Item 1. Financial Statements
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
|
|
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|
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|
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|
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|
|
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|
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|
|
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Three Months Ended
|
|
Six Months Ended
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
|
|
|
Net sales
|
$
|
377.8
|
|
|
$
|
254.2
|
|
|
$
|
666.0
|
|
|
$
|
515.7
|
|
|
|
|
|
|
Cost of products sold
|
289.7
|
|
|
179.9
|
|
|
497.1
|
|
|
367.1
|
|
|
|
|
|
|
Gross profit
|
88.1
|
|
|
74.3
|
|
|
168.9
|
|
|
148.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling expense
|
11.9
|
|
|
8.8
|
|
|
21.0
|
|
|
18.3
|
|
|
|
|
|
|
Research and development expense
|
5.4
|
|
|
3.6
|
|
|
9.2
|
|
|
6.8
|
|
|
|
|
|
|
General expense
|
52.6
|
|
|
25.9
|
|
|
85.3
|
|
|
53.3
|
|
|
|
|
|
|
Total nonmanufacturing expenses
|
69.9
|
|
|
38.3
|
|
|
115.5
|
|
|
78.4
|
|
|
|
|
|
|
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|
|
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|
|
|
|
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|
|
|
|
|
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|
|
|
|
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Restructuring and impairment expense
|
2.3
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|
|
1.6
|
|
|
4.0
|
|
|
1.7
|
|
|
|
|
|
|
Operating profit
|
15.9
|
|
|
34.4
|
|
|
49.4
|
|
|
68.5
|
|
|
|
|
|
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Interest expense
|
13.1
|
|
|
8.1
|
|
|
16.0
|
|
|
15.0
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|
|
|
|
|
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Other (expense) income, net
|
(0.3)
|
|
|
(0.3)
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|
|
(2.9)
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|
|
0.3
|
|
|
|
|
|
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Income before income taxes and income from equity affiliates
|
2.5
|
|
|
26.0
|
|
|
30.5
|
|
|
53.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Provision for income taxes
|
3.5
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|
|
5.4
|
|
|
10.9
|
|
|
10.7
|
|
|
|
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Income from equity affiliates, net of
income taxes
|
2.8
|
|
|
0.9
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|
|
3.8
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|
|
0.9
|
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|
|
|
|
|
|
|
|
|
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|
|
|
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Net income
|
$
|
1.8
|
|
|
$
|
21.5
|
|
|
$
|
23.4
|
|
|
$
|
44.0
|
|
|
|
|
|
|
|
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|
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|
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Net income per share - basic:
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Net income per share – basic
|
$
|
0.06
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|
|
$
|
0.69
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|
|
$
|
0.75
|
|
|
$
|
1.41
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|
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Net income per share – diluted:
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Net income per share – diluted
|
$
|
0.06
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|
|
$
|
0.68
|
|
|
$
|
0.74
|
|
|
$
|
1.40
|
|
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|
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Weighted average shares outstanding:
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Basic
|
31,045,100
|
|
|
30,792,600
|
|
|
31,009,900
|
|
|
30,752,500
|
|
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|
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Diluted
|
31,402,400
|
|
|
31,006,700
|
|
|
31,371,700
|
|
|
30,958,400
|
|
|
|
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|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in millions)
(Unaudited)
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Three Months Ended
|
|
Six Months Ended
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
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Net income
|
$
|
1.8
|
|
|
$
|
21.5
|
|
|
$
|
23.4
|
|
|
$
|
44.0
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
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Foreign currency translation adjustments
|
9.4
|
|
|
0.6
|
|
|
(0.5)
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|
(2.9)
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Unrealized (losses) gain on derivative instruments
|
(2.4)
|
|
|
(0.7)
|
|
|
2.0
|
|
|
(13.4)
|
|
|
|
|
|
|
Less: Reclassification adjustment for losses on derivative instruments included in net income
|
1.6
|
|
|
0.6
|
|
|
1.6
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
Net loss from postretirement benefit plans
|
(0.1)
|
|
|
(0.4)
|
|
|
—
|
|
|
(0.3)
|
|
|
|
|
|
|
Amortization of postretirement benefit plans' costs included in net periodic cost
|
0.9
|
|
|
1.2
|
|
|
2.5
|
|
|
1.6
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
9.4
|
|
|
1.3
|
|
|
5.6
|
|
|
(14.4)
|
|
|
|
|
|
|
Comprehensive income
|
$
|
11.2
|
|
|
$
|
22.8
|
|
|
$
|
29.0
|
|
|
$
|
29.6
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
ASSETS
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
65.9
|
|
|
$
|
54.7
|
|
|
Accounts receivable, net
|
229.4
|
|
|
148.5
|
|
|
Inventories
|
247.0
|
|
|
179.7
|
|
|
Income taxes receivable
|
18.7
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
17.7
|
|
|
7.3
|
|
|
Total current assets
|
578.7
|
|
|
396.4
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
476.3
|
|
|
339.0
|
|
|
|
|
|
|
|
Deferred income tax benefits
|
—
|
|
|
2.6
|
|
|
Investment in equity affiliates
|
64.0
|
|
|
59.3
|
|
|
Goodwill
|
666.7
|
|
|
403.7
|
|
|
Intangible assets
|
541.7
|
|
|
314.7
|
|
|
Other assets
|
95.9
|
|
|
69.2
|
|
|
Total assets
|
$
|
2,423.3
|
|
|
$
|
1,584.9
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
Current liabilities
|
|
|
|
|
Current debt
|
$
|
18.3
|
|
|
$
|
2.8
|
|
|
Accounts payable
|
113.4
|
|
|
60.5
|
|
|
Income taxes payable
|
5.8
|
|
|
2.7
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
106.9
|
|
|
100.9
|
|
|
Total current liabilities
|
244.4
|
|
|
166.9
|
|
|
|
|
|
|
|
Long-term debt
|
1,262.6
|
|
|
590.5
|
|
|
|
|
|
|
|
Long-term income tax payable
|
16.6
|
|
|
17.7
|
|
|
Pension and other postretirement benefits
|
43.3
|
|
|
36.5
|
|
|
Deferred income tax liabilities
|
112.2
|
|
|
45.1
|
|
|
Other liabilities
|
91.2
|
|
|
78.6
|
|
|
Total liabilities
|
1,770.3
|
|
|
935.3
|
|
|
Stockholders’ equity:
|
|
|
|
|
Preferred stock, $0.10 par value; 10,000,000 shares authorized; none issued or outstanding
|
—
|
|
|
—
|
|
|
Common stock, $0.10 par value; 100,000,000 shares authorized; 31,426,129 and 31,324,745 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
|
3.1
|
|
|
3.1
|
|
|
Additional paid-in-capital
|
97.3
|
|
|
92.2
|
|
|
Retained earnings
|
658.9
|
|
|
666.2
|
|
|
Accumulated other comprehensive loss, net of tax
|
(106.3)
|
|
|
(111.9)
|
|
|
Total stockholders’ equity
|
653.0
|
|
|
649.6
|
|
|
Total liabilities and stockholders’ equity
|
$
|
2,423.3
|
|
|
$
|
1,584.9
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in millions, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
|
|
|
Balance, March 31, 2020
|
31,192,522
|
|
|
$
|
3.1
|
|
|
$
|
81.0
|
|
|
$
|
646.2
|
|
|
$
|
(138.3)
|
|
|
$
|
592.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
21.5
|
|
|
—
|
|
|
21.5
|
|
|
|
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
|
1.3
|
|
|
|
|
Dividends declared ($0.44 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(13.7)
|
|
|
—
|
|
|
(13.7)
|
|
|
|
|
Restricted stock issuances, net
|
1,853
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Stock-based employee compensation expense
|
—
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
|
|
|
Modification to director stock-based compensation plan
|
—
|
|
|
—
|
|
|
4.0
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued to directors as compensation
|
1,068
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common stock
|
(434)
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
|
|
Balance, June 30, 2020
|
31,195,009
|
|
|
$
|
3.1
|
|
|
$
|
87.2
|
|
|
$
|
654.1
|
|
|
$
|
(137.0)
|
|
|
$
|
607.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
31,407,136
|
|
|
$
|
3.1
|
|
|
$
|
94.6
|
|
|
$
|
670.9
|
|
|
$
|
(115.7)
|
|
|
$
|
652.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
|
1.8
|
|
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.4
|
|
|
9.4
|
|
|
|
|
Dividends declared ($0.44 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(13.8)
|
|
|
—
|
|
|
(13.8)
|
|
|
|
|
Restricted stock issuances, net
|
19,566
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Stock-based employee compensation expense
|
—
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
|
—
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued to directors as compensation
|
484
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common stock
|
(1,057)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Balance, June 30, 2021
|
31,426,129
|
|
|
$
|
3.1
|
|
|
$
|
97.3
|
|
|
$
|
658.9
|
|
|
$
|
(106.3)
|
|
|
$
|
653.0
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
|
|
|
Balance, December 31, 2019
|
30,896,661
|
|
|
$
|
3.1
|
|
|
$
|
78.8
|
|
|
$
|
638.4
|
|
|
$
|
(122.6)
|
|
|
$
|
597.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
44.0
|
|
|
—
|
|
|
44.0
|
|
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14.4)
|
|
|
(14.4)
|
|
|
|
|
Dividends declared ($0.88 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(27.4)
|
|
|
—
|
|
|
(27.4)
|
|
|
|
|
Restricted stock issuances, net
|
321,858
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Stock-based employee compensation expense
|
—
|
|
|
—
|
|
|
4.1
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
|
|
Modification to director stock-based compensation plan
|
—
|
|
|
—
|
|
|
4.0
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued to directors as compensation
|
2,198
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and retirement of common stock
|
(25,708)
|
|
|
—
|
|
|
—
|
|
|
(0.9)
|
|
|
—
|
|
|
(0.9)
|
|
|
|
|
Balance, June 30, 2020
|
31,195,009
|
|
|
$
|
3.1
|
|
|
$
|
87.2
|
|
|
$
|
654.1
|
|
|
$
|
(137.0)
|
|
|
$
|
607.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
31,324,745
|
|
|
$
|
3.1
|
|
|
$
|
92.2
|
|
|
$
|
666.2
|
|
|
$
|
(111.9)
|
|
|
$
|
649.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
23.4
|
|
|
—
|
|
|
23.4
|
|
|
|
|
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.6
|
|
|
5.6
|
|
|
|
|
Dividends declared ($$0.88 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(27.6)
|
|
|
—
|
|
|
(27.6)
|
|
|
|
|
Restricted stock issuances, net
|
168,096
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Stock-based employee compensation expense
|
—
|
|
|
—
|
|
|
4.6
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued to directors as compensation
|
1,074
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
|
|
Purchases and retirement of common stock
|
(67,786)
|
|
|
—
|
|
|
—
|
|
|
(3.1)
|
|
|
—
|
|
|
(3.1)
|
|
|
|
|
Balance, June 30, 2021
|
31,426,129
|
|
|
$
|
3.1
|
|
|
$
|
97.3
|
|
|
$
|
658.9
|
|
|
$
|
(106.3)
|
|
|
$
|
653.0
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Operating
|
|
|
|
|
Net income
|
$
|
23.4
|
|
|
$
|
44.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash items included in net income:
|
|
|
|
|
Depreciation and amortization
|
44.9
|
|
|
32.5
|
|
|
|
|
|
|
|
Deferred income tax
|
6.8
|
|
|
1.6
|
|
|
Pension and other postretirement benefits
|
1.9
|
|
|
1.8
|
|
|
Stock-based compensation
|
4.6
|
|
|
4.2
|
|
|
Income from equity affiliates
|
(3.8)
|
|
|
(0.9)
|
|
|
Brazil tax assessment accruals, net
|
(6.1)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items
|
(0.9)
|
|
|
(3.7)
|
|
|
Changes in operating working capital, net of assets acquired:
|
|
|
|
|
Accounts receivable
|
(14.2)
|
|
|
(8.4)
|
|
|
Inventories
|
(11.1)
|
|
|
(1.4)
|
|
|
Prepaid expenses
|
(4.3)
|
|
|
(1.3)
|
|
|
Accounts payable and other current liabilities
|
(11.2)
|
|
|
(19.7)
|
|
|
|
|
|
|
|
Accrued income taxes
|
(10.2)
|
|
|
0.6
|
|
|
Net changes in operating working capital
|
(51.0)
|
|
|
(30.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
19.8
|
|
|
49.3
|
|
|
Investing
|
|
|
|
|
Capital spending
|
(16.3)
|
|
|
(14.9)
|
|
|
Capitalized software costs
|
(1.3)
|
|
|
(1.7)
|
|
|
Acquisitions, net of cash acquired
|
(630.5)
|
|
|
(169.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investing
|
(0.9)
|
|
|
2.1
|
|
|
Net cash used in investing
|
(649.0)
|
|
|
(183.8)
|
|
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Financing
|
|
|
|
|
Cash dividends paid to SWM stockholders
|
(27.6)
|
|
|
(27.4)
|
|
|
|
|
|
|
|
Proceeds from issuances of long-term debt
|
703.7
|
|
|
212.0
|
|
|
Payments on long-term debt
|
(17.8)
|
|
|
(87.1)
|
|
|
Purchases of common stock
|
(3.1)
|
|
|
(0.9)
|
|
|
Payments for debt issuance costs
|
(14.5)
|
|
|
—
|
|
|
|
|
|
|
|
Net cash provided by financing
|
640.7
|
|
|
96.6
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(0.3)
|
|
|
(1.2)
|
|
|
Increase (decrease) in cash and cash equivalents
|
11.2
|
|
|
(39.1)
|
|
|
Cash and cash equivalents at beginning of period
|
54.7
|
|
|
103.0
|
|
|
Cash and cash equivalents at end of period
|
$
|
65.9
|
|
|
$
|
63.9
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures
|
|
|
|
|
Cash paid for interest, net
|
$
|
19.7
|
|
|
$
|
14.1
|
|
|
Cash paid for taxes, net
|
$
|
14.2
|
|
|
$
|
8.1
|
|
|
Change in capital spending in accounts payable and accrued liabilities
|
$
|
5.1
|
|
|
$
|
2.9
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Note 1. General
Nature of Business
Schweitzer-Mauduit International, Inc. ("SWM," "we," or the "Company"), headquartered in the United States of America, is a multinational diversified producer of highly engineered solutions and advanced materials for a variety of industries. The Company maintains two operating product line segments: Advanced Materials & Structures and Engineered Papers.
The Advanced Materials & Structures ("AMS") segment offers design and manufacturing solutions for the filtration, transportation, healthcare, construction and industrial end-markets. We manufacture resin-based rolled goods such as nets, films and meltblown materials, bonding products and adhesive components, along with providing adhesives and other coating solutions and converting services for our customers.
The Engineered Papers ("EP") segment primarily serves the tobacco industry with production of various cigarette papers and reconstituted tobacco products ("Recon"). Traditional reconstituted tobacco leaf ("RTL") is used as a blend with virgin tobacco in cigarettes and used in the production of small cigars. Recon, as well as low ignition propensity ("LIP") cigarette paper, a specialty product with fire-safety features, are two key profit drivers, which together account for more than half of segment net sales. The EP segment also produces non-tobacco papers for premium applications, such as energy storage and industrial commodity paper grades.
We conduct business in over 90 countries and operate 39 production locations worldwide, with facilities in the U.S., Canada, United Kingdom, France, Luxembourg, Belgium, Russia, Brazil, China, Italy, Germany, Malaysia, India and Poland. We also have a 50% equity interest in two joint ventures in China. The first, China Tobacco Mauduit
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Jiangmen) Paper Industry Ltd. ("CTM"), produces various cigarette papers and the second, China Tobacco Schweitzer (Yunnan) Reconstituted Tobacco Co. Ltd. ("CTS"), produces RTL.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and the notes thereto have been prepared in accordance with the instructions of Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission ("SEC") and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). However, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods.
The results of operations for the three or six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements and these notes thereto included herein should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 1, 2021.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned, majority-owned and controlled subsidiaries. The Company’s share of the net income of its 50%-owned joint ventures in China is included in the condensed consolidated statements of income as Income from equity affiliates, net of income taxes. Intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, inventory valuation, useful lives of tangible and intangible assets, fair values, sales returns and rebates, receivables valuation, pension, postretirement and other benefits, restructuring and impairment, taxes and contingencies. Furthermore, the Company considered the continuing impact from the global economic and social disruption caused by the novel coronavirus (“COVID-19”) in estimates used in the Company’s financial statements as of and for the period ended June 30, 2021. The Company determined changes to these estimates did not have a material impact on our assessment of recoverability of our assets, including Accounts receivable, net, Goodwill, Intangible assets or long-lived assets. There may also be long-term undetermined effects on some of our customers and suppliers, and as a result of these uncertainties, actual results could differ materially from these estimates and assumptions.
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The new standard simplifies income tax accounting requirements by removing certain exceptions to the general principles in Topic 740, Income Taxes. The provisions of this ASU were adopted effective January 1, 2021 and did not have a material impact on the condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans." The new standard modifies the annual disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans and requires the amendments to be applied on a retrospective basis for all
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
periods presented. The provisions of this ASU were adopted effective January 1, 2021 and the required changes, are not expected to have a material impact and will be reflected in the annual financial statements for the year ended December 31, 2021.
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The new standard provides optional expedients and exceptions for applying generally accepted accounting principles ("GAAP") to contracts, hedging relationships, and other transactions affected by reference rate reform and the anticipated discontinuance of the London Interbank Offered Rate ("LIBOR") if certain criteria are met. The amendments in this ASU are effective for all entities as of March 12, 2020, through December 31, 2022. The Company does not currently have any contracts that have been changed to a new reference rate but will continue to evaluate the applicability and impact of the guidance.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Revenue Recognition
The Company has two main sources of revenue: product sales and materials conversion. The Company recognizes product sales revenues when control of a product is transferred to the customer. For the majority of product sales, transfer of control occurs when the products are shipped from one of the Company’s manufacturing facilities to the customer. The cost of delivering finished goods to the Company’s customers is recorded as a component of Cost of products sold. Those costs include the amounts paid to a third party to deliver the finished goods. Any freight costs billed to and paid by a customer are included in net sales. The Company also provides services to customers through the conversion of customer-owned raw materials into processed finished goods. In these transactions, the Company generally recognizes revenue as processing is completed.
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, which generally occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Generally, the Company considers collectability of amounts due under a contract to be probable upon inception of a sale based on an evaluation of the credit worthiness of each customer. If collectability is not considered to be probable, the Company defers recognition of revenue on satisfied performance obligations until the uncertainty is resolved. We record estimates for bad debts based on our expectations for the collectability of amounts due from customers, considering historical collection history, expectations for future activity and other discrete events as applicable.
Variable consideration, such as discounts or price concessions, is set forth in the terms of the contract at inception and is included in the assessment of the transaction price at the outset of the arrangement. The transaction price is allocated to the individual performance obligations due under the contract based on the relative stand-alone fair value of the performance obligations identified in the contract. The Company typically uses an observable price to determine the stand-alone selling price for separate performance obligations.
The Company does not typically include extended payment terms or significant financing components in its contracts with customers. Certain product sales contracts may include cash-based incentives (volume rebates or credits), which are accounted for as variable consideration. We estimate these amounts at least quarterly based on the expected forecast quantities to be provided to customers and reduce revenues recognized accordingly. Incidental items that are immaterial in the context of the contract are recognized as expense in the period incurred. The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling expenses. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. As a practical expedient, the Company treats shipping and handling activities that occur after control of the good transfers as fulfillment activities, and therefore, does not account for shipping and handling costs as a separate performance obligation.
Following is the Company’s Net sales disaggregated by revenue source ($ in millions). Sales and usage-based taxes are excluded from Net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
AMS
|
|
EP
|
|
Total
|
|
AMS
|
|
EP
|
|
Total
|
|
Product revenues
|
$
|
246.1
|
|
|
$
|
113.1
|
|
|
$
|
359.2
|
|
|
$
|
127.1
|
|
|
$
|
109.9
|
|
|
$
|
237.0
|
|
|
Materials conversion revenues
|
3.6
|
|
|
11.7
|
|
|
15.3
|
|
|
5.0
|
|
|
10.1
|
|
|
15.1
|
|
|
Other revenues
|
2.3
|
|
|
1.0
|
|
|
3.3
|
|
|
0.7
|
|
|
1.4
|
|
|
2.1
|
|
|
Total revenues (1)
|
$
|
252.0
|
|
|
$
|
125.8
|
|
|
$
|
377.8
|
|
|
$
|
132.8
|
|
|
$
|
121.4
|
|
|
$
|
254.2
|
|
(1) Revenues include net hedging gains and losses for the three months ended June 30, 2021 and 2020.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
AMS
|
|
EP
|
|
Total
|
|
AMS
|
|
EP
|
|
Total
|
|
Product revenues
|
$
|
404.4
|
|
|
$
|
222.1
|
|
|
$
|
626.5
|
|
|
$
|
244.1
|
|
|
$
|
234.6
|
|
|
$
|
478.7
|
|
|
Materials conversion revenues
|
5.9
|
|
|
26.8
|
|
|
32.7
|
|
|
8.8
|
|
|
23.0
|
|
|
31.8
|
|
|
Other revenues
|
4.7
|
|
|
2.1
|
|
|
6.8
|
|
|
2.8
|
|
|
2.4
|
|
|
5.2
|
|
|
Total revenues (1)
|
$
|
415.0
|
|
|
$
|
251.0
|
|
|
$
|
666.0
|
|
|
$
|
255.7
|
|
|
$
|
260.0
|
|
|
$
|
515.7
|
|
(1) Revenues include net hedging gains and losses for the six months ended June 30, 2021 and 2020.
Net sales are attributed to the following geographic locations based on the location of the Company’s direct customers ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
AMS
|
|
EP
|
|
Total
|
|
AMS
|
|
EP
|
|
Total
|
|
United States
|
$
|
154.1
|
|
|
$
|
38.4
|
|
|
$
|
192.5
|
|
|
$
|
88.8
|
|
|
$
|
38.7
|
|
|
$
|
127.5
|
|
|
Europe and the former Commonwealth of Independent States
|
55.8
|
|
|
48.1
|
|
|
103.9
|
|
|
11.1
|
|
|
39.8
|
|
|
50.9
|
|
|
Asia/Pacific (including China)
|
28.5
|
|
|
23.5
|
|
|
52.0
|
|
|
25.7
|
|
|
24.0
|
|
|
49.7
|
|
|
Americas
|
9.1
|
|
|
11.1
|
|
|
20.2
|
|
|
5.3
|
|
|
11.5
|
|
|
16.8
|
|
|
Other foreign countries
|
4.5
|
|
|
4.7
|
|
|
9.2
|
|
|
1.9
|
|
|
7.4
|
|
|
9.3
|
|
|
Total revenues (1)
|
$
|
252.0
|
|
|
$
|
125.8
|
|
|
$
|
377.8
|
|
|
$
|
132.8
|
|
|
$
|
121.4
|
|
|
$
|
254.2
|
|
(1) Revenues include net hedging gains and losses for the three months ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
AMS
|
|
EP
|
|
Total
|
|
AMS
|
|
EP
|
|
Total
|
|
United States
|
$
|
259.8
|
|
|
$
|
75.8
|
|
|
$
|
335.6
|
|
|
$
|
172.1
|
|
|
$
|
82.6
|
|
|
$
|
254.7
|
|
|
Europe and the former Commonwealth of Independent States
|
73.6
|
|
|
97.5
|
|
|
171.1
|
|
|
23.7
|
|
|
83.3
|
|
|
107.0
|
|
|
Asia/Pacific (including China)
|
60.9
|
|
|
45.7
|
|
|
106.6
|
|
|
46.4
|
|
|
52.8
|
|
|
99.2
|
|
|
Americas
|
13.5
|
|
|
22.2
|
|
|
35.7
|
|
|
9.2
|
|
|
24.3
|
|
|
33.5
|
|
|
Other foreign countries
|
7.2
|
|
|
9.8
|
|
|
17.0
|
|
|
4.3
|
|
|
17.0
|
|
|
21.3
|
|
|
Total revenues (1)
|
$
|
415.0
|
|
|
$
|
251.0
|
|
|
$
|
666.0
|
|
|
$
|
255.7
|
|
|
$
|
260.0
|
|
|
$
|
515.7
|
|
(1) Revenues include net hedging gains and losses for the six months ended June 30, 2021 and 2020.
Note 3. Other Comprehensive Income (Loss)
Comprehensive income includes Net income, as well as certain items charged and credited directly to stockholders' equity, which are excluded from net income. The Company has presented Comprehensive income in the condensed consolidated statements of comprehensive income (loss). Reclassification adjustments of derivative instruments are presented in Net sales, Other (expense) income, net, or Interest expense in the condensed consolidated statements of income. See Note 11. Derivatives for additional information. Amortization of accumulated pension and other post-employment benefit ("OPEB") liabilities are included in the computation of net periodic pension and OPEB costs, which are more fully discussed in Note 13. Postretirement and Other Benefits.
Components of Accumulated other comprehensive loss, net of tax, were as follows ($ in millions):
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Accumulated pension and OPEB liability adjustments, net of income tax benefit of $11.7 million and $11.6 million at June 30, 2021 and December 31, 2020, respectively
|
$
|
(18.0)
|
|
|
$
|
(20.5)
|
|
|
Accumulated unrealized loss on derivative instruments, net of income tax benefit of $2.6 million and $2.8 million at June 30, 2021 and December 31, 2020, respectively
|
(9.5)
|
|
|
(13.1)
|
|
|
Accumulated unrealized foreign currency translation adjustments, net of income tax benefit of $6.8 million and $10.1 million at June 30, 2021 and December 31, 2020, respectively
|
(78.8)
|
|
|
(78.3)
|
|
|
Accumulated other comprehensive loss
|
$
|
(106.3)
|
|
|
$
|
(111.9)
|
|
Changes in the components of Accumulated other comprehensive income (loss) were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
Pre-tax
|
|
Tax
|
|
Net of
Tax
|
|
Pre-tax
|
|
Tax
|
|
Net of
Tax
|
|
Net gain (loss) on pension and OPEB liability adjustments
|
$
|
1.2
|
|
|
$
|
(0.4)
|
|
|
$
|
0.8
|
|
|
$
|
1.1
|
|
|
$
|
(0.3)
|
|
|
$
|
0.8
|
|
|
Unrealized (loss) gain on derivative instruments
|
(2.6)
|
|
|
1.8
|
|
|
(0.8)
|
|
|
0.2
|
|
|
(0.3)
|
|
|
(0.1)
|
|
|
Unrealized gain (loss) on foreign currency translation
|
9.3
|
|
|
0.1
|
|
|
9.4
|
|
|
(0.8)
|
|
|
1.4
|
|
|
0.6
|
|
|
Total
|
$
|
7.9
|
|
|
$
|
1.5
|
|
|
$
|
9.4
|
|
|
$
|
0.5
|
|
|
$
|
0.8
|
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
Pre-tax
|
|
Tax
|
|
Net of
Tax
|
|
Pre-tax
|
|
Tax
|
|
Net of
Tax
|
|
Unrealized gain (loss) on pension and OPEB liability adjustments
|
$
|
2.3
|
|
|
$
|
0.2
|
|
|
$
|
2.5
|
|
|
$
|
1.8
|
|
|
$
|
(0.5)
|
|
|
$
|
1.3
|
|
|
Unrealized gain (loss) on derivative instruments
|
3.8
|
|
|
(0.2)
|
|
|
3.6
|
|
|
(15.4)
|
|
|
2.6
|
|
|
(12.8)
|
|
|
Unrealized gain (loss) on foreign currency translation
|
2.8
|
|
|
(3.3)
|
|
|
(0.5)
|
|
|
(4.9)
|
|
|
2.0
|
|
|
(2.9)
|
|
|
Total
|
$
|
8.9
|
|
|
$
|
(3.3)
|
|
|
$
|
5.6
|
|
|
$
|
(18.5)
|
|
|
$
|
4.1
|
|
|
$
|
(14.4)
|
|
Note 4. Business Acquisitions
Scapa
On April 15, 2021, SWM completed its previously announced acquisition of Scapa Group plc (“Scapa”), a UK based innovation, design, and manufacturing solutions provider for healthcare and industrial markets for aggregate cash consideration of $630.6 million, net of $22.7 million of cash and cash equivalents acquired and including $568.9 million for the purchase of all Scapa ordinary shares, $75.9 million for the repayment of Scapa debt and $8.5 million for the repayment of acquisition costs incurred by Scapa. The acquisition adds to SWM’s portfolio of precision engineered performance materials, expands the Company’s innovation, design, and formulation capabilities, and brings a variety of new coating and converting technologies. Scapa, part of the AMS segment operates globally with manufacturing and sales operations in the Americas, Asia and Europe.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The purchase price was funded with borrowings under the amended Credit Agreement, as defined and discussed in Note 10. Debt.
The acquisition was accounted for as a business combination with the assets acquired and liabilities assumed measured at their fair values as of the acquisition date, primarily using Level 3 inputs.
The acquisition consideration allocation below is preliminary, pending completion of the fair value analyses of acquired assets and liabilities, include deferred taxes and the valuations of certain intangibles and personal property. The excess of the acquisition consideration over the estimated fair values of the acquired assets and assumed liabilities is assigned to goodwill. The goodwill which is assigned to the AMS reportable segment, is primarily attributable to expected revenue synergies and is not expected to be deductible for tax purposes. As additional information becomes available, we may further revise the preliminary acquisition consideration allocation during the remainder of the measurement period, which will not exceed twelve months from the closing of the acquisition. Such revisions or changes may be material.
The consideration paid for Scapa and the preliminary estimated fair values of the assets acquired, and liabilities assumed as of the April 15, 2021 acquisition date were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
Preliminary Fair Value as of April 15, 2021
|
|
Cash and cash equivalents
|
$
|
22.7
|
|
|
Accounts receivable
|
67.7
|
|
|
Inventory
|
60.9
|
|
|
Other current assets
|
9.8
|
|
|
Property, plant and equipment
|
152.1
|
|
|
Identifiable intangible assets
|
246.2
|
|
|
Other noncurrent assets
|
26.3
|
|
|
Total assets
|
$
|
585.7
|
|
|
|
|
|
Current debt
|
$
|
15.0
|
|
|
Accounts payable and other current liabilities
|
85.9
|
|
|
Deferred income tax liabilities
|
61.5
|
|
|
Other noncurrent liabilities
|
33.1
|
|
|
|
|
|
Net assets acquired
|
$
|
390.2
|
|
|
|
|
|
Goodwill
|
263.1
|
|
|
|
|
|
Total consideration
|
$
|
653.3
|
|
The fair value of receivables acquired approximates the gross contractual value. The contractual amount not expected to be collected is immaterial.
Acquired inventory was comprised of finished goods and raw materials. The fair value of finished goods was based on net realizable value adjusted for the costs of selling and a reasonable profit margin on selling effort. The fair value of raw materials was determined to approximate book value.
Property, plant and equipment is comprised of buildings and leasehold improvements, machinery and equipment, furniture and fixtures, computer equipment, and construction in progress. The preliminary estimated fair value was
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
primarily determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.
Acquired intangible assets include customer relationships, tradenames and developed technologies. Intangible assets were valued using the multi-period excess earnings and relief-from-royalty methods, both forms of the income approach which considers a forecast of future cash flows generated from the use of each asset. The following table shows the preliminary fair values assigned to identifiable intangible assets ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Weighted-Average Amortization Period (Years)
|
|
Amortizable intangible assets:
|
|
|
|
|
Customer relationships
|
$
|
201.3
|
|
|
15
|
|
Tradenames and other
|
7.7
|
|
|
10
|
|
Developed technology
|
37.2
|
|
|
7
|
|
Total amortizable intangible assets
|
$
|
246.2
|
|
|
|
The preliminary estimate of deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the preliminary fair values of the assets
acquired, liabilities assumed and the respective tax basis.
During the three and six months ended June 30, 2021 the Company recognized direct and indirect acquisition-related costs for the Scapa acquisition of $5.1 million and $8.7 million, respectively. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the condensed consolidated statements of income.
The amounts of Net sales and Income from continuing operations of Scapa included in the Company's condensed consolidated income statement from the acquisition date are as follows ($ in millions):
|
|
|
|
|
|
|
|
|
April 15, 2021 - June 30, 2021
|
|
Net sales
|
$
|
95.0
|
|
|
Net loss from continuing operations
|
$
|
(6.0)
|
|
Tekra
On March 13, 2020, the Company completed the acquisition of 100% of the equity interest in Tekra, LLC and Trient, LLC, “Tekra,” pursuant to the definitive agreement signed as of February 20, 2020. Tekra is a converter of high-performance films and substrates which enhances the Company’s films capabilities. Tekra, part of the AMS segment, operates two manufacturing facilities located in Wisconsin.
The consideration transferred to acquire Tekra was $169.3 million, net of $1.6 million cash and cash equivalents acquired, subject to working capital adjustments that were finalized in 2020. The purchase price was funded with borrowings from our Revolving Credit Facility (See Note 10. Debt).
The acquisition was accounted for as a business combination with the assets acquired and liabilities assumed measured at their fair values as of the acquisition date, primarily using Level 3 inputs.
The estimated purchase price allocation disclosed as of March 31, 2020, was revised during the second and third quarters of 2020 as new information was received and analyzed resulting in a decrease in net intangible assets of $3.4 million, and other adjustments, consisting primarily of reclassifications within working capital, leading to a net decrease in total consideration of $1.8 million.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The consideration paid for Tekra and the final fair values of the assets acquired, and liabilities assumed as of the March 13, 2020 acquisition date are as follows ($ in millions):
|
|
|
|
|
|
|
|
|
Fair Value as of March 13, 2020
|
|
Cash and cash equivalents
|
$
|
1.6
|
|
|
Accounts receivable
|
8.6
|
|
|
Inventory
|
14.2
|
|
|
Other current assets
|
0.2
|
|
|
Property, plant and equipment
|
7.3
|
|
|
Identifiable intangible assets
|
81.8
|
|
|
Other noncurrent assets
|
3.7
|
|
|
Total assets
|
$
|
117.4
|
|
|
|
|
|
Accounts payable
|
$
|
3.0
|
|
|
Other current liabilities
|
2.0
|
|
|
Other noncurrent liabilities
|
2.7
|
|
|
|
|
|
Net assets acquired
|
$
|
109.7
|
|
|
|
|
|
Goodwill
|
61.2
|
|
|
|
|
|
Total consideration
|
$
|
170.9
|
|
The fair value of receivables acquired approximates the gross contractual value. The contractual amount not expected to be collected is immaterial.
Acquired inventory was comprised of finished goods and raw materials. The fair value of finished goods was based on net realizable value adjusted for the costs of selling and a reasonable profit margin on selling effort. The fair value of raw materials was determined to approximate book value.
Acquired intangible assets include customer relationships, tradenames and unpatented developed technologies. Intangible assets were valued using the multi-period excess earnings and relief-from-royalty methods, both forms of the income approach which considers a forecast of future cash flows generated from the use of each asset. The following table shows the final fair values assigned to identifiable intangible assets ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of March 13, 2020
|
|
Weighted-Average Amortization Period (Years)
|
|
Amortizable intangible assets:
|
|
|
|
|
Customer relationships
|
$
|
63.0
|
|
|
15
|
|
Tradenames and other
|
10.8
|
|
|
15
|
|
Developed technology
|
8.0
|
|
|
10
|
|
Total amortizable intangible assets
|
$
|
81.8
|
|
|
|
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the three and six months ended June 30, 2020, the Company recognized $1.1 million in direct and indirect acquisition-related costs for the Tekra acquisition. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the condensed consolidated statements of income.
The amounts of Net sales and Net income of Tekra included in the Company's condensed consolidated income statement from the acquisition date are as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
March 13, 2020 - June 30, 2020
|
|
Net sales
|
$
|
25.0
|
|
$
|
30.5
|
|
|
Net income from continuing operations
|
$
|
(0.7)
|
|
$
|
(0.3)
|
|
Pro Forma Financial Information
The supplemental pro forma financial information presents the combined results of operations for the periods presented, as if the Scapa acquisition had occurred on January 1, 2020 and the Tekra acquisition had occurred on January 1, 2019 and therefore both included in the pro forma results for periods presented. The supplemental pro forma financial information includes the following adjustments related to the Scapa acquisition: amortization of intangible assets and fair value adjustments to inventory, interest expense for the additional indebtedness incurred to complete the acquisition, transaction and severance costs, and applicable tax adjustments based on statutory rates in the jurisdictions where the adjustments occurred. The supplemental pro forma financial information does not include Tekra net income for the period from January 1-March 13, 2020 as preparation of this information was deemed impractical due to changes in the ownership structure of the acquired entities prior to the acquisition. For the three and six months ended June 30, 2021, pro forma net income increased by $14.6 million and $10.1 million, respectively. For the three and six months ended June 30, 2020 pro forma net income decreased by $7.8 million and $27.0 million, respectively.
The supplemental pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the Scapa and Tekra acquisitions occurred as of January 1, 2020 and January 1, 2019, respectively, nor is it necessarily indicative of the of the future results of the combined company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
$
|
387.2
|
|
|
$
|
319.1
|
|
|
Net income from continuing operations
|
$
|
3.6
|
|
|
$
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net sales
|
$
|
797.0
|
|
|
$
|
728.5
|
|
|
Net income (loss) from continuing operations(1)
|
$
|
35.5
|
|
|
$
|
(43.0)
|
|
(1) Supplemental pro forma financial information includes the impact of restructuring and the impairment of goodwill and intangible assets totaling $67.5 million on Scapa net income for the six months ended June 30, 2020.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Net Income Per Share
The Company uses the two-class method to calculate earnings per share. The Company has granted restricted stock that contains non-forfeitable rights to dividends on unvested shares. Since these unvested shares are considered participating securities under the two-class method, the Company allocates earnings per share to common stock and participating securities according to dividends declared and participation rights in undistributed earnings.
Diluted net income per common share is computed based on Net income divided by the weighted average number of common and potential common shares outstanding. Potential common shares during the respective periods are those related to dilutive stock-based compensation, including long-term stock-based incentive compensation and directors’ accumulated deferred stock compensation, which may be received by the directors in the form of stock or cash. A reconciliation of the average number of common and potential common shares outstanding used in the calculations of basic and diluted net income per share follows ($ in millions, shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
2021
|
|
June 30,
2020
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Numerator (basic and diluted):
|
|
|
|
|
|
|
|
|
Net income
|
$
|
1.8
|
|
|
$
|
21.5
|
|
|
$
|
23.4
|
|
|
$
|
44.0
|
|
|
Less: Dividends paid to participating securities
|
(0.2)
|
|
|
(0.2)
|
|
|
(0.3)
|
|
|
(0.4)
|
|
|
Less: Undistributed earnings available to participating securities
|
0.1
|
|
|
(0.1)
|
|
|
—
|
|
|
(0.2)
|
|
|
Undistributed and distributed earnings available to common stockholders
|
$
|
1.7
|
|
|
$
|
21.2
|
|
|
$
|
23.1
|
|
|
$
|
43.4
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding
|
31,045.1
|
|
|
30,792.6
|
|
|
31,009.9
|
|
|
30,752.5
|
|
|
Effect of dilutive stock-based compensation
|
357.3
|
|
|
214.1
|
|
|
361.8
|
|
|
205.9
|
|
|
Average number of common and potential common shares outstanding
|
31,402.4
|
|
|
31,006.7
|
|
|
31,371.7
|
|
|
30,958.4
|
|
Note 6. Inventories
Inventories are valued at the lower of cost (using the First-In, First-Out and weighted average methods) or net realizable value. The Company's costs included in inventory primarily include resins, pulp, chemicals, direct labor, utilities, maintenance, depreciation, finishing supplies and an allocation of certain overhead costs. Machine start-up costs or abnormal machine shutdowns are expensed in the period incurred and are not reflected in inventory. The Company reviews inventories at least quarterly to determine the necessity of write-offs for excess, obsolete or unsalable inventory. The Company estimates write-offs for inventory obsolescence and shrinkage. These reviews require the Company to assess customer and market demand. The following schedule details inventories by major class ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Raw materials
|
$
|
106.5
|
|
|
$
|
65.3
|
|
|
Work in process
|
38.5
|
|
|
23.2
|
|
|
Finished goods
|
93.6
|
|
|
83.5
|
|
|
Supplies and other
|
8.4
|
|
|
7.7
|
|
|
Total
|
$
|
247.0
|
|
|
$
|
179.7
|
|
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Goodwill
The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2021 were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMS
|
|
EP
|
|
Total
|
|
Goodwill as of December 31, 2020
|
$
|
398.4
|
|
|
$
|
5.3
|
|
|
$
|
403.7
|
|
|
Goodwill acquired during the period
|
263.1
|
|
|
—
|
|
|
263.1
|
|
|
Foreign currency translation adjustments
|
0.1
|
|
|
(0.2)
|
|
|
(0.1)
|
|
|
Goodwill as of June 30, 2021
|
$
|
661.6
|
|
|
$
|
5.1
|
|
|
$
|
666.7
|
|
Note 8. Intangible Assets
The gross carrying amount and accumulated amortization for intangible assets which are in our AMS segment consisted of the following ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Accumulated Impairments
|
|
Accumulated Foreign Exchange
|
|
Net
Carrying
Amount
|
|
Amortized Intangible Assets
|
|
Customer relationships
|
$
|
540.9
|
|
|
$
|
102.6
|
|
|
$
|
—
|
|
|
$
|
(1.9)
|
|
|
$
|
440.2
|
|
|
Developed technology
|
79.4
|
|
|
16.8
|
|
|
—
|
|
|
0.1
|
|
|
62.5
|
|
|
Trade names
|
40.4
|
|
|
2.0
|
|
|
20.7
|
|
|
0.3
|
|
|
17.4
|
|
|
Non-compete agreements
|
2.9
|
|
|
2.4
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
Patents
|
1.5
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
665.1
|
|
|
$
|
124.4
|
|
|
$
|
20.7
|
|
|
$
|
(1.5)
|
|
|
$
|
521.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized Intangible Assets
|
|
Trade names
|
$
|
20.0
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
(0.3)
|
|
|
$
|
20.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Accumulated Impairments
|
|
Accumulated Foreign Exchange
|
|
Net
Carrying
Amount
|
|
Amortized Intangible Assets
|
|
Customer relationships
|
$
|
339.8
|
|
|
$
|
88.5
|
|
|
$
|
—
|
|
|
$
|
(2.9)
|
|
|
$
|
254.2
|
|
|
Developed technology
|
42.1
|
|
|
14.1
|
|
|
—
|
|
|
(0.2)
|
|
|
28.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
32.7
|
|
|
1.4
|
|
|
20.7
|
|
|
0.3
|
|
|
10.3
|
|
|
Non-compete agreements
|
2.9
|
|
|
2.4
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
Patents
|
1.5
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
419.0
|
|
|
$
|
106.9
|
|
|
$
|
20.7
|
|
|
$
|
(2.8)
|
|
|
$
|
294.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized Intangible Assets
|
|
Trade names
|
$
|
20.0
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
(0.6)
|
|
|
$
|
20.5
|
|
Amortization expense of intangible assets was $10.7 million and $6.4 million for the three months ended June 30, 2021 and 2020, respectively, and $17.2 million and $11.3 million for the six months ended June 30, 2021 and 2020, respectively. Finite-lived intangibles in the AMS segment are expensed using the straight-line amortization method. The estimated average aggregate amortization expense is $44.9 million in each of the next five years.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Restructuring and Impairment Activities
The Company incurred restructuring and impairment expense of $2.3 million and $1.1 million in the three months ended June 30, 2021 and 2020, respectively, and $4.0 million and $1.2 million in the six months ended June 30, 2021 and 2020, respectively, in the EP segment.
During the third quarter of 2020, we announced plans to shut down the Spotswood, New Jersey facility and shift the production of paper made there to other SWM facilities. This decision was part of our ongoing manufacturing optimization efforts and involved the co-development of a new paper production technology with one of the Company’s key customers. Production of paper at this facility ceased as of December 31, 2020.
As a result of this decision, $1.0 million of restructuring and impairment expense was recognized in the three months ended June 30, 2021 related to the costs associated with closing this facility, maintaining the property and preparing it for sale.
In addition to restructuring costs relating to the Spotswood facility, the EP segment recognized $1.3 million and $1.1 million for the three months ended June 30, 2021 and 2020, respectively, related to severance accruals for employees at other manufacturing facilities. These restructuring charges relate to ongoing cost optimization initiatives to remain competitive within the EP segment. The cost optimization initiative project started in 2019 and is expected to be completed in 2022. The EP segment has recognized $8.5 million of restructuring charges cumulatively through June 30, 2021 related to this project.
The Company expects to record additional restructuring related costs in the EP segment during 2021 of approximately $1.0 million relating to the shutdown of the Spotswood, New Jersey facility, primarily associated with closing the facility and maintaining the property until it is sold. The Company does not expect to incur significant restructuring expenses related to the cost optimization initiatives in the EP segment during the remainder of 2021.
In the AMS segment, there were $0 million and $0.5 million of restructuring and impairment expenses for the three months ended June 30, 2021 and 2020, respectively and $0 million and $0.5 million in the six months ended June 30, 2021 and 2020, respectively.
The following table summarizes total restructuring and related charges for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Restructuring and impairment expense:
|
|
|
|
|
|
|
|
|
Severance
|
$
|
1.3
|
|
|
$
|
1.6
|
|
|
$
|
1.6
|
|
|
$
|
1.7
|
|
|
Other
|
1.0
|
|
|
—
|
|
|
2.4
|
|
|
—
|
|
|
Total restructuring and impairment expense
|
$
|
2.3
|
|
|
$
|
1.6
|
|
|
$
|
4.0
|
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes changes in restructuring liabilities during the periods ended June 30, 2021 and 2020. ($ in millions):
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Balance at beginning of year
|
|
$
|
7.4
|
|
|
$
|
0.5
|
|
|
Accruals for announced programs
|
|
1.5
|
|
|
1.7
|
|
|
Cash payments
|
|
(3.7)
|
|
|
(0.8)
|
|
|
Foreign exchange impact
|
|
(0.1)
|
|
|
—
|
|
|
Balance at end of period
|
|
$
|
5.1
|
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liabilities were classified within Accrued expenses and other current liabilities in each of the condensed consolidated balance sheets.
Note 10. Debt
The components of total debt are summarized in the following table ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Revolving credit facility - U.S. dollar borrowings
|
$
|
388.0
|
|
|
$
|
50.0
|
|
|
|
|
|
|
|
Term loan A facility
|
194.5
|
|
|
195.5
|
|
|
|
|
|
|
|
Term loan B facility
|
350.0
|
|
|
—
|
|
|
6.875% senior unsecured notes due October 1, 2026, net of discount of $5.6 million and $6.1 million at June 30, 2021 and December 31, 2020, respectively
|
344.4
|
|
|
343.9
|
|
|
French employee profit sharing
|
3.9
|
|
|
5.0
|
|
|
Finance lease obligations
|
18.0
|
|
|
3.5
|
|
|
|
|
|
|
|
Debt issuance costs and discounts
|
(17.9)
|
|
|
(4.6)
|
|
|
Total debt
|
1,280.9
|
|
|
593.3
|
|
|
Less: Current debt
|
(18.3)
|
|
|
(2.8)
|
|
|
Long-term debt
|
$
|
1,262.6
|
|
|
$
|
590.5
|
|
Credit Facility
On September 25, 2018, the Company entered into a $700.0 million credit agreement (the “Credit Agreement”), which replaced the Company’s previous senior secured credit facilities and provides for a five year $500.0 million revolving line of credit (the “Revolving Credit Facility”) and a seven year $200.0 million bank term loan facility (the “Term Loan A Facility”). Subject to certain conditions, including the absence of a default or event of default under the Credit Agreement, the Company may request incremental loans to be extended under the Revolving Credit Facility or as additional Term Loan Facilities so long as the Company is in pro forma compliance with the financial covenants set forth in the Credit Agreement and the aggregate of such increases does not exceed $400.0 million.
On February 10, 2021 we amended our Credit Agreement to, among other things, add a new seven year $350 million Term Loan B Facility (the “Term Loan B Facility”) and to decrease the incremental loans that may be extended at the Company’s request to $250.00 million. The balance under the Term Loan B Facility was $350 million as of June 30, 2021.
Borrowings under the Revolving Credit Facility currently bear interest, at the Company’s option, at either (i) 2.25% in excess of LIBOR or (ii) 1.25% in excess of an alternative base rate. Borrowings under the Term Loan A Facility currently bear interest, at the Company’s option, at either (i) 2.50% in excess of LIBOR or (ii) 1.50% in excess of an
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
alternative base rate. The Term Loan amortizes at the rate of 1.0% per year and will mature on September 25, 2025. Any borrowings under the Term Loan B Facility will bear interest, at the Company's option, at either (i) 3.75% in excess of a reserve adjusted LIBOR rate (subject to a minimum floor of 0.75%) or (ii) 2.75% in excess of an alternative base rate.
Under the terms of the amended Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants, including maintaining a net debt to EBITDA ratio, as defined in the amended Credit Agreement, calculated on a trailing four fiscal quarter basis, not greater than 5.50x and an interest coverage ratio, also as defined in the amended Credit Agreement, of not less than 3.00x. The net debt to EBITDA ratio will decrease over the course of 24 months, returning to 4.50x effective as of June 30, 2023. In addition, borrowings and loans made under the amended Credit Agreement are secured by substantially all of the Company’s and the guarantors’ personal property, excluding certain customary items of collateral, and will be guaranteed by the Company’s existing and future wholly-owned direct material domestic subsidiaries and by SWM Luxembourg.
The Company was in compliance with all of its covenants under the Credit Agreement at June 30, 2021.
Indenture for 6.875% Senior Unsecured Notes Due 2026
On September 25, 2018, the Company closed a private offering of $350.0 million of 6.875% senior unsecured notes due 2026 (the “Notes”). The Notes were sold in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended, pursuant to a purchase agreement between the Company, certain subsidiaries of the Company and J.P. Morgan Securities LLC, as representative of the initial purchasers. The Notes are guaranteed on a senior unsecured basis by each of the Company’s existing and future wholly-owned subsidiaries that is a borrower under or that guarantees obligations under the Credit Agreement or that guarantees certain other indebtedness, subject to certain exceptions.
The Notes were issued pursuant to an Indenture, dated as of September 25, 2018 (the “Indenture”), by and among the Company, the guarantors listed therein and Wilmington Trust, National Association, as trustee. The Indenture provides that interest on the Notes will accrue from September 25, 2018 and is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2019, and the Notes mature on October 1, 2026.
The Company may redeem some or all of the Notes at any time on or after October 1, 2021, at the redemption prices set forth in the Indenture, together with accrued and unpaid interest, if any, to, but excluding, the redemption date. Prior to October 1, 2021, the Company may redeem some or all of the Notes at a price equal to 100% of the principal amount thereof, plus a “make-whole” premium as set forth in the Indenture. The Company may redeem up to 35% of the original aggregate principal amount of the Notes on or prior to October 1, 2021 with the proceeds of certain equity offerings at a redemption price equal to 106.875% of the principal amount of the Notes. If the Company sells certain assets or consummates certain change of control transactions, the Company will be required to make an offer to repurchase the Notes, subject to certain conditions.
The Indenture contains certain covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to incur additional indebtedness, make certain dividends, repurchase Company stock or make other distributions, make certain investments, create liens, transfer or sell assets, merge or consolidate and enter into transactions with the Company’s affiliates. Such covenants are subject to a number of exceptions and qualifications set forth in the Indenture. The Indenture also contains certain customary events of default, including failure to make payments in respect of the principal amount of the Notes, failure to make payments of interest on the Notes when due and payable, failure to comply with certain covenants and agreements and certain events of bankruptcy or insolvency. The Company was in compliance with all of its covenants under the Indenture at June 30, 2021.
As of June 30, 2021, the average interest rate was 2.46% on outstanding Revolving Credit Facility borrowings, 2.63% on outstanding Term Loan A Facility borrowings, and 4.50% on outstanding Term Loan B Facility borrowings. The effective rate on the 6.875% senior unsecured notes due 2026 was 7.248%. The weighted average effective interest rate on the Company's debt facilities, including the impact of interest rate hedges, was approximately 4.11% and 3.92% for the six months ended June 30, 2021 and 2020, respectively.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of June 30, 2021, and December 31, 2020, the Company's total deferred debt issuance costs and discounts, net of accumulated amortization, were $17.9 million and $4.6 million, respectively. Amortization expense of $1.6 million and $0.6 million was recorded during the six months ended June 30, 2021 and 2020, respectively, and has been included as a component of Interest expense in the accompanying condensed consolidated statements of income.
Principal Repayments
Following are the expected maturities for the Company's debt obligations as of June 30, 2021 ($ in millions):
|
|
|
|
|
|
|
|
2021
|
$
|
17.7
|
|
|
2022
|
5.8
|
|
|
2023
|
393.6
|
|
|
2024
|
4.6
|
|
|
2025
|
190.7
|
|
|
Thereafter
|
686.4
|
|
|
Total
|
$
|
1,298.8
|
|
Fair Value of Debt
At June 30, 2021 and December 31, 2020, the fair market value of the Company's 6.875% senior unsecured notes was $370.6 million and $371.0 million, respectively. The fair market value for the senior unsecured notes was determined using quoted market prices, which are directly observable Level 1 inputs. The fair market value of all other debt as of June 30, 2021 and December 31, 2020 approximated the respective carrying amounts as the interest rates are variable and based on current market indices.
Debt Issuance Costs
In conjunction with amendment to our Credit Agreement on February 10, 2021, the Company capitalized approximately $14.5 million of debt issuance costs during six months ended June 30, 2021 which will be amortized over the term of the various facilities under the amended Credit Agreement.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. Derivatives
In the normal course of business, the Company is exposed to foreign currency exchange rate risk and interest rate risk on its variable-rate debt. To manage these risks, the Company utilizes a variety of practices including, where considered appropriate, derivative instruments. The Company has no derivative instruments for trading or speculative purposes or derivatives with credit risk-related contingent features. All derivative instruments used by the Company are either exchange traded or are entered into with major financial institutions in order to reduce credit risk and risk of nonperformance by third parties. The fair values of the Company’s derivative instruments are determined using observable inputs and are considered Level 2 assets or liabilities.
The Company utilizes currency forward, swap and, to a lesser extent, option contracts to selectively hedge its exposure to foreign currency risk when it is practical and economical to do so. The use of these contracts minimizes transactional exposure to exchange rate changes. We designate certain of our foreign currency hedges as cash flow hedges. Changes in the fair value of cash flow hedges are reported as a component of Accumulated other comprehensive loss and reclassified into earnings when the forecasted transaction affects earnings. For foreign exchange contracts not designated as cash flow hedges, changes in the contracts’ fair values are recorded to net income each period.
The Company selectively hedges its exposure to interest rate increases on variable-rate, long-term debt when it is practical and economical to do so. Changes in the fair value of interest rate contracts considered cash flow hedges are reported as a component of Accumulated other comprehensive loss and reclassified into earnings when the forecasted transaction affects earnings.
The Company also uses cross currency swap contracts to selectively hedge its exposure to foreign currency related changes in our net investments in certain foreign operations. We designate these cross currency swap contracts as net investment hedges. Changes in the fair value of these hedges are deferred within the foreign currency translation component of Accumulated other comprehensive income and reclassified into earnings when the foreign investment is sold or substantially liquidated.
On June 30, 2021 the Company entered into pay-fixed, receive-variable interest rate swaps with a maturity date of December 31, 2027. The instruments hedge a portion of the Company’s debt facility through the Credit Agreement. Under the terms of the interest rate swaps, SWM will pay a fixed amount of interest each period in an amount equal to 0.974% and 1.4135% on notional amounts of $260 million and $140 million, respectively, and receive interest payments monthly in an amount equal to the One-Month USD-LIBOR rate on the notional amount. The notional amount will reduce throughout the term of the swap as follows:
•June 30, 2021 - December 31, 2021 $400 million notional
•December 31, 2021 - December 31, 2024 $350 million notional
•December 31, 2024 - December 31, 2025 $300 million notional
•December 31, 2025 - December 31,2026 $200 million notional
•December 31, 2026 - December 31, 2027 $190 million notional
On September 11, 2019, the Company entered into a pay-fixed, receive-variable interest rate swap with a maturity date of January 31, 2027. The instrument is a hedge on a portion of the Company’s debt facility through the Credit Agreement. Under the terms of the interest rate swap, SWM will pay a fixed amount of interest each period in an amount equal to 1.724% on a notional amount of $185 million and receive interest payments monthly in an amount equal to the One-Month USD-LIBOR rate on the notional amount. The notional amount will reduce throughout the term of the swap as follows:
•September 13, 2019 - December 31, 2020 $185 million notional
•December 31, 2020 - December 31, 2021 $150 million notional
•December 31, 2021 - January 31, 2027 $100 million notional
The terms of the interest rate swaps mirror the terms of the underlying debt, including timing of the payments and interest rates.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On October 24, 2018, the Company entered into a cross-currency swap with a major financial institution designated as a hedge of a portion of the Company's net investment in certain Euro-denominated subsidiaries. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $75 million swapped to €65.4 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of 6.875% per annum and pay to our swap counterparty Euro interest at a fixed rate of 3.6725% per annum. The cross-currency swap will mature on October 1, 2021.
On January 29, 2019, the Company entered into a cross-currency swap with a major financial institution designated as a hedge of a portion of the Company's net investment in certain Euro-denominated subsidiaries. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $75 million swapped to €66.0 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of 6.875% per annum and pay to our swap counterparty Euro interest at a fixed rate of 4.0525% per annum. The cross-currency swap will mature on October 1, 2021.
On September 11, 2019, the Company entered into a new pay-EUR, receive-USD cross-currency swap arrangement with a major financial institution having a maturity date of April 1, 2023. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $100 million swapped to €90.9 million at maturity. Under the terms of the new cross-currency swap, SWM will pay a fixed amount of Euro-denominated interest at a rate of 5.638% semiannually and receive USD denominated payments at a rate of 6.875% semiannually on the notional amount of the swap.
The following table presents the fair value of asset and liability derivatives and the respective condensed consolidated balance sheet locations at June 30, 2021 ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Accounts receivable, net
|
|
$
|
1.3
|
|
|
Accrued expenses and other current liabilities
|
|
$
|
5.8
|
|
|
Foreign exchange contracts
|
Other assets
|
|
—
|
|
|
Other liabilities
|
|
8.2
|
|
|
Interest rate contracts
|
Accounts receivable, net
|
|
0.2
|
|
|
Other liabilities
|
|
5.8
|
|
|
Total derivatives designated as hedges
|
|
|
1.5
|
|
|
|
|
19.8
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Accounts receivable, net
|
|
—
|
|
|
Accrued expenses and other current liabilities
|
|
0.2
|
|
|
Total derivatives not designated as hedges
|
|
|
—
|
|
|
|
|
0.2
|
|
|
Total derivatives
|
|
|
$
|
1.5
|
|
|
|
|
$
|
20.0
|
|
The following table presents the fair value of asset and liability derivatives and the respective condensed consolidated balance sheet locations at December 31, 2020 ($ in millions):
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Balance Sheet
Location
|
|
Fair
Value
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Accounts receivable, net
|
|
$
|
0.9
|
|
|
Accrued expenses
|
|
$
|
11.0
|
|
|
Foreign exchange contracts
|
Other assets
|
|
—
|
|
|
Other liabilities
|
|
12.3
|
|
|
Interest rate contracts
|
Accounts receivable, net
|
|
0.3
|
|
|
Accrued expenses
|
|
—
|
|
|
Interest rate contracts
|
Other assets
|
|
—
|
|
|
Other liabilities
|
|
7.8
|
|
|
Total derivatives designated as hedges
|
|
|
$
|
1.2
|
|
|
|
|
$
|
31.1
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Accounts receivable, net
|
|
—
|
|
|
Accounts payable
|
|
—
|
|
|
Total derivatives not designated as hedges
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
Total derivatives
|
|
|
$
|
1.2
|
|
|
|
|
$
|
31.1
|
|
The following table provides the gross effect that derivative instruments designated in hedging relationships had on Accumulated other comprehensive loss and results of operations ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated in Hedging Relationships
|
|
Unrealized (Loss) Gain Recognized in AOCI on Derivatives, Net of Tax
|
|
Location of (Loss) Gain Reclassified
from AOCI
|
|
(Loss) Gain Reclassified
from AOCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Derivatives designated as cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
0.7
|
|
|
$
|
(0.8)
|
|
|
$
|
0.1
|
|
|
$
|
(5.8)
|
|
|
Net sales
|
|
$
|
(0.4)
|
|
|
$
|
(1.0)
|
|
|
$
|
(1.0)
|
|
|
$
|
(1.6)
|
|
|
Foreign exchange contracts
|
|
(1.0)
|
|
|
0.9
|
|
|
(0.1)
|
|
|
1.4
|
|
|
Other income (expense), net
|
|
(1.2)
|
|
|
0.4
|
|
|
(0.6)
|
|
|
1.0
|
|
|
Interest rate contracts
|
|
(2.1)
|
|
|
(0.8)
|
|
|
2.0
|
|
|
(9.0)
|
|
|
Interest expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Derivatives designated as net investment hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
(1.8)
|
|
|
(5.4)
|
|
|
5.2
|
|
|
6.6
|
|
|
Other income (expense), net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
(4.2)
|
|
|
$
|
(6.1)
|
|
|
$
|
7.2
|
|
|
$
|
(6.8)
|
|
|
|
|
$
|
(1.6)
|
|
|
$
|
(0.6)
|
|
|
$
|
(1.6)
|
|
|
$
|
(0.6)
|
|
The Company's designated derivative instruments are highly effective. As such, related to the hedge ineffectiveness or amounts excluded from hedge effectiveness testing, there were no gains or losses recognized immediately in income for the three and six months ended June 30, 2021 or 2020, other than those related to the cross-currency swap, noted below.
The Company’s cross currency swaps were designated with terms based on the spot rate of the EUR. Future changes in the components related to the spot change on the notional will be recorded in OCI and remain there until the hedged subsidiaries are substantially liquidated. All coupon payments are recorded in earnings and the initial
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
value of excluded components currently recorded in Accumulated other comprehensive loss as an unrealized translation adjustment are amortized to interest expense over the remaining term of the swap. For the three months ended June 30, 2021 and 2020, respectively, $1.0 million and $2.0 million was recognized in income as derivative amounts excluded from effectiveness testing as Interest expense. For the six months ended June 30, 2021 and 2020, respectively, $2.1 million and $3.5 million was recognized in income as derivative amounts excluded from effectiveness testing as Interest expense.
The following table provides the effect that derivative instruments not designated as cash flow hedging instruments had on net income ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Cash Flow Hedging Instruments
|
|
Location of Gain Recognized in Income
|
|
Amount of Gain (loss) Recognized in Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Foreign exchange contracts
|
|
Other income (loss), net
|
|
$
|
6.3
|
|
|
$
|
0.3
|
|
|
$
|
(0.3)
|
|
|
$
|
0.5
|
|
12. Commitments and Contingencies
Litigation
Brazil
Imposto sobre Circulação de Mercadorias e Serviços ("ICMS"), a form of value-added tax in Brazil, was assessed to SWM-B in December of 2000. SWM-B received two assessments from the tax authorities of the State of Rio de Janeiro (the "State") for unpaid ICMS taxes on certain raw materials from January 1995 through October 1998 and from November 1998 through November 2000 (collectively, the "Raw Materials Assessments"). The Raw Materials Assessments concerned the accrual and use by SWM-B of ICMS tax credits generated from the production and sale of certain non-tobacco related grades of paper sold domestically. SWM-B contested the Raw Materials Assessments based on Article 150, VI of the Brazilian Federal Constitution of 1988, which grants immunity from ICMS taxes to papers intended for printing books, newspapers and periodicals, on the ground that tax immunity extends to the raw material inputs used to produce such papers. In 2015, the first chamber of the Federal Supreme Court decided the first Raw Materials Assessment in favor of SWM-B. Different chambers of the Federal Supreme Court decided one Raw Materials Assessment in favor of SWM-B and the other against SWM-B. SWM-B recorded a liability of $8.6 million in Other Liabilities to satisfy the adverse judgment in the second quarter of 2019 and continued to pursue appeals. On April 9, 2021, SWM-B resolved the remaining Raw Materials Assessment by paying $2.6 million under a tax amnesty program. All litigation is now concluded and this matter is fully resolved. As the result of the favorable settlement, we recognized a total benefit of $6.1 million in the first quarter of 2021, of which $4.5 million was in Interest expense and $1.6 million was in Other expense, net.
SWM-B received assessments from the tax authorities of the State for unpaid ICMS and Fundo Estadual de Combate à Pobreza ("FECP," a value-added tax similar to ICMS) taxes on interstate purchases of electricity. The State issued four sets of assessments against SWM-B, one for May 2006 - November 2007, a second for January 2008 - December 2010, a third for September 2011 - September 2013, which was replaced by a smaller assessment for January - June 2013, and a fourth for July 2013 - December 2017 (collectively the "Electricity Assessments"). SWM-B challenged all Electricity Assessments in administrative proceedings before the State tax council (in the first-level court Junta de Revisão Fiscal and the appellate court Conselho de Contribuintes) based on Resolution 1.610/89, which defers these taxes on electricity purchased by an "electricity-intensive consumer." In 2014, a majority of the Conselho de Contribuintes sitting en banc ruled against SWM-B in each of the first and second Electricity Assessments ($3.7 million and $7.2 million, respectively, based on the foreign currency exchange rate at June 30, 2021), and SWM-B is now pursuing challenges to these assessments in the State judicial system where SWM-B obtained preliminary injunctions against enforcement of both assessments. In March 2020, the first-level judicial court ruled in favor of SWM-B in the second Electricity Assessment, a decision that is now on appeal. The
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
third Electricity Assessment was dismissed on technical grounds by the Conselho de Contribuintes in 2018 after the State admitted the tax did not apply as it had asserted. Instead, in August 2018, the State filed a revised third Electricity Assessment in the amount of $0.6 million for ICMS on electricity purchased during part of 2013, and a fourth Electricity Assessment in the amount of $8.0 million pertaining to ICMS and FECP on electricity purchased from July 2013 to December 2017. SWM-B filed challenges to these 2018 assessments in the first-level administrative court on the same grounds as the older cases. The Junta de Revisão Fiscal rejected SWM-B’s challenge to the revised third Electricity Assessment, but the Conselho de Contribuintes agreed with SWM-B that the 2013 claim was time-barred. Both the Junta de Revisão Fiscal and the Conselho de Contribuintes ruled against SWM-B in the fourth Electricity Assessment. Both 2019 decisions from the Conselho de Contribuintes are being appealed to the full bench of the Conselho de Contribuintes. The State issued a new regulation effective January 1, 2018 that only specific industries are “electricity-intensive consumers,” a list that excludes paper manufacturers. SWM-B contends this regulation shows that paper manufacturers were electricity-intensive consumers eligible to defer ICMS before 2018.
SWM-B cannot determine the outcome of the Electricity Assessments matters; as such, no loss has been accrued in our condensed consolidated financial statements.
Germany
In January 2015, the Company initiated patent infringement proceedings in Germany against Glatz under multiple LIP-related patents. In December 2017, the Dusseldorf Appeal Court affirmed the German District Court judgment on infringement of EP1482815 against Glatz. The Company filed an action against Glatz in the German District Court to set the amount of damages for the infringement and Glatz has filed a counterclaim. Glatz has filed an action in the German Patent Court to invalidate the German part of EP1482815. The German Patent Court held that some of the patent claims at issue were invalid and also that another claim at issue was valid. The Company has appealed the portion of the decision with respect to the claims held to be invalid. The hearing on this invalidity appeal has been scheduled for September 2021. The cost, timing and outcome of intellectual property litigation can be unpredictable and thus no assurances can be given as to the outcome or impact on us of such litigation.
Environmental Matters
The Company's operations are subject to various nations' federal, state and local laws, regulations and ordinances relating to environmental matters. The nature of the Company's operations exposes it to the risk of claims with respect to various environmental matters, and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims. While the Company has incurred in the past several years, and will continue to incur, capital and operating expenditures in order to comply with environmental laws and regulations, it believes that its future cost of compliance with environmental laws, regulations and ordinances, and its exposure to liability for environmental claims and its obligation to participate in the remediation and monitoring of certain hazardous waste disposal sites, will not have a material effect on its financial condition or results of operations. However, future events, such as changes in existing laws and regulations, or unknown contamination or costs of remediation of sites owned, operated or used for waste disposal by the Company (including contamination caused by prior owners and operators of such sites or other waste generators) may give rise to additional costs which could have a material effect on its financial condition or results of operations.
General Matters
In the ordinary course of conducting business activities, the Company and its subsidiaries become involved in certain other judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include insured and uninsured regulatory, employment, intellectual property, general and commercial liability, environmental and other matters. At this time, the Company does not expect any of these proceedings to have a material effect on its reputation, business, financial condition, results of operations or cash flows. However, the Company can give no assurance that the results of any such proceedings will not materially affect its reputation, business, financial condition, results of operations or cash flows.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 13. Postretirement and Other Benefits
The Company sponsors pension benefits in the United States, France, United Kingdom, Italy, and Canada and OPEB benefits related to postretirement healthcare and life insurance in the United States and Canada. The Company’s Canadian and Italian pension benefits and U.S. and Canadian OPEB liability are not material and therefore are not included in the following disclosures.
Pension and OPEB Benefits
The components of net pension benefit costs for U.S., French and UK employees during the three or six months ended June 30, 2021 and 2020 were as follows ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
U.S. Pension Benefits
|
|
French Pension Benefits
|
|
UK Pension Benefits
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Interest cost
|
0.7
|
|
|
1.0
|
|
|
0.1
|
|
|
0.1
|
|
|
0.8
|
|
|
—
|
|
|
|
|
|
|
Expected return on plan assets
|
(1.0)
|
|
|
(1.3)
|
|
|
—
|
|
|
—
|
|
|
(0.9)
|
|
|
—
|
|
|
|
|
|
|
Amortizations and other
|
0.9
|
|
|
0.8
|
|
|
0.2
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
0.6
|
|
|
$
|
0.5
|
|
|
$
|
0.7
|
|
|
$
|
0.5
|
|
|
$
|
(0.1)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
U.S. Pension Benefits
|
|
French Pension Benefits
|
|
UK Pension Benefits
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Interest cost
|
1.4
|
|
|
1.9
|
|
|
0.1
|
|
|
0.1
|
|
|
0.8
|
|
|
—
|
|
|
|
|
|
|
Expected return on plan assets
|
(2.0)
|
|
|
(2.5)
|
|
|
—
|
|
|
—
|
|
|
(0.9)
|
|
|
—
|
|
|
|
|
|
|
Amortizations and other
|
1.8
|
|
|
1.6
|
|
|
0.5
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Net periodic benefit cost
|
$
|
1.2
|
|
|
$
|
1.0
|
|
|
$
|
1.3
|
|
|
$
|
1.1
|
|
|
$
|
(0.1)
|
|
|
$
|
—
|
|
|
|
|
|
The components of net periodic benefit cost other than the service cost component are included in Other (expense) income, net in the condensed consolidated statements of income. During the fiscal year ending December 31, 2021, the Company expects to recognize approximately $3.6 million of amortization in Accumulated other comprehensive loss related to its U.S. pension and OPEB plans and approximately $1.0 million for its French pension plans.
Note 14. Income Taxes
For interim financial reporting, the Company estimates the annual tax rate based on projected taxable income for the full year and records a quarterly income tax provision in accordance with ASC No. 740-270 "Accounting for Income Taxes in Interim Periods." These interim estimates are subject to variation due to several factors, including the ability of the Company to accurately forecast pre-tax and taxable income and loss by jurisdiction, changes in laws or regulations, and expenses or losses for which tax benefits are not recognized. Jurisdictions with a projected loss for the year or an actual year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of including these jurisdictions on the quarterly effective tax rate calculations could result in a higher or lower effective tax rate during a quarter, based upon the mix and timing of actual earnings versus annual projections.
As a result of the Tax Cuts and Jobs Act of 2017, the Company has significant previously taxed earnings and profits from its foreign subsidiaries that it is generally able to repatriate free of U.S. federal tax, due to transition tax and global intangible low taxed income (“GILTI”) treatment. Further, to the extent that any untaxed earnings and profits are distributed from foreign subsidiaries, such dividends should be eligible for a 100% dividends received deduction.
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Therefore, the Company does not assert indefinite reinvestment on earnings generated after December 31, 2017. The Company provides for deferred non-U.S. withholding taxes and U.S. state taxes on hypothetical repatriation of earnings generated after December 31, 2017.
All unrecognized tax positions could impact the Company's effective tax rate if recognized. With respect to penalties and interest incurred from income tax assessments or related to unrecognized tax benefits, the Company’s policy is to classify penalties as provision for income taxes and interest as interest expense in its condensed consolidated statement of income. There were no material income tax penalties or interest accrued during the three or six months ended June 30, 2021 or 2020.
The Company's effective tax rate was 140.0% and 20.8% for the three months ended June 30, 2021 and 2020, respectively. The increase was materially due to unfavorable discrete items and mix of earnings by jurisdiction. The Company's effective tax rate from continuing operations was 35.7% and 19.9% for the six months ended June 30, 2021 and 2020, respectively. The increase was materially due to unfavorable discrete items and mix of earnings by jurisdiction.
Note 15. Segment Information
The Company's two operating product line segments are also the Company's reportable segments: Advanced Materials & Structures and Engineered Papers. The AMS segment designs and produces resin-based rolled goods such as nets, films and meltblown materials, typically through an extrusion process or other non-woven technologies across the filtration, transportation, healthcare, construction, and industrial end-markets, and it provides converting and adhesive and other coating services related to some of these products. AMS segment consists of the operations of various acquisitions. The EP segment primarily produces various cigarette papers and Recon for sale to cigarette manufacturers. The EP segment also includes non-tobacco paper for battery separators, printing and writing, drinking straw wrap and furniture laminates.
Information about Net Sales and Operating Profit
The accounting policies of these segments are the same as those described in Note 2. Summary of Significant Accounting Policies in the notes to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The Company primarily evaluates segment performance and allocates resources based on operating profit. Expense amounts not associated with segments are referred to as unallocated expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
AMS
|
$
|
252.0
|
|
|
66.7
|
%
|
|
$
|
132.8
|
|
|
52.2
|
%
|
|
$
|
415.0
|
|
|
62.3
|
%
|
|
$
|
255.7
|
|
|
49.6
|
%
|
|
EP
|
125.8
|
|
|
33.3
|
|
|
121.4
|
|
|
47.8
|
|
|
251.0
|
|
|
37.7
|
|
|
260.0
|
|
|
50.4
|
|
|
Total Consolidated
|
$
|
377.8
|
|
|
100.0
|
%
|
|
$
|
254.2
|
|
|
100.0
|
%
|
|
$
|
666.0
|
|
|
100.0
|
%
|
|
$
|
515.7
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
AMS
|
$
|
18.9
|
|
|
118.9
|
%
|
|
$
|
13.1
|
|
|
38.1
|
%
|
|
$
|
40.2
|
|
|
81.4
|
%
|
|
$
|
26.8
|
|
|
39.1
|
%
|
|
EP
|
24.2
|
|
|
152.2
|
|
|
31.7
|
|
|
92.1
|
|
|
54.1
|
|
|
109.5
|
|
|
65.1
|
|
|
95.0
|
|
|
Unallocated
|
(27.2)
|
|
|
(171.1)
|
|
|
(10.4)
|
|
|
(30.2)
|
|
|
(44.9)
|
|
|
(90.9)
|
|
|
(23.4)
|
|
|
(34.1)
|
|
|
Total Consolidated
|
$
|
15.9
|
|
|
100.0
|
%
|
|
$
|
34.4
|
|
|
100.0
|
%
|
|
$
|
49.4
|
|
|
100.0
|
%
|
|
$
|
68.5
|
|
|
100.0
|
%
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of our financial condition and results of operations. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report and the audited consolidated financial statements and related notes and the selected financial data included in our Annual Report on Form 10-K for the year ended December 31, 2020. The discussion of our financial condition and results of operations includes various forward-looking statements about our markets, the demand for our products, our future prospects and other matters. These statements are based on certain assumptions and estimates that we consider reasonable. For information about risks and exposures relating to us and our business, you should read the section entitled "Risk Factors" in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and the sections entitled "Forward-Looking Statements" at the end of this Item 2. Unless the context indicates otherwise, references to "SWM," "we," "us," "our," the "Company" or similar terms include Schweitzer-Mauduit International, Inc. and our consolidated subsidiaries.
This Management's Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of our financial statements with an understanding of our recent performance, our financial condition and our prospects.
COVID-19 Pandemic
We continue to monitor the impact of the COVID-19 pandemic (including its variant strains) on all aspects of our business. In general, many areas that were resilient to the economic challenges and volatility in 2020 remain healthy, such as tobacco, healthcare, and filtration, while those areas that were most affected, such as transportation and construction, began improving during the fourth quarter of 2020 and continued to perform well during 2021. At present, all of our facilities are operational. Furthermore, there have been only isolated and temporary customer shutdowns, and the Company is maintaining active dialogue with all key customers and suppliers regarding supply chain and production planning. Many of the Company’s products in our AMS segment have been deemed “essential” (e.g., filtration and healthcare) by local governments and thus the production facilities are not expected to have further shutdowns unless local governments mandate temporary closure or there are additional health and safety concerns beyond the current circumstances.
Given the recent financial results, we believe the Company’s operating cash flows and available liquidity are ample to support operations and financial obligations. The Company also continues to actively assess the credit worthiness of its customers in the context of the potential business disruptions from COVID-19 but has not yet seen evidence of a material change to its ability to collect accounts receivable balances.
This is an uncertain period with events and circumstances changing frequently, and while senior management is meeting regularly to address all aspects of the pandemic, the magnitude and duration of economic disruption is difficult to predict and will depend on the scope, severity and duration of the pandemic. Further details about the risks and impacts discussed in the section below can be found in the forward-looking statements.
End-markets and sales. Management believes many of the Company’s end-markets have been and will remain relatively insulated from COVID-19-related economic challenges; however, some end-markets were temporarily negatively affected by decreased demand, particularly transportation, which has recovered since the peak impacts in mid-2020. In addition, sales results may continue to demonstrate some variability as customers manage inventories and safety stocks to protect against future potential supply chain disruptions.
Tobacco (EP) – The Company’s largest single end-market is the tobacco industry, which has not been materially affected by the pandemic. The Company believes customers increased their inventory levels in 2020 to minimize supply chain impacts of potential future COVID-19 related disruptions.
Healthcare (AMS) – Management believes sales of these products, mostly consumables, are not sensitive to COVID-19-related economic weakness, with the exception of those used in hospitals as consumer foot traffic has been reduced due to minimizing non-essential visits.
Filtration (AMS) – The Company believes these products are generally less sensitive to economic volatility than typical industrial goods. Within the portfolio, air filtration products have seen accelerated demand due to heightened focus on air quality and attempts to minimize the spread of COVID-19.
Transportation (AMS) – The Company’s primary products are aftermarket automotive paint protection films, which faced pronounced temporary near-term negative impacts, beginning late in the first quarter of 2020 through most of the third quarter of 2020, as a result of significant auto industry disruption and consumer purchasing behaviors as a result of COVID-19. However, since late in the third quarter of 2020, the Company’s transportation sales have improved significantly.
Construction (AMS) – Management believes these end-markets have been impacted by local self-distancing regulations that may affect the construction industry, but these end markets have exhibited recent improvements and could be further positively supported by a potential increase in government-sponsored infrastructure spending.
Industrial (AMS & EP) – The Company’s products service a broad range of applications, some of which are considered to be sensitive to economic activity and associated impacts of COVID-19, while other applications have been relatively unaffected.
Liquidity & Debt Overview. The Company currently has $1,280.9 million of total debt, $65.9 million of cash, and undrawn capacity on its $500.0 million revolving line of credit facility (the "Revolving Credit Facility") of $107.1 million at the end of the second quarter of 2021. Per the terms of the Company's $700.0 million credit agreement (the "Credit Agreement"), net leverage was 4.4x at the end of the second quarter, versus a maximum covenant ratio of 4.5x, though covenants contain an acquisition-related provision, allowing net leverage to reach 5.0x throughout 2021. The Company’s nearest debt maturity is the Revolving Credit Facility which is due in 2023. Please refer to liquidity and capital resources section for additional detail.
SUMMARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions, except per share amounts)
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
Percent of Net Sales
|
|
June 30,
|
|
Percent of Net Sales
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net sales
|
$
|
377.8
|
|
|
$
|
254.2
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
$
|
666.0
|
|
|
$
|
515.7
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Gross profit
|
88.1
|
|
|
74.3
|
|
|
23.3
|
|
|
29.2
|
|
|
168.9
|
|
|
148.6
|
|
|
25.4
|
|
|
28.8
|
|
|
Restructuring & impairment expense
|
2.3
|
|
|
1.6
|
|
|
0.6
|
|
|
0.6
|
|
|
4.0
|
|
|
1.7
|
|
|
0.6
|
|
|
0.3
|
|
|
Operating profit
|
15.9
|
|
|
34.4
|
|
|
4.2
|
|
|
13.5
|
|
|
49.4
|
|
|
68.5
|
|
|
7.4
|
|
|
13.3
|
|
|
Interest expense
|
13.1
|
|
|
8.1
|
|
|
3.5
|
|
|
3.2
|
|
|
16.0
|
|
|
15.0
|
|
|
2.4
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
1.8
|
|
|
$
|
21.5
|
|
|
0.5
|
%
|
|
8.5
|
%
|
|
$
|
23.4
|
|
|
$
|
44.0
|
|
|
3.5
|
%
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.06
|
|
|
$
|
0.68
|
|
|
|
|
|
|
$
|
0.74
|
|
|
$
|
1.40
|
|
|
|
|
|
|
Cash provided by operations
|
$
|
7.1
|
|
|
$
|
44.2
|
|
|
|
|
|
|
$
|
19.8
|
|
|
$
|
49.3
|
|
|
|
|
|
|
Capital spending
|
$
|
9.2
|
|
|
$
|
7.5
|
|
|
|
|
|
|
$
|
16.3
|
|
|
$
|
14.9
|
|
|
|
|
|
RESULTS OF OPERATIONS
Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020
Net Sales
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
Percent Change
|
|
Advanced Materials & Structures
|
$
|
252.0
|
|
|
$
|
132.8
|
|
|
$
|
119.2
|
|
|
89.8
|
%
|
|
Engineered Papers
|
125.8
|
|
|
121.4
|
|
|
4.4
|
|
|
3.6
|
|
|
Total
|
$
|
377.8
|
|
|
$
|
254.2
|
|
|
$
|
123.6
|
|
|
48.6
|
%
|
Net sales were $377.8 million in the three months ended June 30, 2021 compared with $254.2 million in the prior-year period. The increase in net sales consisted of the following ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Incremental net sales from Scapa
|
$
|
95.0
|
|
|
37.4
|
%
|
|
Changes in volume, product mix and selling prices (excluding Scapa)
|
20.3
|
|
|
7.9
|
|
|
Changes due to net foreign currency impacts
|
8.9
|
|
|
3.5
|
|
|
Changes due to royalties
|
(0.6)
|
|
|
(0.2)
|
|
|
Total
|
$
|
123.6
|
|
|
48.6
|
%
|
AMS segment net sales were $252.0 million for the three months ended June 30, 2021 compared to $132.8 million during the prior-year period. The increase of $119.2 million or 89.8% included the benefit from the Scapa acquisition (completed April 15, 2021). Scapa net sales were $95.0 million for the three months ended June 30, 2021. The increase in organic sales reflected rapid growth in transportation sales as they continued to rebound sharply from negative COVID-19 impacts that began early in 2020. Filtration sales were up over 25%, with strong gains across water, process, and air filtration product lines, as were construction sales, with broad strength across building materials and infrastructure products. Healthcare sales (excluding Scapa) declined as certain products that saw short-term COVID-related demand spikes, such as facemask materials, started to normalize. Industrial sales declined during the quarter though mostly in lower-margin products.
EP segment net sales during the three months ended June 30, 2021 of $125.8 million increased by $4.4 million, or 3.6%, versus net sales of $121.4 million in the prior-year quarter. The increase in net sales was primarily the result of 3% volume increase and unfavorable price/mix of 4%, which were partially offset by a 6% currency benefit (related to the Euro). The negative price/mix effect was primarily a function of lower LIP volumes, as certain customers resumed more normalized order patterns versus 2020 when they built inventories.
Gross Profit
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Percent Change
|
|
Percent of Net Sales
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
|
2021
|
|
2020
|
|
Net sales
|
$
|
377.8
|
|
|
$
|
254.2
|
|
|
$
|
123.6
|
|
|
48.6
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Cost of products sold
|
289.7
|
|
|
179.9
|
|
|
109.8
|
|
|
61.0
|
|
|
76.7
|
|
|
70.8
|
|
|
Gross profit
|
$
|
88.1
|
|
|
$
|
74.3
|
|
|
$
|
13.8
|
|
|
18.6
|
%
|
|
23.3
|
%
|
|
29.2
|
%
|
Gross profit increased by $13.8 million during the three months ended June 30, 2021 to $88.1 million versus the prior-year period of $74.3 million.
AMS gross profit increased by $19.9 million, primarily due to the incremental benefit of the acquired Scapa business and strong organic sales growth, partially offset by higher input costs, primarily of polypropylene resin.
In the EP segment, gross profit decreased by $6.0 million, primarily due to unfavorable price/mix impacts from lower LIP volumes, higher wood pulp input costs, and inefficiencies related to the transition of certain volumes from the recently closed Spotswood, NJ facility to other sites. These negative factors were partially offset by $4.0 million of favorable foreign currency exchange.
Nonmanufacturing Expenses
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Percent Change
|
|
Percent of Net Sales
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
|
2021
|
|
2020
|
|
Selling expense
|
$
|
11.9
|
|
|
$
|
8.8
|
|
|
$
|
3.1
|
|
|
35.2
|
%
|
|
3.1
|
%
|
|
3.5
|
%
|
|
Research expense
|
5.4
|
|
|
3.6
|
|
|
1.8
|
|
|
50.0
|
|
|
1.4
|
|
|
1.4
|
|
|
General expense
|
52.6
|
|
|
25.9
|
|
|
26.7
|
|
|
103.1
|
|
|
14.0
|
|
|
10.2
|
|
|
Nonmanufacturing expenses
|
$
|
69.9
|
|
|
$
|
38.3
|
|
|
$
|
31.6
|
|
|
82.5
|
%
|
|
18.5
|
%
|
|
15.1
|
%
|
Nonmanufacturing expenses in the three months ended June 30, 2021 increased by $31.6 million to $69.9 million from $38.3 million in the prior-year period. The increase included $12.1 million of transaction and integration costs associated with the Scapa acquisition, other SG&A costs from Scapa operations, and higher deferred compensation expenses and third-party consulting expenses.
Restructuring and Impairment Expense
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
Percent of Net Sales
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
|
2021
|
|
2020
|
|
Advanced Materials & Structures
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
(0.5)
|
|
|
|
|
—
|
%
|
|
0.4
|
%
|
|
Engineered Papers
|
2.3
|
|
|
1.1
|
|
|
1.2
|
|
|
|
|
1.8
|
|
|
0.9
|
|
|
Unallocated expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
2.3
|
|
|
$
|
1.6
|
|
|
$
|
0.7
|
|
|
|
|
0.6
|
%
|
|
0.6
|
%
|
The Company incurred total restructuring and impairment expense of $2.3 million and $1.6 million in the three months ended June 30, 2021 and 2020, respectively. In the 2021 period, restructuring expense in the EP segment included $0.9 million related to the 2020 decision to shut down the Spotswood, New Jersey facility and included costs associated with closing the facility, maintaining the property and preparing it for sale.
In the 2021 period the EP segment also recognized $1.4 million of restructuring expenses related to severance accruals for employees at other manufacturing facilities.
In the comparable 2020 period, restructuring expense primarily related to severance accruals for employees at our manufacturing operations in the U.S., Brazil, France and Poland.
Operating Profit
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Percent Change
|
|
Return on Net Sales
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
|
2021
|
|
2020
|
|
Advanced Materials & Structures
|
$
|
18.9
|
|
|
$
|
13.1
|
|
|
$
|
5.8
|
|
|
44.3
|
%
|
|
7.5
|
%
|
|
9.9
|
%
|
|
Engineered Papers
|
24.2
|
|
|
31.7
|
|
|
(7.5)
|
|
|
(23.7)
|
|
|
19.2
|
|
|
26.1
|
|
Unallocated expenses
|
(27.2)
|
|
|
(10.4)
|
|
|
(16.8)
|
|
|
161.5
|
|
|
|
|
|
|
Total
|
$
|
15.9
|
|
|
$
|
34.4
|
|
|
$
|
(18.5)
|
|
|
(53.8)
|
%
|
|
4.2
|
%
|
|
13.5
|
%
|
Operating profit was $15.9 million in the three months ended June 30, 2021 compared with $34.4 million during the prior-year period.
The AMS segment's operating profit in the three months ended June 30, 2021 was $18.9 million compared to $13.1 million in the prior-year period. The increase of $5.8 million, or 44.3%, was driven by strong organic sales growth and the incremental benefit of the acquired Scapa business, partially offset by $7.1 million higher purchase accounting expenses associated with Scapa acquisition. The profit margin percentage decline was primarily attributable to higher raw material costs as the magnitude and speed of the inflationary pressure was not fully offset by pricing actions during the quarter.
The EP segment's operating profit in the three months ended June 30, 2021 was $24.2 million, a decrease of $7.5 million, or 23.7%, from $31.7 million in the prior-year period. The decrease was primarily driven by lower sales in high-margin LIP products, significant wood pulp cost increases, and the inefficiencies related to the Spotswood closure and transition. Currency movements resulted in a $3.1 million benefit to operating profit, mainly from the Euro and Brazilian Real.
Unallocated expenses in the three months ended June 30, 2021 were $27.2 million compared to $10.4 million in the prior-year period, an increase of $16.8 million, or 161.5%, primarily due to Scapa acquisition and integration related costs of $12.1 million, largely comprised of third-party advisory and diligence costs, transaction fees, and integration expenses. The increase also included $1.5 million of costs incurred within Scapa as shared services for corporate functions such as finance, HR, and IT, which were reported in the Company's segment financials as unallocated expenses. The remainder of the increase was driven by higher certain administrative costs, third-party consulting fees for HR and finance, as well as higher IT expenses to support the growth of the business.
Non-Operating Expenses
Interest expense was $13.1 million in the three months ended June 30, 2021, an increase from $8.1 million in the prior-year period. The increase was primarily due to higher average debt balances as a result of the Scapa acquisition which closed in April 2021.
Other expense, net, was $0.3 million during the three months ended June 30, 2021 unchanged from prior year quarter.
Income Taxes
A $3.5 million provision for income taxes in the three months ended June 30, 2021 resulted in an effective tax rate of 140.0% compares with 20.8% in the prior-year quarter. The increase was materially due to unfavorable discrete items and mix of earnings by jurisdiction.
Income from Equity Affiliates
Income from equity affiliates, which reflects the results of operations of CTM and CTS, was $2.8 million in the three months ended June 30, 2021 compared with income of $0.9 million during the prior-year period, and reflects the results of operations of CTM and CTS.
Net Income and Income per Share
Net income in the three months ended June 30, 2021 was $1.8 million, or $0.06 per diluted share, compared with $21.5 million, or $0.68 per diluted share, during the prior-year period.
Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020
Net Sales
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
Percent Change
|
|
Advanced Materials & Structures
|
$
|
415.0
|
|
|
$
|
255.7
|
|
|
$
|
159.3
|
|
|
62.3
|
%
|
|
Engineered Papers
|
251.0
|
|
|
260.0
|
|
|
(9.0)
|
|
|
(3.5)
|
|
|
Total
|
$
|
666.0
|
|
|
$
|
515.7
|
|
|
$
|
150.3
|
|
|
29.1
|
%
|
Net sales were $666.0 million in the six months ended June 30, 2021 compared with $515.7 million in the prior-year period. The increase in net sales consisted of the following ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
Incremental net sales from Scapa
|
$
|
95.0
|
|
|
18.4
|
%
|
|
Changes in volume, product mix and selling prices (excluding Scapa)
|
39.4
|
|
|
7.6
|
|
|
Changes due to net foreign currency impacts
|
16.1
|
|
|
3.1
|
%
|
|
|
|
|
|
|
Changes due to royalties
|
(0.2)
|
|
|
—
|
|
|
Total
|
$
|
150.3
|
|
|
29.1
|
%
|
AMS segment net sales were $415.0 million for the six months ended June 30, 2021 compared to $255.7 million during the prior-year period. The increase of $159.3 million, or 62.3%, included the benefit from the Scapa acquisition of $95.0 million (completed April 15, 2021) and Tekra acquisition (completed March 13, 2020). The increase in organic sales was driven by strong double digit gains in filtration, transportation, and construction end-markets. Transportation sales continued to rebound sharply from COVID-19 related pressures that began early in 2020. Filtration and construction end-markets also delivered strong sales increase, with gains across water, process, and air filtration product lines, as well as building materials and infrastructure products. Healthcare sales declined due to certain products that benefited from COVID-19 related demand in the prior year. Industrial sales declined mostly in lower-margin product lines.
EP segment net sales during the six months ended June 30, 2021 of $251.0 million decreased by $9.0 million versus net sales of $260.0 million in the prior-year period. The decrease in net sales was primarily the result of the volume decline in LIP sales, and unfavorable price/mix impacts of 6%, partially offset by a 5% currency benefits mainly related to the Euro.
Gross Profit
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Percent Change
|
|
Percent of Net Sales
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
|
2021
|
|
2020
|
|
Net sales
|
$
|
666.0
|
|
|
$
|
515.7
|
|
|
$
|
150.3
|
|
|
29.1
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
497.1
|
|
|
367.1
|
|
|
130.0
|
|
|
35.4
|
|
|
74.6
|
|
|
71.2
|
|
|
Gross profit
|
$
|
168.9
|
|
|
$
|
148.6
|
|
|
$
|
20.3
|
|
|
13.7
|
%
|
|
25.4
|
%
|
|
28.8
|
%
|
Gross profit increased by $20.3 million during the six months ended June 30, 2021 to $168.9 million versus the prior-year period of $148.6 million. AMS gross profit increased by $29.1 million primarily due to the incremental benefit of the acquired Scapa and Tekra business and strong organic sales growth in transportation, filtration, and construction end-markets, partially offset by higher input costs, primarily of polypropylene resin. In the EP segment, gross profit decreased by $8.8 million, primarily due to negative price/mix impacts, significantly higher wood pulp costs, and inefficiencies related to the Spotswood transition, partially offset by favorable impact of foreign currency movements.
Nonmanufacturing Expenses
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Percent Change
|
|
Percent of Net Sales
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
|
2021
|
|
2020
|
|
Selling expense
|
$
|
21.0
|
|
|
$
|
18.3
|
|
|
$
|
2.7
|
|
|
14.8
|
%
|
|
3.2
|
%
|
|
3.5
|
%
|
|
Research expense
|
9.2
|
|
|
6.8
|
|
|
2.4
|
|
|
35.3
|
|
|
1.4
|
|
|
1.3
|
|
|
General expense
|
85.3
|
|
|
53.3
|
|
|
32.0
|
|
|
60.0
|
|
|
12.8
|
|
|
10.3
|
|
|
Nonmanufacturing expenses
|
$
|
115.5
|
|
|
$
|
78.4
|
|
|
$
|
37.1
|
|
|
47.3
|
%
|
|
17.4
|
%
|
|
15.1
|
%
|
Nonmanufacturing expenses in the six months ended June 30, 2021 increased by $37.1 million to $115.5 million from $78.4 million in the prior-year period. The increase included $15.7 million of transaction and integration costs associated with the Scapa acquisition, other SG&A costs from Scapa operations, and higher deferred compensation expenses and third party consulting expenses.
Restructuring and Impairment Expense
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
Percent of Net Sales
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
|
2021
|
|
2020
|
|
Advanced Materials & Structures
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
(0.5)
|
|
|
|
|
—
|
%
|
|
0.2
|
%
|
|
Engineered Papers
|
4.0
|
|
|
1.2
|
|
|
2.8
|
|
|
|
|
1.6
|
|
|
0.5
|
|
|
Unallocated expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
4.0
|
|
|
$
|
1.7
|
|
|
$
|
2.3
|
|
|
|
|
0.6
|
%
|
|
0.3
|
%
|
The Company incurred total restructuring and impairment expense of $4.0 million in the six months ended June 30, 2021 compared with $1.7 million in the six months ended June 30, 2020. In the 2021 period, restructuring expense included $2.4 million in the EP segment relating to severance and other accruals as a result of the decision to shut down the Spotswood, New Jersey facility.
In the 2021 period the EP segment also recognized $1.6 million of restructuring expenses primarily related to severance accruals at our manufacturing operations in France. In the comparable 2020 period, the restructuring expense primarily related to severance accruals for employees at our manufacturing operations in the U.S., Brazil, France and Poland.
In the AMS segment, the Company recognized no restructuring and impairment expense in the 2021 period versus $0.5 million in the 2020 period related to severance accruals as a result of department realignments.
Operating Profit
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Percent Change
|
|
Return on Net Sales
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Change
|
|
|
2021
|
|
2020
|
|
Advanced Materials & Structures
|
$
|
40.2
|
|
|
$
|
26.8
|
|
|
$
|
13.4
|
|
|
50.0
|
%
|
|
9.7
|
%
|
|
10.5
|
%
|
|
Engineered Papers
|
54.1
|
|
|
65.1
|
|
|
(11.0)
|
|
|
(16.9)
|
|
|
21.6
|
|
|
25.0
|
|
|
Unallocated expenses
|
(44.9)
|
|
|
(23.4)
|
|
|
(21.5)
|
|
|
(91.9)
|
|
|
|
|
|
|
Total
|
$
|
49.4
|
|
|
$
|
68.5
|
|
|
$
|
(19.1)
|
|
|
(27.9)
|
%
|
|
7.4
|
%
|
|
13.3
|
%
|
Operating profit was $49.4 million in the six months ended June 30, 2021 compared with $68.5 million during the prior-year period.
The AMS segment's operating profit in the six months ended June 30, 2021 was $40.2 million compared to $26.8 million in the prior-year period. The increase of $13.4 million, or 50.0%, primarily reflected strong organic sales growth and the incremental benefit of the acquired Scapa business, partially offset by higher raw material costs as well as $8.0 million higher purchase accounting expenses associated with Scapa acquisition. The negative net impact from higher input costs, which accelerated throughout the period and had not yet been offset by selling price increases the Company has begun implementing, resulted in a lower operating profit margin of 9.7% in the six months ended June 30, 2021 compared to 10.5% in the prior-year period.
The EP segment's operating profit in the six months ended June 30, 2021 was $54.1 million, a decrease of $11.0 million, or 16.9%, from $65.1 million in the prior-year period. The decrease was primarily due to lower gross profit as a result of a significant increase in wood pulp prices which had not yet been offset by selling price increases, which will be effective in the second half of the year. Operating profit in the first half of 2021 was also negatively impacted by higher restructuring expenses and Spotswood transition inefficiencies as discussed above. Currency movements resulted in a $6.1 million benefit to operating profit, due mostly to lower local currency operating costs in Brazil Real and strength of the Euro.
Unallocated expenses in the six months ended June 30, 2021 were $44.9 million compared to $23.4 million in the prior-year period, an increase of $21.5 million, or 91.9%, primarily due to $15.7 million transaction and integration costs related to the Scapa acquisition, and $1.5 million of costs incurred within Scapa as shared services for corporate functions such as finance, HR, and IT, which were reported in the Company's segment financials as unallocated expenses. The remainder of the increase related to higher administrative and third party consulting costs to support growth of the business.
Non-Operating Expenses
Interest expense was $16.0 million in the six months ended June 30, 2021, an increase from $15.0 million in the prior-year period. Excluding a benefit of $4.5 million prior year expense reversal related to the favorable settlement of Brazil tax assessments as discussed in Note 12. Contingencies of the notes to the unaudited condensed consolidated financial statements, the interest expense increased $5.5 million due mainly to higher average debt balances as a result of the Scapa acquisition which closed in April 2021.
Other expense, net, was $2.9 million during the six months ended June 30, 2021, compared to Other income of $0.3 million during the six months ended June 30, 2020. The 2021 period included $6.9 million realized foreign currency loss related to timing of the Scapa acquisition cash settlement. This expense was partially offset by $1.6 million favorable Brazil tax assessment settlement and $2.0 million sale of carbon dioxide credits in France.
Income Taxes
A $10.9 million provision for income taxes in the six months ended June 30, 2021 resulted in an effective tax rate of 35.7% compared with 19.9% in the prior-year period. The increase was materially due to unfavorable discrete items and mix of earnings by jurisdiction.
Income from Equity Affiliates
Income from equity affiliates was $3.8 million in the six months ended June 30, 2021 compared with income of $0.9 million during the prior-year period, due to increased volumes.
Net Income and Income per Share
Net income in the six months ended June 30, 2021 was $23.4 million, or $0.74 per diluted share, compared with $44.0 million, or $1.40 per diluted share, during the prior-year period.
LIQUIDITY AND CAPITAL RESOURCES
A major factor in our liquidity and capital resource planning is our generation of cash flow from operations, which is sensitive to changes in the mix of products sold, sales volume and selling prices of our products, as well as changes in our production volumes, costs, foreign currency exchange rates and working capital. Our liquidity is supplemented by funds available under our Credit Agreement with a syndicate of banks that is used as either operating conditions or strategic opportunities warrant.
Cash Requirements
As of June 30, 2021, $54.7 million of the Company's $65.9 million of cash and cash equivalents was held by foreign subsidiaries. We believe that our sources of liquidity and capital, including cash on-hand, cash generated from operations and our existing credit facilities, will be sufficient to finance our continued operations. We believe the proceeds from our Term Loan B Facility (as defined below) along with our existing credit facilities will be sufficient to fund our current growth plan.
Cash Provided by Operations
Net cash provided by operations was $19.8 million in the six months ended June 30, 2021 compared with $49.3 million in the prior-year period. The decrease was primarily related to unfavorable year-over-year movements in working capital related cash flows as well as cash costs related to advisory fees, transaction expenses, and integration costs all relating to the Scapa acquisition.
Working Capital
As of June 30, 2021, the Company had net working capital of $352.6 million, including cash and cash equivalents of $65.9 million, compared with net working capital of $232.3 million, including cash and cash equivalents of $54.7 million as of December 31, 2020. These changes primarily reflect the timing of payments and collections as well as increased raw material prices and timing of shipments.
In the six months ended June 30, 2021, net changes in operating working capital used cash of $51.0 million, up from $30.2 million in the prior year period, reflecting strong sales growth, particularly in AMS.
Cash Used for Investing
Cash used for investing activities during the six months ended June 30, 2021 was $649.0 million, compared to $183.8 million in the prior-year. The change primarily reflects the net $630.5 million consideration to acquire Scapa versus $169.3 million Tekra in prior year. Capital spending and capitalized software totaled $17.6 million, up $1.0 million.
Cash Provided by Financing Activities
During the six months ended June 30, 2021, financing activities consisted of $703.7 million proceeds from borrowings under the revolving credit facility primarily to fund the Scapa acquisition including $350 million under the Term Loan B Facility and $313 million incremental borrowings of revolver loans, $27.6 million in cash paid for dividends declared to SWM stockholders, $17.8 million payments on long-term debt, $14.5 million payment for debt issuance costs associated with the amendment of our Credit Agreement as discussed in Note 10. Debt of the notes to the unaudited condensed consolidated financial statements, and share repurchases of $3.1 million.
In the prior-year period, financing activities consisted of $212.0 million net proceeds from borrowings under the Revolving Credit Facility primarily to fund the Tekra acquisition, $27.4 million in cash paid for dividends declared to SWM stockholders, $87.1 million payments on long-term debt, and share repurchases of $0.9 million.
The Company presently believes that the sources of liquidity discussed above are sufficient to meet its anticipated funding needs for the foreseeable future.
Dividend Payments
We have declared and paid cash dividends on our common stock every fiscal quarter since the second quarter of 1996. On August 4, 2021, we announced a cash dividend of $0.44 per share payable on September 24, 2021 to stockholders of record as of August 20, 2021. The covenants contained in our Indenture and Credit Agreement require that we maintain certain financial ratios as disclosed in Note 10. Debt of the notes to the unaudited condensed consolidated financial statements, none of which under normal business conditions we would expect to materially limit our ability to pay such dividends. We plan to continue to assess our dividend policy in light of our capital allocation strategy, cash generation, debt levels and ongoing requirements for cash to fund operations and to pursue possible strategic opportunities.
Debt Instruments and Related Covenants
|
|
|
|
|
|
|
|
|
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Debt Instruments
($ in millions)
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Six Months Ended
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June 30, 2021
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June 30, 2020
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Proceeds from issuances of long-term debt
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$
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703.7
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$
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212.0
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Payments on long-term debt
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(17.8)
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(87.1)
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Net proceeds from borrowings
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$
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685.9
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$
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124.9
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Net proceeds from borrowings were $685.9 million during the six months ended June 30, 2021.
On February 10, 2021 we amended our Credit Agreement to, among other things, add a new seven year Term Loan B facility, which provides for additional capacity of $350 million (the "Term Loan B Facility"). See Note 10. Debt of the notes to unaudited condensed consolidated financial statements for additional information about the Term Loan B Facility. Other than potential borrowings under the Term Loan B Facility, the Company does not expect to incur any significant additional borrowings during 2021.
Unused borrowing capacity under the Credit Agreement was $107.1 million as of June 30, 2021. We also had availability under our bank overdraft facilities of $6.3 million as of June 30, 2021.
The Company was in compliance with all of its covenants under the Indenture and Credit Agreement at June 30, 2021. With the current level of borrowing and forecasted results, we expect to remain in compliance with financial covenants under the Credit Agreement.
Our total debt to capital ratios, as calculated under the Credit Agreement, at June 30, 2021 and December 31, 2020 were 66.2% and 47.7%, respectively.
Off-Balance Sheet Arrangements
As of March 31, 2021, we did not have any significant off-balance sheet arrangements, as defined in Item
303(a)(4)(ii) of SEC Regulation S-K.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to the safe harbor created by that Act and other legal protections. Forward-looking statements include, without limitation, those regarding the incurrence of additional debt and expected maturities of the Company’s debt obligations, the adequacy of our sources of liquidity and capital, integration, and growth prospects (including international growth), the cost and timing of our restructuring actions, the impact of ongoing litigation matters and environmental claims, the amount of capital spending and/or common stock repurchases, future cash flows, purchase accounting impacts, impacts and timing of our ongoing operational excellence and other cost-reduction and cost-optimization initiatives, the impact of the COVID-19 pandemic on our
operations, profitability, and cash flow, the expected benefits and accretion of the Scapa acquisition and integration and other statements generally identified by words such as "believe," "expect," "intend," "guidance," "plan," "forecast," "potential," "anticipate," "confident," "project," "appear," "future," "should," "likely," "could," "may," "will," "typically" and similar words. These forward-looking statements are prospective in nature and not based on historical facts, but rather on current expectations and on numerous assumptions regarding the business strategies and the environment in which the Company’s business shall operate in the future and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that may cause actual results to differ materially from our expectations as of the date of this report. These risks include, among other things, those set forth in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020, as well as the following factors:
•Risks associated with pandemics and other public health emergencies, including the continued impact of, and the governmental and third party response to, the COVID-19 pandemic (including its variant strains);
•Changes in sales or production volumes, pricing and/or manufacturing costs of Recon products, cigarette paper (including for LIP cigarettes), including any change by our customers in their tobacco and tobacco-related blends for their cigarettes, their target inventory levels and/or the overall demand for their products, new technologies such as e-cigarettes, inventory adjustments and rebalancings in our EP segment. Additionally, competition and changes in AMS end-market products due to changing customer demands;
•Changes in the Chinese economy, including relating to the demand for reconstituted tobacco, premium cigarettes and netting and due to impact of tariffs;
•Risks associated with the implementation of our strategic growth initiatives, including diversification, and the Company's understanding of, and entry into, new industries and technologies;
•Changes in the source and intensity of competition in our commercial segments;
•Our ability to attract and retain key personnel;
•Weather conditions, including potential impacts, if any, from climate change, known and unknown, seasonality factors that affect the demand for virgin tobacco leaf and natural disasters or unusual weather events;
•Seasonal or cyclical market and industry fluctuations which may result in reduced net sales and operating profits during certain periods;
•Increases in commodity prices and lack of availability of such commodities, including energy, wood pulp and resins, which could impact the sales and profitability of our products;
•Adverse changes in the oil, gas, automotive, construction and infrastructure, and mining sectors impacting key AMS segment customers;
•Increases in operating costs due to inflation or otherwise, such as labor expense, compensation and benefits costs;
•Employee retention and labor shortages;
•Changes in employment, wage and hour laws and regulations in the U.S., France and elsewhere, including the loi de Securisation de l'emploi in France, unionization rule and regulations by the National Labor Relations Board in the U.S., equal pay initiatives, additional anti-discrimination rules or tests and different interpretations of exemptions from overtime laws;
•Labor strikes, stoppages, disruptions or other disruptions at our facilities;
•The impact of tariffs, and the imposition of any future additional tariffs and other trade barriers, and the effects of retaliatory trade measures;
•Existing and future governmental regulation and the enforcement thereof, for example relating to the tobacco industry, taxation and the environment (including the impact thereof on our Chinese joint ventures);
•New reports as to the effect of smoking on human health or the environment;
•Changes in general economic, financial and credit conditions in the U.S., Europe, China and elsewhere, including the impact thereof on currency exchange rates (including any weakening of the Euro and Real) and on interest rates and the effects of the ongoing discussions between the U.K. and European Union to determine the terms of the U.K.'s withdrawal from the European Union;
•Changes in the method pursuant to which LIBOR rates are determined and the phasing out of USD LIBOR after 2023;
•Changes in the manner in which we finance our debt and future capital needs, including potential acquisitions;
•The success of, and costs associated with, our current or future restructuring initiatives, including the granting of any needed governmental approvals and the occurrence of work stoppages or other labor disruptions;
•Changes in the discount rates, revenue growth, cash flow growth rates or other assumptions used by the Company in its assessment for impairment of assets and adverse economic conditions or other factors that would result in significant impairment charges;
•The failure of one or more material suppliers, including energy, resin and pulp suppliers, to supply materials as needed to maintain our product plans and cost structure;
•International conflicts and disputes, which restrict our ability to supply products into affected regions, due to the corresponding effects on demand, the application of international sanctions, or practical consequences on transportation, banking transactions, and other commercial activities in troubled regions;
•Compliance with the FCPA and other anti-corruption laws or trade control laws, as well as other laws governing our operations;
•The pace and extent of further international adoption of LIP cigarette standards and the nature of standards so adopted;
•Risks associated with our 50%-owned, non-U.S. joint ventures relating to control and decision-making, compliance, accounting standards, transparency and customer relations, among others;
•A failure in our risk management and/or currency or interest rate swaps and hedging programs, including the failures of any insurance company or counterparty;
•The number, type, outcomes (by judgment or settlement) and costs of legal, tax, regulatory or administrative proceedings, litigation and/or amnesty programs, including those in Brazil, France and Germany;
•The outcome and cost of LIP-related intellectual property infringement and validity litigation in Europe and the Glatz's German Patent Court invalidation proceedings;
•Risks associated with our technological advantages in our intellectual property and the likelihood that our current technological advantages are unable to continue indefinitely;
•Risks associated with acquisitions or other strategic transactions, including acquired liabilities and restrictions, retaining customers from businesses acquired, achieving any expected results or synergies from acquired businesses, complying with new regulatory frameworks, difficulties in integrating acquired businesses or implementing strategic transactions generally and risks associated with international acquisition transactions, including in countries where we do not currently have a material presence;
•Risks associated with dispositions, including post-closing claims being made against us, disruption to our other businesses during a sale process or thereafter, credit risks associated with any buyer of such disposed assets and our ability to collect funds due from any such buyer;
•Risks associated with our global asset realignment initiatives, including: changes in tax law, treaties, interpretations, or regulatory determinations; audits made by applicable regulatory authorities and/or our auditor; and our ability to operate our business in a manner consistent with the regulatory requirements for such realignment;
•Increased taxation on tobacco-related products;
•Costs and timing of implementation of any upgrades or changes to our information technology systems;
•Failure by us to comply with any privacy or data security laws or to protect against theft of customer, employee and corporate sensitive information;
•Changes in tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities;
•Changes in construction and infrastructure spending and its impact on demand for certain products;
•Potential loss of consumer awareness and demand for acquired companies’ products if it is decided to rebrand those products under the Company’s legacy brand names; and
•Other factors described elsewhere in this document and from time to time in documents that we file with the SEC..
All forward-looking statements made in this document are qualified by these cautionary statements. Forward-looking statements herein are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such and should only be viewed as historical data.