17.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Our 5.375% Notes issued by P. H. Glatfelter Company (the “Parent”) are fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., and Glatfelter Holdings, LLC. The guarantees are subject to certain customary release provisions including i) the designation of such subsidiary as an unrestricted or excluded subsidiary; (ii) in connection with any sale or disposition of the capital stock of the subsidiary guarantor; and (iii) upon our exercise of our legal defeasance option or our covenant defeasance option, all of which are more fully described in the Indenture dated as of October 3, 2012 among us, the Guarantors and US Bank National Association, as Trustee, relating to the 5.375% Notes. The following presents our condensed consolidating statements of income, including comprehensive income for the three months ended March 31, 2015 and 2014, our condensed consolidating balance sheets as of March 31, 2015 and December 31, 2014 and condensed consolidating cash flows for the three months ended March 31, 2015 and 2014. These financial statements reflect the parent, the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and elimination entries necessary to combine such entities on a consolidated basis. Our presentation of the Guarantors’ statement of income for the three months ended March 31, 2014 has been restated to correctly apply the equity method of accounting to reflect the Guarantors’ equity interests in certain Non Guarantors. Such changes are reflected under the captions “Equity in earnings of subsidiaries” and “Investments in subsidiaries” in the accompanying condensed consolidating statements of income. The correction had no impact on any financial information of the Parent Company, the Non Guarantors or on the statement of cash flows.

Condensed Consolidating Statement of Income for the

three months ended March 31, 2015

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net sales

219,876

—

197,593

—

417,469

Energy and related sales, net

2,068

—

2,068

Total revenues

221,944

—

197,593

—

419,537

Costs of products sold

202,519

—

164,910

—

367,429

Gross profit

19,425

—

32,683

—

52,108

Selling, general and administrative expenses

17,182

190

13,900

—

31,272

Gains on dispositions of plant, equipment and timberlands, net

(1,471

)

(1,183

)

—

(2,654

)

Operating income

3,714

993

18,783

—

23,490

Other non-operating income (expense)

Interest expense

(4,817

)

—

(6,394

)

6,703

(4,508

)

Interest income

163

6,599

(6,702

)

Equity in earnings of subsidiaries

16,363

9,475

—

(25,838

)

—

Other, net

(715

)

(126

)

655

)

(187

)

Total other non-operating income (expense)

10,994

15,948

(5,734

)

(25,838

)

(4,630

)

Income before income taxes

14,708

16,941

13,049

(25,838

)

18,860

Income tax provision

783

904

3,248

—

4,935

Net income

13,925

16,037

9,801

(25,838

)

13,925

Other comprehensive income (loss)

(35,285

)

(38,550

)

38,848

(298

)

(35,285

)

Comprehensive income (loss)

(21,360

)

(22,513

)

48,649

(26,136

)

(21,360

)

Condensed Consolidating Statement of Income for the

months ended March 31, 2014


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated
Net sales	$	225,831		$	18		$	229,890		$	(18	)	$	455,721
Energy and related sales, net		5,262			—			—			—			5,262

Total revenues		231,093			18			229,890			(18	)		460,983
Costs of products sold		216,716			17			189,228			(18	)		405,943

Gross profit		14,377			1			40,662			—			55,040
Selling, general and administrative expenses		17,793			13			15,745			—			33,551
Gains on dispositions of plant, equipment and timberlands, net		(812	)		—			3			—			(809	)

Operating income (loss)		(2,604	)		(12	)		24,914			—			22,298
Other non-operating income (expense)
Interest expense		(4,739	)		—			(2,731	)		2,658			(4,812	)
Interest income		153			2,559			7			(2,658	)		61
Equity in earnings of subsidiaries		22,499			20,462			—			(42,961	)		—
Other, net		(881	)		10			1,082			—			211

Total other non-operating income (expense)		17,032			23,031			(1,642	)		(42,961	)		(4,540	)

Income before income taxes		14,428			23,019			23,272			(42,961	)		17,758
Income tax (benefit) provision		(220	)		913			2,417			—			3,110

Net income		14,648			22,106			20,855			(42,961	)		14,648
Other comprehensive income		2,965			1			885			(886	)		2,965

Comprehensive income	$	17,613		$	22,107		$	21,740		$	(43,847	)	$	17,613

Condensed Consolidating Balance Sheet as of

March 31, 2015

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Assets

Cash and cash equivalents

50,133

2,583

18,854

—

71,570

Other current assets

227,159

328,811

270,141

(348,100

)

478,011

Plant, equipment and timberlands, net

259,875

961

401,972

—

662,808

Investments in subsidiaries

802,272

378,000

—

(1,180,272

)

—

Other assets

126,687

86,808

148,666

(87,293

)

274,868

Total assets

1,466,126

797,163

839,633

(1,615,665

)

1,487,257

Liabilities and Shareholders’ Equity

Current liabilities

434,759

4,887

169,589

(350,801

)

258,434

Long-term debt

250,000

—

635,789

(506,032

)

379,757

Deferred income taxes

48,983

(453

)

49,206

2,719

100,455

Other long-term liabilities

109,515

—

103,033

(86,806

)

125,742

Total liabilities

843,257

4,434

957,617

(940,920

)

864,388

Shareholders’ equity

622,869

792,729

(117,984

)

(674,745

)

622,869

Total liabilities and shareholders’ equity

1,466,126

797,163

839,633

(1,615,665

)

1,487,257

Condensed Consolidating Balance Sheet as of

December 31, 2014


In thousands	Parent Company		Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated

Assets
Cash and cash equivalents	$	42,208	$	514		$	57,115		$	—		$	99,837
Other current assets		218,544		420,451			263,567			(427,777	)		474,785
Plant, equipment and timberlands, net		255,255		991			441,362			—			697,608
Investments in subsidiaries		824,480		399,931			—			(1,224,411	)		—
Other assets		121,125		—			186,129			(17,980	)		289,274

Total assets	$	1,461,612	$	821,887		$	948,173		$	(1,670,168	)	$	1,561,504


Liabilities and Shareholders’ Equity
Current liabilities	$	403,662	$	3,394		$	307,737		$	(435,062	)	$	279,731
Long-term debt		250,000		—			721,457			(572,579	)		398,878
Deferred income taxes		46,483		(453	)		70,275			(12,289	)		104,016
Other long-term liabilities		112,358		—			11,633			5,779			129,770

Total liabilities		812,503		2,941			1,111,102			(1,014,151	)		912,395
Shareholders’ equity		649,109		818,946			(162,929	)		(656,017	)		649,109

Total liabilities and shareholders’ equity	$	1,461,612	$	821,887		$	948,173		$	(1,670,168	)	$	1,561,504

Condensed Consolidating Statement of Cash Flows for the three

months ended March 31, 2015

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net cash provided (used) by

Operating activities

(975

)

(10

)

3,140

—

2,155

Investing activities

Expenditures for purchases of plant, equipment and timberlands

(14,513

)

—

(7,236

)

—

(21,749

)

Proceeds from disposal plant, equipment and timberlands, net

1,513

1,213

—

2,726

Repayments from intercompany loans

—

31,556

—

(31,556

)

—

Advances of intercompany loans

—

(30,690

)

—

30,690

—

Other

(1,600

)

—

(1,600

)

Total investing activities

(14,600

)

2,079

(7,236

)

(866

)

(20,623

)

Financing activities

Payments of borrowing costs

(1,008

)

—

(1,008

)

Payment of dividends to shareholders

(4,774

)

—

(4,774

)

Repayments of intercompany loans

—

(31,556

)

31,556

—

Borrowings of intercompany loans

30,690

—

(30,690

)

—

Payments related to share-based compensation awards and other

(1,408

)

—

(1,408

)

Total financing activities

23,500

—

(31,556

)

866

(7,190

)

Effect of exchange rate on cash

—

(2,609

)

—

(2,609

)

Net increase (decrease) in cash

7,925

2,069

(38,261

)

—

(28,267

)

Cash at the beginning of period

42,208

514

57,115

—

99,837

Cash at the end of period

50,133

2,583

18,854

—

71,570

Condensed Consolidating Statement of Cash Flows for the three

months ended March 31, 2014


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated

Net cash provided (used) by
Operating activities	$	(3,797	)	$	981		$	(7,394	)	$	—		$	(10,210	)
Investing activities
Expenditures for purchases of plant, equipment and timberlands		(6,979	)		—			(7,456	)		—			(14,435	)
Proceeds from disposal plant, equipment and timberlands, net		838			—			1			—			839
Advances of intercompany loans		—			(1,250	)		—			1,250			—

Total investing activities		(6,141	)		(1,250	)		(7,455	)		1,250			(13,596	)
Financing activities
Net proceeds from indebtedness		—			—			(17,933	)		—			(17,933	)
Payment of dividends to shareholders		(4,363	)		—			—			—			(4,363	)
Repurchases of common stock		(1,251	)		—			—			—			(1,251	)
Borrowings of intercompany loans		1,250			—			—			(1,250	)		—
Payments related to share-based compensation awards and other		(781	)		—			—			—			(781	)

Total financing activities		(5,145	)		—			(17,933	)		(1,250	)		(24,328	)
Effect of exchange rate on cash		—			—			37			—			37

Net decrease in cash		(15,083	)		(269	)		(32,745	)		—			(48,097	)
Cash at the beginning of period		56,216			501			66,165			—			122,882

Cash at the end of period	$	41,133		$	232		$	33,420		$	—		$	74,785