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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________to______________________
Commission File No. 1-3560
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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 May 12, 1999 were 42,157,784.
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P. H. GLATFELTER COMPANY
INDEX
PART I - FINANCIAL INFORMATION
Financial Statements:
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1999 and 1998 (Unaudited)........ 3
Condensed Consolidated Balance Sheets - March 31, 1999
(Unaudited) and December 31, 1998............................ 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1999 and 1998 (Unaudited)............. 5
Notes to Condensed Consolidated Financial Statements
(Unaudited).................................................. 6
Independent Accountants' Report................................... 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 12
Quantitative and Qualitative Disclosures About Market Risk........ 19
PART II - OTHER INFORMATION........................................... 19
SIGNATURE............................................................. 21
INDEX OF EXHIBITS..................................................... 22
Exhibit 15 - Letter in Lieu of Consent Regarding Review
Report of Unaudited Interim Financial
Information
Exhibit 27 - Financial Data Schedule
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(UNAUDITED)
Three Months Ended
3/31/99 3/31/98
--------- ---------
Revenues
Net sales $ 165,846 $ 193,216
Other income - net
Energy sales - net 2,238 2,169
Interest on investments and
other - net 370 1,528
Gain (loss) from property
dispositions, etc. - net 920 (104)
--------- ---------
3,528 3,593
Total revenues 169,374 196,809
Costs and expenses
Cost of products sold 138,163 152,287
Selling, general and
administrative expenses 13,509 13,146
Interest on debt - net 4,790 6,423
--------- ---------
156,462 171,856
Income before income taxes 12,912 24,953
Income tax provision
Current taxes 4,126 7,189
Deferred taxes 646 2,437
--------- ---------
Total 4,772 9,626
Net income $ 8,140 $ 15,327
========= =========
Basic and diluted earnings per share $ 0.19 $ 0.36
========= =========
See accompanying notes to condensed consolidated financial statements.
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P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
3/31/99
(unaudited) 12/31/98
--------- ---------
Current assets:
Cash and cash equivalents $ 48,232 $ 50,907
Accounts receivable - net 79,852 70,076
Inventories:
Raw materials 33,753 37,559
In process and finished 48,151 49,901
Supplies 30,775 30,392
--------- ---------
Total inventories 112,679 117,852
Prepaid expenses and other current assets 2,236 3,073
--------- ---------
Total current assets 242,999 241,908
Plant, equipment and timberlands - net 609,272 628,156
Other assets 120,812 120,674
--------- ---------
Total assets $ 973,083 $ 990,738
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,983 $ 2,088
Short-term debt 24,573 28,990
Accounts payable 37,222 34,293
Dividends payable 7,375 7,365
Income taxes payable 9,625 8,189
Accrued compensation and other expenses
and deferred income taxes 39,821 45,951
--------- ---------
Total current liabilities 120,599 126,876
Long-term debt 312,713 325,381
Deferred income taxes 124,765 123,321
Other long-term liabilities 70,208 71,231
Commitments and contingencies
Shareholders' equity:
Common stock 544 544
Capital in excess of par value 42,391 42,612
Retained earnings 485,558 484,793
Accumulated other comprehensive income (2,160) (1,611)
--------- ---------
Total 526,333 526,338
Less cost of common stock in treasury (181,535) (182,409)
--------- ---------
Total shareholders' equity 344,798 343,929
--------- ---------
Total liabilities and
shareholders' equity $ 973,083 $ 990,738
========= =========
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
Three Months Ended
3/31/99 3/31/98
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,140 $ 15,327
Items included in net income not using
(providing) cash:
Depreciation, depletion and amortization 12,292 11,872
Loss (gain) on disposition of fixed assets (908) 1
Expense related to employee stock purchase and
401(k) plans 63 467
Change in assets and liabilities, net of effect
of acquisition:
Accounts receivable (11,358) (13,878)
Inventories 2,683 8,261
Other assets and prepaid expenses (4,001) (4,711)
Accounts payable, accrued compensation and
other expenses, deferred income taxes
and other long-term liabilities 453 (11,792)
Income taxes payable 984 2,133
Deferred income taxes - noncurrent 2,322 2,753
--------- ---------
Net cash provided by operating activities 10,670 10,433
--------- ---------
Cash flows from investing activities:
Sale or maturity of investments - net 2 154,876
Proceeds from disposal of fixed assets 949 13
Additions to plant, equipment and timberlands (5,914) (9,818)
Acquisition of S&H - net of cash acquired -- (147,491)
--------- ---------
Net cash used in investing activities (4,963) (2,420)
--------- ---------
Cash flows from financing activities:
Net borrowing of short-term debt -- 14,249
Net payment of other long-term debt (637) (14,609)
Repayment of 5-7/8% Notes -- (150,000)
Acquisition-related borrowings -- 101,500
Dividends paid (7,365) (7,376)
Purchases of common stock -- (2,614)
Proceeds from issuance of common stock under
employee stock purchase plans and key
employee long-term incentive plan -- 285
--------- ---------
Net cash used in financing activities (8,002) (58,565)
--------- ---------
Effect of exchange rate changes on cash (380) 32
Net decrease in cash and cash equivalents (2,675) (50,520)
Cash and cash equivalents:
At beginning of year 50,907 66,919
--------- ---------
At end of period $ 48,232 $ 16,399
========= =========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 8,595 $ 9,523
Income taxes 844 5,138
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACQUISITION OF S&H
Effective January 2, 1998, the Registrant acquired all of the
outstanding common stock of S&H Papier-Holding GmbH ("S&H"), the
specialty paper division of the Schoeller and Hoesch Group, for DM
268,900,000 (approximately $150,000,000) in cash. The purchase price
was finalized in the fourth quarter of 1998. The Registrant accounted
for the S&H acquisition under the purchase method of accounting, and
S&H was consolidated with the Registrant beginning in January 1998.
2. EARNINGS PER SHARE ("EPS")
Basic EPS excludes the dilutive impact of common stock equivalents and
is computed by dividing net income by the weighted-average number of
shares of common stock outstanding for the period. Diluted EPS includes
the effect of potential dilution from the issuance of common stock,
pursuant to common stock equivalents, using the treasury stock method.
A reconciliation of the Registrant's basic and diluted EPS follows with
the dollar and share amounts in thousands:
Three Months Ended
March 31
--------------------------------
1999 1998
--------------- --------------
Shares Shares
-------------- --------------
Basic EPS 42,110 42,150
Effect of potentially
dilutive employee
incentive plans:
Restricted stock
awards 11 26
Performance stock
awards 142 126
Employee stock
options -- 31
------------- --------------
Diluted EPS 42,263 42,333
============= ==============
Net income $ 8,140 $ 15,327
Basic and diluted EPS $ 0.19 $ 0.36
3. ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
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. The Registrant is evaluating the effects
that the adoption of SFAS No. 133 may have on its consolidated
financial position and results of operations.
4. INTEREST RATE SWAP AGREEMENTS
To offset some of the variable rate characteristics of the total
borrowings under the Registrant's 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 $28,868,000 as of March 31, 1999). Under the
agreements, the Registrant pays fixed
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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 composite six-month DM LIBOR
applicable for the first half of 1999 is approximately 3.3%. The
Registrant recognized net interest expense of $329,000 and $73,000 in
the first quarter of 1999 and 1998, respectively, related to these
agreements.
In January 1999, the Registrant entered into two additional interest
rate swap agreements, each having a total notional principal amount of
DM 50,000,000 (approximately $27,500,000 as of March 31, 1999). Under
one agreement, which was effective April 6, 1999, the Registrant
receives a floating rate of the DM LIBOR plus twenty basis points,
which is 3.2% for the first three months of the agreement, and pays a
fixed rate of 3.4075% for the term of the agreement. Under the second
agreement, which is effective July 6, 1999, the Registrant will receive
a floating rate, which is also the DM LIBOR plus twenty basis points,
and will pay a fixed rate of 3.425% for the term of the agreement.
These agreements convert a portion of the Registrant's borrowings under
its revolving credit facility from a floating rate to a fixed rate
basis.
The Registrant has other various interest rate swap agreements
outstanding, which did not have a material impact on the Registrant's
consolidated financial statements. Although the Registrant can pay to
terminate any of its swap agreements at any time, the Registrant
intends to hold all of its swap agreements until their maturities.
5. COMPREHENSIVE INCOME
For the three months ended March 31, 1999 and 1998, comprehensive
income was $7,591 and $16,565, respectively. Comprehensive income
includes the effects of changes in certain currency exchange rates
relative to the U.S. dollar.
6. DIRECTORS' COMPENSATION
On May 1, 1999, the Registrant granted to each non-employee member of
its Board of Directors options to purchase 1,500 shares of common stock
for a total of 13,000 options granted. Such options become exercisable
on May 1, 2000 at an exercise price of $13.1718 and expire on April
30, 2009.
7. COMMITMENTS AND CONTINGENCIES
The Registrant is subject to loss contingencies resulting from
regulation by various federal, state, local and foreign governmental
authorities with respect to the environmental impact of air and water
emissions and noise from its mills, as well as the disposal of solid
waste generated by its operations. To comply with environmental laws
and regulations, the Registrant has incurred substantial capital and
operating expenditures over the past several years. The Registrant
anticipates that environmental regulation of its operations will
continue to become more burdensome and that capital and operating
expenditures will continue, and perhaps increase, in the future. In
addition, the Registrant may incur obligations to remove or mitigate
any adverse effects on the environment resulting from its operations,
including the restoration of natural resources, and liability for
personal injury and damage to property, including natural resources.
Since environmental regulations are not consistent worldwide, the
Registrant's ability to compete in the world marketplace may be
adversely affected by capital and operating expenditures required for
environmental compliance.
The Pennsylvania Department of Environmental Protection ("DEP") has
proposed to reissue the Registrant's wastewater discharge permit for
the Spring Grove mill on terms unacceptable to the Registrant. The
Registrant cannot determine the impact that the new permit will have on
the Registrant if it contains objectionable terms because the material
terms of the final form of the permit are unknown.
On or about April 16, 1999, the United States Environmental Protection
Agency ("EPA") issued to the Registrant a Notice of Violation ("NOV")
alleging violations of the federal Clean Air Act, primarily for
purportedly
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failing to obtain appropriate preconstruction air quality permits in
conjunction with certain modifications to its Spring Grove mill. EPA
announced that the Registrant was one of seven pulp and paper mill
operators to have received contemporaneously an NOV alleging this kind
of violation. EPA alleged that the Registrant's modifications produced
significant net emissions increases in certain air pollutants which
should have been covered by appropriate permits.
For all but one of the modifications cited by EPA, the Registrant
applied for and obtained from the Pennsylvania DEP the preconstruction
permits which the Registrant concluded were required by applicable law.
EPA reviewed those applications before the permits were issued. The
Registrant conducted an evaluation at the time of the other
modification, and concluded that the preconstruction permit cited by
EPA was not required. EPA has not informed the Registrant as to the
source or amount of the emissions increases which EPA believes have
occurred, nor has EPA made any demand for action or relief from the
Registrant.
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 Department of Natural Resources
("DNR") and the United States 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.
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 are required to provide in the aggregate $10,000,000 in work
and funds to facilitate natural resources damages assessment
activities, including, among other things, modeling and risk assessment
work, as well as field scale demonstration of sediment dredging and the
enhancement of certain environmental amenities. The actual cost to be
incurred by the companies for such activities will exceed $10,000,000.
Such costs are expected to be incurred over a four-year period,
although the bulk of the amount should be spent by the end of 1999. The
Registrant's final allocated portion of such costs is unknown.
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 United States Fish and Wildlife Service
("USFWS"), together with the National Oceanic and Atmospheric
Administration and at least one Indian tribe, 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 this agreement. The
parties hope 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, 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 relating
to the discharge of PCB's and other hazardous substances into the lower
Fox River. No such action has commenced and 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.
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 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
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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. The EPA
rejected the potentially responsible parties' offer to perform a
remedial investigation and feasibility study ("RI/FS") for the site and
the Wisconsin DNR commenced preparation of the RI/FS.
On February 26, 1999, Wisconsin DNR released a draft RI/FS for the
lower Fox River for public comment. In the draft RI/FS, Wisconsin DNR
reviewed and summarized a number of possible remedial alternatives for
the site estimated to cost in the range of $0 to $721,000,000, but did
not select a preferred remedy. The Registrant does not believe that the
no action remedy will be selected. The largest components of the costs
of certain of the remedial alternatives are attributable to large-scale
sediment removal and disposal. There is no assurance that the cost
estimates in the draft RI/FS will not differ significantly from actual
costs. The Registrant and the other six companies have submitted
extensive technical comments to the draft RI/FS. In addition, the
Registrant has submitted its individual comments to the draft RI/FS.
After consideration of public comments, the draft RI/FS may be revised
to add, delete or amend the remedial alternatives.
Based on current information and advice from its environmental
consultants, the Registrant continues to believe that an aggressive
effort, as included in certain remedial alternatives in the draft
RI/FS, to remove PCB-contaminated sediment, much of which is buried
under cleaner material or is otherwise unlikely to move, would be
environmentally detrimental and, therefore, inappropriate.
The Registrant currently is unable to predict the ultimate costs to the
Registrant related to this matter, because the Registrant cannot
predict which remedy will be selected for the site or its share of the
cost of that remedy.
The Registrant continues to believe it is likely that this matter will
result in litigation; however, the Registrant believes it will be able
to persuade a court that removal of a substantial amount of
PCB-contaminated sediments is not an appropriate remedy. There can be
no assurance, however, that the Registrant will be successful in
arguing that removal of PCB-contaminated sediments is inappropriate,
that it would prevail in any resulting litigation, that its share of
the cost of any remedy selected would not have a material adverse
effect on the Registrant's consolidated financial condition, liquidity
and results of operations or that the Registrant's share of such cost
would not exceed its available resources.
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 and the
United States 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
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characterized. The Registrant does not know when the insurers'
investigation as to coverage will be completed.
The Registrant's current assessment, after consultation with legal
counsel, is that future expenditures for these matters are not likely
to have a material adverse impact on the Registrant's consolidated
financial condition or liquidity, but could have a material adverse
effect on the Registrant's consolidated results of operations in a
given year; however, there can be no assurances that the Registrant's
reserves will be adequate or that a material adverse effect on the
Registrant's consolidated financial condition or liquidity will not
occur at some future time.
8. SUBSEQUENT EVENT
The January 2, 1998 acquisition of S&H included a 50% controlling
ownership interest in Papeteries de Cascadec S.A. ("Cascadec"), a
French company, along with the right to acquire the remaining 50% at a
future time. The Registrant had expected to exercise this option in the
first quarter of 1999 but did not receive final approval from the
European cartel authorities until April 1, 1999. On April 9, 1999, the
Registrant completed the exercise of its option and purchased the
remaining 50% of Cascadec for FF 45,181,233 (approximately $7,400,000).
As of March 31, 1999 and December 31, 1998, a minority interest of
$9,842,000 and $10,032,000, respectively, associated with Cascadec is
classified as "Other long-term liabilities" on the Registrant's
Condensed Consolidated Balance Sheets. The excess of the minority
interest balance over the amount paid for Cascadec will be recognized
in earnings in future years.
9. DISCLOSURE STATEMENT
In the opinion of the Registrant, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (which
comprise only normal recurring accruals) necessary for a fair
presentation of the financial information contained therein. These
unaudited condensed consolidated financial statements should be read in
conjunction with the more complete disclosures contained in the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1998. Certain reclassifications have been made of previously reported
amounts to conform with classifications used in the current year.
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INDEPENDENT ACCOUNTANTS' REPORT
P. H. Glatfelter Company:
We have reviewed the accompanying condensed consolidated balance sheet of P. H.
Glatfelter Company and subsidiaries as of March 31, 1999, and the related
condensed consolidated statements of income and cash flows for the three months
ended March 31, 1999 and 1998. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of P. H. Glatfelter Company and
subsidiaries as of December 31, 1998, and the related consolidated statements of
income and comprehensive income, shareholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated February 26,
1999, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1998 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
April 16, 1999, except for Note 6 as to
which the date is May 1, 1999
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<TABLE>
<S><C>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis contains forward-looking statements. See
"Cautionary Statement" set forth in Item 5.
Effective January 2, 1998, the Registrant acquired all of the outstanding common
stock of S&H Papier-Holding GmbH ("S&H"), the specialty paper division of the
Schoeller and Hoesch Group, for DM 268,900,000 (approximately $150,000,000) in
cash. The purchase price was finalized in the fourth quarter of 1998. The
Registrant accounted for the S&H acquisition under the purchase method of
accounting, and S&H was consolidated with the Registrant beginning in January
1998.
RESULTS OF OPERATIONS
A summary of the period-to-period changes in the principal items included in the
Condensed Consolidated Statements of Income is shown below.
Comparison of
Three Months Ended
March 31, 1999 and
March 31, 1998
----------------------
Increase (Decrease)
(dollars in thousands)
Net sales (27,370) (14.2)%
Other income - net (65) (1.8)%
Cost of products sold (14,124) (9.3)%
Selling, general and
administrative expenses 363 2.8%
Interest on debt - net (1,633) (25.4)%
Income tax provision (4,854) (50.4)%
Net income (7,187) (46.9)%
NET SALES
Worldwide net sales decreased $27,370,000, or 14.2%, for the first quarter of
1999 compared to the first quarter of 1998. This decrease was a result of a
decreased average net selling price per ton as well as relatively weak demand.
The Registrant classifies its sales into two product groups: specialized
printing papers and engineered papers. Total net sales of specialized printing
papers decreased by 18.6% in the first quarter of 1999 compared to the first
quarter of 1998 as the impact of an 8.1% decrease in net sales volume was
compounded by an 11.5% decrease in average net selling prices.
The decreased sales volume of specialized printing papers was largely due to
weaker demand for many of the Registrant's products in the first quarter of 1999
compared to the first quarter of 1998. The Registrant lost approximately 3,000
tons, or approximately 2%, of its volume due to lack of orders early in the
first quarter of 1999 compared to a loss of 1,000 tons, or approximately 1%, in
the first quarter of 1998. In addition, the Registrant completed the
installation of inclined wire technology on an existing paper machine. This
installation in Gernsbach, Germany allowed the Registrant to transfer some of
its production capacity previously dedicated to specialized printing papers to
more profitable engineered papers.
Although sales volume of the Registrant's specialized printing papers decreased
in the first quarter of 1999 compared to the first quarter of 1998, demand for
such products considerably improved throughout the first quarter of 1999. To
date in the second quarter of 1999, the Registrant has not taken significant
market-related downtime related to its specialized printing papers operations.
The Registrant expects that demand for its specialized printing papers will
remain relatively strong for the remainder of 1999 and does not anticipate the
need for market-related downtime at any of its specialized printing papers
production facilities in the near future.
</TABLE>
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In February 1999, the Registrant announced a price increase for its envelope
papers. This price increase was fully implemented by the middle of April. Based
upon the assumption of continued strong demand for the remainder of 1999, the
Registrant believes that modest price increases may be implemented on certain of
its specialized printing papers later this year.
Net sales of engineered papers for the three months ended March 31, 1999 were
$9,395,000 lower than in the corresponding 1998 period. This decrease was
primarily the result of pricing and demand erosion for the Registrant's tobacco
papers.
Net sales of the Registrant's engineered papers, excluding tobacco papers,
increased by a modest 0.3% in the first quarter of 1999 versus the first quarter
of 1998. A decrease in net average selling prices of 9.3% was more than offset
by an increase in net sales volume of 10.6%. Volume increased due to a variety
of factors, including the transfer of production capacity from certain grades of
less profitable specialized printing papers to engineered papers. In addition,
the Registrant is selling certain new grades of engineered papers that had not
yet developed in the first quarter of 1998. Despite these increases in volume,
average selling prices were 9.3% lower in the first quarter of 1999 versus the
first quarter of 1998. The average net selling price decrease was largely due to
a mix of products sold with lower average selling prices within this product
group as pricing remained relatively steady.
The Registrant continues to strive to improve its overall product mix by
concentrating its efforts on maximizing sales of more profitable engineered
papers. As noted above, installation of inclined wire technology will allow it
to produce more profitable engineered papers, including tea bag, porous plug
wrap and overlay papers. In addition, its Spring Grove, Pennsylvania facility
continues to pursue aggressively the development and marketing of new engineered
paper products produced with its gravure coater and expects that this new piece
of equipment will have an increasing positive impact on its future results of
operations.
Net sales of tobacco papers declined in the first quarter of 1999 compared to
the first quarter of 1998 by 21.9% as net sales volume decreased by 14.7% and
average net selling prices declined by 8.4%.
Volume and pricing for tobacco papers were lower in the first quarter of 1999 in
the U.S. and international markets as compared to the first quarter of 1998. The
Registrant has finalized the negotiations of supplier contracts with most of its
customers which resulted in pricing concessions. The Registrant does not expect
its tobacco papers business to show significant recovery in the foreseeable
future due to worldwide production overcapacity. The Registrant expects a modest
increase in demand for its products overseas, as the global economy recovers,
especially in Asia and Russia. Such increase will largely be offset by a
decrease in U.S. tobacco paper demand. The Registrant has taken aggressive steps
to remove costs from its tobacco papers operations.
OTHER INCOME - NET
The Registrant's other income - net decreased $65,000, or 1.8%, for the first
quarter of 1999 compared to the corresponding period of 1998. Interest on
investments and other - net was $1,158,000 lower for the first three months of
1999 versus the first three months of 1998. During the first quarter of 1998,
the Registrant recognized interest income on $150,000,000 held in a defeasance
trust which was ultimately used to repay in full principal and interest on its
5-7/8% Notes on March 1, 1998. No such trust interest income was recognized in
the first quarter of 1999.
Largely offsetting this decrease was a gain resulting from the sale of a tract
of timberland located in Delaware. From time to time the Registrant divests of
certain tracts of its timberlands such as this as it is offered attractive
prices. The Registrant does not actively solicit the sale of its timberlands so
as to maintain its own sources of raw materials. No significant land sales
occurred in the first quarter of 1998.
13
<PAGE>
COST OF PRODUCTS SOLD
The Registrant's cost of products sold decreased by $14,124,000, or 9.3%, in the
first three months of 1999 versus the first three months of 1998. This was
primarily a result of lower production volumes due to the weaker demand for the
Registrant's products in the first quarter of 1999 versus first quarter of 1998.
The cost of products sold per ton was down 3.2% over this same period. The
Registrant has seen prices for its principal raw material, market pulp, decrease
over the past four quarters thereby reducing its cost of products sold per ton
in the first quarter of 1999 versus the same quarter of 1998. In addition, as
outlined below under the heading, "Early Retirement Program and Other Cost
Control Measures," the Registrant has taken initiatives to remove costs from its
business which have also had a positive impact in reducing its cost of products
sold per ton.
Although the cost of products sold per ton decreased, the average net selling
price per ton also decreased, resulting in a decrease in gross margin per ton of
27.9% in the first quarter of 1999 compared to the first quarter of 1998.
The Registrant expects that over the last three quarters of 1999, market pulp
prices will increase modestly. Since pricing for certain of the Registrant's
products typically follows that of market pulp, the Registrant also expects
corresponding improved pricing for such products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Registrant's selling, general and administrative expenses for the first
quarter of 1999 were $363,000, or 2.8% higher than for the comparable period of
1998 largely due to increased legal and professional expenses.
INTEREST ON DEBT - NET
The Registrant's interest on debt - net decreased by $1,633,000, or 25.4%, for
the three months ended March 31, 1999 versus the comparable period of 1998. On
March 1, 1998, $150,000,000 principal amount of the Registrant's 5-7/8% Notes
matured and were retired. As a result, the average borrowings in the first
quarter of 1999 were lower than the first quarter of 1998, resulting in the
lower interest on debt - net.
INCOME TAX PROVISION
The Registrant's income tax provision decreased by $4,854,000, or 50.4%, for the
first quarter of 1999 versus the first quarter of 1998. The decrease was almost
entirely due to the reduction of net income in 1999 versus 1998.
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents decreased by $2,675,000 during the first three months
of 1999. Net cash provided by operating activities of $10,670,000 was more than
offset by cash used in investing activities of $4,963,000 and financing
activities of $8,002,000. Significant cash activities during the first three
months of 1999 included the payment of $7,365,000 of dividends and $5,914,000
for plant, equipment and timberlands.
To finance the acquisition of S&H, on December 22, 1997, the Registrant entered
into a $200,000,000 multi-currency revolving credit facility ("Revolving Credit
Facility") with a syndicate of major lending institutions. The Revolving Credit
Facility enables the Registrant to borrow up to the equivalent of $200,000,000
in certain currencies in the form of revolving credit loans with a final
maturity date of December 22, 2002 and with interest periods determined, at the
Registrant's option, on a daily or one to six-month basis. Interest on the
revolving credit loans is at variable rates based, at the Registrant's option,
on the Eurocurrency Rate or the Base Rate (lender's prime rate), plus applicable
margins. Margins are based on the higher of the Registrant's debt ratings as
14
<PAGE>
published by Standard & Poor's and Moody's. As of March 31, 1999, the
Registrant's outstanding borrowings were DM 282,200,000 (approximately
$155,100,000) under the Revolving Credit Facility.
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 $28,868,000 as of March 31, 1999). Under
the agreements, the Registrant pays fixed rates of 4.18% and 4.45% for periods
of two and three years, respectively, and receives a floating rate of the
six-month DM London Interbank Offered Rate ("LIBOR"). The composite six-month DM
LIBOR applicable for the first half of 1999 is approximately 3.3%. The
Registrant recognized net interest expense of $329,000 in the first quarter of
1999 related to these agreements.
In January 1999, the Registrant entered into two additional interest rate swap
agreements, each having a total notional principal amount of DM 50,000,000
(approximately $27,500,000 as of March 31, 1999). Under one agreement, which was
effective April 6, 1999, the Registrant receives a floating rate of the DM LIBOR
plus twenty basis points, which is 3.2% for the first three months of the
agreement, and pays a fixed rate of 3.4075% for the term of the agreement. Under
the second agreement, which is effective July 6, 1999, the Registrant will
receive a floating rate, which is also the DM LIBOR plus twenty basis points,
and will pay a fixed rate of 3.425% for the term of the agreement. These
agreements convert a portion of the Registrant's borrowings under its Revolving
Credit Facility from a floating rate to a fixed rate basis.
The Registrant has other various interest rate swap agreements outstanding,
which did not have a material impact on the Registrant's consolidated financial
statements. Although the Registrant can pay to terminate any of its swap
agreements at any time, the Registrant intends to hold all of its swap
agreements until their maturities.
On July 22, 1997, the Registrant issued $150,000,000 principal amount of 6-7/8%
Notes due July 15, 2007. The 6-7/8% Notes are redeemable, in whole or in part,
at the option of the Registrant at any time at a calculated redemption price
plus accrued and unpaid interest to the date of redemption. The 6-7/8% Notes are
unsecured and unsubordinated indebtedness of the Registrant. Interest on the
Notes is payable semiannually on January 15 and July 15.
The Registrant expects to meet all its near and long-term cash needs from a
combination of internally generated funds, cash, cash equivalents, marketable
securities, the Revolving Credit Facility or other bank lines of credit and, if
prudent, other long-term debt.
INTEREST RATE RISK
The Registrant uses its Revolving Credit Facility and 6-7/8% Notes to finance a
significant portion of its operations. These on-balance sheet financial
instruments, to the extent they provide for variable rates of interest, expose
the Registrant to interest rate risk resulting from changes in the DM LIBOR. The
Registrant uses off-balance sheet interest rate swap agreements to partially
hedge interest rate exposure associated with on-balance sheet financial
instruments. All of the Registrant's derivative financial instrument
transactions are entered into for non-trading purposes.
To the extent that the Registrant's financial instruments expose the Registrant
to interest rate risk and market risk, they are presented in the table below.
The table presents principal cash flows and related interest rates by year of
maturity for the Registrant's Revolving Credit Facility and Notes as of March
31, 1999. For interest rate swap agreements, the table presents notional amounts
and the related reference interest rates by year of maturity. Fair values
included herein have been determined based upon (1) rates currently available to
the Registrant for debt with similar terms and remaining maturities, and (2)
estimates obtained from dealers to settle interest rate swap agreements.
15
<PAGE>
<TABLE>
<CAPTION>
Year of Maturity
----------------------------------------------------------------
(dollar amounts in thousands)
Total
Due at Fair Value at
1999 2000 2001 2002 2003 Thereafter Maturity 3/31/99
-------- -------- -------- -------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt:
Fixed rate principal $ 1,983 $ 1,660 $ 1,660 $ 1,481 $ 1,302 $151,555 $ 159,641 $158,828
Average interest rate 6.85% 6.85% 6.85% 6.86% 6.87% 6.87%
Variable rate principal $ -- $ -- $ -- $155,655 $ -- $ -- $ 155,655 $155,055
Average interest rate 3.71% 3.53% 3.30% 3.30% -- --
Interest rate swap agreements:
Variable to fixed swaps
principal amount $ 3,529 $ 33,324 $ 20,902 $ 94,945 $ -- $ -- $ 120,700 $ (990)
Average pay rate 4.39% 4.09% 3.84% 3.42% -- --
Average receive rate 3.43% 3.35% 3.25% 3.25% -- --
</TABLE>
CAPITAL RESOURCES
The Registrant invested $5,914,000 in capital expenditures for the first three
months of 1999 compared to $9,818,000 for the first three months of 1998. The
Registrant estimates a total of approximately $34,000,000 will be spent on
capital projects during 1999, approximately 15% less than 1998.
ENVIRONMENTAL MATTERS
The Registrant is subject to loss contingencies resulting from regulation by
various federal, state, local and foreign governmental authorities with respect
to the environmental impact of air and water emissions and noise from its mills,
as well as its disposal of solid waste generated by its operations. To comply
with environmental laws and regulations, the Registrant has incurred substantial
capital and operating expenditures over the past several years. During 1998,
1997 and 1996, the Registrant incurred approximately $17,700,000, $14,800,000
and $15,200,000, respectively, in operating costs related to complying with
environmental laws and regulations. The Registrant anticipates that
environmental regulation of the Registrant's operations will continue to become
more burdensome and that capital and operating expenditures will continue, and
perhaps increase, in the future. In addition, the Registrant may incur
obligations to remove or mitigate any adverse effects on the environment
resulting from its operations, including the restoration of natural resources,
and liability for personal injury and damage to property, including natural
resources. In particular, the Registrant continues to negotiate with the State
of Wisconsin and the United States regarding natural resources damages and
response costs related to the discharge of polychlorinated biphenyls ("PCBs")
and other hazardous substances in the lower Fox River, on which the Registrant's
Neenah mill is located. The cost of such damages and response costs is presently
unknown but could be substantial and perhaps exceed the Registrant's available
resources as discussed in Note 7 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 of operations in a given year; however, there can be no
assurance that the Registrant's reserves will be adequate or that a material
adverse effect on the Registrant's consolidated financial condition or liquidity
will not occur at some future time.
ENVIRONMENTAL ACHIEVEMENTS
On April 20, 1999, the Registrant announced that its Spring Grove mill was the
first pulp and paper mill in the United States to achieve ISO 14001
certification for its environmental management system and its commitment to
environmental excellence. ISO 14001 requires that an organization have an
environmental policy that includes commitments to prevention of pollution,
compliance with environmental laws and regulations and continual improvements in
its environmental management system. As a part of maintaining its certification,
the mill's environmental management system will be audited by a third party on
an ongoing, periodic basis. The Registrant's Gernsbach, Germany facility is also
ISO 14001
16
<PAGE>
certified. The Registrant plans to achieve ISO 14001 certification at all of its
other mills by 2001.
Also on April 20, 1999, the Registrant announced its New Century Project. The
New Century Project is a commitment by the Registrant to participate in the
EPA's Advanced Technology Incentive Program under the Cluster Rules at its
Spring Grove mill. This project will include a capital investment of
approximately $32,000,000 over the next six years. As a result of this capital
investment, the Registrant expects to eliminate the use of elemental chlorine in
its bleaching process, reduce odor emissions and improve water quality. The New
Century Project demonstrates the Registrant's commitment to minimizing its
impact on natural resources.
EARLY RETIREMENT PROGRAM AND OTHER COST CONTROL MEASURES
During the second quarter of 1998, the Registrant announced a Voluntary Early
Retirement Enhancement Program ("VEREP") to certain of its salaried employees.
The Registrant recognized one-time charges for this VEREP in the third and
fourth quarters of 1998. During the first quarter of 1999, the Registrant
estimates that it realized $1,700,000 of pre-tax cost savings as a result of the
VEREP. When fully implemented by the third quarter of 1999, the Registrant
expects to realize a favorable impact on its cost structure of approximately
$2,100,000 per quarter.
Early in 1999, the Registrant announced its intention to eliminate approximately
45 hourly positions by the end of 1999 at its Spring Grove mill. When these job
eliminations are completed, the Registrant expects to realize annual pre-tax
cost savings of approximately $2,500,000. The Registrant currently employs
approximately 750 hourly employees at this location.
The Registrant's procurement function has undertaken initiatives to reduce costs
for certain purchased products and services. In addition, the Registrant is
reevaluating its target inventory levels for maintenance supplies and raw
materials, renegotiating certain freight contracts and critically reviewing its
needs for routine outside contracting work. The Registrant expects to achieve
significant cost savings as a result of these initiatives.
YEAR 2000 READINESS DISCLOSURE
The Registrant continues to make progress and, with the exception of some
isolated systems at its Neenah mill, has achieved Year 2000 compliance for its
mission critical systems. The Registrant expects to achieve Year 2000 compliance
on its non-critical systems by the end of the second quarter of 1999.
The Registrant has information technology systems and non-information
technology systems. The Registrant's information technology systems include both
internally and externally developed business systems. Nearly all of the
Registrant's business systems have been developed internally. Non-information
technology systems include computer process control equipment as well as
embedded technology, such as micro-controllers, which are critical to the
operation of production equipment and facilities.
The Registrant's three-phase approach to achieve its internal Year 2000
compliance includes an inventory phase, an assessment phase and a modifications
and testing phase. The Registrant has completed the inventory phase for all of
its information technology and non-information technology systems. The
Registrant has also completed both the assessment phase and modifications and
testing phase for substantially all of its systems with the exception of a small
number of non-critical systems which should be completed by the end of the
second quarter of 1999. In addition, the assessment, modification and testing of
some isolated critical systems at the Neenah mill will not occur until the third
quarter of 1999. This delay is due to the desire to coincide any machine
downtime required to meet Year 2000 compliance with planned maintenance downtime
to minimize disruption to the operation of the mill.
The Registrant has used internal information technology personnel almost
exclusively to inventory, assess, modify and test existing systems and has
primarily incurred only normal wage, benefit and related costs for its normal
complement of information technology personnel. The Registrant expensed
17
<PAGE>
approximately $634,000 and $125,000 during 1998 and 1997, respectively, in such
costs supporting its Year 2000 compliance efforts. The Registrant estimates it
will incur $700,000 for these internal costs during 1999 to complete its Year
2000 efforts.
The Registrant's use of its own information technology personnel to make its
systems Year 2000 compliant has and will continue to delay some other strategic
information systems development and implementation which would have otherwise
benefited the Registrant in various ways and to various extents. The Registrant
does not believe that it will be at a competitive disadvantage as a result of
these delays.
To date, the Registrant has made minor capital expenditures to replace certain
systems or equipment which were not Year 2000 compliant. The Registrant incurred
approximately $70,000 in capital related costs during the first quarter of 1999
to achieve Year 2000 compliance of its information and non-information
technology systems. The Registrant estimates an additional $190,000 in capital
costs will be incurred during the balance of 1999 related to Year 2000
compliance.
The Registrant relies significantly on selected key vendors of raw materials,
energy, telecommunications and other vital services. The Registrant also
generates significant revenues from various key customers. The Registrant
continues its efforts in addressing Year 2000 compliance by key third parties by
making inquiries to all such third parties and assessing the responses received.
Inquiries have been sent to all identified key third parties. To date, the
Registrant has received the vast majority of responses and no significant issues
have been discovered. The Registrant hopes to have received and assessed all
remaining responses by the end of the second quarter of 1999.
A contingency planning team, made up of key personnel from its corporate
operations as well as its operating locations, is meeting regularly to assess
current disaster recovery procedures as well as to assess and prioritize risks
relating to Year 2000 noncompliance by its key vendors and customers. This team
expects to have a complete plan in place by October 1999. Contingency planning
for those critical systems which are subject to higher risk will be addressed
prior to this date. Despite such contingency plans, it is reasonably possible
that, in the worst case, some of the Registrant's key vendors or customers could
experience operational interruptions as a result of non-compliance of their
systems. As a result, the Registrant may be forced to interrupt the operation of
one or more of its mills or be required to increase its costs or decrease its
selling prices to remain operational. In such an event, the Registrant's
business and results of operations could be materially adversely affected.
SUBSEQUENT EVENT
The January 2, 1998 acquisition of S&H included a 50% controlling ownership
interest in Papeteries de Cascadec S.A. ("Cascadec"), a French company, along
with the right to acquire the remaining 50% at a future time. The Registrant had
expected to exercise this option in the first quarter of 1999 but did not
receive final approval from the European cartel authorities until April 1, 1999.
On April 9, 1999, the Registrant completed the exercise of its option and
purchased the remaining 50% of Cascadec for FF 45,181,233 (approximately
$7,400,000). As of March 31, 1999 and December 31, 1998, a minority interest of
$9,842,000 and $10,032,000, respectively, associated with Cascadec is classified
as "Other long-term liabilities" on the Registrant's Condensed Consolidated
Balance Sheets. The excess of the minority interest balance over the amount paid
for Cascadec will be recognized in earnings in future years.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the discussion under the headings "Liquidity" and "Interest Rate Risk" in
Item 2 as well as Note 4 to the Registrant's condensed consolidated financial
statements.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant's Annual Meeting of Shareholders was held on April 28, 1999. All
of the Board of Directors' nominees for election as Directors were elected by
the shareholders. Each was elected to a term expiring in 2002. The votes cast
for election of Directors were as follows, with cumulative voting applied:
For Withheld
---------- --------
N. DeBenedictis 37,638,288 228,596
P. G. Foulkrod 37,620,950 245,934
G. H. Glatfelter 37,420,652 446,232
M. A. Johnson II 37,422,767 444,117
R. W. Kelso 37,639,379 227,505
No other matters were voted upon at the meeting.
ITEM 5. OTHER INFORMATION
Cautionary Statement
Any statements set forth herein or otherwise made in writing or orally by the
Registrant with regard to its expectations as to industry conditions and its
financial results, demand for or pricing of its products, environmental matters
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 third parties which are material to the Registrant to become Year 2000
compliant thereby interrupting their and the Registrant's business operations;
and (xi) disruptions in production and/or increased costs due to labor disputes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description of Documents
------ ------------------------
15 Letter in Lieu of Consent Regarding Review
Report of Unaudited Interim Financial
Information
19
<PAGE>
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Item 5
Current Report on Form 8-K dated February 26, 1999
filed on March 11, 1999.
20
<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: May 14, 1999 /s/ R.P. NEWCOMER
-------------------------------------
R. P. Newcomer
Executive Vice President
and Chief Financial Officer
21
<PAGE>
INDEX OF EXHIBITS
Number Description of Documents
------ ------------------------
15 Letter in Lieu of Consent Regarding
Review Report of Unaudited Interim
Financial Information
27 Financial Data Schedule
22
<PAGE>
EXHIBIT 15
LETTER IN LIEU OF CONSENT REGARDING REVIEW REPORT OF UNAUDITED
INTERIM FINANCIAL INFORMATION
P. H. Glatfelter Company:
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
condensed consolidated financial statements of P. H. Glatfelter Company
and subsidiaries for the three months ended March 31, 1999 and 1998, as
indicated in our report dated April 16, 1999, except for Note 6 as to
which the date is May 1, 1999; 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 March 31,
1999, 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, 333-53977 and 333-66991 on Forms S-8.
We are also aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, 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
April 16, 1999, except for Note 6 as to
which the date is May 1, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 48,232
<SECURITIES> 0
<RECEIVABLES> 81,446
<ALLOWANCES> 1,594
<INVENTORY> 112,679
<CURRENT-ASSETS> 242,999
<PP&E> 1,277,923
<DEPRECIATION> 668,651
<TOTAL-ASSETS> 973,083
<CURRENT-LIABILITIES> 120,599
<BONDS> 312,713
544
0
<COMMON> 0
<OTHER-SE> 344,254
<TOTAL-LIABILITY-AND-EQUITY> 973,083
<SALES> 165,846
<TOTAL-REVENUES> 169,374
<CGS> 138,163
<TOTAL-COSTS> 151,672
<OTHER-EXPENSES> 4,728
<LOSS-PROVISION> 62
<INTEREST-EXPENSE> 4,790
<INCOME-PRETAX> 12,912
<INCOME-TAX> 4,772
<INCOME-CONTINUING> 8,140
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,140
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
