25.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Our 5.375% Notes are fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., and Glatfelter Holdings, LLC. The guarantees are subject to certain customary release provisions including i) the designation of such subsidiary as an unrestricted or excluded subsidiary; (ii) in connection with any sale or disposition of the capital stock of the subsidiary guarantor; and (iii) upon our exercise of our legal defeasance option or our covenant defeasance option, all of which are more fully described in the Indenture dated as of October 3, 2012 among us, the Guarantors and US Bank National Association, as Trustee, relating to the 5.375% Notes. The following presents our condensed consolidating statements of income, including comprehensive income (“statements of income”), and cash flows for the years ended December 31, 2014, 2013 and 2012 and our condensed consolidating balance sheets (“balance sheets”) as of December 31, 2014 and 2013. Our presentation of the Guarantors’ statements of income for the years ended December 31, 2013 and 2012 and balance sheet as of December 31, 2013, has been restated to correctly apply the equity method of accounting to reflect the Guarantors’ equity interests in certain Non Guarantors. Such changes are reflected under the captions “Equity in earnings of subsidiaries” and “Investments in subsidiaries” in the accompanying condensed consolidating statements of income and condensed consolidating balance sheets, respectively. The correction had no impact on any financial information of the Parent Company or the Non Guarantors nor on the statement of cash flows.

Condensed Consolidating Statement of Income for the

year ended December 31, 2014

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net sales

902,892

899,523

(35

)

1,802,415

Energy and related sales, net

7,927

–

7,927

Total revenues

910,819

899,523

(35

)

1,810,342

Costs of products sold

829,336

745,853

(35

)

1,575,188

Gross profit

81,483

153,670

–

235,154

Selling, general and administrative expenses

67,086

492

65,657

–

133,235

Gains on dispositions of plant, equipment and timberlands, net

(3,545

)

(1,316

)

–

(4,861

)

Operating income

17,942

825

88,013

–

106,780

Other non-operating income (expense)

Interest expense

(19,105

)

–

(102,571

)

102,755

(18,921

)

Interest income

638

102,241

(102,756

)

159

Equity in earnings of subsidiaries

66,628

(35,226

)

–

(31,402

)

–

Other, net

(1,366

)

314

417

–

(635

)

Total other non-operating income (expense)

46,795

67,329

(102,118

)

(31,403

)

(19,397

)

Income (loss) before income taxes

64,737

68,154

(14,105

)

(31,403

)

87,383

Income tax (benefit) provision

(4,509

)

3,060

19,586

–

18,137

Net income (loss)

69,246

65,094

(33,691

)

(31,403

)

69,246

Other comprehensive (loss) income

(79,513

)

(40,704

)

28,840

11,864

(79,513

)

Comprehensive (loss) income

(10,267

)

24,390

(4,851

)

(19,539

)

(10,267

)

Condensed Consolidating Statement of Income for the

year ended December 31, 2013


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated
Net sales	$	887,859		$	16		$	834,756		$	(16	)	$	1,722,615
Energy and related sales, net		3,153			–			–			–			3,153
Total revenues		891,012			16			834,756			(16	)		1,725,768
Costs of products sold		812,298			15			694,819			(24	)		1,507,108
Gross profit		78,714			1			139,937			8			218,660
Selling, general and administrative expenses		69,614			718			63,535			–			133,867
Gains on dispositions of plant, equipment and timberlands, net		(1,390	)		(319	)		(17	)		–			(1,726	)
Operating income (loss)		10,490			(398	)		76,419			8			86,519
Other non-operating income (expense)
Interest expense		(18,891	)		–			(8,064	)		8,990			(17,965	)
Interest income		627			8,662			12			(8,991	)		310
Equity in earnings of subsidiaries		58,412			48,538			–			(106,950	)		–
Other, net		(1,569	)		104			1,802			–			337
Total other non-operating income (expense)		38,579			57,304			(6,250	)		(106,951	)		(17,318	)
Income before income taxes		49,069			56,906			70,169			(106,943	)		69,201
Income tax (benefit) provision		(18,089	)		453			19,675			4			2,043
Net income		67,158			56,453			50,494			(106,947	)		67,158
Other comprehensive income		88,609			6,883			4,223			(11,106	)		88,609
Comprehensive income	$	155,767		$	63,336		$	54,717		$	(118,053	)	$	155,767

Condensed Consolidating Statement of Income for the

year ended December 31, 2012


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated
Net sales	$	894,777		$	14		$	683,022		$	(25	)	$	1,577,788
Energy and related sales, net		7,000			–			–			–			7,000
Total revenues		901,777			14			683,022			(25	)		1,584,788
Costs of products sold		789,589			13			581,544			(7	)		1,371,139
Gross profit		112,188			1			101,478			(18	)		213,649
Selling, general and administrative expenses		73,877			169			47,544			–			121,590
Gains on dispositions of plant, equipment and timberlands, net		(9,790	)		–			(25	)		–			(9,815	)
Operating income (loss)		48,101			(168	)		53,959			(18	)		101,874
Other non-operating income (expense)
Interest expense		(22,311	)		(57	)		(3,891	)		7,565			(18,694	)
Interest income		452			7,191			382			(7,565	)		460
Equity in earnings of subsidiaries		40,682			33,954			–			(74,636	)		–
Other, net		(6,459	)		477			1,283			–			(4,699	)
Total other non-operating income (expense)		12,364			41,565			(2,226	)		(74,636	)		(22,933	)
Income before income taxes		60,465			41,397			51,733			(74,654	)		78,941
Income tax provision		1,086			1,587			16,889			–			19,562
Net income		59,379			39,810			34,844			(74,654	)		59,379
Other comprehensive income		2,775			3,243			3,920			(7,163	)		2,775
Comprehensive income	$	62,154		$	43,053		$	38,764		$	(81,817	)	$	62,154

Condensed Consolidating Balance Sheet as of December 31, 2014

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Assets

Cash and cash equivalents

42,208

514

57,115

—

99,837

Other current assets

218,544

420,451

263,567

(427,777

)

474,785

Plant, equipment and timberlands, net

255,255

991

441,362

—

697,608

Investments in subsidiaries

824,480

399,931

—

(1,224,411

)

—

Other assets

121,125

—

186,129

(17,980

)

289,274

Total assets

1,461,612

821,887

948,173

(1,670,168

)

1,561,504

Liabilities and Shareholders’ Equity

Current liabilities

403,662

3,394

307,737

(435,062

)

279,731

Long-term debt

250,000

—

721,457

(572,579

)

398,878

Deferred income taxes

46,483

(453

)

70,275

(12,289

)

104,016

Other long-term liabilities

112,358

—

11,633

5,779

129,770

Total liabilities

812,503

2,941

1,111,102

(1,014,151

)

912,395

Shareholders’ equity

649,109

818,946

(162,929

)

(656,017

)

649,109

Total liabilities and shareholders’ equity

1,461,612

821,887

948,173

(1,670,168

)

1,561,504

Condensed Consolidating Balance Sheet as of December 31, 2013


In thousands	Parent Company		Guarantors			Non Guarantors		Adjustments/ Eliminations			Consolidated
Assets
Cash and cash equivalents	$	56,216	$	501		$	66,165	$	—		$	122,882
Other current assets		208,814		327,152			253,779		(326,045	)		463,700
Plant, equipment and timberlands, net		247,243		1,054			475,043		—			723,340
Investments in subsidiaries		803,688		468,533			—		(1,272,221	)		—
Other assets		170,060		—			214,301		(15,873	)		368,488
Total assets	$	1,486,021	$	797,240		$	1,009,288	$	(1,614,139	)	$	1,678,410

Liabilities and Shareholders’ Equity
Current liabilities	$	375,535	$	2,855		$	247,855	$	(337,878	)	$	288,367
Long-term debt		250,000		—			513,120		(320,795	)		442,325
Deferred income taxes		70,989		(283	)		78,633		(8,319	)		141,020
Other long-term liabilities		105,021		—			13,792		3,409			122,222
Total liabilities		801,545		2,572			853,400		(663,583	)		993,934
Shareholders’ equity		684,476		794,668			155,888		(950,556	)		684,476
Total liabilities and shareholders’ equity	$	1,486,021	$	797,240		$	1,009,288	$	(1,614,139	)	$	1,678,410

The amounts of the Guarantors’ Investments in subsidiaries set forth above include investments in equity of the Non Guarantors as well as amounts due from the Non Guarantors arising from the conversion of certain equity interests into debt instruments. Such debt instruments are reported in the Non Guarantors column under the caption “Long-term debt.”

Condensed Consolidating Statement of Cash Flows for the year

ended December 31, 2014

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net cash provided (used) by

Operating activities

36,240

4,158

59,179

–

99,577

Investing activities

Expenditures for purchases of plant, equipment and timberlands

(34,518

)

–

(31,528

)

–

(66,046

)

Proceeds from disposal plant, equipment and timberlands, net

3,707

1,355

–

5,072

Repayments from intercompany loans

–

20,840

–

(20,840

)

–

Advances of intercompany loans

(12,671

)

(26,340

)

–

39,011

–

Acquisitions, net of cash acquired

–

(8,015

)

–

(8,015

)

Other

(600

)

–

(600

)

Total investing activities

(44,082

)

(4,145

)

(39,533

)

18,171

(69,589

)

Financing activities

Net repayments of indebtedness

–

(18,128

)

–

(18,128

)

Payment of dividends to shareholders

(18,696

)

–

(18,696

)

Repurchases of common stock

(12,180

)

–

(12,180

)

Repayments of intercompany loans

–

(20,840

)

20,840

–

Borrowings of intercompany loans

26,340

–

12,671

(39,011

)

–

Payments related to share-based compensation awards and other

(1,630

)

–

(247

)

–

(1,877

)

Total financing activities

(6,166

)

–

(26,544

)

(18,171

)

(50,881

)

Effect of exchange rate on cash

–

(2,152

)

–

(2,152

)

Net (decrease) increase in cash

(14,008

)

(9,050

)

–

(23,045

)

Cash at the beginning of period

56,216

501

66,165

–

122,882

Cash at the end of period

42,208

514

57,115

–

99,837

Condensed Consolidating Statement of Cash Flows for the year

ended December 31, 2013


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated
Net cash provided (used) by
Operating activities	$	55,507		$	4,974		$	113,154		$	–		$	173,635
Investing activities
Expenditures for plant, equipment and timberlands		(39,496	)		–			(63,551	)		–			(103,047	)
Proceeds from disposals of plant, equipment and timberlands, net		1,435			333			179			–			1,947
Repayments from intercompany loans		–			18,223			–			(18,223	)		–
Advances of intercompany loans		–			(27,216	)		–			27,216			–
Intercompany capital contributed		–			(91	)		–			91			–
Acquisitions, net of cash acquired		–			–			(210,911	)		–			(210,911	)
Other		(425	)		–			–			–			(425	)
Total investing activities		(38,486	)		(8,751	)		(274,283	)		9,084			(312,436	)
Financing activities
Net proceeds from indebtedness		–			–			182,230			–			182,230
Payments of note offering costs		(160	)		–			(259	)		–			(419	)
Payment of dividends to shareholders		(16,965	)		–			–			–			(16,965	)
Repayments of intercompany loans		(1,100	)					(17,123	)		18,223			–
Borrowings of intercompany loans		15,310						11,906			(27,216	)		–
Intercompany capital received		–			–			91			(91	)		–
Payments for share-based compensation awards and other		(1,671	)		–			–			–			(1,671	)
Total financing activities		(4,586	)		–			176,845			(9,084	)		163,175
Effect of exchange rate on cash		–			–			829			–			829
Net increase (decrease) in cash		12,435			(3,777	)		16,545			–			25,203
Cash at the beginning of period		43,781			4,278			49,620			–			97,679
Cash at the end of period	$	56,216		$	501		$	66,165		$	–		$	122,882

Condensed Consolidating Statement of Cash Flows for the year

ended December 31, 2012


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated
Net cash provided (used) by
Operating activities	$	25,787		$	5,958		$	81,101		$	–		$	112,846
Investing activities
Expenditures for plant, equipment and timberlands		(23,463	)		–			(35,289	)		–			(58,752	)
Proceeds from disposals of plant, equipment and timberlands, net		10,236			–			36			–			10,272
Repayments from intercompany loans		6,088			29,343			–			(35,431	)		–
Advances of intercompany loans		(91	)		(34,375	)		(514	)		34,980			–
Other		(225	)		–			–			–			(225	)
Total investing activities		(7,455	)		(5,032	)		(35,767	)		(451	)		(48,705	)
Financing activities
Net proceeds from indebtedness		17,869			–			–			–			17,869
Payments of note offering costs		(4,748	)		–			–			–			(4,748	)
Payment of dividends to shareholders		(15,608	)		–			–			–			(15,608	)
Repurchases of common stock		(5,675	)		–			–			–			(5,675	)
Repayments of intercompany loans		–			–			(35,431	)		35,431			–
Borrowings of intercompany loans		27,875			514			6,591			(34,980	)		–
Proceeds from stock options exercised and other		2,673			–			–			–			2,673
Total financing activities		22,386			514			(28,840	)		451			(5,489	)
Effect of exchange rate on cash		–			–			750			–			750
Net increase in cash		40,718			1,440			17,244			–			59,402
Cash at the beginning of period		3,063			2,838			32,376			–			38,277
Cash at the end of period	$	43,781		$	4,278		$	49,620		$	–		$	97,679