<PAGE>
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, 1996
------------------
( ) 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.)
228 South Main Street, Spring Grove, Pennsylvania 17362
- - --------------------------------------------------------------------------------
(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 12, 1996 were 42,527,041.
1
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P. H. GLATFELTER COMPANY
INDEX
<TABLE>
<S> <C>
Part I -- Financial Information
- - -------------------------------
Financial Statements:
Condensed Consolidated Statements of Income and Retained
Earnings -- Three Months and Nine Months Ended
September 30, 1996 and 1995 (Unaudited)......................... 3
Condensed Consolidated Balance Sheets -- September 30, 1996
(Unaudited) and December 31, 1995............................... 4
Condensed Consolidated Statements of Cash Flows -- Nine
Months Ended September 30, 1996 and 1995 (Unaudited)............ 5
Notes to Condensed Consolidated Financial Statements
(Unaudited)..................................................... 6-7
Independent Accountants' Report.................................... 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 9-11
Part II -- Other Information .......................................... 12
- - ----------------------------
Signature.............................................................. 13
- - ---------
Index of Exhibits ..................................................... 14
- - -----------------
Exhibit 11 -- Computation of Net Income Per Share.................... 15
Exhibit 15 -- Letter in Lieu of Consent Regarding Review Report of
Unaudited Interim Financial Information................ 16
Exhibit 27 -- Financial Data Schedule................................ 17
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
-------------------------------
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net sales $ 139,748 $ 160,771 $ 424,770 $ 482,687
Other income -- net
Energy sales -- net 2,156 2,713 6,863 6,657
Interest on
investments and
other -- net 466 339 1,042 968
Gain (loss) from
property
dispositions,
etc., -- net (50) 21 245 1,065
----------- ----------- ----------- -----------
Total 142,320 163,844 432,920 491,377
Costs and expenses
Cost of products sold 109,311 124,210 327,041 375,615
Selling, general and
administrative
expenses 8,960 9,064 27,588 27,899
Interest on debt --
net 2,313 2,475 6,957 7,892
----------- ----------- ----------- -----------
Total 120,584 135,749 361,586 411,406
Income before income
taxes 21,736 28,095 71,334 79,971
Income tax provision
Current taxes 4,640 5,497 14,916 15,255
Deferred taxes 3,859 5,495 12,935 16,074
----------- ----------- ----------- -----------
Total 8,499 10,992 27,851 31,329
Net income 13,237 17,103 43,483 48,642
Retained earnings at
beginning of period 447,069 412,718 431,762 396,635
----------- ----------- ----------- -----------
Total 460,306 429,821 475,245 445,277
Common stock dividends
declared 7,441 7,648 22,380 23,104
----------- ----------- ----------- -----------
Retained earnings at end
of period $ 452,865 $ 422,173 $ 452,865 $ 422,173
=========== =========== =========== ===========
Weighted average number
of common shares
outstanding 42,788,792 44,351,935 42,977,978 44,392,116
Net income per common
share $ .31 $ .39 $ 1.01 $ 1.10
=========== =========== =========== ===========
Dividends declared per
common share $ .175 $ .175 $ .525 $ .525
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
------
<TABLE>
<CAPTION>
9/30/96 12/31/95
(unaudited)
----------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,533 $ 18,864
Marketable securities 111 111
Accounts receivable -- net 53,213 52,052
Inventories:
Raw materials 29,888 25,577
In process and finished products 29,475 30,821
Supplies 32,186 30,680
--------- ---------
Total inventory 91,549 87,078
Prepaid expenses and other current assets 6,682 2,318
--------- ---------
Total current assets 175,088 160,423
Plant, equipment and timberlands -- net 451,278 451,461
Other assets 69,650 61,223
--------- ---------
Total assets $ 696,016 $ 673,107
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 35,436 $ 34,623
Dividends payable 7,441 7,597
Federal, state and local taxes 4,323 235
Accrued compensation, other expenses and deferred
income taxes 36,169 41,553
--------- ---------
Total current liabilities 83,369 84,008
Long-term debt 150,000 150,000
Deferred income taxes 94,162 80,682
Other long-term liabilities 46,796 43,011
Commitments and contingencies
Shareholders' equity:
Common stock 544 544
Capital in excess of par value 41,475 40,921
Retained earnings 452,865 431,762
--------- ---------
Total 494,884 473,227
Less cost of common stock in treasury (173,195) (157,821)
--------- ---------
Total shareholders' equity 321,689 315,406
Total liabilities and shareholders' equity $ 696,016 $ 673,107
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
9/30/96 9/30/95
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 43,483 $ 48,642
Items included in net income not using (providing)
cash:
Depreciation and depletion 25,600 24,699
Gain on disposition of fixed assets (45) (739)
Expense related to employee stock purchase and
401(k) plans 954 700
Change in assets and liabilities:
Accounts receivable (1,161) (10,779)
Inventories (4,471) (2,217)
Prepaid expenses and other assets (12,791) (7,918)
Accounts payable, accrued compensation, other
expenses, deferred income taxes and other
long-term liabilities 1,381 12,648
Federal, state and local taxes 4,088 1,750
Deferred income taxes -- non-current 13,480 13,426
-------- --------
Net cash provided by operating activities 70,518 80,212
-------- --------
Cash Flows from Investing Activities:
Sale of marketable securities and long-term
investments -- 2,861
Proceeds from disposal of fixed assets 93 984
Additions to plant, equipment and timberlands (25,397) (19,282)
Decrease in liabilities related to fixed asset
acquisitions (957) (6,596)
-------- --------
Net cash used in investing activities (26,261) (22,033)
-------- --------
Cash Flows from Financing Activities:
Repayment of short-term debt -- (22,800)
Dividends paid (22,536) (23,184)
Purchases of common stock (18,220) (11,651)
Proceeds from issuance of common stock under employee
stock purchase plans and key employee long-term
incentive plan 1,168 2,254
-------- --------
Net cash used in financing activities (39,588) (55,381)
-------- --------
Net increase in cash and cash equivalents 4,669 2,798
Cash and Cash Equivalents:
At beginning of period 18,864 3,133
-------- --------
At end of period $ 23,533 $ 5,931
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest $ 9,665 $ 10,328
Income taxes 15,278 14,565
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. A reconciliation between the income tax provision computed by applying the
statutory federal income tax rate of 35% to income before income taxes, and
the actual income tax provision follows in thousands:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Federal income tax provision
at statutory rate $7,608 $ 9,833 $24,967 $27,990
State income taxes after
deducting federal income tax
benefit 808 1,249 2,688 3,583
Other 83 (90) 196 (244)
------ ------- ------- -------
Actual income tax provision $8,499 $10,992 $27,851 $31,329
====== ======= ======= =======
</TABLE>
The deferred income tax provisions for the nine-month periods ended
September 30, 1996 and 1995 result from the following temporary differences
(in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
9/30/96 9/30/95
------- -------
<S> <C> <C>
Depreciation $ 8,950 $15,453
Pensions 3,673 3,045
Alternative minimum tax 2,087 (107)
Other (1,775) (2,317)
------- -------
$12,935 $16,074
======= =======
</TABLE>
The provision for deferred income taxes is, in part, estimated based on an
allocation of the appropriate amount relative to the number of months
reported herein and in conformance with existing tax regulations.
2. The number of shares of common stock outstanding decreased by 888,406 in
the first nine months of 1996. This decrease was due to the repurchase of
1,083,573 shares of common stock for the treasury, which more than offset
the delivery of 116,843 treasury shares pursuant to the various employee
stock purchase and 401(k) plans of the Registrant, the delivery of 6,131
treasury shares pursuant to the exercise of stock options under the
Registrant's 1992 Key Employee Long-Term Incentive Plan, and the delivery
of 72,193 treasury shares pursuant to stock awards granted under the
Registrant's 1988 Restricted Common Stock Award Plan. At September 30,
1996, 11,815,074 shares of common stock were held in treasury.
3. The Registrant's Board of Directors has authorized the repurchase in the
open market or in privately negotiated transactions of up to 12,000,000
shares of the Registrant's common stock in the aggregate. Repurchased
shares are added to the treasury and are available for future sale. Under
these authorizations, as of September 30, 1996, the Registrant had
repurchased an aggregate of 11,037,803 shares for a total consideration of
$186,822,126.
4. Pursuant to the Registrant's 1992 Key Employee Long-Term Incentive Plan
(the "Plan"), on May 1, 1996, the Registrant granted to certain key
employees, excluding officers, non-qualified stock options to purchase an
aggregate of 92,000 shares of common stock. Of this amount, stock options
for 82,000 shares of common stock, subject to certain conditions, are
exercisable for 25% of such shares beginning on January 1, 1997 and for an
additional 25% of such shares beginning on January 1 of each of the next
three years. Subject to certain conditions, the remaining 10,000 stock
options became exercisable on November 1, 1996. All 92,000 stock options
expire on April 30, 2006 and were granted at an exercise price of $16.625
per share, representing the fair market value of the Registrant's common
stock on May 1, 1996.
6
<PAGE>
5. 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. In order 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 the Registrant's operations will continue to become more
burdensome and that capital expenditures will continue 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 other paper
companies located in the United States are generally subject to the same
environmental regulations, the Registrant does not believe that its
competitive position in the United States paper industry will be materially
adversely affected by its capital expenditures for, or operating costs of,
pollution abatement facilities for its present mills, any other
environmental-related obligations it may incur or the limitations which
environmental compliance may place on its operations.
The amount and timing of future expenditures for environmental compliance,
clean-up, remediation and personal injury and property damage liability
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. Management'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 financial condition,
results of operations or liquidity, but there can be no assurance that its
reserves will be adequate or that such an effect will not occur at some
future time.
6. In the opinion of the Registrant, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which comprise
only normal recurring accruals) necessary for a fair presentation of the
financial information contained therein. These unaudited condensed
consolidated financial statements should be read in conjunction with the
more complete disclosures contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. The accompanying unaudited
condensed consolidated financial statements have been reviewed by the
Registrant's independent public accountants, Deloitte & Touche LLP, in
accordance with the established professional standards and procedures for
such limited review. No additional adjustments or disclosures were required
as a result of this review.
7
<PAGE>
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, 1996, and the related
condensed consolidated statements of income and retained earnings for the
three-month and nine-month periods ended September 30, 1996 and 1995 and of cash
flows for the nine-months ended September 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management.
We conducted our review 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 review, 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, 1995, and the related consolidated statements of
income and retained earnings and of cash flows for the year then ended (not
presented herein); and in our report dated February 2, 1996, 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, 1995 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 14, 1996
8
<PAGE>
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Any statements set forth below or otherwise made in writing or orally by the
Registrant with regard to its expectations as to financial results 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 which, among others, could
cause its results to differ from any results which might be projected, forecast
or estimated by the Registrant in any such forward looking statements: (i)
variations in demand for its products, (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 the cost 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 or federal legislation or changes in government policy or
regulation; (viii) adverse results in litigation; and (ix) disruptions in
production and/or increased costs due to labor disputes.
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.
<TABLE>
<CAPTION>
Comparison of
Three Months Ended Nine Months Ended
Sept. 30, 1996 and Sept. 30, 1996 and
Sept. 30, 1995 Sept. 30, 1995
------------------------------------------------
(Decrease)
(dollars in thousands)
<S> <C> <C> <C> <C>
Net sales $(21,023) -13.1% $(57,917) -12.0%
Other income -- net (501) -16.3% (540) -6.2%
Cost of products sold (14,899) -12.0% (48,574) -12.9%
Selling, general and
administrative expenses (104) -1.1% (311) -1.1%
Interest on debt (162) -6.5% (935) -11.8%
Income tax provision (2,493) -22.7% (3,478) -11.1%
Net income (3,866) -22.6% (5,159) -10.6%
</TABLE>
NET SALES
- - ---------
The Registrant classifies product sales into two groups: 1) printing papers; and
2) tobacco and other specialty papers. Overall net sales declined $21,023,000,
or 13.1%, in the third quarter of 1996 compared to the third quarter of 1995,
and $57,917,000, or 12.0%, in the first nine months of 1996 compared to the
corresponding period in the prior year. Printing paper net sales for the third
quarter of 1996 decreased $24,064,000, or 20.1%, compared to the corresponding
period in 1995 due to decreased sales volume and average net selling prices of
4.5% and 16.3%, respectively. For the first nine months of 1996 compared to the
first nine months of 1995, printing paper net sales declined $62,295,000, or
17.2%. This decline was a result of decreased sales volume and average net
selling prices of 8.8% and 9.3%, respectively.
Modest deterioration in pricing was noted for printing papers during the third
quarter of 1996 compared to the second quarter of 1996. Price increases for a
few of these same products, however, have successfully been implemented in
October.
A decrease in printing paper demand led to the decline in sales volume in the
third quarter and first nine months of 1996 compared to the corresponding
periods of 1995. Although no unscheduled operating downtime was required during
the third quarter of 1996, approximately seven days of unplanned downtime were
taken at the Registrant's Spring Grove, Pennsylvania mill in the first quarter
of the year. This unplanned downtime was the result of a decrease in printing
paper demand as well as adverse weather conditions. In contrast, during the
first nine months of 1995, no scheduled downtime was taken at any of the
Registrant's mills.
Net sales of tobacco and other specialty papers increased $3,041,000, or 7.4%,
in the third quarter of 1996 compared to the third quarter of 1995. Although
average prices, net of mix impact, for tobacco and other specialty products
remained relatively flat in the third quarter of 1996 compared to the
corresponding period in 1995, net sales volume increased 7.7%. In the
9
<PAGE>
first nine months of 1996, net sales of tobacco and other specialty papers
improved $4,378,000, or 3.6%, over the first nine months of 1995. This
improvement was due to increased average net selling prices and net sales volume
of 2.6% and 1.0%, respectively.
Strong demand for tobacco and other specialty products for the first nine months
of 1996 has allowed the Registrant to enhance margins by enriching product mix.
To meet increased demand for coated specialty papers, the Registrant has added a
third shift to its Spring Grove mill coating operation. The Registrant believes
that customer demand will support this level of production until at least the
end of the year.
The Registrant's export sales increased by approximately $2,100,000 and
$3,600,000 in the third quarter and for the first nine months of 1996,
respectively, compared to the corresponding periods in 1995. These increases
were primarily due to an increase in average net selling prices and sales volume
of tobacco and other specialty products.
Cost of Products Sold
- - ---------------------
The Registrant's gross margin increased from 22.2% for the first nine months of
1995 to 23.0% for the first nine months of 1996. A reduction in the cost of
products sold per ton more than offset the negative impact of lower net selling
prices per ton. The reduction in cost per ton was due primarily to lower costs
for market pulp, pulp substitutes and wastepaper in 1996 versus 1995. These raw
material cost decreases more than offset the unfavorable impact of lower
production during the first nine months of 1996 compared to the corresponding
period of 1995. The Registrant's lower production resulted in higher fixed costs
per ton as fixed costs were absorbed over fewer tons produced.
On a quarterly basis, the Registrant's gross margin of 21.8% for the third
quarter of 1996 was less than the 22.7% gross margin realized in the comparable
quarter of 1995. Although the impact of lower raw material costs continued to
favorably impact the Registrant's gross margin, this impact was more than offset
by significantly lower printing paper net selling prices per ton in the third
quarter of 1996 versus the third quarter of 1995.
The Registrant's third quarter financial results, as compared to other quarters
in the year, are always negatively impacted by planned annual maintenance
shutdowns. This is due to higher maintenance expense and lower production
resulting in higher fixed costs per ton produced. Such shutdowns were taken at
the Registrant's three mills during the third quarters of 1996 and 1995.
Market pulp costs increased modestly effective July 1, 1996 and further
increases were announced for October. It is difficult to determine whether these
higher prices will hold and whether further increases will follow. Higher pulp
costs typically provide an environment conducive to improved prices for printing
papers, which could more than offset the negative impact of higher fiber costs.
Selling, General and Administrative Expenses
- - --------------------------------------------
The Registrant's selling, general and administrative expenses for the third
quarter and first nine months of 1996 were $104,000 and $311,000 less than the
selling, general and administrative expenses for the corresponding periods of
1995. These decreases were primarily the result of lower profit sharing and
incentive expenses, which were partially offset by increased miscellaneous
general and administrative expenses.
Interest on Debt
- - ----------------
The Registrant's interest on debt for the third quarter and first nine months of
1996 was $162,000 and $935,000 less than the corresponding periods of 1995.
Reduced short-term bank borrowings accounted for $53,000 and $677,000 of these
amounts, respectively. Interest on debt was approximately $109,000 and $258,000
less in the third quarter and first nine months of 1996 compared to the
comparable periods in 1995 due to a lower variable interest rate on the
Registrant's interest rate swap agreement which has a total notional principal
amount of $50,000,000. The variable rate on the swap agreement is recalculated
in March and September of each year until the termination of the agreement on
March 1, 1998. Based upon the interest rate recalculation on September 3, 1996,
during the fourth quarter the Registrant's interest on its swap agreement will
be approximately $21,000 less than for the comparable period of 1995. The
Registrant does not anticipate the need for short-term bank borrowings during
the balance of 1996.
Income Tax Provision
- - --------------------
The Registrant's provision for income taxes decreased by $2,493,000 and
$3,478,000 for the third quarter and first nine months of 1996 compared to the
same periods in 1995, primarily due to lower taxable income.
10
<PAGE>
FINANCIAL CONDITION:
- - -------------------
Liquidity:
- - ---------
The Registrant's cash, cash equivalents, and marketable securities increased by
$4,669,000 during the first nine months of 1996. Cash provided by operating
activities of $70,518,000 exceeded cash used in investing activities of
$26,261,000 and cash used in financing activities of $39,588,000. Significant
uses of cash in the first nine months of 1996 were $18,220,000 for purchases of
common stock for the treasury, $22,536,000 for the payment of dividends, and
$26,354,000 for the funding of capital projects.
The Registrant expects to meet all of its near and long-term cash needs,
including the retirement of the $150,000,000 principal amount of its 5 7/8%
notes due March 1, 1998, from a combination of internally generated funds, cash,
cash equivalents, marketable securities, existing bank lines of credit, and if
prudent, long-term debt.
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. In order 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 the Registrant's
operations will continue to become more burdensome and that capital expenditures
will continue 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. The Registrant's
current assessment, after consultation with legal counsel, is that such
expenditures are not likely to have a material adverse effect on its financial
condition, results of operations or liquidity, but there can be no assurance
that its reserves will be adequate or that such an effect will not occur at some
future time.
The Registrant's negotiations with the Wisconsin Department of Natural Resources
("DNR") concerning the presence of polychlorinated biphenyls ("PCBs") in the
lower Fox River and Green Bay continue both within and without the Fox River
Coalition. The Registrant anticipates that before the end of 1997 the DNR and
the United States Fish and Wildlife Service will commence an action against the
parties which have been notified that they are potentially responsible for the
PCBs. The Registrant has a variety of substantive defenses to such an action and
also believes the claims to be barred by the statute of limitations. The
Registrant believes that an amendment to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") may be proposed during the
next Congress which may revive such stale claims.
On August 23, 1996, the Department of the Interior published in the Federal
Register a draft Plan of Assessment for the lower Fox River and Green Bay (the
"Plan") setting out the methodologies for completion of the Natural Resource
Damages Assessment ("NRDA"). Comments on the Plan are due by November 22. The
Registrant intends to comment on the Plan, including portions of the Plan which
the Registrant believes to be incomplete.
On September 16, 1996, the United States District Court for the Western District
of Wisconsin dismissed the Menominee Tribe of Wisconsin's claim for
off-reservation usufructuary rights to natural resources, including the lower
Fox River, which forms the predicate for the Tribe's natural resource damage
claims. The Tribe has moved for reconsideration of that decision and, if the
trial court does not reverse itself, the Tribe may appeal.
11
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
- - -------------------------
During 1990 and again in 1991, the Pennsylvania Department of Environmental
Protection ("DEP") proposed to reissue the Registrant's waste water discharge
permit on terms with which the Registrant does not agree. The Registrant intends
to contest those terms should they be included in the final permit. The
Registrant expects DEP to propose to reissue the permit yet again in the fourth
quarter of 1996. A local environmental group has expressed an intention to
appeal the reissuance of that permit if it is not on terms acceptable to the
group.
Item 6. Exhibits and Reports on Form 8-K
- - ----------------------------------------
(a) Exhibits
--------
<TABLE>
<CAPTION>
Number Description of Documents
------ ------------------------
<S> <C>
11 Computation of Net Income per Share
15 Letter in Lieu of Consent Regarding
Review Report of Unaudited Interim
Financial Information
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
-------------------
None
12
<PAGE>
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 13, 1996 ________________________________
R. P. Newcomer
Senior Vice President, Treasurer
and Chief Financial Officer
13
<PAGE>
INDEX OF EXHIBITS
-----------------
<TABLE>
<CAPTION>
Number Description of Documents
- - ------ ------------------------
<S> <C>
11 Computation of Net Income per Share
15 Letter in Lieu of Consent Regarding Review Report of
Unaudited Interim Financial Information
27 Financial Data Schedule
</TABLE>
14
<PAGE>
EXHIBIT 11
----------
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
-----------------------------------------
Computation of Net Income Per Share
<TABLE>
<CAPTION>
For the 3 Months Ended For the 9 Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Weighted average
number of common and
common share
equivalents:
Common Shares:
Shares
outstanding,
beginning of
period........... 42,646,126 44,064,947 43,435,312 44,199,829
Less shares
purchased for
treasury......... (18,600)(1) (177,850)(2) (744,561)(1) (165,179)(2)
Shares issued:
Employee Stock
Purchase Plans. 226 (3) 913 (4) 22,051 (3) 51,031 (4)
Key Employee
Long-Term
Incentive Plan. 467 (5) 2,814 (6) 3,221 (5) 2,788 (6)
401(k) Plan..... 5,171 (7) -- 27,154 (7) --
Restricted
Common Stock
Award Plan..... -- -- 40,312 (8) --
----------- ----------- ----------- -----------
Total.......... 42,633,390 43,890,824 42,783,489 44,088,469
Common share
equivalents
applicable to
outstanding stock
awards and option
grants .......... 155,402 (9) 461,111 (9) 194,489 (9) 303,647 (9)
----------- ----------- ----------- -----------
Total.......... 42,788,792 44,351,935 42,977,978 44,392,116
Net income............ $13,236,398 $17,102,967 $43,482,624 $48,641,806
Net income per common
share................ $ .31 $ .39 $ 1.01 $ 1.10
=========== =========== =========== ===========
</TABLE>
(1) Weighted average effect of 137,300 common shares repurchased in the third
quarter of 1996 and 1,083,573 common shares repurchased in the first nine
months of 1996.
(2) Weighted average effect of 329,900 common shares repurchased in the third
quarter of 1995 and 565,500 common shares repurchased in the first nine
months of 1995.
(3) Weighted average effect of 20,804 common shares issued from treasury on
September 30, 1996 and 63,236 common shares issued from treasury in the
first nine months of 1996.
(4) Weighted average effect of 42,028 common shares issued from treasury on
September 30, 1995 and 140,611 common shares issued from treasury in the
first nine months of 1995.
(5) Weighted average effect of 2,000 common shares issued from treasury in the
third quarter of 1996 and 6,131 common shares issued from treasury in the
first nine months of 1996.
(6) Weighted average effect of 9,568 common shares issued from treasury in the
third quarter of 1995 and 11,703 common shares issued from treasury in the
first nine months of 1995.
(7) Weighted average effect of 15,276 common shares issued from treasury in the
third quarter of 1996 and 53,607 common shares issued from treasury in the
first nine months of 1996.
(8) Weighted average effect of 72,193 common shares issued from treasury on May
1, 1996.
(9) Weighted average effect of shares subject to outstanding awards under the
Registrant's 1988 Restricted Common Stock Award Plan and weighted average
effect of shares issuable under the Registrant's 1992 Key Employee Long-Term
Incentive Plan.
15
<PAGE>
EXHIBIT 15
LETTER IN LIEU OF CONSENT REGARDING REVIEW REPORT OF UNAUDITED
--------------------------------------------------------------
INTERIM FINANCIAL INFORMATION
-----------------------------
P. H. Glatfelter Company:
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited condensed consolidated
financial statements of P. H. Glatfelter Company and subsidiaries for the
three-month and nine-month periods ended September 30, 1996 and 1995, as
indicated in our report dated October 14, 1996; because we did not perform an
audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, is
incorporated by reference in Registration Statements Nos. 33-24858, 33-25884,
33-37198, 33-49660, 33-53338, 33-54409, 33-62331 and 33-12089 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act, is not considered a part of the Registration Statement
prepared or certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
October 14, 1996
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,533
<SECURITIES> 111
<RECEIVABLES> 55,320
<ALLOWANCES> 2,107
<INVENTORY> 91,549
<CURRENT-ASSETS> 175,088
<PP&E> 1,030,666
<DEPRECIATION> 579,388
<TOTAL-ASSETS> 696,016
<CURRENT-LIABILITIES> 83,369
<BONDS> 150,000
0
0
<COMMON> 544
<OTHER-SE> 321,145
<TOTAL-LIABILITY-AND-EQUITY> 696,016
<SALES> 424,770
<TOTAL-REVENUES> 432,920
<CGS> 327,041
<TOTAL-COSTS> 327,041
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 128
<INTEREST-EXPENSE> 6,957
<INCOME-PRETAX> 71,334
<INCOME-TAX> 27,851
<INCOME-CONTINUING> 43,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,483
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
