-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UhDZhmkUC0YXMMAWAJrZ7bS2EL3xWxc5p6ZzEgBM+C+qKe9iKESpz86H3Ya6MVqd MkxoH2pFnyZoYgDwx1o33Q== 0000893220-99-000353.txt : 19990323 0000893220-99-000353.hdr.sgml : 19990323 ACCESSION NUMBER: 0000893220-99-000353 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLATFELTER P H CO CENTRAL INDEX KEY: 0000041719 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 230628360 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-03560 FILM NUMBER: 99570091 BUSINESS ADDRESS: STREET 1: 228 S MAIN ST CITY: SPRING GROVE STATE: PA ZIP: 17362 BUSINESS PHONE: 7172254711 MAIL ADDRESS: STREET 2: 228 S MAIN ST CITY: SPRING GROVE STATE: PA ZIP: 17362 10-K 1 FORM 10-K P. H. GLATFELTER COMPANY 1 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 Commission file number December 31, 1998 1-3560 P. H. GLATFELTER COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 23-0628360 - ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 228 South Main Street Spring Grove, Pennsylvania 17362 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, (717) 225-4711 including area code -------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock New York Stock Exchange - --------------------- ------------------------------------------- (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None ---------------- (Title of Class) 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock of the Registrant held by non-affiliates at March 3, 1999 was $270,301,318. Common Stock outstanding at March 3, 1999: 42,130,000 Shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in this Report on Form 10-K. 1. Proxy Statement dated March 19, 1999 (Part III) 2 PART I Item 1. Business. The Registrant, a paper manufacturing company, began operations in Spring Grove, Pennsylvania in 1864 and was incorporated as a Pennsylvania corporation in 1905. On January 30, 1979 the Registrant acquired by merger Bergstrom Paper Company with paper mills located in Wisconsin and Ohio. The Ohio mill was sold on September 10, 1984. On May 7, 1987 the Registrant acquired all of the outstanding capital stock of Ecusta Corporation ("Ecusta") with a paper mill located in Pisgah Forest, North Carolina and other operations in North Dakota, Canada and Australia. Ecusta was merged into and became a division of the Registrant on June 30, 1987. On January 2, 1998 the Registrant acquired S&H Papier-Holding GmbH ("S&H") with operations in Germany, France, the Philippines and the United States. The Registrant has three paper mills located in the United States: Spring Grove, Pennsylvania, Pisgah Forest, North Carolina and Neenah, Wisconsin. The Registrant also has a paper mill in Gernsbach, Germany and a 50% controlling ownership interest in a paper mill in Odet, France. The Registrant manufactures engineered papers and specialized printing papers. The Registrant's engineered papers are used in the manufacture of a variety of products, including tea bags, cigarette tipping and plug wrap papers, metalized beverage labels, decorative laminates, food product casings, stencil papers, photo-glossy ink jet papers, greeting cards, medical dressings, highway signs and striping, billboard graphics, decorative shopping bags, playing cards, postage stamps, filters, labels and surgical gowns. Sales of these papers are generally made directly to the converter of the paper. Engineered papers are manufactured in each of the Registrant's mills. Most of the Registrant's specialized printing paper products are directed at the uncoated free-sheet portion of the industry. The Registrant's specialized printing paper products are used principally for the printing of case bound and quality paperback books, commercial and financial printing and envelope converting. Specialized printing papers are manufactured in each of the Registrant's mills. In 1998, sales of paper for book publishing and commercial printing generally were made through wholesale paper merchants, whereas sales of paper to financial printers and converters generally were made directly. During both 1996 and 1 3 1997, the Registrant's wholesale paper merchant, Central National-Gottesman Inc. ("CNGI") (which buys paper through its division, Lindenmeyr Book Publishing) accounted for 12% of the Registrant's net sales. Net sales to CNGI were less than 10% of the Registrant's net sales during 1998 as S&H did not sell any products to CNGI. A significant portion of the Pisgah Forest mill's sales and a modest portion of the sales from the Gernsbach and Odet mills are made to a limited number of major tobacco companies. The current legal and regulatory pressures on the tobacco industry in the United States could have an adverse effect on the future tobacco paper sales and profitability of these mills. The Registrant continues its efforts to remain cost competitive within this market and will attempt to replace any lost sales and profitability with sales of lightweight specialty printing papers and cost reductions. Set forth below is the amount (in thousands) and percentage of net sales contributed by each of the Registrant's two classes of similar products during each of the years ended December 31, 1998, 1997 and 1996. Years Ended December 31,
1998 1997 1996 ---- ---- ---- Net Sales* % Net Sales % Net Sales % --------- - --------- - --------- - Specialized Printing Papers $351,171 50% $354,076 62% $355,328 63% Engineered Papers 353,907 50% 212,996 38% 210,756 37% -------- --- -------- --- ------- --- Total $705,078 100% $567,072 100% $566,084 100%
- --------------- * S&H was acquired on January 2, 1998. See Note 11 to the Registrant's 1998 consolidated financial statements in Item 8 for certain geographic disclosure. The competitiveness of the markets in which the Registrant sells its products varies. The necessity for technical expertise limits the number of competitors for the Registrant's engineered papers, excluding tobacco papers. Competition for tobacco papers currently is keen as a result of 2 4 excess worldwide capacity along with stagnant growth in worldwide tobacco consumption. There are a number of concerns in the United States manufacturing specialized printing papers and no one company holds a dominant position. Capacity in the uncoated free-sheet industry, which includes uncoated specialized printing papers, is not expected to increase significantly for the next few years. Service, product performance and technological advances are important competitive factors in all of the Registrant's businesses. The Registrant believes its reputation in these areas continues to be excellent. Backlogs are generally not significant in the Registrant's business, as substantially all of the Registrant's customer orders are produced within 30 days of receipt. A backlog of unmade customer orders is monitored primarily for purposes of scheduling production to optimize paper machine performance. From time to time, the Registrant may determine that the backlog of unmade orders, along with high finished goods inventory levels, may be insufficient to warrant a full schedule of paper machine production. In these circumstances, certain paper machines may be temporarily shut-down until backlog and inventory levels warrant a resumption of operations. The principal raw material used at the Spring Grove mill is pulpwood. In 1998, the Registrant acquired approximately 79% of its pulpwood from saw mills and independent logging contractors and 21% from Company-owned timberlands. Hardwood and softwood purchases constituted 53% and 47% of the pulpwood acquired, respectively. Hardwoods are available within a relatively short distance of the Registrant's Spring Grove mill. Softwood is obtained primarily from Maryland, Delaware and Virginia. In order to protect its sources of pulpwood, the Registrant actively promotes conservation and forest management among suppliers and woodland owners. In addition, its subsidiary, The Glatfelter Pulp Wood Company, has acquired, and is acquiring, woodlands, particularly softwood growing land, with the objective of having a significant portion of the Registrant's softwood requirement available from Company-owned woodlands. The Spring Grove pulp mill converts the pulpwood into wood pulp for use in its papermaking operations. In addition to the pulp it produces, the Spring Grove mill purchases market pulp from others. The principal raw material used by the Neenah mill is high-grade recycled wastepaper. The quality of different types of high-grade wastepaper varies significantly depending on the amount of contamination. Wastepaper prices, although down 3 5 slightly, were relatively stable throughout 1998. It is anticipated that there will be an adequate supply of wastepaper in the future. During December 1996, the Neenah mill completed a project increasing its capacity to recycle lower quality high grade wastepapers. Although this project did not increase the mill's total de-inking capacity, it has reduced costs. The major raw materials used at the Ecusta mill are purchased wood pulp and processed flax straw, which is derived from linseed flax plants. The current supply of wood pulp and flax straw is sufficient for the present and anticipated future operations at the Ecusta mill. Ecusta receives a majority of its processed flax straw from the Registrant's Canadian operation. The principal raw materials used by the Gernsbach and Odet mills are purchased pulp and abaca pulp provided by S&H's Philippine pulpmill. The current supply of such materials is sufficient for the present and anticipated future operations of these mills. Wood pulp consumed which was purchased from others comprised approximately 137,000 short tons or 28% of the total 1998 fiber requirements of the Registrant. The average cost of purchased pulp during 1998 decreased slightly from 1997. Although purchased pulp prices have decreased modestly during the first two months of 1999, price increases have been announced for certain pulps effective during the second quarter of 1999. There is no certainty that any or all of these announced price increases will be realized. The Registrant's Spring Grove mill generates all of its steam requirements and is 100% self-sufficient in electrical energy generation. The mill also produces excess electricity which is sold to the local power company under a long-term co-generation contract. These net energy sales were $9,652,000 in 1998. Principal fuel sources used by the Spring Grove mill are coal, spent chemicals, bark and wood waste, and oil, which were used to produce approximately 55%, 37%, 7% and 1%, respectively, of the total energy internally generated at the Spring Grove mill in 1998. The Pisgah Forest mill generates all of its steam requirements and a majority of its electric power requirements (60% in 1998) and purchases the remainder of its electric power requirements. Coal was used to produce essentially all of the mill's internally generated energy during 1998. During 1998, the Neenah mill began to purchase steam under a twenty year contract from a facility of Minergy Corporation. The facility, which is located adjacent to the 4 6 Neenah mill, processes paper mill sludge from the Neenah mill as well as other mills in the Neenah area. During 1998, the Neenah mill purchased 61% of its steam from Minergy Corporation and generated 39% of its steam requirements. The Registrant expects to purchase approximately 80% of its steam requirements from Minergy Corporation during 1999. The Neenah mill generates a portion of its electric power requirements (13% in 1998) and purchases the remainder of its electric power requirements. Gas was used to produce 87% of the mill's internally generated steam during 1998 with fuel oil being used to generate the remainder. The Gernsbach and Odet mills both generate all of their own steam requirements. The Gernsbach mill generated approximately 33% of its 1998 electric power requirements and purchased the balance. Gas was used to produce almost all of the mill's internally generated energy during 1998. The Odet mill purchased all of its 1998 electric power requirements. At December 31, 1998, the Registrant had 3,833 active full-time employees. Hourly employees at the Registrant's U.S. mills are represented by different locals of the United Paperworkers International Union, AFL-CIO (the "Union"). In October 1996 a five-year labor agreement covering approximately 990 employees at the Pisgah Forest mill was ratified. A five-year labor agreement covering approximately 320 employees at the Neenah mill was ratified in August 1997. A five-year labor agreement covering approximately 740 employees in Spring Grove was ratified in January 1998. Under all of these agreements, wages increased by 3% in 1998 and will increase by 3% per year for the duration of the agreements. Approximately 775 hourly employees at the Registrant's S&H locations are represented by various unions. The labor agreement covering approximately 570 hourly employees at the Gernsbach mill expired on February 28, 1999. The terms and conditions of the expired agreement remain in effect until a new agreement is negotiated. The Registrant is not directly involved in these negotiations as the agreement is being negotiated by paper industry representatives. This situation is not unusual at the Gernsbach mill and the Registrant does not believe that the lack of an agreement will result in any significant operational interruptions. 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 5 7 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. For further information with respect to such compliance, reference is made to Item 3 of this report. Compliance with government environmental regulations is a matter of high priority to the Registrant. In order to meet environmental requirements, the Registrant has undertaken certain projects. During 1998, the Registrant expended approximately $4,900,000 on environmental capital projects. The Registrant estimates that $11,000,000 and $18,000,000 will be expended for environmental capital projects in 1999 and 2000, respectively. Since capital expenditures for pollution abatement generally do not increase the productivity or efficiency of the Registrant's mills, the Registrant's earnings have been and will be adversely affected to the extent that selling prices have not been and cannot be increased to offset additional incremental operating costs, including depreciation, resulting from such capital expenditures and to offset additional interest expense on the amounts expended for environmental purposes. 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 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 the 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 6 8 required to provide in the aggregate $10 million in work and funds to facilitate natural resources damages assessment activities, including, among other things, modeling and risk assessment, as well as field scale demonstration of sediment dredging and the enhancement of certain environmental amenities. The actual cost to be incurred by the companies for such activities will exceed $10 million. 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 two Indian tribes, however, is conducting its own assessment despite the State's status. In general, the parties to the Wisconsin Agreement have agreed to toll all limitations periods and to forbear from litigation during the term of the agreement. The parties intend to conclude a final resolution of all of the State's claims during the course of, or after completion of, the work called for by the agreement. By letter dated January 31, 1997, and received by the Registrant on February 3, 1997, the USFWS provided 60 days' notice of the intention of the United States Departments of the Interior and Commerce to commence an action for natural resources damages against the Registrant and the six other companies referred to above similarly relating to the discharge of hazardous substances into the lower Fox River. The Registrant does not know the amount which the federal trustees will claim as natural resources damages, but the Registrant believes that it will be substantial. Beginning as of March 1, 1997, the Registrant and six other companies entered into a series of agreements with the United States which provided that all limitation periods were tolled and the parties would forbear from litigation; the last tolling and forbearance period expired on December 2, 1997. On July 11, 1997, the Wisconsin DNR, the United States Department of the Interior, the Menominee Indian Tribe of Wisconsin, the Oneida Tribe of Indians of Wisconsin, the National Oceanic and Atmospheric Administration and the United States Environmental Protection Agency (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 threats of releases, and 7 9 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, the Wisconsin DNR released for public comment a draft RI/FS for the lower Fox River. 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 ($0) 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 many of the cost estimates in the draft RI/FS will not differ significantly from actual costs. Public comments on the draft RI/FS must be submitted by April 12, 1999. The Registrant intends to submit its comments prior to that deadline. After consideration of public comments, the draft RI/FS may be revised to add to, delete or amend the remedial alternatives. The Registrant did not participate in the process of developing the draft RI/FS. 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 sediments, many of which are buried under cleaner material or are otherwise unlikely to move, would be environmentally detrimental and therefore inappropriate. The Registrant is currently unable to predict its ultimate costs 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. The Registrant also believes it will be able to persuade a court that removal of a 8 10 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 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. 9 11 Item 2. Properties. The Registrant's executive offices are located in Spring Grove, Pennsylvania, 11 miles southwest of York. The Registrant's paper mills are located in Spring Grove, Pisgah Forest, North Carolina, Neenah, Wisconsin and Gernsbach, Germany. The Registrant also has a 50% ownership interest in a paper mill in Odet, France. The Spring Grove facilities include seven uncoated paper machines with a daily capacity ranging from 12 to 308 tons and an aggregate annual capacity of about 302,000 tons of finished paper. The machines have been rebuilt and modernized from time to time. During 1997, the Spring Grove mill completed its Gravure Coater ("G-Coater") capital project. Although sales from the G-Coater were disappointing during 1998, the Registrant views the G-Coater as an important long-term strategic project which will allow it to expand its more profitable engineered paper product group. The G-Coater, along with Spring Grove's off-line combi-blade coater, gives the Registrant a potential annual production capacity for coated paper of approximately 53,000 tons. Since uncoated paper is used in producing coated paper, this does not represent an increase in the Spring Grove mill capacity. The Spring Grove facilities also include a pulpmill, which has a production capacity of approximately 650 tons of bleached pulp per day. During the first quarter of 1998, the Registrant completed construction of a precipitated calcium carbonate ("PCC") plant at its Spring Grove mill. This plant reduced the cost of PCC at this mill as well as lowered the need for higher priced raw materials used for increasing the opacity and brightness of certain papers. The Pisgah Forest facilities include twelve paper machines, stock preparation equipment, a modified kraft bleached flax pulpmill with thirteen rotary digesters, a PCC plant and a small recycled pulping operation. The annual lightweight paper capacity is approximately 99,000 tons. Nine paper machines are essentially identical while the newer, larger three machines have design variations specific for the products produced. Converting equipment includes winders, calendars, slitters, perforators and printing presses. Due to current high finished tobacco paper goods inventory levels, one of Pisgah Forest's smaller machines ran intermittently during 1998 and is only expected to run during some portions of 1999. The Neenah facilities, consisting of a paper manufacturing mill, converting plant and offices, are located at two sites. The Neenah mill includes three paper machines, with 10 12 an aggregate annual capacity of approximately 162,000 tons and a wastepaper de-inking and bleaching plant with an annual capacity of approximately 97,000 tons. The converting plant contains a paper processing area and warehouse space. As noted in Item 1, on January 2, 1998, the Registrant acquired S&H, which owns and operates a paper mill in Gernsbach, Germany and has a 50% ownership interest in a paper mill in Odet, France. S&H also has a pulpmill in the Philippines which supplies abaca pulp to its paper mills. In addition, S&H owns and operates facilities in Wisches, France and Summerville, South Carolina. The Gernsbach facility includes five uncoated paper machines with an aggregate annual lightweight capacity of about 34,000 tons. In addition, the Gernsbach facility has the capacity to produce 7,700 tons of metalized papers annually, using a lacquering machine and two metalizers. The base paper used to manufacture the metalized paper is purchased. The Odet facility includes two paper machines with an aggregate annual lightweight capacity of approximately 4,900 tons of finished paper. The Philippine pulpmill has an aggregate annual capacity of approximately 8,200 tons of abaca pulp. Of this amount, approximately 7,900 tons are supplied to the Gernsbach and Odet paper mills, with the remainder being sold to outside parties. The Gernsbach and Odet paper mills obtain approximately 97% of their abaca pulp from the Philippine pulpmill. The Glatfelter Pulp Wood Company, a subsidiary of the Registrant, owns and manages approximately 112,000 acres of land, most of which is timberland. The Registrant owns substantially all of the properties used in its papermaking operations, except for certain land leased from the City of Neenah under leases expiring in 2050, on which wastewater treatment, storage and other facilities and a parking lot are located. All of the Registrant's properties, other than those which are leased, are free from any material liens or encumbrances. In conjunction with a financing transaction between the Registrant and one of its subsidiaries completed in February 1997, however, the Registrant secured the indebtedness to the subsidiary incurred in the transaction with mortgages on real estate assets having a value of approximately $300 million. The Registrant considers that all of its buildings are in good structural condition and well-maintained and its properties are suitable and adequate for present operations. 11 13 Item 3. Pending Legal Proceedings. For a discussion of potential legal proceedings involving the lower Fox River, see "Environmental Matters" in Part I of this report. The Registrant does not believe that the other environmental matters discussed below will have a material adverse effect on its business or consolidated financial position or results of operations. On May 16, 1989, the Pennsylvania Environmental Hearing Board approved and entered an Amended Consent Adjudication between the Registrant and the Pennsylvania Department of Environmental Resources, now known as the Department of Environmental Protection ("DEP"), in connection with the Registrant's permit to discharge effluent into the West Branch of the Codorus Creek. The Amended Consent Adjudication establishes limitations on in-stream color, and requires the Registrant to conduct certain studies and to submit certain reports regarding internal and external measures to control the discharge of color and certain other adverse byproducts of chlorine bleaching to the West Branch of the Codorus Creek. The Pennsylvania DEP continues to review the most recent report, and has raised concerns about whether the Registrant has complied with all aspects of the Amended Consent Adjudication. The Registrant and the Pennsylvania DEP presently are discussing whether to enter into an agreement to install additional wastewater pollution controls which would be expected to reduce levels of color discharged. During 1990 and again in 1991, the Pennsylvania DEP proposed to reissue the Registrant's wastewater discharge permit on terms with which the Registrant does not agree. The Pennsylvania DEP issued a new proposed permit on March 4, 1997, which addressed to the Registrant's satisfaction several issues raised in its earlier comments, although the Registrant submitted comments pertaining to certain remaining concerns. The EPA formally objected to this proposed permit, and the Pennsylvania DEP agreed to issue a revised proposed permit which would attempt to address the EPA's objections and the other comments the Pennsylvania DEP had received. The Pennsylvania DEP sent a revised draft permit to the Registrant on December 24, 1997. The Pennsylvania DEP issued a revised draft permit on February 26, 1998, in response to which EPA withdrew its objection. On January 16, 1999, the Pennsylvania DEP published for comment another revised draft permit in which, among other things, the Pennsylvania DEP proposed to establish further requirements for controlling color and dioxin discharge levels through a separately-negotiated consent order. Discussions between the Registrant and the Pennsylvania DEP over whether to enter a consent order and what the consent order would provide are ongoing. Otherwise, the Registrant still objects to certain 12 14 permit terms, and expects to litigate any terms which remain unacceptable in the final permit. If any other party elects to appeal reissuance of the permit, the Registrant would expect to defend that appeal. The Registrant continues to lawfully operate under its earlier permit, the expiration of which is administratively extended, while this renewal proceeding remains pending. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. Executive Officers of the Registrant. Executive Officers Office Age - ------------------ ------ --- G. H. Glatfelter II President and Chief Executive 47 Officer (a) T. C. Norris Chairman (b) 60 R. P. Newcomer Executive Vice President and Chief 50 Financial Officer (c) E. J. Gillis Vice President - Business 51 Development (d) R. S. Lawrence Vice President - General Manager, 59 Ecusta Division L. R. Hall Vice President - General Manager, 61 Glatfelter Division (e) R. L. Miller Vice President - International 52 Business (f) J. F. Myers Vice President - Manufacturing 60 Technology (g) C. M. Smith Vice President - Finance (h) 40 R. S. Wood Vice President - Administration 41 and Secretary (i) J. R. Anke Treasurer (j) 53 T. D. D'Orazio Controller (k) 40
Officers are elected to serve at the pleasure of the Board of Directors. Except in the case of officers elected to fill a new position or a vacancy occurring at some other date and the restructuring of senior management in the summer of 1998, officers are generally elected at the annual meeting of the Board held immediately after the annual meeting of shareholders. 13 15 - -------------------- (a) Mr. Glatfelter became President and Chief Executive Officer in June 1998. From September 1995 to June 1998, he was Senior Vice President. Prior to September 1995, he was Vice President - General Manager, Glatfelter Paper Division. (b) Prior to June 1998, Mr. Norris was also President and Chief Executive Officer. (c) Mr. Newcomer became Executive Vice President and Chief Financial Officer in June 1998. From May 1997 to June 1998, he was Senior Vice President and Chief Financial Officer. From September 1995 to April 1997, he was Senior Vice President, Treasurer and Chief Financial Officer. From April 1995 to September 1995, he was Vice President, Treasurer and Chief Financial Officer. Prior to April 1995, he was Vice President and Treasurer. (d) Mr. Gillis became Vice President - Business Development in August 1998, prior to which he was Vice President - Marketing, Glatfelter Paper Division. (e) Mr. Hall became Vice President - General Manager, Glatfelter Division in August 1998. From November 1995 to August 1998, he was Director of Operations - Glatfelter Division. Prior to November 1995, he was Spring Grove Mill Manager. (f) Mr. Miller became Vice President - International Business in August 1998. From September 1995 to August 1998, he was Vice President - Administration. From August 1994 to September 1995, he was Director of Planning, Acquisitions and Governmental Affairs. Prior to August 1994, he was Director, Marketing Services. (g) Dr. Myers retired on January 1, 1999. (h) Mr. Smith became Vice President - Finance in August 1998. Prior to August 1998, he was Controller. (i) Mr. Wood became Vice President - Administration and Secretary in August 1998. From May 1997 to August 1998, he was Secretary and Treasurer. Prior to May 1997, he was Secretary and Assistant Treasurer. (j) Mr. Anke became Treasurer in September 1998. From June 1997 to September 1998, he was Chief Financial Officer for the Senator John Heinz History Center. From September 1996 to June 1997, he was a consultant to AMSCO International, Inc. From April 1994 to September 1996, he was Vice President and Treasurer of AMSCO International, Inc., where he was responsible for treasury, insurance, retirement plan and 14 16 international functions and supervised approximately forty employees. Prior to April 1994, he was Secretary and Treasurer of AMSCO International, Inc. (k) Mr. D'Orazio became Controller in December 1998. Prior to December 1998, he was Assistant Corporate Controller of Mohawk Industries, Inc., where he was responsible for corporate accounting functions and supervised approximately twenty employees. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. Common Stock Prices and Dividends Paid Information The table below shows the high and low prices of the Registrant's common stock on the New York Stock Exchange and the American Stock Exchange (Ticket Symbol "GLT") and the dividends paid per share for each quarter during the past two years. Trading of the Registrant's common stock commenced on the New York Stock Exchange on November 12, 1998.
1998 1997 ================================ ============================== Quarter High Low Dividends High Low Dividends 1st $18 3/8 $16 $.175 $18 3/8 $16 1/4 $.175 2nd 19 1/8 15 1/8 .175 20 15 3/8 .175 3rd 16 5/8 11 3/16 .175 23 3/8 17 3/8 .175 4th 13 7/16 11 3/8 .175 22 11/16 17 .175
As of December 31, 1998 the Registrant had 3,898 shareholders of record. A number of the shareholders of record are nominees. 15 17 Item 6. Selected Financial Data.
Ten-Year Summary of Selected Consolidated Financial Data Years Ended December 31 (in thousands except per share amounts) 1998 1997 1996 1995 1994 1993 1992 1991 - ------------------- ---------- --------- --------- --------- ------------- ------------ ---------- ---------- Net sales $705,078 $567,072 $566,084 $623,709 $478,302 $473,509 $540,057 $ 567,764 Income (loss) before accounting changes 36,133(a) 45,284 60,399 65,828 (118,251)(b) 20,409(d) 56,544 76,049 Basic earnings (loss) per share before accounting changes .86(a) 1.07 1.41 1.50 (2.67)(b) .46(d) 1.28 1.68 Diluted earnings (loss) per share before accounting changes .86(a) 1.07 1.41 1.49 (2.67)(b) .46(d) 1.27 1.67 Total assets 990,738 937,583 715,310 673,107 650,810(c) 842,087(e) 648,464 630,115 Debt 356,459 348,665 150,000 150,000 174,100 150,000 10,100 __ Cash dividends declared per common share $ .70 $ .70 $ .70 $ .70 $ .70 $ .70 $ .70 $ .60 - ------------------- ---------- --------- --------- --------- ------------- ------------ ---------- ---------- - ------------------- ---------- --------- --------- --------- ------------- ------------ ---------- ----------
1990 1989 - ------------------- --------- --------- Net sales $625,429 $598,777 Income (loss) before accounting changes 88,332 92,864 Basic earnings (loss) per share before accounting changes 1.90 1.94 Diluted earnings (loss) per share before accounting changes 1.88 1.93 Total assets 598,842 550,105 Debt __ 1,100 Cash dividends declared per common share $ .575 $ .50 - ------------------- --------- --------- - ------------------- --------- ---------
(a) After impact of an after-tax charge for voluntary early retirement enhancement program (unusual item) of $5,988,000. (b) After impact of an after-tax charge for a writedown of impaired assets (unusual items) of $127,981,000. (c) After impact of writedown of impaired assets (unusual items) of $208,949,000. (d) After impact of an after-tax charge for rightsizing and restructuring (unusual items) of $8,430,000 and the effect of an increased federal corporate income tax rate of $3,587,000. (e) Includes an increase of $61,062,000 for the adoption of Statement of Financial Accounting Standards No. 109. 16 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW The Company classifies its sales into two product groups: 1) engineered papers (including tobacco papers); and 2) specialized printing papers. The Glatfelter Division, which includes the Spring Grove, Pennsylvania and Neenah, Wisconsin paper mills, produces both specialized printing and engineered papers. The Ecusta Division is comprised of the Pisgah Forest, North Carolina paper mill (hereinafter referred to as "Ecusta"). Schoeller & Hoesch ("S&H") includes the Gernsbach, Germany paper mill and a 50% controlling ownership interest in a paper mill in Odet, France. Both Ecusta and S&H produce specialized printing papers and engineered papers (including tobacco papers). S&H was acquired on January 2, 1998. Excluding tobacco papers, demand for most of the Company's engineered papers remained relatively strong during 1998 and pricing for such products remained relatively stable. However, the Company did experience some market-related downtime at its S&H locations in the fourth quarter of 1998 related to its engineered papers, including its long fiber papers. As a result of this weakening of demand, average selling prices for these papers decreased slightly during the fourth quarter. Current backlog levels are strong for the Company's other engineered papers. Demand for the Company's tobacco papers was very weak during 1998. Increased tobacco paper capacity in China, along with stagnant growth in worldwide tobacco product consumption has resulted in excess tobacco paper capacity over current levels of demand. The Company incurred tobacco paper market-related downtime at both Ecusta and S&H during the year. Competition for limited tobacco paper orders has resulted in decreases in selling prices to the Company's multinational tobacco paper customers as well as to other regional and governmental purchasers of tobacco papers. The outlook for tobacco papers continues to be unfavorable. Recent financial settlements agreed to by the U.S. cigarette producers with state attorneys general have led to increased selling prices for tobacco products in the United States and, in turn, decreased demand for tobacco papers. The Company continues its efforts to remain cost-competitive within this market and will attempt to offset any lost sales and profitability with sales of specialized printing papers and cost reductions. Most of the Company's specialized printing paper products are directed at the uncoated free sheet portion of the industry. Demand for these papers was fairly weak during 1998, resulting in market-related downtime at the Company's Spring Grove and Ecusta mills. Weak demand and low order backlogs also resulted in inefficient scheduling of the Company's production equipment which, with the exception of the Neenah mill, resulted in reduced production levels compared to 1997. Pricing for the Company's printing paper products was unfavorably impacted by the weak demand as the Company competed for limited orders. On average, pricing for the Company's printing paper products was higher in 1998 than in 1997 due to changes in product mix; however, the average selling price for such products during the fourth quarter of 1998 was significantly lower than the average selling price during the fourth quarter of 1997. The current outlook for the demand and pricing of the Company's printing paper products is unclear. Selling price increases have recently been announced in some of the commodity printing paper markets in which the Company competes. The Company has announced selling price increases for some of its papers but it is uncertain as to whether such increases will be realized. The paper industry entered 1999 during a continued period of market uncertainty. The relatively weak market for pulp, the primary raw material used in the production of paper, coupled with ongoing financial difficulties in Southeast Asia and other parts of the world, provide a climate in which it continues to be difficult to predict the future direction of the U. S. and international paper markets. The Company's orientation toward engineered papers should help mitigate the potential negative impact of any further downturn in the international and U. S. paper markets. The Company's Spring Grove mill's gravure coater ("G-Coater") had its first full year of operation in 1998. Sales from the G-Coater were disappointing during 1998; however, the Company has reorganized its new product development department to expedite the development of these engineered papers. Such papers typically have higher profit margins than the Company's other products. Demand and pricing for engineered papers have historically not fluctuated to the same extent as commodity papers. ACQUISITION OF SCHOELLER & HOESCH On January 2, 1998, the Company acquired S&H which owns and operates a paper mill in Gernsbach, Germany and has a 50% controlling ownership interest in a paper mill in Odet, France. S&H also has a pulpmill in the Philippines which supplies abaca pulp to S&H's paper mills. In addition, it owns and operates other facilities in Wisches, France and Summerville, South Carolina. S&H primarily manufactures engineered papers and has the leading position in the world tea bag paper market. It also manufactures other engineered papers including tobacco, metalized, stencil, filter and casing papers, as well as some specialized printing papers. The acquisition of S&H represents a significant step in the Company's long-term strategic plan, which emphasizes growth in engineered paper markets. It provides the Company with a strong business position in the world tea bag paper market and a presence in other long fiber markets, such as stencil, filter and casing papers. It also strengthens the Company's tobacco papers business by providing a manufacturing presence in Europe and a significant share of the European tobacco papers market, plus the ability to manufacture and market ultraporous plug wrap, a growing segment of the world tobacco papers market. 1998 COMPARED TO 1997 Net sales in 1998 increased $138,006,000, or 24.3%, compared to 1997. Net sales volume and average selling prices decreased at the Company's Glatfelter and Ecusta divisions. The resulting decrease in net sales at these divisions was more than offset by the net sales of S&H. 17 19 Sales of engineered papers (including tobacco papers) increased by 65.7% in 1998 versus 1997. This increase is due to the inclusion of S&H in 1998's results. Overall, the sales volume of engineered papers increased by 34.6%. The average net selling price per ton for the Company's engineered papers increased significantly due to a shift in product mix. S&H produces and sells lightweight papers and, as a result, has higher average net selling prices per ton than those of the Glatfelter and Ecusta divisions. The average net selling price per ton of tobacco papers decreased in 1998 versus 1997. Overall, tobacco paper sales volume increased due to the inclusion of S&H's results in 1998. Specialized printing paper sales were down less than 1% in 1998 versus 1997. This decrease was due to lower printing paper sales volume. Average net selling prices per ton increased slightly. This increase was entirely due to a change in product mix. Average selling prices per ton for non-S&H printing papers decreased slightly in 1998 compared to 1997. Profit from operations before the unusual item, interest income and expense and taxes was $88,599,000 in 1998 compared to $84,492,000 in 1997. This increase was due to the incremental operating results of S&H which more than offset decreases in profit from operations before the unusual item, interest income and expense and taxes at the Glatfelter and Ecusta divisions. The decreases at the Glatfelter and Ecusta divisions were the result of a decrease in net sales, offset somewhat by a decrease in cost of products sold and selling, general and administrative expenses. The decrease in net sales at these two divisions in 1998 as compared to 1997 was primarily due to reduced sales volumes, exacerbated somewhat by a decrease in average selling price per ton. The cost of products sold for the Glatfelter and Ecusta divisions decreased due to a decrease in sales volume and lower costs for certain raw materials in 1998 compared to 1997. Raw material costs had a slightly favorable effect on the Company's relative performance in 1998 compared to 1997 as cost per ton for the Company's principal raw materials, market pulp and wastepaper, decreased in 1998 versus 1997. The Company also benefited in 1998 from cost savings achieved through the start-up of the Spring Grove mill's precipitated calcium carbonate ("PCC") plant. This plant reduced the cost of PCC at this mill as well as lowered the need for higher priced raw materials used for increasing the opacity and brightness of certain papers. The cost of sales per unit decreased at the Glatfelter Division in 1998 versus 1997 due primarily to lower raw material costs. The cost of sales per unit at the Ecusta Division increased in 1998 as compared to 1997. This increase was mainly due to the amount of market-related downtime taken at the Ecusta Division and the resulting absorption of fixed costs over fewer units produced. Selling, general and administrative expenses increased by $14,990,000. This increase was due to the selling, general and administrative expenses related to S&H, offset somewhat by a decrease in such expenses at the Glatfelter and Ecusta divisions. S&H has higher selling, general and administrative expenses as a percentage of sales primarily as a result of higher selling costs incurred in delivering product to its customers. Selling, general and administrative expenses for the Company were 7.3% and 6.5% of net sales for 1998 and 1997, respectively. Interest on investments and other - net decreased from $7,785,000 in 1997 to $1,956,000 in 1998. This decrease is primarily a result of a decrease in investment income in 1998 compared to 1997. In 1997, the proceeds from the issuance of $150,000,000 of Step-Down Preferred Stock by a subsidiary, GWS Valuch, Inc., were placed in trust and invested in interest-bearing marketable securities, resulting in a significant increase in interest income. This transaction is described in detail in Note 6 to the Company's 1998 consolidated financial statements in Item 8. Gain from property dispositions, etc. - net decreased from $3,166,000 in 1997 to $1,019,000 in 1998. During the second quarter of 1997, the Company completed the sale of a parcel of recreational property near its Ecusta mill resulting in a pre-tax gain of approximately $2,200,000. No property sales of this magnitude are included in the 1998 results. Interest on debt was $22,007,000 in 1998 compared to $18,700,000 in 1997. The primary reason for this increase was the Company's higher net borrowing level during the first quarter of 1998 as compared to the first quarter of 1997, in part due to the borrowings of approximately $150,000,000 under the Revolving Credit Facility to finance the acquisition of S&H. The Company repaid its $150,000,000 principal amount of its 57/8% Notes on March 1, 1998. UNUSUAL ITEM During 1998, the Company recognized a pre-tax charge of $9,816,000 related primarily to the accrual of pension and medical benefits for certain salaried and hourly employees of the Ecusta Division and certain salaried employees of the Glatfelter Division who elected to participate in a voluntary early retirement enhancement program. The pre-tax charge also included the cost of termination of several Glatfelter Division salaried employees which was necessary to achieve the Company's cost-savings goals. The total after-tax effect of the unusual item for the year was $5,988,000, or $.14 per share. The intent of these programs is to generate annual payroll and benefits cost savings through a reduction in the size of the Company's workforce. The Company's restructuring resulted in the elimination of approximately 160 salaried and hourly positions with associated annual pre-tax cost savings of approximately $8,400,000. Most of the savings will begin to be realized during the first quarter of 1999. 1997 COMPARED TO 1996 Net sales in 1997 increased $988,000, or 0.2%, compared to 1996. Each of the Company's operating facilities achieved increased sales volume which was offset by lower average net selling prices. Engineered paper sales remained relatively flat in 1997 as compared to the prior year, increasing by 1.1%. Tobacco paper sales volume increased by 1.3%, as an increase in international tobacco paper sales volume of 19.6% more than offset a decrease in domestic tobacco 18 20 paper sales volume of 11.1%. The average net selling prices for tobacco papers decreased slightly as increases in the average net selling price for domestic tobacco papers were more than offset by a decrease in the average net selling prices of international tobacco papers. International tobacco paper prices were negatively impacted by the strengthening of the U. S. dollar versus most foreign currencies. International tobacco paper prices also decreased in part due to the acceptance of lower-priced, less-profitable business to fill machine capacity. Volume increased due to productivity increases, but was offset to a large extent by downtime taken at Ecusta for market-related reasons, as well as for maintenance and equipment improvements. Average net selling prices for engineered papers (excluding tobacco papers) remained virtually unchanged during the year as compared to 1996 and volume increased marginally in 1997 over 1996. Specialized printing paper sales also remained relatively flat in 1997 compared to 1996. An increase in sales volume of 7.0% was offset by a decrease in average net selling prices of 6.9%. The increase in sales volume was principally due to an increase in demand for the Company's products. Despite the increase in demand for the Company's specialized printing papers, pricing for such papers remained under adverse market pressure. Profit from operations before interest income and expense and taxes was $84,492,000 in 1997 compared to $105,639,000 in 1996. This decrease was the result of a decrease in average net selling prices, a weakening in the product sales mix to less profitable products and an increase in the Company's cost of products sold. The cost of products sold increased due to the increased sales volume; however, the cost of sales per unit did not change significantly. Raw material prices did not significantly affect the Company's relative performance in 1997 compared to 1996 as per ton costs for the Company's principal raw materials, market pulp and wastepaper, did not change significantly. In addition, the Company's fixed costs were spread among a greater number of tons in 1997, lowering the cost of sales per unit. The mix of products sold weakened in 1997 versus 1996, particularly at Ecusta. Ecusta sold a higher amount of lower-priced, lower-margin tobacco papers to international customers as well as specialized printing papers. Gross margin per ton decreased by 22.2% in 1997, a direct result of the change in product mix and lower average net selling prices for certain of the Company's products noted above. Selling, general and administrative expenses increased by $1,319,000, primarily as a result of increased spending on certain legal matters as well as various other professional fees. The Company also increased its spending on information systems to address certain needs, including the impact of "Year 2000" on its existing computer systems and software. Selling, general and administrative expenses were 6.5% and 6.3% of net sales for 1997 and 1996, respectively. Interest on debt increased by $9,392,000 and net income from investments and other increased by $6,211,000. This was primarily a result of various financing transactions entered into by the Company during 1997 as detailed in Note 6 to the Company's 1998 consolidated financial statements in Item 8. FINANCIAL CONDITION LIQUIDITY During 1998, the Company's cash and cash equivalents decreased by $16,012,000. This decrease in cash and cash equivalents was principally due to net cash paid for S&H of $147,491,000, which exceeded the incremental 1998 borrowings of $101,500,000 made to complete the S&H acquisition. Other significant sources of cash during 1998 included cash provided from operations of $100,417,000 and the net sale of investments of $158,475,000. A majority of the proceeds from the sale of investments was used to pay in full $150,000,000 principal amount of the Company's 57/8% Notes along with related interest due. Other significant uses of cash include additions to property, plant and equipment of $40,531,000 and dividend payments of $29,436,000. The Company expects to meet all its near-term cash needs from a combination of internally generated funds, cash, cash equivalents and its existing Revolving Credit Facility or other bank lines of credit. The Company is subject to certain financial covenants under the Revolving Credit Facility. The Company is in compliance with all such covenants. INTEREST RATE RISK The Company uses its Revolving Credit Facility and 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 Company to interest rate risk resulting from changes in the DM LIBOR. The Company uses off-balance sheet interest rate swap agreements to partially hedge interest rate exposure associated with on-balance sheet financial instruments. All of the Company's derivative financial instrument transactions are entered into for non-trading purposes. 19 21 To the extent that the Company's financial instruments expose the Company 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 Company's Revolving Credit Facility and Notes as of December 31, 1998. For interest rate swaps, 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 Company for debt with similar terms and remaining maturities, and (2) estimates obtained from dealers to settle interest rate swap agreements. The following table should be read in conjunction with Notes 6 and 7 to the consolidated financial statements (dollar amounts in thousands) in Item 8.
Year of Maturity Total ---------------------------------------------------------------------- Due at Fair Value at 1999 2000 2001 2002 2003 Thereafter Maturity 12/31/98 ------- -------- -------- --------- ------- ---------- --------- ------------- Debt: Fixed rate $ 2,088 $ 1,791 $ 1,791 $ 1,595 $ 1,401 $ 152,037 $ 160,703 $ 159,890 Average interest rate 6.84% 6.85% 6.85% 6.86% 6.87% 6.87% Variable rate $ -- $ -- $ -- $ 166,766 $ -- $ -- $ 166,766 $ 166,766 Average interest rate 3.79% 3.57% 3.31% 3.31% -- -- Interest rate swap agreements: Variable to fixed swaps $ 3,839 $ 36,253 $ 31,441 $ 59,773 $ -- $ -- $ 131,306 $ (1,549) Average pay rate 4.39% 4.09% 3.84% 3.42% -- -- Average receive rate 3.43% 3.35% 3.25% 3.25% -- --
CAPITAL RESOURCES During 1998, the Company expended $40,531,000 on capital projects. Most of these expenditures were for maintenance-related projects; however, those expenditures included spending related to the completion of the G-Coater (approximately $2,400,000 in 1998) and the precipitated calcium carbonate plant (approximately $2,700,000 in 1998), both at the Spring Grove mill. The Company also expended funds related to the rebuild of one of S&H's paper machines, enhancing its ability to produce engineered papers. The total cost of this project is expected to be $6,200,000. Of this amount, approximately $3,400,000 was spent during 1998 and approximately $2,800,000 is expected to be expended in 1999. The Company estimates a total of approximately $37,400,000 will be spent on capital projects during 1999. ENVIRONMENTAL MATTERS The Company 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 Company has incurred substantial capital and operating expenditures over the past several years. During 1998, 1997 and 1996, the Company 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 Company anticipates that environmental regulation of the Company'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 Company 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 Company 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 Company's Neenah mill is located. The cost of such damages and response costs is presently unknown but could be substantial and perhaps exceed the Company's available resources as discussed in Note 10 to the Company's 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 Company's consolidated financial condition or liquidity, but could have a material adverse effect on the Company's consolidated results of operations in a given year; however, there can be no assurance that the Company's reserves will be adequate or that a material adverse effect on the Company's consolidated financial condition or liquidity will not occur at some future time. 20 22 YEAR 2000 The Company continues to make progress and, with the exception of some isolated systems at its Neenah mill, is on schedule in its efforts to achieve Year 2000 compliance for its critical systems by the end of the first quarter of 1999. The Company expects to achieve Year 2000 compliance on its non-critical systems by the end of the second quarter of 1999. The Company has information technology systems and noninformation technology systems. The Company's information technology systems include both internally and externally developed business systems. Nearly all of the Company'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 Company'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 Company has completed the inventory phase for all of its information technology and non-information technology systems. The Company has also completed a significant portion of both the assessment phase and modifications and testing phase for all of its systems. The remaining system assessments, modifications and related testing are expected to be completed by the end of the first quarter of 1999 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 Company 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 Company expensed approximately $634,000 and $125,000 during 1998 and 1997, respectively, in such costs supporting its Year 2000 compliance efforts. The Company estimates it will incur $700,000 for these internal costs during 1999 to complete its Year 2000 efforts. The Company'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 Company in various ways and to various extents. The Company does not believe that it will be at a competitive disadvantage as a result of these delays. To date, the Company has made minor capital expenditures to replace certain systems or equipment which were not Year 2000 compliant. The Company estimates that between $500,000 and $1,000,000 in capital related costs will be incurred by the end of the first quarter of 1999 to achieve Year 2000 compliance of its information and non-information technology systems. The Company relies significantly on selected key vendors of raw materials, energy, telecommunications and other vital services. The Company also generates significant revenues from various key customers. The Company 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, no significant issues have been discovered. The Company hopes to have received and assessed all responses by the end of the first quarter of 1999. Should the Company's assessment of the responses or non-responses to its inquiries of key third parties indicate that unacceptable risks exist, or should the risk of inaccuracies of such responses be too great, the Company will develop and implement contingency plans to minimize the impact on its operations. The Company intends to have any such plans in place by the end of the third quarter of 1999. Despite such contingency plans, it is reasonably possible that, in the worst case, some of the Company's key vendors or customers could experience operational interruptions as a result of non-compliance of their systems. As a result, the Company 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 Company's business and results of operations could be materially adversely affected. FORWARD-LOOKING STATEMENTS Any statements set forth in this annual report or otherwise made in writing or orally by the Company with regard to its expectations as to industry conditions, demand for or pricing of its products, its financial results and other aspects of its business may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company 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 Company's expectations. Accordingly, the Company 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 Company in any such forward-looking statements: (i) variations in demand for its products; (ii) changes in the cost or availability of raw materials used by the Company, 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 Company's Neenah mill is located; (vi) significant changes in cigarette consumption, both domestically and internationally; (vii) enactment of adverse state or federal legislation or changes in government policy or regulation; (viii) adverse results in litigation; (ix) fluctuations in currency exchange rates; (x) failure of third parties which are material to the Company to become Year 2000 compliant thereby interrupting their and the Company's business operations; and (xi) disruptions in production and/or increased costs due to labor disputes. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. See the discussion under the heading "Interest Rate Risk" in Item 7 as well as Notes 6 and 7 to the Registrant's consolidated financial statements in Item 8. 21 23 Item 8. Financial Statements and Supplementary Data. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME P.H. GLATFELTER COMPANY AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in thousands except per share amounts) 1998 1997 1996 - -------------------------------------------------------------------------------------------- NET SALES $ 705,078 $ 567,072 $566,084 OTHER INCOME: Energy sales -- net (Note 1(j)) 9,652 9,189 8,559 Interest on investments and other -- net (Note 6) 1,956 7,785 1,574 Gain from property dispositions, etc. -- net 1,019 3,166 977 --------- --------- -------- Total 717,705 587,212 577,194 --------- --------- -------- COSTS AND EXPENSES: Cost of products sold 575,351 458,126 434,491 Selling, general and administrative expenses 51,799 36,809 35,490 Interest on debt (Notes 6 and 7) 22,007 18,700 9,308 Unusual item (Note 3) 9,816 -- -- --------- --------- -------- Total costs and expenses 658,973 513,635 479,289 --------- --------- -------- INCOME BEFORE INCOME TAXES 58,732 73,577 97,905 --------- --------- -------- INCOME TAX PROVISION (Note 5): Current 14,488 25,453 20,604 Deferred 8,111 2,840 16,902 --------- --------- -------- Total 22,599 28,293 37,506 --------- --------- -------- NET INCOME $ 36,133 $ 45,284 $ 60,399 ========= ========= ======== BASIC AND DILUTED EARNINGS PER SHARE (Notes 4 and 8) $ .86 $ 1.07 $ 1.41 COMPREHENSIVE INCOME, NET OF TAX: NET INCOME $ 36,133 $ 45,284 $ 60,399 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (Note 1(n)) (553) (651) 179 --------- --------- -------- COMPREHENSIVE INCOME $ 35,580 $ 44,633 $ 60,578 ========= ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 22 24 CONSOLIDATED BALANCE SHEETS P.H. GLATFELTER COMPANY AND SUBSIDIARIES DECEMBER 31, 1998 AND 1997
(in thousands except share information) 1998 1997 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents (Notes 1(b) and 2) $ 50,907 $ 66,919 Marketable securities (Notes 1(e) and 6) -- 155,174 Accounts receivable (less allowance for doubtful accounts: 1998, $1,532; 1997, $1,973) 70,076 50,187 Inventories (Note 1(c)) 117,852 101,232 Prepaid expenses and other current assets 3,073 2,967 --------- --------- Total current assets 241,908 376,479 PLANT, EQUIPMENT AND TIMBERLANDS -- NET (Notes 1(d) and 10) 628,156 475,189 OTHER ASSETS (Notes 1(e) and 9) 120,674 85,915 --------- --------- Total assets $ 990,738 $ 937,583 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (Note 6) $ 2,088 $ 150,000 Short-term debt (Note 2) 28,990 48,665 Accounts payable 34,293 37,276 Dividends payable 7,365 7,390 Income taxes payable 8,189 5,106 Accrued compensation and other expenses and deferred income taxes 45,951 41,506 --------- --------- Total current liabilities 126,876 289,943 LONG-TERM DEBT (Note 6) 325,381 150,000 DEFERRED INCOME TAXES (Notes 1(f) and 5) 123,321 101,995 OTHER LONG-TERM LIABILITIES (Notes 1(k), 2, 8 and 9) 71,231 56,287 --------- --------- Total liabilities 646,809 598,225 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 10) SHAREHOLDERS' EQUITY (Note 8): Common stock, $.01 par value; authorized -- 120,000,000 shares; issued (including shares in treasury: 1998, 12,276,744; 1997, 12,212,372) -- 54,361,980 shares 544 544 Capital in excess of par value 42,612 42,623 Retained earnings 484,793 478,073 Accumulated other comprehensive income (1,611) (1,058) --------- --------- Total 526,338 520,182 Less cost of common stock in treasury (182,409) (180,824) --------- --------- Total shareholders' equity 343,929 339,358 --------- --------- Total liabilities and shareholders' equity $ 990,738 $ 937,583 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 23 25 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY P.H. GLATFELTER COMPANY AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Accumulated Common Capital in Other Total Shares Common Excess of Retained Comprehensive Treasury Shareholders' (in thousands except shares outstanding) Outstanding Stock Par Value Earnings Income Stock Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, January 1, 1996 43,435,312 $ 544 $ 40,921 $ 431,762 $ (586) $ (157,821) $ 314,820 Net income 60,399 60,399 Foreign currency translation adjustments 179 179 Cash dividends declared (29,824) (29,824) Delivery of treasury shares: Restricted stock awards 72,193 223 1,054 1,277 Employee stock purchase and 401(k) plans 151,265 447 2,207 2,654 Employee stock options exercised -- net 12,131 10 176 186 Purchase of stock for treasury (1,131,073) (19,068) (19,068) ---------- --- ------ ------- --- -------- ------- Balance, December 31, 1996 42,539,828 544 41,601 462,337 (407) (173,452) 330,623 Net income 45,284 45,284 Foreign currency translation adjustments (651) (651) Cash dividends declared (29,548) (29,548) Delivery of treasury shares: Restricted stock awards 13,350 217 196 413 Employee stock purchase and 401(k) plans 150,940 545 2,219 2,764 Employee stock options exercised -- net 103,690 260 1,517 1,777 Purchase of stock for treasury (658,200) (11,304) (11,304) ---------- --- ------ ------- ------- -------- ------- Balance, December 31, 1997 42,149,608 544 42,623 478,073 (1,058) (180,824) 339,358 Net income 36,133 36,133 Foreign currency translation adjustments (553) (553) Cash dividends declared (29,413) (29,413) Delivery of treasury shares: Employee stock purchase and 401(k) plans 182,528 (13) 2,713 2,700 Employee stock options exercised -- net 3,100 2 46 48 Purchase of stock for treasury (250,000) (4,344) (4,344) ---------- --- ------ ------- ------- -------- ------- Balance, December 31, 1998 42,085,236 $544 $42,612 $484,793 $(1,611) $(182,409) $343,929 ========== ==== ======= ======== ======= ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 24 26 CONSOLIDATED STATEMENTS OF CASH FLOWS P. H. GLATFELTER COMPANY AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in thousands) 1998 1997 1996 - ------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 36,133 $ 45,284 $ 60,399 Items included in net income not using (providing) cash: Depreciation, depletion and amortization 47,738 35,796 33,570 Loss (gain) on disposition of fixed assets 481 (2,121) 169 Expense related to employee stock purchase and 401(k) plans 1,652 1,270 1,224 Changes in assets and liabilities: Accounts receivable 8,703 (484) 2,349 Inventories 16,437 (1) (14,153) Other assets and prepaid expenses (2,328) (12,309) (14,885) Accounts payable, accrued compensation and other expenses, deferred income taxes and other long-term liabilities (8,272) 14,111 3,555 Income taxes payable (4,341) 801 4,070 Deferred income taxes -- noncurrent 4,214 2,856 18,457 -------- -------- -------- Net cash provided by operating activities 100,417 85,203 94,755 -------- -------- -------- Cash flows from investing activities: Sale (purchase) or maturity of investments -- net 158,475 (154,363) 1,153 Proceeds from disposal of fixed assets 319 3,749 102 Additions to plant, equipment and timberlands (40,531) (60,503) (35,644) Acquisition of S&H -- net of cash acquired (147,491) -- -- -------- -------- -------- Net cash used in investing activities (29,228) (211,117) (34,389) -------- -------- -------- Cash flows from financing activities: Proceeds from long-term debt issuance -- 150,000 -- Net borrowing of short-term debt 11,078 -- -- Net payment of other long-term debt (16,669) -- -- Repayment of 57/8% Notes (150,000) -- -- Acquisition-related borrowings 101,500 48,665 -- Dividends paid (29,436) (29,601) (29,977) Purchases of common stock (4,344) (11,304) (19,068) Proceeds from issuance of common stock under employee stock purchase plans and key employee long-term incentive plan 1,088 3,271 1,617 -------- -------- -------- Net cash provided by (used in) financing activities (86,783) 161,031 (47,428) -------- -------- -------- Effect of exchange rate changes on cash (418) -- -- Net increase (decrease) in cash and cash equivalents (16,012) 35,117 12,938 Cash and cash equivalents: At beginning of year 66,919 31,802 18,864 -------- -------- -------- At end of year $ 50,907 $ 66,919 $ 31,802 -------- -------- -------- Supplemental disclosure of cash flow information: Cash paid for: Interest $ 22,722 $ 14,293 $ 9,684 Income taxes 19,573 24,650 20,480
The accompanying notes are an integral part of these consolidated financial statements. 25 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS P.H. GLATFELTER COMPANY AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION P. H. Glatfelter Company and subsidiaries are manufacturers of engineered papers and specialized printing papers. Headquartered in Spring Grove, Pennsylvania, the Company's paper mills are located in Spring Grove, Neenah, Wisconsin, Pisgah Forest, North Carolina and Gernsbach, Germany. The Company also has a 50% controlling ownership interest in a paper mill in Odet, France. The Company's products are marketed in most parts of the United States and in many foreign countries, either through wholesale paper merchants, brokers and agents or directly to customers. The accounts of the Company, and those of its significant majority-owned or controlled subsidiaries, are included in the consolidated financial statements. All inter-company transactions have been eliminated. Certain reclassifications have been made to the prior years' consolidated financial statements to conform to those classifications used in 1998. On January 2, 1998, the Company acquired S&H Papier - Holding GmbH ("S&H"), the specialty paper division of the Schoeller and Hoesch Group. The results of S&H, a German company, are included in the consolidated financial statements for the year ended December 31, 1998 from the date of acquisition. See Note 2 for further discussion of the acquisition, including disclosure of pro forma information. (b) CASH AND CASH EQUIVALENTS The Company considers all highly liquid financial instruments with effective maturities at date of purchase of three months or less to be cash equivalents. (c) INVENTORIES Inventories are stated at the lower of cost or market. Raw materials and in-process and finished inventories of the Company's domestic operations are valued using the last-in, first out (LIFO) method, and the supplies inventory is valued principally using the average cost method. Certain of the Company's inventories are valued using a method which approximates average cost. Inventories at December 31 are summarized as follows:
1998 1997 -------- -------- (in thousands) Raw materials $ 37,559 $ 35,980 In-process and finished 49,901 31,724 Supplies 30,392 33,528 -------- -------- Total $117,852 $101,232 ======== ========
As of December 31, 1998, S&H had approximately $35,800,000 of inventories. If the Company had valued all inventories using the average cost method, inventories would have been $4,143,000 and $2,839,000 higher than reported at December 31, 1998 and 1997, respectively. During 1998, the Company liquidated certain LIFO inventories. The effect of the liquidation did not have a significant impact on net income. At December 31, 1998 and 1997, the recorded value of the above inventories exceeded inventories for income tax purposes by approximately $22,100,000 and $20,700,000, respectively. (d) PLANT, EQUIPMENT AND TIMBERLANDS Depreciation is computed for financial reporting using the straight-line method over the estimated useful lives of the respective assets and for income taxes principally using accelerated methods over lives established by statute or Treasury Department procedures. Provision is made for deferred income taxes applicable to this difference. See Notes 1(f) and 5. The range of estimated service lives used to calculate financial reporting depreciation for principal items of property, plant and equipment are as follows: Buildings 10 - 45 Years Machinery and equipment 7 - 35 Years Other 4 - 40 Years Depletion of the cost of timber is computed on a unit rate of usage by growing area based on estimated quantities of recoverable material. Maintenance and repairs are charged to income and major renewals and betterments are capitalized. At the time property is retired or sold, the cost and related reserve are eliminated and any resultant gain or loss is included in income. Plant, equipment and timberlands accounts, as of December 31, are summarized as follows:
1998 1997 ----------- --------- (in thousands) Land and buildings $ 148,079 $ 116,186 Machinery and equipment 1,071,469 916,063 Other 36,562 29,553 Less accumulated depreciation (657,581) (617,576) ----------- --------- Total 598,529 444,226 Construction in progress 10,962 13,149 Timberlands, less depletion 18,665 17,814 ----------- --------- Plant, equipment and timberlands -- net $ 628,156 $ 475,189 =========== =========
(e) INVESTMENTS IN DEBT AND EQUITY SECURITIES Long-term investments, which are due over a 16-year period and are classified as held-to-maturity, are included in "Other assets" on the Consolidated Balance Sheets at December 31, 1998 and 1997. The investments consist of approximately $10,300,000 and $12,100,000 in U. S. Treasury and government obligations at December 31, 1998 and 1997, respectively. The fair market value of such investments approximated the amortized cost, and therefore, there were no significant unrealized gains or losses as of December 31, 1998 and 1997. Investments in municipal debt and equity securities of $2,089,000, classified as held-to-maturity, were reported as "Marketable securities" on the Consolidated Balance 26 28 Sheet at December 31, 1997. The fair market value of such investments approximated cost. See Note 6 for a description of other investments reported as "Marketable securities." (f) INCOME TAX ACCOUNTING The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment. (g) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS The amounts reported on the Consolidated Balance Sheets for cash and cash equivalents, marketable securities, accounts receivable, other assets, short-term debt and long-term debt approximate fair value. (h) VALUATION OF LONG-LIVED ASSETS The Company evaluates long-lived assets for impairment periodically or when a specific event indicates that the carrying value of an asset may not be recoverable. Recoverability is assessed based on estimates of future cash flows expected to result from the use and eventual disposition of the asset. If the sum of expected undiscounted cash flows is less than the carrying value of the asset, an impairment loss is recognized. The impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. (i) ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management's estimates and assumptions. Management believes the estimates and assumptions used in the preparation of these consolidated financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes that actual results may differ from those estimates and assumptions. See Note 10. (j) REVENUE RECOGNITION The Company recognizes revenue on product sales upon shipment and on energy sales when electricity is delivered to its customer. Certain costs associated with the production of electricity, such as fuel, labor, depreciation and maintenance are netted against the energy sales for presentation on the Consolidated Statements of Income and Comprehensive Income. The Company's current contract to sell electricity generated in excess of its own use expires in the year 2010 and requires that the customer purchase all of the Company's excess electricity up to a certain level. The price for the electricity is determined pursuant to a formula and varies depending upon the amount sold in any given year. (k) ENVIRONMENTAL LIABILITIES Accruals for losses associated with environmental obligations are recorded when it is probable that a liability has been incurred and that the amount of the liability can be reasonably estimated based on existing legislation and remediation technologies. These accruals are adjusted periodically as assessment and remediation actions continue and/or further legal or technical information develops. Accrued environmental liabilities are classified as "Other long-term liabilities" on the Consolidated Balance Sheets. Such undiscounted liabilities are exclusive of any insurance or other claims against third parties. Costs related to environmental remediation are charged to expense. Environmental costs are capitalized if the costs extend the life of the property, increase its capacity and/or mitigate or prevent contamination from future operations. (l) STOCK-BASED COMPENSATION The Company has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but does not require, companies to record compensation cost for stock-based compensation plans at fair value. The Company has elected to continue to account for stock-based compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, as permitted by SFAS No. 123. Compensation expense for stock options is measured as the excess, if any, of the average quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation expense for restricted stock awards is equal to the average quoted market price of the Company's stock at the date of grant and is recorded ratably over the period in which forfeiture provisions lapse. Compensation expense for performance stock awards is recognized over the performance period based on changes in quoted market prices of the Company's stock and the likelihood of achieving the performance goals. See Note 8. (m) DERIVATIVE FINANCIAL INSTRUMENTS The Company uses interest rate swap agreements to manage its exposure to fluctuations in interest rates. Amounts to be paid or received under interest rate swap agreements are recognized as interest expense or interest income during the period in which they accrue. The Company does not hold any derivative financial instruments for trading purposes. The credit risks associated with the Company's interest rate swap agreements are controlled through the evaluation and monitoring of creditworthiness of the counterparties. Although the Company may be exposed to losses in the event of nonperformance by counterparties, the Company does not expect such losses, if any, to be significant. See Note 7. (n) FOREIGN CURRENCY TRANSLATION The Company's subsidiaries outside the United States use their local foreign currency as the functional currency. Accordingly, translation gains and losses and the effect of exchange rate changes on transactions designated as hedges of net foreign investments are included as a separate component of shareholders' equity. Exchange gains and losses are included in income in the period in which they occur. (o) NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." This statement, which establishes standards for reporting and disclosure of comprehensive income, is effective for interim and annual periods beginning after December 15, 1997. Reclassification of financial information for earlier periods presented for comparative purposes is required under SFAS No. 130. As this statement only requires 27 29 additional disclosures in the Company's consolidated financial statements, its adoption did not have any impact on the Company's consolidated financial position or results of operations. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for the reporting of information about operating segments on an annual basis and is effective for fiscal years beginning after December 15, 1997. Except for geographic information (see Note 11), this statement did not result in any changes to the Company's presentation of financial and nonfinancial data in 1998. The Company's operating locations have been aggregated into a single reportable segment, as permitted under SFAS No. 131, since they have similar economic characteristics, products, production processes, types of customers and distribution methods. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement, which revises certain disclosure requirements for the Company's pension assets and obligations, is effective for fiscal periods beginning after December 15, 1997. Restatement of prior years' information is required, where available. As this statement only requires a change in methods of disclosure and not in accounting methods, it did not have any impact on the Company's consolidated financial position or results of operations. The Company adopted SFAS No. 132 in 1998. 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 recognizes 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 Company is evaluating the effects that the adoption of SFAS No. 133 may have on its consolidated financial position and results of operations. 2. ACQUISITION OF THE SPECIALTY PAPER DIVISION OF THE SCHOELLER AND HOESCH GROUP Effective January 2, 1998, the Company 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, from RQPO Beteiligungs GmbH & Co. Papier KG ("RQPO") and EVOBESTRA Vermogensverwaltungsgesellschaft mbH, for approximately DM 268,900,000 (approximately $150,000,000) in cash. The purchase price was finalized in the fourth quarter of 1998. The principal partners in RQPO were Deutsche Beteiligungs AG and S&H management. The Company accounted for the S&H acquisition under the purchase method of accounting, and S&H is consolidated with the Company beginning in January 1998. S&H was founded in 1881 in Gernsbach, Germany, where its corporate offices and major paper production facilities are located. S&H produces a range of paper products, including tea bag and other long fiber products such as stencil, filter and casing paper, as well as tobacco papers and printing papers. S&H owns an abaca pulpmill in the Philippines and other facilities in France and the United States. S&H also has a 50% controlling ownership interest in a paper mill in Odet, France, with a purchase option to acquire the remaining 50% ownership interest under a predetermined pricing formula. As of December 31, 1998, a minority interest of $10,032,000 associated with this subsidiary is classified as "Other long-term liabilities" on the Company's Consolidated Balance Sheet. For the year ended December 31, 1998, the Company recognized $886,000 of minority interest expense classified as "Gain from property dispositions, etc. - net" on the Company's Consolidated Statement of Income and Comprehensive Income. The purchase price of S&H, including certain transaction costs, was allocated to the assets acquired and liabilities assumed based upon their fair values at the date of acquisition. The fair values allocated were approximately $238,000,000 for the assets acquired and approximately $101,000,000 for the liabilities assumed. The excess of the purchase price over the fair value of net assets acquired of approximately $13,000,000 was recorded as goodwill and is being amortized on a straight-line basis over 20 years. To finance the acquisition, on December 22, 1997, the Company 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 Company 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 Company's option, on a daily or one to six-month basis. Interest on the revolving credit loans is at variable rates based, at the Company'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 Company's debt ratings as published by Standard & Poor's and Moody's. The Company is subject to certain financial covenants under the Revolving Credit Facility and is in compliance with all such covenants as of December 31, 1998. The Company must pay an annual facility fee ranging from .065% to .13% of the total credit commitment, which is also based on the higher of the Company's debt ratings as published by Standard & Poor's and Moody's, under the Revolving Credit Facility. During 1998, the Company paid .10% of the total credit commitment for this facility fee. As of December 31, 1998, $33,234,000 of credit availability under the Revolving Credit Facility was unused. On December 30, 1997, the Company borrowed DM 87,500,000 (approximately $48,665,000) under the Revolving Credit Facility at a three-day rate of 5.075%. These proceeds were used to capitalize two German subsidiaries to facilitate the S&H acquisition and are included in "Cash and cash equivalents" on the December 31, 1997 Consolidated Balance Sheet. The borrowings were classified as "Short-term debt" on the Consolidated Balance Sheet as of December 31, 1997. On January 2, 1998, the Company borrowed an additional DM 182,500,000 (approximately $101,500,000) necessary to complete the acquisition and classified the aggregate borrowings under the Revolving Credit Facility as long term. 28 30 The following summarized unaudited combined pro forma information for the Company for the year ended December 31, 1997 is presented as if the S&H acquisition had occurred on January 1, 1997. This unaudited pro forma information is based on the historical results of operations adjusted for acquisition costs and, in the opinion of management, is not necessarily indicative of what the results would have been had the Company operated S&H since January 1, 1997 (dollars in thousands, except per share data).
Unaudited Pro Forma Information Year Ended December 31, 1997 ------------------------------- Net sales $738,547 Net income 50,452 Basic and diluted earnings per share 1.19
3. UNUSUAL ITEM During 1998, the Company recognized a pre-tax charge of $9,816,000 ($5,988,000 after tax) related primarily to the accrual of pension and medical benefits for certain salaried and hourly employees of the Company's Ecusta Division and certain salaried employees of the Company's Glatfelter Division who elected to participate in a voluntary early retirement enhancement program. The pre-tax charge also includes the cost of termination of several Glatfelter Division salaried employees which was necessary to achieve the Company's cost-savings goals. The intent of this program is to generate annual payroll and benefits cost savings through a reduction in the size of the Company's workforce. The Company's aggregate restructuring resulted in the elimination of approximately 160 salaried and hourly positions with associated annual pre-tax cost savings of approximately $8,400,000. 4. 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 Company's basic and diluted EPS follows with the dollar and share amounts in thousands:
1998 1997 1996 Shares Shares Shares ------- ------- ------- Basic EPS factors 42,047 42,220 42,718 Effect of potentially dilutive employee incentive plans: Restricted stock awards 16 31 80 Performance stock awards 126 96 69 Employee stock options 13 95 43 ------- ------- ------- Diluted EPS factors 42,202 42,442 42,910 ======= ======= ======= Net income $36,133 $45,284 $60,399 Basic and diluted EPS $ .86 $ 1.07 $ 1.41
The 1998 basic and diluted EPS of $.86, as presented on the Consolidated Statement of Income and Comprehensive Income, reflects the negative impact of an after-tax charge for a voluntary early retirement enhancement program (unusual item) of $.14 per share (see Note 3). 5. INCOME TAXES Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. The effects of income taxes are measured based on effective tax law and rates. The following are domestic and foreign components of pre-tax income for the years ended December 31:
1998 1997 1996 ------- ------- ------- (in thousands) United States $44,602 $69,331 $94,457 Foreign 14,130 4,246 3,448 ------- ------- ------- Total pre-tax income $58,732 $73,577 $97,905 ======= ======= =======
The income tax provision for the years ended December 31 consists of the following:
1998 1997 1996 -------- ------- ------- (in thousands) Current: Federal $ 10,789 $23,590 $17,816 State (106) 626 1,801 Foreign 3,805 1,237 987 -------- ------- ------- Total current tax provision 14,488 25,453 20,604 -------- ------- ------- Deferred: Federal 6,647 2,358 14,570 State 1,244 444 2,297 Foreign 220 38 35 -------- ------- ------- Total deferred tax provision 8,111 2,840 16,902 -------- ------- ------- Total income tax provision $ 22,599 $28,293 $37,506 ======== ======= =======
The Company has provided deferred income taxes of $949,000 on undistributed earnings of foreign subsidiaries as of December 31, 1998. 29 31 The net deferred tax amounts reported on the Company's Consolidated Balance Sheets as of December 31 are as follows:
1998 1997 ----------------------------------------- -------- Federal State Foreign Total Total ------- ------- ------- -------- -------- (in thousands) Current asset $ -- $ -- $ 1,302 $ 1,302 $ -- Current liability $ 2,238 $ 419 $ 964 $ 3,621 $ 3,140 Long-term asset $ -- $ -- $15,194 $ 15,194 $ -- Long-term liability $92,484 $17,259 $13,578 $123,321 $101,995
The following are components of the net deferred tax balances as of December 31:
1998 1997 ------------------------------------------- -------- Federal State Foreign Total Total -------- ------- -------- -------- -------- Deferred tax assets: (in thousands) Current $ 5,019 $ 940 $ 1,344 $ 7,303 $ 5,202 Long-term 22,292 4,174 21,492 47,958 24,838 -------- ------- -------- -------- -------- $ 27,311 $ 5,114 $ 22,836 $ 55,261 $ 30,040 ======== ======= ======== ======== ======== Deferred tax liabilities: Current $ 7,257 $ 1,359 $ 1,006 $ 9,622 $ 8,342 Long-term 114,776 21,433 19,876 156,085 126,833 -------- ------- -------- -------- -------- $122,033 $22,792 $ 20,882 $165,707 $135,175 ======== ======= ======== ======== ========
The tax effects of temporary differences as of December 31 are as follows:
1998 1997 -------- -------- Deferred tax assets: (in thousands) Reserves $ 13,457 $ 10,662 Compensation 8,124 8,020 Postretirement benefits 10,514 9,816 Property 14,528 -- Pension 3,209 -- Net operating loss carryforwards 2,788 -- Other 2,641 1,542 -------- -------- $ 55,261 $ 30,040 ======== ======== Deferred tax liabilities: Property $122,422 $ 97,643 Pension 31,171 27,866 Inventories 8,954 8,115 Other 3,160 1,551 -------- -------- $165,707 $135,175 ======== ========
A reconciliation between the income tax provision, computed by applying the statutory federal income tax rate of 35%, to income before income taxes, and the actual income tax provision for the years ended December 31 follows:
1998 1997 1996 -------- -------- -------- (in thousands) Federal income tax provision at statutory rate $ 20,556 $ 25,752 $ 34,267 State income taxes, net of federal income tax benefit 740 696 2,663 Tax effect of exempt earnings of foreign sales corporation (1,313) (360) (281) Other 2,616 2,205 857 -------- -------- -------- Actual income tax provision $ 22,599 $ 28,293 $ 37,506 ======== ======== ========
30 32 At December 31, 1998, the Company had net operating loss carryforwards for foreign income tax purposes of $11,285,000, which relates to its net operating loss deferred tax asset of $2,788,000. These net operating loss carryforwards are available to offset future taxable income, if any, and have no expiration date. 6. BORROWINGS Long-term debt at December 31 is summarized as follows:
1998 1997 --------- --------- (in thousands) Revolving Credit Facility, due December 22, 2002 $ 166,766 $ -- 57/8% Notes, due March 1, 1998, interest payable semiannually -- 150,000 67/8% Notes, due July 15, 2007, interest payable semiannually 150,000 150,000 Other Notes, various 10,703 -- --------- --------- Total long-term debt 327,469 300,000 Less current portion (2,088) (150,000) --------- --------- Long-term debt, excluding current portion $ 325,381 $ 150,000 ========= =========
The aggregate maturities of long-term debt as of December 31, 1998 are as follows: 1999 $ 2,088 2000 1,791 2001 1,791 2002 168,361 2003 1,401 Thereafter 152,037 -------- $327,469 ========
In addition to the Revolving Credit Facility described in Note 2, the Company has an available line of credit from a bank aggregating $25,000,000 at interest rates approximating money market rates. The Company had no borrowings under this line of credit as of December 31, 1998 or 1997. In March 1993, the Company issued $150,000,000 principal amount of its 57/8% Notes. These Notes matured and were paid on March 1, 1998. Interest on the Notes was payable semiannually on March 1 and September 1. On July 22, 1997, the Company issued $150,000,000 principal amount of 67/8% Notes due July 15, 2007. Interest on the Notes is payable semiannually on January 15 and July 15. The 67/8% Notes are redeemable, in whole or in part, at the option of the Company at any time at a calculated redemption price plus accrued and unpaid interest to the date of redemption, and constitute unsecured and unsubordinated indebtedness of the Company. The net proceeds from the sale of the 67/8% Notes were used to repay the $144,675,000 principal amount of the short-term unsecured loan described below and approximately $501,000 of related interest. The remaining balance of the net proceeds was applied to general corporate purposes. In February 1997, the Company formed GWS Valuch, Inc. ("GWS Valuch"), a corporation organized under the laws of the State of Delaware, with the intention that GWS Valuch would qualify as a real estate investment trust. The Company invested approximately $122,500,000 to acquire approximately 99.9% of the voting Class A common stock of GWS Valuch. GWS Valuch also issued shares of step-down preferred stock ("Step-Down Preferred Stock"), having a liquidation preference of $150,000,000 and an initial dividend of approximately 13.9%, to other investors. This dividend included an amortization component of the Step-Down Preferred Stock, resulting in an effective yield of approximately 8.1%. GWS Valuch has been consolidated in the Company's financial statements since the date of formation. Immediately following the establishment and capitalization of GWS Valuch, the Company borrowed $270,000,000 from GWS Valuch under a note secured by certain real estate assets of the Company. Using the proceeds of the note and other available cash, the Company immediately repaid, with interest, an amount initially borrowed to purchase the Class A common stock of GWS Valuch. The Company also deposited $154,757,000, which included amounts to pay semiannual interest, into a trust to defease certain covenants under the Company's indenture dated as of January 15, 1993, under which the Company's $150,000,000 principal amount of 57/8% Notes due March 1, 1998, were outstanding. As of December 31, 1997, approximately $153,000,000 of U. S. Treasury Notes were in the trust and reported on the Company's Consolidated Balance Sheet as a component of "Marketable securities." This amount, along with interest earned, was held to maturity and used to pay the total amount of principal and interest due on the 57/8% Notes on March 1, 1998. Subsequent to the above transactions, the Internal Revenue Service announced that it intended to issue regulations with retroactive effect on transactions using self-amortizing investments in conduit financing entities. As a result of this announcement, the likelihood that the Company could lose certain tax benefits arising from GWS Valuch's Step-Down Preferred Stock financing increased substantially. Accordingly, on July 2, 1997, using the proceeds of a short-term unsecured loan in the principal amount of $144,675,000, the Company purchased approximately 145,000 shares of Class A common stock of GWS Valuch. The funds received were used by GWS Valuch to redeem all 150,000 outstanding shares of the Step-Down Preferred Stock. "Interest on debt" on the Company's Consolidated Statement of Income and Comprehensive Income for the year ended December 31, 1997 includes $4,235,000, representing a portion of the dividend paid relating to the Step-Down Preferred Stock. The Company has approximately $3,120,000 of letters of credit outstanding as of December 31, 1998. The Company bears the credit risk on this amount to the extent that it does not comply with the provisions of certain agreements. The letters of credit do not reduce the amount available under the Company's lines of credit. 7. INTEREST RATE SWAP AGREEMENTS In March 1993, the Company entered into an interest rate swap agreement having a total notional principal amount of $50,000,000. Under the agreement, the Company received a fixed rate of 57/8% and paid a floating rate (London Interbank Offered Rate (LIBOR) plus sixty basis points), as determined at six-month intervals. The agreement converted a portion of the Company's debt obligation 31 33 from a fixed rate to a floating rate basis. Under the agreement, the Company recognized net interest expense of $151,000, $275,000 and $174,000 in 1998, 1997 and 1996, respectively. These amounts are included in "Interest on debt" on the Company's Consolidated Statements of Income and Comprehensive Income. The Company held the swap agreement until its March 1, 1998 maturity. To offset some of the variable rate characteristics of the total borrowing under the Revolving Credit Facility, effective in January 1998, the Company entered into two interest rate swap agreements, each having total notional principal amounts of DM 52,600,000 (approximately $31,400,000 as of December 31, 1998). Under the agreements, the Company 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 LIBOR. The six-month DM LIBOR applicable for the first and second half of 1998 was approximately 3.8% and 3.7%, respectively. The six-month DM LIBOR applicable for the first half of 1999 is approximately 3.3%. The Company recognized net interest expense of $638,000 in 1998 related to these agreements. As of December 31, 1998, the Company's cost to terminate these interest rate swap agreements was approximately $1,100,000. In January 1999, the Company entered into two additional interest rate swap agreements, each having a total notional principal amount of DM 50,000,000 (approximately $30,000,000). Under one agreement, which is effective April 6, 1999, the Company will receive a floating rate (DM LIBOR plus twenty basis points) as determined at three-month intervals and will pay a fixed rate of 3.4075%. Under the second agreement, which is effective July 6, 1999, the Company will receive a floating rate (DM LIBOR plus twenty basis points) and will pay a fixed rate of 3.425%. These agreements convert a portion of the Company's borrowings under its Revolving Credit Facility from a floating rate to a fixed rate basis. Although the Company can pay to terminate these swap agreements at any time, the Company intends to hold both swap agreements until their December 22, 2002 maturity. During 1998, the Company had outstanding various interest rate swap agreements previously entered into by S&H. Such agreements did not have a material impact on the Company's consolidated financial statements. 8. KEY EMPLOYEE LONG-TERM INCENTIVE PLAN, RESTRICTED COMMON STOCK AWARD PLAN AND EMPLOYEE STOCK PURCHASE PLANS On April 23, 1997, the common shareholders amended the 1992 Key Employee Long-Term Incentive Plan ("1992 Plan") to authorize, among other things, the issuance of up to 5,000,000 shares of the Company's common stock to eligible participants. The 1992 Plan provides for incentive stock options, non-qualified stock options, restricted stock awards, performance shares and performance units. The Company's 1988 Restricted Common Stock Award Plan ("1988 Plan") was amended in 1992 to provide that no further awards of common shares may be made thereunder. RESTRICTED STOCK AWARDS During 1988 and 1991, 755,000 and 76,000 shares of common stock, respectively, were awarded under the 1988 Plan. During December 1998, 60,465 shares of common stock were awarded under the 1992 Plan. Awarded shares are subject to forfeiture, in whole or in part, if the recipient ceases to be an employee within a specified period of time. The shares awarded under the 1992 Plan are also subject to forfeiture if defined minimum earnings levels are not met. The Company may reduce the number of shares otherwise required to be delivered by an amount which would have a fair market value equal to the taxes withheld by the Company on delivery. The Company may also, at its sole discretion, elect to pay to the recipients in cash an amount equal to the fair market value of the shares that would otherwise be required to be delivered. On May 1, 1996, in lieu of delivering 60,303 shares, the Company elected to pay in cash an amount equal to the fair value of such shares. Also on May 1, 1996, 72,193 shares were delivered from treasury (after reduction of 49,504 shares for taxes). On May 1, 1997, 13,350 shares were delivered from treasury (after reduction of 6,650 shares for taxes). On May 1, 1998, in lieu of delivering 20,000 shares, the Company elected to pay in cash an amount equal to the fair value of such shares. The Company recognized income of $64,000 in 1998 and expensed $166,000 and $283,000 in 1997 and 1996, respectively, related to these restricted stock awards. During 1999, the remaining 20,000 shares awarded under the 1988 Plan cease to be subject to forfeiture. The shares awarded under the 1992 Plan all cease to be subject to forfeiture in 2002. PERFORMANCE SHARES On May 1, 1995, January 1, 1996, January 1, 1997 and January 1, 1998, the Company awarded, under the 1992 Plan, 59,620, 44,860, 40,060 and 45,740 shares, respectively, subject to certain conditions, to certain key employees to be issued in whole or in part depending on the Company's degree of success in achieving certain financial performance goals during defined four-year performance periods. The May 1, 1995 award was for the four-year performance period ended December 31, 1998. Based upon the financial performance levels achieved during that period, 45,751 shares were earned for distribution. During February 1999, in lieu of delivering 45,751 shares of common stock, the Company elected to pay cash equal to the fair value of 34,311 shares as of December 31, 1998, and deliver 11,440 shares from treasury. The January 1, 1996, January 1, 1997 and January 1, 1998 awards are for the performance periods ending December 31, 1999, 2000 and 2001, respectively, and if earned will be distributed the following year. The Company recognized income of $25,000 in 1998 and expensed $722,000 and $504,000 in 1997 and 1996, respectively, related to these awards. The fair market value of the shares granted during 1998, 1997, 1996 and 1995 was $18.38, $17.88, $17.16 and $17.81, respectively. 32 34 NON-QUALIFIED STOCK OPTIONS The following summarizes the activity with respect to non-qualified options under the 1992 Plan to purchase shares of common stock for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 ----------------------------- -------------------------- ------------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of year 1,621,165 $17.61 1,403,640 $17.42 1,235,910 $17.48 Options granted 1,659,115 13.19 352,750 18.25 202,030 16.91 Options exercised (3,100) 15.44 (105,225) 17.20 (12,300) 15.44 Options canceled (60,600) 18.03 (30,000) 17.41 (22,000) 17.48 --------- --------- --------- Outstanding at end of year 3,216,580 15.32 1,621,165 17.61 1,403,640 17.42 Exercisable at end of year 1,264,973 17.54 1,001,813 17.49 816,046 17.39
The following table summarizes information about stock options outstanding at December 31, 1998:
Options Outstanding Options Exercisable ----------------------------------------------------------------- ---------------------------------------- Number Weighted Average Weighted Number Weighted Range of Outstanding as Remaining Average Exercisable as Average Exercise Price of 12/31/98 Contractual Life Exercise Price of 12/31/98 Exercise Price - ---------------- ------------------ ---------------------- ---------------- ---------------- ---------------- $12.38 - $16.00 1,605,455 9.5 years $12.71 170,850 $ 15.44 $16.01 - $18.78 1,611,125 6.4 years 17.94 1,094,123 17.87 --------- --------- 3,216,580 1,264,973 ========= =========
An additional 282,863 options became exercisable January 1, 1999, at a weighted average exercise price of $18.03. The weighted average fair value of options granted during 1998, 1997 and 1996 was $3.12, $4.92 and $4.24, respectively, on the date of grant. The fair value of each option on the date of grant is estimated using the Black-Scholes option pricing model with expected lives of ten years and the following weighted average assumptions:
1998 1997 1996 ----- ----- ----- Risk-free interest rate 4.98% 6.43% 6.12% Expected dividend yield 4.44% 3.86% 3.99% Expected volatility 28.6% 24.7% 24.0%
Options typically become exercisable for 25% of the shares of common stock issuable on exercise thereof, beginning January 1 of the year following the date of grant, assuming six months has passed, with options for an additional 25% of such shares becoming exercisable on January 1 of each of the next three years. Options not exercisable in this format are exercisable in full either six months or one year from the date of grant. All options expire on the earlier of termination or, in some instances, a defined period subsequent to termination of employment, or ten years from the date of grant. The exercise price represents the average quoted market price of the Company's common stock on the date of grant, or the average quoted market prices of the Company's common stock on the first day before and after the date of grant for which quoted market price information was available if such information was not available on the date of grant. 33 35 PRO FORMA INFORMATION The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized for the non-qualified stock options and for which compensation cost has been recognized for stock awards, as described in Note 1(l). Had compensation cost for these plans been determined consistent with SFAS No. 123, the Company's net income and EPS for the years ended December 31, 1998, 1997 and 1996 would have been reduced to the following pro forma amounts:
1998 1997 1996 ----------- ----------- ---------- (in thousands except per share information) Net income: As reported $ 36,133 $ 45,284 $ 60,399 Pro forma 35,554 45,195 60,289 EPS: Reported -- basic and diluted $ .86 $ 1.07 $ 1.41 Pro forma -- basic .85 1.07 1.41 Pro forma -- diluted .84 1.06 1.41
EMPLOYEE STOCK PURCHASE PLANS Through 1998, under the employee stock purchase plans, eligible hourly employees could acquire shares of the Company's common stock at its fair market value. Employees could contribute up to 10% of their compensation, as defined. For employee contributions up to 6% of their compensation, the Company would contribute, as specified in the plans, 15% of the employee's contribution. As of January 1999, benefits offered to eligible hourly employees under such stock purchase plans were replaced with similar benefits under a 401(k) plan. See Note 9. 9. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS The Company has trusteed noncontributory defined benefit pension plans covering substantially all of its employees. The benefits are based, in the case of certain plans, on average salary and years of service and, in the case of other plans, on a fixed amount for each year of service. Plan provisions and funding meet the requirements of the Employee Retirement Income Security Act of 1974. Pension income of $5,502,000, $10,063,000 and $9,246,000 was recognized in 1998, 1997 and 1996, respectively. The 1998 pension income is after the impact of a pre-tax charge of $8,486,000 related to the unusual item discussed in Note 3. The Company provides certain health care benefits to eligible retired employees. These benefits include a comprehensive medical plan for retirees prior to age 65 and fixed supplemental premium payments to retirees over age 65 to help defray the costs of Medicare. The plan is not funded; claims are paid as incurred. The following table sets forth the status of the Company's defined benefit pension plans and other postretirement benefit plans at December 31, 1998 and 1997 (in thousands):
Pension Benefits Other Benefits ----------------------------- ---------------------------- 1998 1997 1998 1997 -------------- ----------- ------------ --------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 191,589 $ 176,859 $ 27,450 $ 27,831 Benefit obligation -- S&H 6,340 -- -- -- Service cost 4,838 4,605 728 732 Interest cost 14,355 13,008 2,005 2,036 Plan amendments 6,156 2,060 (497) (343) Actuarial (gain) loss 8,813 3,808 2,691 (741) Benefits paid (9,656) (8,751) (2,380) (2,065) Unusual item (Note 3) 8,486 -- 1,294 -- --------- --------- --------- --------- Benefit obligation at end of year $ 230,921 $ 191,589 $ 31,291 $ 27,450 ========= ========= ========= ========= CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year $ 413,807 $ 335,421 $ -- $ -- Actual return on plan assets 98,809 84,465 -- -- Employer contributions 1,225 2,672 2,380 2,065 Benefits paid (9,656) (8,751) (2,380) (2,065) --------- --------- --------- --------- Fair value of plan assets at end of year $ 504,185 $ 413,807 $ -- $ -- ========= ========= ========= ========= RECONCILIATION OF THE FUNDED STATUS: Funded status $ 273,264 $ 222,218 $ (31,291) $ (27,450) Unrecognized transition asset (9,202) (10,926) -- -- Unrecognized prior service cost 21,187 16,507 (1,871) (1,573) Unrecognized (gain) loss (212,072) (154,570) 6,217 3,673 --------- --------- --------- --------- Net amount recognized $ 73,177 $ 73,229 $ (26,945) $ (25,350) ========= ========= ========= ========= AMOUNTS RECOGNIZED ON THE CONSOLIDATED BALANCE SHEETS Consist of: Prepaid benefit cost $ 89,603 $ 82,309 $ -- $ -- Accrued benefit liability (16,426) (9,080) (26,945) (25,350) --------- --------- --------- --------- Prepaid (accrued) benefit cost $ 73,177 $ 73,229 $ (26,945) $ (25,350) ========= ========= ========= =========
34 36 The net prepaid pension cost is included in "Other assets," and accrued postretirement benefit costs are principally included in "Other long-term liabilities" on the Consolidated Balance Sheets at December 31, 1998 and 1997. Net periodic benefit (income) cost includes the following components (in thousands):
Pension Benefits Other Benefits --------------------------------- --------------------------------- 1998 1997 1996 1998 1997 1996 -------- -------- -------- -------- -------- -------- Service cost $ 4,838 $ 4,605 $ 4,076 $ 728 $ 732 $ 732 Interest cost 14,355 13,008 11,708 2,005 2,036 2,003 Expected return on plan assets (29,607) (25,553) (22,728) -- -- -- Amortization of transition asset (1,724) (1,725) (1,725) -- -- -- Amortization of prior service cost 1,333 1,200 794 (175) (149) (150) Recognized actuarial (gain) loss (3,183) (1,598) (1,371) 123 203 225 -------- -------- -------- -------- -------- -------- Net periodic benefit (income) cost (13,988) (10,063) (9,246) 2,681 2,822 2,810 Unusual item (Note 3) 8,486 -- -- 1,294 -- -- -------- -------- -------- -------- -------- -------- Total net periodic benefit (income) cost $ (5,502) $(10,063) $ (9,246) $ 3,975 $ 2,822 $ 2,810 ======== ======== ======== ======== ======== ========
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $21,384,000, $20,211,000 and $0, respectively, as of December 31, 1998 and $12,944,000, $12,467,000 and $0, respectively, as of December 31, 1997. The assumptions used in computing the information above were as follows:
Pension Benefits Other Benefits ----------------------- ---------------------- 1998 1997 & 1996 1998 1997 & 1996 ---- ----------- ---- ----------- Discount rate -- benefit expense 7.5% 7.5% 7.5% 7.5% Expected long-term rate of return on plan assets 9.0% 9.0% -- -- Discount rate -- benefit obligation 7.0% 7.5% 7.0% 7.5% Future compensation growth rate 3.5% 3.5% -- --
For measurement purposes, an 8% and 7% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1997 and 1998, respectively. The rate was assumed to decrease 1% per year to 5.5% for 2000 and remain at that level thereafter. A one percentage-point change in assumed health care cost trend rates would have the following effects:
1998 1997 -------------------------------- --------------------------- 1% 1% 1% 1% Increase Decrease Increase Decrease -------- -------- -------- -------- Effect on post-retirement benefit obligation $ 2,243,458 $(1,949,364) $ 2,130,543 $(1,872,746) Effect on total of service and interest cost components 268,259 (227,732) 268,419 (218,316)
The Company maintains 401(k) plans for certain hourly and salaried employees. Employees may contribute up to 15% of their salary to these plans, subject to certain restrictions. The Company will match a portion of the employee's contribution, subject to certain limitations, in the form of shares of the Company's common stock into the Company stock fund maintained under the 401(k) plan. During 1998, 1997 and 1996, the Company contributed shares of its common stock valued at $1,541,000, $1,093,000 and $1,048,000, respectively, to these 401(k) plans. 35 37 10. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS The Company 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 Company has incurred substantial capital and operating expenditures over the past several years. The Company 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 Company 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 Company'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 Company's wastewater discharge permit for the Spring Grove mill on terms unacceptable to the Company. The Company cannot determine the impact that the new permit will have on the Company if it contains objectionable terms because the material terms of the final form of the permit are unknown. The Company, 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 Company 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 million in work and funds to facilitate natural resources damages assessment activities, including, among other things, modeling and risk assessment, as well as field scale demonstration of sediment dredging and the enhancement of certain environmental amenities. The actual cost to be incurred by the companies for such activities will exceed $10 million. 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 Company'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 two Indian tribes, however, is conducting its own assessment despite the State's status. In general, the parties to the Wisconsin Agreement have agreed to toll all limitations periods and to forbear from litigation during the term of this agreement. The parties intend to conclude a final resolution of all of the State's claims during the course of, or after completion of, the work called for by the agreement. By letter dated January 31, 1997, and received by the Company on February 3, 1997, the USFWS provided 60 days' notice of the intention of the United States Departments of the Interior and Commerce to commence an action for natural resources damages against the Company and the six other companies referred to above similarly relating to the discharge of hazardous substances into the lower Fox River. The Company does not know the amount which the federal trustees will claim as natural resources damages, but the Company believes that it will be substantial. Beginning as of March 1, 1997, the Company and six other companies entered into a series of agreements with the United States which provided that all limitation periods were tolled and the parties would forbear from litigation; the last tolling and forbearance period expired on December 2, 1997. On July 11, 1997, the Wisconsin DNR, the United States Department of the Interior, the Menominee Indian Tribe of Wisconsin, the Oneida Tribe of Indians of Wisconsin, the National Oceanic and Atmospheric Administration and the United States Environmental Protection Agency ("EPA") entered into a Memorandum of Agreement (the "MOA") which provides for coordination and cooperation among those parties in addressing the release or threat of release of hazardous substances into the lower Fox River, Green Bay and Lake Michigan environment. The MOA sets forth a mutual goal of remediating and/or responding to hazardous substance releases and threats of releases, and restoring injured and potentially injured natural resources. The MOA further states that, based on current information, removal of the PCB-contaminated sediments in the lower Fox River is expected to be the principal, but not exclusive, action undertaken to achieve restoration and rehabilitation of injured natural resources. The MOA anticipates funding from the Company and the six other companies, all of which are identified as potentially responsible parties. 36 38 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 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 Company 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 any of the cost estimates in the draft RI/FS will not differ significantly from actual costs. Public comments on the draft RI/FS must be submitted by April 12, 1999. The Company intends to submit its comments prior to that deadline. After consideration of public comment, the draft RI/FS may be revised to add, delete or amend the remedial alternatives. The Company did not participate in the process of developing the draft RI/FS. Based on current information and advice from its environmental consultants, the Company continues to believe that an aggressive effort, as included in certain remedial alternatives in the draft RI/FS, to remove PCB-contaminated sediments, many of which are buried under cleaner material or are otherwise unlikely to move, would be environmentally detrimental and therefore inappropriate. The Company is currently unable to predict the ultimate costs to the Company related to this matter, because the Company cannot predict which remedy will be selected for the site or its share of the cost of that remedy. The Company continues to believe it is likely that this matter will result in litigation; however, the Company 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 Company 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 Company's consolidated financial condition, liquidity and results of operations or that the Company'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 Company 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 Company believes that it is insured against certain losses related to the lower Fox River, depending on the nature and amount thereof. Coverage, which is currently being investigated under reservation of rights by various insurance companies, is dependent upon the identity of the plaintiff, the procedural posture of the claims asserted and how such claims are characterized. The Company does not know when the insurers' investigation as to coverage will be completed. The Company'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 Company's consolidated financial condition or liquidity, but could have a material adverse effect on the Company's consolidated results of operations in a given year; however, there can be no assurances that the Company's reserves will be adequate or that a material adverse effect on the Company's consolidated financial condition or liquidity will not occur at some future time. During 1998 and 1997, the Company expended approximately $4,900,000 and $8,000,000, respectively, on environmental capital projects. The Company estimates that $11,000,000 and $18,000,000 will be expended for environmental capital projects in 1999 and 2000, respectively. During 1998, 1997 and 1996, the Company 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 Company is also involved in various lawsuits. Although the ultimate outcome of these lawsuits cannot be predicted with certainty, the Company's management, after consultation with legal counsel, does not expect that such lawsuits will have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. 37 39 11. OTHER SALES AND GEOGRAPHIC INFORMATION The Company sells a significant portion of its specialized printing papers through wholesale paper merchants. During 1997 and 1996, one wholesale paper merchant accounted for 11.6% and 12.1% of the Company's net sales, respectively. Net sales for this customer was less than 10% of the Company's 1998 net sales. The Company's 1998 net sales to external customers and location of net plant, equipment and timberlands as of December 31, 1998 are summarized below. Net sales are attributed to countries based upon origin of shipment. Such information is not presented for 1997 or 1996, as sales originated primarily from the United States and net plant, equipment and timberlands assets were primarily located therein.
Plant, Equipment and Net Sales Timberlands -- Net ----------- -------------------- United States $535,425 $464,384 Germany 130,129 141,743 Other foreign countries 39,524 22,029 -------- -------- Total $705,078 $628,156 ======== ========
Net sales information by the Company's product groups for the years ended December 31 follows:
1998 1997 1996 ---------------- ------------------ -------------------- (in thousands) Specialized Printing Papers $351,171 50% $354,076 62% $355,328 63% Engineered Papers (including tobacco papers) 353,907 50% 212,996 38% 210,756 37% -------- --- -------- --- -------- --- Total $705,078 100% $567,072 100% $566,084 100% ======== === ======== === ======== ===
12. SUBSEQUENT EVENT In January of 1999, the Company's Board of Directors authorized the repurchase of 1,000,000 additional shares of the Company's common stock in the open market or in privately-negotiated transactions. Any shares repurchased will be added to the Company's treasury stock holdings. 38 40 MANAGEMENT'S RESPONSIBILITY REPORT The management of P. H. Glatfelter Company has prepared and is responsible for the Company's consolidated financial statements and other corroborating information contained herein. Management bears responsibility for the integrity of these statements which have been prepared in accordance with generally accepted accounting principles and include management's best judgments and estimates. All information in this annual report consistently reflects the data contained in the consolidated financial statements. The Company maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded, transactions are executed and recorded in accordance with their authorizations, and financial records are maintained so as to permit the preparation of reliable financial statements. The system of internal controls is enhanced by written policies and procedures, an organizational structure providing appropriate segregation of duties, careful selection and training of qualified people, and periodic reviews performed by both its internal audit department and independent public auditors. The Audit Committee of the Board of Directors, consisting exclusively of directors who are not Company employees, provides oversight of financial reporting. The Company's internal audit department and independent auditors meet with the Audit Committee on a periodic basis to discuss financial reporting and internal control issues and have completely free access to the Audit Committee. /s/ George H. Glatfelter II - -------------------------- George H. Glatfelter II President and Chief Executive Officer /s/ Robert P. Newcomer - --------------------- Robert P. Newcomer Executive Vice President and Chief Financial Officer INDEPENDENT AUDITORS' REPORT P. H. Glatfelter Company, Its Shareholders and Directors: We have audited the accompanying consolidated balance sheets of P. H. Glatfelter Company and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income and comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of P.H. Glatfelter Company and subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvanlia February 26, 1999 39 41 SUPPLEMENTAL FINANCIAL INFORMATION P.H. GLATFELTER COMPANY AND SUBSIDIARIES QUARTERLY FINANCIAL DATA (UNAUDITED)
Net Sales Gross Profit Net Income Basic and Diluted In Thousands In Thousands In Thousands Earnings Per Share ------------------------- ------------------------ ------------------------ ---------------------- 1998 1997 1998 1997 1998 1997 1998 1997 -------- -------- -------- -------- -------- -------- ------- -------- First $193,216 $142,185 $ 40,929 $ 30,180 $ 15,327 $ 12,823 $ .36 $ .30 Second 183,707 141,935 38,280 27,100 13,791 11,222 .33 .27 Third 167,245 139,192 24,041 21,072 3,206)(a) 7,423 .08(a) .17 Fourth 160,910 143,760 26,477 30,594 3,809)(b) 13,816 .09(b) .33 -------- -------- -------- -------- -------- -------- ----- ----- Total $705,078 $567,072 $129,727 $108,946 $ 36,133 $ 45,284 $ .86 $1.07 ======== ======== ======== ======== ======== ======== ===== =====
(a) After impact of an after-tax charge for voluntary early retirement enhancement program (unusual item) of $3,402,000. (b) After impact of an after-tax charge for voluntary early retirement enhancement program (unusual item) of $2,586,000. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not Applicable. PART III Item 10. Directors and Executive Officers of the Registrant. (a) Directors. The information with respect to directors required under this item is incorporated herein by reference to pages 2, 3 and 20 of the Registrant's Proxy Statement, dated March 19, 1999. (b) Executive Officers of the Registrant. The information with respect to the executive officers required under this item is set forth in Part I of this report. Item 11. Executive Compensation. The information required under this item is incorporated herein by reference to pages 6 through 16 of the Registrant's Proxy Statement, dated March 19, 1999. 40 42 Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required under this item is incorporated herein by reference to pages 17 through 19 of the Registrant's Proxy Statement, dated March 19, 1999. Item 13. Certain Relationships and Related Transactions. The information required under this item is incorporated herein by reference to page 17 of the Registrant's Proxy Statement, dated March 19, 1999. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. A. The following consolidated Financial Statements of the Registrant are included in Part II, Item 8: Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Balance Sheets, December 31, 1998 and 1997 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements for the Years Ended December 31, 1998, 1997 and 1996 B. Supplemental Financial Information for each of the two years in the period ended December 31, 1998 is included in Part II, Item 8. 2. Financial Statement Schedules (Consolidated) are included in Part IV: For Each of the Three Years in the Period Ended December 31, 1998: II - Valuation and Qualifying Accounts Schedules other than those listed above are omitted because of the absence of conditions under 41 43 which they are required or because the required information is included in the Notes to the Consolidated Financial Statements. Individual financial statements of the Registrant are not presented inasmuch as the Registrant is primarily an operating company and its consolidated subsidiaries are essentially wholly-owned. 3. Executive Compensation Plans and Arrangements: see Exhibits 10(a) through 10(h), described below. Exhibits: Number Description of Documents (2) Stock Purchase Agreement dated as of November 14, 1997 by and among certain subsidiaries of P. H. Glatfelter Company, the Stockholders of S&H Papier-Holding GmbH, Deutsche Beteiligungs Aktiengesellschaft Unternehmensbeteiligungsgesellschaft and P.H. Glatfelter Company (incorporated by reference to Exhibit 2.1 of Registrant's Form 8-K dated January 2, 1998). (3)(a) Articles of Amendment dated April 27, 1977, including restated Articles of Incorporation (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993) as amended by Articles of Merger dated January 30, 1979 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated May 12, 1980 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated September 23, 1981 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated August 2, 1982 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated July 29, 1983 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); by Articles of Amendment dated April 25, 1984 (incorporated by reference to Exhibit 3(a) of 42 44 Registrant's Annual Report on Form 10-K for the year ended December 31, 1994); a Statement of Reduction of Authorized Shares dated October 15, 1984 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1984); a Statement of Reduction of Authorized Shares dated December 24, 1985 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1985); by Articles of Amendment dated April 23, 1986 (incorporated by reference to Exhibit (3) of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1986); a Statement of Reduction of Authorized Shares dated July 11, 1986 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1986); a Statement of Reduction of Authorized Shares dated March 25, 1988 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1987); a Statement of Reduction of Authorized Shares dated November 9, 1988 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1988); a Statement of Reduction of Authorized Shares dated April 24, 1989 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1989); Articles of Amendment dated November 29, 1990 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1990); Articles of Amendment dated June 26, 1991 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1991); Articles of Amendment dated August 7, 1992 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1992); Articles of Amendment dated July 30, 1993 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1993); and Articles of Amendment dated January 26, 1994 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1993). (3)(b) Articles of Incorporation, as amended through January 26, 1994 (restated for the purpose of filing on EDGAR) (incorporated by reference to Exhibit 3(c) of Registrant's Form 10-K for the year ended December 31, 1993). (3)(c) By-Laws as amended through March 17, 1999. 43 45 (4)(a) Escrow Agreement, dated as of February 24, 1997 between P. H. Glatfelter Company and the Bank of New York relating to the 5-7/8% Notes due March 1, 1998 (incorporated by reference to Exhibit (4)(c) of Registrant's Form 10-K for the year ended December 31, 1996). (4)(b) Indenture, dated as of July 22, 1997, between P. H. Glatfelter Company and The Bank of New York, relating to the 6-7/8% Notes due 2007 (incorporated by reference to Exhibit 4.1 to the Registrant's Form S-4 Registration Statement, Reg. No. 333-36395). (4)(c) Registration Rights Agreement, dated as of July 22, 1997, among P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and BT Securities Corporation, relating to the 6-7/8% Notes due 2007 (incorporated by reference to Exhibit 4.3 to the Registrant's Form S-4 Registration Statement, Reg. No. 333-36395). (9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993 (incorporated by reference to Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993). (10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of January 1, 1994, as amended effective December 17, 1998. (10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan, as amended and restated June 24, 1992 (incorporated by reference to Exhibit (10)(c) of Registrant's Form 10-K for the year ended December 31, 1992). (10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan, as amended and restated effective April 23, 1998. (10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May 22, 1986 (incorporated by reference to Exhibit (10)(e) of Registrant's Form 10-K for the year ended December 31, 1987). (10)(e) Description of Executive Salary Continuation Plan (incorporated by reference to Exhibit (10)(g) of Registrant's Form 10-K for the year ended December 31, 1990). 44 46 (10)(f) P. H. Glatfelter Company Supplemental Management Pension Plan, effective as of April 23, 1998. (10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive Plan, as amended April 23, 1997 (incorporated by reference to Exhibit A of Registrant's Proxy Statement, dated March 14, 1997). (10)(h) P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of April 22, 1998 (10)(i) Loan Agreement, dated February 24, 1997 between P. H. Glatfelter Company, as borrower, and GWS Valuch, Inc., as lender (incorporated by reference to Exhibit (10)(h) of Registrant's Form 10-K for the year ended December 31, 1996). (10)(j) Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated as of January 31, 1997, among P. H. Glatfelter Company, Fort Howard Corporation, NCR Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin (incorporated by reference to Exhibit (10)(i) of Registrant's Form 10-K for the year ended December 31, 1996). (10)(k) Credit Agreement, dated as of December 22, 1997 among P. H. Glatfelter Company, various subsidiary borrowers, Bankers Trust Company, as Agent, and various lending institutions with Deutsche Bank AG, as Documentation Agent, PNC Bank, National Association, as Syndication Agent, and First National Bank of Maryland and Wachovia Bank, N.A., as Managing Agents (incorporated by reference to Exhibit (10)(j) of Registrant's Form 10-K for the year ended December 31, 1997). (21) Subsidiaries of the Registrant (23) Consent of Independent Certified Public Auditors (27) Financial Data Schedule (b) The Registrant did not file any reports on Form 8-K during the quarter ended December 31, 1998. 45 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant) March 22, 1999 By /s/ G. H. Glatfelter II ----------------------- G. H. Glatfelter II President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:
Date Signature Capacity - ---- --------- -------- March 22, 1999 /s/ G. H. Glatfelter Principal Executive -------------------------- Officer and Director G. H. Glatfelter II March 22, 1999 /s/ R. P. Newcomer Principal Financial -------------------------- Officer, Executive Vice R. P. Newcomer President and Director March 22, 1999 /s/ C. M. Smith Principal Accounting -------------------------- Officer and Vice C. M. Smith President - Finance March 22, 1999 /s/ R. E. Chappell Director ------------------------- R. E. Chappell March 22, 1999 /s/ N. DeBenedictis Director ------------------------- N. DeBenedictis
48 March 22, 1999 /s/ G. H. Glatfelter Director ------------------------- G. H. Glatfelter March 22, 1999 /s/ R. S. Hillas Director ------------------------- R. S. Hillas March 22, 1999 /s/ M. A. Johnson II Director ------------------------- M. A. Johnson II March 22, 1999 /s/ R. W. Kelso Director ------------------------- R. W. Kelso March 22, 1999 /s/ T. C. Norris Director ------------------------- T. C. Norris March 22, 1999 /s/ P. R. Roedel Director ------------------------- P. R. Roedel March 22, 1999 /s/ J. M. Sanzo Director ------------------------- J. M. Sanzo March 22, 1999 /s/ R. L. Smoot ------------------------- R. L. Smoot Director
49 SCHEDULE II P. H. GLATFELTER COMPANY AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998 - -------------------------------------------------------------------------------- VALUATION AND QUALIFYING ACCOUNTS Amounts in Thousands
Allowances for -------------------------------------------------------------------------------- Doubtful Accounts Sales Discounts & Deductions -------------------------------------------------------------------------------- 1998 1997 1996 1998 1997 1996 Balance, beginning of year $ 1,973 $ 1,913 $ 1,979 $ 542 $ 551 $ 501 Other(1) 325 -- -- 1,126 -- -- Provision 90 160 10 14,995 12,882 8,866 Write-offs, recoveries and discounts allowed (856) (100) (76) (14,528) (12,891) (8,816) ------- ------- ------- -------- -------- ------- Balance, end of year $ 1,532 $ 1,973 $ 1,913 $ 2,135 $ 542 $ 551 ======= ======= ======= ======== ======== =======
The provision for doubtful accounts is included in administrative expense and the provision for sales discounts and deductions is deducted from sales. The related allowances are deducted from accounts receivable. (1) Relates primarily to the acquisition of S&H Papier-Holding GmbH. 50 EXHIBIT INDEX Number (2) Stock Purchase Agreement dated as of November 14, 1997 by and among certain subsidiaries of P. H. Glatfelter Company, the Stockholders of S&H Papier-Holding GmbH, Deutsche Beteiligungs Aktiengesellschaft Unternehmensbeteiligungsgesellschaft and P.H. Glatfelter Company (incorporated by reference to Exhibit 2.1 of Registrant's Form 8-K dated January 2, 1998). (3)(a) Articles of Amendment dated April 27, 1977, including restated Articles of Incorporation (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993) as amended by Articles of Merger dated January 30, 1979 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated May 12, 1980 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated September 23, 1981 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated August 2, 1982 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); a Statement of Reduction of Authorized Shares dated July 29, 1983 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1993); by Articles of Amendment dated April 25, 1984 (incorporated by reference to Exhibit 3(a) of Registrant's Annual Report on Form 10-K for the year ended December 31, 1994); a Statement of Reduction of Authorized Shares dated October 15, 1984 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10- K for the year ended December 31, 1984); a Statement of Reduction of Authorized Shares dated December 24, 1985 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1985); by Articles of Amendment dated April 23, 1986 (incorporated by reference to Exhibit (3) of Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1986); a Statement of Reduction 51 of Authorized Shares dated July 11, 1986 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1986); a Statement of Reduction of Authorized Shares dated March 25, 1988 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1987); a Statement of Reduction of Authorized Shares dated November 9, 1988 (incorporated by reference to Exhibit (3)(b) of Registrant's Form 10-K for the year ended December 31, 1988); a Statement of Reduction of Authorized Shares dated April 24, 1989 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1989); Articles of Amendment dated November 29, 1990 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1990); Articles of Amendment dated June 26, 1991 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1991); Articles of Amendment dated August 7, 1992 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1992); Articles of Amendment dated July 30, 1993 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1993); and Articles of Amendment dated January 26, 1994 (incorporated by reference to Exhibit 3(b) of Registrant's Form 10-K for the year ended December 31, 1993). (3)(b) Articles of Incorporation, as amended through January 26, 1994 (restated for the purpose of filing on EDGAR) (incorporated by reference to Exhibit 3(c) of Registrant's Form 10-K for the year ended December 31, 1993). (3)(c) By-Laws as amended through March 17, 1999. (4)(a) Escrow Agreement, dated as of February 24, 1997 between P. H. Glatfelter Company and the Bank of New York relating to the 5-7/8% Notes due March 1, 1998 (incorporated by reference to Exhibit (4)(c) of Registrant's Form 10-K for the year ended December 31, 1996). (4)(b) Indenture, dated as of July 22, 1997, between P. H. Glatfelter Company and The Bank of New York, relating to the 6-7/8% Notes due 2007 (incorporated by reference to Exhibit 4.1 to the Registrant's Form S-4 Registration Statement, Reg. No. 333-36395). 52 (4)(c) Registration Rights Agreement, dated as of July 22, 1997, among P. H. Glatfelter Company, Bear, Stearns & Co. Inc. and BT Securities Corporation, relating to the 6-7/8% Notes due 2007 (incorporated by reference to Exhibit 4.3 to the Registrant's Form S-4 Registration Statement, Reg. No. 333-36395). (9) P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993 (incorporated by reference to Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter Family Shareholders' Voting Trust dated July 1, 1993). (10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of January 1, 1994, as amended effective December 17, 1998. (10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan, as amended and restated June 24, 1992 (incorporated by reference to Exhibit (10)(c) of Registrant's Form 10-K for the year ended December 31, 1992). (10)(c) P. H. Glatfelter Company Supplemental Executive Retirement Plan, as amended and restated effective April 23, 1998. (10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May 22, 1986 (incorporated by reference to Exhibit (10)(e) of Registrant's Form 10-K for the year ended December 31, 1987). (10)(e) Description of Executive Salary Continuation Plan (incorporated by reference to Exhibit (10)(g) of Registrant's Form 10-K for the year ended December 31, 1990). (10)(f) P. H. Glatfelter Company Supplemental Management Pension Plan, effective as of April 23, 1998. (10)(g) P.H. Glatfelter Company 1992 Key Employee Long-Term Incentive Plan, as amended April 23, 1997 (incorporated by reference to Exhibit A of Registrant's Proxy Statement dated March 14, 1997). (10)(h) P. H. Glatfelter Company Deferred Compensation Plan for Directors, effective as of April 22, 1998. (10)(i) Loan Agreement, dated February 24, 1997 between P. H. Glatfelter Company, as borrower, and GWS Valuch, Inc., as lender (incorporated by reference to Exhibit (10)(h) of Registrant's Form 10-K for the year ended December 31, 1996). 53 (10)(j) Agreement between the State of Wisconsin and Certain Companies Concerning the Fox River, dated as of January 31, 1997, among P. H. Glatfelter Company, Fort Howard Corporation, NCR Corporation, Appleton Papers Inc., Riverside Paper Corporation, U.S. Paper Mills, Wisconsin Tissue Mills Inc. and the State of Wisconsin (incorporated by reference to Exhibit (10)(i) of Registrant's Form 10-K for the year ended December 31, 1996). (10)(k) Credit Agreement, dated as of December 22, 1997 among P. H. Glatfelter Company, various subsidiary borrowers, Bankers Trust Company, as Agent, and various lending institutions with Deutsche Bank AG, as Documentation Agent, PNC Bank, National Association, as Syndication Agent, and First National Bank of Maryland and Wachovia Bank, N.A., as Managing Agents (incorporated by reference to Exhibit (10)(j) of Registrant's Form 10-K for the year ended December 31, 1997). (21) Subsidiaries of the Registrant (23) Consent of Independent Certified Public Auditors (27) Financial Data Schedule EX-3.(C) 2 BY-LAWS AS AMENDED THROUGH MARCH 17, 1999 1 Exhibit 3(c) As amended by the Board of Directors at a meeting held March 17, 1999 P. H. GLATFELTER COMPANY BY-LAWS ARTICLE I MEETINGS OF SHAREHOLDERS AND RECORD DATE 1.1 ANNUAL MEETING. An annual meeting of shareholders for the election of directors and the transaction of such other business as may properly come before the meeting shall be held on the fourth Wednesday in April of each year at 10:00 A.M. If the day fixed for the meeting is a legal holiday, the meeting shall be held at the same hour on the next succeeding full business day which is not a legal holiday. 1.2 SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. 1.3 PLACE. The annual meeting of shareholders shall be held at the principal office of the Company. Other meetings of shareholders may be held at such place in Pennsylvania or elsewhere as the Board of Directors may designate. 1.4 NOTICE. Written notice stating the place, day and hour of each meeting of shareholders and, in the case of a special meeting, the general nature of the business to be transacted shall be given by the Secretary at least ten days 2 before the meeting to each shareholder of record entitled to vote at the meeting. 1.5 QUORUM. Except as otherwise provided in the Articles of Incorporation, the presence in person or by proxy of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on a particular matter shall constitute a quorum for the purpose of considering such matter at a meeting of shareholders, but less than a quorum may adjourn from time to time to reconvene at such time and place as they may determine. When a quorum is present, except as may be otherwise specified in the Articles of Incorporation or provided by law, all matters shall be decided by the vote of the holders of a majority of the votes entitled to be cast at the meeting, in person or by proxy. 1.6 RECORD DATES. The Board of Directors may fix a time not more than ninety days prior to the date of any meeting of shareholders, or the date fixed for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or go into effect, as a record date for the determination of the shareholders entitled to notice of or to vote at any such meeting, or to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. In such case, only such shareholders as shall be shareholders of record at the close of business on the date so fixed shall be entitled to notice of or 2 3 to vote at such meeting, or to receive payment of such dividend or distribution, or to receive such allotment of rights, or to exercise such rights in respect to any change, conversion or exchange of shares, as the case may be, notwithstanding any transfer of any shares on the books of the Company after the record date so fixed. ARTICLE II DIRECTORS 2.1 NUMBER AND TERM. The Board of Directors shall consist of thirteen persons, comprising three classes of directors of which two classes shall consist of four directors each and one class shall consist of five directors. At each annual meeting of shareholders, the successors to those directors whose terms expire in that year shall be elected to hold office for a term of three years each, so that the term of office of one class of directors shall expire in each year. 2.2 AGE QUALIFICATION. No person, other than an officer or employee of the Company, shall be elected or reelected a director after reaching 72 years of age; provided, however, that at the 1999 annual meeting of shareholders George H. Glatfelter may be reelected a director for one additional three-year term. When the term of any director, other than George H. Glatfelter or an officer or employee of the Company, extends beyond the date when the director reaches 72 years of age, such director shall resign from the Board of Directors effective at 3 4 the annual meeting of shareholders next succeeding his 72nd birthday. 2.3 VACANCIES. In the case of any vacancy in the Board of Directors by death, resignation or for any other cause, including an increase in the number of directors, the Board may fill the vacancy by choosing a director to serve until the next selection of the class for which such director has been chosen and until his successor has been selected and qualified or until his earlier death, resignation or removal. 2.4 ANNUAL MEETING. An annual meeting of the Board of Directors shall be held each year as soon as practicable after the annual meeting of shareholders, at the place where such meeting of shareholders was held or at such other place as the Board of Directors may determine, for the purposes of organization, election of officers and the transaction of such other business as shall come before the meeting. No notice of the meeting need be given. 2.5 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such times and at such places as the Board of Directors may determine. 2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or any three or more directors. Notice of every special meeting shall be given to each director not later than the second day immediately preceding the day of such meeting in the case of notice by mail, telegram or courier service, and not later than the day immediately preceding the day of such meeting 4 5 in the case of notice delivered personally or by telephone, telex, TWX or facsimile transmission. Such notice shall state the time and place of the meeting, but, except as otherwise provided in the by-laws, neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice, or waiver of notice, of such meeting. 2.7 QUORUM. A majority of the directors in office shall constitute a quorum for the transaction of business but less than a quorum may adjourn from time to time to reconvene at such time and place as they may determine. 2.8 COMPENSATION. Directors shall receive such compensation for their services as shall be fixed by the Board of Directors. 2.9 COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Company. The Board may designate one or more directors as alternate members of any Committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee to the extent provided in such resolution shall have and exercise the authority of the Board of Directors in the management of the business and affairs of the Company. 2.10 PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT. One or more directors may participate in a meeting of the Board of Directors or a committee of the Board by means of 5 6 conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. 2.11 LIABILITY OF DIRECTORS. A director of the Company shall not be personally liable for monetary damages for any action taken, or any failure to take any action, on or after January 27, 1987 unless he has breached or failed to perform the duties of his office as provided for under Section 1713 of the Pennsylvania Business Corporation Law of 1988, as amended, and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. Any repeal, amendment, or modification of this Paragraph shall be prospective only and shall not increase, but may decrease, the liability of a director with respect to actions or failures to act occurring prior to such change. 2.12 OFFICERS. The Board of Directors shall have power to elect or appoint at any time a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, a Comptroller and such other officers as the Board of Directors may deem advisable. Any two or more offices may be held by the same person. 2.13 TERM. Each officer shall hold office until his successor is elected or appointed and qualified or until his death, resignation or removal by the Board of Directors. 2.14 AUTHORITY, DUTIES AND COMPENSATION. All officers shall have such authority, perform such duties and receive such 6 7 compensation as may be provided in the by-laws or as may be determined by the Board of Directors. 2.15 CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the Board of Directors and of the Executive Committee, and in the absence or disability of the President shall have the authority and perform the duties of the President. 2.16 PRESIDENT. The President shall be the chief executive officer of the Company and shall preside at all meetings of the shareholders and, in the absence or disability of the Chairman of the Board, of the Executive Committee of the Board of Directors. He shall be responsible for the general management of the business, subject to the control of the Board of Directors. In the absence or disability of the Chairman, or if that office is vacant, the President shall preside at all meetings of the Board of Directors. 2.17 VICE PRESIDENTS. In the absence or disability of the President and Chairman of the Board, the Vice Presidents in the order designated by the Board of Directors shall have the authority and perform the duties of the President. 2.18 SECRETARY. The Secretary shall give notice of meetings of the shareholders, of the Board of Directors and of the Executive Committee, attend all such meetings and record the proceedings thereof. In the absence or disability of the Secretary, an Assistant Secretary or any other person designated by the Board of Directors or the President shall have the authority and perform the duties of the Secretary. 7 8 2.19 TREASURER. The Treasurer shall have charge of the securities of the Company and the deposit and disbursement of its funds, subject to the control of the Board of Directors. In the absence or disability of the Treasurer, an Assistant Treasurer or any other person designated by the Board of Directors or the President shall have the authority and perform the duties of the Treasurer. 2.20 COMPTROLLER. The Comptroller shall be the principal accounting officer and shall keep books recording the business transactions of the Company. He shall be in charge of the accounts of all of its offices and shall promptly report and properly record in the books of the Company all relevant data relating to the Company's business. ARTICLE III INDEMNIFICATION 3.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS. The Company shall indemnify any director or officer of the Company or any of its subsidiaries who was or is an "authorized representative" of the Company (which shall mean for the purposes of Paragraphs 3.1. through 3.7, a director or officer of the Company, or a person serving at the request of the Company as a director, officer, partner, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and who was or is a "party" (which shall include for purposes of Paragraphs 3.1 through 3.7 8 9 the giving of testimony or similar involvement) or is threatened to be made a party to any "proceeding" (which shall mean for purposes of Paragraphs 3.1 through 3.7 any threatened, pending or completed action, suit, appeal or other proceeding of any nature, whether civil, criminal, administrative or investigative, whether formal or informal, and whether brought by or in the right of the Company, its shareholders or otherwise) by reason of the fact that such person was or is an authorized representative of the Company to the fullest extent permitted by law, including without limitation indemnification against expenses (which shall include for purposes of Paragraphs 3.1 through 3.7 attorneys' fees and disbursements), damages, punitive damages, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such proceeding unless the act or failure to act giving rise to the claim is finally determined by a court to have constituted willful misconduct or recklessness. If an authorized representative is not entitled to indemnification in respect of a portion of any liabilities to which such person may be subject, the Company shall nonetheless indemnify such person to the maximum extent for the remaining portion of the liabilities. 3.2 ADVANCEMENT OF EXPENSES. The Company shall pay the expenses (including attorneys' fees and disbursements) actually and reasonably incurred in defending a proceeding on behalf of any person entitled to indemnification under Paragraph 3.1 in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such person to repay 9 10 such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Company as authorized in Paragraphs 3.1 through 3.7 and may pay such expenses in advance on behalf of any employee or agent on receipt of a similar undertaking. The financial ability of such authorized representative to make such repayment shall not be prerequisite to the making of an advance. 3.3 EMPLOYEE BENEFIT PLANS. For purposes of Paragraphs 3.1 through 3.7, the Company shall be deemed to have requested an officer or director to serve as fiduciary with respect to an employee benefit plan where the performance by such person of duties to the Company also imposes duties on, or otherwise involves services by, such person as a fiduciary with respect to the plan; excise taxes assessed on an authorized representative with respect to any transaction with an employee benefit plan shall be deemed "fines"; and action taken or omitted by such person with respect to an employee benefit plan in the performance of duties for a purpose reasonably believed to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Company. 3.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect, satisfy or secure the indemnification obligations provided herein or otherwise, the Company may maintain insurance, obtain a letter of credit, act as self-insurer, create a reserve, trust, escrow, cash collateral or other fund or account, enter into indemnification agreements, pledge or grant a security 10 11 interest in any assets or properties of the Company, or use any other mechanism or arrangement whatsoever in such amounts, at such costs, and upon such other terms and conditions as the Board of Directors shall deem appropriate. 3.5 RELIANCE UPON PROVISIONS. Each person who shall act as an authorized representative of the Company shall be deemed to be doing so in reliance upon the rights of indemnification provided by these Paragraphs 3.1 through 3.7. 3.6 AMENDMENT OR REPEAL. All rights of indemnification under Paragraphs 3.1 through 3.7 shall be deemed a contract between the Company and the person entitled to indemnification under these Paragraphs 3.1 through 3.7 pursuant to which the Company and each such person intend to be legally bound. Any repeal, amendment or modification hereof shall be prospective only and shall not limit, but may expand, any rights or obligations in respect of any proceeding whether commenced prior to or after such change to the extent such proceeding pertains to actions or failures to act occurring prior to such change. 3.7 SCOPE. The indemnification, as authorized by these Paragraphs 3.1 through 3.7, shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in any other capacity while holding such office. The indemnification and advancement of expenses provided by or 11 12 granted pursuant to these Paragraphs 3.1 through 3.7 shall continue as to a person who has ceased to be an officer or director in respect of matters arising prior to such time, and shall inure to the benefit of the heirs and personal representatives of such person. ARTICLE VI STOCK CERTIFICATES AND CORPORATE SEAL 4.1 EXECUTION. Certificates for shares of capital stock of the Company shall be signed by the President or a Vice President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, but where a certificate is signed by a transfer agent or a registrar, the signature of any corporate officer may be a facsimile, engraved or printed. The corporate seal, which may be a facsimile, engraved or printed, shall appear on each certificate but need not be attested. In case any officer who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such officer because of death, resignation or otherwise, before the certificate is issued, it may be issued by the Company with the same effect as if the officer had not ceased to be such at the date of its issue. No certificate for shares of capital stock of the Company shall be issued in place of any certificate alleged to have been lost, stolen or destroyed, except in such manner and upon such terms as the Board of Directors shall authorize. 12 13 4.2 SEAL. The Company shall have a corporate seal which shall bear the name of the Company and State and year of its incorporation. The seal shall be in the custody of the Secretary and may be used by causing it or a facsimile to be impressed or reproduced upon or affixed to any document. ARTICLE V NOTICES 5.1 FORM OF NOTICE. Whenever written notice is required to be given to any person by law, the Articles of Incorporation or these by-laws, it may be given to such person either personally or by telephone or by sending a copy thereof by first class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by facsimile transmission, to the address (or the telex, TWX or facsimile number) appearing on the books of the Company or, in the case of a director, to the address supplied by the director to the Company for the purpose of notice. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of facsimile transmission, when received. A notice of meeting shall specify the place, day and hour of the meeting. 13 14 5.2 WAIVER OF NOTICE. Any notice required to be given under these by-laws may be effectively waived by the person entitled thereto by written waiver signed before or after the meeting to which such notice would relate or by attendance at such meeting otherwise than for the purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. ARTICLE VI AMENDMENTS 6.1 AMENDMENTS. These by-laws may be amended or repealed and new by-laws may be adopted by the affirmative vote of a majority of the directors of the Company or by the affirmative vote of shareholders entitled to cast a majority of the votes which all shareholders are entitled to cast at any annual, regular or special meeting of directors or shareholders, as the case may be; provided, however, that new by-laws may not be adopted and these by-laws may not be amended or repealed in any way that limits indemnification rights, increases the liability of directors or changes the manner or vote required for any such adoption, amendment or repeal, except by the affirmative vote of the shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast thereon. In the case of a meeting of shareholders, written notice shall be given to each shareholder entitled to vote thereat that the 14 15 purpose, or one of the purposes, of the meeting is to consider the adoption, amendment or repeal of the by-laws. ARTICLE VII EMERGENCY BY-LAWS 7.1 WHEN OPERATIVE. The emergency by-laws provided by the following Paragraphs shall be operative during any emergency resulting from warlike damage or an attack on the United States or any nuclear or atomic disaster, notwithstanding any different provision in the preceding Paragraphs of the by-laws or in the Articles of Incorporation of the Company or in the Pennsylvania Business Corporation Law. To the extent not inconsistent with these emergency by-laws, the by-laws provided in the preceding Paragraphs shall remain in effect during such emergency and upon the termination of such emergency the emergency by-laws shall cease to be operative unless and until another such emergency shall occur. 7.2 MEETINGS. During any such emergency: (a) Any meeting of the Board of Directors may be called by any director. Whenever any officer of the Company who is not a director has reason to believe that no director is available to participate in a meeting, such officer may call a meeting to be held under the provisions of this Paragraph. (b) Notice of each meeting called under the provisions of this Paragraph shall be given by the person calling the meeting or at his request by any officer of the Company. The 15 16 notice shall specify the time and the place of the meeting, which shall be the head office of the Company at the time if feasible and otherwise any other place specified in the notice. Notice need be given only to such of the directors as it may be feasible to reach at the time and may be given by such means as may be feasible at the time, including publication or radio. If given by mail, messenger, telephone or telegram, the notice shall be addressed to the director at his residence or business address or such other place as the person giving the notice shall deem suitable. In the case of meetings called by an officer who is not a director, notice shall also be given similarly, to the extent feasible, to the persons named on the list referred to in part (c) of this Paragraph. Notice shall be given at least two days before the meeting if feasible in the judgment of the person giving the notice and otherwise the meeting may be held on any shorter notice he shall deem suitable. (c) At any meeting called under the provisions of this Paragraph, the director or directors present shall constitute a quorum for the transaction of business. If no director attends a meeting called by an officer who is not a director and if there are present at least three of the persons named on a numbered list of personnel approved by the Board of Directors before the emergency, those present (but not more than the seven appearing highest in priority on such list) shall be deemed directors for such meeting and shall constitute a quorum for the transaction of business. 16 17 7.3 LINES OF SUCCESSION. The Board of Directors, during as well as before any such emergency, may provide, and from time to time modify, lines of succession in the event that during such an emergency any or all officers or agents of the Company shall for any reason be rendered incapable of discharging their duties. 7.4 OFFICES. The Board of Directors, during as well as before any such emergency, may, effective in the emergency, change the head office or designate several alternative head offices or regional offices, or authorize the officers so to do. 7.5 LIABILITY. No officer, director or employee acting in accordance with these emergency by-laws shall be liable except for willful misconduct. 7.6 REPEAL OR CHANGE. These emergency by-laws shall be subject to repeal or change by further action of the Board of Directors or by action of the shareholders, except that no such repeal or change shall modify the provisions of the next preceding Paragraph with regard to action or inaction prior to the time of such repeal or change. ARTICLE VIII PENNSYLVANIA ACT 36 OF 1990 8.1 FIDUCIARY DUTY. Subsections (a) through (d) of Section 1715 of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Company. 17 18 8.2 CONTROL-SHARE ACQUISITIONS. Subchapter G of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, (relating to control-share acquisitions), shall not be applicable to the Company. 8.3 DISGORGEMENT. Subchapter H of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, (relating to disgorgement by certain controlling shareholders following attempts to acquire control), shall not be applicable to the Company. 18 EX-10.(A) 3 P. H. GLATFELTER COMPANY MANAGEMENT INCENTIVE PLAN 1 Exhibit 10(a) P. H. Glatfelter Company Management Incentive Plan (Adopted as of January 1, 1994) (Amended and Restated Effective December 18, 1997) (Amended December 17, 1998) 1. PURPOSE OF THE PLAN The purpose of the Management Incentive Plan (hereinafter called the "Plan") is to provide an incentive to greater efforts on the part of key salaried employees to increase profits of P. H. Glatfelter Company, hereinafter, together with its subsidiaries, called the "Company". The underlying objectives of the Plan are as follows: (a) Maximize the annual return on shareholders' equity. (b) Promote and reward management teamwork at both corporate and mill levels. (c) Enable the Company to attract and retain a talented management team. (d) Assure that Plan awards are at rise annually. (e) Reward key mill management personnel on the basis of both mill and corporate financial results. (f) Provide above-average incentive award potential to key salaried employees of the Company whose base salaries are generally below average market rates. 2. PROFIT CENTERS OF THE PLAN In order to accomplish the objectives of the Plan, the Company, the Company's U.S. operations and each of its U.S. mills shall be treated as a separate profit center for the purpose of rewarding those employees, who through the exercise of their responsibilities, are in a position to have a significant bearing on the success and profitability of their profit center, and therefore on the profitability of the Company. In addition, a Glatfelter Paper Group profit center shall represent a combination of the Spring Grove and Neenah mill profit centers. The profit centers are identified as follows: 2 Global Profit Center U.S. Corporate Profit Center Glatfelter Paper Group Profit Center Spring Grove Mill Profit Center Neenah Mill Profit Center Ecusta Mill Profit Center 3. AMENDMENT OR TERMINATION OF THE PLAN This Plan is an amendment and restatement of the P. H. Glatfelter Company Management Incentive Plan and shall continue in force from year to year until amended, modified or terminated. The Company reserves the right by action of its Board of Directors or the Compensation Committee thereof (hereinafter called the "Committee") at any time to amend or modify the Plan in any respect or to terminate the Plan in its entirety, provided that, if the Plan is in effect at the beginning of a fiscal year, it may not be terminated or amended for such year. The Company will seek the approval of the Company's shareholders for an amendment if such approval is necessary to comply with the Internal Revenue Code, Federal or state securities law or any other applicable rules or regulations. 4. ADMINISTRATION OF THE PLAN The management of the Plan shall be vested in the Committee, which shall be comprised solely of two or more "outside directors" (as defined in regulations promulgated under Section 162(m) of the Internal Revenue Code). The majority of the members of the Committee at any time in office shall constitute a quorum for the transaction of business at any meeting. Any determination or action of the Committee may be made or taken by a majority of its members present at any meeting at which a quorum is present or without a meeting by unanimous written consent executed by all the members then in office. 5. PARTICIPANTS IN THE PLAN (a) The participants in the Plan and the profit center to which they are assigned for each fiscal year shall be proposed by the Chief Executive Officer and approved by the Committee on or before the December 31 immediately preceding such fiscal year. In this respect, the action of the Committee shall be final. Participation is limited to selected management and highly compensated salaried employees of the Company. Nothing herein contained shall be construed as giving any salaried employee the right to participate in the Plan, except after approval by the Committee, and then his participation shall be subject to all the provisions of the Plan. (b) The criteria that will be considered by the Committee in approving a participant shall include position responsibilities, organizational reporting relationship, current salary grade and/or rate, individual performance expectations, and competitive practices. 2 3 (c) If a participant shall transfer from one profit center to another during the year, his incentive award shall be determined on the basis of the financial results of each profit center for such fiscal year, prorated based on service to each profit center during such fiscal year. The participant's salary grade at the time he is approved by the Committee as a participant in the Plan for such year shall be such participant's salary grade for purposes of determining the maximum, target and minimum awards for each profit center. (d) If a participant's employment by the Company should terminate during the fiscal year by reason of his death, retirement or permanent disability, his incentive award shall be determined on the basis of the financial results of his profit center for such fiscal year and his base salary midpoint for such fiscal year, prorated to reflect the period of service prior to his death, retirement or permanent disability, and shall be paid either to him or, as appropriate, the beneficiary specifically designated by the participant on the applicable form, or, if no such specific designation is made, to such beneficiary as is designated under the Company's Group Life Insurance Plan. A participant who has been removed from the payroll of the Company during the fiscal year for any reason, other than his death, retirement or permanent disability, shall not participate in the Plan for such fiscal year, unless the Committee, in its sole discretion, determines that he shall so participate. The decision of the Committee in this regard shall be final. (e) In consideration of the payments to be made in accordance with the provisions of the Plan, the participants may not be participants in the Company's Conference Group award program. 6. DETERMINATION OF INCENTIVE COMPENSATION AWARDS (a) The Plan shall provide incentive awards based on achievement of specified performance goals. Such performance goals shall be based on certain measurements of profitability in each of the Company's profit centers. Initially, such profitability shall be measured by the earnings per share (EPS) in the case of the Global Profit Center, and by both the EPS for the Company and the EPS for the Company exclusive of the financial results of Schoeller and Hoesch and for the Corporate Profit Center, and by both the EPS of the Company and the return on average capital employed (ROCE) for the applicable mill profit center. In the case of the Glatfelter Paper Group, the financial results of the Spring Grove and Neenah mill profit centers will be combined for purposes of calculating return on average capital employed. The determination of profit center profitability shall be based on the audited consolidated financial statements of the Company and on the Company's internal financial statements for Schoeller and Hoesch and for each mill after the audit adjustments have been applied. (b) The amount of an individual's award shall be based on a percentage of such individual's base salary midpoint for the salary grade approved for him by the Committee. If such salary midpoints are revised at any time during a fiscal year, the Committee will revise the midpoints applicable to such year. The incentive award as a percentage of base salary 3 4 midpoint will vary based on the applicable EPS and ROCE levels achieved for the Plan Year. In no event may the incentive award paid to any participant for any plan year exceed $1,000,000. (c) The EPS and ROCE factors are a measure of profitability and will be established in the operating rules for each profit center, adopted annually by the Committee in accordance with Paragraph 9. The incentive award shall equal the base salary midpoint multiplied by the Incentive Award Factor which will vary in relationship to the actual EPS and ROCE levels achieved for the year. (d) The Committee may, from time to time, establish performance goals based on business criteria other than EPS and ROCE, such as stock price, return on assets, earnings, earnings per share, total shareholder return, sales or costs. 7. PAYMENT OF INDIVIDUAL INCENTIVE AWARDS (a) Each year after the Committee has approved the participants in the Plan for the following year in accordance with Paragraph 5(a), each participant shall make an election by February 1 of such following year to receive his incentive award in cash or to defer the receipt of 25%, 50%, 75% or 100% of the award to a future period, specifying irrevocably the timing of the future payment(s) in accordance with the deferred options established by the Committee. The amount of deferred awards shall be adjusted at the end of each calendar quarter by crediting the cumulative deferred awards with interest for the quarter based on the prime rate of interest on the last business day of the quarter at Morgan Guaranty Trust Company of New York (or such comparable rate as is determined by the Committee if such prime rate is unavailable or, if in the opinion of the Committee it no longer reflects the rate of interest on such bank's demand loans to its most credit-worthy customers). The interest credit shall be earned from the date when the award would have been paid if not deferred and shall be compounded on the accumulated award and accrued interest. Should a deferred award be paid during a quarter, interest on the amount of such payment shall be accrued at the rate used for the immediately preceding quarter. (b) Cash incentive awards shall be paid annually as promptly as practicable after the Company's certified public accountants have completed their examination of the Company's year-end consolidated financial statements and the Committee has certified that the applicable performance goals have been met. (c) Deferred incentive awards shall be paid on the first Monday in April of each year pursuant to a participant's election to defer receipt of his award. In the event a participant who has deferred an award determines that he has a financial hardship which necessitates the acceleration of the payment of the deferred award, he shall submit his request to release the funds to the Committee which shall consider the circumstances and, in its sole discretion, determine whether the request shall be approved. (d) If a participant separates from the Company before age 55, or after age 55 without being vested under the terms of the Company's Retirement Plan for Salaried Employees, 4 5 including the Supplemental Executive Retirement Plan (collectively, the "Pension Plans"), such participant will receive the unpaid amount of his cumulative deferred award(s) in a lump sum within 30 days of his separation date or, at the sole discretion and option of the Committee, as stipulated on his election form. If such participant separates after age 55 and is vested under the terms of the Company's Pension Plans, his deferred award(s) will be paid as stipulated on his election form(s). If a participant should die before his deferred award(s) has been completely paid out, the unpaid amount will be paid in a lump sum to his designated beneficiary, as designated under the Company's Group Life Insurance Plan, on a timely basis after his death. 8. MANAGEMENT INCENTIVE PLAN ADJUSTMENT SUPPLEMENT The Company will supplement the basic monthly pension payable under the Company's Pension Plans, with respect to an employee who is a participant in the Plan and elected to defer incentive awards in accordance with Paragraph 7 of the Plan, as provided in the Plan of Supplemental Retirement Benefits for the Management Committee. 9. MANAGEMENT INCENTIVE PLAN OPERATING RULES On or prior to December 31 immediately preceding each fiscal year, the Committee shall adopt operating rules for each of the profit centers for such fiscal year to be based on the operating budget for such fiscal year and estimated financial results for the then current fiscal year, both as presented at the December Board of Directors' meeting. These operating rules will establish maximum, target and minimum Incentive Award Factors for each salary grade and the corresponding maximum, target and minimum rates of return on average shareholders' equity and rates of return on average capital employed for each of the individual profit centers based on historical and anticipated rates of return for the profit centers (or maximum, target and minimum goals based on such other business criteria as the Committee may establish pursuant to Paragraph 6(d)), and such other administrative and procedural rules which the Committee considers appropriate. 10. DEFINITIONS For the purpose of determining the incentive awards under the Plan, the following definitions shall apply: (a) Earnings per share (EPS) shall mean basic earnings per share as reported for the applicable period in the Company's consolidated financial statements. EPS for all the profit centers other than the Global Profit Center shall be determined exclusive of the financial results of Schoeller and Hoesch. (b) Incentive Income shall mean income before income taxes as reported for the fiscal year in the Company's audited consolidated financial statements... 5 6 i) before provision is made for the amounts paid or payable under the Plan, the Employees' Profit Sharing Plans, and the Spring Grove Conference Group award program, and ii) after such adjustment, if any, as shall be made to exclude, to the extent that the Committee in its sole discretion may determine, the whole or any part of any item which is both unusual in nature and infrequent in occurrence. (c) Average Shareholders' Equity shall mean the average of the shareholders' equity as reported in each of the Company's monthly internal financial statements during the fiscal year. (d) The "Incentive Award Factor" shall be the percentage of base salary midpoint for each salary grade corresponding to the maximum, target and minimum performance goals established for the Global, U.S. corporate, mill, and the paper group profit centers in the operating rules. (e) Return on Capital Employed (ROCE) shall mean Operating Profit divided by Average Capital Employed. ROCE shall be based on the Company's internal financial reports for each of the Spring Grove, Neenah, and Ecusta mills after the year-end audit adjustments by the Company's independent certified public accountants have been applied to the accounting records and related reports. In the case of the Spring Grove mill profit center, the Return on Capital Employed shall be based on the consolidated financial reports for the Spring Grove mill and The Glatfelter Pulp Wood Company. In the case of the Glatfelter Paper Group profit center, the Return on Capital Employed shall be based on the consolidated financial reports for the Spring Grove mill, The Glatfelter Pulp Wood Company, and the Neenah mill. (f) Operating Profit shall mean operating profit as reported for the fiscal year in the Company's internal financial statements by mill and for The Glatfelter Pulp Wood Company. . . i) before provision is made for the amounts paid or payable under the Plan, the Employees' Profit Sharing Plans, and the Spring Grove Conference Group award program, and ii) after such adjustment, if any, as shall be made to exclude, to the extent that the Committee in its sole discretion may determine, the whole or any part of any item which is both unusual in nature and infrequent in occurrence. (g) Average Capital Employed shall mean the sum of the average of inventories and net property, plant, and equipment as shown in the Company's monthly internal financial statements by mill and for The Glatfelter Pulp Wood Company during the fiscal year. 6 7 (h) Retirement shall mean voluntary separation from service by a participant who has achieved an age whereby he is eligible for and has elected to receive early retirement under the Company's Pension Plans. (i) Disability shall mean a disability due to any medically determinable physical or mental impairment that prevents a participant from fulfilling the duties that such participant was performing at the time of the occurrence of such disability and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of more than twelve months, as determined by the Committee in its sole discretion. 11. RIGHTS NOT TRANSFERABLE Rights to incentive cash awards and deferred incentive awards are not transferable by a participant except upon the death of the participant by operation of will or the laws of intestacy. 12. FUNDING The Plan is not funded. All awards that are not received in cash shall remain as part of the general assets of the Company and shall not be deemed held in trust for the benefit of the participant. 13. WITHHOLDING OF APPLICABLE TAXES The Company shall have the right to withhold amounts from incentive cash awards and deferred incentive awards as shall be required to be withheld by the Company pursuant to any statute or other governmental regulation or ruling. 14. CONCLUSION The interpretation of the Plan or any provision thereof or the operating rules made by the Committee shall be binding upon both the Company and every participant in the Plan. While it is the intention of the Company to provide a fair and reasonable basis for the determination of incentive compensation awards and the selection of the participants, the Plan is not an employment contract between the Company and the salaried employees or any participants and shall not constitute an agreement by the Company to continue any participant in its employ for any period of time notwithstanding that the termination of the employment of a participant during a fiscal year will preclude an incentive award to such participant for such year. 7 EX-10.(C) 4 P. H. GLATFELTER CO. SUPPLEMENTAL EXEC. RETIREMENT 1 Exhibit 10(c) P. H. GLATFELTER COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (Amended and Restated Effective April 23, 1998) 2 TABLE OF CONTENTS
PAGE ARTICLE I PURPOSE ................................................... 1 ARTICLE II DEFINITIONS ............................................... 2 ARTICLE III ELIGIBILITY FOR AND FORFEITURE OF PLAN PARTICIPATION ............................................. 5 ARTICLE IV RESTORATION PENSION ....................................... 6 ARTICLE V FINAL AVERAGE COMPENSATION PENSION ........................ 9 ARTICLE VI FUNDING .................................................. 11 ARTICLE VII ADMINISTRATION ........................................... 12 ARTICLE VIII AMENDMENT AND TERMINATION ................................ 13 ARTICLE IX MISCELLANEOUS ............................................ 14
3 P.H. GLATFELTER COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (AMENDED AND RESTATED EFFECTIVE APRIL 23, 1998) ARTICLE I PURPOSE 1.1. Purpose. The Plan was originally established, effective January 1, 1988, for the purpose of providing certain officers or senior management employees of P.H. Glatfelter Company (the "Company") with benefits which would otherwise be provided under the Company's qualified defined benefit retirement plan (now known as the P.H. Glatfelter Company Retirement Plan for Salaried Employees ("Retirement Plan")) but for reductions or restrictions to such benefits required by Federal law. Effective as of April 23, 1998, the Plan is amended and restated in its entirety. As restated the Plan consists of two benefits. The first benefit, known as the "Restoration Pension", provides an additional pension benefit based on the Participant's pension benefit earned under the terms of the Retirement Plan, which is intended to restore that portion of the Retirement Plan's benefit which cannot be paid from that plan due to legal limitations on the compensation and total benefits payable thereunder. The second benefit, known as the "Final Average Compensation Pension" or "FAC Pension", pays a monthly pension benefit equal to a designated percentage of the participant's Final Average Compensation (as defined herein), offset by the actuarially equivalent value of the Participant's benefits under the Retirement Plan and certain Company-sponsored nonqualified defined benefit pension arrangements, including (if applicable) the Restoration Pension. It is intended that this Plan will satisfy the requirements of an unfunded "top hat" deferred compensation plan as described in sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. Consequently, participation shall be limited to individuals who, in the determination of the Committee, are management employees or who are highly compensated employees for purposes of the foregoing provisions of ERISA. 4 ARTICLE II DEFINITIONS 2.1. "Accrued Benefit" means, as of any applicable date of reference, the amount of the Participant's Restoration Pension or Final Average Compensation Pension, as the case may be, which has been earned to such date payable (in the case of the Restoration Pension) in the normal form of annuity payment commencing as of his normal retirement date under the terms of the Retirement Plan or (in the case of the FAC Pension) in the form of the Joint and 75% Surviving Spouse's Annuity commencing as of his Normal Retirement Date (or, in each case, immediately if the Participant has passed his normal retirement date and is still an Employee), and calculated in accordance with Article IV or Article V, as the case may be. In determining a Participant's Accrued Benefit as of a particular date, his compensation and/or service credit earned after such date shall not be taken into account. 2.2. "Benefit Commencement Date" means, for any Participant, the date as of which his initial benefit payment is due. "Benefit Commencement Date" also means, with respect to the Participant's Spouse, the date on which the Survivor's Benefit under Section 5.5 commences to the Spouse. 2.3. "Benefit Years" means, subject to Section 5.4, the Participant's Benefit Years as that term is defined for purposes of the Retirement Plan; provided, however, that if the Participant had become a covered employee under the Retirement Plan by reason of transfer from hourly-paid service with the Company or an affiliate on or after January 1, 1992, Benefit Years shall also be credited with respect to his service as an hourly employee prior to such transfer. 2.4. "Board" means the Board of Directors of P.H. Glatfelter Company. 2.5. "Change in Control" means the occurrence of any of the following events, directly or indirectly or in one or more series of transactions: 2.6. The Company enters into an agreement of reorganization, merger or consolidation pursuant to which it is not the surviving company, 2.7. the Company sells substantially all its assets, or (c) in excess of 51% of the issued and outstanding shares of the Common Stock of the Company is acquired by a single purchaser or a group of related purchasers, other than a purchaser or a group of purchasers who are descendants of, or entities controlled by descendants of, P.H. Glatfelter, in any case other than in a transaction in which the surviving corporation or the purchaser is the Company or a majority-owned subsidiary of the Company. 2 5 2.6 "Code" means the Internal Revenue Code of 1986, as amended. 2.7 "Committee" means the Compensation Committee of the Company's Board of Directors. 2.8 "Company" means the P.H. Glatfelter Company. 2.9 "Compensation" means, with respect to each calendar month included as part of a Participant's Final Average Compensation, the sum of (a) his base compensation for such month and (b) that portion of his annual incentive and profit sharing earnings which is attributable to the Participant's performance of services during such month, as determined by the Committee. 2.10 "Confidential Information" means information which is not generally known to the public, which is used, developed, or obtained by the Company (or its affiliates) relating to its business and the businesses of its clients or customers including, without limitation: products or services; fees, costs and pricing structures; marketing information; advertising and pricing strategies; analyses and reports; computer software including operating systems, applications and program listings; flow charts; manuals and documentation; databases; accounting and business methods; inventions and new developments and methods, whether patentable or unpatentable and whether or not reduced to practice; all copyrightable works; the Company's existing and prospective clients and customers and their confidential information; existing and prospective client and customer lists and other data related thereto; billing and payment records; and all similar and related information in whatever form. 2.11 "Disability" means a disabling illness or injury which causes the Participant to be absent from work and during which the Participant receives payments under the Company's long-term disability plan. 2.12 "Early Retirement Date" means the first day of the month coincident with or next following the Participant's attainment of age 55 and retirement from employment with the Company and all affiliates; provided that such date shall not be later than his Normal Retirement Date. 2.13 "Employee" means an officer or senior management employee of the Company. 2.14 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.15 "Final Average Compensation" means, with respect to the Final Average Compensation Pension for any Participant, the annualized average of the Participant's Compensation for the 3 6 sixty (60) calendar months immediately preceding his retirement, as determined by the Committee. In determining a Participant's Final Average Compensation, the Committee may estimate the Participant's incentive and/or profit sharing earnings with respect to his final year or partial year of employment. In such event, after the Participant's actual Compensation is known, the amount of the Participant's monthly FAC Pension shall be adjusted to reflect such actual Compensation at such time and in such manner as the Committee deems appropriate. 2.16 "Final Average Compensation Pension" or "FAC Pension" means the pension benefit described in Article V of this Plan. 2.17 "Joint and 75% Surviving Spouse's Annuity" means, with respect to the Final Average Compensation Pension, a joint and survivor annuity with the Participant's Spouse, with monthly installments payable to the Participant for his lifetime in the amount determined under Section 5.1, 5.2, 5.3 or 5.4, as applicable, and with seventy-five percent (75%) of the amount of such monthly installment payable after the death of the Participant to the Spouse of such Participant, if then living, for the life of such surviving Spouse. 2.18 "Normal Retirement Date" means the first day of the month coincident with or next following the Participant's attainment of age 62, provided that he has retired from employment with the Company and all affiliates. 2.19 "MIP" means the Company's Management Incentive Plan, as it may be amended from time to time. 2.20 "Participant" means an Employee selected by the Committee for participation in the Plan. 2.21 "Plan" means the P.H. Glatfelter Company Supplemental Executive Retirement Plan. 2.22 "Retirement Plan" means the P.H. Glatfelter Company Retirement Plan for Salaried Employees, as it may be amended from time to time. 2.23 "Restoration Pension" means the pension benefit described in Article IV of this Plan. 2.24 "Spouse" means the individual, if any, to whom the Participant is legally married on the Participant's Benefit Commencement Date, or, with respect to the Survivor's Benefit under Section 5.5, on the date of the Participant's death. 2.25 "Trust" means the trust under the Trust Agreement executed January 12, 1990 between the Company and Provident 4 7 National Bank as Trustee, or any successor "rabbi" trust agreement conforming to the requirements described at Section 6.1(b), as may be adopted by the Company to hold the assets used to pay Plan benefits. ARTICLE III ELIGIBILITY FOR AND FORFEITURE OF PLAN PARTICIPATION 3.1. Designation of Participant. An Employee shall become a Participant in this Plan if selected for participation by the Committee, in its sole and absolute discretion. The Committee shall designate whether a Participant is eligible for the Final Average Compensation Pension and/or the Restoration Pension. Notwithstanding the foregoing, (a) unless specifically designated by the Committee as eligible for the FAC Pension, a Participant shall be eligible only for the Restoration Pension, and (b) no Employee shall be designated as eligible for the FAC Pension who is also eligible for the Company's Supplemental Management Pension Plan (part of the Plan of Supplemental Retirement Benefits for the Management Committee). 3.2. Cessation of Participation; Termination of Benefit Accruals. (a) A Participant shall cease to be a Participant and shall forfeit the right to his Accrued Benefit under the Plan if, prior to the time he attains age 55, he voluntarily terminates employment with the Company and all affiliates other than by reason of Disability or death. (b) The Committee shall have the right, in its sole and absolute discretion, to terminate the accrual of benefits for a Participant at any time prior to his Benefit Commencement Date; provided however, that such termination of benefit accruals shall be prospective only and shall not affect the right of such Participant, subject to the application of subsections 3.2(a), (c) and (d), to receive a Restoration Pension or FAC Pension, as the case may be, based on his Accrued Benefit determined as of the date benefit accruals are terminated. (c) If a Participant who is receiving, or may be entitled to receive, a benefit hereunder should, without the prior consent of the Committee, (1) become an employee, officer or a director of a competitor of the Company, or (2) use or disclose Confidential Information (except as required in the performance of the Participant's duties with the Company), then payments thereafter payable hereunder to such Participant or such Participant's beneficiary will be forfeited and neither the Company nor the Plan will have any further obligation hereunder to such Participant or his beneficiary. The Committee in its sole and absolute discretion shall determine if another entity or person is a "competitor" for purposes of this subsection. 5 8 (d) Except as provided in Section 3.3, the Committee shall have broad, sole and absolute discretion under Section 3.1 and subsections (b) and (c) hereof, including but not limited to determining who will become a Participant in the Plan, when participation in the Plan commences and ceases and when benefits accruals commence or terminate. 3.3. Change in Control. Notwithstanding anything to the contrary contained in this Article III or any other portion of the Plan, when a Change in Control occurs, the right to receive benefits under this Plan for each Employee who is a Participant in the Plan on the date such change occurs shall become fixed and nonforfeitable with respect to his Accrued Benefit on such date, and shall not be subsequently divested. All discretion of the Committee regarding the forfeiture or termination of a Participant's participation or benefits as provided under Section 3.2 shall be eliminated upon such Change in Control, and the Applicable Percentage of each Participant's Final Average Compensation Pension (see Section 5.1(b)) shall be fixed at fifty-five percent (55%). Also, within five (5) days following such Change in Control the Company shall fund the Trust with sufficient assets to pay the Accrued Benefits of all Participants under the Plan. ARTICLE IV RESTORATION PENSION 4.1. Amount of Restoration Pension. A Participant's Restoration Pension shall be equal to: (a) (1) except as provided under paragraph (2), the benefit that would have been payable to the Participant under the Retirement Plan calculated (A) on the basis of his compensation and final average compensation (each as defined in the Retirement Plan but including for any period that portion of the Participant's incentive award under the MIP which he has elected to defer in accordance with paragraph 7 of the MIP (or any successor)) determined without regard to the limit on annual compensation under section 401(a)(17) of the Code, and (B) without regard to any applicable maximum benefit limitation under section 415 of the Code; (2) with respect to any Participant who was a participant in the Pension Plan of P.H. Glatfelter Company and The Glatfelter Pulp Wood Company (the "Spring Grove Plan") which plan was merged into the Retirement Plan, whose benefit under such plan is determined under the "Modified Grandfathered Accrued 6 9 Benefit" for 1970 Spring Grove participants, as defined in the Spring Grove Plan, the benefit that would have been payable to the Participant under the Spring Grove Plan as in effect as of December 31, 1988 calculated (A) on the basis of base earnings and final average excess earnings (each as defined in the Retirement Plan but including, with respect to the determination of the Participant's excess earnings for any period, that portion of the Participant's incentive award under the MIP which he has elected to defer in accordance with paragraph 7 of the MIP (or any successor)) determined without regard to the limit on annual compensation under section 401(a)(17) of the Code and (B) without regard to any applicable maximum benefit limitation under section 415 of the Code; reduced by (b) the benefit payable to the Participant under the Retirement Plan; both determined as of the date the Restoration Pension will commence in accordance with Section 4.2 and with respect to the form of payments elected by Participant in accordance with Section 4.3 of the Plan, based on the actuarial assumptions used to calculate actuarial equivalences or the reduction factors for early commencement of benefits, as applicable, under the Retirement Plan. 4.2. Payment of Restoration Pension. The Restoration Pension shall be paid to a Participant in accordance with Section 4.3 within thirty (30) days following the later of (a) his retirement or other separation from service with the Company and all affiliates or (b) the termination of benefits under the Supplemental Management Pension Plan; provided, however, that if the Participant separates from service before age 65, such amount shall be paid in accordance with 4.3 within thirty (30) days following such later specified time, but at or before his attainment of age 65, as the Participant may have elected at the time the Participant first became a Participant. 4.3. Form of Payments. (a) At the time a Participant first becomes a Participant he shall elect whether the Restoration Pension shall be paid in a single sum (equal to its present value determined in accordance with subsection 4.3(c)) or in any other form of distribution permitted under the Retirement Plan. The Company shall pay the Participant his Restoration Pension in the manner he has elected; provided, however, that the Company in its sole discretion may pay the Restoration Pension in a single sum distribution as soon as practicable after the Participant's separation from service if the present value of his Restoration Pension is not more than $20,000 at the time the Participant separates from service; provided further, that a 7 10 Participant who has elected a form of payment that includes a survivor annuity, and who is not married as of his Benefit Commencement Date or who ceases to be married within one year after such date, will receive (or will thereafter receive, as the case may be) his Restoration Pension in the form of a single life annuity. (b) If a Participant fails to elect a form of payment and the present value of his Restoration Pension exceeds $20,000, his Restoration Pension will be paid in the form of (1) a joint and 50% survivor annuity if he is married on his Benefit Commencement Date or (2) a single life annuity if he is unmarried on such date; provided, however, that a Participant receiving a joint and 50% survivor annuity who ceases to be married within one year after his Benefit Commencement Date will thereafter receive his Restoration Pension in the form of a single life annuity. (c) The present value of a Participant's Restoration Pension payable in a single sum in accordance with this Section 4.3 shall be determined by the Committee according to the actuarial assumptions used at such time by the Plan's actuary for valuing the Plan's benefits for financial accounting and disclosure purposes. 4.4. Death. In the event that an Employee designated as a Participant with respect to the Restoration Pension should die before the Benefit Commencement Date thereof and is survived by his Spouse, the Spouse shall receive a Death Benefit in the same form and at the same time that any death benefit is paid to the surviving Spouse under the Retirement Plan. The amount of any Death Benefit under this Section 4.4 shall be (a) the amount which would have been payable to the surviving Spouse under the Retirement Plan calculated on the basis of the Participant's compensation and final average compensation (or, if applicable, base earnings and final average excess earnings), as defined in the Retirement Plan subject to the modifications described in Section 4.1 of this Plan, determined without regard to the annual limit on compensation under section 401(a)(17) of the Code and without regard to any applicable maximum benefit limitation under section 415 of the Code, reduced by (b) the amount payable to the surviving Spouse under the Retirement Plan 8 11 ARTICLE V FINAL AVERAGE COMPENSATION PENSION 5.1. Amount of Final Average Compensation Pension. (a) The annual amount of a Participant's Final Average Compensation Pension, payable to the Participant on a monthly basis beginning as of his Normal Retirement Date, shall be equal to (1) the Applicable Percentage (not to exceed fifty-five percent (55%)) of the Participant's Final Average Compensation, reduced by (2) the Offset Amount. (b) For purposes of the foregoing, a Participant's "Applicable Percentage" shall be fifty-five percent (55%) multiplied by a fraction, not to exceed 1, the denominator of which is 27.5 and the numerator of which is the Participant's Benefit Years determined as of his Benefit Commencement Date. Notwithstanding the foregoing, upon the happening of a Change in Control, the Participant's Applicable Percentage shall be fifty-five percent (55%) without regard to his Benefit Years at such time. (c) For purposes of the foregoing, a Participant's "Offset Amount" means the sum of (1) the annual amount of the Participant's pension payable from the Retirement Plan, plus (2) the annual amount, if any, of the Participant's pension payable from any other qualified or nonqualified defined benefit pension plan or arrangement sponsored by the Company or any affiliate, including without limitation the Restoration Pension and/or the Company's qualified defined benefit plan for hourly employees. The Offset Amount shall be determined by assuming that each benefit under each plan or arrangement which comprises the Offset Amount is paid beginning at the same time as the Final Average Compensation Pension and in the form of a joint and 75% survivor annuity with the Participant's Spouse, and shall be valued by using the actuarial assumptions used to calculate actuarial equivalences or the reduction factors for early commencement, as applicable, under such plan or arrangement, if any, or otherwise under the Retirement Plan. If the Participant has no Spouse, the Offset Amount payable in the form of a joint and 75% survivor annuity shall be determined by assuming the Participant had a spouse of the same age. 5.2. Early Retirement. A Participant who retires from employment with the Company and all affiliates on or after attaining age 55 but prior to age 62 will receive a Final Average Compensation Pension beginning as of his Early Retirement Date. 9 12 The amount of the Participant's FAC Pension shall be equal to the amount described at subsection 5.1(a)(l), determined as of his Early Retirement Date but reduced by 2.5% for each year (0.208% for each month) by which his Early Retirement Date precedes his Normal Retirement Date, reduced by the Participant's Offset Amount. 5.3. Late Retirement. A Participant who retires from employment with the Company and all affiliates after his Normal Retirement Date will receive a Final Average Compensation Pension beginning as of the first day of the calendar month coincident with or next following the month in which he retires. Such pension shall be determined in accordance with Section 5.1 taking into account all Benefit Years earned up until his Benefit Commencement Date. 5.4. Disability. In the event an Employee designated as a Participant with respect to the Final Average Compensation Pension suffers a Disability prior to his Normal Retirement Date, he shall be eligible to begin to receive his FAC Pension beginning as of his Normal Retirement Date. The Participant may make a written request to the Committee or its delegate to begin to receive his FAC Pension as of his Early Retirement Date, provided he has retired from employment with the Company and all affiliates and is no longer eligible for long-term disability payments. Such written request must be received by the Committee at least 60 days prior to the Participant's intended Benefit Commencement Date and is subject to the approval of the Committee (or its delegate) in its sole discretion. The amount of the Participant's FAC Pension shall be calculated on the basis of his Final Average Compensation determined on the date his Disability commenced, and actual and projected Benefit Years following the onset of his Disability until the first to occur of (a) the cessation of his Disability (including by reason of a determination that he is no longer eligible for payments under the Company's long-term disability plan) or (b) his Benefit Commencement Date. If the Participant's Benefit Commencement Date precedes his Normal Retirement Date, the amount of his FAC Pension shall be reduced to reflect its early commencement in accordance with Section 5.2. 5.5. Survivor's Benefit. 5.6. In the event that an Employee designated as a Participant with respect to the Final Average Compensation Pension should die before his Benefit Commencement Date and is survived by his Spouse, the Spouse shall receive a Survivor's Benefit. The Survivor's Benefit shall be a monthly pension for life and shall begin as of the first day of the month following the month of the Participant's death, provided the Committee is given timely notice of the Participant's death. 10 13 (b) The Survivor's Benefit shall be the benefit the Spouse would have received if the Participant (1) had separated from service on the date of his death (if he is then an Employee), (2) had survived to the Benefit Commencement Date determined under paragraph (a) above, (3) had then begun to receive an immediate FAC Pension in the form of a Joint and 75% Surviving Spouse's Annuity and (4) died on the following day. If the Survivor's Benefit begins to be paid before what would have been the Participant's Normal Retirement Date, the amount of the Final Average Compensation Pension on which the Survivor's Benefit is based shall be reduced as set forth in Section 5.2 to reflect its early commencement, but such reduction shall not take into account any period of time before what would have been the Participant's 55th birthday. 5.6 Form of Benefit. 5.6.3. Except as provided in subsections (b) or (c), the only form of benefit payable under this Plan with respect to the Final Average Compensation Pension shall be the Joint and 75% Surviving Spouse's Annuity (or, in the case of the Survivor's Benefit under Section 5.5, a single life annuity based on the survivor portion of a Joint and 75% Surviving Spouse's Annuity.) If the Participant is not married as of his Benefit Commencement Date, his monthly pension benefit will end as of the month in which his death occurs, and will not be adjusted to reflect that there is no survivor benefit payable. (b) The Participant may make a written request to the Committee or its delegate to receive payment of the present value of his FAC Pension in a single sum. Such written request must be received by the Committee at least 60 days prior to the Participant's termination of employment and is subject to the approval of the Committee in its sole and absolute discretion. (c) The Committee may in its sole discretion pay the present value of a Participant's FAC Pension in a single sum as soon as practicable following the Participant's termination of employment if such present value is not more than $20,000 at the time the Participant terminates employment. (d) For purposes of subsections (b) and (c) above, the present value of a Participant's FAC Pension, as of any date of reference, shall be determined by the Committee according to the actuarial assumptions used at such time by the Plan's actuary for valuing the Plan's benefits for financial accounting and disclosure purposes. 11 14 ARTICLE VI FUNDING 6.1 Source of Funding. 8. This Plan shall be unfunded, and payment of benefits hereunder shall be made from the general assets of the Company. Any such asset which may be set aside, earmarked or identified as being intended for the provision of benefits hereunder shall remain an asset of the Company and shall be subject to the claims of its general creditors. Each Participant shall be a general creditor of the Company to the extent of the value of his or her benefit accrued hereunder, but he shall have no right, title, or interest in any specific asset that the Company may set aside or designate as intended to be applied to the payment of benefits under this Plan. (b) Notwithstanding the foregoing, the Company may, in its discretion, establish an irrevocable grantor trust for the purpose of funding all or part of its obligations under this Plan; provided however, that the terms of such trust require that the assets thereof remain subject to the claims of the Company's judgment creditors in the event of bankruptcy or insolvency and are non-assignable and non-alienable by any Participant or beneficiary prior to distribution thereof, and that such terms otherwise comply with such other requirements as the Internal Revenue Service may prescribe so that the assets placed in such trust, and the income therefrom, do not constitute income to any participant or beneficiary until actual receipt thereof. ARTICLE VII ADMINISTRATION 7.1 Administration by Committee. This Plan shall be administered by the Committee, which shall be responsible for the general administration of the Plan under the policy guidance of the Board. The Committee is hereby designated as the Plan's named fiduciary, as defined in ERISA. 7.2 Duties and Powers of Committee. In addition to the duties and powers described elsewhere hereunder, the Committee shall have the following specific duties and powers: (a) to retain such consultants, accounts, attorneys, and actuaries as may be deemed necessary or desirable to render statements, reports, and advice with respect to the 12 15 Plan and to assist the Committee in complying with all applicable rules and regulations affecting the Plan; any consultants, accountants, attorneys, and actuaries may be the same as those retained by the Company; (b) to decide appeals under this Article; (c) to enact rules and regulations to carry out the provisions of the Plan; (d) to resolve questions or disputes relating to eligibility for benefits or the amount of benefits under the Plan; (e) to construe and interpret the provisions of the Plan and supply any omissions in accordance with the intent of the Plan; (f) to decide all questions of eligibility for benefits under the Plan, to determine the amount, manner and time of payment of any benefits hereunder, and to authorize the payment of benefits; (g) to evaluate administrative procedures; and (h) to delegate such duties and powers as the Committee shall determine from time to time to any person or persons. To the extent of any such delegation, the delegate shall have the duties, powers, authority and discretion of the Committee. Any determinations made by the Committee pursuant to this Article shall be conclusive and binding on all parties. The Committee shall have sole discretion in carrying out its responsibilities. The expenses incurred by the Committee in connection with the operation of the Plan, including, but not limited to, the expenses incurred by reason of the engagement of professional assistants and consultants, shall be paid by the Company and shall not affect the Participants' right to or amount of benefits. 7.3 Records. The Committee shall keep or cause to be kept records of all proceedings and actions, shall maintain all such books of account, records, and other data as shall be necessary for the proper administration of the Plan. 7.4 Claims for Benefits. 13 16 (a) If the Participant or the Participant's beneficiary (hereinafter referred to as the "Claimant") is denied all or a portion of any expected benefit under this Plan for any reason, he may file a claim with the Committee. The Committee shall notify the Claimant within ninety (90) days of receipt of the claim of allowance or denial of the claim, unless the claimant receives written notice from the Committee prior to the end of the 90-day period stating the special circumstances requiring an extension of time for decision and the date by which a final decision shall be made. If a decision is not provided within 90 days, the claim is deemed denied, and the Claimant may proceed to request a review of the claim as described in subsection (b) below. The notice of a denial of benefits shall be in writing, sent by mail to Claimant's last known address, and shall contain the following information: the specific reasons for the denial; specific reference to pertinent provisions of the Plan on which the denial is based; if applicable, a description of any additional information or material necessary to perfect the claim and an explanation of why such information or material is necessary; and explanation of the review procedure. (b) A Claimant is entitled to request a review of any denial of his claim by the Committee. The request for review must be submitted to the Committee in writing within sixty days of mailing and notice of the denial. Absent a request for review within the sixty day period, the claim will be deemed to be conclusively denied. (c) The Claimant or his representative shall be entitled to review all pertinent documents and to submit issues and comments in writing. The Committee in its sole discretion may afford the Claimant a hearing. The Committee shall render a review decision in writing within sixty days after receipt of a request for a review, provided that, in special circumstances (such as to hold a hearing) the Committee may extend the time for decision by not more than sixty days upon written notice to the Claimant. The Claimant shall receive written notice of the Committee's decision, which shall contain specific reasons for the decision with reference to the pertinent provisions of the Plan. (d) The filing of litigation against the Company, the Committee or any of its agents concerning the granting or denial of Plan benefits will be deemed a waiver of all rights under the Plan. 14 17 ARTICLE VIII AMENDMENT AND TERMINATION 8.1 Amendment and Termination. The Company reserves the right to amend this Plan at any time and from time to time in any fashion, and to terminate it at will; provided however, that no such amendment or termination may result in the reduction of the Accrued Benefit of any Participant as of the date of such amendment or termination. ARTICLE IX MISCELLANEOUS 9.1 Nonalienation of Benefits. Except as hereinafter provided with respect to marital disputes, none of the benefits or rights of a Participant or any beneficiary of a Participant shall be subject to the claim of any creditor, and in particular, to the fullest extent permitted by law, all such benefits and rights shall be free from attachment, garnishment or any other legal or equitable process available to any creditor of the Participant or the beneficiary. Neither the Participant nor his Spouse shall have the right to alienate, anticipate, commute, pledge, encumber, or assign any of the benefits or payments which either of them may expect to receive, contingently or otherwise, under this Plan. In cases of marital dispute, the Company will observe the terms of the Plan unless and until ordered to do otherwise by a state or Federal court. As a condition of participation, a Participant agrees to hold the Company harmless from any claim that may arise out of the Company's compliance with an order of any state or Federal court, whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court. 9.2 No Contract of Employment. Nothing contained herein shall be construed as conferring upon any person the right to be employed or continue in the employ of the Company. 9.3 Applicable Law. This Plan shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania. 9.4 Gender and Number. Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and vice versa, and the 15 18 definition of any term herein in the singular shall also indicate the plural, and vice versa. 9.5 Additional Benefits. In addition to the benefits provided under the other provisions of this Plan, any benefits authorized by the Company's Board for employees who are members of a select group of management or highly compensated employees which are not payable under the terms of any other Plan maintained by the Company shall be paid under this Plan at the times and in the manner authorized by the Board. IN WITNESS WHEREOF, the P.H. Glatfelter Company has caused this Plan, as amended and restated effective April 23, 1998, to be executed this 8th day of May, 1998. ATTEST: P.H. GLATFELTER COMPANY /s/ Robert S. Wood By: /s/ Robert P. Newcomer - ------------------------- ---------------------------- [Corporate Seal] 16 EX-10.(F) 5 P. H. GLATFELTER CO. SUPP. MANAGEMENT PENSION PLAN 1 Exhibit 10(f) P.H. GLATFELTER COMPANY SUPPLEMENTAL MANAGEMENT PENSION PLAN (formerly the Plan of Supplemental Retirement Benefits for the Management Committee) INTRODUCTION The P.H. Glatfelter Company ("the Company") hereby establishes, effective as of April 23, 1998, the P.H. Glatfelter Company Supplemental Management Pension Plan (the "Plan") to provide certain supplemental retirement benefits to management employees of the Company who do not participate in the Company's Supplemental Executive Retirement Plan (the "SERP"), which was amended and restated in its entirety effective as of April 23, 1998. This Plan replaces the Plan of Supplemental Retirement Benefits for the Management Committee. The Plan consists of two benefits. The first benefit is the "Management Incentive Plan Adjustment Supplement" as contemplated by Section 8 of the Company's Management Incentive Plan adopted as of January 1, 1994 and amended and restated effective December 18, 1997. This benefit is intended to supplement the basic monthly retirement pension payable under the tax-qualified P.H. Glatfelter Company Retirement Plan for Salaried Employees (the "Retirement Plan"), to compensate for the fact that incentive awards under the Management Incentive Plan which a management employee elects to defer in accordance therewith are not included as part of his compensation taken into account in determining his Retirement Plan benefit. The second benefit is a 3-year Early Retirement Supplement which may be provided to certain management employees who elect to retire early, and who are not eligible to receive the Final Average Compensation Pension under the SERP. The Plan will be administered by the Employee Benefits Committee of the Company's Board of Directors (the "Committee"), except for the determinations contemplated by Section 3 of this Plan, which shall be made the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"). 2 It is intended that the Plan will satisfy the requirements of an unfunded "top hat" deferred compensation plan as described in sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. Consequently, participation shall be limited to individuals who, in the determination of the Committee, are management employees or who are highly compensated employees for purposes of the foregoing provisions of ERISA. The Company therefore adopts the following Supplemental Management Pension Plan effective as of April 23, 1998: 1. Management Incentive Plan Adjustment Supplement (a) Subject to the following sentence and Section 3, each management employee of the Company or The Glatfelter Pulp Wood Company who is a participant in the Company's Management Incentive Plan, as adopted as of January 1, 1994 and amended and restated December 18, 1997, or any successor (the "MIP"), shall be eligible to receive the Management Incentive Plan (MIP) Adjustment Supplement in accordance with this Section 1. Notwithstanding the foregoing, no management employee shall be eligible for the MIP Adjustment Supplement who is also a participant in the P.H. Glatfelter Company Supplemental Executive Retirement Plan, as amended and restated April 23, 1998 (the "SERP"). (b) The Company (or The Glatfelter Pulp Wood Company with respect to employees thereof) will supplement the basic monthly retirement pension payable under the P.H. Glatfelter Company Retirement Plan for Salaried Employees (the "Retirement Plan") with respect to an eligible management employee who retires or terminates employment with the Company and all affiliates with an early, normal, late, or deferred vested retirement pension ("Retirement Pension") from the Retirement Plan (a "Participant" or "Management Participant"). Subject to subsection (c) in the case of a Participant who terminates employment with a deferred vested Retirement Pension, the amount of the Supplement shall be equal to the difference, if any, between the basic monthly Retirement Pension payable with respect to him under the Retirement Plan and the basic monthly Retirement Pension which would have been payable under the Retirement Plan if the Participant's compensation or earnings taken into account 2 3 in determining his Retirement Pension had not been reduced by incentive awards under the MIP, or any successor, which were deferred at his election in accordance with paragraph 7(a) of the MIP, or any similar successor provision or plan. (c) In the case of a Participant who terminates employment with the Company and all affiliates on or after April 23, 1998 entitled to a deferred vested pension benefit from the Retirement Plan (but not an early, normal or late retirement pension), there shall not be taken into account in determining the amount of his MIP Adjustment Supplement any incentive awards earned with respect to service on or after January 1, 1999 which are deferred at his election in accordance with the MIP or any similar successor plan. (d) The MIP Adjustment Supplement shall be paid, beginning at the same time and over the same period as the payment of benefits to the Participant from the Retirement Plan, as elected by the Participant with respect to the Retirement Plan. If the Participant's Retirement Pension is paid other than in the form of a single life annuity payable beginning at normal retirement date (each as provided under the terms of the Retirement Plan), the amount of the MIP Adjustment Supplement will be paid in the same form, adjusted in accordance with the actuarial assumptions used under the Retirement Plan to calculate actuarial equivalences or the reduction factors for early commencement, as applicable, with respect to the Participant's Retirement Pension. (e) In the event that a management employee eligible for the MIP Adjustment Supplement should be selected to participate in the SERP, no MIP Adjustment Supplement shall be paid to him and his supplemental deferred compensation benefits shall be paid exclusively from the SERP. 2. Early Retirement Supplement. (a) Subject to the following sentence and Section 3, (1) each employee eligible to participate, as of April 23, 1998, with respect to the Early Retirement Supplement under the Plan of Supplemental Retirement Benefits for the Management Committee and (2) each other management employee who is assigned, as of April 23, 1998 or thereafter, to the Global Profit Center or the U.S. 3 4 Corporate Profit Center of the Company, in accordance with the procedures described in the MIP (a "Participant" or "Early Retirement Participant") shall be eligible to receive the Early Retirement Supplement in accordance with this Section 2. Notwithstanding the foregoing, no employee shall be eligible for the Early Retirement Supplement if he is also eligible for the Final Average Compensation Pension described in Article V of the SERP, or similar successor provision. (b) The Company will pay a monthly Early Retirement Supplement to an Early Retirement Participant who retires from employment with the Company and all affiliates on or after age 55 but prior to his normal retirement date under the Retirement Plan ("Normal Retirement Date"), and who elects, under rules as may be prescribed by the Committee, to defer commencement of his monthly pension benefit under the Retirement Plan to the earlier of the first day of the thirty-sixth month following his retirement or his Normal Retirement Date (the "Deferred Commencement Date"). (c) The amount of the monthly Early Retirement Supplement shall equal: (1) if the Early Retirement Participant is not eligible for the Restoration Pension described in Article IV of the SERP, or similar successor provision ("Restoration Pension"), the monthly pension amount to which he would be entitled under the Retirement Plan beginning on the Deferred Commencement Date; or (2) if the Early Retirement Participant is eligible for the Restoration Pension under the SERP, the sum of the monthly pension amounts to which he would be entitled under the Retirement Plan and the Restoration Pension beginning on the Deferred Commencement Date; if his pension or pensions as aforesaid were paid in the form of a single life annuity in accordance with the terms of the Retirement Plan. (d) Payment of the Early Retirement Supplement shall begin on the first day of the month coincident with or next following the Participant's early retirement and shall terminate on the day ("Termination Date") which is the earlier of the first day of the month preceding his Normal Retirement Date or the date of the thirty-sixth monthly payment of this Supplement. If the Participant dies before the Termination Date, payments shall cease, unless he is legally married on the date his Early Retirement 4 5 Supplement began to be paid and he is survived by such spouse. In that event, such surviving spouse will receive monthly payments in the amount described in the following sentence, beginning as of the month following the month in which the Participant's death occurred and ending as of the first to occur of (i) the first day of the calendar month in which the spouse dies, or (ii) the Termination Date. The amount of the monthly payments to the surviving spouse shall be equal to the monthly amount that would be payable to her following the Participant's death if the Early Retirement Supplement were determined under subsection (c) based on the Participant's Retirement Pension and (if applicable) Restoration Pension payable in the form of a joint and 50%, 66 , 75% or 100% surviving spouse's annuity under the terms of the Retirement Plan, as elected by the Participant with respect to his benefit from the Retirement Plan (or if the Participant has made no such election, as a joint and 100% surviving spouse's annuity). (e) Notwithstanding the foregoing, if any Early Retirement Participant or his surviving spouse elects to have monthly benefit payments under the Retirement Plan begin before the Termination Date, all payments under the Early Retirement Supplement shall cease as of the first day of the month preceding the month in which such benefit payments begin. 3. Forfeiture of Benefit. (a) Notwithstanding any provision to the contrary herein, if a Participant who is receiving, or may be entitled to receive, the MIP Adjustment Supplement and/or the Early Retirement Supplement should, without the prior consent of the Compensation Committee or its delegate, (1) become an employee, officer or a director of a competitor of the Company, or (2) use or disclose Confidential Information (except as required in the performance of the Participant's duties with the Company), then payments thereafter payable hereunder to such Participant or such Participant's beneficiary will be forfeited and neither the Company nor the Plan will have any further obligation hereunder to such Participant or his beneficiary. The Compensation Committee (or its delegate) in its sole and absolute discretion shall determine if another entity or person is a "competitor" for purposes of this subsection, or 5 6 if a Participant has used or disclosed Confidential Information which would cause the forfeiture of his benefit. (b) For purposes of the foregoing, "Confidential Information" means information which is not generally known to the public, which is used, developed, or obtained by the Company (or its affiliates) relating to its business and the businesses of its clients or customers including, without limitation: products or services; fees, costs and pricing structures; marketing information; advertising and pricing strategies; analyses and reports; computer software including operating systems, applications and program listings; flow charts; manuals and documentation; databases; accounting and business methods; inventions and new developments and methods, whether patentable or unpatentable and whether or not reduced to practice; all copyrightable works; the Company's existing and prospective clients and customers and their confidential information; existing and prospective client and customer lists and other data related thereto; billing and payment records; and all similar and related information in whatever form. 4. Source of Funds. This Plan shall be unfunded, and payment of benefits hereunder shall be made from the general assets of the Company or The Glatfelter Pulp Wood Company, as applicable, who employs the Participant (the "Employing Company"). Any such asset which may be set aside, earmarked or identified as being intended for the provision of benefits hereunder shall remain an asset of the Employing Company and shall be subject to the claims of its general creditors. Each Participant entitled to benefits under this Plan shall be a general creditor of the Employing Company to the extent of the value of his benefit accrued hereunder, but he shall have no right, title, or interest in any specific asset that the Employing Company may set aside or designate as intended to be applied to the payment of benefits under this Plan. 5. Amendment and Termination. The Company reserves the right to amend this Plan at any time and from time to time in any fashion, and to terminate it at will; provided, however, that no such amendment or termination shall, with respect to any Participant who has satisfied the eligibility 6 7 requirements for the MIP Adjustment Supplement and/or Early Retirement Supplement, as applicable, as of the date of such amendment or termination, reduce or eliminate such benefit to the extent accrued based on the Participant's compensation and/or service determined as of the date of amendment or termination, subject to the terms and conditions set forth herein. 6. Nonalienation of Benefits. Except as hereinafter provided with respect to marital disputes, none of the benefits or rights of a Management Participant or Early Retirement Participant, or any beneficiary thereof, shall be subject to the claim of any creditor, and in particular, to the fullest extent permitted by law, all such benefits and rights shall be free from attachment, garnishment or any other legal or equitable process available to any creditor of the Participant or beneficiary thereof. Neither the Participant nor his beneficiary shall have the right to alienate, anticipate, commute, pledge, encumber, or assign any of the benefits or payments which either of them may expect to receive, contingently or otherwise, under this Plan. In cases of marital dispute, the Company will observe the terms of the Plan unless and until ordered to do otherwise by a state or Federal court. As a condition of participation, each employee agrees to hold the Company and his employing company, if different, harmless from any claim that may arise out of the Company's compliance with an order of any state or Federal court, whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court. 7. Administration. (a) This Plan shall be administered by the Committee, which shall be responsible for the construction and interpretation of the Plan and establishment of the rules and regulations governing Plan administration, under the policy guidance of the Company's Board of Directors. (b) In addition to the duties and powers described elsewhere hereunder, the Committee shall have the following specific duties and powers: (1) to retain such consultants, accountants, attorneys and actuaries as may be deemed necessary or desirable to render statements, reports, and advice with respect to the Plan and to assist the Committee in complying with all applicable rules and regulations affecting the Plan; any consultants, accountants, attorneys and actuaries may be the same as those retained by the Company; 7 8 (2) to decide all questions of eligibility for benefits under the Plan, to determine the amount, manner and time of payment of any benefits hereunder, to authorize the payment of benefits, and to resolve all questions or disputes regarding claims for benefits, including appeals under this Article. (3) to delegate such duties and powers as the Committee shall determine from time to time to any person or persons. To the extent of any such delegation, the delegate shall have the duties, powers, authority and discretion of the Committee. All determinations made by the Committee pursuant to this Article shall be conclusive and binding on all parties entitled to or claiming benefits hereunder. The Committee shall have sole discretion in carrying out its responsibilities. The expenses incurred by the Committee in connection with the operation of the Plan, including, but not limited to, the expenses incurred by reason of the engagement of professional assistants and consultants, shall be paid by the Company and shall not affect the Participants' right to or amount of benefits. (c) the Committee shall keep or cause to be kept records of all proceedings and actions, and shall maintain all such books of account, records, and other data as shall be necessary for the proper administrator of the Plan. (d) (1) If the Participant or the Participant's beneficiary (hereinafter referred to as the "Claimant") is denied all or a portion of any expected benefit under this Plan for any reason, he may file a claim with the Committee. The Committee shall notify the Claimant within ninety (90) days of receipt of the claim of allowance or denial of the claim, unless the claimant receives written notice from the Committee prior to the end of the 90-day period stating the special circumstances requiring an extension of time for decision and the date by which a final decision shall be made. If a decision is not provided within 90 days, the claim is deemed denied, and the Claimant may proceed to request a review of the claim as described in paragraph (2) below. The notice of a denial of benefits shall be in writing, sent by mail to Claimant's last known address, and shall contain the following information: the specific reasons 8 9 for the denial; specific reference to pertinent provisions of the Plan on which the denial is based; if applicable, a description of any additional information or material necessary to perfect the claim and an explanation of why such information or material is necessary; and explanation of the review procedure. (2) A Claimant is entitled to request a review of any denial of his claim by the Committee. The request for review must be submitted to the Committee in writing within sixty days of mailing and notice of the denial. Absent a request for review within the sixty day period, the claim will be deemed to be conclusively denied. (3) The Claimant or his representative shall be entitled to review all pertinent documents and to submit issues and comments in writing. The Committee in its sole discretion may afford the Claimant a hearing. The Committee shall render a review decision in writing within sixty days after receipt of a request for a review, provided that, in special circumstances (such as to hold a hearing) the Committee may extend the time for decision by not more than sixty days upon written notice to the Claimant. The Claimant shall receive written notice of the Committee's decision, which shall contain specific reasons for the decision with reference to the pertinent provisions of the Plan. (4) The filing of litigation against the Company the Committee or any of its agents concerning the granting or denial of Plan benefits will be deemed a waiver of all rights under the Plan. 7. No Contract of Employment. Nothing contained herein shall be construed as conferring upon any person the right to be employed or continue in the employ of the Company or any affiliate company. 8. Applicable Law. This Plan shall be construed under the laws of the Commonwealth of Pennsylvania. 9 10 IN WITNESS WHEREOF, the P.H. Glatfelter Company has caused this Plan to be executed this 15th day of May, 1998. ATTEST: P.H. GLATFELTER COMPANY /s/ Robert S. Wood By: /s/ Robert P. Newcomer - --------------------------- ------------------------------ [Corporate Seal] 10 EX-10.(H) 6 P. H. GLATFELTER MANAGEMENT INCENTIVE PLAN 1 Exhibit 10(h) P.H. GLATFELTER COMPANY DEFERRED COMPENSATION PLAN FOR DIRECTORS (Effective April 22, 1998) ARTICLE I INTRODUCTION This Deferred Compensation Plan is established by P.H. Glatfelter Company (the "Company") for the benefit of its Directors and their Beneficiaries and it shall be maintained according to the terms set forth herein. ARTICLE II DEFINITIONS 2.1 DEFINITIONS. When used herein, the following words and phrases shall have the meanings assigned to them, unless the context clearly indicates otherwise: (a) BENEFICIARY means the person or persons, natural or otherwise, designated by a Director under Section 7.1 hereof to receive any death benefit payable under Section 5.3 hereof. (b) BOARD OF DIRECTORS means the board of directors of the Company, as it may be constituted from time to time. (c) CHANGE OF CONTROL means the occurrence of any one of the following: (i) the Company enters into an agreement of reorganization, merger or consolidation pursuant to which it is not the surviving corporation, (ii) the Company sells substantially all its assets, or (iii) in excess of 51% of the issued and outstanding shares of the Company's Common Stock is acquired by a single purchaser or group of related purchasers, other than a purchaser or group of purchasers who are descendants of, or entities controlled by descendants of, P.H. Glatfelter, in any case other than in a transaction in which the surviving corporation or the purchaser is the Company or a majority-owned subsidiary of the Company. (d) COMPANY means P. H. Glatfelter Company, a Pennsylvania corporation. (e) COMPENSATION COMMITTEE means the Compensation Committee of the Board of Directors. 2 (f) DEFERRED FEE ACCOUNT means an account established by the Company in the name of a Director. The Company shall credit each Director's Deferred Fee Account with Stock Units for any Director's Fees that are deferred by the Director under Section 3.1 hereof and any additional Stock Units that are credited by the Company under Article IV hereof. The Company shall debit from each Director's Deferred Fee Account payments made from it under Article V hereof. (g) DEFERRED FEE AGREEMENT means the written agreement between the Company and a Director that, together with this Plan, governs the Director's rights to payment of his deferred Director's Fees under this Plan. (h) DIRECTOR means a member of the Board of Directors who is not also an employee of the Company or any of its subsidiaries or affiliates. (i) DIRECTOR'S FEES means the annual retainer paid to a Director for serving on the Board of Directors, but does not include any fees paid to a Director for attending meetings of the Board of Directors or any committee of the Board of Directors or for serving as chairman of a committee of the Board of Directors. (j) FAIR MARKET VALUE of the Company's Common Stock means, on any given day, the average of the high and low sales prices of a share of Common Stock on such day as reported on the American Stock Exchange. (k) FINANCIAL HARDSHIP means the financial inability of a Director, as determined by the Compensation Committee, to provide the necessary funds (1) to meet any extraordinary expenses incurred on account of accident, sickness or disability affecting the Director or any member of his family, (2) to provide educational opportunities above the high school level for any member of his family, (3) to finance the purchase of a principal residence for the Director or to make a required payment to prevent foreclosure of a mortgage on the Director's principal residence, or (4) for any other significant personal need that the Compensation Committee in its sole discretion may determine in a uniform and consistent manner. (l) PLAN means the P. H. Glatfelter Company Deferred Compensation Plan for Directors set forth herein, as amended by the Company from time to time. (m) STOCK UNITS means phantom shares of the Company's Common Stock. 2 3 ARTICLE III DEFERRAL OF DIRECTOR'S FEES 3.1 ELECTION TO DEFER FEES. For the initial calendar year of the Plan, the election to defer Director's Fees earned on and after May 1, 1998 shall be made during the thirty-day period prior to such date. Before the beginning of any subsequent calendar year, a Director may elect to defer 50%, 75% or 100% of his Director's Fees to be earned in that year and following years. For a new Director, the election to defer Director's Fees earned during his initial calendar year of service shall be made within thirty days following the Director's election or appointment. Any election to defer shall continue in effect for subsequent calendar years unless modified or revoked in accordance with Section 3.3 hereof. Any election to defer shall be irrevocable once the period to which it relates begins. 3.2 CREDITING TO DEFERRED FEE ACCOUNTS. The Company shall credit the Director's Deferred Fee Account with Stock Units as of the day such deferred Director's Fees would have been paid to the Director were they not deferred under the Plan. The number of Stock Units credited to a Director's Deferred Fee Account shall be the quotient of (1) the amount of deferred Director's Fees divided by (2) the Fair Market Value of the Company's Common Stock on such date. 3.3 MODIFICATION OR REVOCATION OF DEFERRAL. A Director may, on a prospective basis for future calendar years, change the percentage of Director's Fees to be deferred by executing a new Deferred Fee Agreement or revoke his election to defer Director's Fees by a written revocation to the Secretary of the Company, but no Deferred Fee Agreement or revocation of an election to defer Director's Fees shall be effective for the calendar year in which it is executed. ARTICLE IV DIVIDENDS 4.1 DIVIDEND REINVESTMENT. Additional Stock Units shall be credited to each Director's Deferred Fee Account as of each payment date for dividends on the Company's Common Stock, in an amount determined pursuant to Section 4.2 hereof, based on the number of Stock Units credited to the Director's Deferred Fee Account on the record date for such dividends. Additional Stock Units shall be credited for each record date that a Director has any amount credited to his Deferred Fee Account under the Plan. 4.2 NUMBER OF DIVIDEND REINVESTMENT SHARES. The number of additional Stock Units credited to a Director's Deferred Fee Account as of any dividend payment date shall be the quotient of (1) the product of the number of Stock Units credited to the 3 4 Director's Deferred Fee Account on the dividend record date for such dividend and the dividend per share on the Company's Common Stock divided by (2) the Fair Market Value of the Company's Common Stock on the dividend payment date. ARTICLE V PAYMENT OF DEFERRED FEES 5.1 DEFERRED FEES AND INTEREST. A Director shall be entitled to receive a cash payment equal to the amount credited to his Deferred Fee Account following termination of his service as a Director. 5.2 PAYMENT. At the election of a Director, the amount credited to his Deferred Fee Account shall be paid (1) in a lump sum within 30 days following termination of his service as a Director or (2) in five annual installments, as follows: 1/5 of the amount credited to his Deferred Fee Account within 30 days following termination of his service as a Director, 1/4 of the amount credited to his Deferred Fee Account within 30 days following the first anniversary of the termination of his service as a Director, 1/3 of the amount credited to his Deferred Fee Account within 30 days following the second anniversary of the termination of his service as a Director, 1/2 of the amount credited to his Deferred Fee Account within 30 days following the third anniversary of the termination of his service as a Director, and the balance in his Deferred Fee Account within 30 days following the fourth anniversary of the termination of his service as a Director. Each Director shall make such election on an individual Deferred Fee Agreement in the form of Exhibit A attached hereto. Amounts credited to a Director's Deferred Fee Account shall be credited with additional Stock Units as determined under Article IV during the installment payout period. 5.3 DEATH OF A DIRECTOR. If a Director dies with any amount credited to his Deferred Fee Account, then his Beneficiary shall be entitled to receive the entire amount in a lump sum. Such payment shall be made as soon as practicable after the Director's death. 5.4 CHANGE OF CONTROL. In the event of a Change of Control, the Plan shall terminate and the Director shall receive, in a lump sum payment (regardless of whether the Director has elected lump sum or installment payments pursuant to Section 5.2 hereof), the entire amount then credited to his Deferred Fee Account. 4 5 ARTICLE VI HARDSHIP WITHDRAWALS 6.1 WITHDRAWALS FROM DEFERRED FEE ACCOUNT. (a) Neither the Director, his Beneficiary, nor any other individual or entity shall have any right to make any withdrawals from the Director's Deferred Fee Account or to alter any installment payments provided under this Agreement. (b) Notwithstanding Section 6.1(a) hereof, a Director shall, in the discretion of the Company, be entitled to withdraw 25%, 50%, 75% or 100% of the amount credited to his Deferred Fee Account in the event of Financial Hardship. ARTICLE VII BENEFICIARIES 7.1 DESIGNATION OF BENEFICIARY. Each Director may designate from time to time any person or persons, natural otherwise, as his Beneficiary or Beneficiaries to whom benefits under Section 5.3 hereof are to be paid if he dies while entitled to benefits. Each Beneficiary designation shall be made either in the Deferred Fee Agreement or on a form prescribed by the Secretary of the Company and shall be effective only when filed with the Secretary during the Director's lifetime. Each Beneficiary designation filed with the Secretary shall revoke all Beneficiary designations previously made by the Director. The revocation of a Beneficiary designation shall not require the consent of any designated Beneficiary. ARTICLE VIII ADMINISTRATION 8.1 RIGHT TO TERMINATE. The Board of Directors may amend or terminate the Plan at any time in whole or in part with respect to Director's Fees not yet earned. No amendment or termination of the Plan shall reduce the amount credited to a Director's Deferred Fee Account, the amount owed to him by the Company as of the date of amendment or termination, or the number of Stock Units to be credited to his Deferred Fee Account. 8.2 NO FUNDING OBLIGATION. The obligation of the Company to pay any benefits under this Plan shall be unfunded and unsecured and any payments under this Plan shall be made from the general assets of the Company. The Company, however, in its discretion, may set aside assets or purchase annuity or life insurance contracts to discharge all or part of its obligations under this Plan. The assets set aside or the annuity or life insurance contracts shall remain in the name of the Company and it is intended that no trust is to be created by setting aside the assets or purchasing annuity or life insurance contracts. A Director's rights under the Plan may not be voluntarily or involuntarily assigned or transferred, other than by will or by the 5 6 laws of descent and distribution, and shall not be subject in any manner to attachment or other legal process for the debts of the Director. The Director's rights hereunder are exercisable during his lifetime only by him, or by his guardian or legal representative. The Director shall be a general creditor of the Company with respect to the obligations established under this Plan. 8.3 APPLICABLE LAW. This Plan shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania, except to the extent superseded by federal law. 8.4 ADMINISTRATION AND INTERPRETATION. The Compensation Committee, shall have the authority and responsibility to administer and interpret this Plan. Benefits due and owing to a Director or Beneficiary under the Plan shall be paid when due without any requirement that a claim for benefits be filed. However, any Director or Beneficiary who has not received the benefits to which he believes himself entitled may file a written claim with the Compensation Committee, which shall act on the claim within thirty days, and such action on any such claims shall be conclusive and binding on all interested parties. 6 EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 LIST OF SUBSIDIARIES
State or Country of Incorporation ---------------- Balo-I Industrial, Inc. Philippines Ecusta Australia Pty. Limited Australia Ecusta Export Trading Corp. Barbados Ecusta Fibres Ltd. Canada Glatfelter Investments, Inc. Delaware Glatfelter of Nevada, Inc. Nevada Glenn-Wolfe, Inc. Delaware Mollanvick, Inc. Delaware Newtech Pulp Inc. Philippines Papcel-Kiew Ukraine Papcel-Papier und Cellulose, Germany Technologie und Handels-GmbH Papeteries de Cascadec S.A.* France Papierfabrik Schoeller & Hoesch Germany Auslandsbeteiligungen GmbH Papierfabrik Schoeller & Hoesch Germany GmbH & Co. KG PHG Tea Leaves, Inc. Delaware PHG Verwaltungsgesellschaft mbH Germany S&H Verwaltungsgesellschaft mbH Germany Schoeller & Hoesch N.A., Inc. Delaware Schoeller & Hoesch S.A.R.L. France Spring Grove Water Company Pennsylvania The Glatfelter Pulp Wood Company Maryland Unicon-Papier-und Kunststoffhandels GmbH Germany
- ------------ * 50% owned subsidiary. EX-23 8 CONSENT OF INDEPENDENT CERTIFIED PUBLIC AUDITORS 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT P. H. Glatfelter Company: We consent to the incorporation by reference in the Registration Statements of P. H. Glatfelter Company on Form S-8 (Registration Nos. 33-25884, 33-37198, 33-49660, 33-53338, 33-54409, 33-62331, 333-12089, 333-26587, 333-34797, 333-53977 and 333-66991) of our report dated February 26, 1999, appearing in this Annual Report on Form 10-K of P.H. Glatfelter Company for the year ended December 31, 1998. /s/ Deloitte & Touche LLP Philadelphia, Pennsylvania March 19, 1999 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31 OF P.H. GLATFELTER CO. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 DEC-31-1998 50,907 0 71,608 1,532 117,852 241,908 1,285,737 657,581 990,738 126,876 325,381 0 0 544 343,385 990,738 705,078 717,705 575,351 627,150 9,816 90 22,007 58,732 36,133 36,133 0 0 0 36,133 0.86 0.86
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