Delaware | 62-1612879 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
100 North Point Center East, Suite 600 Alpharetta, Georgia | 30022 |
(Address of principal executive offices) | (Zip code) |
Item 2.02 | Results of Operations and Financial Condition |
99.1 | Press Release, dated August 1, 2012, of Schweitzer-Mauduit International, Inc., announcing earnings for the quarter ended June 30, 2012 and a two-for-one stock split. |
99.1 | Press Release, dated August 1, 2012, of Schweitzer-Mauduit International, Inc., announcing earnings for the quarter ended June 30, 2012 and a two-for-one stock split. |
• | Net sales of $198.8 million; Excluding the unfavorable $24.0 million impact of quarter-over-quarter currency changes, adjusted net sales (see "constant currency net sales" in non-GAAP reconciliations) of $222.8 million increased 8% over the prior-year quarter |
• | Operating profit, excluding restructuring and impairment expense, of $40.8 million. Also excluding $7.1 million of unfavorable currency impact, Adjusted Operating Profit would have been 48% higher than the prior-year quarter |
• | Net Income of $21.0 million; $35.6 million year-to-date |
• | Adjusted EBITDA from Continuing Operations (see non-GAAP reconciliations) of $50.5 million; $104.6 million year-to-date |
• | Diluted net income per share from continuing operations of $1.32, compared to $1.17 per share in second quarter 2011; Adjusted income per share from continuing operations of $1.64 compared to $1.21 per share in the second quarter of 2011 (see non-GAAP reconciliations) |
• | Sales volumes of Lower Ignition Propensity (LIP) cigarette paper increased by 16% versus the prior-year quarter and were 29% higher in the first half of 2012 versus the first half of 2011 |
• | Reconstituted Tobacco volumes increased 5% in the first half of 2012 over the first half of 2011 |
• | Paper segment volumes, which includes LIP, decreased 9% versus the prior-year quarter due to declines in western world tobacco consumption, timing of customer orders and elimination of unprofitable business in selected areas |
• | Continued cost savings and benefits from operational excellence initiatives |
• | SWM has manufacturing facilities in 7 countries, two joint ventures in China, and sells products in over 90 countries. As a result, it is subject to a variety of import and export tax, foreign currency, labor and other regulations within these countries. Changes in these regulations, adverse interpretations or applications, as well as changes in currency exchange rates, could adversely impact the company's business in a variety of ways, including increasing expenses, decreasing sales, limiting its ability to repatriate funds and generally limiting its ability to conduct business. |
• | The company's sales are concentrated to a limited number of customers. In 2011, 54% of its sales were to its four largest customers. The loss of one or more of these customers, or a significant reduction in one or more of these customers' purchases, particularly those that impact our higher value LIP papers or reconstituted tobacco, could have a material adverse effect on the company's results of operations. |
• | The company's financial performance is materially impacted by sales of both reconstituted tobacco products and cigarette paper for lower ignition propensity cigarettes. A significant change in sales or production volumes, pricing or manufacturing costs of these products could have a material impact on future financial results. |
• | As a result of excess capacity in the tobacco-related papers industry and increased operating costs, competitive levels of selling prices for certain of the company's products are not sufficient to cover those costs with a margin that the company considers reasonable. Such competitive pressures have resulted in downtime of certain paper machines and, in some cases, accelerated depreciation or impairment charges for certain equipment as well as employee severance expenses associated with downsizing activities. The company will continue to disclose any such actions as they are announced to affected employees or otherwise become certain and will continue to provide updates to any previously disclosed expectations of expenses associated with such actions. |
• | The company suspended construction of its Philippine RTL manufacturing site during 2011. The carrying value of the partially constructed assets is evaluated for impairment at each reporting period by assessing the recoverability of the costs based on the undiscounted cash flows of the operation, likelihood of its reactivation and alternative uses for the equipment. This evaluation could result in a decision to record an impairment of some or a substantial portion of the net book value of the RTL Philippines property, plant and equipment which was $71.4 million as of June 30, 2012. |
• | The demand for our reconstituted tobacco leaf product is subject to change depending on the rate at which this product is included by our customers in the blend that forms the column of tobacco in their various cigarette brands as well as the supply and cost of natural tobacco leaf, which serves to an extent as a substitute for reconstituted tobacco. A change in the inclusion rate or the dynamics of the natural leaf tobacco market can have a material effect on the volume of reconstituted tobacco sales, the price for reconstituted tobacco or both, either of which can have a material effect on our earnings from that product line. In past years, the company has experienced the adverse effects for one or more years related to changes in the demand and supply relationship for natural leaf. |
• | In recent years, governmental entities around the world, particularly in the United States and western Europe, have taken or have proposed actions that may have the effect of reducing consumption of tobacco products which can, in turn, reduces demand for our products. Reports with respect to the possible harmful physical effects of cigarette smoking and use of tobacco products have been publicized for many years and, together with actions to restrict or prohibit advertising and promotion of cigarettes or other tobacco products, to limit smoking in public places and to increase taxes on such products, are intended to discourage the consumption of cigarettes and other such products. Also in recent years, certain governmental entities, particularly in North America and more recently Europe, have enacted, considered or proposed actions that would require cigarettes to meet specifications aimed at reducing their likelihood of igniting fires when the cigarettes are not actively being smoked. Furthermore, it is not possible to predict what additional legislation or regulations relating to tobacco products will be enacted, the extent that such regulations may have a direct or indirect impact on the |
• | Our portfolio of granted patents varies by country, which could have an impact on any competitive advantage provided by patents in individual markets. We rely on patent, trademark, and other intellectual property laws of the United States and other countries to protect our intellectual property rights. In order to maintain the benefits of our patents, we may be required to enforce certain of our patents against infringement through court actions. However, we may be unable to prevent third parties from using our intellectual property or infringing on our patents without our authorization, which may reduce any competitive advantage we have developed. If we have to litigate to protect these rights, any proceedings could be costly, time consuming, could divert management resources, and we may not prevail. We cannot guarantee that any United States or foreign patents, issued or pending, will continue to provide us with any competitive advantage or will not be successfully challenged by third parties. We do not believe that any of our products infringe the valid intellectual property rights of third parties. However, we may be unaware of intellectual property rights of others that may cover some of our products or services. In that event, we may be subject to significant claims for damages. Effectively policing our intellectual property and patents is time consuming and costly, and the steps taken by us may not prevent infringement of our intellectual property, patents or other proprietary rights in our products, technology and trademarks, particularly in foreign countries where in many instances the local laws or legal systems do not offer the same level of protection as in the United States. |
• | Recent uncertainty in the EU financial markets has increased the possibility of significant changes in foreign exchange rates as governments take counter measures. As a large portion of our commercial business is euro denominated, any material change in the euro to U.S. dollar exchange rate could impact our results on a consolidated basis. |
Net Sales | |||||||||||||||||||||
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||
2012 | 2011 | % Change | 2012 | 2011 | % Change | ||||||||||||||||
Paper | $ | 141.9 | $ | 143.2 | (0.9 | )% | $ | 284.1 | $ | 268.3 | 5.9 | % | |||||||||
Reconstituted Tobacco | 56.9 | 63.0 | (9.7 | ) | 116.8 | 118.6 | (1.5 | ) | |||||||||||||
Total Consolidated | $ | 198.8 | $ | 206.2 | (3.6 | )% | $ | 400.9 | $ | 386.9 | 3.6 | % |
Operating Profit from Continuing Operations | |||||||||||||||||||||||||||
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||||
Return on Net Sales | Return on Net Sales | ||||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||||
Paper | $ | 20.8 | $ | 10.6 | 14.7 | % | 7.4 | % | $ | 25.1 | $ | 20.8 | 8.8 | % | 7.8 | % | |||||||||||
Reconstituted Tobacco | 20.1 | 26.3 | 35.3 | 41.7 | 44.8 | 46.3 | 38.4 | 39.0 | |||||||||||||||||||
Unallocated | (5.4 | ) | (5.3 | ) | (10.0 | ) | (9.1 | ) | |||||||||||||||||||
Total Consolidated | $ | 35.5 | $ | 31.6 | 17.9 | % | 15.3 | % | $ | 59.9 | $ | 58.0 | 14.9 | % | 15.0 | % |
Restructuring and Impairment Expense | |||||||||||||||
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Paper | $ | 2.1 | $ | 0.3 | $ | 20.0 | $ | 0.5 | |||||||
Reconstituted Tobacco | 3.2 | 0.4 | 3.9 | 1.2 | |||||||||||
Unallocated | — | — | 0.1 | — | |||||||||||
Total Consolidated | $ | 5.3 | $ | 0.7 | $ | 24.0 | $ | 1.7 |
Operating Profit from Continuing Operations Excluding Restructuring & Impairment Expense* | |||||||||||||||||||||||||||
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||||
Return on Net Sales | Return on Net Sales | ||||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||||
Paper | $ | 22.9 | $ | 10.9 | 16.1 | % | 7.6 | % | $ | 45.1 | $ | 21.3 | 15.9 | % | 7.9 | % | |||||||||||
Reconstituted Tobacco | 23.3 | 26.7 | 40.9 | 42.4 | 48.7 | 47.5 | 41.7 | 40.1 | |||||||||||||||||||
Unallocated | (5.4 | ) | (5.3 | ) | (9.9 | ) | (9.1 | ) | |||||||||||||||||||
Total Consolidated | $ | 40.8 | $ | 32.3 | 20.5 | % | 15.7 | % | $ | 83.9 | $ | 59.7 | 20.9 | % | 15.4 | % |
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net Sales | $ | 198.8 | $ | 206.2 | $ | 400.9 | $ | 386.9 | |||||||
Plus: Currency impact compared to prior year | 24.0 | N.A. | 28.2 | N.A. | |||||||||||
Constant Currency Net Sales | $ | 222.8 | $ | 206.2 | $ | 429.1 | $ | 386.9 | |||||||
Income from continuing operations per diluted share | $ | 1.32 | $ | 1.17 | $ | 2.22 | $ | 2.10 | |||||||
Plus: Income tax valuation allowance per share | 0.03 | — | 0.16 | — | |||||||||||
Plus: Restructuring & impairment expense per share | 0.29 | 0.04 | 1.04 | 0.09 | |||||||||||
Adjusted Income Per Share from Continuing Operations | $ | 1.64 | $ | 1.21 | $ | 3.42 | $ | 2.19 | |||||||
Net income per diluted share | $ | 1.32 | $ | 1.14 | $ | 2.22 | $ | 2.05 | |||||||
Plus: Income tax valuation allowance per share | 0.03 | — | 0.16 | — | |||||||||||
Plus: Restructuring & impairment expense per share: | |||||||||||||||
Included in Income from continuing operations (above) | 0.29 | 0.04 | 1.04 | 0.09 | |||||||||||
Included in loss from discontinued operations | — | 0.02 | — | 0.03 | |||||||||||
Adjusted Net Income Per Share | $ | 1.64 | $ | 1.20 | $ | 3.42 | $ | 2.17 | |||||||
Income from continuing operations | $ | 21.0 | $ | 20.3 | $ | 35.6 | $ | 36.9 | |||||||
Plus: Interest expense | 0.9 | 0.7 | 1.8 | 0.7 | |||||||||||
Plus: Income tax provision | 13.5 | 11.6 | 23.2 | 22.5 | |||||||||||
Plus: Depreciation & amortization | 9.8 | 10.8 | 20.0 | 21.5 | |||||||||||
Less: Amortization of deferred revenue | — | (2.5 | ) | — | (4.9 | ) | |||||||||
Plus: Restructuring & impairment expense | 5.3 | 0.7 | 24.0 | 1.7 | |||||||||||
Adjusted EBITDA from Continuing Operations | $ | 50.5 | $ | 41.6 | $ | 104.6 | $ | 78.4 | |||||||
Cash provided (used) by operating activities of continuing operations | $ | 23.9 | $ | 12.7 | $ | 72.3 | $ | 14.8 | |||||||
Less: Capital spending | (6.2 | ) | (14.4 | ) | (14.0 | ) | (42.1 | ) | |||||||
Less: Capitalized software costs | (0.2 | ) | (0.2 | ) | (0.3 | ) | (1.0 | ) | |||||||
Less: Cash dividends paid | (2.4 | ) | (2.6 | ) | (4.8 | ) | (5.3 | ) | |||||||
Free Cash Flow - continuing operations | $ | 15.1 | $ | (4.5 | ) | $ | 53.2 | $ | (33.6 | ) | |||||
June 30, 2012 | December 31, 2011 | ||||||||||||||
Total Debt | $ | 174.1 | $ | 146.0 | |||||||||||
Less: Cash | 88.5 | 76.5 | |||||||||||||
Net Debt | $ | 85.6 | $ | 69.5 |
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