Delaware | 62-1612879 |
(State or other jurisdiction of incorporation) | (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 February 15, 2017, of Schweitzer-Mauduit International, Inc., announcing earnings for the quarter ended December 31, 2016. |
By: | /s/ Allison Aden |
Allison Aden | |
Executive Vice President, Finance and | |
Chief Financial Officer |
99.1 | Press Release, dated February 15, 2017, of Schweitzer-Mauduit International, Inc., announcing earnings for the quarter ended December 31, 2016. |
• | Net sales decreased 5.3% to $198.7 million; lower Engineered Papers (EP) segment sales were partially offset by the Argotec acquisition. Excluding Argotec (organic), net sales decreased 10.8% |
• | GAAP EPS was $0.55, down 22.5%; Adjusted EPS was $0.80, down 12.1% |
• | Anticipated declines in high-margin low ignition propensity paper (LIP) and reconstituted tobacco leaf (RTL) volumes offset the benefits of the Argotec acquisition. Non-cash trade name impairment expenses related to rebranding impacted GAAP EPS by $0.39 |
• | Net Sales increased 9.9%, driven by the Argotec acquisition; organic net sales decreased 4.1% |
• | GAAP EPS was $2.70, down 8.8%; Adjusted EPS was $3.26, down 7.1% |
• | Full year 2016 Adjusted EPS of $3.26 exceeded guidance of $3.15; 2017 Adjusted EPS guidance is $3.15, down slightly versus 2016, as expected accretion from Conwed will likely be offset by RTL weakness |
• | The recently closed Conwed transaction delivers further scale to Advanced Materials & Structures (AMS) and is expected to be SWM's most synergistic acquisition to date, underpinning anticipated near-term segment margin expansion |
• | Fourth quarter Engineered Papers segment net sales decreased 12.5%, due mainly to anticipated double-digit volume declines of high-margin RTL and LIP products |
• | Fourth quarter cigarette paper volumes including the Chinese JV (CTM) decreased 9%, reconstituted tobacco volumes including the Chinese JV (CTS) decreased 20%, and non-tobacco paper volumes increased 25% |
• | EP segment GAAP and adjusted operating profit margins expanded 250 and 60 basis points, respectively, during the fourth quarter; strong growth in certain niche products and solid overall cost performance offset the expected RTL and LIP weakness |
• | Fourth quarter AMS segment net sales increased 14.0%; organic net sales decreased 3.4%, with negative currency translation impacts accounting for full decline |
• | AMS segment GAAP operating profit margin was negative in the fourth quarter due to non-cash trade name impairment expenses related to rebranding, which more than offset the contribution from Argotec; adjusted operating profit margin expanded 170 basis points due primarily to Argotec |
• | Changes in sales or production volumes, pricing and/or manufacturing costs of reconstituted tobacco products, cigarette paper (including for lower ignition propensity cigarettes), filtration-related products due to changing customer demands (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, competition or otherwise; |
• | Changes in the Chinese economy, including relating to the demand for reconstituted tobacco, premium cigarettes and netting; |
• | 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, including in Asia regarding our AMS business; |
• | Our ability to attract and retain key personnel, due to our prior restructuring actions, the tobacco industry in which we operate or otherwise; |
• | 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; |
• | Increases in commodity prices and lack of availability of such commodities, including energy, wood pulp and resins, could impact the sales and profitability of our products; |
• | Adverse changes in the oil, gas, 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, including costs related to the comprehensive health care reform law enacted in the US in 2010; |
• | Employee retention and labor shortages; |
• | Changes in employment, wage and hour laws and regulations in the U.S., France and elsewhere, including loi de Securisation de l'emploi, unionization rule and regulations by the National Labor Relations Board, 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; |
• | 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; |
• | 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 (for example, relating to Russia and to the Ukraine), including their impact on our sales and the adoption of new LIP regulations; |
• | 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; |
• | The outcome and cost of LIP-related intellectual property infringement and validity litigation in Europe and the European Patent Office opposition proceedings; |
• | 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. |
Net Sales | |||||||||||||||||||||
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||
2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||||||
Engineered Papers | $ | 133.6 | $ | 152.7 | (12.5 | )% | $ | 559.3 | $ | 583.9 | (4.2 | )% | |||||||||
Advanced Materials & Structures | 65.1 | 57.1 | 14.0 | % | 280.6 | 180.2 | 55.7 | % | |||||||||||||
Total Consolidated | $ | 198.7 | $ | 209.8 | (5.3 | )% | $ | 839.9 | $ | 764.1 | 9.9 | % |
Operating Profit (Loss) from Continuing Operations | |||||||||||||||||||||||||||
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||
Return on Net Sales | Return on Net Sales | ||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||
Engineered Papers | $ | 34.6 | $ | 35.8 | 25.9 | % | 23.4 | % | $ | 138.0 | $ | 121.5 | 24.7 | % | 20.8 | % | |||||||||||
Advanced Materials & Structures | (13.8 | ) | 3.9 | (21.2 | )% | 6.8 | % | 9.0 | 16.7 | 3.2 | % | 9.3 | % | ||||||||||||||
Unallocated | (14.6 | ) | (15.0 | ) | (40.9 | ) | (35.2 | ) | |||||||||||||||||||
Total Consolidated | $ | 6.2 | $ | 24.7 | 3.1 | % | 11.8 | % | $ | 106.1 | $ | 103.0 | 12.6 | % | 13.5 | % |
Restructuring and Impairment Expenses and Purchase Accounting Adjustments | |||||||||||||||
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Engineered Papers | $ | 0.9 | $ | 3.9 | $ | 4.0 | $ | 14.4 | |||||||
Advanced Materials & Structures | 23.8 | 3.9 | 33.6 | 7.3 | |||||||||||
Unallocated | — | 0.2 | 0.3 | 0.4 | |||||||||||
Total Consolidated | $ | 24.7 | $ | 8.0 | $ | 37.9 | $ | 22.1 |
Adjusted Operating Profit (Loss) from Continuing Operations* | |||||||||||||||||||||||||||
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||
Return on Net Sales | Return on Net Sales | ||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||
Engineered Papers | $ | 35.5 | $ | 39.7 | 26.6 | % | 26.0 | % | $ | 142.0 | $ | 135.9 | 25.4 | % | 23.3 | % | |||||||||||
Advanced Materials & Structures | 10.0 | 7.8 | 15.4 | % | 13.7 | % | 42.6 | 24.0 | 15.2 | % | 13.3 | % | |||||||||||||||
Unallocated | (14.6 | ) | (14.8 | ) | (40.6 | ) | (34.8 | ) | |||||||||||||||||||
Total Consolidated | $ | 30.9 | $ | 32.7 | 15.6 | % | 15.6 | % | $ | 144.0 | $ | 125.1 | 17.1 | % | 16.4 | % |
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net sales | $ | 198.7 | $ | 209.8 | $ | 839.9 | $ | 764.1 | |||||||
Plus: Currency impact compared to prior year | (2.2 | ) | 14.4 | (0.3 | ) | 73.6 | |||||||||
Constant Currency Net Sales | $ | 196.5 | $ | 224.2 | $ | 839.6 | $ | 837.7 | |||||||
Operating profit from continuing operations | $ | 6.2 | $ | 24.7 | $ | 106.1 | $ | 103.0 | |||||||
Plus: Restructuring and impairment expense | 21.6 | 4.1 | 25.6 | 14.6 | |||||||||||
Plus: Purchase accounting adjustments | 3.1 | 3.9 | 12.3 | 7.5 | |||||||||||
Adjusted Operating Profit from Continuing Operations | $ | 30.9 | $ | 32.7 | $ | 144.0 | $ | 125.1 | |||||||
Income from continuing operations | $ | 17.0 | $ | 21.6 | $ | 82.8 | $ | 90.5 | |||||||
Plus: Restructuring and impairment expense | 21.6 | 4.1 | 25.6 | 14.6 | |||||||||||
Less: Tax impact of restructuring and impairment expense | (9.0 | ) | (0.3 | ) | (10.2 | ) | (2.7 | ) | |||||||
Plus: Purchase accounting adjustments | 3.1 | 3.9 | 12.3 | 7.5 | |||||||||||
Less: Tax impact of purchase accounting adjustments | (1.1 | ) | (1.6 | ) | (4.5 | ) | (2.8 | ) | |||||||
Less: Net deferred tax movements, one-time tax expense & income tax valuation allowance | (7.4 | ) | — | (6.5 | ) | — | |||||||||
Adjusted Income from Continuing Operations | $ | 24.2 | $ | 27.7 | $ | 99.5 | $ | 107.1 | |||||||
Earnings per share - diluted | $ | 0.55 | $ | 0.72 | $ | 2.70 | $ | 2.94 | |||||||
Plus: Loss (income) per share from discontinued operations | — | (0.01 | ) | — | 0.02 | ||||||||||
Earnings per share from continuing operations | 0.55 | 0.71 | 2.70 | 2.96 | |||||||||||
Plus: Restructuring and impairment expense per share | 0.71 | 0.13 | 0.84 | 0.48 | |||||||||||
Less: Tax impact of restructuring and impairment expense per share | (0.29 | ) | (0.01 | ) | (0.33 | ) | (0.09 | ) | |||||||
Plus: Purchase accounting adjustments per share | 0.10 | 0.13 | 0.40 | 0.25 | |||||||||||
Less: Tax impact of purchase accounting adjustments per share | (0.04 | ) | (0.05 | ) | (0.15 | ) | (0.09 | ) | |||||||
Less: Net deferred tax movements, one-time tax expense & income tax valuation allowance per share | (0.23 | ) | — | (0.20 | ) | — | |||||||||
Adjusted Earnings Per Share from Continuing Operations - Diluted | $ | 0.80 | $ | 0.91 | $ | 3.26 | $ | 3.51 | |||||||
Income from continuing operations | $ | 17.0 | $ | 21.6 | $ | 82.8 | $ | 90.5 | |||||||
Plus: Interest expense | 4.0 | 4.4 | 16.6 | 9.7 | |||||||||||
Plus: Income tax (benefit) provision | (12.5 | ) | 3.7 | 15.4 | 21.6 | ||||||||||
Plus: Depreciation & amortization | 9.5 | 12.0 | 42.8 | 41.0 | |||||||||||
Plus: Restructuring and impairment expense | 21.6 | 4.1 | 25.6 | 14.6 | |||||||||||
Adjusted EBITDA from Continuing Operations | $ | 39.6 | $ | 45.8 | $ | 183.2 | $ | 177.4 | |||||||
Cash provided by operating activities of continuing operations | $ | 46.6 | $ | 64.9 | $ | 129.7 | $ | 144.6 | |||||||
Less: Capital spending | (10.3 | ) | (10.2 | ) | (27.8 | ) | (24.2 | ) | |||||||
Less: Capitalized software costs | (1.1 | ) | (0.2 | ) | (2.8 | ) | (0.9 | ) | |||||||
Free Cash Flow from Continuing Operations | $ | 35.2 | $ | 54.5 | $ | 99.1 | $ | 119.5 | |||||||
December 31, 2016 | December 31, 2015 | ||||||||||||||
Total Debt | $ | 440.4 | $ | 571.5 | |||||||||||
Less: Cash | 107.4 | 186.5 | |||||||||||||
Net Debt | $ | 333.0 | $ | 385.0 |
Years Ended December 31, | ||||||||||
2016 | 2015 | % Change | ||||||||
Net sales | $ | 839.9 | $ | 764.1 | 9.9 | % | ||||
Cost of products sold | 583.2 | 539.7 | 8.1 | |||||||
Gross profit | 256.7 | 224.4 | 14.4 | |||||||
Selling expense | 25.3 | 22.2 | 14.0 | |||||||
Research expense | 17.5 | 14.0 | 25.0 | |||||||
General expense | 82.2 | 70.6 | 16.4 | |||||||
Total nonmanufacturing expenses | 125.0 | 106.8 | 17.0 | |||||||
Restructuring and impairment expense | 25.6 | 14.6 | 75.3 | |||||||
Operating profit | 106.1 | 103.0 | 3.0 | |||||||
Interest expense | 16.6 | 9.7 | 71.1 | |||||||
Other income, net | 3.9 | 12.2 | (68.0 | ) | ||||||
Income from continuing operations before income taxes and income from equity affiliates | 93.4 | 105.5 | (11.5 | ) | ||||||
Income tax provision | 15.4 | 21.6 | (28.7 | ) | ||||||
Income from equity affiliates, net of income taxes | 4.8 | 6.6 | (27.3 | ) | ||||||
Income from continuing operations | 82.8 | 90.5 | (8.5 | ) | ||||||
Income from discontinued operations | — | (0.8 | ) | N.M. | ||||||
Net income | $ | 82.8 | $ | 89.7 | (7.7 | )% | ||||
Net income per share - basic: | ||||||||||
Income per share from continuing operations | $ | 2.71 | $ | 2.97 | (8.8 | )% | ||||
Income per share from discontinued operations | — | (0.02 | ) | N.M. | ||||||
Net income per share – basic | $ | 2.71 | $ | 2.95 | (8.1 | )% | ||||
Net income per share – diluted: | ||||||||||
Income per share from continuing operations | $ | 2.70 | $ | 2.96 | (8.8 | )% | ||||
Income per share from discontinued operations | — | (0.02 | ) | N.M. | ||||||
Net income per share – diluted | $ | 2.70 | $ | 2.94 | (8.2 | )% | ||||
Cash dividends declared per share | $ | 1.62 | $ | 1.54 | ||||||
Weighted average shares outstanding: | ||||||||||
Basic | 30,310,900 | 30,251,400 | ||||||||
Diluted | 30,463,400 | 30,374,300 |
Three Months Ended December 31, | ||||||||||
2016 | 2015 | % Change | ||||||||
Net sales | $ | 198.7 | $ | 209.8 | (5.3 | )% | ||||
Cost of products sold | 135.5 | 144.0 | (5.9 | ) | ||||||
Gross profit | 63.2 | 65.8 | (4.0 | ) | ||||||
Selling expense | 6.5 | 6.2 | 4.8 | |||||||
Research expense | 4.6 | 3.5 | 31.4 | |||||||
General expense | 24.3 | 27.3 | (11.0 | ) | ||||||
Total nonmanufacturing expenses | 35.4 | 37.0 | (4.3 | ) | ||||||
Restructuring and impairment expense | 21.6 | 4.1 | N.M. | |||||||
Operating profit | 6.2 | 24.7 | (74.9 | ) | ||||||
Interest expense | 4.0 | 4.4 | (9.1 | ) | ||||||
Other income, net | (0.1 | ) | 2.7 | N.M. | ||||||
Income from continuing operations before income taxes and income from equity affiliates | 2.1 | 23.0 | (90.9 | ) | ||||||
Income tax (benefit) provision | (12.5 | ) | 3.7 | N.M. | ||||||
Income from equity affiliates, net of income taxes | 2.4 | 2.3 | 4.3 | |||||||
Income from continuing operations | 17.0 | 21.6 | (21.3 | ) | ||||||
Income from discontinued operations | — | 0.1 | N.M. | |||||||
Net income | $ | 17.0 | $ | 21.7 | (21.7 | )% | ||||
Net income per share - basic: | ||||||||||
Income per share from continuing operations | $ | 0.55 | $ | 0.71 | (22.5 | )% | ||||
Income per share from discontinued operations | — | 0.01 | N.M. | |||||||
Net income per share – basic | $ | 0.55 | $ | 0.72 | (23.6 | )% | ||||
Net income per share – diluted: | ||||||||||
Income per share from continuing operations | $ | 0.55 | $ | 0.71 | (22.5 | )% | ||||
Income per share from discontinued operations | — | 0.01 | N.M. | |||||||
Net income per share – diluted | $ | 0.55 | $ | 0.72 | (23.6 | )% | ||||
Cash dividends declared per share | $ | 0.42 | $ | 0.40 | ||||||
Weighted average shares outstanding: | ||||||||||
Basic | 30,318,900 | 30,276,500 | ||||||||
Diluted | 30,524,400 | 30,396,900 |
December 31, 2016 | December 31, 2015 | ||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 107.4 | $ | 186.5 | |||
Accounts receivable, net | 115.1 | 119.4 | |||||
Inventories | 119.4 | 112.4 | |||||
Assets held for sale | 17.3 | 21.9 | |||||
Other current assets | 5.1 | 4.6 | |||||
Property, plant and equipment, net | 307.4 | 308.1 | |||||
Goodwill | 229.5 | 233.3 | |||||
Other noncurrent assets | 272.5 | 303.8 | |||||
Total Assets | $ | 1,173.7 | $ | 1,290.0 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current debt | $ | 3.0 | $ | 3.3 | |||
Other current liabilities | 132.8 | 139.8 | |||||
Long-term debt | 437.4 | 568.2 | |||||
Pension and other postretirement benefits | 33.1 | 33.5 | |||||
Deferred income tax liabilities | 29.8 | 45.3 | |||||
Other noncurrent liabilities | 29.3 | 32.0 | |||||
Stockholders’ equity | 508.3 | 467.9 | |||||
Total Liabilities and Stockholders’ Equity | $ | 1,173.7 | $ | 1,290.0 |
Years Ended December 31, | |||||||
2016 | 2015 | ||||||
Operations | |||||||
Net income | $ | 82.8 | $ | 89.7 | |||
Less: Loss from discontinued operations | — | (0.8 | ) | ||||
Income from continuing operations | 82.8 | 90.5 | |||||
Non-cash items included in net income: | |||||||
Depreciation and amortization | 44.5 | 41.0 | |||||
Impairment | 21.3 | 6.7 | |||||
Deferred income tax benefit | (13.5 | ) | (6.7 | ) | |||
Pension and other postretirement benefits | 3.8 | 4.2 | |||||
Stock-based compensation | 5.8 | 3.5 | |||||
Income from equity affiliate | (4.8 | ) | (6.6 | ) | |||
Gain on sale of intangible assets | (1.8 | ) | (4.3 | ) | |||
Excess tax benefits of stock-based awards | 0.2 | (0.5 | ) | ||||
Cash dividends received from equity affiliates | 3.0 | 3.9 | |||||
Other items | (0.6 | ) | 0.1 | ||||
Net changes in operating working capital | (11.0 | ) | 12.8 | ||||
Net cash provided by (used in) operating activities of: | |||||||
Continuing operations | 129.7 | 144.6 | |||||
Discontinued operations | — | 0.1 | |||||
Cash provided by operations | 129.7 | 144.7 | |||||
Investing | |||||||
Capital spending | (27.8 | ) | (24.2 | ) | |||
Capitalized software costs | (2.8 | ) | (0.9 | ) | |||
Acquisitions, net of cash acquired | — | (280.6 | ) | ||||
Other investing | 8.2 | (8.0 | ) | ||||
Cash used in investing | (22.4 | ) | (313.7 | ) | |||
Financing | |||||||
Cash dividends paid to SWM stockholders | (49.4 | ) | (46.9 | ) | |||
Changes in short-term debt | — | (0.4 | ) | ||||
Proceeds from issuances of long-term debt | 35.6 | 488.2 | |||||
Payments on long-term debt | (171.0 | ) | (338.7 | ) | |||
Payments for debt issuance costs | — | (7.4 | ) | ||||
Purchases of common stock | (0.7 | ) | (2.9 | ) | |||
Excess tax benefits of stock-based awards | (0.2 | ) | 0.5 | ||||
Cash (used in) provided by financing | (185.7 | ) | 92.4 | ||||
Effect of exchange rate changes on cash and cash equivalents | (0.7 | ) | (27.2 | ) | |||
Decrease in cash and cash equivalents | $ | (79.1 | ) | $ | (103.8 | ) |
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