<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 June 30, 1998
-------------
( ) 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
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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 August 7, 1998 were 41,993,417.
1
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P. H. GLATFELTER COMPANY
INDEX
Part I - Financial Information
------------------------------
Financial Statements:
Condensed Consolidated Statements of Income and Retained
Earnings - Three Months and Six Months Ended June 30,
1998 and 1997 (Unaudited)......................... 3
Condensed Consolidated Balance Sheets - June 30, 1998
(Unaudited) and December 31, 1997................. 4
Condensed Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1998 and 1997 (Unaudited)... 5
Notes to Condensed Consolidated Financial Statements
(Unaudited)....................................... 6-11
Independent Accountants' Report........................ 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 13-18
Part II - Other Information................................ 19
---------------------------
Signature.................................................. 20
---------
Index of Exhibits.......................................... 21
-----------------
Exhibit 3 - By-Laws as amended on June 24, 1998
Exhibit 15 - Letter in Lieu of Consent Regarding Review
Report of Unaudited Interim Financial
Information
Exhibit 27 - Financial Data Schedule
2
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PART I - FINANCIAL INFORMATION
------------------------------
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
6/30/98 6/30/97 6/30/98 6/30/97
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 183,707 $ 141,935 $ 376,923 $ 284,120
Other income - net
Energy sales - net 2,379 2,500 4,548 4,715
Interest on investments and
other - net (68) 2,036 1,460 3,080
Gain from property
dispositions, etc., - 189 2,178 85 1,903
--------- --------- --------- ---------
Total 186,207 148,649 383,016 293,818
Costs and expenses
Cost of products sold 145,427 114,835 297,714 226,840
Selling, general and
administrative expense 13,634 9,980 26,780 18,877
Interest on debt - net 4,640 5,324 11,063 8,874
--------- --------- --------- ---------
Total 163,701 130,139 335,557 254,591
Income before income taxes 22,506 18,510 47,459 39,227
Income tax provision
Current taxes 6,513 11,738 13,702 16,435
Deferred taxes 2,202 (4,450) 4,639 (1,253)
--------- --------- --------- ---------
Total 8,715 7,288 18,341 15,182
Net income 13,791 11,222 29,118 24,045
Retained earnings at beginning
of period 486,058 467,760 478,073 462,337
--------- --------- --------- ---------
Total 499,849 478,982 507,191 486,382
Common stock dividends decla 7,347 7,374 14,689 14,774
--------- --------- --------- ---------
Retained earnings at end
of period $ 492,502 $ 471,608 $ 492,502 $ 471,608
======== ======== ======== ========
Basic and diluted
earnings per share $ 0.33 $ 0.27 $ 0.69 $ 0.57
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS
------
6/30/98 12/31/97
(unaudited)
--------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,668 $ 66,919
Marketable securities 3,226 155,174
Accounts receivable - net 84,650 50,187
Inventories:
Raw materials 39,209 35,980
In process and finished products 47,436 31,724
Supplies 32,390 33,528
--------- -----------
Total inventory 119,035 101,232
Prepaid expenses and other current
asset 4,547 2,967
--------- -----------
Total current assets 244,126 376,479
Plant, equipment and timberlands - net 619,408 475,189
Other assets 132,953 85,915
--------- -----------
Total assets $ 996,487 $ 937,583
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,806 $ 150,000
Short-term debt 32,539 48,665
Accounts payable 41,019 37,276
Dividends payable 7,347 7,390
Federal, state and local taxes 7,067 5,106
Accrued compensation, other expenses
and deferred income taxes 47,954 41,506
--------- -----------
Total current liabilities 137,732 289,943
Long-term debt 309,989 150,000
Deferred income taxes 124,296 101,995
Other long-term liabilities 73,743 56,287
Commitments and contingencies
Shareholders' equity:
Common stock 544 544
Capital in excess of par value 42,814 42,623
Cumulative translation adjustment (1,216) (1,058)
Retained earnings 492,502 478,073
--------- -----------
Total 534,644 520,182
Less cost of common stock in treasury (183,917) (180,824)
--------- -----------
Total shareholders' equity 350,727 339,358
Total liabilities and
shareholders' equity $ 996,487 $ 937,583
========= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
6/30/98 6/30/97
--------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 29,118 $ 24,045
Items included in net income not using
(providing) cash:
Depreciation and depletion 23,688 18,150
Loss (gain) on disposition of fixed assets 92 (2,151)
Expense related to employee stock purchase and
401(k) plans 865 709
Change in assets and liabilities:
Accounts receivable (7,140) (2,068)
Inventories 12,798 (1,106)
Prepaid expenses and other assets (8,756) (4,023)
Accounts payable, accrued compensation and
other expenses, deferred income taxes
and other long-term liabilities (6,379) (815)
Federal, state and local taxes (5,719) 2,302
Deferred income taxes - non-current 4,718 (949)
--------- ------------
Net cash provided by operating activities 43,285 34,094
--------- ------------
Cash Flows from Investing Activities:
Sale/maturity of marketable securities and
long-term investments - net 155,033 (4,302)
Proceeds from disposal of fixed assets 32 3,634
Additions to plant, equipment and timberlands (19,029) (20,922)
Increase (decrease) in liabilities related to
fixed asset acquisitions 30 (2,119)
Acquisition of S&H - net of cash acquired (147,491) -
--------- ------------
Net cash used in investing activities (11,425) (23,709)
--------- ------------
Cash Flows from Financing Activities:
Issuance of subsidiary's preferred stock to others - 150,100
Net borrowing of short-term debt 22,669 -
Net payment of other long-term debt (21,993) -
Repayment of 5-7/8% Notes (150,000) -
Acquisition-related borrowings 101,500 -
Decrease in preferred stock of subsidiary - (3,133)
Deposit into trust to defease certain covenants
of current portion of long-term debt - (150,351)
Dividends paid (14,733) (14,844)
Purchases of common stock (4,344) (8,600)
Proceeds from issuance of common stock under
employee stock purchase plans and key
employee long-term incentive plan 575 873
--------- ------------
Net cash used in financing activities (66,326) (25,955)
--------- ------------
Effect of exchange rate changes on cash 215 4
Net increase (decrease) in cash and cash equivalents (34,251) (15,566)
Cash and Cash Equivalents:
At beginning of period 66,919 31,802
--------- ------------
At end of period $ 32,668 $ 16,236
======== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest $ 12,303 $ 4,871
Income taxes 19,262 14,572
</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. 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 Schoeller and Hoesch Group from RQPO Beteiligungs GmbH & Co.
Papier KG ("RQPO") and EVOBESTRA Vermogensverwaltungsgesellschaft mbH, for
DM 270 million (approximately $150 million), subject to certain
adjustments, in cash. The principal partners in RQPO were Deutsche
Beteiligungs AG and S&H management. The Registrant accounted for the S&H
acquisition under the purchase method of accounting and S&H is consolidated
with the Registrant beginning in January 1998.
S&H was founded in 1881 in Gernsbach, Germany, where its corporate offices
and major paper production facilities are located. S&H produces a range of
paper products, including tea bag and other long fiber products such as
stencil, filter and casing paper, as well as tobacco papers, metalizing
papers and printing papers. S&H has an abaca pulpmill in the Philippines
and other facilities in France and the United States. S&H also has a 50%
ownership interest in a paper mill in Odet, France. As of June 30, 1998,
minority interest of $9,493,000 associated with this subsidiary is
classified as "Other long-term liabilities" on the Registrant's Condensed
Consolidated Balance Sheet.
The purchase price of S&H, including certain transaction costs, was
allocated to the assets acquired and liabilities assumed based upon their
fair values at the date of acquisition. The excess of the purchase price
over the fair value of net assets acquired was recorded principally as
goodwill and will be amortized on a straight-line basis over 20 years.
The following summarized unaudited combined pro forma information of the
Registrant for the quarter and six months ended June 30, 1997 is presented
as if the S&H acquisition had occurred on January 1, 1997. This unaudited
pro forma information is based on the historical results of operations
adjusted for acquisition costs and is not necessarily indicative of what
the results would have been had the Registrant operated S&H since January
1, 1997. Pro forma combined net sales, net income and both basic and
diluted earnings per share of the Registrant would have been $185,835,000,
$12,705,000 and $0.30, respectively, for the quarter ended June 30, 1997
and $373,949,000, $27,079,000 and $0.64, respectively, for the six months
ended June 30, 1997.
2. 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 Six Months Ended
6/30/98 6/30/97 6/30/98 6/30/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
Federal income tax provision
at statutory rate $7,877 $6,478 $16,611 $13,729
State income taxes
after deducting federal
income tax benefit 527 512 1,147 1,152
Non-US tax rate differences 504 34 793 37
Other (193) 264 (210) 264
------- ------- ------- -------
Actual income tax provision $8,715 $7,288 $18,341 15,182
====== ====== ======= =======
</TABLE>
The deferred income tax provisions for the six-month periods ended June 30, 1998
and 1997 result from the following temporary differences (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
6/30/98 6/30/97
-------- ---------
<S> <C> <C>
Depreciation $ 3,127 $ (2,410)
Pensions 2,805 2,186
Alternative minimum tax - 1,168
Other (1,293) (2,197)
-------- ---------
Deferred income tax provision $ 4,639 $ (1,253)
======== =========
</TABLE>
6
<PAGE>
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. The
deferred income tax provisions reflect the impact of any audits by federal
and state authorities.
3. The number of shares of common stock outstanding decreased by 165,682 in
the first six months of 1998. This decrease was due to the repurchase of
250,000 shares of common stock for the treasury, which more than offset the
delivery of 81,218 treasury shares pursuant to the various employee stock
purchase and 401(k) plans of the Registrant and the delivery of 3,100
treasury shares pursuant to the exercise of stock options under the
Registrant's 1992 Key Employee Long-Term Incentive Plan. At June 30, 1998,
12,378,054 shares of common stock were held in treasury.
4. 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 for the purpose of
enhancing shareholder value. Repurchased shares are added to the treasury
and are available for future sale. Under this authorization, as of June
30, 1998, the Registrant had repurchased an aggregate of 11,993,553 shares
for a total consideration of $203,317,000.
5. In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 requires a dual presentation of basic and
diluted earnings per share on the face of the Registrant's consolidated
statement of income and a reconciliation of the computation of basic
earnings per share to diluted earnings per share. Basic earnings per share
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 earnings per share includes the
effect of potential dilution from the exercise of outstanding common stock
equivalents into common stock using the treasury stock method. Concurrent
with the adoption, all prior years' earnings per share information has been
restated, resulting in no material differences. A reconciliation of the
Registrant's basic and diluted earnings per share follows:
<TABLE>
<CAPTION>
Dollar and Share Amounts in Thousands
---------------------------------------------------------------
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
--------------- --------------- --------------- ---------------
Shares Shares Shares Shares
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Basic earnings per
share factors 41,998 42,193 42,073 42,294
Effect of potentially
dilutive employee
incentive plans:
Restricted stock
awards 16 31 21 36
Performance stock
awards 126 96 126 96
Employee stock
options 22 18 27 20
----------- ----------- ----------- -----------
Diluted earnings per
share factors 42,162 42,338 42,247 42,446
=========== =========== =========== ===========
Net Income $ 13,791 $ 11,222 $ 29,118 $ 24,045
Basic and diluted
earnings per share $0.33 $0.27 $0.69 $0.57
</TABLE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). This statement, which establishes standards for
reporting
7
<PAGE>
and disclosure of comprehensive income, is effective for interim
and annual periods beginning after December 15, 1997. Reclassification of
financial information for earlier periods presented for comparative
purposes is required under SFAS No. 130. As this statement only requires
additional disclosures in the Registrant's consolidated financial
statements, its adoption does not have any impact on the Registrant's
consolidated financial position or results of operations. The Registrant
adopted SFAS No. 130 effective January 1, 1998. As a result, due to
changes in certain foreign currencies relative to the US Dollar,
comprehensive income would have been $12,395,000 and $11,190,000 for the
second quarter of 1998 and 1997, and $28,960,000 and $23,853,000 for the
first six months of 1998 and 1997, respectively.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"). This statement,
which establishes standards for the reporting of information about
operating segments and requires the reporting of selected information about
operating segments in interim financial statements, was adopted by the
Registrant on January 1, 1998. Disclosure of segment and other related
information is not required in interim periods of the first year of the
Registrant's adoption. The Registrant will provide appropriate SFAS 131
disclosures for the year ended December 31, 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS No. 132"). This
statement, which revises certain disclosure requirements for the
Registrant's pension assets and obligations, is effective for fiscal
periods beginning after December 15, 1997. Restatement of prior years'
information is required, where available. As this statement only requires a
change in methods of disclosure and not any changes in accounting methods,
it will not have any impact on the Registrant's consolidated financial
position or results of operations. Interim reporting periods are not
affected by this statement. The Registrant adopted SFAS No. 132 effective
January 1, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). 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. It
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. This statement is effective for fiscal years
beginning after June 15, 1999, although early adoption is encouraged. The
Registrant does not believe that adoption will have a material impact on
its consolidated financial position or results of operation.
6. To finance the acquisition of S&H Papier-Holding GmbH ("S&H"), on December
22, 1997, the Registrant entered into a $200 million 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 million 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.
On December 30, 1997, the Registrant borrowed DM 87,500,000 (approximately
$48,665,000) under the Revolving Credit Facility at a three-day rate of
5.075%. These proceeds were used to capitalize two German subsidiaries in
order to facilitate the S&H acquisition and are included in "Cash and cash
equivalents" on the December 31, 1997 Condensed Consolidated Balance Sheet.
The borrowings are classified as "Short-term debt" on the Condensed
Consolidated Balance Sheet as of December 31, 1997.
8
<PAGE>
On January 2, 1998, the Registrant borrowed an additional DM 182,500,000
(approximately $101,500,000) necessary to complete the acquisition and
classified the aggregate borrowings under the Revolving Credit Facility as
long-term. To offset some of the variable rate characteristics of the
total borrowing under the Revolving Credit Facility, effective in January
1998, the Registrant entered into two interest rate swap agreements, each
having total notional principal amounts of DM 52,600,000 (approximately
$29,100,000 as of June 30, 1998). 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"). The six-month DM LIBOR applicable for
the first half of 1998 was approximately 3.8%. The six-month DM LIBOR
applicable for the second half of 1998 will be approximately 3.7%.
7. On April 22, 1998, the Registrant's Board of Directors approved a non-
qualified stock option program under which each non-employee director is
granted options to purchase 1,500 shares of common stock of the Registrant
on each May 1 on which the individual serves as a director of the
Registrant. Such options are exercisable no earlier than one year from the
date of grant and generally expire on the earlier of five years subsequent
to retirement from the Registrant's Board of Directors or ten years after
the date of grant. The exercise price is calculated as the average of the
high and low selling price of the Registrant's common stock on the open
market on the date of grant, which, on May 1, 1998 was $18.3125. On May 1,
1998, options to purchase 13,500 shares of common stock were granted under
this program.
8. 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 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 or the limitations which environmental compliance may
place on its operations.
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. In addition,
the Wisconsin Department of Natural Resources ("DNR") has reissued in draft
the Registrant's wastewater discharge permit for the Neenah mill on terms
which are acceptable to the Registrant but as to which certain local
residents have objected. The Registrant cannot determine the impact that
the new permits will have on the Registrant if they contain objectionable
terms because it is too soon to determine what material terms will be in
the permits' final forms.
The Registrant, along with six other companies which operate or formerly
operated facilities along the Fox River in Wisconsin, has been in
discussions with the Wisconsin DNR and the United States Fish and Wildlife
Service ("USFWS") regarding 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.
9
<PAGE>
On January 30, 1997, the Registrant and six other companies entered into an
agreement with the State of Wisconsin (the "Wisconsin Agreement") which was
intended to establish a framework for the final resolution of claims for
natural resources damages and other relief which the State asserts against
the companies. Under the agreement, the companies will provide in the
aggregate $10 million in work and funds to facilitate natural resources
damages assessment activities, including, among other things, modeling and
risk assessment, as well as field scale demonstration of sediment dredging
and the enhancement of certain environmental amenities. The State has
indicated that the $10 million in work and funds is expected to be spent
over a four year period although the bulk of the amount may be spent in
1998. The final allocated portion of the $10 million which the Registrant
is required to pay is unknown at present. The State has agreed to act as
"lead authorized official" under federal law for purposes of any assessment
of damages to natural resources within Wisconsin, except those within the
administrative jurisdiction of a federal agency. The USFWS, together with
the National Oceanic and Atmospheric Administration and two Indian tribes,
however, is conducting its own assessment despite the State's status. In
general, the parties to the Wisconsin Agreement have agreed to toll all
limitations periods and to forbear from litigation during the term of the
agreement. The parties intend to conclude a final resolution of all of the
State's claims during the course of, or after completion of, the work
called for by the agreement.
By letter dated January 31, 1997, and received by the Registrant on
February 3, 1997, the USFWS provided 60 days' notice of the intention of
the United States Departments of the Interior and Commerce to commence an
action for natural resources damages against the Registrant and the six
other companies referred to above similarly relating to the discharge of
hazardous substances into the lower Fox River. The Registrant does not
know the amount which the federal trustees will claim as natural resources
damages, but the Registrant believes that it will be substantial.
Beginning as of March 1, 1997, the Registrant and six other companies
entered into a series of agreements with the United States which provided
that all limitation periods were tolled and the parties would forbear from
litigation; the last tolling and forbearance period expired on December 2,
1997.
On July 11, 1997, the Wisconsin DNR, the United States Department of the
Interior, the Menominee Indian Tribe of Wisconsin, the Oneida Tribe of
Indians of Wisconsin, the National Oceanic and Atmospheric Administration
and the United States Environmental Protection Agency ("EPA") 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, all of which are
identified as potentially responsible parties.
The EPA has proposed to include the Fox River/Green Bay site on the
National Priorities List maintained pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act. EPA rejected the
potentially responsible parties' offer to perform a remedial investigation
and feasibility study ("RI/FS") for the site and the Wisconsin DNR will
perform the RI/FS. The Registrant believes that this development increases
the likelihood that this matter will end up in litigation. The Registrant
cannot now predict the cost of the remedy which will be selected for the
site, in part because the Registrant cannot predict the remedy for the site
and the Registrant cannot predict its share of that cost.
The Registrant, with advice from its environmental consultants, continues
to believe that an aggressive effort, as currently proposed by the
governmental
10
<PAGE>
authorities, to remove PCB contaminated sediments, many of which are buried
under cleaner material or are otherwise unlikely to move, would be
environmentally detrimental and therefore inappropriate. Furthermore, the
Registrant's share of the cost of such removal, depending on the amount of
sediments to be removed, could exceed its available resources. The
Registrant believes it will be able to persuade the parties to the MOA or a
court against removal of a substantial amount of PCB contaminated
sediments. 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 or that
its share of the cost of any such removal would not have a material adverse
effect on the Registrant's consolidated financial condition, liquidity or
results of operation.
The amount and timing of future expenditures for environmental compliance,
clean up, remediation and personal injury and property damage liability,
including but not limited to those related to the lower Fox River and the
Bay of Green Bay, cannot be ascertained with any certainty due to among
other things, the unknown extent and nature of any contamination, the
extent and timing of any technological advances for pollution 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, its share of the agreement reached with the State regarding the
lower Fox River and the Bay of Green Bay, its negotiations with the State
concerning those areas and the unknown amount which could be claimed by the
federal trustees as natural resource damages related to the lower Fox
River. 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 from 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.
9. In the opinion of the Registrant, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which comprise
only normal recurring accruals) necessary for a fair presentation of the
financial information contained therein. These unaudited condensed
consolidated financial statements should be read in conjunction with the
more complete disclosures contained in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997. Certain reclassifications
have been made of previously reported amounts in order to conform with
classifications used in the current year.
11
<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 June 30, 1998, and the related
condensed consolidated statements of income and retained earnings for the three-
month and six-month periods ended June 30, 1998 and 1997, and cash flows for the
six-month periods ended June 30, 1998 and 1997. 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, 1997, and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated February 6, 1998, 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, 1997 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
July 17, 1998
12
<PAGE>
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
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
Schoeller and Hoesch Group, from RQPO Beteiligungs GmbH & Co. Papier KG ("RQPO")
and EVOBESTRA Vermogensverwaltungsgesellschaft mbH, for approximately DM 270
million ($150 million), subject to certain adjustments, in cash. The principal
partners in RQPO were Deutsche Beteiligungs AG and S&H management. The
Registrant has accounted for the S&H acquisition under the purchase method of
accounting and S&H is consolidated with the Registrant beginning in January
1998. As a result, certain changes from year to year are a result of the
acquisition and not necessarily a change in comparable results of operations.
Where appropriate, those variances have been highlighted. The entities which
were owned by the Registrant during 1997 and whose results of operations can be
compared from year to year are referred to as "Non-S&H" operations.
RESULTS OF OPERATIONS
- ---------------------
A summary of the period-to-period changes in the principal items included in the
Condensed Consolidated Statements of Income and Retained Earnings is shown
below.
<TABLE>
<CAPTION>
Comparison of
------------------------------------------
Three Months Ended Six Months Ended
June 30, 1998 and June 30, 1998 and
30-Jun-97 30-Jun-97
------------------ ------------------
Increase (Decrease)
(dollars in thousands)
<S> <C> <C> <C> <C>
Net sales 41,772 29.4 % 92,803 32.7 %
Other income - net (4,214) (62.8)% (3,605) (37.2)%
Cost of products sold 30,592 26.6 % 70,874 31.2 %
Selling, general and
administrative expenses 3,654 36.6 % 7,903 41.9 %
Interest on debt (684) (12.8)% 2,189 24.7 %
Income tax provision 1,427 19.6 % 3,159 20.8 %
Net income 2,569 22.9 % 5,073 21.1 %
</TABLE>
Net Sales
- ---------
Overall net sales increased $41,772,000, or 29.4%, in the second quarter of 1998
as compared to the second quarter of 1997. For the first six months of 1998,
total net sales increased by $92,803,000, or 32.7% as compared to the first six
months of 1997. The primary reason for this increase was S&H's net sales of
$41,751,000 and $84,664,000 during the second quarter and first half of 1998,
respectively.
The Registrant classifies its product sales into two product groups: 1)
printing papers; and 2) tobacco and other specialty papers. Total net printing
papers sales increased by $5,943,000 and $15,722,000 during the second quarter
and first six months of 1998 as compared to the corresponding periods of the
prior year, respectively. Non-S&H operations' printing papers net sales
increased $3,628,000, or 4.1%, in the second quarter of 1998 compared to the
second quarter of 1997 as average net selling price and net sales volume
increased by 3.6% and 0.5%, respectively. Non-S&H operations' printing papers
net sales also increased during the first six months of 1998 as compared to the
same period in 1997 by 6.5%, as
13
<PAGE>
average net selling price and net sales volume also increased by 4.2% and 2.3%,
respectively.
Although the quarterly and year-to-date 1998 sales volume for Non-S&H
operations' printing papers exceeded 1997 levels, the Registrant's incoming
order patterns have been erratic. As a result, the Registrant has taken the
equivalent of one day of market related downtime at its Spring Grove,
Pennsylvania facility during the first six months of 1998. No such downtime was
taken in 1997.
The current Asian economic crisis has led to the import of paper into the United
States which has negatively impacted demand for the Registrant's printing
papers. The uncertainty of this situation makes it difficult to forecast the
balance of 1998; however, the Registrant believes that its printing papers will
be subject to increased pricing pressure during the third quarter of 1998. To
date, during the third quarter of 1998, the Registrant has taken the equivalent
of 4 and 2 days of market-related downtime at its Spring Grove and Neenah,
Wisconsin facilities, respectively.
Net sales of tobacco and other specialty papers for the three and six month
periods ending June 30, 1998 were $35,829,000 and $77,081,000 higher,
respectively, versus the prior year comparable periods. These increases were
primarily the result of net sales of tobacco and other specialty papers by S&H
operations during 1998.
The Registrant's Non-S&H operations' tobacco and other specialty papers net
sales for the second quarter of 1998 decreased by 6.8% versus the corresponding
1997 period. A 5.3% decrease in sales volume was compounded by a decrease in
average net selling price of 1.6%. For the first six months of 1998, the
decrease of 3.1% in net sales of tobacco and other specialty papers in Non-S&H
operations was due to a decrease in sales volume of 3.5% resulting from
slackening demand, modestly offset by an increase in average net selling price
of 0.4%.
Net sales of other specialty papers for Non-S&H operations decreased by 13.2% in
the second quarter of 1998 compared to the second quarter of 1997 and 9.7% in
the six months ended June 30, 1998 compared to the same period of 1997. This
decrease was due primarily to an unfavorable change in the mix of other
specialty papers sold exacerbated by a lower volume of such products. The
average net selling prices of other specialty papers was slightly lower in the
1998 periods compared to the corresponding 1997 periods. Through development of
other technically engineered papers, including those produced on the gravure
coater, the Registrant is striving to improve its product mix and increase its
sales volume of other specialty papers.
Non-S&H operations' net sales of tobacco papers decreased by 6.8% and 3.1% for
the second quarter and first half of 1998, respectively, as compared to the same
periods of 1997. The Registrant believes current excess worldwide tobacco paper
capacity will lead to difficult market conditions in the near term. An increase
in tobacco paper capacity in China has caused that country to become
significantly less dependent on imported tobacco papers. As a result, China is
purchasing fewer tons of tobacco papers from European and US producers resulting
in mounting pricing pressure worldwide. In addition, the strong dollar is
making it difficult for the Registrant's Ecusta Division to competitively price
its products in the international marketplace. The Registrant anticipates that
negotiations with some of its customers will result in lower average net selling
prices for certain of these products starting in the second half of 1998.
Although the magnitude of such selling price reductions is unknown, the
Registrant believes the impact could be significant.
In response to the difficult tobacco papers market conditions, the Registrant
has announced plans to reduce the Ecusta Division's salaried and hourly
workforce. The Registrant has offered the Division's active eligible salaried
employees, age 55 and older, a voluntary early retirement enhancement program.
Under this program, the Registrant estimates an annual salaried cost savings of
$3.5 million and a one-time expense of $2.2 million; however, the amount of
annual cost savings and one-time expense will be impacted by the level of
salaried employee participation and other factors. The cost savings, one-time
expense and nature of workforce reductions for hourly employees will depend upon
the outcome of
14
<PAGE>
negotiations that are scheduled with representatives of the Local 1971 of the
United Paperworkers' International Union.
In addition to market-related downtime, normal annual maintenance shutdowns have
been taken in July at all of the Registrant's domestic facilities. These outages
will have a negative impact on third quarter results versus the results achieved
in the previous quarters of 1998.
Other Income - Net
- ------------------
The Registrant's other income - net, including interest income, decreased
$4,214,000, or 62.8% for the second quarter of 1998 and $3,605,000, or 37.2%,
for the first six months of 1998, compared to the corresponding periods of 1997.
Interest income - net was $2,104,000 lower in the second quarter of this year
versus the second quarter of 1997 and $1,620,000 lower in the first half of this
year versus the first half of 1997. In 1997, the Registrant established a trust
to defease certain covenants of its $150,000,000 principal amount of 5-7/8%
Notes. All of the funds were paid out of the trust on March 2, 1998. Because
the trust was in place for a longer period of time in the first half of 1997
versus the first half of 1998, the Registrant recognized $2,081,000 more
interest income during the second quarter of 1997 compared to the second quarter
of 1998 and $1,555,000 more interest income during the first six months of 1997
compared to the first six months of 1998.
Gain from property dispositions, etc. - net decreased $1,989,000 and $1,818,000
for the three and six months ending June 30, 1998, respectively, compared to the
like periods of 1997. During the second quarter of 1997, the Registrant
completed the sale of a parcel of recreational property near its Pisgah Forest,
North Carolina mill which resulted in a pre-tax gain of approximately
$2,200,000. No significant property dispositions occurred during the first six
months of 1998.
Cost of Products Sold
- ---------------------
The Registrant's cost of products sold increased by $30,592,000, or 26.6% for
the second quarter of 1998 versus the second quarter of 1997 and increased by
$70,874,000, or 31.2% for the first half of 1998 versus the like period in 1997.
This increase was primarily due to S&H operations' incremental production
volume. Non-S&H operations' cost of products sold per ton were 1.8% lower
during the second quarter of 1998 as compared to the corresponding prior year
period and 0.4% higher during the first six months of 1998 as compared to the
first half of 1997. Since net sales per ton were 0.7% and 1.8% higher for the
same respective periods, Non-S&H operations experienced an increase in gross
margin per ton of 11.9% and 7.2% for the second quarter and the first six months
of 1998, respectively, as compared to the like periods in 1997. These increases
were principally a result of productivity improvements, particularly at the
Registrant's Neenah, Wisconsin facility. A significant component of the
Registrant's cost of products sold is its cost for market pulp. The cost of
market pulp, on average, during both the second quarter and the first half of
1998 was somewhat lower than during the same periods of 1997. The cost of
wastepaper increased during the second quarter and first six months of 1998
compared to 1997. The Registrant has been able to mitigate this increase in
cost by using a higher percentage of lower cost, lower quality wastepaper at its
Neenah facility.
The current pulp markets are similarly being impacted by the weak market
conditions currently confronting the Registrant's paper products. The
Registrant believes that market pulp prices will remain under pressure for the
balance of 1998.
Selling, General and Administrative Expenses
- --------------------------------------------
The Registrant's selling, general and administrative expenses for the second
quarter of 1998 were $3,654,000 or 36.6% higher than for the comparable period
of 1997 and $7,903,000, or 41.9% higher in the first six months of 1998 versus
the same period of 1997. This increase was principally due to the incremental
selling, general and administrative expenses of S&H included in the 1998
results.
15
<PAGE>
The S&H operations have higher selling, general and administrative expenses as a
percentage of sales than the Non-S&H operations. Selling, general and
administrative expenses for Non-S&H operations for the second quarter and first
half of 1998 were comparable to the corresponding periods of the prior year.
Interest on Debt - net
- ----------------------
The Registrant's interest on debt for the second quarter of 1998 was $684,000,
or 12.8% lower than for the comparable period of 1997. Although the
Registrant's average borrowings during the second quarter of 1998 were higher
than the average borrowings during the second quarter of 1997, the 1997
borrowings included the $150,000,000 of step-down preferred stock issued by a
subsidiary of the Registrant which yielded a high effective interest rate. This
higher interest rate more than offset the effect of lower borrowings during the
second quarter of 1997. The step-down preferred stock was redeemed in July,
1997.
The Registrant's interest on debt - net for the first six months of 1998 was
$2,189,000, or 24.7% higher than for the first half of 1997. The primary reason
for this increase was the Registrant's net borrowing level during the first
quarter of 1998 as compared to the first quarter of 1997, in part due to the
borrowings of approximately $150,000,000 to finance the acquisition of S&H.
Income Tax Provision
- --------------------
The Registrant's income tax provision increased by $1,427,000, or 19.6% for the
second quarter of 1998 versus the second quarter of 1997 and increased by
$3,159,000, or 20.8% for the first half of 1998 compared to the first half of
1997. These increases were primarily due to increased earnings as a result of
the acquisition of S&H.
FINANCIAL CONDITION
- -------------------
Liquidity
- ---------
The Registrant's cash and cash equivalents decreased by $34,251,000 during the
first six months of 1998. Net cash provided by operating activities of
$43,285,000 was more than offset by cash used in investing and financing
activities of $11,425,000 and $66,326,000, respectively. Significant cash
activities during the first half of 1998 included the liquidation of
$154,407,000 of securities held in trust to repay the principal amount of the
Registrant's 5-7/8% $150,000,000 Notes and related interest on March 2, 1998 and
the borrowing of approximately $101,500,000 to finance part of the purchase
price for the Registrant's acquisition of S&H. Other significant cash payments
included dividends of $14,733,000, expenditure of $19,029,000 on plant,
equipment and timberlands and the repurchase of 250,000 shares of common stock
for the treasury at an aggregate purchase price of $4,344,000, the purpose of
which was to enhance shareholder value.
To finance the S&H acquisition, the Registrant entered into a $200 million
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 million 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 June 30, 1998 the Registrant
owed DM 274,800,000 (approximately $152,000,000) under this agreement. The
Registrant is in compliance with all covenants of the Revolving Credit
Agreement.
16
<PAGE>
To offset some of the variable rate characteristics of the total borrowing under
the Revolving Credit Facility, effective in January 1998, the Registrant entered
into two interest rate swap agreements, each having total notional principal
amounts of DM 52,600,000 (approximately $29,100,000). 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 based on the six-month DM
London Interbank Offered Rate ("LIBOR"). The six-month DM LIBOR applicable for
the first half of 1998 was approximately 3.8%. Until the applicable six-month
DM LIBOR rate is greater than the respective fixed rate, the Registrant will be
a net payer under each of these agreements. The amount of interest expense
incurred under these two swap agreements during the first half of 1998 was
approximately DM 133,000 (approximately $73,000).
On July 22, 1997, the Registrant issued $150,000,000 principal amount of its 6-
7/8% Notes. These Notes will mature on 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 Company. Interest on the Notes is payable semiannually on January 15 and
July 15 of each year.
The Registrant expects to meet all its near-term cash needs from a combination
of internally generated funds, cash, cash equivalents, marketable securities and
the Revolving Credit Facility or other bank lines of credit.
Capital Resources
- -----------------
The Registrant has approved a $6 million capital project to modify a paper
machine at S&H's Gernsbach, Germany facility. The modification is expected to
provide additional capacity to produce tea bag paper and other long fiber
papers, as well as ultra porous plug wrap papers, which are used in the tobacco
industry.
The Registrant has invested approximately $20,000,000 in capital expenditures
for the first six months of 1998. One of the Registrant's short-term objectives
is an aggressive emphasis on cash generation to reduce its current debt level.
The Registrant intends to critically evaluate its capital expenditure needs to
help in meeting this objective.
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.
During 1997, 1996 and 1995, the Registrant incurred approximately $14,800,000,
$15,200,000 and $14,600,000, 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 State
of Wisconsin regarding natural resources restoration and damages 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 cost
of such restoration and damages is presently unknown but could be substantial
and perhaps exceed the Registrant's available resources as discussed in Note 8
to the Registrant's condensed consolidated financial statements. 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 consolidated financial condition or liquidity, but could have a
material adverse effect on the Registrant's consolidated results from operations
in a given year; however, there can be no assurance that the Registrant's
reserves will be adequate or that a
17
<PAGE>
material adverse effect on the Registrant's consolidated financial condition or
liquidity will not occur at some future time.
YEAR 2000
- ---------
The Registrant continues to make progress in achieving Year 2000 compliance. It
is on schedule to be fully compliant for its internally developed business
systems by the end of the first quarter of 1999. Nearly all of the Company's
business systems have been developed internally. Internal information
technology personnel have completed the assessment of those systems and are
making revisions. The Company has not hired any external consultants or
incurred any additional costs for this portion of the Year 2000 project other
than normal wage, benefit and related costs for its normal complement of
information systems personnel. The Company's use of its own information
systems personnel to make the business systems Year 2000 compliant has and will
continue to delay some other strategic information systems development and
implementation which would have otherwise benefited the Company in various ways
and to varying extents. The Company does not believe that it will be at a
competitive disadvantage as a result of these delays.
The inventory phase of computer process control equipment is completed and the
assessment phase of such equipment is nearly complete. Results to date are
encouraging. The Registrant believes that some costs will be incurred to make
certain process control equipment Year 2000 compliant but those costs should not
be material based upon results to date. The Registrant's current plan provides
that the modifications to and subsequent tests of these systems will be
completed by the end of the first quarter of 1999. The Registrant continues to
make inquiries of its vendors, professional advisors and other constituents
whose Year 2000 compliance is important to its ongoing business. Based upon
limited preliminary information received by the Registrant, no significant
issues have been disclosed. In the event that any of the Registrant's
significant suppliers or customers do not successfully achieve Year 2000
compliance on a timely basis, the Registrant's business and operations could be
materially adversely affected.
OTHER COMPREHENSIVE EXPENSE
- ---------------------------
Due to certain exchange rate changes in the functional currencies of foreign
subsidiaries relative to the reporting currency of the Registrant, the U.S.
Dollar, the Registrant's other comprehensive expense was $1,396,000 and $32,000
for the second quarter of 1998 and 1997, respectively and $158,000 and $192,000
for the six month period ending June 30, 1998 and 1997, respectively.
BARGAINING UNIT LABOR AGREEMENT
- -------------------------------
On July 1, 1998, the Spring Grove mill bargaining unit employees agreed to the
terms of a new 5-year contract that will expire on January 16, 2003. The new
agreement calls for wage increases of 3% per year and contributions by the
employees toward the cost of their healthcare benefits. In addition, as of
January 1, 1999, the Spring Grove bargaining unit employees will be entitled to
participate in a 401(k) plan, subject to certain restrictions, in lieu of the
employee stock purchase plan which will be phased out concurrently.
18
<PAGE>
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 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, (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, 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 material third parties 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.
Shareholder Proposals
If any shareholder wishes to present a proposal to the 1999 annual meeting of
shareholders that is not included in the Registrant's proxy statement relating
to such meeting and fails to submit such proposal to the Secretary of the
Registrant on or before January 27, 1999, then the Registrant will be allowed to
use its discretionary voting authority when the proposal is raised at the annual
meeting, without any discussion of the matter in its proxy statement
Item 6. Exhibits
- -----------------
(a) Exhibits
--------
Number Description of Documents
------ ------------------------
3 By-Laws as amended on June 24, 1998
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
19
<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: August 13, 1998
R. P. Newcomer
Executive Vice President
and Chief Financial Officer
20
<PAGE>
INDEX OF EXHIBITS
-----------------
Number Description of Documents
------ ------------------------
3 By-Laws as amended on June 24, 1998
15 Letter in Lieu of Consent Regarding
Review Report of Unaudited Interim
Financial Information
27 Financial Data Schedule
21
<PAGE>
Exhibit 3
As amended by the Board of
Directors at a meeting
held June 24, 1998
P. H. GLATFELTER COMPANY
BY-LAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS AND RECORD DATE
1.1 ANNUAL MEETING. An annual meeting of shareholders for the
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on the fourth Wednesday in April of each
year at 10:00 A.M. If the day fixed for the meeting is a legal holiday, the
meeting shall be held at the same hour on the next succeeding full business day
which is not a legal holiday.
1.2 SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the Board of Directors, the Chairman of the Board or the
President.
1.3 PLACE. The annual meeting of shareholders shall be held at the
principal office of the Company. Other meetings of shareholders may be held at
such place in Pennsylvania or elsewhere as the Board of Directors may designate.
1.4 NOTICE. Written notice stating the place, day and hour of each
meeting of shareholders and, in the case of a special meeting, the general
nature of the business to be transacted shall be given by the Secretary at least
ten days
<PAGE>
before the meeting to each shareholder of record entitled to vote at the
meeting.
1.5 QUORUM. Except as otherwise provided in the Articles of
Incorporation, the presence in person or by proxy of shareholders entitled to
cast at least a majority of the votes which all shareholders are entitled to
cast on a particular matter shall constitute a quorum for the purpose of
considering such matter at a meeting of shareholders, but less than a quorum may
adjourn from time to time to reconvene at such time and place as they may
determine. When a quorum is present, except as may be otherwise specified in
the Articles of Incorporation or provided by law, all matters shall be decided
by the vote of the holders of a majority of the votes entitled to be cast at the
meeting, in person or by proxy.
1.6 RECORD DATES. The Board of Directors may fix a time not more
than ninety days prior to the date of any meeting of shareholders, or the date
fixed for the payment of any dividend or distribution, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date for the determination of
the shareholders entitled to notice of or to vote at any such meeting, or to
receive payment of any such dividend or distribution, or to receive any such
allotment of rights, or to exercise the rights in respect to any such change,
conversion or exchange of shares. In such case, only such shareholders as shall
be shareholders of record at the close of business on the date so fixed shall be
entitled to notice of or
2
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to vote at such meeting, or to receive payment of such dividend or distribution,
or to receive such allotment of rights, or to exercise such rights in respect to
any change, conversion or exchange of shares, as the case may be,
notwithstanding any transfer of any shares on the books of the Company after the
record date so fixed.
ARTICLE II
DIRECTORS
2.1 NUMBER AND TERM. The Board of Directors shall consist of twelve
persons, comprising three classes of directors consisting of four directors
each. At each annual meeting of shareholders, the successors to those directors
whose terms expire in that year shall be elected to hold office for a term of
three years each, so that the term of office of one class of directors shall
expire in each year.
2.2 AGE QUALIFICATION. No person, other than an officer or employee
of the Company, shall be elected or reelected a director after reaching 72 years
of age; provided, however, that at the 1993 annual meeting of shareholders Garza
Baldwin, Jr. and John W. Kennedy may each be reelected a director for one
additional three-year term. When the term of any director, other than Garza
Baldwin, Jr. or John W. Kennedy or an officer or employee of the Company,
extends beyond the date when the director reaches 72 years of age, such director
shall resign from
3
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the Board of Directors effective at the annual meeting of shareholders next
succeeding his 72nd birthday.
2.3 VACANCIES. In the case of any vacancy in the Board of Directors
by death, resignation or for any other cause, including an increase in the
number of directors, the Board may fill the vacancy by choosing a director to
serve until the next selection of the class for which such director has been
chosen and until his successor has been selected and qualified or until his
earlier death, resignation or removal.
2.4 ANNUAL MEETING. An annual meeting of the Board of Directors
shall be held each year as soon as practicable after the annual meeting of
shareholders, at the place where such meeting of shareholders was held or at
such other place as the Board of Directors may determine, for the purposes of
organization, election of officers and the transaction of such other business as
shall come before the meeting. No notice of the meeting need be given.
2.5 REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such times and at such places as the Board of
Directors may determine.
2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board, the President or any three or more
directors. Notice of every special meeting shall be given to each director not
later than the second day immediately preceding the day of such meeting in the
case of notice by mail, telegram or courier service, and not later than the day
immediately preceding the day of such meeting
4
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in the case of notice delivered personally or by telephone, telex, TWX or
facsimile transmission. Such notice shall state the time and place of the
meeting, but, except as otherwise provided in the by-laws, neither the business
to be transacted at, nor the purpose of, any special meeting of the Board of
Directors need be specified in the notice, or waiver of notice, of such meeting.
2.7 QUORUM. A majority of the directors in office shall constitute a
quorum for the transaction of business but less than a quorum may adjourn from
time to time to reconvene at such time and place as they may determine.
2.8 COMPENSATION. Directors shall receive such compensation for
their services as shall be fixed by the Board of Directors.
2.9 COMMITTEES. The Board of Directors may, by resolution adopted by
a majority of the whole Board, designate one or more committees, each committee
to consist of two or more of the directors of the Company. The Board may
designate one or more directors as alternate members of any Committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee to the extent provided in such resolution shall have and exercise
the authority of the Board of Directors in the management of the business and
affairs of the Company.
2.10 PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT. One or
more directors may participate in a meeting of the Board of Directors or a
committee of the Board by means of
5
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conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
2.11 LIABILITY OF DIRECTORS. A director of the Company shall not be
personally liable for monetary damages for any action taken, or any failure to
take any action, on or after January 27, 1987 unless he has breached or failed
to perform the duties of his office as provided for under Section 1713 of the
Pennsylvania Business Corporation Law of 1988, as amended, and the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
Any repeal, amendment, or modification of this Paragraph shall be prospective
only and shall not increase, but may decrease, the liability of a director with
respect to actions or failures to act occurring prior to such change.
2.12 OFFICERS. The Board of Directors shall have power to elect or
appoint at any time a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary, a Treasurer, a Comptroller and such other officers as
the Board of Directors may deem advisable. Any two or more offices may be held
by the same person.
2.13 TERM. Each officer shall hold office until his successor is
elected or appointed and qualified or until his death, resignation or removal by
the Board of Directors.
2.14 AUTHORITY, DUTIES AND COMPENSATION. All officers shall have such
authority, perform such duties and receive such
6
<PAGE>
compensation as may be provided in the by-laws or as may be determined by the
Board of Directors.
2.15 CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
at all meetings of the Board of Directors and of the Executive Committee, and in
the absence or disability of the President shall have the authority and perform
the duties of the President.
2.16 PRESIDENT. The President shall be the chief executive officer of
the Company and shall preside at all meetings of the shareholders and, in the
absence or disability of the Chairman of the Board, of the Executive Committee
of the Board of Directors. He shall be responsible for the general management
of the business, subject to the control of the Board of Directors. In the
absence or disability of the Chairman, or if that office is vacant, the
President shall preside at all meetings of the Board of Directors.
2.17 VICE PRESIDENTS. In the absence or disability of the President
and Chairman of the Board, the Vice Presidents in the order designated by the
Board of Directors shall have the authority and perform the duties of the
President.
2.18 SECRETARY. The Secretary shall give notice of meetings of the
shareholders, of the Board of Directors and of the Executive Committee, attend
all such meetings and record the proceedings thereof. In the absence or
disability of the Secretary, an Assistant Secretary or any other person
designated by the Board of Directors or the President shall have the authority
and perform the duties of the Secretary.
7
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2.19 TREASURER. The Treasurer shall have charge of the securities of
the Company and the deposit and disbursement of its funds, subject to the
control of the Board of Directors. In the absence or disability of the
Treasurer, an Assistant Treasurer or any other person designated by the Board of
Directors or the President shall have the authority and perform the duties of
the Treasurer.
2.20 COMPTROLLER. The Comptroller shall be the principal accounting
officer and shall keep books recording the business transactions of the Company.
He shall be in charge of the accounts of all of its offices and shall promptly
report and properly record in the books of the Company all relevant data
relating to the Company's business.
ARTICLE III
INDEMNIFICATION
3.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS. The
Company shall indemnify any director or officer of the Company or any of its
subsidiaries who was or is an "authorized representative" of the Company (which
shall mean for the purposes of Paragraphs 3.1. through 3.7, a director or
officer of the Company, or a person serving at the request of the Company as a
director, officer, partner, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
and who was or is a "party" (which shall include for purposes of Paragraphs 3.1
through 3.7
8
<PAGE>
the giving of testimony or similar involvement) or is threatened to be made a
party to any "proceeding" (which shall mean for purposes of Paragraphs 3.1
through 3.7 any threatened, pending or completed action, suit, appeal or other
proceeding of any nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought by or in the
right of the Company, its shareholders or otherwise) by reason of the fact that
such person was or is an authorized representative of the Company to the fullest
extent permitted by law, including without limitation indemnification against
expenses (which shall include for purposes of Paragraphs 3.1 through 3.7
attorneys' fees and disbursements), damages, punitive damages, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such proceeding unless the act or failure to
act giving rise to the claim is finally determined by a court to have
constituted willful misconduct or recklessness. If an authorized representative
is not entitled to indemnification in respect of a portion of any liabilities to
which such person may be subject, the Company shall nonetheless indemnify such
person to the maximum extent for the remaining portion of the liabilities.
3.2 ADVANCEMENT OF EXPENSES. The Company shall pay the expenses
(including attorneys' fees and disbursements) actually and reasonably incurred
in defending a proceeding on behalf of any person entitled to indemnification
under Paragraph 3.1 in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such person to repay
9
<PAGE>
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Company as authorized in Paragraphs 3.1
through 3.7 and may pay such expenses in advance on behalf of any employee or
agent on receipt of a similar undertaking. The financial ability of such
authorized representative to make such repayment shall not be prerequisite to
the making of an advance.
3.3 EMPLOYEE BENEFIT PLANS. For purposes of Paragraphs 3.1 through
3.7, the Company shall be deemed to have requested an officer or director to
serve as fiduciary with respect to an employee benefit plan where the
performance by such person of duties to the Company also imposes duties on, or
otherwise involves services by, such person as a fiduciary with respect to the
plan; excise taxes assessed on an authorized representative with respect to any
transaction with an employee benefit plan shall be deemed "fines"; and action
taken or omitted by such person with respect to an employee benefit plan in the
performance of duties for a purpose reasonably believed to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Company.
3.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect,
satisfy or secure the indemnification obligations provided herein or otherwise,
the Company may maintain insurance, obtain a letter of credit, act as self-
insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
10
<PAGE>
interest in any assets or properties of the Company, or use any other mechanism
or arrangement whatsoever in such amounts, at such costs, and upon such other
terms and conditions as the Board of Directors shall deem appropriate.
3.5 RELIANCE UPON PROVISIONS. Each person who shall act as an
authorized representative of the Company shall be deemed to be doing so in
reliance upon the rights of indemnification provided by these Paragraphs 3.1
through 3.7.
3.6 AMENDMENT OR REPEAL. All rights of indemnification under
Paragraphs 3.1 through 3.7 shall be deemed a contract between the Company and
the person entitled to indemnification under these Paragraphs 3.1 through 3.7
pursuant to which the Company and each such person intend to be legally bound.
Any repeal, amendment or modification hereof shall be prospective only and shall
not limit, but may expand, any rights or obligations in respect of any
proceeding whether commenced prior to or after such change to the extent such
proceeding pertains to actions or failures to act occurring prior to such
change.
3.7 SCOPE. The indemnification, as authorized by these Paragraphs
3.1 through 3.7, shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in any
other capacity while holding such office. The indemnification and advancement
of expenses provided by or
11
<PAGE>
granted pursuant to these Paragraphs 3.1 through 3.7 shall continue as to a
person who has ceased to be an officer or director in respect of matters arising
prior to such time, and shall inure to the benefit of the heirs and personal
representatives of such person.
ARTICLE VI
STOCK CERTIFICATES AND CORPORATE SEAL
4.1 EXECUTION. Certificates for shares of capital stock of the
Company shall be signed by the President or a Vice President and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, but
where a certificate is signed by a transfer agent or a registrar, the signature
of any corporate officer may be a facsimile, engraved or printed. The corporate
seal, which may be a facsimile, engraved or printed, shall appear on each
certificate but need not be attested. In case any officer who has signed or
whose facsimile signature has been placed upon any certificate shall have ceased
to be such officer because of death, resignation or otherwise, before the
certificate is issued, it may be issued by the Company with the same effect as
if the officer had not ceased to be such at the date of its issue. No
certificate for shares of capital stock of the Company shall be issued in place
of any certificate alleged to have been lost, stolen or destroyed, except in
such manner and upon such terms as the Board of Directors shall authorize.
12
<PAGE>
4.2 SEAL. The Company shall have a corporate seal which shall bear
the name of the Company and State and year of its incorporation. The seal shall
be in the custody of the Secretary and may be used by causing it or a facsimile
to be impressed or reproduced upon or affixed to any document.
ARTICLE V
NOTICES
5.1 FORM OF NOTICE. Whenever written notice is required to be given
to any person by law, the Articles of Incorporation or these by-laws, it may be
given to such person either personally or by telephone or by sending a copy
thereof by first class or express mail, postage prepaid, or by telegram (with
messenger service specified), telex or TWX (with answerback received) or courier
service, charges prepaid, or by facsimile transmission, to the address (or the
telex, TWX or facsimile number) appearing on the books of the Company or, in the
case of a director, to the address supplied by the director to the Company for
the purpose of notice. If the notice is sent by mail, telegraph or courier
service, it shall be deemed to have been given to the person entitled thereto
when deposited in the United States mail or with a telegraph office or courier
service for delivery to that person or, in the case of telex or TWX, when
dispatched or, in the case of facsimile transmission, when received. A notice
of meeting shall specify the place, day and hour of the meeting.
13
<PAGE>
5.2 WAIVER OF NOTICE. Any notice required to be given under these
by-laws may be effectively waived by the person entitled thereto by written
waiver signed before or after the meeting to which such notice would relate or
by attendance at such meeting otherwise than for the purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened.
ARTICLE VI
AMENDMENTS
6.1 AMENDMENTS. These by-laws may be amended or repealed and new
by-laws may be adopted by the affirmative vote of a majority of the directors of
the Company or by the affirmative vote of shareholders entitled to cast a
majority of the votes which all shareholders are entitled to cast at any annual,
regular or special meeting of directors or shareholders, as the case may be;
provided, however, that new by-laws may not be adopted and these by-laws may not
be amended or repealed in any way that limits indemnification rights, increases
the liability of directors or changes the manner or vote required for any such
adoption, amendment or repeal, except by the affirmative vote of the
shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast thereon. In the case of a meeting of
shareholders, written notice shall be given to each shareholder entitled to vote
thereat that the
14
<PAGE>
purpose, or one of the purposes, of the meeting is to consider the adoption,
amendment or repeal of the by-laws.
ARTICLE VII
EMERGENCY BY-LAWS
7.1 WHEN OPERATIVE. The emergency by-laws provided by the following
Paragraphs shall be operative during any emergency resulting from warlike damage
or an attack on the United States or any nuclear or atomic disaster,
notwithstanding any different provision in the preceding Paragraphs of the by-
laws or in the Articles of Incorporation of the Company or in the Pennsylvania
Business Corporation Law. To the extent not inconsistent with these emergency
by-laws, the by-laws provided in the preceding Paragraphs shall remain in effect
during such emergency and upon the termination of such emergency the emergency
by-laws shall cease to be operative unless and until another such emergency
shall occur.
7.2 MEETINGS. During any such emergency:
(a) Any meeting of the Board of Directors may be called by any
director. Whenever any officer of the Company who is not a director has reason
to believe that no director is available to participate in a meeting, such
officer may call a meeting to be held under the provisions of this Paragraph.
(b) Notice of each meeting called under the provisions of this
Paragraph shall be given by the person calling the meeting or at his request by
any officer of the Company. The
15
<PAGE>
notice shall specify the time and the place of the meeting, which shall be the
head office of the Company at the time if feasible and otherwise any other place
specified in the notice. Notice need be given only to such of the directors as
it may be feasible to reach at the time and may be given by such means as may be
feasible at the time, including publication or radio. If given by mail,
messenger, telephone or telegram, the notice shall be addressed to the director
at his residence or business address or such other place as the person giving
the notice shall deem suitable. In the case of meetings called by an officer who
is not a director, notice shall also be given similarly, to the extent feasible,
to the persons named on the list referred to in part (c) of this Paragraph.
Notice shall be given at least two days before the meeting if feasible in the
judgment of the person giving the notice and otherwise the meeting may be held
on any shorter notice he shall deem suitable.
(c) At any meeting called under the provisions of this
Paragraph, the director or directors present shall constitute a quorum for the
transaction of business. If no director attends a meeting called by an officer
who is not a director and if there are present at least three of the persons
named on a numbered list of personnel approved by the Board of Directors before
the emergency, those present (but not more than the seven appearing highest in
priority on such list) shall be deemed directors for such meeting and shall
constitute a quorum for the transaction of business.
16
<PAGE>
7.3 LINES OF SUCCESSION. The Board of Directors, during as well as
before any such emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or all officers or
agents of the Company shall for any reason be rendered incapable of discharging
their duties.
7.4 OFFICES. The Board of Directors, during as well as before any
such emergency, may, effective in the emergency, change the head office or
designate several alternative head offices or regional offices, or authorize the
officers so to do.
7.5 LIABILITY. No officer, director or employee acting in accordance
with these emergency by-laws shall be liable except for willful misconduct.
7.6 REPEAL OR CHANGE. These emergency by-laws shall be subject to
repeal or change by further action of the Board of Directors or by action of the
shareholders, except that no such repeal or change shall modify the provisions
of the next preceding Paragraph with regard to action or inaction prior to the
time of such repeal or change.
ARTICLE VIII
PENNSYLVANIA ACT 36 OF 1990
8.1 FIDUCIARY DUTY. Subsections (a) through (d) of Section 1715 of
the Pennsylvania Business Corporation Law of 1988, as amended, shall not be
applicable to the Company.
17
<PAGE>
8.2 CONTROL-SHARE ACQUISITIONS. Subchapter G of Chapter 25 of the
Pennsylvania Business Corporation Law of 1988, as amended, (relating to control-
share acquisitions), shall not be applicable to the Company.
8.3 DISGORGEMENT. Subchapter H of Chapter 25 of the Pennsylvania
Business Corporation Law of 1988, as amended, (relating to disgorgement by
certain controlling shareholders following attempts to acquire control), shall
not be applicable to the Company.
18
<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 six-month periods ended June 30, 1998
and 1997, as indicated in our report dated July 17, 1998; 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 June 30, 1998, is
incorporated by reference in Registration Statements Nos. 33-25884, 33-
37198, 33-49660, 33-53338, 33-54409, 33-62331, 333-12089, 333-26587, 333-
34797 and 333-53977 on Forms 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
July 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMETNS FOR THE SIX MONTHS ENDED JUNE 30TH OF P.H.
GLATFELTER CO. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 32,668
<SECURITIES> 3,226
<RECEIVABLES> 83,151
<ALLOWANCES> 1,499
<INVENTORY> 119,035
<CURRENT-ASSETS> 244,126
<PP&E> 1,255,195
<DEPRECIATION> 635,787
<TOTAL-ASSETS> 996,487
<CURRENT-LIABILITIES> 137,732
<BONDS> 309,989
544
0
<COMMON> 0
<OTHER-SE> 350,183
<TOTAL-LIABILITY-AND-EQUITY> 996,487
<SALES> 376,923
<TOTAL-REVENUES> 383,016
<CGS> 297,714
<TOTAL-COSTS> 324,494
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 196
<INTEREST-EXPENSE> 11,063
<INCOME-PRETAX> 47,459
<INCOME-TAX> 18,341
<INCOME-CONTINUING> 29,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,118
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
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