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, 2002
( ) 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
_____________________________________________________________________________
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0628360
_____________________________________________________________________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
96 South George Street, Suite 500, York, Pennsylvania 17401
_____________________________________________________________________________
(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, 2002 were 43,624,536.
1
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, 2002 and 2001.............. 3
Condensed Consolidated Balance Sheets - September 30, 2002
and December 31, 2001.......................................... 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001.................. 5
Notes to Condensed Consolidated Financial Statements.................... 6
Independent Accountants' Report.................................................. 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 17
Quantitative and Qualitative Disclosures About Market Risk....................... 26
Controls and Procedures.......................................................... 26
Part II - Other Information...................................................... 26
Signature........................................................................ 29
Certifications................................................................... 30
Index of Exhibits................................................................ 32
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
9/30/02 9/30/01 9/30/02 9/30/01
--------- --------- --------- ---------
Revenues:
Net sales $ 136,044 $ 145,301 $ 405,515 $ 501,234
Other income - net:
Energy sales - net 2,735 2,274 7,434 6,988
Interest on investments
and other - net 156 511 1,218 2,850
Gain from property
dispositions, etc. - net 975 1,710 2,016 2,805
---------- ---------- ---------- ----------
3,866 4,495 10,668 12,643
---------- ---------- ---------- ----------
Total revenues 139,910 149,796 416,183 513,877
---------- ---------- ---------- ----------
Costs and expenses:
Cost of products sold 105,106 115,944 315,835 399,925
Selling, general and
administrative expenses 13,611 13,473 42,509 44,055
Interest on debt 3,551 3,777 11,257 12,021
Unusual items (3,508) 8,408 (3,508) 60,908
---------- ---------- ---------- ----------
Total costs and expenses 118,760 141,602 366,093 516,909
---------- ---------- ---------- ----------
Income (loss) before income taxes 21,150 8,194 50,090 (3,032)
---------- ---------- ---------- ----------
Income tax provision (benefit):
Current 4,306 (2,576) 10,631 (1,903)
Deferred 3,533 6,229 7,448 1,438
---------- ---------- ---------- ----------
Total 7,839 3,653 18,079 (465)
---------- ---------- ---------- ----------
Net income (loss) $ 13,311 $ 4,541 $ 32,011 $ (2,567)
========== ========== ========== ==========
Earnings (loss) per share:
Basic $ 0.31 $ 0.11 $ 0.74 $ (0.06)
---------- ---------- ---------- ----------
Diluted $ 0.30 $ 0.11 $ 0.73 $ (0.06)
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
3
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(UNAUDITED)
9/30/02 12/31/01
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 20,317 $ 95,501
Accounts receivable - net 72,556 60,157
Inventories:
Raw materials 14,794 13,404
In-process and finished 34,952 27,376
Supplies 20,897 22,035
---------- ----------
Total inventories 70,643 62,815
Refundable income taxes 5,722 17,522
Prepaid expenses and other current assets 3,007 4,433
---------- ----------
Total current assets 172,245 240,428
Plant, equipment and timberlands - net 515,563 497,228
Other assets 251,190 223,068
---------- ----------
Total assets $ 938,998 $ 960,724
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 748 $ 123,709
Short-term debt 2,043 1,453
Accounts payable 29,589 36,155
Dividends payable 7,633 7,481
Income taxes payable 7,172 1,853
Accrued compensation and other expenses
and deferred income taxes 43,357 38,664
---------- ----------
Total current liabilities 90,542 209,315
Long-term debt 220,078 152,593
Deferred income taxes 173,998 167,623
Other long-term liabilities 78,609 77,724
---------- ----------
Total liabilities 563,227 607,255
Commitments and contingencies
Shareholders' equity:
Common stock 544 544
Capital in excess of par value 40,954 40,968
Retained earnings 497,333 488,150
Accumulated other comprehensive loss (3,528) (3,849)
---------- ----------
Total 535,303 525,813
Less cost of common stock in treasury (159,532) (172,344)
---------- ----------
Total shareholders' equity 375,771 353,469
Total liabilities and shareholders' equity $ 938,998 $ 960,724
========== ==========
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
9/30/02 9/30/01
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 32,011 $ (2,567)
Items included in net income not using (generating) cash:
Depreciation, depletion and amortization 34,641 34,519
Loss (gain) on disposition of fixed assets (271) (1,861)
Unusual items (3,508) 60,908
Expense related to 401(k) plans 1,028 1,103
Change in assets and liabilities:
Accounts receivable (1,780) (22,242)
Inventories (5,050) 885
Other assets and prepaid expenses (27,829) (23,047)
Accounts payable, accrued compensation and
other expenses, deferred income taxes
and other long-term liabilities (11,963) (6,441)
Income taxes payable and refundable income taxes 12,035 (5,738)
Deferred income taxes - noncurrent 7,232 2,640
--------- ---------
Net cash provided by operating activities 36,546 38,159
--------- ---------
Cash flows from investing activities:
Proceeds from disposal of fixed assets 419 2,580
Net proceeds from sale of Ecusta Division - 14,505
Additions to plant, equipment and timberlands (42,583) (36,325)
--------- ---------
Net cash used in investing activities (42,164) (19,240)
--------- ---------
Cash flows from financing activities:
Repayment of debt under previous revolving credit agreement (135,829) -
Other net borrowings (payments) of debt 76,496 (17,740)
Dividends paid (22,674) (22,302)
Proceeds from stock option exercises 11,527 2,576
--------- ---------
Net cash used in financing activities (70,480) (37,466)
--------- ---------
Effect of exchange rate changes on cash 914 346
--------- ---------
Net decrease in cash and cash equivalents (75,184) (18,201)
Cash and cash equivalents:
At beginning of year 95,501 110,552
--------- ---------
At end of period $ 20,317 $ 92,351
========= =========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 14,325 $ 14,863
Income taxes 5,613 13,625
See accompanying notes to condensed consolidated financial statements.
5
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. EARNINGS PER SHARE ("EPS")
Basic EPS excludes the dilutive impact of common stock equivalents and
is computed by dividing net income by the weighted-average number of
shares of common stock outstanding for the period. Diluted EPS
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 our basic and diluted EPS follows with
the dollar and share amounts in thousands (except per-share amounts):
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- ------------------------
2002 2001 2002 2001
--------- -------- --------- ---------
Shares Shares Shares Shares
--------- -------- --------- ---------
Basic per-share factors 43,588 42,647 43,318 42,527
Effect of potentially
dilutive employee
incentive plans:
Restricted stock awards 134 129 146 -
Performance stock awards - 23 - -
Employee stock options 143 291 333 -
--------- -------- --------- ---------
Diluted per-share factors 43,865 43,090 43,797 42,527
========= ======== ========= =========
Net income (loss) $ 13,311 $ 4,541 $ 32,011 $ (2,567)
Earnings (loss) per share:
Basic $ 0.31 $ 0.11 $ 0.74 $ (0.06)
Diluted $ 0.30 $ 0.11 $ 0.73 $ (0.06)
For the nine months ended September 30, 2002, no potentially dilutive
shares of common stock have been included in the computation of diluted
loss per share as we 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 per share for the three months and nine
months ended September 30, 2002, as presented on the unaudited
Condensed Consolidated Statements of Income (Loss) reflect the
favorable impact of an after-tax unusual gain of $.05 per share (see
Note 2).
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 our Ecusta Division during the second and third
quarters of 2001, respectively, and a settlement of an environmental
matter during the second quarter of 2001. 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).
6
2. UNUSUAL ITEMS
During the third quarter of 2002, we recognized a $3,508,000, one-time
pre-tax gain for the settlement of certain escrow claims, including
interest, and associated liabilities related to the 1998 acquisition
of our Schoeller & Hoesch subsidiary.
On August 9, 2001, we completed the sale of the Ecusta Division,
consisting of our Ecusta paper making facility and two of its
operating subsidiaries, including plant and equipment, inventory,
accounts receivable and essentially all other operating assets and
certain other receivables related to our tobacco papers business. As
part of this transaction, the buyer assumed certain liabilities
related to the operation of the Ecusta Division. Our total charge to
earnings associated with the sale was $58,408,000 including a
$50,000,000 impairment charge recognized during the second quarter of
2001. We 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, Pennsylvania facility's wastewater
discharge permit.
3. RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, we adopted Statement of Financial Accounting
Standards ("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. The adoption of SFAS
No. 133 on January 1, 2001 resulted in an $845,000 increase in Other
Comprehensive Income ("OCI") as of January 1, 2001 as a cumulative
transition adjustment for derivatives designated in cash flow-type
hedges prior to adopting SFAS No. 133. Due to our limited use of
derivative instruments, the effect on earnings of adopting SFAS
No. 133 was immaterial.
The Financial Accounting Standards Board issued 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, issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," in August 2001, issued
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, Technical Corrections," in April
2002, and issued SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," in July 2002.
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 our
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. Since our adoption of SFAS No. 142 on
January 1, 2002, we no longer amortize goodwill. The statement
requires that goodwill be evaluated on at least an annual basis. We
performed the first step of the transitional goodwill impairment test
as of January 1, 2002 and determined that no impairment to our
goodwill existed. We performed our first annual impairment test as of
September 30, 2002 and determined that no impairment to our goodwill
existed. As of September 30, 2002 and using the 2002 foreign currency
translation rates, we had approximately $8,900,000 in unamortized
goodwill. We recorded $128,000 and $393,000 in pre-tax goodwill
7
amortization expense, translated at appropriate 2001 rates, for the
third quarter of 2001 and first nine months of 2001, respectively.
Exclusive of goodwill amortization expense, net income (loss) in the
third quarter and first nine months of 2001 was $4,624,000, or $0.11
per share, and $(2,312,000), or $(0.05) per share, respectively.
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. We will
adopt SFAS No. 143 on January 1, 2003. We are currently evaluating the
effects that the adoption of SFAS No. 143 may have on our consolidated
financial position and results of operations.
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. We adopted SFAS No. 144 on January 1, 2002. The
adoption of SFAS No. 144 had no impact on our consolidated financial
position or results of operations.
SFAS No. 145 is effective for fiscal years beginning after May 15,
2002. This statement, among other things, rescinds the requirement to
classify a gain or loss upon the extinguishment of debt as an
extraordinary item on the income statement. It also requires lessees to
account for certain modifications to lease agreements in a manner
consistent with sale-leaseback transaction accounting. The adoption of
SFAS No. 145 will not have an impact on our consolidated financial
position or results of operation.
SFAS No. 146 requires recognition of costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. This statement is to be applied
prospectively to exit or disposal activities initiated after December
31, 2002 and, as such, has no impact on our consolidated financial
position or results of operations.
4. DEBT REFINANCING
On June 24, 2002, we entered into an unsecured $102,500,000
multi-currency revolving credit facility (the "Facility") with a
syndicate of three major banks. An additional $22,500,000 was added to
the Facility on September 24, 2002 with a fourth major bank. The
Facility enables us to borrow up to the equivalent of $125,000,000 in
certain currencies with a final maturity date of June 24, 2006. Under
the Facility, we have the option to borrow based upon the domestic
prime rate or a eurocurrency rate for any time period from one day to
six months. The Facility also provides for a facility fee on the
commitment balance and an interest rate margin on borrowings based on
the higher of our debt ratings as published by Standard & Poor's and
Moody's.
On June 24, 2002, we repaid (euro)138,700,000 in borrowings under the
previously existing $200,000,000 multi-currency revolving credit
agreement. This repayment was made using (euro)74,100,000 of our
existing cash and a borrowing of (euro)64,600,000 under the Facility.
In conjunction with our refinancing, we entered into a cross-currency
swap transaction with floating interest rates effective June 24, 2002
with a termination date of June 26, 2006. Under this swap transaction,
we swapped $70,000,000 for (euro)72,985,090 and will pay interest on
the euro portion of the swap at a floating Eurocurrency Rate, plus
applicable margins and will receive interest on the dollar portion of
the swap at a floating US dollar LIBOR rate, plus applicable margins.
8
Also in conjunction with the refinancing, we terminated two existing
interest rate swap agreements on June 24, 2002, each having a total
notional principal amount of DM 50,000,000 (approximately $25,035,000
as of June 24, 2002). We recognized a $101,000 gain in connection with
the early termination of these swap arrangements and the repayment of
the outstanding debt under the previously existing $200,000,000
multi-currency revolving credit agreement.
5. COMPREHENSIVE INCOME
Comprehensive income (loss) was $12,564,000 and $6,583,000 for the
third quarter of 2002 and 2001, respectively, and $32,332,000 and
$(2,094,000) for the first nine months of 2002 and 2001, respectively.
Comprehensive income (loss) includes the effects of changes in (1)
certain currency exchange rates relative to the U.S. dollar and (2)
the fair value of derivative instruments (terminated interest rate swap
agreements) designated in cash flow-type hedges that we held during the
reporting periods (see Note 4).
6. COMMITMENTS AND CONTINGENCIES
We are subject to loss contingencies resulting from regulation by
various federal, state, local and foreign governmental authorities
with respect to the environmental impact of our mills. To comply with
environmental laws and regulations, we have incurred substantial
capital and operating expenditures in past years. We anticipate that
environmental regulation of our 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, we may incur obligations to
remove or mitigate any adverse effects on the environment resulting
from our operations, including the restoration of natural resources,
and liability for personal injury and for damages to property and
natural resources. Because environmental regulations are not consistent
worldwide, our ability to compete in the world marketplace may be
adversely affected by capital and operating expenditures required for
environmental compliance.
We are subject to the "Cluster Rule," a 1998 federal regulation in
which the United States Environmental Protection Agency ("EPA") aims to
regulate air and water emissions from certain pulp and paper mills,
including kraft pulp mills such as our Spring Grove facility. Issued
under both the Clean Air Act and the Clean Water Act, the Cluster Rule
establishes baseline emissions limits for toxic and non-conventional
pollutant releases to both water and air.
Subject to permit approvals, we have undertaken an initiative at our
Spring Grove facility under the Voluntary Advanced Technical Incentive
Program set forth by the EPA in the Cluster Rule. This initiative, the
"New Century Project," will require capital expenditures currently
estimated to be approximately $35,000,000 to be incurred before April
2004. The New Century Project includes improvements in brownstock
washing, installation of an oxygen delignification bleaching process
and 100 percent chlorine dioxide substitution. Through September 30,
2002, we have invested approximately $8,200,000 in this Project,
including approximately $5,800,000 during the first nine months of
2002. We estimate that $11,100,000, $19,400,000 and $2,100,000 will be
spent on this project during 2002, 2003 and 2004, respectively. We
presently do not anticipate difficulties in implementing the New
Century Project; however, we have not yet received all the required
governmental approvals, nor have we installed all the necessary
equipment.
9
SPRING GROVE, PENNSYLVANIA - WATER. We are voluntarily cooperating
with an investigation by the Pennsylvania Department of Environmental
Protection (the "Pennsylvania DEP"), which commenced in February 2002,
of our Spring Grove facility related to certain discharges, which are
alleged to be unpermitted, to the Codorus Creek. There is no indication
that these discharges had an impact on human health or the environment.
Although this investigation could result in the imposition of a fine or
other punitive measures, we currently do not know what, if any, actions
will be taken nor are we able to predict our ultimate cost, if any,
related to this matter.
SPRING GROVE, PENNSYLVANIA - AIR. In 1999, EPA and the Pennsylvania DEP
issued us separate Notices of Violation ("NOVs") alleging violations of
air pollution control laws, primarily for purportedly failing to obtain
appropriate pre-construction air quality permits in conjunction with
certain modifications to our Spring Grove facility.
For all but one of the modifications cited by EPA, we applied for and
obtained from the Pennsylvania DEP the pre-construction permits that we
concluded were required by applicable law. EPA reviewed those
applications before the permits were issued. The Pennsylvania DEP's NOV
pertained only to the modification for which we did not receive a
pre-construction permit. We conducted an evaluation at the time of this
modification and determined that the pre-construction permit cited by
EPA and the Pennsylvania DEP was not required. We have been informed
that EPA and the Pennsylvania DEP will seek substantial emissions
reductions, as well as civil penalties, to which we believe we have
meritorious defenses. Nevertheless, we are unable to predict the
ultimate outcome of these matters or the costs, if any, involved.
NEENAH, WISCONSIN - WATER. We have 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 the Bay of Green Bay, downstream of our Neenah, Wisconsin
facility. We acquired the Neenah facility in 1979 as part of the
acquisition of the Bergstrom Paper Company. In part, this facility uses
wastepaper as a source of fiber. At no time did the Neenah facility
utilize PCBs in the pulp and paper making process, but discharges from
the facility containing PCBs from wastepaper may have occurred from
1954 to the late 1970s. Any PCBs that the Neenah facility discharged
into the Fox River resulted from the presence of NCR(R)-brand
carbonless copy paper in the wastepaper that was received from others
and recycled.
As described below, various state and federal governmental agencies
have formally notified seven potentially responsible parties ("PRPs"),
including Glatfelter, that they are potentially responsible for
response costs and "natural resource damages" ("NRDs") arising from
PCB contamination in the lower Fox River and in the Bay of Green Bay,
under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and other statutes. The six other identified
PRPs are NCR Corporation, Appleton Papers Inc., Georgia Pacific Corp.
(successor to Fort Howard Corp. and Fort James Corp.), WTM I Co. (a
subsidiary of Chesapeake Corp.), Riverside Paper Company, and U.S.
Paper Mills Corp. (now owned by Sonoco Products Company).
CERCLA establishes a two-part liability structure that makes
responsible parties liable for (1) "response costs" associated with the
remediation of a release of hazardous substances and (2) NRDs related
to that release. Courts have interpreted CERCLA to impose joint and
several liability on responsible parties for response costs, subject to
equitable allocation in certain instances. Prior to a final settlement
by all responsible parties and the final cleanup of the contamination,
uncertainty regarding the application of such liability will persist.
10
On October 2, 2001, the Wisconsin Department of Natural Resources (the
"Wisconsin DNR") and EPA issued drafts of the reports resulting from
the remedial investigation and the feasibility study of the PCB
contamination of the lower Fox River and the Bay of Green Bay. On that
same day, the Wisconsin DNR and EPA issued a Proposed Remedial Action
Plan ("PRAP") for the cleanup of the lower Fox River and the Bay of
Green Bay, estimating the total costs associated with the proposed
response action at $307,600,000 (without a contingency factor) over a
7-to-18-year time period. The most significant component of the
estimated costs is attributable to large-scale sediment removal by
dredging. Based on cost estimates of large-scale dredging response
actions at other sites, we believe that the PRAP's cost projections may
underestimate actual costs of the proposed remedy by over $800,000,000.
We do not believe that the response action proposed by the Wisconsin
DNR and EPA is appropriate or cost effective. We believe that a
protective remedy for Little Lake Butte des Morts, the portion of the
river that is closest to our Neenah facility, can be implemented at a
much lower actual cost than would be incurred for large-scale dredging.
We also believe that an aggressive effort to remove the
PCB-contaminated sediment, much of which is buried under cleaner
sediment or is otherwise unlikely to move and which is abating
naturally, would be environmentally detrimental and that it would be
inappropriate to dredge all locations of the river. We have, however,
proposed to dredge and cap certain delineated areas with relatively
higher concentrations of PCBs in Little Lake Butte des Morts. We have
accrued an amount expected to cover this project, potential NRD claims,
claims for reimbursement of expenses of other parties and residual
liabilities.
We have submitted comments to the PRAP that advocate vigorously for the
implementation of environmentally protective alternatives that do not
rely upon large-scale dredging. EPA, in consultation with the Wisconsin
DNR, will consider comments on the PRAP and will then select a remedy
to address the contaminated sediment. Because we have thus far been
unable to persuade the EPA and the Wisconsin DNR of the correctness of
our assessment (as evidenced by the issuance of the PRAP), we are less
confident than we were prior to the issuance of the PRAP that an
alternative remedy totally excluding large scale dredging will be
implemented. The issuance of the PRAP did not materially impact the
amount we have accrued for this matter, however, as we continue to
believe that ultimately we will be able to convince the EPA and the
Wisconsin DNR that large-scale dredging is inappropriate. The EPA and
the Wisconsin DNR have indicated that a record of decision ("ROD")
regarding the selected remedial action plan may be issued before the
end of the year.
As noted above, NRD claims are theoretically distinct from costs
related to the primary remediation of a Superfund site. Calculating the
value of NRD claims is difficult, especially in the absence of a
completed remedy for the underlying contamination. The State of
Wisconsin, the United States Fish and Wildlife Service ("FWS"), the
National Oceanic and Atmospheric Administration ("NOAA"), four Indian
tribes and the Michigan Attorney General have asserted that they
possess NRD claims related to the lower Fox River and the Bay of Green
Bay.
In June 1994, FWS notified the seven identified PRPs that it considered
them potentially responsible for NRDs. The federal, tribal and Michigan
agencies claiming to be NRD trustees have proceeded with the
preparation of an NRD assessment. While the final assessment will be
delayed until after the selection of a remedy, the federal trustees
released a plan on October 25, 2000 that values their NRDs for injured
natural resources between $176,000,000 and $333,000,000. We believe
that the federal NRD assessment is technically and procedurally flawed.
We also believe that the NRD claims
11
alleged by the various alleged trustees are legally and factually
without merit.
On June 20, 2002, the United States, the State of Wisconsin and the
Fort James Operating Company ("Fort James") lodged a consent decree
with the U.S. District Court for the Eastern District of Wisconsin. If
entered, that consent decree would resolve certain outstanding claims,
primarily NRD claims, against Fort James and a related entity. Under
the terms of the proposed consent decree, Fort James would pay
$6,200,000 in cash to the United States and the State of Wisconsin in
settlement of various claims related to NRDs and cost recovery related
to dredging of sediments at Deposits 56/57. Fort James also agrees to
convey 1,063 acres of land to the State and to perform delineated NRD
"restoration" projects at a cost of up to $3,900,000.
We submitted comments on the proposed consent decree to the U.S.
Department of Justice. These comments suggest that the United States,
the State of Wisconsin and certain alleged natural resource trustees
not move to enter this proposed consent decree, due to various
procedural and substantive infirmities. We cannot predict whether the
governments will ultimately make such a motion or whether the Court
will enter the proposed consent decree as it is written. Because the
plaintiffs have yet to provide a factual or legal justification for the
settlement, we are not able to extrapolate an estimated settlement
amount for Glatfelter from the proposed consent decree. Accordingly, we
do not have a sufficient basis to adjust our reserves for this
contingency at this time.
We are seeking settlement with the Wisconsin agencies and with the
federal government for all of our potential liabilities for response
costs and NRDs associated with the contamination. The Wisconsin DNR and
FWS have published studies, the latter in draft form, estimating the
amount of PCBs discharged by each identified PRP to the lower Fox
River. These reports estimate our Neenah facility's share of the
volumetric discharge to be as high as 27%. We do not believe the
volumetric estimates used in these studies are accurate because the
studies themselves disclose that they are not accurate and are based on
assumptions for which there is no evidence. We believe that our
volumetric contribution is significantly lower than the estimates.
Further, we do not believe that a volumetric allocation would
constitute an equitable distribution of the potential liability for the
contamination. Other factors, such as the location of contamination,
location of discharge and a party's role in causing discharge must be
considered in order for the allocation to be equitable.
We have entered into interim cost-sharing agreements with four of the
other six PRPs, pursuant to which the PRPs have agreed to share both
defense costs and costs for scientific studies relating to PCBs
discharged into the lower Fox River. These interim cost-sharing
agreements have no bearing on the final allocation of costs related to
this matter. Based upon our evaluation of the magnitude, nature and
location of the various discharges of PCBs to the river and the
relationship of those discharges to identified contamination, we
believe our share of any liability among the seven identified PRPs is
much less than one-seventh of the whole.
We also believe that additional potentially responsible parties exist
other than the seven identified PRPs. For instance, certain of the
identified PRPs discharged their wastewater through public wastewater
treatment facilities, which we believe makes the owners of such
facilities potentially responsible in this matter. We also believe that
entities providing wastepaper-containing PCBs to each of the recycling
mills, including our Neenah facility, are also potentially responsible
for this matter.
12
We currently are unable to predict our ultimate cost related to this
matter, because we cannot predict which remedy will be selected for the
site, the costs thereof, the ultimate amount of NRDs, or our share of
these costs or NRDs.
We continue to believe it is likely that this matter will result in
litigation. We maintain that the removal of a substantial amount of
PCB-contaminated sediments is not an appropriate remedy. There can be
no assurance, however, that we will be successful in arguing that
removal of PCB-contaminated sediments is inappropriate or that we would
prevail in any resulting litigation.
The amount and timing of future expenditures for environmental
compliance, cleanup, remediation and personal injury, NRDs 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, the availability of qualified remediation contractors,
equipment and landfill space and the number and financial resources of
any other PRPs. We have established reserves relating to unasserted
claims for environmental liabilities for those matters for which it is
probable that a claim will be made, that an obligation exists and for
which the amount of the obligation is reasonably estimable. As of
September 30, 2002 and December 31, 2001, we had accrued reserves for
the Fox River matter of approximately $28,800,000, representing our
best estimate within a range of possible outcomes. This accrual is
included in "Other long-term liabilities" on the Condensed Consolidated
Balance Sheets. Changes to the accrual reflect updates to our best
estimate of the ultimate outcome and consider changes in the extent and
cost of the remedy, the status of negotiations with the various
parties, including other PRPs, and our assessment of potential NRD
claims, claims for reimbursement of expenses of other parties and
residual liabilities. Based upon our assessment as to the ultimate
outcome to this matter, we accrued and charged $1,800,000 to pre-tax
earnings during the first nine months of 2001.
Based on analysis of currently available information and experience
regarding the cleanup of hazardous substances, we believe that it is
reasonably possible that our costs associated with these matters may
exceed current reserves by amounts that may prove to be insignificant
or that could range, in the aggregate, up to approximately
$200,000,000, over a period that is undeterminable but could range
between 10 and 20 years or beyond. The upper limit of such range is
substantially larger than the amount of our reserves. In order to
establish the upper limit of such range, we used assumptions that are
the least favorable to us among the range of assumptions pertinent to
reasonably possible outcomes. We believe that the likelihood of an
outcome in the upper end of the range is significantly less than other
possible outcomes within the range and that the possibility of an
outcome in excess of the upper end of the range is remote.
In our estimate of the upper end of the range, we have assumed
full-scale dredging as set forth in the PRAP, at a significantly higher
cost than estimated in the PRAP. We have also assumed our share of the
ultimate liability to be 18%, which is significantly higher than we
believe is appropriate or will occur and a level of NRD claims and
claims for reimbursement of expenses from other parties that, although
reasonably possible, is unlikely. In estimating both our current
reserve for environmental remediation and other environmental
liabilities and the possible range of additional costs, we have not
assumed that we will bear the entire cost of remediation and damages to
the exclusion of other known PRPs who may be jointly and severally
liable. The ability of other PRPs to participate has been taken into
account, based generally on their financial
13
condition and probable contribution. Our evaluation of the other
PRPs' financial condition included the review of publicly disclosed
financial information. The relative probable contribution is based
upon our knowledge that at least two PRPs manufactured the paper that
included the PCBs and as such, in our opinion, bear a higher level of
responsibility.
In addition, our assessment is based upon the magnitude, nature and
location of the various discharges of PCBs to the river and the
relationship of those discharges to identified contamination. We did
not consider the financial condition of a smaller, non-public PRP as
financial information is not available, and we do not currently believe
its contribution to be significant. We have also considered that over a
number of years, certain PRPs were under the ownership of large
multinational companies, which appear to retain some liability for this
matter. We continue to evaluate our exposure and the level of our
reserves, including, but not limited to, our potential share of the
costs and NRDs (if any) associated with the lower Fox River and the Bay
of Green Bay.
We believe that we are insured against certain losses related to the
lower Fox River and the Bay of Green Bay, depending on the nature and
amount of the losses. Insurance coverage, which is currently being
investigated under reservations 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 are
characterized. We do not know when the insurers' investigations as to
coverage will be completed and we are uncertain as to what the ultimate
recovery will be and whether it will be significant in relation to the
losses for which we have accrued.
SUMMARY. Our current assessment is that we should be able to manage
these environmental matters without a long-term, material adverse
impact on us. These matters could, however, at any particular time or
for any particular year or years, have a material adverse effect on our
consolidated financial condition, liquidity or results of operations or
could result in a default under our loan covenants. Moreover, there can
be no assurance that our reserves will be adequate to provide for
future obligations related to these matters, that our share of costs
and/or damages for these matters will not exceed our available
resources, or that such obligations will not have a long-term, material
adverse effect on our consolidated financial condition, liquidity or
results of operations. With regard to the lower Fox River and the Bay
of Green Bay, if we are not successful in managing the matter and are
ordered to implement the remedy proposed in the PRAP, such an order
would have a material adverse effect on our consolidated financial
condition, liquidity and results of operations and would result in a
default under our loan covenants.
We are also involved in other lawsuits which are ordinary and
incidental to our business. The ultimate outcome of these lawsuits
cannot be predicted with certainty, however, we do not expect that such
lawsuits in the aggregate or individually will have a material adverse
effect on our consolidated financial position, results of operations or
liquidity.
7. ECUSTA-RELATED MATTER AND SUBSEQUENT EVENT
As discussed in Note 2, on August 9, 2001, we completed the sale of the
Ecusta Division. As part of the transaction, the buyers assumed certain
liabilities related to the operation of the Ecusta Division. On or
about July 29, 2002, we received a letter from legal counsel to the
buyers of the Ecusta Division asserting claims for indemnification,
without estimates of value, pursuant to the sale agreement. We are
currently investigating these claims and have not yet determined the
validity or value of these claims.
14
As such, we cannot ascertain at this time what effect, if any, these
claims will have on our financial condition or results of operations.
During August 2002, the buyers of the Ecusta Division shut down the
paper manufacturing operation of the paper mill in Pisgah Forest, North
Carolina, which was the most significant operation of the Ecusta
Division. On October 23, 2002, two of the four related buyers of the
Ecusta Division filed for bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code. As of September 30, 2002, we had liabilities
approximating $2,000,000 for claims related to liabilities that were
either assumed by the buyers or for which they have agreed to indemnify
and hold us harmless. We also have receivables due from the buyers for
approximately $4,400,000 of which $2,400,000 is due for product sold by
our Schoeller & Hoesch Division to one of the buyers who has not filed
for bankruptcy. In the past, the amounts due to our Schoeller & Hoesch
Division related to product sales have been paid on a timely basis.
On October 31, 2002, we were notified by the of State of North Carolina
of potential claims against us related to liabilities assumed by one of
the buyers. This notification was prompted by the State of North
Carolina's investigation as to the implication of the October 23
bankruptcy declaration on workers' compensation liabilities. The other
buyers have agreed to indemnify and hold us harmless from and against
any damages arising out of or resulting from such assumed liabilities.
We are currently investigating this matter and have not yet determined
the validity of these potential claims or the ability and intention of
the buyers to honor their obligations.
We are uncertain as to what additional claims, if any, resulting from
the bankruptcy filing, may be asserted against us for other liabilities
that were assumed, or with respect to which we are indemnified, by the
buyers or related to our former operation of the paper mill. At this
time, no reserves have been recorded related to the receivables due
from the buyers, as we are unable to ascertain the impact of the
bankruptcy proceedings nor can we determine the financial condition and
intention of all of the buyers. Accordingly, we cannot ascertain at
this time what effect, if any, these matters will have on our financial
condition or results of operations.
8. DISCLOSURE STATEMENT
In our opinion, 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. Certain information and note
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States have been condensed or omitted. These unaudited condensed
consolidated financial statements should be read in conjunction with
the more complete disclosures contained in our Annual Report on Form
10-K for the year ended December 31, 2001. Certain reclassifications
have been made to the prior periods' financial information to conform
to those classifications used in 2002. Quarterly results should not be
considered indicative of the results to be expected for the full year.
15
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, 2002, the related
condensed consolidated statements of income (loss) for the three months and nine
months ended September 30, 2002 and 2001, and the related condensed consolidated
statements of cash flows for the nine months ended September 30, 2002 and 2001.
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, 2001, 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 28, 2002, 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, 2001 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
October 31, 2002
16
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.
Three Months Ended Nine Months Ended
September 30, 2002 and 2001 September 30, 2002 and 2001
----------------------------- -----------------------------
Increase (Decrease)
(dollars in thousands)
Net sales (9,257) -6.4% (95,719) -19.1%
Other income - net (629) -14.0% (1,975) -15.6%
Cost of products sold (10,838) -9.3% (84,090) -21.0%
Selling, general and
administrative expenses 138 1.0% (1,546) -3.5%
Interest on debt (226) -6.0% (764) -6.4%
Unusual items (11,916) NM (60,908) NM
Income tax provision 4,186 NM 18,544 NM
Net income 8,770 NM 34,578 NM
NM - Not meaningful
Net Sales
Net sales decreased $9,257,000, or 6.4%, for the third quarter of 2002 compared
to the third quarter of 2001. The Ecusta Division, which was sold on August 9,
2001, contributed net sales of $10,711,000 during the third quarter of 2001.
Excluding the Ecusta Division, net sales increased $1,454,000, or 1.1%, for the
same time periods due to a 1.6% increase in average net selling price being
partially offset by a 0.5% decrease in net sales volume.
Net sales decreased $95,719,000, or 19.1%, for the first nine months of 2002
versus the comparable 2001 period. Of this decrease, $90,837,000 was
attributable to the Ecusta Division. Excluding the Ecusta Division, net sales
decreased $4,882,000, or 1.2% for the first nine months of 2002 compared to the
first nine months of 2001. During this comparative nine-month period, an
increase in net sales volume of 1.9% was more than offset by a decrease in
average net selling price of 3.0%.
For analysis purposes, we currently classify our sales into two product groups:
specialized printing papers and engineered papers (including tobacco papers). We
are in the process of changing our organization and information systems to
manage our business in three separate business units: (1) engineered products,
(2) printing and converting papers and (3) long fiber and overlay papers. Our
information systems do not currently provide the information necessary for
reporting by business unit on a comparative basis. Such information is expected
to be available by the end of 2002.
Excluding Ecusta, net sales of specialized printing papers were up 0.9% in the
third quarter of 2002 compared to the third quarter of 2002, due to a 3.0%
increase in net sales volume which was mostly offset by a 2.1% decrease in
average net selling price.
Net sales of specialized printing papers, excluding Ecusta, decreased 2.1% for
the first three quarters of 2002 compared to the similar period for 2001 as a
4.2%
17
decrease in average net selling price was partially offset by a 2.2% increase
in net sales volume.
The year to date decrease in average net selling price of specialized printing
papers is indicative of the difficult market conditions facing this portion of
our business for the first nine months of 2002 compared to the same time period
during 2001. Despite these conditions, net sales volume has increased slightly.
We believe this is indicative of the recognition by our customers of the value
of our products and services. Current demand for certain of our specialized
printing paper products is somewhat weak and backlog levels are lower than
normal for this time of year. This trend may continue as demand normally
slackens in December and typically remains soft through the first quarter of the
calendar year.
Our average net selling price for specialized printing paper did show some
improvement during the third quarter of 2002. We implemented a price increase
for certain book publishing paper products effective July 1, 2002. We also
implemented a price increase for envelope paper products in late September 2002.
Considering current market conditions, we do not expect to see significant
changes in selling prices for specialized printing paper products over the next
several months.
Net sales of engineered papers, excluding Ecusta, decreased 1.8% in the third
quarter versus the third quarter of 2001. The erosion of demand for tobacco
papers from our Schoeller & Hoesch Division caused this decrease. Net sales of
tobacco papers decreased by over 36.0% during the third quarter of 2002 versus
the comparable period of 2001. Excluding tobacco papers, net sales of engineered
products increased by 3.1% as a decrease in net sales volume of 4.3% was more
than offset by a 7.7% increase in average net selling price. The increase in
average net selling price was primarily caused by translating Euro-denominated
sales with a weaker US dollar exchange rate in the third quarter of 2002 as
compared to the like period in 2001.
On a year to date basis, net sales of engineered products in 2002 are 1.0%
higher than the first nine months of 2001. Excluding tobacco papers, net sales
of which decreased by over 38.0%, net sales for engineered products increased by
6.9% for the first nine months of 2002 versus the same period in 2001. This
increase was due to an 8.1% increase in net sales volume being partially offset
by a 1.1% decrease in average net selling price. The decrease in average net
selling price would have been approximately 4.0% had the US dollar not weakened
versus the Euro during the comparative periods. Some of the decrease in average
selling price is the result of decisions to increase our volume of engineered
products with below average prices to fully utilize our capacity and to enter
certain markets. We expect this trend to continue during the remainder of the
year. Average selling price was also lower for specific engineered paper
products for the relevant 2002 periods compared to 2001.
Although the increased year to date net sales volume for these products is
indicative of relatively strong demand for our products, it is difficult to
determine demand and pricing trends for the entire portfolio of engineered
papers due to the fragmentation and small size of markets within this group. Our
best estimate is that overall pricing in these product lines will be relatively
stable with downward pressure in our long-fiber paper markets.
Other Income - Net
Other income - net decreased $629,000, or 14.0%, and $1,975,000, or 15.6%, in
the third quarter and first nine months of 2002 respectively, versus the like
periods of 2001. Energy sales net increased $461,000 and $446,000 for the three
months and nine months ended September 30, 2002, respectively. Interest on
investments and other - net decreased $355,000 and $1,632,000 for the third
quarter and first nine months of 2002, respectively, versus the same periods of
2001. This reduction was due to lower average interest rates on lower average
invested cash
18
balances. Gain from property dispositions, etc. - net decreased $735,000 and
$789,000 for the three months and nine months ended September 30, 2002,
respectively, versus the like periods of 2001. During the third quarter of
2001, we sold a tract of land from which we recognized a gain of $1,700,000.
There were no significant single-asset dispositions in 2002.
Cost of Products Sold and Gross Margin
Cost of products sold decreased $10,838,000, or 9.3%, for the third quarter of
2002 versus the third quarter of 2001. Excluding the Ecusta Division, cost of
products sold decreased $2,368,000 or 2.2% for the third quarter of 2002
compared to the third quarter of 2001.
Cost of products sold decreased $84,090,000, or 21.0%, for the first nine months
of 2002 versus the first nine months of 2001. Excluding the Ecusta Division,
cost of products sold decreased $6,035,000 or 1.9% for the first nine months of
2002 compared to the first nine months of 2001.
The variances in cost of products sold are in part due to changes in net sales
volume described in "Net Sales" above. Excluding Ecusta, cost of products sold
decreased for the third quarter and nine-month periods ending September 30, 2002
as compared to the like periods of 2001. The decrease in the nine-month results
occurred despite an increase in net sales volume for those comparable periods.
Cost of products sold was favorably impacted for the third quarter and first
nine months of 2002 versus the like periods in 2001 by decreases in unit costs
for purchased pulp and wastepaper as well as a decrease in energy-related costs
and the impact of cost-control efforts. Market pulp prices have recently
declined and we do not expect to see any increases in such prices in the near
future.
Non-cash income resulting from the overfunded status of our defined benefit
pension plans decreased cost of products sold by $6,610,000 and $5,643,000 for
the third quarters of 2002 and 2001, respectively, and decreased cost of
products sold by $20,067,000 and $18,518,000 for the first nine months of 2002
and 2001, respectively.
Post-retirement expense included in cost of products sold was $1,909,000 and
$716,000 for the third quarters of 2002 and 2001, respectively, and $3,735,000
and $2,148,000 for the first nine months of 2002 and 2001, respectively. The
primary cause of the increase in the 2002 periods over the 2001 periods was a
change in our estimate of liability based upon our recent claims history.
As a result of the aforementioned items, gross margin as a percentage of net
sales increased to 22.7% for the third quarter of 2002 from 20.2% for the like
quarter of 2001. Excluding the Ecusta Division, gross margin as a percentage of
net sales during the third quarter of 2001 was 20.8%. Gross margin as a
percentage of net sales increased to 22.1% for the first nine months of 2002
compared to 20.2% for the first nine months of 2001. Excluding the Ecusta
Division, gross margin as a percentage of net sales was 21.8% for the first nine
months of 2001.
Gross margin as a percentage of sales increased from the second quarter to the
third quarter in both 2002 and 2001 due primarily to the annual scheduled
maintenance shutdown at the Spring Grove, Pennsylvania facility. This shutdown
results in higher maintenance expense and a reduction of production leading to
unfavorable manufacturing variances, which negatively impact cost of products
sold in the second quarter of each year.
Our non-cash pension income is calculated each year using certain actuarial
assumptions and certain other factors including the fair value of our pension
assets as of the first date of the calendar year. The fair value of our pension
assets has decreased significantly since January 1, 2002. As a result of this
decrease, absent a recovery in the fair value of our pension assets by December
19
31, 2002, our non-cash pension income will be substantially less in 2003 than is
currently being recognized.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses for the third quarter of 2002 were $138,000, or 1.0%, higher than
for the third quarter of 2001. Excluding the Ecusta Division, SG&A increased by
$380,000 for the third quarter of 2002 compared to the third quarter of 2001.
SG&A expenses for the first nine months of 2002 were $1,546,000, or 3.5%, lower
than for the first nine months of 2001. Excluding the Ecusta Division, SG&A
increased by $4,055,000 for the first nine months of 2002 compared to the first
nine months of 2001. Increases in SG&A expenses, excluding the Ecusta Division,
were due primarily to increased costs related to resources dedicated to
implementing our strategic initiatives, including depreciation expense and
increased service fees related to information technology.
SG&A expenses were reduced in the third quarter 2002 due to a decrease in
compensation expense related to certain stock awards that varies with the price
of our common stock. Our common stock price was lower as of September 30, 2002
as compared to June 30, 2002. Non-cash pension income reduced SG&A expenses by
$1,556,000 and $1,862,000 for the third quarter of 2002 and the same quarter of
2001, respectively, and by $4,730,000 and $4,743,000, for the first nine months
of 2002 and the first nine months of 2001, respectively.
Post-retirement expense included in SG&A was $391,000 and $147,000 for the third
quarters of 2002 and 2001, respectively, and $765,000 and $440,000 for the first
nine months of 2002 and 2001, respectively. The primary cause of the increase in
the 2002 periods over the 2001 periods was a change in our estimate of liability
based upon our recent claims history.
Interest on Debt - Net
Interest on debt - net decreased $226,000, or 6.0%, for the third quarter of
2002 versus the comparable period of 2001 and decreased $764,000, or 6.4%, for
the first nine months of 2002 compared to the like period of 2001. In both
cases, the primary cause for the decrease was a reduction in the outstanding
debt. This was partially offset by an increase in interest rates on our
remaining debt.
Unusual Items
During the third quarter of 2002, we recognized a $3,508,000, one-time pre-tax
gain for the settlement of certain escrow claims, including interest, and
associated liabilities related to the 1998 acquisition of our Schoeller & Hoesch
subsidiary.
On August 9, 2001, we completed the sale of the Ecusta Division, consisting of
our Ecusta paper making facility and two of its operating subsidiaries,
including plant and equipment, inventory, accounts receivable and essentially
all other operating assets and certain other receivables related to our tobacco
papers business. As part of this transaction, the buyer assumed certain
liabilities related to the operation of the Ecusta Division. Our total charge to
earnings associated with the sale was $58,408,000 including a $50,000,000
impairment charge recognized during the second quarter of 2001. We 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,
Pennsylvania facility's wastewater discharge permit.
Income Tax Provision
The change in the income tax provision (benefit) for both the third quarter and
first nine months of 2002 versus the comparable periods for 2001 is due
primarily to the changes in earnings (loss) before income taxes. Additionally,
our
20
effective tax rates for the three-month and nine-month periods ended
September 30, 2002 were 37.1% and 36.1%, respectively, compared to 44.6% and
15.3% for the like periods of 2001. The significant change in effective rates
is due largely to the impact of the unusual items recognized in 2002 and 2001
(see "Unusual Items" above).
DRIVE AND IMPACT PROJECTS
As of November 1, 2001, we completed the implementation of cost reduction
programs designed to realize $40,000,000 at our current operations of annual
cash cost savings identified during our on-going DRIVE project. Our employees
generated over 7,000 cost savings ideas under DRIVE of which over 950 ideas
were identified for implementation. DRIVE ideas included, among others,
procurement initiatives and production process improvements to reduce the cost
of raw materials, efficiency increases to improve paper machine speeds and
quality yields, energy conservation programs and the outsourcing of our
sheeting operation at the Neenah, Wisconsin facility. Because of the complex
and highly integrated nature of our operations and the number of projects
implemented, it is extremely difficult and cost prohibitive to determine the
actual amount of cost savings realized. We do recognize, however, that upon
completing the implementation of the DRIVE project, realized cost reductions
have been largely offset by increases in on-going operating costs such as wages
and salaries, fringe benefits, energy costs and professional and other costs.
We continue to review our manufacturing processes for opportunities to improve
efficiencies and effectiveness.
Our IMPACT project is focused on identifying and implementing changes in our
organization and business processes. We have completed the second and final
phase of IMPACT, which included the installation of an enterprise resource
planning ("ERP") system. The system was installed at our U.S. based locations on
April 1, 2002, at our Gernsbach, Germany facility on August 1, 2002 and at our
Scaer, France facility on October 1, 2002. The ERP system provides, among other
things, a common platform for purchasing, accounts payable, sales order
processing, cost accounting and general ledgers. We have completed the
installation phase of IMPACT within budget and without a material adverse impact
on our business. Total spending on the IMPACT project is expected to be
approximately $46,000,000, of which approximately $44,000,000 is capital
related. Through September 30, 2002, we have capitalized approximately
$43,400,000 of costs for the IMPACT project. Certain implementation related
costs will be capitalized during the fourth quarter of 2002.
FINANCIAL CONDITION
Liquidity
Cash and cash equivalents decreased $75,184,000 during the first nine months of
2002. Net repayment of debt ($76,496,000), investment in plant, equipment and
timberlands ($42,583,000) and the payment of dividends ($22,674,000) were
partially offset by cash generated from operations ($36,546,000) and cash
received in proceeds for stock options exercised by employees ($11,527,000).
Cash generated from operating activities included approximately $11,800,000
related to the collection of an income tax receivable. During October 2002, we
collected an additional $5,700,000 for income tax receivables.
On June 24, 2002, we entered into an unsecured $102,500,000 multi-currency
revolving credit facility (the "Facility") with a syndicate of three major
banks. An additional $22,500,000 was added to the Facility on September 24,
2002 with a fourth major bank. The Facility enables us to borrow up to the
equivalent of $125,000,000 in certain currencies with a final maturity date of
June 24, 2006. Under the Facility, we have the option to borrow based upon the
domestic prime rate or a eurocurrency rate for any time period from one day to
six months. The
21
Facility also provides for a facility fee on the commitment balance and an
interest rate margin on borrowings based on the higher of our debt ratings as
published by Standard & Poor's and Moody's.
On June 24, 2002, we repaid (euro)138,700,000 in borrowings under the
previously existing $200,000,000 multi-currency revolving credit agreement.
This repayment was made using (euro)74,100,000 of our existing cash and a
borrowing of (euro)64,600,000 under the Facility.
In conjunction with our refinancing, we entered into a cross-currency interest
rate swap transaction effective June 24, 2002 with a termination date of June
26, 2006. Under this swap transaction, we swapped $70,000,000 for
(euro)72,985,090 and will pay interest on the Euro portion of the swap at a
floating Eurocurrency Rate, plus applicable margins and will receive interest
on the dollar portion of the swap at a floating US Dollar LIBOR rate, plus
applicable margins.
Also in conjunction with the refinancing, we terminated two existing interest
rate swap agreements on June 24, 2002, each having a total notional principal
amount of DM 50,000,000 (approximately $25,035,000 as of June 24, 2002). We
recognized a $101,000 gain in connection with the early termination of these
swap arrangements and the repayment of the outstanding debt under the
previously existing $200,000,000 multi-currency revolving credit agreement.
PNC Financial Services Group, Inc. ("PNC") beneficially owns approximately 35%
of our common stock, primarily as a trustee for numerous trusts for the benefit
of Glatfelter family members. PNC Bank, National Association, a subsidiary of
PNC, is a member of a syndicate of banks under the Facility. One member of our
Board of Directors is the retired Regional Chairman of PNC Bank, National
Association, Philadelphia/South Jersey markets.
We expect to meet all our near- and long-term cash needs from a combination of
internally generated funds, cash, cash equivalents and our existing Revolving
Credit Facility or other bank lines of credit and other long-term debt. We are
subject to certain financial covenants under the Facility and are in compliance
with all such covenants. As the Facility matures on June 24, 2006, it has been
classified on the Balance Sheet as "Long-term debt." As of September 30, 2002,
we had $68,631,000 of borrowings under the Facility. This includes
(euro)64,600,000 in Euro-denominated borrowings. An additional $56,369,000 was
available under the Facility.
Interest Rate Risk
We use the Facility and proceeds from the issuance of our 6 7/8% Notes to
finance a significant portion of our operations. The Facility provides for
variable rates of interest and exposes us to interest rate risk resulting from
changes in the domestic prime rate or eurocurrency rate. Any derivative
financial instrument transactions are entered into for non-trading purposes.
To the extent that our financial instruments expose us 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 our Facility, 6
7/8% Notes and other long-term debt as of September 30, 2002. Fair values
included herein have been determined based upon rates currently available to us
for debt with similar terms and remaining maturities.
Year of Maturity
------------------------------------------------------------ Fair
(dollar amounts in thousands) Value at
2002 2003 2004 2005 2006 Thereafter Total 9/30/02
------ ------ ------ ------ ------ ---------- -------- ----------
Debt:
Fixed rate -- $ 600 $1,185 $ 863 $ 431 $ - $150,000 $153,079 $167,700
Average interest rate 6.87% 6.87% 6.87% 6.87% 6.87% 6.87%
Variable rate -- $1,006 $ - $ - $ - $68,784 $ - $ 69,790 $ 69,790
Average interest rate 2.31% - - - 4.02% -
22
Capital Expenditures
During the first nine months of 2002, we expended $42,583,000 on capital
projects compared to $36,325,000 for the like period of 2001. Of the
year-to-date 2002 capital spending, approximately $19,400,000 was spent on our
IMPACT project and approximately $5,800,000 was spent on the New Century
Project. The New Century Project is an environmental initiative intended to
better control certain emissions from our Spring Grove facility.
Total capital spending is expected to be approximately $58,000,000 in 2002.
Included in this total is an expected $21,000,000 capital expenditure for our
IMPACT project and $11,100,000 for the New Century Project. The New Century
Project will also require an estimated $19,400,000 and $2,100,000 in capital
spending during 2003 and 2004, respectively. The total capital spending on the
New Century Project is expected to be approximately $35,000,000. The timing of
cash payments regarding the New Century Project has been updated based upon our
most recent information.
Other significant capital expenditures expected during 2002 include $6,000,000
to begin the expansion of our long-fiber and overlay paper capacity in
Gernsbach. Additional spending of $24,000,000 is expected on this project in
2003.
Business Strategies
We continue to develop strategies to position our business for the future.
Execution of these strategies is intended to capitalize on our strengths in
customer relationships, technology and people and our positions in certain
markets. Internally, we are working to improve the efficiency of our
operations. Externally, we are looking to strengthen our business through
strategic alliances and joint ventures, as well as potential acquisition
opportunities or dispositions of under-performing or non-strategic assets. We
are currently in the process of reviewing strategic alternatives regarding our
woodlands. This review includes an analysis of the highest value and best use
of these woodlands to generate greater shareholder value.
PENNSYLVANIA DROUGHT CONDITIONS
Pulp and paper manufacturing operations rely upon an adequate supply of water
to sustain production. Our Spring Grove, Pennsylvania facility is located in an
area that is currently under a drought warning and was, until November 7, 2002,
subject to a drought emergency proclamation. We submitted a drought contingency
plan to the Commonwealth of Pennsylvania that outlines our proposal to restrict
water usage based upon current and potential future drought conditions. The
Commonwealth approved the drought contingency plan and we have begun water
conservation measures in accordance with the plan. During the third quarter of
2002, we estimate that the drought restrictions resulted in a $100,000 negative
impact on our pre-tax earnings, primarily from the costs associated with the
operation of a temporary cooling tower. This negative impact was less than
previously estimated due to better than anticipated operating efficiencies and
our ability to defer certain drought related costs. Under current conditions,
we estimate the drought restrictions to negatively impact our pre-tax earnings
in the fourth quarter of 2002 by approximately $100,000.
Without moderate to heavy rainfall over the next several months, we may need to
procure additional supplies of water, curtail the production of pulp for our
papermaking operations and curtail the generation of electrical power. Such
actions would increase the cost to manufacture paper at the Spring Grove
location and decrease energy sales to our customer but is not expected to impede
our ability to supply our customers with paper products.
23
LABOR AGREEMENTS STATUS
Hourly employees at our U.S. facilities are represented by different locals of
the Paper, Allied-Industrial, Chemical and Energy Workers International Union.
On October 22, 2002, hourly employees at our Neenah, Wisconsin facility
ratified a five-year labor agreement covering approximately 300 workers with an
expiration date of August 1, 2007. Under this agreement, wages were increased
for the appropriate Neenah employees by 3.0% effective August 1, 2002.
A five-year labor agreement covering approximately 700 employees at our Spring
Grove, Pennsylvania expires in January 2003. Negotiations have been underway
for several months and an agreement will be submitted to the bargaining unit
for a vote on November 19, 2002.
Various unions represent approximately 860 of our Schoeller & Hoesch employees.
Labor agreements covering approximately 640 employees at the Gernsbach, Germany
facility and 140 employees at the Scaer, France facility expired in the first
quarter of 2002. These agreements have since been settled with terms
retroactive to the expiration dates of the respective agreements. These
one-year contracts expire in the first quarter of 2003. An agreement covering
approximately 50 employees at our abaca pulpmill in the Philippines expired in
September 2002. Such employees are continuing to work under the provisions of
the expired contract. Negotiations to settle this matter continue. We do not
believe this issue will have a significant impact on our operations.
SIGNIFICANT AND SUBJECTIVE ESTIMATES
The above discussion and analysis of our financial condition and results of
operations is based upon our unaudited condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to sales returns, doubtful
accounts, inventories, investments and derivative financial instruments,
long-lived assets, pensions and post-retirement benefits, and contingencies,
including environmental matters. We base our estimates on historical experience
and on various other assumptions that we believe are reasonable under the
circumstances; the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
We believe the following represent the most significant and subjective
estimates used in the preparation of our consolidated financial statements.
We maintain reserves for expected sales returns and allowances based
principally on our return practices and our historical experience. If actual
sales returns differ from the estimated return rates projected, we may need to
increase or decrease our reserves for sales returns and allowances, which could
affect our reported income.
We maintain allowances for doubtful accounts for estimated losses resulting
from our customers' failure to make required payments. If customer payments
were to differ from our estimates, we may need to increase or decrease our
allowances for doubtful accounts, which could affect our reported income.
We evaluate the recoverability of our long-lived assets, including property,
equipment and intangible assets, periodically or whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Our
evaluations include analyses based on the cash flows generated by the
underlying assets, profitability information, including estimated future
operating results,
24
trends or other determinants of fair value. If the value of an asset determined
by these evaluations is less than its carrying amount, a loss is recognized for
the difference between the fair value and the carrying value of the asset.
Future adverse changes in market conditions or poor operating results of the
related business may indicate an inability to recover the carrying value of the
assets, thereby possibly requiring an impairment charge in the future.
Accounting for defined-benefit pension plans require various assumptions,
including but not limited to, discount rates, expected rate of return on plan
assets and future compensation growth rates. Our retiree medical plans also
require various assumptions, which include but are not limited to, discount
rates and annual rates of increase in the per-capita costs of health care
benefits. We evaluate these assumptions at least once each year and make changes
as conditions warrant. Changes to these assumptions, as well as other factors
including, but not limited to, asset valuation (pension) and claims history
(retiree medical), will increase or decrease our reported income, which will
result in changes to the assets and liabilities associated with our benefit
plans.
We maintain accruals for losses associated with environmental obligations when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated based on existing legislation and
remediation technologies. These accruals are adjusted periodically as
assessment and remediation actions continue and/or further legal or technical
information develops. Such undiscounted liabilities are exclusive of any
insurance or other claims against third parties. Recoveries of environmental
remediation costs from other parties, including insurance carriers, are
recorded as assets when their receipt is deemed probable.
ENVIRONMENTAL MATTERS
We are subject to loss contingencies resulting from regulation by various
federal, state, local and foreign governmental authorities with respect to the
environmental impact of our mills. To comply with environmental laws and
regulations, we have incurred substantial capital and operating expenditures in
past years. During 2001, 2000 and 1999, we incurred approximately $15,600,000,
$16,700,000 and $15,800,000, respectively, in operating costs related to
complying with environmental laws and regulations. We anticipate that
environmental regulation of our 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, we may incur obligations to remove or mitigate any adverse effects on
the environment allegedly resulting from our operations, including the
restoration of natural resources, and liability for personal injury and for
damages to property and natural resources.
In particular, we remain open to negotiations with the EPA and the Pennsylvania
DEP regarding the NOVs under the federal and state air pollution control laws.
In addition, we continue to negotiate with the State of Wisconsin and the United
States regarding natural resources damages and response costs related to the
discharge of PCBs in the lower Fox River and the Bay of Green Bay. We are also
voluntarily cooperating with an investigation by the Pennsylvania DEP of our
Spring Grove facility related to certain discharges, which are alleged to be
unpermitted, to the Codorus Creek.
The costs associated with environmental matters are presently unknown but could
be substantial and perhaps exceed our available resources. Our current
assessment is that we should be able to manage these environmental matters
without a long-term, material adverse impact. These matters could, however, at
any particular time or for any particular year or years, have a material adverse
effect on our consolidated financial condition, liquidity or results of
operations or could result in a default under our loan covenants. Moreover,
there can be no assurance
25
that our reserves will be adequate to provide for future obligations related to
these matters, that our share of costs and/or damages for these matters will
not exceed our available resources, or that such obligations will not have a
long-term, material adverse effect on our consolidated financial condition,
liquidity or results of operations. With regard to the lower Fox River and the
Bay of Green Bay, if we are not successful in managing the matter and are
ordered to implement the remedy set forth in the proposed remedial action plan
issued by the State of Wisconsin and the United States, such order would have a
material adverse effect on our consolidated financial condition, liquidity and
results of operations and would result in a default under our loan covenants.
We have accrued an amount to cover this matter which represents our best
estimate within a range of possible outcomes. Changes to the accrual reflect
updates to our best estimate of the ultimate outcome and consider changes in
the extent and cost of the remedy, the status of negotiations with various
parties, including other PRPs, and our assessment of potential NRD claims,
claims for reimbursement of expenses of other parties and residual liabilities.
For further discussion, see Note 6 to the Condensed Consolidated Financial
Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the discussion under the headings "Liquidity" and "Interest Rate Risk" in
Item 2 as well as Note 4 to the Condensed Consolidated Financial Statements.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and our acting chief financial officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14(c) and 15d-14(c)) on November 11, 2002, have concluded that, as
of such date, our disclosure controls and procedures were adequate and effective
to ensure that material information relating to P. H. Glatfelter Company and its
consolidated subsidiaries would be made known to them by others within those
entities.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect our
internal controls subsequent to the date of the evaluation, nor were there any
significant deficiencies or material weaknesses in our internal controls. As a
result, no corrective actions were required or undertaken.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Cautionary Statement
Any statements we set forth in this Form 10-Q or otherwise made in writing or
orally with regard to our goals for revenues, cost reductions and return on
capital, execution of our business model in a timely manner, expectations as to
industry conditions and our financial results and cash flow, demand for or
pricing of our products, margin enhancement, retention of key accounts, income
growth, market penetration, development of new products and new and existing
markets for our products, environmental matters, implementation of our
integrated information technology platform, our ability to identify and execute
future acquisitions which will enhance both our business growth and return on
capital and other aspects of our business may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Although we make such statements based on assumptions that we believe
to be reasonable, there can be no assurance that actual results will not differ
materially from our expectations. Accordingly, we identify the following
important factors, among others, which could cause our results to differ from
any results which might be projected, forecasted or
26
estimated in any such forward-looking statements: (i) variations in demand for
or pricing of our products; (ii) our ability to identify, finance and
consummate future alliances or acquisitions; (iii) our ability to develop new,
high value-added engineered products; (iv) our ability to realize cost
reductions pursuant to our DRIVE project and changes to business processes
contemplated by our IMPACT project; (v) changes in the cost or availability of
raw materials we use, in particular market pulp, pulp substitutes and
wastepaper, and changes in energy-related costs; (vi) 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; (vii) the gain or loss of significant customers and/or on-going
viability of such customers; (viii) 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 Notices of
Violation ("NOVs") issued by the United States Environmental Protection Agency
("EPA") and the Pennsylvania Department of Environmental Protection
("Pennsylvania DEP"), 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 effect of complying with the
wastewater discharge limitations of the Spring Grove mill permit; (ix)
enactment of adverse state, federal or foreign legislation or changes in
government policy or regulation; (x) adverse results in litigation; (xi)
fluctuations in currency exchange rates and or/interest rates; (xii)
disruptions in production and/or increased costs due to labor disputes; (xiii)
our ability to comply with the covenants of our debt facility; (xiv) changes in
non-cash income resulting from our defined-benefit pension plans; (xv) impact
of drought restrictions on our earnings; (xvi) the effect on us, if any,
associated with of the financial condition of the buyers of the Ecusta
Division; and (xvii) our ability to maximize the value of our timberlands.
27
ITEM 6. EXHIBITS
(a) EXHIBITS
Number Description of Documents
- ------ ------------------------
10.1 Increase in Commitments and Lender Addition
Agreement
15 Letter in Lieu of Consent Regarding Review
Report of Unaudited Interim Financial
Information
99.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350 - Chief Executive Officer
99.2 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350 - Acting Chief Financial Officer
(b) REPORTS ON FORM 8-K
Item 5 Current Report on Form 8-K dated September 12, 2002.
28
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, 2002 C. Matthew Smith
Corporate Controller and Principal
Accounting Officer
29
CERTIFICATIONS
I, George H. Glatfelter II, Chief Executive Officer of P. H. Glatfelter
Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of P. H. Glatfelter
Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a). designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b). evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c). presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the board of directors:
(a). all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
(b). any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 George H. Glatfelter II
Chief Executive Officer
30
CERTIFICATIONS
I, Robert P. Newcomer, Acting Chief Financial Officer of P. H. Glatfelter
Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of P. H. Glatfelter
Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a). designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b). evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c). presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the board of directors:
(a). all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
(b). any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 Robert P. Newcomer
Acting Chief Financial Officer
31
INDEX OF EXHIBITS
Number Description of Documents
- ------ ------------------------
10.1 Increase in Commitments and Lender
Addition Agreement
15 Letter in Lieu of Consent Regarding
Review Report of Unaudited Interim
Financial Information
99.1 Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350 - Chief Executive
Officer
99.2 Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350 - Acting Chief
Financial Officer
32