UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ----------------------
Commission File No. 1-3560
P. H. GLATFELTER COMPANY
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-0628360
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
96 South George Street, Suite 500, York, Pennsylvania 17401
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(Address of principal executive offices) (Zip Code)
(717) 225-4711
--------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No______.
Shares of Common Stock outstanding at October 31, 2001 were 42,717,083.
P. H. GLATFELTER COMPANY
INDEX
Part I - Financial Information
Financial Statements (Unaudited):
Condensed Consolidated Statements of Income (Loss) - Three Months
and Nine Months Ended September 30, 2001 and 2000............. 3
Condensed Consolidated Balance Sheets - September 30, 2001
and December 31, 2000......................................... 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000................. 5
Notes to Condensed Consolidated Financial Statements................ 6
Independent Accountants' Report........................................... 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 14
Quantitative and Qualitative Disclosures About Market Risk................ 20
Part II - Other Information............................................... 20
Signature................................................................. 23
Index of Exhibits......................................................... 24
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share amounts)
(UNAUDITED)
Three Months Ended Nine Months Ended
9/30/01 9/30/00 9/30/01 9/30/00
--------- -------- --------- --------
Revenues:
Net sales $145,301 $178,042 $501,234 $550,097
Other income - net:
Energy sales - net 2,274 2,711 6,988 6,539
Interest on investments
and other - net 511 762 2,850 2,751
Gain from property
dispositions, etc. - net 1,710 201 2,805 968
--------- -------- --------- --------
4,495 3,674 12,643 10,258
Total revenues 149,796 181,716 513,877 560,355
Costs and expenses:
Cost of products sold 115,944 152,265 399,925 450,969
Selling, general and
administrative expenses 13,473 14,254 44,055 43,967
Interest on debt 3,777 4,017 12,021 12,394
Unusual items 8,408 -- 60,908 3,336
--------- -------- --------- --------
141,602 170,536 516,909 510,666
Income (loss) before income taxes 8,194 11,180 (3,032) 49,689
Income tax provision (benefit):
Current (2,576) 1,113 (1,903) 10,438
Deferred 6,229 2,888 1,438 7,390
--------- -------- --------- --------
Total 3,653 4,001 (465) 17,828
Net income (loss) $4,541 $7,179 $(2,567) $31,861
========= ======== ========= ========
Basic and diluted earnings (loss) per share $0.11 $0.17 $(0.06) $0.75
========= ======== ========= ========
See accompanying notes to condensed consolidated financial statements.
3
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(UNAUDITED)
ASSETS
9/30/01 12/31/00
--------- -----------
Current assets:
Cash and cash equivalents $92,351 $110,552
Accounts receivable - net 79,647 72,231
Inventories:
Raw materials 14,100 27,789
In-process and finished 31,129 43,819
Supplies 21,434 29,686
--------- -----------
Total inventories 66,663 101,294
Prepaid expenses and other current assets 3,544 2,547
--------- -----------
Total current assets 242,205 286,624
Plant, equipment and timberlands - net 498,140 552,768
Other assets 210,223 173,799
--------- -----------
Total assets $950,568 $1,013,191
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $1,246 $1,419
Short-term debt 2,774 5,158
Accounts payable 38,005 45,869
Dividends payable 7,473 7,430
Income taxes payable 1,083 7,328
Accrued compensation and other expenses
and deferred income taxes 38,353 51,980
--------- -----------
Total current liabilities 88,934 119,184
Long-term debt 282,853 300,245
Deferred income taxes 158,536 155,360
Other long-term liabilities 67,982 65,699
--------- -----------
Total liabilities 598,305 640,488
Commitments and contingencies
Shareholders' equity:
Common stock 544 544
Capital in excess of par value 41,036 41,669
Retained earnings 486,107 511,019
Accumulated other comprehensive loss (2,370) (2,843)
--------- -----------
Total 525,317 550,389
Less cost of common stock in treasury (173,054) (177,686)
--------- -----------
Total shareholders' equity 352,263 372,703
Total liabilities and shareholders' equity $950,568 $1,013,191
========= ===========
See accompanying notes to condensed consolidated financial statements.
4
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
Nine Months Ended
9/30/01 9/30/00
------------ ------------
Cash flows from operating activities:
Net income (loss) $(2,567) $31,861
Items included in net income (loss) not using cash:
Depreciation, depletion and amortization 34,519 35,811
Loss (gain) on disposition of fixed assets (1,861) 452
Unusual items 60,908 3,336
Expense related to 401(k) plans 1,103 1,531
Change in assets and liabilities:
Accounts receivable (22,242) (13,516)
Inventories 885 11,446
Other assets and prepaid expenses (23,047) (22,696)
Accounts payable, accrued compensation and
other expenses, deferred income taxes
and other long-term liabilities (6,441) 2,369
Income taxes payable (5,738) 1,376
Deferred income taxes - noncurrent 2,640 8,883
--------- --------
Net cash provided by operating activities 38,159 60,853
--------- --------
Cash flows from investing activities:
Proceeds from disposal of fixed assets 2,580 116
Net proceeds from sale of Ecusta Division 14,505 --
Additions to plant, equipment and timberlands (36,325) (17,511)
--------- --------
Net cash used in investing activities (19,240) (17,395)
--------- --------
Cash flows from financing activities:
Net payment of debt (17,740) (6,464)
Dividends paid (22,302) (22,232)
Proceeds from stock option exercises 2,576 40
--------- --------
Net cash used in financing activities (37,466) (28,656)
--------- --------
Effect of exchange rate changes on cash 346 8
--------- --------
Net increase (decrease) in cash and cash equivalents (18,201) 14,810
Cash and cash equivalents:
At beginning of year 110,552 76,035
--------- --------
At end of period $92,351 $90,845
========= ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $14,863 $15,403
Income taxes 13,625 9,123
See accompanying notes to condensed consolidated financial statements.
5
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share excludes the dilutive impact of common
stock equivalents and is computed by dividing net income (loss) by the
weighted-average number of shares of common stock outstanding for the
period. Diluted earnings (loss) per share includes the effect of potential
dilution from the issuance of common stock, pursuant to common stock
equivalents, using the treasury stock method. A reconciliation of the
Registrant's basic and diluted earnings (loss) per share follows with the
dollar and share amounts in thousands (except per-share amounts):
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
2001 2000 2001 2000
------- ------- -------- -------
Shares Shares Shares Shares
------- ------- -------- -------
Basic per-share factors 42,647 42,361 42,527 42,316
Effect of potentially dilutive
employee incentive plans:
Restricted stock awards 129 95 -- 99
Performance stock awards 23 43 -- 43
Employee stock options 291 -- -- --
------- ------- -------- -------
Diluted per-share factors 43,090 42,499 42,527 42,458
======= ======= ======== =======
Net income (loss) $ 4,541 $ 7,179 $ (2,567) $31,861
Basic and diluted earnings
(loss) per share $ 0.11 $ 0.17 $ (0.06) $ 0.75
Fully diluted loss per share is not presented for the nine months ended
September 30, 2001 as the Registrant incurred a net loss, which causes
potentially dilutive shares to be antidilutive. An aggregate of 370,000
potentially dilutive shares have been excluded from the computation of
diluted loss per share for the first nine months of 2001.
Basic and diluted earnings (loss) per share was $.11 and $(.06) for the
three months and nine months ended September 30, 2001, respectively, as
presented on the unaudited Condensed Consolidated Statements of Income
(Loss). These per share amounts reflect the negative impact of after-tax
charges resulting from the impairment and disposal of one of the
Registrant's divisions during the second and third quarters of 2001 and a
settlement of an environmental matter during the second quarter of 2001
(unusual items). The effect of these charges was $.14 and $.93 per share
for the three months and nine months ended September 30, 2001,
respectively (see Note 2).
Basic and diluted earnings per share of $.75 for the nine months ended
September 30, 2000, as presented on the Condensed Consolidated Statement
of Income, reflects the negative impact of an after-tax restructuring
charge (unusual item) of $.05 per share (see Note 2).
6
2. UNUSUAL ITEMS
On August 9, 2001, the Registrant completed the sale of its Ecusta
facility and two of its operating subsidiaries ("Ecusta Division") and
certain of the Registrant's receivables for $22,726,000, plus the
assumption of certain liabilities related to the Ecusta Division's
business. The cash amount of $22,726,000 includes $4,000,000 for certain
receivables and the amount paid for cash balances held by the subsidiaries
at the time of the sale.
The Registrant's total charge to earnings associated with the sale for the
nine months ended September 30, 2001 was $58,408,000 ($37,381,000 after
tax) of which $50,000,000 ($32,000,000 after tax) was recognized as an
impairment charge related to the Ecusta Division's assets during the
second quarter of 2001. The $58,408,000 pre-tax charge is net of a
$15,358,000 pre-tax gain related to the curtailment and settlement of
pension obligations related to employees who transferred to the buyer. The
Registrant also recognized a $2,500,000 pre-tax charge in the second
quarter of 2001 due to the settlement of an environmental matter in
connection with the Spring Grove facility's wastewater discharge permit
(see Note 5).
During the first quarter of 2000, the Registrant finalized a restructuring
plan decreasing its tobacco paper manufacturing capacity, which included
the voluntary early retirement of 42 salaried employees. As a result, the
Registrant incurred a charge of $3,336,000 ($2,120,000 after tax) in the
first quarter of 2000. The amount of actual termination benefits paid and
charged against the liability as of September 30, 2001 was $1,174,000. In
addition, the buyer of the Ecusta Division (see above) assumed
approximately $800,000 of this liability.
3. RECENT ACCOUNTING PRONOUNCEMENTS AND RECLASSIFICATIONS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations," SFAS
No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 143,
"Accounting for Asset Retirement Obligations," in June 2001 and issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," in August 2001.
SFAS No. 141 is effective for all business combinations occurring after
June 30, 2001 and requires that all business combinations be accounted for
under the purchase method only and that certain acquired intangible assets
in a business combination be recognized as assets apart from goodwill. The
adoption of SFAS No. 141 had no impact on the Registrant's consolidated
financial position or results of operations.
SFAS No. 142 is effective for fiscal years beginning after December 15,
2001 and establishes revised reporting requirements for goodwill and other
intangible assets. Upon adoption, the Registrant will no longer amortize
goodwill unless evidence of impairment exists; goodwill will be evaluated
on at least an annual basis. As of September 30, 2001, the Registrant has
approximately $10,600,000 in unamortized goodwill and has recorded
approximately $500,000 in goodwill amortization for the nine months ended
September 30, 2001. The Registrant will adopt SFAS No. 142 on January 1,
2002.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002
and applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction,
development and/or the normal operation of a long-lived asset. The
Registrant will adopt SFAS No. 142 on January 1, 2003.
7
SFAS No. 144 is effective for fiscal years beginning after December 15,
2001. This statement supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and establishes new guidelines for the valuation of
long-lived assets. The Registrant will adopt SFAS No. 144 on January
1, 2002.
The Registrant is currently evaluating the impact of adopting SFAS Nos.
142, 143 and 144 on its consolidated financial position and results of
operations.
On January 1, 2001, the Registrant adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as amended
and interpreted, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. All derivatives, whether
designated in hedging relationships or not, are required to be recorded on
the balance sheet at fair value. If the derivative is designated in a
fair-value hedge, changes in the fair value of the derivative and the
hedged item are recognized in earnings. If the derivative is designated as
a cash-flow hedge, changes in the fair value of the derivative are
recorded in other comprehensive income ("OCI") and are recognized in the
income statement when the hedged item affects earnings. SFAS No. 133
defines new requirements for designation and documentation of hedging
relationships, as well as ongoing effectiveness assessments and
measurements to use hedge accounting. The ineffective portion of a hedging
derivative's change in fair value is immediately recognized in earnings.
For a derivative that does not qualify as a hedge, changes in fair value
are recognized in earnings.
The adoption of SFAS No. 133 on January 1, 2001 resulted in an $845,000
increase in OCI as a cumulative transition adjustment for derivatives
designated in cash flow-type hedges prior to adopting SFAS No. 133.
Due to the Registrant's limited use of derivative instruments, the
effect on earnings of adopting SFAS No. 133 was immaterial.
During the fourth quarter of 2000, the Registrant adopted the provisions
of the Emerging Issues Task Force ("EITF") Issue No. 00-10, "Accounting
for Shipping and Handling Fees and Costs." In accordance with the
provisions of EITF 00-10, certain shipping and handling costs that the
Registrant had previously recorded as a deduction in determining net sales
have been reclassified as cost of products sold. As a result of adopting
EITF 00-10, the Registrant has reclassified such shipping and handling
costs on its Condensed Consolidated Statements of Income for the three
months and nine months ended September 30, 2000 to reflect comparable
reporting.
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) was $6,583,000 and $5,809,000 for the third
quarter of 2001 and 2000, respectively, and $(2,094,000) and $29,420,000
for the first nine months of 2001 and 2000, respectively. Comprehensive
income (loss) is defined as net income (loss) plus other comprehensive
income (loss). Other comprehensive income (loss) includes the effects of
(1) changes in certain currency exchange rates relative to the U.S.
dollar, (2) the impact of the sale of the Ecusta Division on the
Registrant's cumulative translation adjustment for the third quarter and
first nine months of 2001, and (3) changes in the fair value of derivative
instruments held by the Registrant (see Note 3).
8
5. COMMITMENTS AND CONTINGENCIES
The Registrant is subject to loss contingencies resulting from regulation
by various federal, state, local and foreign governmental authorities with
respect to the environmental impact of its mills. To comply with
environmental laws and regulations, the Registrant has incurred
substantial capital and operating expenditures in past years. The
Registrant anticipates that environmental regulation of its operations
will continue to become more burdensome and that capital and operating
expenditures necessary to comply with environmental regulations will
continue, and perhaps increase, in the future. In addition, the Registrant
may incur obligations to remove or mitigate any adverse effects on the
environment resulting from its operations, including the restoration of
natural resources, and liability for personal injury and damage to
property, including natural resources. Because environmental regulations
are not consistent worldwide, the Registrant's ability to compete in the
world marketplace may be adversely affected by capital and operating
expenditures required for environmental compliance.
Subject to permit approvals, the Registrant has undertaken an initiative
at its Spring Grove facility under the Voluntary Advanced Technical
Incentive Program of the United States Environmental Protection Agency
("EPA") to comply with the requirements of the "Cluster Rules" regulating
certain air emissions and wastewater discharges. This initiative, the
Registrant's "New Century Project," will require capital expenditures
currently estimated at approximately $30,000,000 to be incurred before
April 2004. The Registrant expects such expenditures to begin during the
first quarter of 2002.
On September 7, 2000, the Pennsylvania Department of Environmental
Protection ("DEP") issued to the Registrant a renewed wastewater discharge
permit for the Spring Grove facility. On September 7, 2000, DEP also
issued to the Registrant an administrative order calling for achievement
of the limitations in the permit on a schedule extending until 2007. The
Registrant appealed both the permit and the order to the Pennsylvania
Environmental Hearing Board because, among other things, it was concerned
that it would not be able to meet certain discharge limitations contained
in the permit. The Pennsylvania Public Interest Research Group and several
other parties (collectively "Penn PIRG") also appealed the permit and
intervened in the Registrant's permit appeal. The Registrant reached a
conditional settlement of these administrative matters subject to the
settlement of the Penn PIRG litigation described below.
In June 1999, Penn PIRG filed a citizen suit under the federal Clean Water
Act and the Pennsylvania Clean Streams Law seeking a reduction in the
Spring Grove facility's discharge of color, civil penalties and
reimbursement for costs of litigation. The parties have settled this
litigation. Under the terms of the settlement, to which the Pennsylvania
DEP became a party, the Registrant agrees to achieve an alternative
limitation for color by April 2004. In addition, under the terms of the
settlement the Registrant will create a permanent endowment for certain
environmental and recreational improvement projects in the Codorus Creek
watershed, and the Registrant will pay Penn PIRG certain litigation costs
related to this lawsuit. The total cost to the Registrant under this
settlement is $2,500,000 (see Note 2). This settlement agreement was
entered by the United States District Court for the Middle District of
Pennsylvania, and DEP has issued to the Registrant an amended permit
calling for achievement of the alternative color limitation by April 2004
and, at the same time, rescinded the 2000 administrative order.
In 1999, EPA and DEP issued to the Registrant separate Notices of
Violation ("NOVs") alleging violations of air pollution control laws,
primarily for
9
purportedly failing to obtain appropriate preconstruction air quality
permits in conjunction with certain modifications to the Registrant's
Spring Grove facility. EPA and DEP primarily alleged that the Registrant's
modifications produced significant net emissions increases in certain air
pollutants that should have been covered by permits containing reduced
emissions limitations.
For all but one of the modifications cited by EPA, the Registrant applied
for and obtained from DEP the preconstruction permits that the Registrant
concluded were required by applicable law. EPA reviewed those applications
before the permits were issued. DEP's NOV pertained only to the
modification for which the Registrant did not receive a preconstruction
permit. The Registrant conducted an evaluation at the time of this
modification and determined that the preconstruction permit cited by EPA
and DEP was not required. The Registrant has been informed that EPA and
DEP will seek substantial emissions reductions, as well as civil
penalties, to which the Registrant believes it has meritorious defenses.
Nevertheless, the Registrant is unable to predict the ultimate outcome of
these matters or the costs involved.
The Registrant has previously reported with respect to potential
environmental claims arising out of the presence of polychlorinated
biphenyls ("PCBs") in sediments in the lower Fox River and in Green Bay,
downstream of the Registrant's Neenah, Wisconsin facility. As described
below, various sovereigns have formally notified seven potentially
responsible parties ("PRPs"), including the Registrant, that they are
potentially responsible for investigation, cleanup and natural resource
damages, arising from this contamination under the federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") and
other statutes.
On October 2, 2001, the Wisconsin Department of Natural Resources ("DNR")
and EPA issued drafts of the reports resulting from the remedial
investigation and the feasibility study of the lower Fox River and Green
Bay. On that same day, DNR and EPA issued a Proposed Remedial Action Plan
("PRAP") for cleanup of the lower Fox River and Green Bay, with estimated
total costs of $307,600,000 (without a contingency factor) to implement
the governments' proposed remedy. The largest component of the estimated
costs is attributable to large-scale sediment removal by dredging. Based
on cost estimates of large-scale dredging remedies at other sites, certain
interested parties believe that the PRAP's cost projections may be
significantly underestimated.
The Registrant does not believe that the remedial activities proposed by
DNR and EPA are appropriate or cost effective. The Registrant believes
that a protective remedy can be implemented at a much lower actual cost
than would be incurred performing large-scale dredging. The public and
interested parties may submit comments on the PRAP until the extended
deadline of January 21, 2002. The Registrant intends to advocate
vigorously for the implementation of environmentally protective
alternatives that do not rely upon large-scale dredging. EPA, in
consultation with DNR, will consider comments on the PRAP and will then
select a remedy to address the contaminated sediment.
Wisconsin has asserted claims against the identified PRPs regarding
alleged injuries to natural resources under its trusteeship in the lower
Fox River and Green Bay. In January 1997, DNR, the Wisconsin Department of
Justice ("WDOJ"), and the seven identified PRPs entered into an agreement
to conduct a cooperative natural resource damages assessment regarding
these alleged injuries. Wisconsin asserts that this assessment agreement
has been terminated effective August 15, 2001. While the assessment has
not been
10
completed, DNR and WDOJ have proposed to enter into a settlement with
another PRP regarding its share of the natural resource damages liability.
The proposed settlement does not state explicitly the total amount of
natural resource damages claimed, but it calls for the PRP to spend
$7,000,000 on resource restoration projects.
The United States Fish and Wildlife Service ("FWS"), the National Oceanic
and Atmospheric Administration ("NOAA"), four Indian tribes, and the
Michigan Attorney General also claim to be trustees for natural resources
injured by PCBs in the lower Fox River and Green Bay. In June 1994, FWS
notified the Registrant and other PRPs that it considered them potentially
responsible for natural resource damages. The federal, tribal and Michigan
agencies claiming to be trustees have proceeded with the preparation of an
NRDA separate from the work performed by DNR. While the final report of
assessment will be delayed until after the selection of a remedy, on
October 25, 2000, the federal trustees released a restoration and
compensation determination plan that values the natural resource damages
for injured resources at between $176,000,000 and $333,000,000.
The Registrant is seeking settlement with the Wisconsin agencies and with
the federal government for all of its potential liabilities for response
actions and natural resource damages associated with the site. The
Registrant believes that the federal, tribal and Michigan natural resource
damages claims are without merit, and that the federal natural resource
damages assessment is technically and procedurally flawed. The Registrant
further maintains that its share of any liability as among the seven
identified PRPs is much less than one-seventh of the whole and that
additional responsible parties exist other than the seven PRPs identified
by the governments.
The Registrant currently is unable to predict the ultimate costs to the
Registrant related to this matter, because the Registrant cannot predict
which remedy will be selected for the site, the costs thereof, or the
ultimate amount of natural resource damages, nor can the Registrant
predict its share of these costs or damages.
The Registrant continues to believe it is likely that this matter will
result in litigation. However, the Registrant maintains that the removal
of a substantial amount of PCB-contaminated sediments is not an
appropriate remedy. There can be no assurance, however, that the
Registrant will be successful in arguing that removal of PCB-contaminated
sediments is inappropriate or that it would prevail in any resulting
litigation.
The amount and timing of future expenditures for environmental compliance,
cleanup, remediation and personal injury, natural resource damage and
property damage liability, including but not limited to those related to
the lower Fox River and the Bay of Green Bay, cannot be ascertained with
any certainty due to, among other things, the unknown extent and nature of
any contamination, the extent and timing of any technological advances for
pollution abatement, the response actions that may be required, and the
number and financial resources of any other PRPs. The Registrant continues
to evaluate its exposure and the level of its reserves, including, but not
limited to, its potential share of the costs and damages (if any)
associated with the lower Fox River and the Bay of Green Bay.
The Registrant believes that it is insured against certain losses related
to the lower Fox River, depending on the nature and amount thereof.
Insurance coverage, which is currently being investigated under
reservation of rights by various insurance companies, is dependent upon
the identity of the plaintiff, the procedural posture of the claims
asserted and how such claims
11
are characterized. The Registrant does not know when the insurers'
investigations as to coverage will be completed.
The Registrant's current assessment, after consultation with legal
counsel, is that it should be able to manage these environmental matters
without a long-term, material adverse impact on the Registrant. These
matters could, however, at any particular time or for any particular
period, have a material adverse effect on the Registrant's consolidated
financial condition, liquidity or results of operations or could result in
a default under the Registrant's loan covenants. Moreover, there can be no
assurance that the Registrant's reserves will be adequate to provide for
future obligations related to these matters, that the Registrant's share
of costs and/or damages for these matters will not exceed its available
resources, or that such obligations will not have a long-term, material
adverse effect on the Registrant's consolidated financial condition,
liquidity or results of operations. If the Registrant is not successful in
managing these environmental matters and is ordered to implement the
remedy proposed in the PRAP, such remedy would have a material adverse
effect on the Registrant's consolidated financial condition, liquidity
and results of operations and would result in a default under the
Registrant's loan covenants.
6. DISCLOSURE STATEMENT
In the opinion of the Registrant, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which comprise
only normal recurring accruals) necessary for a fair presentation of the
financial information contained therein. These unaudited condensed
consolidated financial statements should be read in conjunction with the
more complete disclosures contained in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 2000. Certain reclassifications
have been made to the prior periods' financial information to conform to
those classifications used in 2001.
12
INDEPENDENT ACCOUNTANTS' REPORT
P. H. Glatfelter Company:
We have reviewed the accompanying condensed consolidated balance sheet of P. H.
Glatfelter Company and subsidiaries as of September 30, 2001, the related
condensed consolidated statements of income (loss) for the three months and nine
months ended September 30, 2001 and 2000, and the related condensed consolidated
statements of cash flows for the nine months ended September 30, 2001 and 2000.
These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, 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 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 auditing standards generally
accepted in the United States of America, the consolidated balance sheet of P.
H. Glatfelter Company and subsidiaries as of December 31, 2000, and the related
consolidated statements of income and comprehensive income, shareholders' equity
and cash flows for the year then ended (not presented herein); and in our report
dated February 2, 2001, 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, 2000 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
As discussed in Note 3 to the condensed consolidated financial statements, the
Company changed its method of accounting for derivative financial instruments as
of January 1, 2001.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
October 15, 2001
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis contains forward-looking statements. See
"Cautionary Statement" set forth in Item 5.
RESULTS OF OPERATIONS
A summary of the period-to-period changes in the principal items included in the
Condensed Consolidated Statements of Income (Loss) is shown below.
Comparison of
-----------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, 2001 and 2000 September 30, 2001 and 2000
--------------------------- ---------------------------
Increase (Decrease)
(dollars in thousands)
Net sales $(32,741) (18.4)% $(48,863) (8.9)%
Other income - net 821 22.3% 2,385 23.3%
Cost of products sold (36,321) (25.1)% (51,044) (11.3)%
Selling, general and
Administrative expenses (781) (5.5)% 88 0.2%
Interest on debt (240) (6.0)% (373) (3.0)%
Income tax provision (benefit) (348) (8.7)% (18,293) (102.6)%
Net income (loss) (2,638) (36.7)% (34,428) (108.1)%
Net Sales
Net sales decreased $32,741,000, or 18.4%, for the third quarter of 2001
compared to the third quarter of 2000. Of this decrease, approximately
$29,000,000 was due to lower net sales from the Registrant's Ecusta Division, as
defined below, during the third quarter of 2001 compared to the third quarter of
2000. As described in "UNUSUAL ITEMS," the Registrant sold its Ecusta facility
and two of its operating subsidiaries ("Ecusta Division") on August 9, 2001 and
no longer has sales from this division. Excluding the results of the Ecusta
Division, the Registrant experienced an overall decrease in net sales due to
lower sales volume caused primarily by unfavorable market conditions within some
of its businesses. Partially offsetting the impact of these conditions on sales
volume was the timing of the Registrant's Spring Grove facility's annual
scheduled maintenance shutdown. During 2001, this shutdown occurred in June,
whereas the 2000 shutdown occurred in July. Lower average net selling prices
resulting from unfavorable market conditions also contributed to the decrease in
net sales. Such market conditions resulted in a weaker mix of products sold as
well as lower selling prices for certain products.
Net sales for the first nine months of 2001 decreased $48,863,000, or 8.9%,
compared to the like period of 2000. Of this decrease, approximately $43,000,000
was attributable to lower net sales from the Ecusta Division. Prior to being
sold, the Ecusta Division had lower sales for the first seven months of 2001
compared to the like period of 2000 due to the Registrant's restructuring
efforts to improve the profitability of the Ecusta Division. Certain
unprofitable equipment was shut down resulting in lost sales volume (see Note 2
to the Registrant's unaudited condensed consolidated financial statements). Net
sales from the rest of the Registrant's operations decreased as result of lower
average net selling prices due to reduced pricing and a weaker mix of products
sold.
The Registrant classifies its sales into two product groups: specialized
printing papers and engineered papers (which includes tobacco papers). The
following net sales analysis for both product groups excludes the results of the
Ecusta Division.
Net sales of specialized printing papers decreased 12.1% in the third quarter of
2001 compared to the third quarter of 2000 due to a 5.7% decrease in sales
volume
14
and a 6.7% decrease in average net selling prices. Net sales of specialized
printing papers for the first nine months of 2001 decreased 7.7% from the
corresponding period of 2000. This decrease was due to a 4.3% reduction in sales
volume in addition to a 3.6% decrease in average net selling prices. The
decrease in average net selling prices for both the third-quarter and
first-nine-months comparisons was caused by lower selling prices for certain
products as well as a change in product mix. Although overall market demand has
been weak, the Registrant has been able to increase its market share, thereby
maintaining its third-quarter 2001 sales volume compared to second quarter 2001.
The Registrant believes this market will remain challenging during the fourth
quarter and into early 2002.
Net sales of engineered papers, excluding tobacco papers, increased 10.1% and
4.3% for the three months and nine months ended September 30, 2001,
respectively, versus the like periods of 2000 due primarily to increased sales
volume. Lower average net selling prices partially offset the higher sales
volume for both the three months and nine months ended September 30, 2001
compared to the like periods of 2000. The Registrant expects this market to
remain relatively stable through the remainder of 2001 with the potential for
selective pricing concessions.
Net sales of tobacco papers (excluding the Ecusta Division) increased 16.5% in
the third quarter of 2001 compared to the third quarter of 2000 due to a 40.4%
increase in sales volume, partially offset by a 17.0% decrease in average net
selling prices. Net sales of tobacco papers for the first nine months of 2001
increased 27.9% versus the corresponding period of 2000. This increase was due
to a 43.8% increase in sales volume, partially offset by an 11.1% decrease in
average net selling prices. As described above, the Registrant sold its Ecusta
Division on August 9, 2001. As part of this sale, the Registrant entered into a
supply agreement with the buyer to continue the manufacture and sale of tobacco
papers at its Gernsbach, Germany facility exclusively to the buyer. This
agreement has sustained the sales volume of the Registrant's remaining tobacco
papers business despite lower average selling prices. The Gernsbach facility
expects to transition its tobacco papers production to other products over the
next few years.
Other Income - Net
Other income - net increased $821,000, or 22.3%, and $2,385,000, or 23.3%, for
the third quarter and first nine months of 2001, respectively, compared to the
corresponding periods of 2000. Energy sales - net decreased $437,000 and
increased $449,000 for the three months and nine months ended September 30,
2001, respectively, versus the comparable periods in 2000. The third quarter
decrease was due to scheduled maintenance on the power generation equipment at
the Registrant's Spring Grove facility during the third quarter of 2001.
Additionally, approximately one and one-half months of energy sales were lost in
the second quarter of 2000 due to equipment problems. Interest on investments
and other - net decreased $251,000 and increased $99,000 in the third quarter of
2001 and the first nine months of 2001, respectively, versus the same periods in
2000. Gain from property dispositions, etc - net increased $1,509,000 and
$1,837,000 for the three months and nine months ended September 30, 2001
compared to the like periods of 2000. The Registrant sold a parcel of land
during the third quarter of 2001 from which it recognized a gain of
approximately $1,700,000. No significant land sales were recognized in 2000.
Cost of Products Sold and Gross Margin
Cost of products sold decreased $36,321,000, or 23.9%, for the third quarter of
2001 versus the third quarter of 2000 and decreased $51,044,000, or 11.3%, for
the first nine months of 2001 versus the first nine months of 2000. Of the
third-quarter change, approximately $32,000,000 is due to lower cost of products
sold from the Ecusta Division during the third quarter of 2001 compared to the
third
15
quarter of 2000. Cost of products sold attributable to the Ecusta Division were
approximately $46,000,000 lower for the first nine months of 2001 compared to
the like period of 2001. As previously noted, the Ecusta Division was sold
during the third quarter of 2001. Sales volume at the Ecusta Division prior to
the sale in 2001 was lower than in 2000 due to the Registrant's restructuring
efforts.
Cost of products sold also decreased comparatively for both the third quarter
and the first nine months due to lower raw material costs, specifically market
pulp and wastepaper. Market pulp prices have dropped steadily from January 2001
through September 2001. The Registrant expects that market pulp prices will
remain relatively steady throughout the remainder of the year and into the first
quarter of 2002 with the possibility a small increase. Partially offsetting the
above decreases in costs were higher energy costs.
The Registrant continued to realize benefits from its cash savings project,
known as "DRIVE," through the third quarter of 2001. Such savings began in the
second quarter of 2000. As of September 30, 2001, the Registrant had implemented
portions of the DRIVE project that are expected to realize over $40,000,000 per
year in sustainable cash savings.
Income resulting from the overfunded status of the Registrant's defined benefit
pension plans decreased cost of products sold by $5,643,000 and $5,990,000 for
the third quarter of 2001 and 2000, respectively. Pension income decreased cost
of products sold by $18,518,000 and $17,878,000 for the first nine months of
2001 and 2000, respectively.
Excluding the results of the Ecusta Division, cost of products sold per ton
decreased 5.2% for the third quarter of 2001 versus the same period of 2000,
resulting in an increase in gross margin per ton of 10.2%. Additionally, for the
first nine months of 2001 versus the same period of 2000, cost of products sold
per ton, excluding the Ecusta Division, decreased 1.0% resulting in an increase
in gross margin per ton of 0.5%.
As a result of the aforementioned items, excluding the results of the Ecusta
Division, gross margin as a percentage of net sales increased to 21.6% for the
third quarter of 2001 from 19.2% for the like quarter of 2000. For the nine
months ended September 30, 2001 gross margin as a percentage of sales increased
to 22.0% from 21.8% for the same period of 2000.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses for the third quarter of 2001 were $781,000, or 5.5%, lower than
the third quarter of 2000. For the first nine months of 2001, SG&A expenses
increased $88,000, or 0.2%, from SG&A expenses for the like period of 2000.
Decreased SG&A expense was the result of no longer operating the Ecusta
Division. Such decreases for the nine months ended September 30, 2001 were more
than offset by increased legal and professional fees related to the Registrant's
strategic initiatives.
Pension income reduced SG&A expenses by $1,862,000 for the third quarter of 2001
while pension income reduced SG&A expenses by $1,467,000 for the same quarter of
2000. For the first nine months of 2001 and 2000, pension income reduced SG&A
expenses by $4,743,000 and $3,900,000, respectively.
Interest on Debt - Net
Interest on debt - net decreased $240,000, or 6.0%, for the three months ended
September 30, 2001 and decreased $373,000, or 3.0%, for the first nine months of
2001 versus the comparable periods of 2000. These decreases were primarily due
to lower average debt balances due principally to net payment of debt. In
addition, interest on debt - net decreased as interest expense denominated in
Deutsche marks was translated to a relatively stronger U.S. dollar for the
periods indicated.
16
UNUSUAL ITEMS
On August 9, 2001, the Registrant completed the sale of Ecusta Division and
certain of the Registrant's receivables for $22,726,000, plus the assumption of
certain liabilities related to the Ecusta Division's business. The cash amount
of $22,726,000 includes $4,000,000 for such receivables and the amount paid for
cash balances held by the subsidiaries at the time of the sale.
The Registrant's total charge to earnings associated with the sale for the nine
months ended September 30, 2001 was $58,408,000 ($37,381,000 after tax) of which
$50,000,000 ($32,000,000 after tax) was recognized as an impairment charge
related to the Ecusta Division's assets during the second quarter of 2001. The
$58,408,000 pre-tax charge is net of a $15,358,000 pre-tax gain related to the
curtailment and settlement of pension obligations related to employees who
transferred to the buyer. The Registrant also recognized a $2,500,000 pre-tax
charge in the second quarter of 2001 due to the settlement of an environmental
matter in connection with the Spring Grove facility's wastewater discharge
permit (see Note 5 to the Registrant's unaudited condensed consolidated
financial statements).
During the first quarter of 2000, the Registrant finalized a restructuring plan
decreasing its tobacco paper manufacturing capacity, which included the
voluntary early retirement of 42 salaried employees. As a result, the Registrant
incurred a charge of $3,336,000 ($2,120,000 after tax) in the first quarter of
2000. The amount of actual termination benefits paid and charged against the
liability as of September 30, 2001 was $1,174,000. In addition, the buyer of the
Ecusta Division (see above) assumed approximately $800,000 of this liability.
IMPACT PROJECT
In July 2000, the Registrant initiated its IMPACT project, which is focused on
identifying and implementing changes to the Registrant's organization and its
business processes. The initial phase, the preliminary design work, has been
completed. The second phase of the IMPACT project, which includes the
installation of an enterprise resource planning system, is underway and is
expected to extend over the next few years. Total spending on the IMPACT project
is expected to be approximately $49,000,000, of which approximately $45,000,000
is capital related. During the nine months ended September 30, 2001, the
Registrant capitalized $13,700,000 related to this project. During 2000, the
Registrant capitalized approximately $5,200,000 on the IMPACT project.
FINANCIAL CONDITION
Liquidity
Cash and cash equivalents decreased $18,201,000 during the first nine months of
2001 principally due to cash used in financing activities and investing
activities of $37,466,000 and $19,240,000, respectively. Cash used in financing
activities was principally for dividend payments and net payment of debt. Cash
used in investing activities was for additions to plant, equipment and
timberlands, partially offset by cash provided from net proceeds from the sale
of the Ecusta Division (see "UNUSUAL ITEM"). Cash used in investing and
financing activities was partially offset by cash provided by operations of
$38,159,000.
The Registrant's Condensed Consolidated Statement of Cash Flow ("Cash Flow
Statement") for the nine months ended September 30, 2001 reflects the pre-tax
loss on the disposition of the Ecusta Division as an "unusual item". Changes in
the
17
Ecusta Division's assets and liabilities, with the exception of taxes, are not
reflected as changes in assets and liabilities in the Cash Flow Statement.
Decreases reflected in the Registrant's Condensed Consolidated Balance Sheet
("Balance Sheet") related to inventory, plant, equipment and timberlands - net
and current liabilities from December 31, 2000 to September 30, 2001 are
primarily due to the disposition of the Ecusta Division. The increase in
accounts receivable - net from December 31, 2000 to September 30, 2001 in the
Balance Sheet is due to the decrease in accounts receivable as a result of the
sale of the Ecusta Division being more than offset by an increase in accounts
receivable from the remaining businesses and the recognition of income tax
receivables being recorded primarily as a result of the loss on disposition of
the Ecusta Division. Accounts receivable for the remaining businesses have
increased primarily due to higher sales for approximately one month preceding
September 30, 2001 compared to approximately one month preceding December 31,
2000.
To finance the acquisition of S&H Papier-Holding GmbH, on December 22, 1997, the
Registrant entered into the Revolving Credit Facility with a syndicate of major
lending institutions. The Revolving Credit Facility enables the Registrant to
borrow up to the equivalent of $200,000,000 in certain currencies in the form of
revolving credit loans with a final maturity date of December 22, 2002, and with
interest periods determined, at the Registrant's option, on a daily or one- to
six-month basis. Interest on the revolving credit loans is at variable rates
based, at the Registrant's option, on the Eurocurrency Rate or the Base Rate
(lender's prime rate), plus applicable margins. Margins are based on the higher
of the Registrant's debt ratings as published by Standard & Poor's and Moody's.
As of September 30, 2001, the Registrant's outstanding borrowings were EUR
141,356,5000 (approximately $129,621,000) under the Revolving Credit Facility.
In January 1999, the Registrant entered into two interest rate swap agreements,
each having a total notional principal amount of DM 50,000,000 (approximately
$23,400,000 as of September 30, 2001). Under these agreements, which were
effective April 6, 1999 and July 6, 1999 and which expire December 22, 2002, the
Registrant receives a floating rate of the three-month DM LIBOR plus twenty
basis points and pays a fixed rate of 3.41% and 3.43%, respectively, for the
term of the agreements.
On July 22, 1997, the Registrant issued $150,000,000 principal amount of 6-7/8%
Notes due July 15, 2007. Interest on the Notes is payable semiannually on
January 15 and July 15. The Notes are redeemable, in whole or in part, at the
option of the Registrant at any time at a calculated redemption price plus
accrued and unpaid interest to the date of redemption, and constitute unsecured
and unsubordinated indebtedness of the Registrant. The net proceeds from the
sale of the Notes were used primarily to repay certain short-term unsecured debt
and related interest.
The Registrant expects to meet all its near- and long-term cash needs from a
combination of internally generated funds, cash, cash equivalents and its
existing Revolving Credit Facility or other bank lines of credit and, if
prudent, other long-term debt. As of August 6, 2001, in connection with the sale
of the Ecusta Division, the Registrant amended its Revolving Credit Facility to
reflect changes to certain financial covenants and other matters.
Interest Rate Risk
The Registrant uses its Revolving Credit Facility and proceeds from the issuance
of its 6-7/8% Notes to finance a significant portion of its operations. The
Revolving Credit Facility provides for variable rates of interest and exposes
the Registrant to interest rate risk resulting from changes in the DM LIBOR. The
Registrant uses interest rate swap agreements to hedge, partially, interest rate
exposure associated with the Revolving Credit Facility. All of the Registrant's
18
derivative financial instrument transactions are entered into for non-trading
purposes.
To the extent that the Registrant's financial instruments expose the Registrant
to interest rate risk and market risk, they are presented in the table below.
The table presents principal cash flows and related interest rates by year of
maturity for the Registrant's Revolving Credit Facility and 6-7/8% Notes as of
September 30, 2001. For interest rate swap agreements, the table presents
notional amounts and the related reference interest rates by year of maturity.
Fair values included herein have been determined based upon (1) rates currently
available to the Registrant for debt with similar terms and remaining maturities
and (2) estimates obtained from dealers to settle interest rate swap agreements.
Year of Maturity
-------------------------------------------------------------------------
(dollar amounts in thousands) Fair Value at
Debt: 2001 2002 2003 2004 2005 Thereafter Total 9/30/01
------- ------- ------- ------- ------- ---------- -------- ---------
Fixed rate -- $ 545 $ 1,169 $ 462 $ 933 $ 1,075 $150,294 $154,478 $150,542
Average interest rate 6.86% 6.86% 6.87% 6.87% 6.87% 6.87%
Variable rate -- $ $129,621 $ -- $ -- $ $ -- $129,621 $129,621
Average interest rate 4.00% 4.00% -- -- -- --
Interest rate swap agreements:
Variable to fixed swaps-- $ -- $ 46,885 $ -- $ $ -- $ -- 46,885 $ 131
Average pay rate 3.42% 3.42% -- -- -- --
Average receive rate 4.00% 4.00% -- -- --
As required by SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," the Registrant was required to record the interest rate swaps from
the above table on the balance sheet at fair value beginning January 1, 2001.
SFAS No. 133, as amended and interpreted, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Because these swaps are
designated in a cash-flow hedge, changes in the fair value of the derivative are
recorded in other comprehensive income ("OCI") and are recognized in the income
statement when the hedged item affects earnings. The adoption of SFAS No. 133 on
January 1, 2001 resulted in an $845,000 increase in OCI as a cumulative
transition adjustment for derivatives designated in cash flow-type hedges prior
to adopting SFAS No. 133. Due to the Registrant's limited use of derivative
instruments, the effect on earnings of adopting SFAS No. 133 was immaterial.
Capital Expenditures
The Registrant expended $36,325,000, including $13,700,000 for its IMPACT
project, on capital projects for the first nine months of 2001 compared to
$17,511,000 for the first nine months of 2000. Capital spending during 2001 is
expected to be approximately $64,000,000, of which approximately $25,000,000
relates to the IMPACT project.
Business Strategies
For more than a year, the Registrant has been developing strategies to position
its business for the future. Execution of these strategies is intended to result
in a reorganization of the Registrant's business to capitalize on its strengths
in customer relationships, innovation, technology and people and its leadership
positions in certain markets. Internally, the Registrant is working to improve
the efficiency of its operations. Externally, the Registrant is looking to
strengthen its business through strategic alliances and joint ventures, as well
as potential acquisition opportunities or dispositions of under-performing or
non-strategic assets.
ENVIRONMENTAL MATTERS
The Registrant is subject to loss contingencies resulting from regulation by
various federal, state, local and foreign governmental authorities with respect
to
19
the environmental impact of its mills. To comply with environmental laws and
regulations, the Registrant has incurred substantial capital and operating
expenditures in past years. During 2000, 1999 and 1998, the Registrant incurred
approximately $16,700,000, $15,800,000 and $17,700,000, respectively, in
operating costs related to complying with environmental laws and regulations.
The Registrant anticipates that environmental regulation of its operations will
continue to become more burdensome and that capital and operating expenditures
necessary to comply with environmental regulations will continue, and perhaps
increase, in the future. In addition, the Registrant may incur obligations to
remove or mitigate any adverse effects on the environment allegedly resulting
from its operations, including the restoration of natural resources, and
liability for personal injury and damage to property, including natural
resources.
In particular, the Registrant remains open to negotiations with the United
States Environmental Protection Agency ("EPA") and the Pennsylvania Department
of Environmental Protection ("DEP") regarding the air Notices of Violation
("NOVs") under the federal and state air pollution control laws. The Registrant
continues to negotiate with the State of Wisconsin and the United States
regarding natural resources damages and response costs related to the discharge
of PCBs and other hazardous substances in the lower Fox River, on which the
Registrant's Neenah facility is located. The Registrant also has achieved a
settlement with DEP and the Pennsylvania Public Interest Research Group and
several other parties (collectively "Penn PIRG") regarding the wastewater
discharge permit for its Spring Grove facility that required a one-time, pre-tax
charge of $2,500,000 during the second quarter of 2001.
The costs associated with environmental matters are presently unknown but could
be substantial and perhaps exceed the Registrant's available resources. The
Registrant's current assessment, after consultation with legal counsel, is that
it should be able to manage these environmental matters without a long-term,
material adverse impact on the Registrant. These matters could, however, at any
particular time or for any particular period, have a material adverse effect on
the Registrant's consolidated financial condition, liquidity or results of
operations or could result in a default under the Registrant's loan covenants.
Moreover, there can be no assurance that the Registrant's reserves will be
adequate to provide for future obligations related to these matters or that such
obligations will not have a long-term, material adverse effect on the
Registrant's consolidated financial condition, liquidity or results of
operations. If the Registrant is not successful in managing these environmental
matters and is ordered to implement the remedy proposed in the PRAP, such remedy
would have a material adverse effect on the Registrant's consolidated financial
condition, liquidity and results of operations and would result in a default
under the Registrant's loan covenants.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the discussion under the headings "Liquidity" and "Interest Rate Risk" in
Item 2.
PART II - OTHER INFORMATION
Item 5. Other Information
Cautionary Statement
Any statements set forth herein or otherwise made in writing or orally by the
Registrant with regard to its goals for revenues, cost reductions and return on
capital, expectations as to industry conditions and the Registrant's financial
results and cash flow, demand for or pricing of its products, development of new
products, environmental matters and other aspects of its business may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Registrant makes such statements
based on assumptions that it believes to be reasonable, there can be no
assurance that actual results will not differ materially from the Registrant's
expectations.
20
Accordingly, the Registrant identifies the following important factors, among
others, which could cause its results to differ from any results which might be
projected, forecasted or estimated by the Registrant in any such forward-looking
statements: (i) variations in demand for or pricing of its products; (ii) the
Registrant's ability to identify, finance and consummate future alliances or
acquisitions; (iii) the Registrant's ability to develop new, high value-added
engineered products; (iv) the Registrant's ability to identify and implement its
planned cost reductions pursuant to its DRIVE project and changes to its
business processes contemplated by its IMPACT project; (v) changes in the cost
or availability of raw materials used by the Registrant, in particular market
pulp, pulp substitutes and wastepaper; (vi) changes in energy-related costs;
(vii) 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; (viii) the gain or loss of significant
customers and/or on-going viability of such customers; (ix) cost and other
effects of environmental compliance, cleanup, damages, remediation or
restoration, or personal injury or property damage related thereto, such as
costs associated with the NOVs issued by EPA and DEP, the costs of natural
resource restoration or damages related to the presence of PCBs in the lower Fox
River on which the Registrant's Neenah facility is located; (x) enactment of
adverse state, federal or foreign legislation or changes in government policy or
regulation; (xi) adverse results in litigation; (xii) fluctuations in currency
exchange rates; and (xiii) disruptions in production and/or increased costs due
to labor disputes.
21
Item 6. Exhibits
(a) Exhibits
Number Description of Documents
------ ------------------------
15 Letter in Lieu of Consent Regarding Review
Report of Unaudited Interim Financial
Information
(b) REPORTS ON FORM 8-K
Item 5
Current Report on Form 8-K dated August 9, 2001.
Current Report on Form 8-K dated October 2, 2001.
22
SIGNATURE
Pursuant to the requirements 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
Date: November 14, 2001
C. Matthew Smith
Corporate Controller
23
INDEX OF EXHIBITS
-----------------
Number Description of Documents
------ ------------------------
15 Letter in Lieu of Consent Regarding
Review Report of Unaudited Interim
Financial Information
24