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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, 1999
( ) 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, 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 November 11, 1999 were
42,225,187.
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P. H. GLATFELTER COMPANY
INDEX
Part I - Financial Information
Condensed Consolidated Statements of Income -
Three Months and Nine Months Ended September 30,
1999 and 1998 (Unaudited)............................... 3
Condensed Consolidated Balance Sheets - September 30, 1999
(Unaudited) and December 31, 1998....................... 4
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1999 and 1998 (Unaudited)... 5
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................ 6
Independent Accountants' Report............................. 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 12
Quantitative and Qualitative Disclosures About Market Risk.. 20
Part II - Other Information..................................... 20
Signature....................................................... 21
Index of Exhibits............................................... 22
Exhibit 15 - Letter in Lieu of Consent Regarding Review
Report of Unaudited Interim Financial
Information
Exhibit 27 - Financial Data Schedule
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(UNAUDITED)
Three Months Ended Nine Months Ended
9/30/99 9/30/98 9/30/99 9/30/98
------- ------- ------- -------
Revenues
Net sales $ 170,030 $ 167,245 $ 503,110 $ 544,168
Other income - net
Energy sales - net 2,402 2,543 7,346 7,091
Interest on investments and
other - net 427 569 1,225 2,029
Gain from property
dispositions, etc. - net 690 18 2,773 103
--------- --------- --------- ---------
3,519 3,130 11,344 9,223
Total revenues 173,549 170,375 514,454 553,391
Costs and expenses
Cost of products sold 145,956 143,204 416,897 440,918
Selling, general and
administrative expenses 12,909 11,161 40,711 37,941
Interest on debt - net 4,735 5,259 14,126 16,322
Unusual item -- 5,577 -- 5,577
--------- --------- --------- ---------
163,600 165,201 471,734 500,758
Income before income taxes 9,949 5,174 42,720 52,633
Income tax provision (benefit)
Current taxes (102) 2,258 7,432 15,960
Deferred taxes 3,651 (290) 8,205 4,349
--------- --------- --------- ---------
Total 3,549 1,968 15,637 20,309
Net income $ 6,400 $ 3,206 $ 27,083 $ 32,324
========= ========= ========= =========
Basic and diluted earnings per share $ 0.15 $ 0.08 $ 0.64 $ 0.77
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
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P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
9/30/99 12/31/98
------- --------
(unaudited)
Current assets:
Cash and cash equivalents $ 64,369 $ 50,907
Accounts receivable - net 81,347 70,076
Inventories:
Raw materials 35,154 37,559
In process and finished 49,452 49,901
Supplies 28,739 30,392
--------- ---------
Total inventories 113,345 117,852
Prepaid expenses and other current assets 1,909 3,073
--------- ---------
Total current assets 260,970 241,908
Plant, equipment and timberlands - net 595,792 628,156
Other assets 131,226 120,674
--------- ---------
Total assets $ 987,988 $ 990,738
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,904 $ 2,088
Short-term debt 26,824 28,990
Accounts payable 43,418 34,293
Dividends payable 7,387 7,365
Income taxes payable 8,205 8,189
Accrued compensation and other expenses
and deferred income taxes 41,367 45,951
--------- ---------
Total current liabilities 129,105 126,876
Long-term debt 311,973 325,381
Deferred income taxes 131,526 123,321
Other long-term liabilities 64,056 71,231
--------- ---------
Total liabilities 636,660 646,809
Commitments and contingencies
Shareholders' equity:
Common stock 544 544
Capital in excess of par value 42,319 42,612
Retained earnings 489,733 484,793
Accumulated other comprehensive income (779) (1,611)
--------- ---------
Total 531,817 526,338
Less cost of common stock in treasury (180,489) (182,409)
--------- ---------
Total shareholders' equity 351,328 343,929
--------- ---------
Total liabilities and
shareholders' equity $ 987,988 $ 990,738
========= =========
See accompanying notes to condensed consolidated financial statements.
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P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
Nine Months Ended
9/30/99 9/30/98
------- -------
Cash flows from operating activities:
Net income $ 27,083 $ 32,324
Items included in net income not using
(providing) cash:
Depreciation, depletion and amortization 36,613 36,207
Loss (gain) on disposition of fixed assets (1,124) 625
Expense related to employee stock purchase and
401(k) plans 1,631 1,261
Change in assets and liabilities, net of effect
of acquisition:
Accounts receivable (13,420) (2,296)
Inventories 1,454 11,619
Other assets and prepaid expenses (14,380) (8,276)
Accounts payable, accrued compensation and
other expenses, deferred income taxes
and other long-term liabilities 12,270 (7,362)
Income taxes payable (404) (5,227)
Deferred income taxes - noncurrent 8,205 5,270
--------- ---------
Net cash provided by operating activities 57,928 64,145
--------- ---------
Cash flows from investing activities:
Sale or maturity of investments - net 4 154,870
Proceeds from disposal of fixed assets 1,258 34
Additions to plant, equipment and timberlands (17,685) (30,290)
Acquisition of S&H - net of cash acquired -- (147,491)
Acquisition of Cascadec (7,399) --
--------- ---------
Net cash used in investing activities (23,822) (22,877)
--------- ---------
Cash flows from financing activities:
Net borrowing of short-term debt 1,715 16,384
Net payment of other long-term debt -- (17,791)
Repayment of 5-7/8% Notes -- (150,000)
Acquisition-related borrowings -- 101,500
Dividends paid (22,122) (22,080)
Purchases of common stock -- (4,344)
Proceeds from issuance of common stock under
employee stock purchase plans and key
employee long-term incentive plan -- 829
--------- ---------
Net cash used in financing activities (20,407) (75,502)
--------- ---------
Effect of exchange rate changes on cash (237) 255
Net increase (decrease) in cash and cash equivalents 13,462 (33,979)
Cash and cash equivalents:
At beginning of year 50,907 66,919
--------- ---------
At end of period $ 64,369 $ 32,940
========= =========
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 21,098 $ 14,917
Income taxes 8,615 21,041
See accompanying notes to condensed consolidated financial statements.
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P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACQUISITIONS
Effective January 2, 1998, the Registrant acquired all of the
outstanding common stock of S&H Papier-Holding GmbH ("S&H"), the
specialty paper division of the Schoeller and Hoesch Group, for DM
268,900,000 (approximately $150,000,000) in cash. The purchase price
was finalized in the fourth quarter of 1998. The Registrant accounted
for the S&H acquisition under the purchase method of accounting, and
S&H was consolidated with the Registrant beginning in January 1998.
The acquisition of S&H included a 50% controlling ownership interest in
Papeteries de Cascadec S.A. ("Cascadec"), a French company, along with
the option to acquire the remaining 50% at a future time. On April 9,
1999, the Registrant exercised its option and purchased the remaining
50% of Cascadec for FF 45,181,233 ($7,399,000) in cash.
2. 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 the Registrant's basic and diluted EPS follows with
the dollar and share amounts in thousands:
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
Shares Shares Shares Shares
------ ------ ------ ------
Basic EPS 42,195 41,995 42,155 42,047
Effect of potentially
dilutive employee
incentive plans:
Restricted stock
awards -- 11 5 18
Performance stock
awards 126 126 132 126
Employee stock
options 233 -- 110 17
------- ------- ------- -------
Diluted EPS 42,554 42,132 42,402 42,208
======= ======= ======= =======
Net income $ 6,400 $ 3,206 $27,083 $32,324
Basic and diluted EPS $ 0.15 $ 0.08 $ 0.64 $ 0.77
3. ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
SFAS No. 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS No. 137, issued in July
1999, deferred the effective date of SFAS No. 133 until the beginning
of the Registrant's first quarter of 2001. The Registrant is evaluating
the effects that the adoption of SFAS No. 133 may have on its
consolidated financial position and results of operations.
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4. INTEREST RATE SWAP AGREEMENTS
In January 1998, the Registrant entered into two interest rate swap
agreements, each having a total notional principal amount of DM
52,600,000 (approximately $28,700,000 as of September 30, 1999). Under
the agreements, the Registrant pays fixed rates of 4.18% and 4.45% for
periods of two and three years, respectively, and receives a floating
rate of the six-month DM London Interbank Offered Rate ("LIBOR").
In January 1999, the Registrant entered into two additional interest
rate swap agreements, each having a total notional principal amount of
DM 50,000,000 (approximately $27,300,000 as of September 30, 1999).
Under one agreement, which was effective April 6, 1999, the Registrant
receives a floating rate of the three-month DM LIBOR plus twenty basis
points and pays a fixed rate of 3.4075% for the term of the agreement.
Under the second agreement, which was effective July 6, 1999, the
Registrant receives a floating rate, which is also the three-month DM
LIBOR plus twenty basis points, and pays a fixed rate of 3.425% for the
term of the agreement.
The Registrant has other various interest rate swap agreements
outstanding, which do not have a material impact on the Registrant's
consolidated financial statements. All of the Registrant's interest
rate swap agreements convert a portion of the Registrant's borrowings
from a floating rate to a fixed rate basis. Although the Registrant can
pay to terminate any of its swap agreements at any time, the Registrant
intends to hold all of its swap agreements until their maturities.
5. COMPREHENSIVE INCOME
Comprehensive income was $5,889,000 and $1,568,000 for the third
quarter of 1999 and 1998, respectively, and $27,915,000 and $30,528,000
for the first nine months of 1999 and 1998, respectively. Comprehensive
income includes the effects of changes in certain currency exchange
rates relative to the U.S. dollar.
6. COMMITMENTS AND CONTINGENCIES
The Registrant is subject to loss contingencies resulting from
regulation by various federal, state, local and foreign governmental
authorities with respect to the environmental impact of air and water
emissions and noise from its mills, as well as the disposal of solid
waste generated by its operations. To comply with environmental laws
and regulations, the Registrant has incurred substantial capital and
operating expenditures over the past several years. The Registrant
anticipates that environmental regulation of its operations will
continue to become more burdensome and that capital and operating
expenditures will continue, and perhaps increase, in the future. In
addition, the Registrant may incur obligations to remove or mitigate
any adverse effects on the environment resulting from its operations,
including the restoration of natural resources, and liability for
personal injury and damage to property, including natural resources.
Because environmental regulations are not consistent worldwide, the
Registrant's ability to compete in the world marketplace may be
adversely affected by capital and operating expenditures required for
environmental compliance.
The Pennsylvania Department of Environmental Protection ("DEP") has
proposed to reissue the Registrant's wastewater discharge permit for
the Spring Grove mill on terms unacceptable to the Registrant.
Moreover, terms which may be acceptable to the Registrant and DEP may
be unacceptable to the United States Environmental Protection Agency
("EPA") or certain third parties. The Registrant cannot determine the
impact that the new permit will have on the Registrant if it contains
objectionable terms because the material terms of the final form of the
permit are unknown.
The Pennsylvania Public Interest Research Group ("Penn PIRG") and
several other plaintiffs have brought a citizen suit under the federal
Clean Water
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Act and the Pennsylvania Clean Streams Law seeking a reduction in the
Spring Grove mill's discharge of color, civil penalties and costs of
litigation. The Registrant believes Penn PIRG's lawsuit to be without
merit, but the Registrant cannot predict the impact on the Registrant
of any relief the court might award because the case is not yet at a
stage where the nature and extent of any relief can be predicted.
On or about April 16, 1999, EPA issued to the Registrant a Notice of
Violation ("NOV") alleging violations of the federal Clean Air Act,
primarily for purportedly failing to obtain appropriate preconstruction
air quality permits in conjunction with certain modifications to its
Spring Grove mill. EPA announced that the Registrant was one of seven
pulp and paper mill operators to have received contemporaneously an NOV
alleging this kind of violation. EPA alleged that the Registrant's
modifications produced significant net emissions increases in certain
air pollutants which should have been covered by appropriate permits
and certain other violations.
For all but one of the modifications cited by EPA, the Registrant
applied for and obtained from the DEP the preconstruction permits which
the Registrant concluded were required by applicable law. EPA reviewed
those applications before the permits were issued. The Registrant
conducted an evaluation at the time of the other modification, and
concluded that the preconstruction permit cited by EPA was not
required. DEP has issued a separate NOV pertaining to this
modification. The Registrant expects that EPA and DEP will seek
substantial emissions reductions, as well as civil penalties, to which
the Registrant believes it has meritorious defenses.
The Registrant, along with six other companies which operate or
formerly operated facilities along the Fox River in Wisconsin, has been
identified as a potentially responsible party ("PRP") under the federal
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and other laws for (a) investigation and cleanup and (b)
natural resources damages arising from the alleged discharge of
polychlorinated biphenyls ("PCBs") and other hazardous substances to
the Fox River below Lake Winnebago (the "lower Fox River") and the Bay
of Green Bay. A dispute presently exists as to which sovereign controls
which claims concerning this matter. Accordingly, the Registrant has
been in discussions with EPA, the Wisconsin Department of Natural
Resources ("DNR"), the United States Fish and Wildlife Service ("FWS"),
the National Oceanic and Atmospheric Administration ("NOAA"), the
Menominee Indian Tribe of Wisconsin, the Oneida Tribe of Indians of
Wisconsin, and the state and federal Departments of Justice.
On July 11, 1997, these agencies and tribes entered into a Memorandum
of Agreement (the "MOA") which provides for coordination and
cooperation among those parties in addressing the release or threat of
release of hazardous substances into the lower Fox River, Green Bay and
Lake Michigan environment. The MOA sets forth a mutual goal of
remediating and/or responding to hazardous substance releases and
threats of releases, and restoring injured and potentially injured
natural resources. The MOA further states that, based on current
information, removal of the PCB-contaminated sediments in the lower Fox
River is expected to be the principal, but not exclusive, action
undertaken to achieve restoration and rehabilitation of injured natural
resources. The MOA anticipates funding from the Registrant and the six
other companies.
On February 26, 1999, DNR released a draft remedial investigation and
feasibility study ("RI/FS") for the lower Fox River for public comment.
In the draft RI/FS, DNR reviewed and summarized a number of possible
remedial alternatives for the site estimated to cost in the range of $0
to $721,000,000, but did not select a preferred remedy. The Registrant
does not believe that the no action remedy will be selected. The
largest components of the costs of certain of the remedial alternatives
are attributable to large-scale sediment removal and disposal. There is
no assurance that the cost estimates in the draft RI/FS will not differ
significantly from actual costs. The Registrant and the other six
companies have submitted extensive technical comments to the draft
RI/FS. In addition, the Registrant has submitted its individual
comments to the draft RI/FS. DNR and EPA have announced that the RI/FS
will be revised. The revision may add, delete or amend the remedial
alternatives, and a final RI/FS and a proposed remedial
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action plan will be issued. The Registrant understands these documents
may be issued in 2000.
Based on current information and advice from its environmental
consultants, the Registrant continues to believe that an aggressive
effort, as included in certain remedial alternatives in the draft
RI/FS, to remove PCB-contaminated sediment, much of which is buried
under cleaner material or is otherwise unlikely to move, would be
environmentally detrimental and, therefore, inappropriate.
The Registrant currently is unable to predict the ultimate costs to the
Registrant related to this matter, because the Registrant cannot
predict which remedy will be selected for the site or its share of the
cost of that remedy.
The Registrant continues to believe it is likely that this matter will
result in litigation; however, the Registrant believes it will be able
to persuade a court that removal of a substantial amount of
PCB-contaminated sediments is not an appropriate remedy. There can be
no assurance, however, that the Registrant will be successful in
arguing that removal of PCB-contaminated sediments is inappropriate,
that it would prevail in any resulting litigation, that its share of
the cost of any remedy selected would not have a material adverse
effect on the Registrant's consolidated financial condition, liquidity
and results of operations or that the Registrant's share of such cost
would not exceed its available resources.
Natural resources damages may be assessed in addition to cleanup costs.
In November 1999, FWS announced a preliminary estimate of damages,
ranging from $106 million to $150 million, as the result of injury to
recreational fishing. FWS and the federal and tribal trustees have not
yet announced estimates of certain other components of their natural
resources damages claim. The Registrant believes DNR, not FWS or the
other federal or tribal trustees, to be the lead agency for assessment
of damages, and has been cooperatively assessing damages with DNR
independent of the federal agencies.
The amount and timing of future expenditures for environmental
compliance, clean up, remediation and personal injury and property and
natural resource 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 control, the remedial actions
which may be required and the number and financial resources of any
other responsible parties. The Registrant continues to evaluate its
exposure and the level of its reserves, including, but not limited to,
costs associated with the NOV and its share of the costs and damages
(if any) associated the lower Fox River and the Bay of Green Bay. The
Registrant believes that it is insured against certain losses related
to the lower Fox River, depending on the nature and amount thereof.
Coverage, which is currently being investigated under reservation of
rights by various insurance companies, is dependent upon the identity
of the plaintiff, the procedural posture of the claims asserted and how
such claims are characterized. The Registrant does not know when the
insurers' investigation as to coverage will be completed.
The Registrant's current assessment, after consultation with legal
counsel, is that future expenditures for these matters are not likely
to have a material adverse impact on the Registrant's consolidated
financial condition or liquidity, but could have a material adverse
effect on the Registrant's consolidated results of operations in a
given year; however, there can be no assurances that the Registrant's
reserves will be adequate or that a material adverse effect on the
Registrant's consolidated financial condition or liquidity will not
occur at some future time.
7. DISCLOSURE STATEMENT
In the opinion of the Registrant, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which
comprise
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only normal recurring accruals) necessary for a fair presentation of
the financial information contained therein. These unaudited condensed
consolidated financial statements should be read in conjunction with
the more complete disclosures contained in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998. Certain
reclassifications have been made of previously reported amounts to
conform with classifications used in the current year.
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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, 1999, and the related
condensed consolidated statements of income and cash flows for the three months
and nine months ended September 30, 1999 and 1998. 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 generally accepted auditing standards, 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 generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of P. H. Glatfelter Company and
subsidiaries as of December 31, 1998, 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 26,
1999, 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, 1998 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 15, 1999
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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.
Effective January 2, 1998, the Registrant acquired all of the outstanding common
stock of S&H Papier-Holding GmbH ("S&H"), the specialty paper division of the
Schoeller and Hoesch Group, for DM 268,900,000 (approximately $150,000,000) in
cash. The purchase price was finalized in the fourth quarter of 1998. The
Registrant accounted for the S&H acquisition under the purchase method of
accounting, and S&H was consolidated with the Registrant beginning in January
1998.
The acquisition of S&H included a 50% controlling ownership interest in
Papeteries de Cascadec S.A. ("Cascadec"), a French company, along with the
option to acquire the remaining 50% at a future time. On April 9, 1999, the
Registrant exercised its option and purchased the remaining 50% of Cascadec for
FF 45,181,233 ($7,399,000) in cash.
RESULTS OF OPERATIONS
A summary of the period-to-period changes in the principal items included in the
Condensed Consolidated Statements of Income is shown below.
Comparison of
Three Months Ended Nine Months Ended
Sept. 30, 1999 and 1998 Sept. 30, 1999 and 1998
----------------------- -----------------------
Increase (Decrease)
(dollars in thousands)
Net sales 2,785 1.7 % (41,058) (7.5)%
Other income - net 389 12.4 % 2,121 23.0 %
Cost of products sold 2,752 1.9 % (24,021) (5.4)%
Selling, general and
administrative expenses 1,748 15.7 % 2,770 7.3 %
Interest on debt - net (524) (10.0)% (2,196) (13.5)%
Income tax provision 1,581 80.3 % (4,672) (23.0)%
Net income 3,194 99.6 % (5,241) (16.2)%
Net Sales
Worldwide net sales increased $2,785,000, or 1.7%, for the third quarter of 1999
compared to the third quarter of 1998 and decreased $41,058,000, or 7.5%, for
the first nine months of 1999 compared to the corresponding period of 1998.
The increase in net sales for the third quarter of 1999 relative to the third
quarter of 1998 is a result of increased sales volume partially offset by lower
average pricing primarily due to a change in the mix of products sold. The
decrease in net sales for the nine months ended September 30, 1999 compared to
the same period of 1998 was a result of a decrease in sales volume, due to weak
demand early in 1999, exacerbated by a change in the mix of products sold.
The Registrant classifies its sales into two product groups: specialized
printing papers and engineered papers. Net sales of specialized printing papers
increased by 2.3% in the third quarter of 1999 and decreased by 10.6% during the
first nine months of 1999 compared to the same periods of 1998. In the third
quarter of 1999, sales volume was higher than in the third quarter of 1998 as a
result of increased demand for the Registrant's specialized printing papers. The
increased volume was partially offset by decreased average net selling prices
for such products, as the Registrant sold a mix of products with a lower average
selling price. For the nine months ended September 30, 1999 versus the same
period of
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1998, sales of specialized printing papers were lower as a result of the same
change in product mix, as well as fewer tons sold.
Throughout 1998 demand for the Registrant's specialized printing papers weakened
while demand for such products in 1999 has steadily strengthened. Demand, on
average, over the first nine months of 1999 has been lower than average demand
over the first nine months of 1998. In addition, during the first quarter of
1999, the Registrant completed the installation of inclined wire technology on
an existing paper machine in Gernsbach, Germany. This installation allowed the
Registrant to transfer some of its production capacity previously dedicated to
specialized printing papers to more profitable engineered papers.
As a result of improved demand for its specialized printing papers during 1999,
the Registrant implemented price increases for its envelope papers in both April
and July. The Registrant also increased prices for most of its book publishing
papers effective September 1, 1999 and for most of its financial printing papers
effective October 1, 1999. Also, as a result of this improved demand, the
Registrant was able to improve its mix of specialized printing papers sold
during the three and nine months ended September 30, 1999. The Registrant
expects that its product mix will continue to improve in the fourth quarter of
1999 and that the market for its specialized printing papers will remain strong
and perhaps strengthen over the next several months.
Net sales of engineered papers for the three months and nine months ended
September 30, 1999 were $773,000 higher and $12,824,000 lower, respectively,
than in the corresponding periods of 1998. In the third quarter of 1999 versus
the third quarter of 1998, increased sales volume was partially offset by
decreased average selling prices as a result of a change in the mix of
engineered papers sold. For the first nine months of 1999, increased sales
volume was more than offset by decreased pricing as a result of a change in the
mix of products sold relative to the first nine months of 1998.
Net sales of the Registrant's engineered papers, excluding tobacco papers,
increased in the three months and nine months ended September 30, 1999 compared
to the like periods of 1998 by 3.6% and 1.9%, respectively. Sales volume for
such products improved by approximately 10% for each comparative period. Average
net selling prices were lower in both the three months and nine months ended
September 30, 1999 versus the prior year periods by 5.7% and 7.2%, respectively.
Volume improved in part as a result of the paper machine rebuild at the
Registrant's Gernsbach, Germany facility which completed the conversion of the
facility's production capacity from specialized printing papers to engineered
papers. Sales volume also improved as a result of the successful development and
marketing of new grades of engineered papers. The Registrant continues to strive
to improve its overall product mix by concentrating its efforts on maximizing
sales of more profitable engineered papers. The installation of inclined wire
technology allows it to produce more profitable engineered papers, including tea
bag, porous plug wrap and overlay papers. In addition, the Registrant's Spring
Grove, Pennsylvania facility continues to pursue aggressively the development
and marketing of new engineered paper products produced with its gravure coater
and expects that this piece of equipment will have an increasingly positive
impact on its future results of operations.
Net sales of tobacco papers declined by 2.5% and 12.6% for the three months and
nine months ended September 30, 1999, respectively, compared to the same periods
of 1998. This reduction in net sales was due primarily to decreases in volume as
a result of the continuing erosion of demand for tobacco paper products in the
U.S. as a result of declining consumption of tobacco products.
Exacerbating this situation of declining demand has been a series of other
external factors that have resulted in a reduction of the Registrant's ability
to remain a viable supplier of such papers. As has been widely reported, the
tobacco industry has been and remains under intense political, legal and
financial pressure which has led to an increase in its cost of production and a
need to reduce other of its costs, including those for its raw materials. In
addition, many tobacco companies have consolidated their purchasing functions,
which has
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resulted in fewer buyers with a greater ability to influence pricing for these
papers. Also, China, which formerly imported much of its required tobacco
papers, has become largely self-sufficient in productive capacity, greatly
reducing the need for imported tobacco papers. To combat all these external
factors, on September 20, 1999, the Registrant announced that it had notified
its major tobacco paper customers that prices will be increased for certain of
its tobacco paper products effective January 1, 2000. Such price increases are
necessary for the Registrant to remain a viable, high-quality supplier to such
customers. It is currently unclear as to what impact the price increases will
have on the Registrant's volume of tobacco paper products. In the event that the
price increases result in a reduction in demand for tobacco paper products, the
Registrant has contingency plans in place which could be implemented, if
necessary, including shutting down capacity and reducing costs.
Other Income - Net
The Registrant's other income - net was $389,000, or 12.4%, higher for the three
months ended September 30, 1999 versus the corresponding three months of 1998
and $2,121,000, or 23.0%, higher for the first nine months of 1999 compared to
the first nine months of 1998. Interest on investments and other - net was
$804,000 lower for the first nine months of 1999 compared to the corresponding
period of 1998 because, during the first quarter of 1998, the Registrant
recognized interest income on $150,000,000 held in a defeasance trust which was
ultimately used to repay in full the principal of and interest on its 5-7/8%
Notes on March 1, 1998. No such trust interest income was recognized in 1999.
The Registrant's gain from property dispositions, etc. - net increased by
$672,000 and $2,670,000 for the three months and nine months ended September 30,
1999, respectively, versus the like periods of 1998. In the first quarter of
1999, the Registrant sold a tract of timberland located in Delaware, realizing a
gain of $976,000. In the second and third quarters of 1999, the Registrant sold
various other fully-depreciated items, in addition to the rights to standing
timber on select tracts of land. Subsequent to the first quarter of 1999, no
single sale was material to the Registrant's results of operations. No
significant sales of such property occurred in the first nine months of 1998.
From time to time the Registrant divests certain tracts of its timberlands when
it is offered attractive prices. The Registrant does not actively solicit the
sale of its timberlands as it intends to maintain its own sources of raw
materials.
Cost of Products Sold and Gross Profit
The Registrant's cost of products sold increased by 1.9% for the third quarter
of 1999 compared to the third quarter of 1998 and decreased by 5.4% for the
first nine months of 1999 versus the first nine months of 1998. While sales
volumes were higher for the third quarter of 1999 versus the third quarter last
year, they were slightly lower for the nine months ended September 30, 1999
versus 1998. The Registrant's cost of products sold per ton was lower by 4.2%
and 5.4%, respectively, compared to the same periods in 1998 despite
difficulties experienced at its Spring Grove pulpmill subsequent to its annual
maintenance shutdown. This decrease was due, in part, to an increase in
operational efficiency at many of the Registrant's operating locations. In
addition, as outlined below under the heading, "Early Retirement Program and
Other Cost Control Measures," the Registrant has taken initiatives to remove
costs from its business which have also had a positive impact in reducing its
cost of products sold per ton.
As described above, average net selling prices per ton decreased during the
three months and nine months ended September 30, 1999 compared to the like
periods in 1998. This decrease in net sales per ton more than offset the
decrease in cost of products sold per ton, resulting in a decrease in gross
profit per ton of 5.8% and 16.5%, respectively, versus those same periods last
year.
During the first nine months of 1999, market pulp prices have increased
modestly, and the Registrant expects further increases to occur in the fourth
quarter of 1999. Since pricing for many of the Registrant's products typically
follows that
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of market pulp, the Registrant also expects improved pricing for such products
subsequent to any market pulp price increases.
Selling, General and Administrative Expenses
The Registrant's selling, general and administrative expenses for the third
quarter of 1999 were $1,748,000, or 15.7%, higher than for the third quarter of
1998 and for the first nine months of 1999 were $2,770,000, or 7.3%, higher than
for the like period of 1998. While the Registrant has taken aggressive steps to
remove costs from its business (see the section entitled "Early Retirement
Program and Other Cost Control Measures" below), increased legal and
professional expenses more than offset such savings in selling, general and
administrative expenses.
Interest on Debt - Net
The Registrant's interest on debt - net decreased by $524,000, or 10.0%, for the
quarter ended September 30, 1999 versus the same period of 1998 and decreased by
$2,196,000, or 13.5%, for the first nine months of 1999 as compared to the first
nine months of 1998. Lower average borrowings during the third quarter of 1999
versus the third quarter of 1998 resulted in lower interest on debt - net for
the quarter. On March 1, 1998, $150,000,000 principal amount of the Registrant's
5-7/8% Notes matured and were retired. As a result, the average borrowings for
the first nine months of 1999 were lower than the like period of 1998, resulting
in the lower interest on debt - net.
Income Tax Provision
The Registrant's income tax provision increased by $1,581,000, or 80.3%, for the
third quarter of 1999 versus the third quarter of 1998 and decreased by
$4,672,000, or 23.0%, for the first nine months of 1999 compared to the first
nine months of 1998. The changes were principally due to changes in net income
in 1999 versus 1998.
FINANCIAL CONDITION
Liquidity
Cash and cash equivalents increased by $13,462,000 during the first nine months
of 1999. Net cash provided by operating activities of $57,928,000 more than
offset cash used in investing activities of $23,822,000 and financing activities
of $20,407,000. Significant cash activities during the first nine months of 1999
included the payment of $22,122,000 of dividends, $17,685,000 for plant,
equipment and timberlands and $7,399,000 for the purchase of the remaining 50%
ownership interest in Cascadec.
To finance the acquisition of S&H, on December 22, 1997, the Registrant entered
into a $200,000,000 multi-currency revolving credit facility ("Revolving Credit
Facility") with a syndicate of major lending institutions. The Revolving Credit
Facility enables the Registrant to borrow up to the equivalent of $200,000,000
in certain currencies in the form of revolving credit loans with a final
maturity date of December 22, 2002 and with interest periods determined, at the
Registrant's option, on a daily or one to six-month basis. Interest on the
revolving credit loans is at variable rates based, at the Registrant's option,
on the Eurocurrency Rate or the Base Rate (lender's prime rate), plus applicable
margins. Margins are based on the higher of the Registrant's debt ratings as
published by Standard & Poor's and Moody's. As of September 30, 1999, the
Registrant's outstanding borrowings were DM 284,450,000 ($155,124,000) under the
Revolving Credit Facility.
In January 1998, the Registrant entered into two interest rate swap agreements,
each having a total notional principal amount of DM 52,600,000 (approximately
$28,700,000 as of September 30, 1999). Under the agreements, the Registrant pays
fixed rates of 4.18% and 4.45% for periods of two and three years, respectively,
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16
and receives a floating rate of the six-month DM London Interbank Offered Rate
("LIBOR").
In January 1999, the Registrant entered into two additional interest rate swap
agreements, each having a total notional principal amount of DM 50,000,000
(approximately $27,300,000 as of September 30, 1999). Under one agreement, which
was effective April 6, 1999, the Registrant receives a floating rate of the
three-month DM LIBOR plus twenty basis points and pays a fixed rate of 3.4075%
for the term of the agreement. Under the second agreement, which was effective
July 6, 1999, the Registrant receives a floating rate, which is also the
three-month DM LIBOR plus twenty basis points, and pays a fixed rate of 3.425%
for the term of the agreement.
The Registrant has other various interest rate swap agreements outstanding,
which do not have a material impact on the Registrant's consolidated financial
statements. All of the Registrant's interest rate swap agreements convert a
portion of the Registrant's borrowings from a floating rate to a fixed rate
basis. Although the Registrant can pay to terminate any of its swap agreements
at any time, the Registrant intends to hold all of its swap agreements until
their maturities.
On July 22, 1997, the Registrant issued $150,000,000 principal amount of 6-7/8%
Notes due July 15, 2007. The 6-7/8% Notes are redeemable, in whole or in part,
at the option of the Registrant at any time at a calculated redemption price
plus accrued and unpaid interest to the date of redemption. The 6-7/8% Notes are
unsecured and unsubordinated indebtedness of the Registrant. Interest on the
Notes is payable semiannually on January 15 and July 15.
The Registrant expects to meet all its near and long-term cash needs from a
combination of internally generated funds, cash, cash equivalents, marketable
securities, the Revolving Credit Facility or other bank lines of credit and, if
prudent, other long-term debt.
Interest Rate Risk
The Registrant uses its Revolving Credit Facility and 6-7/8% Notes to finance a
significant portion of its operations. These on-balance sheet financial
instruments, to the extent they provide for variable rates of interest, expose
the Registrant to interest rate risk resulting from changes in the DM LIBOR. The
Registrant uses off-balance sheet interest rate swap agreements to hedge
partially interest rate exposure associated with on-balance sheet financial
instruments. All of the Registrant's derivative financial instrument
transactions are entered into for non-trading purposes.
To the extent that the Registrant's financial instruments expose the Registrant
to interest rate risk and market risk, they are presented in the table below.
The table presents principal cash flows and related interest rates by year of
maturity for the Registrant's Revolving Credit Facility and 6-7/8% Notes as of
September 30, 1999. For interest rate swap agreements, the table presents
notional amounts and the related reference interest rates by year of maturity.
Fair values included herein have been determined based upon (1) rates currently
available to the Registrant for debt with similar terms and remaining
maturities, and (2) estimates obtained from dealers to settle interest rate swap
agreements.
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Year of Maturity
(dollar amounts in thousands) Total
Due at Fair Value at
1999 2000 2001 2002 2003 Thereafter Maturity 9/30/99
---- ---- ---- ---- ---- ---------- -------- -------
Debt:
Fixed rate principal $1,559 $ 1,621 $ 1,621 $ 1,444 $ 1,266 $ 151,242 $ 158,753 $ 153,433
Average interest rate 6.84% 6.85% 6.85% 6.86% 6.86% 6.87%
Variable rate principal $ - $ - $ - $155,124 $ - $ - $ 155,124 $ 155,124
Average interest rate 3.71% 3.53% 3.31% 3.31% - -
Interest rate swap agreements:
Variable to fixed swaps
principal amount $ 777 $ 34,340 $28,685 $ 54,535 $ - $ - $ 118,337 $ 821
Average pay rate 4.38% 3.84% 3.42% 3.42% - -
Average receive rate 3.58% 3.40% 3.40% 3.40% - -
Capital Expenditures
The Registrant invested $17,685,000 in capital expenditures for the first nine
months of 1999 compared to $30,290,000 for the first nine months of 1998. The
Registrant estimates a total of approximately $29,000,000 will be spent on
capital projects during 1999, or 28% less than in 1998.
ENVIRONMENTAL MATTERS
The Registrant is subject to loss contingencies resulting from regulation by
various federal, state, local and foreign governmental authorities with respect
to the environmental impact of air and water emissions and noise from its mills,
as well as its disposal of solid waste generated by its operations. To comply
with environmental laws and regulations, the Registrant has incurred substantial
capital and operating expenditures over the past several years. During 1998,
1997 and 1996, the Registrant incurred approximately $17,700,000, $14,800,000
and $15,200,000, respectively, in operating costs related to complying with
environmental laws and regulations. The Registrant anticipates that
environmental regulation of the Registrant's operations will continue to become
more burdensome and that capital and operating expenditures will continue, and
perhaps increase, in the future. In addition, the Registrant may incur
obligations to remove or mitigate any adverse effects on the environment
resulting from its operations, including the restoration of natural resources,
and liability for personal injury and damage to property, including natural
resources. In particular, the Registrant continues to negotiate with the United
States Environmental Protection Agency and the Pennsylvania Department of
Environmental Protection regarding the Notice of Violation under the federal
Clean Air Act and with the State of Wisconsin and the United States regarding
natural resources damages and response costs related to the discharge of
polychlorinated biphenyls ("PCBs") and other hazardous substances in the lower
Fox River, on which the Registrant's Neenah mill is located. The costs
associated with such matters are presently unknown but could be substantial and
perhaps exceed the Registrant's available resources. The Registrant's current
assessment, after consultation with legal counsel, is that such expenditures are
not likely to have a material adverse effect on the Registrant's consolidated
financial condition or liquidity, but could have a material adverse effect on
the Registrant's consolidated results of operations in a given year; however,
there can be no assurance that the Registrant's reserves will be adequate or
that a material adverse effect on the Registrant's consolidated financial
condition or liquidity will not occur at some future time. See Note 6 to the
Registrant's condensed consolidated financial statements.
ENVIRONMENTAL ACHIEVEMENTS
On April 20, 1999, the Registrant announced that its Spring Grove mill was the
first pulp and paper mill in the United States to achieve ISO 14001
certification for its environmental management system and its commitment to
environmental excellence. ISO 14001 requires that an organization have an
environmental policy that includes commitments to prevention of pollution,
compliance with environmental laws and regulations and continual improvements in
its environmental management system. As a part of maintaining its certification,
the mill's
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environmental management system will be audited by a third party on an ongoing,
periodic basis. The Registrant's Gernsbach, Germany facility is also ISO 14001
certified. The Registrant plans to achieve ISO 14001 certification at all of its
other mills by the end of 2002.
Also on April 20, 1999, the Registrant announced its New Century Project. The
New Century Project is a commitment by the Registrant to participate at its
Spring Grove mill in the EPA's Advanced Technology Incentive Program under the
Cluster Rules. As a result, the Registrant expects to spend approximately
$32,000,000 over the next six years to eliminate the use of elemental chlorine
in its bleaching process, reduce odor emissions and improve water quality. The
New Century Project demonstrates the Registrant's commitment to minimizing its
impact on natural resources.
EARLY RETIREMENT PROGRAM AND OTHER COST CONTROL MEASURES
During the second quarter of 1998, the Registrant announced a Voluntary Early
Retirement Enhancement Program ("VEREP") for certain of its salaried employees.
The Registrant recognized one-time charges for this VEREP in the third and
fourth quarters of 1998. As of the end of the second quarter of 1999, these
measures were fully implemented. The Registrant estimates that pre-tax cost
savings from the VEREP in the third quarter of 1999 were approximately
$2,100,000. Such quarterly cost savings are permanent in nature and are expected
to continue.
The Registrant's procurement function has undertaken initiatives to reduce costs
for certain purchased products and services. In addition, the Registrant has
reevaluated its target inventory levels for maintenance supplies and raw
materials, renegotiated certain freight contracts and critically reviewed its
needs for routine outside contracting work. The Registrant has achieved
significant cost savings as a result of these initiatives.
YEAR 2000 READINESS DISCLOSURE
The Registrant has achieved Year 2000 compliance for its mission critical and
non-critical information technology systems and non-information technology
systems.
The Registrant's three-phase approach to achieve its internal Year 2000
compliance included an inventory phase, an assessment phase and a modifications
and testing phase. The Registrant has completed all phases for all of its
information technology and non-information technology systems. Non-information
technology systems include computer process control equipment as well as
embedded technology, such as micro-controllers, which are critical to the
operation of production equipment and facilities.
The Registrant's information technology systems include both internally and
externally developed business systems, although nearly all have been developed
internally. Accordingly, the Registrant used internal information technology
personnel almost exclusively to inventory, assess, modify and test existing
systems and primarily incurred only normal wage, benefit and related costs for
its normal complement of information technology personnel. The Registrant
expensed approximately $634,000 and $125,000 during 1998 and 1997, respectively,
in such costs supporting its Year 2000 compliance efforts. The Registrant has
incurred approximately $400,000 of expenses in the first nine months of 1999 for
these internal costs and estimates it will incur only very modest additional
expenses during the remainder of the year to complete its Year 2000 efforts.
The Registrant's use of its own information technology personnel to make its
systems Year 2000 compliant delayed some other strategic information systems
development and implementation which would have benefited the Registrant in
various ways and to various extents. The Registrant does not believe that it is
at a competitive disadvantage as a result of these delays and has now resumed
development of such strategic systems.
The Registrant has made minor capital expenditures to replace certain systems or
equipment which were not Year 2000 compliant. The Registrant incurred
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approximately $200,000 in capital-related costs during the first nine months of
1999 to achieve Year 2000 compliance of its information and non-information
technology systems. The Registrant does not expect to incur significant
additional capital-related costs during the balance of 1999 related to Year 2000
compliance.
The Registrant relies significantly on select key vendors of raw materials,
energy, telecommunications and other vital services. The Registrant also
generates significant revenues from various key customers. The Registrant has
surveyed key third parties and has assessed all responses received with regard
to their Year 2000 compliance. The Registrant has received and analyzed
responses from all critical vendors. Substantially all responses from
non-critical vendors have been received and analyzed. No significant issues have
been discovered, but the Registrant has not independently verified the accuracy
of the responses received.
While the Registrant does not believe that the risk of noncompliance by such
third parties is significant, a contingency planning team, made up of key
personnel from the Registrant's corporate operations as well as its operating
locations, has completed a plan to deal with the possible consequences of such
third parties' noncompliance. This plan has numerous provisions, including
modestly increasing the Registrant's inventories of certain key raw materials.
Such an inventory build should allow the Registrant to continue operations for a
limited time should certain key vendors be unable to deliver product to the
Registrant. Also, select operating locations will defer normal maintenance
shutdowns that are usually scheduled late in the calendar year. Such maintenance
shutdowns will coincide with year end, which should help to minimize any
potential impact of noncompliance. In addition, the Registrant's disaster
recovery procedures which are normally in place to recover from storms or other
unforeseen events will also be useful in the event of the inability to operate
under ordinary conditions.
Despite such contingency plans, it is reasonably possible that, in the worst
case, some of the Registrant's key vendors or customers could experience
operational interruptions as a result of non-compliance of their own systems,
vendors and/or customers. As a result, the Registrant may be forced to interrupt
the operation of one or more of its mills or be required to increase its costs
or decrease its selling prices to remain operational. In such an event, the
Registrant's business and results of operations could be materially adversely
affected.
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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 Registrant's condensed consolidated financial
statements.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Cautionary Statement
Any statements set forth herein or otherwise made in writing or orally by the
Registrant with regard to its expectations as to industry conditions and its
financial results, demand for or pricing of its products, environmental matters,
Year 2000 compliance and other aspects of its business may constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Registrant makes such statements based on
assumptions which it believes to be reasonable, there can be no assurance that
actual results will not differ materially from the Registrant's expectations.
Accordingly, the Registrant hereby identifies the following important factors
among others, which could cause its results to differ from any results which
might be projected, forecasted or estimated by the Registrant in any such
forward-looking statements: (i) variations in demand for or pricing of its
products, including variations resulting from the Registrant's announced tobacco
paper price increases, (ii) changes in the cost or availability of raw materials
used by the Registrant, in particular market pulp, pulp substitutes and
wastepaper; (iii) 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; (iv) the gain or loss of
significant customers; (v) 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
issued by EPA and DEP and the costs of natural resource restoration or damages
related to the presence of PCBs in the lower Fox River on which the Registrant's
Neenah mill is located; (vi) significant changes in cigarette consumption, both
domestically and internationally; (vii) enactment of adverse state, federal or
foreign legislation or changes in government policy or regulation; (viii)
adverse results in litigation; (ix) fluctuations in currency exchange rates; (x)
failure of third parties which are material to the Registrant to become Year
2000 compliant thereby interrupting their and the Registrant's business
operations; and (xi) disruptions in production and/or increased costs due to
labor disputes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description of Documents
------ ------------------------
15 Letter in Lieu of Consent Regarding Review
Report of Unaudited Interim Financial
Information
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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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 15, 1999 /s/ R. P. Newcomer
-----------------------------------
R. P. Newcomer
Executive Vice President
and Chief Financial Officer
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INDEX OF EXHIBITS
Number Description of Documents
------ ------------------------
15 Letter in Lieu of Consent Regarding
Review Report of Unaudited Interim
Financial Information
27 Financial Data Schedule
22