||||||||
Costs of products sold | 128,165 | 115,881 | 12,284 | ||||||||||
Gross profit | $ | 19,833 | $ | 16,042 | $ | 3,791 | |||||||
Gross profit as a percent of Net sales | 13.7 | % | 12.4 | % | |||||||||
Percent of Total | |||||||||
2005 | 2004 | ||||||||
Business Unit | |||||||||
Specialty Papers | 65.0 | % | 62.2 | % | |||||
Long-Fiber & Overlay Papers | 35.0 | 37.6 | |||||||
Tobacco Papers | — | 0.2 | |||||||
Total | 100.0 | % | 100.0 | % | |||||
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Three Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2005 | 2004 | Change | ||||||||||
Recorded as: | |||||||||||||
Costs of products sold | $ | 3,877 | $ | 3,872 | $ | 5 | |||||||
SG&A expense | 489 | 297 | 192 | ||||||||||
Total | $ | 4,366 | $ | 4,169 | $ | 197 | |||||||
Three Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2005 | 2004 | Change | ||||||||||
SG&A expenses | $ | 16,974 | $ | 15,691 | $ | 1,283 | |||||||
Restructuring charges | — | 867 | (867 | ) | |||||||||
Gains on dispositions of plant, equipment and timberlands | (21 | ) | (392 | ) | 371 | ||||||||
Gains from insurance recoveries | (2,200 | ) | (300 | ) | (1,900 | ) | |||||||
Three Months Ended | ||||
In thousands | June 30, 2005 | |||
Favorable | ||||
(unfavorable) | ||||
Net sales | $ | 1,840 | ||
Costs of products sold | (1,772 | ) | ||
SG&A expenses | (210 | ) | ||
Income taxes and other | 13 | |||
Net income | $ | (129 | ) | |
Six Months Ended | |||||||||
June 30 | |||||||||
In thousands | 2005 | 2004 | |||||||
Cash and cash equivalents at beginning of period | $ | 39,951 | $ | 15,566 | |||||
Cash provided by (used for) | |||||||||
Operating activities | 4,911 | 16,830 | |||||||
Investing activities | (13,875 | ) | 22,987 | ||||||
Financing activities | (6,460 | ) | (43,968 | ) | |||||
Effect of exchange rate changes on cash | (1,878 | ) | (318 | ) | |||||
Net cash provided (used) | (17,302 | ) | (4,469 | ) | |||||
Cash and cash equivalents at end of period | $ | 22,649 | $ | 11,097 | |||||
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June 30, | December 31, | ||||||||
In thousands | 2005 | 2004 | |||||||
Revolving credit facility, due June 2006 | $ | 18,256 | $ | 23,277 | |||||
67/8% Notes, due July 2007 | 150,000 | 150,000 | |||||||
Note payable – SunTrust, due March 2008 | 34,000 | 34,000 | |||||||
Other notes, various | 7 | 446 | |||||||
Total long-term debt | 202,263 | 207,723 | |||||||
Less current portion | (18,263 | ) | (446 | ) | |||||
Long-term debt, excluding current portion | $ | 184,000 | $ | 207,277 | |||||
• | Improved productivity of European facilities through workforce redesign and targeted capital investments; | ||
• | Reducing our costs to produce by implementing improved and expanded supply-chain management strategies and redesigning end-to-end planning and scheduling processes at our European operations; | ||
• | Enhancing new product development activities to aggressively pursue new market opportunities. |
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
Year Ended December 31 | At June 30, 2005 | |||||||||||||||||||||||||||
Dollars in thousands | 2005 | 2006 | 2007 | 2008 | 2009 | Carrying Value | Fair Value | |||||||||||||||||||||
Long-term debt | ||||||||||||||||||||||||||||
Average principal outstanding | ||||||||||||||||||||||||||||
At fixed interest rates | $ | 184,007 | $ | 184,000 | $ | 115,250 | $ | 8,500 | — | $ | 184,007 | $ | 188,053 | |||||||||||||||
At variable interest rates | 18,256 | 10,649 | — | — | — | 18,256 | 18,256 | |||||||||||||||||||||
Weighted-average interest rate | ||||||||||||||||||||||||||||
On fixed interest rate debt | 6.31 | % | 6.31 | % | 5.97 | % | 3.82 | % | — | |||||||||||||||||||
On variable interest rate debt | 3.41 | 3.51 | — | — | — | |||||||||||||||||||||||
Cross-currency swap | ||||||||||||||||||||||||||||
Pay variable – EURIBOR | € | 72,985 | € | 34,993 | — | — | — | $ | (17,954 | ) | $ | (17,954 | ) | |||||||||||||||
Variable rate payable | 2.85 | % | 2.85 | % | — | — | — | |||||||||||||||||||||
Receive variable – US$ LIBOR | $ | 70,000 | $ | 33,562 | — | — | — | |||||||||||||||||||||
Variable rate receivable | 4.11 | % | 4.11 | % | — | — | — | |||||||||||||||||||||
ITEM 4. | CONTROLS AND PROCEDURES |
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ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The Annual Meeting of holders of Glatfelter common stock was held on April 27, 2005. At this meeting, shareholders voted on the following matters (with the indicated tabulated results). | |||
i. | The election of two members of the Board of Directors to serve for full three-year terms expiring in 2008. |
Director | For | Withheld | ||
Nicholas DeBenedictis | 24,346,548 | 14,910,554 | ||
J. Robert Hall | 34,897,031 | 4,360,071 |
ii. | A proposal to approve the P. H. Glatfelter Company 2005 Long Term Incentive Plan. |
For | 28,469,097 | |||
Against | 6,274,663 | |||
Withheld | 309,201 | |||
Broker non-votes | 4,204,141 |
iii. | A proposal to approve the P. H. Glatfelter Company 2005 Management Incentive Plan. |
For | 37,413,555 | |||
Against | 1,521,724 | |||
Withheld | 321,823 | |||
Broker non-votes | 0 |
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15 | Letter in lieu of consent regarding review report of unaudited interim financial information. | ||
31.1 | Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | Certification of John C. van Roden, Jr., Executive Vice President and Chief Financial Officer of Glatfelter, pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1 | Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | Certification of John C. van Roden, Jr., Executive Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
August 9, 2005 | P. H. GLATFELTER COMPANY (Registrant) | |||
By: | /s/ John P. Jacunski | |||
John P. Jacunski | ||||
Vice President and Corporate Controller (as chief accounting officer) | ||||
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Exhibit | ||
Number | Description | |
15 | Letter in lieu of consent regarding review report of unaudited interim financial information, filed herewith. | |
31.1 | Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
31.2 | Certification of John C. van Roden, Jr., Executive Vice President and Chief Financial Officer of Glatfelter, pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
32.1 | Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of, filed herewith. | |
32.2 | Certification of John C. van Roden, Jr., Executive Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. |
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