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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2019

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                  to

 

96 South George Street, Suite 520

York, Pennsylvania 17401

(Address of principal executive offices)

(717) 850 0170

(Registrant's telephone number, including area code)

 

Commission file number

 

Exact name of registrant as

     specified in its charter     

 

IRS Employer

Identification No.

 

State or other jurisdiction of

incorporation or organization

1-03560

 

P. H. Glatfelter Company

 

23-0628360

 

Pennsylvania

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on which

                   registered                   

Common Stock, par value $.01 per share

GLT

New York Stock Exchange

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ☐    No   .

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ☐    No  .

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      No  ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No  ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer  Small reporting company ☐ Emerging Growth Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  .

Based on the closing price as of June 30, 2019, the aggregate market value of the Common Stock of the Registrant held by non‑affiliates was $728.0 million.

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Common Stock outstanding on February 25, 2020 totaled 44,308,031 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference in this Annual Report on Form 10‑K:

Portions of the registrant’s Proxy Statement to be dated on or about March 30, 2020 are incorporated by reference to Part III.

 

 

 

 

 

 


 

P. H. GLATFELTER COMPANY

ANNUAL REPORT ON FORM 10-K

For the Year Ended

DECEMBER 31, 2019

Table of Contents

 

 

Page

PART I

 

Item 1

 

Business

1

Item 1A

 

Risk Factors

6

Item 1B

 

Unresolved Staff Comments

9

Item 2

 

Properties

9

Item 3

 

Legal Proceedings

9

 

 

Executive Officers

10

Item 4

 

Mine Safety Disclosures

10

 

 

 

 

PART II

 

Item 5

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

11

 

 

Stock Performance Graph

11

Item 6

 

Selected Financial Data

12

Item 7

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

13

 

 

Results of Operations

14

 

 

Liquidity and Capital Resources

20

 

 

Critical Accounting Policies and Estimates

23

Item 7A

 

Quantitative and Qualitative Disclosures about Market Risk

24

Item 8

 

Financial Statements and Supplementary Data

26

 

 

Report of Independent Registered Public Accountants

27

 

 

Statements of Income (Loss)

30

 

 

Statements of Comprehensive Income (Loss)

31

 

 

Balance Sheets

32

 

 

Statements of Cash Flows

33

 

 

Statements of Shareholders’ Equity

34

 

 

Notes to Consolidated Financial Statements

 

 

 

1.    Organization

35

 

 

2.    Accounting Policies

35

 

 

3.    Acquisition

38

 

 

4.    Discontinued Operations

39

 

 

5.    Gain on Dispositions of Plant, Equipment and Timberlands

40

 

 

6.    Revenue

40

 

 

7.    Earnings Per Share

41

 

 

8.    Accumulated Other Comprehensive Income

42

 

 

9.    Income Taxes

43

 

 

10.  Stock-Based Compensation

46

 

 

11.  Retirement Plans and Other Post-Retirement Benefits

47

 

 

12.  Inventories

50

 

 

13.  Plant, Equipment and Timberlands

50

 

 

14.  Goodwill and Intangible Assets

51

 

 

15.  Other Long-Term Assets

51

 

 

16.  Other Current Liabilities

52

 

 

17.  Leases

52

 

 

18.  Long-Term Debt

53

 

 

19.  Fair Value of Financial Instruments

54

 

 

20.  Financial Derivatives and Hedging Activities

55

 


 

 

 

21.  Shareholders’ Equity

57

 

 

22.  Commitments, Contingencies and Legal Proceedings

57

 

 

23.  Segment and Geographic Information

59

 

 

24.  Quarterly Results (Unaudited)

60

 

 

 

 

Item 9

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

61

Item 9A

 

Controls and Procedures

61

Item 9B

 

Other Information

61

 

 

 

 

PART III

 

Item 10

 

Directors, Executive Officers and Corporate Governance

61

Item 11

 

Executive Compensation

61

Item 12

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

61

Item 13

 

Certain Relationships and Related Transactions, and Director Independence

61

Item 14

 

Principal Accountant Fees and Services

61

 

 

 

 

PART IV

 

Item 15

 

Exhibits, Financial Statement Schedules

62

 

 

 

 

Signatures

65

 

 

 

 

Schedule II

66

 

 

 

 


 

PART I

P. H. Glatfelter Company makes regular filings with the Securities and Exchange Commission (“SEC”), including this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. These filings are available, free of charge, on our website, www.glatfelter.com, and the SEC’s website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request to Investor Relations at (717) 225-2746, ir@glatfelter.com, or by mail to Investor Relations, 96 South George Street, Suite 520, York, PA, 17401. In this filing, unless the context indicates otherwise, the terms “we,” “our,” “us,” “the Company,” or “Glatfelter” refer to P. H. Glatfelter Company and subsidiaries.

ITEM 1

BUSINESS

Overview   Glatfelter is a leading global supplier of engineered materials.  Our high-quality, innovative and customizable solutions are found in tea and single-serve coffee filtration, personal hygiene as well as in many diverse packaging, home improvement and industrial applications. We are headquartered in York, PA, and our annual net sales approximate $928 million with customers in over 100 countries and approximately 2,600 employees worldwide.  We own and operate eleven manufacturing facilities located in the United States, Canada, Germany, France, the United Kingdom and the Philippines. Our eleven manufacturing facilities have a combined production capacity of approximately 293,000 metric tons of composite fibers and airlaid materials used in a wide array of applications.  In addition, we operate sales and distribution offices in Russia, Italy, China, and the United States.

We manage our business and make investment decisions under a functional operating model with two distinct reporting segments:  Composite Fibers and Airlaid Materials.  These segments serve growing global customers and markets providing innovative and customizable solutions, ultimately delivering high-quality engineered materials.   As a leading global supplier of engineered materials for consumer and industrial applications, we maintain leading positions in key segments serving markets that are growing commensurate with or in excess of gross domestic product (“GDP”). We partner with leading consumer product companies and other market leaders to provide innovative solutions delivering outstanding performance to meet market requirements. Over the past several years, we have divested of non-strategic assets and made investments to increase production capacity and improve our technical capabilities to ensure we are best positioned to serve the market demands and grow our revenue. We are committed to growing in our key markets and will make appropriate investments to support our customers and satisfy market demands.

In 2018, we exited the uncoated freesheet market by divesting our former Specialty Papers business.  We completed the sale of the Specialty Papers business to Pixelle Specialty Solutions, LLC, an affiliate of Lindsay Goldberg, for $360 million. For financial reporting purposes, Specialty Papers is presented as a discontinued operation.

In 2018, we began commercial shipments of Airlaid product from our new $90 million facility in Arkansas. This 20,000 metric-ton facility was built to meet the growing demands of the North American market. Throughout 2018 and 2019, we continued to ramp up production and shipments of wipes and table top products from this facility.  

On October 1, 2018, we acquired Georgia-Pacific’s European nonwovens business located in Steinfurt, Germany, (“Steinfurt”) along with its sales offices for $181 million. Steinfurt is a state-of-the-art, 32,000-metric-ton-capacity manufacturing facility that employs approximately 220 people.  These investments increased our total global airlaid materials capacity to approximately 150,000 metric tons.

 Our growth strategy is focused on expanding our engineered materials business with new product and business development, organic investment acquisitions, and continually optimizing our cost structure to deliver on expectations of our stakeholders.

 

GLATFELTER 2019 FORM 10-K

1

 


 

Our strategy focuses on:

 

Expanding our engineered materials business

Investing in organic growth and strategic acquisitions to expand capabilities and broaden scale

Driving innovation and growth by leveraging market-leading capabilities

Driving continuous improvement and cost optimization initiatives

Achieving more consistent operational excellence across the Company through robust continuous improvement

Managing cost structure to increase margins and improve cash flow

Maintaining a healthy balance sheet and financial flexibility

Applying a disciplined capital spending mindset

Funding organic and inorganic growth opportunities

 

Segments Consolidated net sales and the relative net sales contribution of each of our two segments for the past three years are summarized below:

 

Dollars in thousands

2019

 

 

2018

 

 

2017

 

Net sales

$

927,673

 

 

$

866,286

 

 

$

800,362

 

Operating segment contribution

 

 

 

 

 

 

 

 

 

 

 

Composite Fibers

 

56.2

%

 

 

64.1

%

 

 

68.0

%

Airlaid Materials

 

43.8

 

 

 

35.9

 

 

 

32.0

 

Total

 

100.0

%

 

 

100.0

%

 

 

100.0

%

 

Net tons sold by each segment for the past three years were as follows:

 

Metric tons

2019

 

 

2018

 

 

2017

 

Composite Fibers

 

133,473

 

 

 

143,777

 

 

 

150,388

 

Airlaid Materials

 

137,595

 

 

 

104,774

 

 

 

92,633

 

Total

 

271,068

 

 

 

248,551

 

 

 

243,021

 

 

 

COMPOSITE FIBERS   Our Composite Fibers segment serves customers globally and focuses on higher value-added products in the following markets:

 

Food & Beverage filtration paper primarily used for single-serve coffee and tea products;

 

Wallcover base materials used by the world’s largest wallpaper manufacturers;

 

Technical Specialties a diverse line of specialty papers used in commercial and industrial applications such as electrical energy storage, homecare, hygiene, and other highly-engineered fiber-based applications;

 

Metallized products used in labels, packaging liners, gift wrap, and other consumer product applications; and

 

Composite Laminates paper used in production of decorative laminates, furniture, and flooring applications.

We believe Composite Fibers maintains market leadership positions in the single-serve coffee and tea filtration markets, wallcover base material and many other products it produces. We believe many of the markets served by Composite Fibers present attractive growth opportunities due to evolving consumer preferences, new or emerging geographic markets, new product innovation and increased market share through superior products and quality.

This segment’s revenue composition by market consisted of the following for the years indicated:

 

In thousands

2019

 

 

2018

 

 

2017

 

Food & beverage

$

278,786

 

 

$

279,515

 

 

$

268,474

 

Wallcovering

 

81,679

 

 

 

103,686

 

 

 

103,011

 

Technical specialties

 

79,535

 

 

 

81,281

 

 

 

76,991

 

Metallized

 

46,392

 

 

 

52,174

 

 

 

57,088

 

Composite laminates

 

35,274

 

 

 

38,213

 

 

 

38,696

 

Total

$

521,666

 

 

$

554,869

 

 

$

544,260

 

 

2


 

A significant portion of Composite Fibers revenue is transacted in currencies other than the U.S. dollar and therefore the comparison from period to period reflects the impact of changes in currency exchange rates. Changes in exchange rates unfavorably affected the comparison of 2019 to 2018 by $22.8 million and favorably affected the comparison of 2018 to 2017 by $18.9 million.

Composite Fibers is comprised of five paper making facilities (Germany (3), France and England), two metallizing operations (Wales and Germany) and a pulp mill (the Philippines). The combined attributes of the facilities are summarized as follows (in metric tons):

 

Production

Capacity

 

Principal Raw

Material

(“PRM”)

 

Estimated Annual

Quantity of PRM

 

143,000 lightweight and other paper

 

Abaca pulp

 

 

15,000

 

 

 

Wood pulp

 

 

99,000

 

 

 

Synthetic fiber

 

 

24,000

 

21,600 metallized

 

Base stock

 

 

20,100

 

15,000 abaca pulp

 

Abaca fiber

 

 

23,400

 

 

Composite Fibers’ lightweight products are produced using highly specialized inclined wire paper machine technology.

The primary raw materials used in the production of our lightweight papers are softwood pulps, abaca pulp, and other specialty fibers. Enough quantities of abaca pulp and its source material, abaca fiber, are important to support growth in this segment. Abaca pulp, a specialized pulp with limited sources of availability globally, is produced by our Philippine pulp mill, providing a unique advantage to our Composite Fibers segment. As the supply of abaca fiber becomes constrained or when production demands exceed the capacity of the Philippines mill, alternative sources and/or substitute fibers are used to meet customer demands.

In addition to critical raw materials, Composite Fibers’ production cost is influenced by the price of electricity and natural gas. The segment generates all the steam needed for production by burning natural gas. However, in 2019 it purchased approximately 75% of its electricity needs, the cost of which is influenced by the natural gas markets.

In Composite Fibers’ markets, competition is product line specific as the necessity for technical expertise and specialized manufacturing equipment limits the number of companies offering multiple product lines. The following chart summarizes key competitors by market segment:

 

Market segment

Competitor

 

Single serve coffee & tea

Ahlstrom, Purico, Miquel y Costas and Zhejiang Kan

 

Wallcovering

Mayak & Technocell JV, Neu Kaliss, Goznak, Kämmerer and Ahlstrom

 

Technical specialties

Nippon Kodoshi Corp ("NKK"), Kan Kyo Technology, Burrows and Suominen Oyj

 

Composite laminates

Schweitzer-Maudit, Purico, Miquel y Costas and Oi Feng

 

Metallized

AR Metallizing, Torras Papel Novelis, Vaassen, Galileo Nanotech, and Wenzhou Protec Vacuum Metallizing Co.

 

 

 

 

 

 

 

Our strategy in Composite Fibers is focused on:

 

optimizing our product portfolio and capitalizing on growing global markets in beverage filtration, electrical storage and consumer products trends;

 

leveraging innovation resources to drive plastic free applications, and new product and new business development;

 

maximize continuous improvement methodologies to increase productivity, reduce costs and expand capacity; and

 

ensuring readily available access to specialized raw material requirements or suitable alternatives to support projected growth.

In early 2020, we announced a restructuring at our Gernsbach, Germany facility, including the discontinuation of its metalized production, which will be concentrated at our Caerphilly, Wales facility during 2020.

 

 

GLATFELTER 2019 FORM 10-K

3

 


 

AIRLAID MATERIALS   Airlaid Materials is a leading global supplier of highly absorbent and very thin profile cellulose-based airlaid nonwoven materials primarily used to manufacture consumer products for growing global end-user markets. The markets served by Airlaid Materials include:

 

feminine hygiene;

 

specialty wipes;

 

table top;

 

adult incontinence;

 

home care; and

 

other consumer products.

Airlaid Materials’ customers are industry leading consumer product companies as well as private label converters. We believe this business holds leading market share positions in the majority of the markets it serves. Airlaid Materials has developed long-term customer relationships through superior quality, customer service, and a reputation for quickly bringing product and process innovations to market.

Airlaid Materials’ revenue composition by market consisted of the following for the years indicated:

 

In thousands

2019

 

 

2018

 

 

2017

 

Feminine hygiene

$

207,301

 

 

$

195,686

 

 

$

179,671

 

Specialty wipes

 

70,149

 

 

 

45,375

 

 

 

29,519

 

Table top

 

66,486

 

 

 

21,600

 

 

 

6,707

 

Adult incontinence

 

25,233

 

 

 

19,734

 

 

 

14,425

 

Home care

 

17,266

 

 

 

16,010

 

 

 

13,029

 

Other

 

19,572

 

 

 

13,012

 

 

 

12,751

 

Total

$

406,007

 

 

$

311,417

 

 

$

256,102

 

 

A significant portion of Airlaid Materials’ revenue is transacted in currencies other than the U.S. dollar and therefore the comparison from period to period reflects the impact of changes in currency exchange rates. Changes in exchange rates unfavorably affected the comparison of 2019 to 2018 by $8.6 million and favorably affected 2018 to 2017 by $6.5 million.

The feminine hygiene category accounted for 51% and 63% of Airlaid Material’s revenue in 2019 and 2018, respectively, reflecting continued diversification in our products due to growth in wipes and table top products from the Steinfurt acquisition, and additional capacity at the Fort Smith facility. Most feminine hygiene sales are to a group of large, leading global consumer products companies. We believe these markets are growth oriented due to population growth in certain geographic regions and changing consumer preferences. In developing regions, demand is also influenced by increases in disposable income and cultural preferences.

Airlaid Materials operates state-of-the-art facilities in Falkenhagen and Steinfurt, Germany, Gatineau, Canada and Fort Smith, Arkansas. During 2018, this segment’s capacity increased by a combined 52,000 metric tons from the Steinfurt acquisition and the start-up of the Fort Smith facility.  Steinfurt produces high-quality airlaid products for the table-top, wipes, hygiene, food pad, and other nonwoven materials markets, competing in the marketplace with nonwoven technologies and substrates, as well as other materials focused primarily on consumer based end-use applications.  The state-of-the art facility has 32,000-metric-ton-capacity.

Airlaid Materials’ four facilities operate with the following combined attributes (in metric tons):

 

Airlaid Production

Capacity (metric tons)

 

 

Principal Raw Material (“PRM”)

 

Estimated Annual

Quantity of PRM

(short tons)

 

 

150,000

 

 

Fluff pulp

 

 

120,000

 

 

Key raw material inputs other than fluff pulp include synthetic fibers, super absorbent polymers and latex. The cost to produce is influenced by the cost of critical raw materials and energy prices. Airlaid Materials purchases substantially all the electricity and natural gas used in its operations. Approximately 73% of this segment’s revenue is earned under contracts with pass-through provisions directly related to the cost of key raw materials.

4


 

Airlaid Materials continues to be a technology and product innovation leader in technically demanding segments of the airlaid market. It’s airlaid material production employs multi-bonded and thermal-bonded airlaid technologies as opposed to other methods such as hydrogen-bonding. We believe that its facilities are among the most modern and flexible airlaid facilities in the world, allowing it to produce at industry leading operating rates. Its proprietary single-lane festooning technology provides converting and product packaging capabilities which supports efficiency in the customers converting processes. Airlaid Materials’ in-house technical expertise combined with significant capital investment requirements and rigorous customer expectations creates large barriers to entry for new competitors.

The following summarizes Airlaid Materials’ key competitors:

 

Market segment

Competitor

 

Hygiene and other absorbent products

Fitesa, McAirlaid's GmbH, Domtar, Georgia-Pacific

 

Table top

Georgia-Pacific, SharpCell, Duni AB, Ascutec

 

Wipes

Jacob Holm, Suominen Oyj, Georgia-Pacific, Kimberly Clark

 

 

 

 

 

 

 

The global markets served by Airlaid Materials are characterized by attractive growth opportunities. To take advantage of this, our strategy is focused on:

 

maintaining and expanding relationships with customers that are market-leading consumer product companies as well as companies distributing through private label arrangements;

 

capitalizing on our product and process innovation capabilities;

 

expanding geographic reach of markets served;

 

optimizing the use of existing production capacity; and

 

employing continuous improvement methodologies and initiatives to reduce costs, improve efficiencies and create additional capacity.

Additional financial information for each of our segments, including geographic revenue and amounts of long-lived asset, is included in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Item 8 – Financial Statements and Supplementary Data, Note 23.

Concentration of Customers   Approximately 16% of our consolidated net revenue in each of the past three years was from sales to Procter & Gamble Company, a customer in the Airlaid Materials segment.

Capital Expenditures   Our business requires expenditures for equipment enhancements to support growth strategies, research and development initiatives, and for normal upgrades or replacements. Most recently, we incurred significant expenditures for Airlaid Materials’ capacity expansion project completed in early 2018. Capital expenditures totaled $27.8 million, $42.1 million and $80.8 million in 2019, 2018 and 2017, respectively. Capital expenditures in 2020 are estimated to total between approximately $30 million and $35 million.

Environmental Matters   We are subject to various federal, state and local laws and regulations intended to protect the environment as well as human health and safety. At various times, we have incurred costs to comply with these regulations and we could incur additional costs as new regulations are developed or regulatory priorities change.

During 2019, we substantially resolved our exposure to liabilities at the Fox River environmental site, a complex and significant matter. For a more complete discussion of this matter and our exposure to potential additional costs, see Item 8 – Financial Statements and Supplementary Data – Note 22.

Employees   As of December 31, 2019, we employed 2,557 people worldwide, of whom approximately 64% are represented by labor works councils. We consider the overall relationship with our employees to be satisfactory.

Other Available Information  The Corporate Governance page of our website includes our Governance Principles, Code of Business Conduct, and biographies of our Board of Directors and Executive Officers. In addition, the website includes charters of the Audit, Compensation, and Nominating and Corporate Governance Committees of the Board of Directors. The Corporate Governance page also includes the Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter, our “whistle-blower” policy and other related material. We satisfy the disclosure requirement for any future amendments to, or waivers from, our Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers by posting such information on our website. We will provide a copy of these documents, without charge, to any person who requests one by contacting Investor Relations at (717) 225-2746, ir@glatfelter.com or by mail to 96 South George Street, Suite 520, York, PA, 17401.

 

 

GLATFELTER 2019 FORM 10-K

5

 


 

ITEM 1A

RISK FACTORS

Our business and financial performance may be adversely affected by a weak global economic environment or downturns in the target markets that we serve.

Adverse global economic conditions could impact our target markets resulting in decreased demand for our products. Our results could be adversely affected if economic conditions weaken. In the event of significant currency weakening in the countries into which our products are sold, demand for or pricing of our products could be adversely impacted. Also, there may be periods during which demand for our products is insufficient to enable us to operate our production facilities in an economical manner. As a result, we may be forced to take machine downtime to curtail production to match demand. The economic environment may also cause customer insolvencies which may result in their inability to satisfy their financial obligations to us. These conditions are beyond our control and may have a significant impact on our sales and results of operations.

Approximately $68 million of our revenue in 2019, was earned from customers located in Ukraine, Russia and members of the Commonwealth of Independent States (also known as “CIS”). Uncertain geo-political conditions, this region’s economic environment and volatile currencies may cause demand for our products to be volatile and cause abrupt changes in our customers buying patterns.

Approximately 56% of our revenue in 2019 was from shipments to customers in Europe, the demand for which is dependent on economic conditions in this area, or to the extent such customers do business outside of Europe, in other regions of the world. Uncertain economic conditions in this region may cause weakness in demand for our products as well as volatility in our customers buying patterns.

Foreign currency exchange rate fluctuations could adversely affect our results of operations.

A significant proportion of our revenue and earnings is generated from operations outside of the United States. In addition, we own and operate manufacturing facilities in Canada, Germany, France, the United Kingdom and the Philippines. A significant portion of our business is transacted in currencies other than the U.S. dollar including the euro, British pound, Canadian dollar and Philippine peso, among others. Our euro denominated revenue exceeds euro expenses by an estimated €140 million. With respect to the British pound, Canadian dollar and Philippine peso, we have greater outflows than inflows of these currencies, although to a lesser degree than the euro. As a result, we are exposed to changes in currency exchange rates and such changes could be significant.

Our ability to maintain our products' price competitiveness is reliant, in part, on the relative strength of the currency in which the product is denominated compared to the currency of the market into which it is sold and the functional currency of our competitors. Changes in the rate of exchange of foreign currencies in relation to the U.S. dollar, and other currencies, may adversely impact our results of operations and our ability to offer products in certain markets at acceptable prices. For example, approximately $68 million of our revenue in 2019 was earned from shipments to customers located in Ukraine, Russia and members of the CIS. Although the majority of these sales are denominated in euros, a significant weakening of the customers’ local currencies may adversely affect our revenue, our customers’ credit risk and our results of operation.

The cost of raw materials and energy used to manufacture our products could increase or the availability of certain raw materials could become constrained.

We require access to sufficient, and reasonably priced, quantities of pulps, pulp substitutes, abaca fiber, synthetic fibers, and certain other raw materials, as well as access to reliable and abundant supplies of water to support many of our production facilities. We require significant quantities of wood pulps and, therefore, the volatility of wood pulp prices can have a significant impact on our results of operations.

Our Philippine mill purchases abaca fiber to produce abaca pulp, a key material used to manufacture paper for single-serve coffee, tea and technical specialty products at Composite Fibers’ facilities. At certain times, the supply of abaca fiber has been constrained or the quality diminished due to factors such as weather-related damage to the source crop as well as decisions by land owners to produce alternative crops in lieu of those used to produce abaca fiber. These factors have contributed to volatility in fiber prices or limited available supply.

Airlaid Materials requires access to sufficient quantities of fluff pulp, the supply of which is subject to availability of certain softwoods.

The cost of many of our production materials, including petroleum-based chemicals and freight charges, are influenced by the cost of oil. Natural gas is the principal source of fuel for each of our facilities worldwide and has historically been more volatile than other fuels.

6


 

Government rules, regulations and policies have an impact on the cost of certain energy sources, particularly for our European operations. In Europe, we currently benefit from a number of government-sponsored programs related to, among others, green energy or renewable energy initiatives designed to mitigate the cost of electricity to larger industrial consumers of power. Any reduction in the extent of government sponsored incentives may adversely affect the cost ultimately borne by our operations.

Although we have contractual arrangements with certain Airlaid Materials customers pursuant to which our product’s selling price is adjusted for changes in the cost of certain raw materials, we may not be able to fully pass increased raw materials or energy costs on to all customers if the market will not bear the higher price or if existing agreements limit price increases. If price adjustments significantly trail increases in raw materials or energy prices, our operating results could be adversely affected.

Our industry is highly competitive and increased competition could reduce our sales and profitability.

The global markets in which we compete are served by a variety of competitors and a variety of substrates. As a result, our ability to compete is sensitive to, and may be adversely impacted by:

 

the entry of new competitors into the markets we serve;

 

the aggressiveness of our competitors’ pricing strategies, which could force us to decrease prices in order to maintain market share;

 

our failure to anticipate and respond to changing customer preferences; and

 

technological advances or changes that impact production or cost competitiveness of our products.

The impact of any significant changes may result in our inability to effectively compete in the markets in which we operate, and as a result our sales and operating results would be adversely affected.

We may not be able to develop new products acceptable to our existing or potential customers.

Our business strategy is market focused and includes investments in developing new products to meet the changing needs of our customers, serve new customers and to maintain our market share. Our success will depend, in part, on our ability to develop and introduce new and enhanced products that keep pace with introductions by our competitors and changing customer preferences. If we fail to anticipate or respond adequately to these factors, we may lose opportunities for business with both current and potential customers. The success of our new product offerings will depend on several factors, including our ability to:

 

anticipate and properly identify our customers' needs and industry trends;

 

develop and commercialize new products and applications in a timely manner;

 

price our products competitively;

 

differentiate our products from our competitors' products; and

 

invest efficiently in research and development activities.

Our inability to develop new products or new business opportunities could adversely impact our business and ultimately harm our profitability.

We are subject to substantial costs and potential liability for environmental matters.

We are subject to various environmental laws and regulations that govern our operations, including discharges into the environment, and the handling and disposal of hazardous substances and wastes. We are also subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances. To comply with environmental laws and regulations, we have incurred, and will continue to incur, substantial expenditures.

We may incur obligations to remove or mitigate any adverse effects on the environment, such as air and water quality, resulting from mills we operate or have operated. Potential obligations include costs for government oversight of the remediation activities, the restoration of natural resources, and/or personal injury and property damages.

Airlaid Materials generates a substantial portion of its revenue from one customer serving the hygiene products market, the loss of which could have a material adverse effect on our results of operations.

Airlaid Materials’ derives approximately 79% of its net sales from sales of hygiene and home care products. In addition, sales to the feminine hygiene market accounted for 51% of Airlaid Materials’ net sales. One customer accounted for 37% of this segment’s sales, and the balance is concentrated with a small group of large customers. The loss of the large

 

GLATFELTER 2019 FORM 10-K

7

 


 

customer or a decline in sales of hygiene products could have a material adverse effect on this business’s operating results. Our ability to effectively compete could be affected by technological production alternatives which could provide substitute products into this market segment. Customers in the airlaid nonwoven fabric material market, including the hygiene market, may also switch to less expensive products, change preferences or otherwise reduce demand for Airlaid Materials’ products, thus reducing the size of the markets in which it currently sells its products. Any of the foregoing could have a material adverse effect on our financial performance and business prospects.

Our operations may be impaired, and we may be exposed to potential losses and liability as a result of natural disasters, acts of terrorism or sabotage or similar events.

If we have a catastrophic loss or unforeseen operational disruption at any of our facilities, we could suffer significant lost production which could impair our ability to satisfy customer demands.

Natural disasters, such as earthquakes, hurricanes, typhoons, flooding or fire, and acts of terrorism or sabotage affecting our operating activities and major facilities could materially and adversely affect our operations, operating results and financial condition.

In addition, many of our operations require a reliable and abundant supply of water. Such mills rely on a local water body or water source for their water needs and, therefore, are particularly sensitive to drought conditions or other natural or manmade interruptions to water supplies. Any interruption or curtailment of operations at any of our production facilities due to drought or low flow conditions at the principal water source or another cause could materially and adversely affect our operating results and financial condition.

Our pulp mill in Lanao del Norte on the Island of Mindanao in the Republic of the Philippines is located along the Pacific Rim, one of the world’s hazard belts. By virtue of its geographic location, this mill is subject to similar types of natural disasters discussed above, cyclones, typhoons, and volcanic activity. Moreover, the area of Lanao del Norte has been a target of suspected terrorist activities. Our pulp mill in Mindanao is located in a rural portion of the island and is susceptible to attacks and/or power interruptions. The Mindanao mill supplies the abaca pulp used by Composite Fibers to manufacture paper for single serve coffee and tea products and certain technical specialties products. Any interruption, loss or extended curtailment of operations at our Mindanao mill could affect our ability to meet customer demands for our products and materially affect our operating results and financial condition.

We have operations in a potentially politically and economically unstable location.

Our pulp mill in the Philippines is located in a region that is unstable and subject to political unrest. As discussed above, our Philippine pulp mill produces abaca pulp, a significant raw material used by Composite Fibers and is currently our main source of abaca pulp. There are limited suitable alternative sources of readily available abaca pulp in the world. In the event of a disruption in supply from our Philippine mill, there is no guarantee that we could obtain adequate amounts of abaca pulp, if at all, from alternative sources at a reasonable price. Further, there is no assurance the performance of such alternative materials will satisfy customer performance requirements. As a consequence, any civil disturbance, unrest, political instability or other event that causes a disruption in supply could limit the availability of abaca pulp and would increase our cost of obtaining abaca pulp. Such occurrences could adversely impact our sales volumes, revenues and operating results.

Our international operations pose certain risks that may adversely impact sales and earnings.

We have significant operations and assets located in Canada, Germany, France, the United Kingdom, and the Philippines. Our international sales and operations are subject to a number of unique risks, in addition to the risks in our domestic sales and operations, including, but not limited to, economic and trade disruptions resulting from geopolitical developments, differing protections of intellectual property, trade barriers, labor unrest, exchange controls, regional economic uncertainty, differing (and possibly more stringent) labor regulation, risk of governmental expropriation, domestic and foreign customs and tariffs, differing regulatory environments, difficulty in managing widespread operations and political instability. These factors may adversely affect our future profits. Also, in some foreign jurisdictions, we may be subject to laws limiting the right and ability of entities organized or operating therein to pay dividends or remit earnings to affiliated companies unless specified conditions are met. Any such limitations would restrict our flexibility in using funds generated in those jurisdictions.

8


 

We are subject to cyber-security risks related to unauthorized or malicious access to sensitive customer, vendor, company or employee information as well as to the technology that supports our operations and other business processes.

Our business operations rely upon secure systems for mill operations, and data capture, processing, storage and reporting. Although we maintain appropriate data security and controls, our information technology systems, and those of our third-party providers, could become subject to cyberattacks. Systems such as ours are inherently exposed to cyber-security risks and potential attacks. The result of such attacks could result in a breach of data security and controls. Such a breach of our network, systems, applications or data could result in operational disruptions or damage or information misappropriation including, but not limited to, interruption to systems availability, denial of access to and misuse of applications required by our customers to conduct business with us, denial of access to the applications we use to plan our operations, procure materials, manufacture and ship products and account for orders, theft of intellectual knowhow and trade secrets, and inappropriate disclosure of confidential company, employee, customer or vendor information, could stem from such incidents.

Any of these operational disruptions and/or misappropriation of information could adversely affect our results of operations, create negative publicity and could have a material effect on our business.

We operate in and are subject to taxation from numerous U.S. and foreign jurisdictions.

The multinational nature of our business subjects us to taxation in the U.S and numerous foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. Our effective tax rates could be affected by changes in tax laws or their interpretation or changes in the mix of earnings in jurisdictions with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities. For example, the European Commission has opened formal investigations to examine whether decisions by the tax authorities in certain European countries comply with European Union rules on state aid. The outcome of the European Commission’s investigations could require changes to existing tax rulings that, in turn, could have an impact on our income taxes and results of operations.

In the event any of the above risk factors impact our business in a material way or in combination during the same period, we may be unable to generate enough cash flow to simultaneously fund our operations, finance capital expenditures, satisfy obligations and make dividend payments on our common stock.

In addition to debt service obligations, our business requires expenditures to support growth strategies, research and development initiatives, and for normal upgrades or replacements. We expect to meet all our near and long-term cash needs from a combination of operating cash flow, cash and cash equivalents, availability under our credit facility or other long-term debt. If we are unable to generate enough cash flow from these sources, we could be unable to fund our operations, finance capital expenditures, satisfy our near and long-term cash needs or make dividend payments.

 

ITEM 1B

UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2

PROPERTIES

We own substantially all the land and buildings comprising our manufacturing facilities located in Arkansas; Canada; the United Kingdom; Germany; France; and the Philippines; as well as substantially all of the equipment used in our manufacturing and related operations. Certain of our operations are under lease arrangements including our metallized paper production facility located in Caerphilly, Wales, office and warehouse space in the United States, Moscow, Russia, Suzhou, China and our corporate offices in York, Pennsylvania. All our properties, other than those that are leased, are free from any material liens or encumbrances. We consider all our buildings to be in good structural condition and well maintained and our properties to be suitable and adequate for present operations.

 

ITEM 3

We are involved in various lawsuits that we consider to be ordinary and incidental to our business. The ultimate outcome of these lawsuits cannot be predicted with certainty; however, we do not expect such lawsuits, individually or in the aggregate, will have a material adverse effect on our consolidated financial position, liquidity or results of operations.

 

 

GLATFELTER 2019 FORM 10-K

9

 


 

EXECUTIVE OFFICERS

The following table sets forth certain information with respect to our executive officers and other senior management members of February 25, 2020

 

Name

Age

Office with the Company

Dante C. Parrini

55

Chairman and Chief Executive Officer

Christopher W. Astley

47

Senior Vice President, Chief Commercial Officer

Samuel L. Hillard

38

Senior Vice President, Chief Financial Officer

Wolfgang Laures

50

Senior Vice President, Global Supply Chain

Eileen L. Beck

57

Vice President, Human Resources and Administration

David C. Elder

51

Vice President, Finance and Chief Accounting Officer

Philippe Sevoz

52

Vice President, Global Operation

Jill L. Urey

53

Vice President, Deputy General Counsel & Corporate Secretary

Joseph J. Zakutney

57

Vice President, Global Business Services & Chief Information Officer

 

Dante C. Parrini became Chief Executive Officer effective January 1, 2011 and Chairman of the Board in May 2011. Prior to this, he was Executive Vice President and Chief Operating Officer, a position he held since February 2005. Mr. Parrini joined us in 1997 and previously served as Senior Vice President and General Manager, a position he held beginning in January 2003 and prior to that as Vice President responsible for Sales and Marketing.

Christopher W. Astley was named Senior Vice President, Chief Commercial Officer in September 2019. Previously he was Senior Vice President & Business Unit President, Airlaid Materials a position he held since January 2015. He joined us in August 2010 as Vice President, Corporate Strategy and was promoted to Senior Vice President in February 2014. Prior to joining us, he was an entrepreneur leading a privately held business from 2004 until 2010. Prior to that Mr. Astley held positions with Accenture, a global management consulting firm, and The Coca-Cola Company.

Samuel L. Hillard was promoted to Senior Vice President, Chief Financial Officer in March of 2019. He joined us in March 2016 as Vice President, Corporate Development & Strategy. Prior to joining us, Mr. Hillard was Vice President – Business Development for Dover Corporation from July 2014 until 2016 where he was responsible for strategy and mergers & acquisitions within the Fluids Business Segment. From February 2011 to 2014, he served as Vice President – Business Development for SPX Corporation where he was responsible for all M&A related strategy activity within the Flow Technology Segment. Additionally, he previously worked for Blackstone in their M&A group.

Wolfgang Laures joined us in September 2019 as Senior Vice President, Global Supply Chain.  Prior to this, Mr. Laures served as Executive Vice President, Global Supply Chain and Digital Transformation from 2014 to 2019 for Perstorp Group, a private equity-owned specialty chemicals innovator. Prior to joining Perstorp, he held supply chain and operations-related roles at Avery Dennison, McKinsey & Company and Procter & Gamble.

Eileen L. Beck was promoted to Vice President Human Resources & Administration in April 2017. She joined us in 2012 as Director, Global Compensation and Benefits and was promoted to Vice President in September 2015. Ms. Beck previously held various Human Resources roles at Armstrong World Industries.

David C. Elder was named Vice President, Finance in December 2011 and serves as our Chief Accounting Officer. Prior to his promotion, he was our Vice President, Corporate Controller, a position held since joining Glatfelter in January 2006. Mr. Elder was previously Corporate Controller for YORK International Corporation.

Philippe Sevoz was promoted to Vice President, Global Operations in September 2019.  Previously, Mr. Sevoz has held various leadership positions in Composite Fibers including Vice President, Operations and Director, New Product Development since 2017. From 2013 until 2017, he was responsible for our facilities in Dresden and Oberschmitten, Germany. He joined Glatfelter in 2013 as General Mill Manager for Scaër, France.  Before joining Glatfelter, Mr. Sevoz held mill manager positions with specialty paper companies Arjowiggins and Hahnemühle.

Jill L. Urey was promoted to Vice President, Deputy General Counsel & Corporate Secretary in July 2019 and has led our legal function since December 2018. She joined Glatfelter in January 2013 as Assistant General Counsel and assumed the additional role of Chief Compliance Officer in the beginning of 2016.  Prior to joining us, Ms. Urey was Corporate Counsel and later Interim General Counsel for Graham Packaging Company from 2007 to 2012.

Joseph J. Zakutney joined us in September 2015 as Vice President and Chief Information Officer. Prior to joining Glatfelter, he spent 17 years with The Hershey Company where he held a broad spectrum of IT roles including Vice President and CIO.

ITEM 4

MINE SAFETY DISCLOSURES

Not Applicable

 

10


 

PART II

ITEM 5

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the New York Stock Exchange under the symbol “GLT”

 

Our Board of Directors declared quarterly cash dividends of $0.13 per common share in each of the four quarters of both 2019 and 2018.

As of February 20, 2020, we had 938 shareholders of record.

STOCK PERFORMANCE GRAPH

The following stock performance graph compares the cumulative 5-year total return of our common stock with the cumulative total returns of both a broad market index and a peer group. We compare our stock performance to the S&P Small Cap 600 index and to the S&P Small Cap 600 Paper Products index comprised of us, Clearwater Paper Corp., Neenah Paper Inc., and Schweitzer-Mauduit International.

The following graph assumes $100 was invested in our common stock, in each index, and in the peer group (including reinvestment of dividends) on December 31, 2014 and charts the performance through December 31, 2019.

 

 

 

 

GLATFELTER 2019 FORM 10-K

11

 


 

ITEM 6

SELECTED FINANCIAL DATA

 

As of or for the year ended December 31

Dollars in thousands, except per share

2019

 

 

 

2018

 

 

2017

 

 

2016

 

 

2015

 

 

Net sales

$

927,673

 

 

 

$

866,286

 

 

$

800,362

 

 

$

761,216

 

 

$

786,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

(25,211

)

 

 

 

(448

)

 

 

(5,612

)

 

 

(14,177

)

 

 

30,406

 

 

Income (loss) from discontinued operations

 

3,670

 

 

 

 

(177,156

)

 

 

13,526

 

 

 

35,731

 

 

 

34,170

 

 

Net income (loss)

 

(21,541

)

 

 

 

(177,604

)

 

 

7,914

 

 

 

21,554

 

 

 

64,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.57

)

 

 

$

(0.01

)

 

$

(0.13

)

 

$

(0.33

)

 

$

0.70

 

 

Diluted

 

(0.57

)

 

 

 

(0.01

)

 

 

(0.13

)

 

 

(0.33

)

 

 

0.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

1,283,794

 

 

 

$

1,339,754

 

 

$

1,730,795

 

 

$

1,521,259

 

 

$

1,500,416

 

 

Total debt

 

359,859

 

 

 

 

411,747

 

 

 

481,396

 

 

 

372,608

 

 

 

360,662

 

 

Shareholders’ equity

 

555,959

 

 

 

 

538,898

 

 

 

708,928

 

 

 

653,826

 

 

 

663,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common

   share

 

0.52

 

 

 

 

0.52

 

 

 

0.52

 

 

 

0.50

 

 

 

0.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, depletion and

   amortization

 

50,820

 

 

 

 

47,525

 

 

 

42,078

 

 

 

39,287

 

 

 

37,284

 

 

Capital expenditures

 

27,765

 

 

 

 

42,129

 

 

 

80,783

 

 

 

61,162

 

 

 

36,387

 

 

Net tons sold

 

271,068

 

 

 

 

248,551

 

 

 

243,021

 

 

 

227,527

 

 

 

226,546

 

 

Number of employees

 

2,557

 

 

 

 

2,600

 

 

 

2,360

 

 

 

2,355

 

 

 

2,345

 

 

 

 

 

12


 

ITEM 7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report. Our discussion and analysis of 2019 compared to 2018 is included herein. For discussion and analysis of 2018 compared to 2017, please refer to Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was filed with the United States Securities and Exchange Commission on February 25, 2019 and is incorporated herein by reference.

Forward-Looking Statements    This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-K are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among others, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

i.

variations in demand for our products or the pricing thereof, product substitution or the impact of unplanned market-related downtime;

ii.

the impact of competition, both domestic and international, changes in industry production capacity, including the construction of new machines or mills, idling of machines or the closing of mills and incremental changes due to capital expenditures or productivity increases;

iii.

risks associated with our international operations, including local/regional economic and political environments and fluctuations in currency exchange rates;

iv.

geopolitical events, including Russia, Ukraine and Philippines;

v.

our ability to develop new, high value-added products;

vi.

changes in the price or availability of raw materials we use, particularly pulp, pulp substitutes, synthetic pulp, specialty fibers and abaca fiber;

vii.

changes in energy-related prices and the price of commodity raw materials with an energy component;

viii.

the impact of unplanned production interruptions at our facilities or at any of our key suppliers;

ix.

disruptions in production and/or increased costs due to labor disputes;

x.

the gain or loss of significant customers and/or on-going viability of such customers;

xi.

unfavorable outcomes or unforeseen costs with respect to our ongoing obligations for the Fox River environmental matter;

xii.

the impact of war and terrorism;

xiii.

the impact of unfavorable outcomes of audits by various state, federal or international tax authorities or changes in pre-tax income and its impact on the valuation of deferred tax assets;

xiv.

enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation; and

xv.

our ability to finance, consummate and integrate future acquisitions.

 

GLATFELTER 2019 FORM 10-K

13

 


 

Introduction  We manufacture a wide array of engineered materials and manage our company along two operating segments:

Composite Fibers with revenue from the sale of single-serve tea and coffee filtration papers, wallcovering base materials, composite laminate papers, technical specialties including substrates for electrical applications, and metallized products; and

Airlaid Materials with revenue from the sale of airlaid nonwoven fabric-like materials used in feminine hygiene, adult incontinence products, table top, specialty wipes, home care products and other airlaid applications.

Specialty Papers’ results of operations and financial condition are reported as discontinued operations. The following discussion and analysis primarily focuses on the financial results of operations and financial condition of our continuing operations.

 

RESULTS OF OPERATIONS

2019 versus 2018

Overview For the year ended December 31, 2019 we reported a net loss of $21.5 million, or $0.49 per share compared with a net loss of $177.6 million, or $4.06 per diluted share in 2018. The results for 2019 reflect a number of significant actions we undertook including corporate cost reductions, debt refinancing and termination and settlement of our qualified pension plan. Excluding these items from reported results, adjusted earnings, a non-GAAP measure, was $33.2 million, or $0.75 per diluted share for 2019, compared with $9.2 million, or $0.21 per diluted share, a year ago.

On October 31, 2018, we completed the sale of the Specialty Papers business, and on October 1, 2018, we completed our acquisition of Georgia-Pacific’s European nonwovens business based in Steinfurt, Germany (“Steinfurt”), with annual revenues of approximately $99 million as part of our strategic transformation to becoming a leading global supplier of engineered materials. These actions are all part of our strategic transformation to becoming a leading global supplier of engineered materials.

The results discussed in the preceding paragraph are in accordance with generally accepted accounting principles in the United States (“GAAP”). These reported results reflect the impact of significant unusual and non-recurring items including, among others, the results of Specialty Papers, a discontinued operation, the cost to terminate and settle liabilities associated with our qualified pension plan, cost optimization actions, costs of strategic initiatives, capacity expansion and gains from timberland sales.

We generated $102.8 million of cash from operations in 2019 compared with the use of $6.0 million a year ago. The amount reported for 2019 includes $53.4 million of cash, before tax, available to us as a result of the pension plan termination and settlement of all liabilities. During 2019 and 2018, capital expenditures totaled $27.8 and $42.1 million, respectively, reflecting the completion of the airlaid capacity expansion project in early 2018.

The following table sets forth summarized GAAP-based consolidated results of operations:

 

 

Year ended

December 31

 

In thousands, except per share

2019

 

 

 

2018

 

Net sales

$

927,673

 

 

 

$

866,286

 

Gross profit

 

147,542

 

 

 

 

130,407

 

Operating income

 

54,635

 

 

 

 

21,942

 

Continuing operations

 

 

 

 

 

 

 

 

Loss

 

(25,211

)

 

 

 

(448

)

Loss per share

 

(0.57

)

 

 

 

(0.01

)

Discontinued operations

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

3,670

 

 

 

 

(177,156

)

Earnings (loss) per share

 

0.08

 

 

 

 

(4.05

)

Net loss

 

(21,541

)

 

 

 

(177,604

)

Loss per share

 

(0.49

)

 

 

 

(4.06

)

 

In addition to the results reported in accordance with GAAP, we evaluate our performance using adjusted earnings and adjusted earnings per diluted share. We disclose this information to allow investors to evaluate our performance exclusive of certain items that impact the comparability of results from period to period and we believe it is helpful in understanding

14


 

underlying operating trends and cash flow generation. Adjusted earnings consist of net income determined in accordance with GAAP adjusted to exclude the impact of the following:

Discontinued Operations. In connection with the sale of the Specialty Papers business, its results of operations, including the loss recorded in connection with the sale, are reported as discontinued operations for all periods presented. This adjustment reflects the net results of this discontinued operation.

Pension settlement charge. This adjustment reflects a charge recorded in connection with the termination of our qualified pension plan and the related actions to settle all obligations to the plan’s participants.  The pension settlement charge reflects the recognition of previously unrecognized losses deferred as a component of accumulated other comprehensive losses. Since the pension plan was fully funded, this action did not require the use of cash, but instead was accomplished through the use or transfer of plan assets.

Cost optimization actions. These adjustments reflect charges incurred in connection with initiatives to optimize the cost structure of the Company including costs related to the organizational change to a functional operating model.  The costs are primarily related to executive separation, other headcount reductions, professional fees, asset write-offs and certain contract termination costs. These adjustments, which have occurred at various times in the past, are irregular in timing and relate to specific identified programs to reduce or optimize the cost structure of a particular operating segment or the corporate function.

Strategic initiatives. These adjustments primarily reflect one-time professional and legal fees incurred directly related to evaluating and executing certain strategic initiatives, acquisition transaction costs and, in 2018, a currency translation gain on acquisition financing.

Airlaid capacity expansion costs. This adjustment reflects non-capitalized, one-time costs incurred related to the start-up of a new airlaid production facility in Fort Smith, Arkansas and the implementation of a new business system.

Debt refinancing costs. Represents a charge to write-off unamortized debt issuance costs in connection with the redemption of the Company’s $250 million, 5.375% Notes.

Fox River environmental matter. This adjustment excludes a gain and reflects a decrease in the Company’s overall reserve for the Fox River matter primarily due to the resolution of the litigation in the first quarter of 2019.

Timberland sales and related costs. This adjustment excludes gains from the sales of timberlands as these items are not considered to be part of our core business, ongoing results of operations or cash flows.

U.S. Tax Reform. This adjustment reflects amounts recorded estimating the impact of the TCJA which was signed into law on December 22, 2017. The TCJA includes, among many provisions, a tax on the mandatory repatriation of earnings of the Company’s non-U.S. subsidiaries and a change in the corporate tax rate from 35% to 21%.

These adjustments are each unique and not considered to be on-going in nature. The transactions are irregular in timing and amount and may significantly impact our operating performance. As such, these items may not be indicative of our past or future performance and therefore are excluded for comparability purposes.

Adjusted earnings and adjusted earnings per diluted share are considered measures not calculated in accordance with GAAP, and therefore are non-GAAP measures. The non-GAAP financial information should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP. The following table sets forth the reconciliation of net income to adjusted earnings for the years ended December 31, 2019 and 2018 :

 

 

GLATFELTER 2019 FORM 10-K

15

 


 

 

 

Year ended December 31

 

 

 

2019

 

 

2018

 

In thousands, except per share

 

Amount

 

 

EPS

 

 

Amount

 

 

EPS

 

Net income

 

$

(21,541

)

 

$

(0.49

)

 

 

(177,604

)

 

$

(4.06

)

Exclude: Net income from discontinued operations

 

 

(3,670

)

 

 

(0.08

)

 

 

177,156

 

 

 

4.05

 

Loss from continuing operations

 

 

(25,211

)

 

 

(0.57

)

 

 

(448

)

 

 

(0.01

)

Adjustments (pre-tax)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension settlement charge

 

 

75,326