Delaware | 1-13948 | 62-1612879 |
(State or other jurisdiction of | (Commission file number) | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
100 North Point Center East, Suite 600
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Alpharetta, Georgia | 30022 | |
(Address of principal executive offices) | (Zip code) |
o Written communications pursuant to Rule 425 under the Securities Act. (17 CFR 230.425)
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o Soliciting material pursuant to Rule 14a-12 under the Exchange Act. (17 CFR 240.14a-12)
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o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act. (17 CFR 240.14d-2(b))
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o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act. (17 CFR 240.13c-4(c))
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Item 2.02
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Results of Operations and Financial Condition.
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Item 9.01
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Financial Statements and Exhibits.
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99.1
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Press Release, dated August 3, 2011, of Schweitzer-Mauduit International, Inc., announcing earnings for the quarter ended June 30, 2011.
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Schweitzer-Mauduit International, Inc. | |||
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By:
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/s/ Peter J. Thompson | |
Peter J. Thompson | |||
Executive Vice President, Finance and | |||
Strategic Planning | |||
Date: August 3, 2011
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Exhibit No.
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Description
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Press Release, dated August 3, 2011, of Schweitzer-Mauduit International, Inc., announcing earnings for the quarter ended June 30, 2011.
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·
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Net sales of $206.2 million; $386.9 million year-to-date
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Net income of $19.8 million; $36.0 million year-to-date
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Operating profit, excluding restructuring and impairment expense, of $32.3 million; $59.7 million year-to-date
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·
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Diluted net income per share of $1.14, compared to $0.78 per share in second quarter 2010; excluding per share restructuring and impairment expense of $0.06 and $0.15, respectively, adjusted net income per share of $1.20 compared to $0.93 per share in the second quarter of 2010
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·
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Adjusted EBITDA from Continuing Operations of $41.6 million (Adjusted EBITDA from Continuing Operations is a non-GAAP financial measure that excludes restructuring and impairment expenses. See non-GAAP reconciliations); $78.4 million year-to-date
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Increased Lower Ignition Propensity (LIP) cigarette paper and Reconstituted Tobacco Leaf (RTL) sales volumes
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Achieved first month of profitable commercial operations at new EU LIP facility
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Continued cost savings and benefits from operational excellence initiatives
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Continued inflationary cost increases
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Signed joint venture agreement for new Chinese RTL facility
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Completed $75 million in SWM share repurchases in early July
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SWM has manufacturing facilities in 7 countries, a joint venture 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, or 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. In Brazil, we are currently generating more value-added tax credits than we utilize. As of June 30, 2011, these credits totaled $17.8 million. We are undertaking actions that, if successful, should allow our Brazilian operation to utilize more credits than it generates on an annual basis. These credits do not expire; however, if the actions being undertaken are not successful, we may record an allowance for a significant portion of the balance.
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The company’s sales are concentrated to a limited number of customers. In 2010, 45% of its sales were to its three 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.
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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. In this regard, Philip Morris – USA began advising the company in 2009 that it disputes the manner in which the company has calculated costs for banded cigarette papers under a cost-plus based contract for this product during the period April 2009 through December 2010. Notwithstanding that the dispute is now over a year old, and SWM has consistently advised Philip Morris – USA that it disagrees with its position, Philip Morris -USA to-date has not instituted any formal action to bring this matter to a close. Philip Morris - USA has also consistently paid the full invoiced amount from the date of the first notice of dispute to the present thereby avoiding any contention by SWM that the agreement has been breached for non-payment. Philip Morris - USA’s action reflects a requirement found in the Virginia Uniform Commercial Code, the law that governs the contract that suggests a party making full payment of a disputed invoice potentially waives any right to recover the amount paid unless such payment is accompanied by an explicit reservation of rights. Currently, the disputed amount is approximately $24.4 million. While the company believes that it has properly calculated the amount it invoiced, the ultimate resolution of this dispute, if unfavorable to the company, could have a material adverse effect on the company’s results of operations.
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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.
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The demand for our reconstituted tobacco leaf product is subject to change depending on the rate at which this product is included in the blend that forms the column of tobacco in 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 adverse affect on the volume of reconstituted tobacco sales, the price for reconstituted tobacco or both, either of which can have a material adverse effect on our earnings from that product line and 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.
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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. 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, 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, or to what extent, if any, such legislation or regulations might affect our business.
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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.
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Unaudited
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2011
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2010
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Change
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|||||||||
Net Sales
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$ | 206.2 | $ | 182.6 | 12.9 | % | ||||||
Cost of products sold
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151.1 | 137.3 | 10.1 | |||||||||
Gross Profit
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55.1 | 45.3 | 21.6 | |||||||||
Selling expense
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5.5 | 4.6 | 19.6 | |||||||||
Research expense
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2.4 | 2.1 | 14.3 | |||||||||
General expense
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14.9 | 10.7 | 39.3 | |||||||||
Total nonmanufacturing expenses
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22.8 | 17.4 | 31.0 | |||||||||
Restructuring and impairment expense
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0.7 | 2.9 | (75.9 | ) | ||||||||
Operating Profit
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31.6 | 25.0 | 26.4 | |||||||||
Interest expense
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0.7 | 0.6 | 16.7 | |||||||||
Other income (expense), net
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(0.1 | ) | (0.2 | ) | (50.0 | ) | ||||||
Income from Continuing Operations Before Income Taxes and Income from Equity Affiliates
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30.8 | 24.2 | 27.3 | |||||||||
Provision for income taxes
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11.6 | 9.1 | 27.5 | |||||||||
Income from equity affiliates
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1.1 | 0.7 | 57.1 | |||||||||
Income from Continuing Operations
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20.3 | 15.8 | 28.5 | |||||||||
Loss from Discontinued Operations
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(0.5 | ) | (1.0 | ) | (50.0 | ) | ||||||
Net Income
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$ | 19.8 | $ | 14.8 | 33.8 | % | ||||||
Net Income (Loss) Per Share (Basic):
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Income per share from continuing operations
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$ | 1.19 | $ | 0.85 | 40.0 | % | ||||||
Loss per share from discontinued operations
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(0.04 | ) | (0.05 | ) | (20.0 | ) | ||||||
Net income per share (basic)
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$ | 1.15 | $ | 0.80 | 43.8 | % | ||||||
Net Income (Loss) Per Share (Diluted):
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Income per share from continuing operations
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$ | 1.17 | $ | 0.83 | 41.0 | % | ||||||
Loss per share from discontinued operations
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(0.03 | ) | (0.05 | ) | (40.0 | ) | ||||||
Net income per share (diluted)
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$ | 1.14 | $ | 0.78 | 46.2 | % | ||||||
Dividends Declared Per Share
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$ | 0.15 | $ | 0.15 | ||||||||
Average Common Shares Outstanding: | ||||||||||||
Basic | 16,887,400 | 17,820,200 | ||||||||||
Diluted, including Common Share Equivalents | 17,003,400 | 18,137,500 |
Unaudited
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2011
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2010
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Change
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Net Sales
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$ | 386.9 | $ | 375.4 | 3.1 | % | ||||||
Cost of products sold
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284.6 | 276.6 | 2.9 | |||||||||
Gross Profit
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102.3 | 98.8 | 3.5 | |||||||||
Selling expense
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10.6 | 9.8 | 8.2 | |||||||||
Research expense
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4.4 | 4.1 | 7.3 | |||||||||
General expense
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27.6 | 22.4 | 23.2 | |||||||||
Total nonmanufacturing expenses
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42.6 | 36.3 | 17.4 | |||||||||
Restructuring and impairment expense
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1.7 | 6.5 | (73.8 | ) | ||||||||
Operating Profit
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58.0 | 56.0 | 3.6 | |||||||||
Interest expense
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0.7 | 1.0 | (30.0 | ) | ||||||||
Other income (expense), net
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0.1 | (1.3 | ) |
N.M.
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Income from Continuing Operations Before Income Taxes and Income from Equity Affiliates
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57.4 | 53.7 | 6.9 | |||||||||
Provision for income taxes
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22.5 | 19.4 | 16.0 | |||||||||
Income from equity affiliates
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2.0 | 1.3 | 53.8 | |||||||||
Income from Continuing Operations
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36.9 | 35.6 | 3.7 | |||||||||
Loss from Discontinued Operations
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(0.9 | ) | (2.2 | ) | (59.1 | ) | ||||||
Net Income
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$ | 36.0 | $ | 33.4 | 7.8 | % | ||||||
Net Income (Loss) Per Share (Basic):
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Income per share from continuing operations
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$ | 2.12 | $ | 1.96 | 8.2 | % | ||||||
Loss per share from discontinued operations
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(0.06 | ) | (0.12 | ) | (50.0 | ) | ||||||
Net income per share (basic)
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$ | 2.06 | $ | 1.84 | 12.0 | % | ||||||
Net Income (Loss) Per Share (Diluted):
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Income per share from continuing operations
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$ | 2.10 | $ | 1.92 | 9.4 | % | ||||||
Loss per share from discontinued operations
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(0.05 | ) | (0.12 | ) | (58.3 | ) | ||||||
Net income per share (diluted)
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$ | 2.05 | $ | 1.80 | 13.9 | % | ||||||
Dividends Declared Per Share
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$ | 0.30 | $ | 0.30 | ||||||||
Average Common Shares Outstanding: | ||||||||||||
Basic | 17,158,600 | 17,813,000 | ||||||||||
Diluted, including Common Share Equivalents | 17,268,800 | 18,150,100 |
June 30
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December 31
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Unaudited
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2011
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2010
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ASSETS | ||||||||
Cash and cash equivalents
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$ | 62.1 | $ | 87.3 | ||||
Accounts receivable
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113.5 | 98.9 | ||||||
Inventories
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125.8 | 113.8 | ||||||
Other current assets
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25.2 | 12.8 | ||||||
Net property, plant and equipment
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474.7 | 440.8 | ||||||
Other noncurrent assets
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104.7 | 96.8 | ||||||
Total Assets
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906.0 | 850.4 | ||||||
LIABILITIES & STOCKHOLDERS' EQUITY
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Current debt
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$ | 8.7 | $ | 8.7 | ||||
Other current liabilities
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148.2 | 178.0 | ||||||
Long-term debt
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157.3 | 43.1 | ||||||
Pension and other postretirement benefits
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47.9 | 46.3 | ||||||
Deferred income tax liabilities
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32.9 | 28.9 | ||||||
Other noncurrent liabilities
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21.2 | 21.2 | ||||||
Stockholders' equity
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489.8 | 524.2 | ||||||
Total Liabilities and Stockholders' Equity
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$ | 906.0 | $ | 850.4 |
Unaudited
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2011
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2010
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Net income
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$ | 36.0 | $ | 33.4 | ||||
Less: Loss from discontinued operations
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0.9 | 2.2 | ||||||
Income from continuing operations
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36.9 | 35.6 | ||||||
Depreciation and amortization
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21.5 | 19.9 | ||||||
Restructuring-related impairment
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- | 0.4 | ||||||
Amortization of deferred revenue
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(4.9 | ) | (3.9 | ) | ||||
Deferred income tax provision
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2.0 | 12.3 | ||||||
Pension and other postretirement benefits
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2.6 | 1.2 | ||||||
Stock-based compensation
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2.0 | 3.5 | ||||||
Income from equity affiliates
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(2.0 | ) | (1.3 | ) | ||||
Other items
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(2.3 | ) | (1.7 | ) | ||||
Net changes in operating working capital
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(41.0 | ) | 20.2 | |||||
Net cash provided (used) by operating activities of:
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- Continuing operations
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14.8 | 86.2 | ||||||
- Discontinued operations
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(2.6 | ) | (11.5 | ) | ||||
Cash Provided by Operations
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12.2 | 74.7 | ||||||
Capital spending
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(42.1 | ) | (25.8 | ) | ||||
Capitalized software costs
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(1.0 | ) | (6.1 | ) | ||||
Investment in equity affiliates
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(2.5 | ) | - | |||||
Other investing
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(1.4 | ) | 2.0 | |||||
Cash Used for Investing
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(47.0 | ) | (29.9 | ) | ||||
Cash dividends paid to SWM stockholders
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(5.3 | ) | (5.4 | ) | ||||
Changes in short-term debt
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0.7 | 1.7 | ||||||
Proceeds from issuances of long-term debt
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204.5 | 48.0 | ||||||
Payment on long-term debt
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(95.0 | ) | (55.6 | ) | ||||
Purchases of treasury stock
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(104.5 | ) | (0.8 | ) | ||||
Proceeds from exercises of stock options
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0.1 | 1.1 | ||||||
Excess tax benefits of stock-based awards
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9.0 | 1.1 | ||||||
Cash Provided by (Used in) Financing
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9.5 | (9.9 | ) | |||||
Effect of Exchange Rate Changes on Cash
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0.1 | 0.1 | ||||||
Increase (Decrease) in Cash and Cash Equivalents
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$ | (25.2 | ) | $ | 35.0 |
Net Sales
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For the three months ended June 30,
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For the six months ended June 30,
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2011
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2010
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% Change
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2011
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2010
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% Change
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Paper
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$ | 143.2 | $ | 133.6 | 7.2 | % | $ | 268.3 | $ | 264.7 | 1.4 | % | ||||||||||||
Reconstituted Tobacco
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63.0 | 49.0 | 28.6 | 118.6 | 110.7 | 7.1 | ||||||||||||||||||
Consolidated
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$ | 206.2 | $ | 182.6 | 12.9 | % | $ | 386.9 | $ | 375.4 | 3.1 | % |
Operating Profit (Loss) from Continuing Operations | For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||||||||||||||||||
Return on Net Sales | Return on Net Sales | |||||||||||||||||||||||||||||||
2011
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2010
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2011
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2010
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2011
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2010
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2011
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2010
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Paper
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$ | 10.6 | $ | 10.8 | 7.4 | % | 8.1 | % | $ | 20.8 | $ | 20.0 | 7.8 | % | 7.6 | % | ||||||||||||||||
Reconstituted Tobacco
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26.3 | 18.1 | 41.7 | 36.9 | 46.3 | 44.0 | 39.0 | 39.7 | ||||||||||||||||||||||||
Unallocated
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(5.3 | ) | (3.9 | ) | (9.1 | ) | (8.0 | ) | ||||||||||||||||||||||||
Consolidated
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$ | 31.6 | $ | 25.0 | 15.3 | % | 13.7 | % | $ | 58.0 | $ | 56.0 | 15.0 | % | 14.9 | % |
For the three months ended June 30,
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For the six months ended June 30,
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2011
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2010
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2011
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2010
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Paper
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$ | 0.3 | $ | 2.7 | $ | 0.5 | $ | 6.3 | ||||||||
Reconstituted Tobacco
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0.4 | 0.2 | 1.2 | 0.2 | ||||||||||||
Consolidated
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$ | 0.7 | $ | 2.9 | $ | 1.7 | $ | 6.5 |
For the three months ended June 30,
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For the six months ended June 30,
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Return on Net Sales
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Return on Net Sales
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2011
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2010
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2011
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2010
|
2011
|
2010
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2011
|
2010
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Paper
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$ | 10.9 | $ | 13.5 | 7.6 | % | 10.1 | % | $ | 21.3 | $ | 26.3 | 7.9 | % | 9.9 | % | ||||||||||||||||
Reconstituted Tobacco
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26.7 | 18.3 | 42.4 | 37.3 | 47.5 | 44.2 | 40.1 | 39.9 | ||||||||||||||||||||||||
Unallocated
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(5.3 | ) | (3.9 | ) | (9.1 | ) | (8.0 | ) | ||||||||||||||||||||||||
Consolidated
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$ | 32.3 | $ | 27.9 | 15.7 | % | 15.3 | % | $ | 59.7 | $ | 62.5 | 15.4 | % | 16.6 | % |
Reconciliation of Non-GAAP financial measures:
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Three months ended June 30,
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Six months ended June 30,
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2011
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2010
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2011
|
2010
|
|||||||||||||
Income from continuing operations per diluted share
|
$ | 1.17 | $ | 0.83 | $ | 2.10 | $ | 1.92 | ||||||||
Plus: Restructuring & impairment expense per share
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0.04 | 0.11 | 0.09 | 0.23 | ||||||||||||
Adjusted Income from Continuing Operations Per Share
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$ | 1.21 | $ | 0.94 | $ | 2.19 | $ | 2.15 | ||||||||
Net income per diluted share
|
$ | 1.14 | $ | 0.78 | $ | 2.05 | $ | 1.80 | ||||||||
Plus: Restructuring & impairment expense per share:
|
||||||||||||||||
Included in Income from continuing operations (above)
|
0.04 | 0.11 | 0.09 | 0.23 | ||||||||||||
Included in Loss from discontinued operations
|
0.02 | 0.04 | 0.03 | 0.09 | ||||||||||||
Adjusted Net Income Per Share
|
$ | 1.20 | $ | 0.93 | $ | 2.17 | $ | 2.12 | ||||||||
Income from continuing operations
|
$ | 20.3 | $ | 15.8 | $ | 36.9 | 35.6 | |||||||||
Plus: Interest expense
|
0.7 | 0.6 | 0.7 | 1.0 | ||||||||||||
Plus: Income tax provision
|
11.6 | 9.1 | 22.5 | 19.4 | ||||||||||||
Plus: Depreciation & amortization
|
10.8 | 9.9 | 21.5 | 19.9 | ||||||||||||
Less: Amortization of deferred revenue
|
(2.5 | ) | (2.1 | ) | (4.9 | ) | (3.9 | ) | ||||||||
Plus: Restructuring & impairment expense
|
0.7 | 2.9 | 1.7 | 6.5 | ||||||||||||
Adjusted EBITDA from Continuing Operations
|
$ | 41.6 | $ | 36.2 | $ | 78.4 | $ | 78.5 | ||||||||
Cash provided (used) by operating activities of continuing operations
|
$ | 12.7 | $ | 47.4 | $ | 14.8 | $ | 86.2 | ||||||||
Less: Capital spending
|
(14.4 | ) | (15.9 | ) | (42.1 | ) | (25.8 | ) | ||||||||
Less: Capitalized software costs
|
(0.2 | ) | (3.4 | ) | (1.0 | ) | (6.1 | ) | ||||||||
Less: Cash dividends paid
|
(2.6 | ) | (2.7 | ) | (5.3 | ) | (5.4 | ) | ||||||||
Free Cash Flow - continuing operations
|
$ | (4.5 | ) | $ | 25.4 | $ | (33.6 | ) | $ | 48.9 |
June 30, 2011
|
December 31, 2010
|
|||||||
Total Debt
|
$ | 166.0 | $ | 51.8 | ||||
Less: Cash
|
62.1 | 87.3 | ||||||
Net Debt (Cash)
|
$ | 103.9 | $ | (35.5 | ) |