GLATFELTER CORPORATION
The following discussion should be read in conjunction with the information in
the unaudited condensed consolidated financial statements and notes thereto
included herein and Glatfelter's Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our 2020 Annual Report on Form 10-K ("2020 Form 10-K").
Forward-Looking Statements This Quarterly Report on Form 10-Q includes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical fact, including statements regarding industry prospects and future
consolidated financial position or results of operations, made in this Report on
Form 10-Q are forward looking. We use words such as "anticipates", "believes",
"expects", "future", "intends" and similar expressions to identify
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. Our actual results may differ
significantly from such expectations. The following discussion includes
forward-looking statements all of which are inherently difficult to predict.
Although we make such statements based on assumptions that we believe to be
reasonable, there can be no assurance that actual results will not differ
materially from our expectations. Accordingly, we identify the following
important factors, among others, which could cause our results to differ from
any results that might be projected, forecasted or estimated in any such
forward-looking statements:
i.risks associated with the impact of the COVID-19 pandemic, including global
and regional economic conditions, changes in demand for our products,
interruptions in our global supply chain, ability to continue production by our
facilities, credit conditions of our customers or suppliers, or potential legal
actions that could arise due to our operations during the pandemic;
ii.disruptions of our global supply chain, including the availability of key raw
materials and transportation for the delivery of critical inputs and of products
to customers, and the increase in the costs of transporting materials and
products;
iii.variations in demand for our products, including the impact of unplanned
market-related downtime, variations in product pricing, or product substitution;
iv.the impact of competition, changes in industry production capacity, including
the construction of new facilities or new machines, the closing of facilities
and incremental changes due to capital expenditures or productivity increases;
v.risks associated with our international operations, including local economic
and political environments and fluctuations in currency exchange rates;
vi.geopolitical matters, including any impact to our operations from events in
Russia , Ukraine and Philippines ;
vii.our ability to develop new, high value-added products;
viii.changes in the price or availability of raw materials we use, particularly
woodpulp, pulp substitutes, synthetic pulp, other specialty fibers and abaca
fiber;
ix.changes in energy-related prices and commodity raw materials with an energy
component;
x.the impact of unplanned production interruption at our facilities or at any of
our key suppliers;
xi.disruptions in production and/or increased costs due to labor disputes;
xii.the impact of war and terrorism;
xiii.the impact of unfavorable outcomes of audits by various state, federal or
international tax authorities or changes in pre-tax income and its impact on the
valuation of deferred taxes;
xiv.enactment of adverse state, federal or foreign tax or other legislation or
changes in government legislation, policy or regulation; and
xv.our ability to finance, consummate and integrate acquisitions.
COVID-19 Pandemic On March 11, 2020 , the World Health Organization declared the
COVID-19 outbreak a pandemic as the virus spread throughout the world. The
COVID-19 pandemic and the actions undertaken throughout the world in an attempt
to contain the virus have had an unprecedented and significant adverse impact on
global economies in terms of reduced GDP, increased unemployment, and
insolvencies in a variety of industries and markets. As a result, we have
experienced and may continue to experience weaker or volatile demand for certain
of our products due to the effects of the pandemic. Shortly after the pandemic
began and through the first several months of 2021, our financial performance
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and results of operations were adversely impacted by the pandemic, particularly
by weaker demand for tabletop products used by restaurants, catering and similar
venues, all of which were impacted by "lockdowns" throughout many regions of the
world. However, demand is improving as restaurants around the world begin to
reopen. The majority of our other product portfolios are considered to be
"essential or life-sustaining" and we continued to produce products used in the
global response effort to the pandemic. We believe demand for certain of our
products, such as Composite Fibers' food and beverage filtration products and
Airlaid Materials' personal hygiene and wipes, will remain stable.
Acquisition As discussed in Item 1 - Financial Statements, Note 3 "Acquisition,"
on May 13, 2021 , we completed our acquisition of Georgia-Pacific's U.S.
nonwovens business ("Mount Holly ") for $170.9 million , subject to customary
post-closing adjustments. This business includes the Mount Holly, NC
manufacturing facility, with annual production capacity of approximately 37,000
metric tons, and an R&D center and pilot line for nonwovens product development
in Memphis, TN. Mount Holly's net sales in 2020 were approximately $100 million .
Prospectively from the date of acquisition, Mount Holly's results of operation
are included as part of our Airlaid Materials reporting segment.
RESULTS OF OPERATIONS
Introduction We manufacture a wide array of engineered materials and report our
results along two segments:
•Composite Fibers with revenue from the sale of single-serve tea and coffee
filtration products, wallcovering base materials, composite laminates, technical
specialties including substrates for electrical applications, and metallized
products; and
•Airlaid Materials with revenue from the sale of airlaid nonwoven fabric-like
materials used in feminine hygiene and adult incontinence products, specialty
wipes, home care products and other airlaid applications.
The former Specialty Papers business' results of operations and financial
condition are reported as discontinued operations. Following is a discussion and
analysis primarily of the financial results of operations and financial
condition of our continuing operations.
Nine months ended September 30, 2021 versus the nine months ended September 30,
2020
Overview For the first nine months of 2021, we reported income from continuing
operations of $17.9 million , or $0.40 per diluted share compared with $11.7
million and $0.26 per diluted share in the year earlier period. The following
table sets forth summarized consolidated results of operations:
Nine months ended September 30,
In thousands, except per share 2021 2020
Net sales $ 750,236 $ 681,216
Gross profit 113,207 107,116
Operating income 39,968 35,419
Continuing operations
Income 17,945 11,652
Earnings per share 0.40 0.26
Net income 17,331 11,517
Earnings per share 0.39 0.26
The reported results are in accordance with generally accepted accounting
principles in the United States ("GAAP") and reflect a number of significant
actions we undertook including strategic initiatives, corporate headquarters
relocation, cost optimization and the restructuring and consolidation of our
metallized business, among others. Excluding these items from reported results,
adjusted earnings, a non-GAAP measure, was $26.0 million , or $0.58 per diluted
share for the first nine months of 2021, compared with $27.7 million , or $0.62
per diluted share, a year ago. Operating income for our Composite Fibers segment
was $4.1 million lower than the same period a year ago primarily reflecting the
impact of inflationary pressures. Airlaid Materials' operating income was $6.9
million lower primarily due to the adverse impact of the pandemic on demand for
certain products and the related machine downtime to manage inventory levels.
In addition to the results reported in accordance with GAAP, we evaluate our
performance using adjusted earnings and adjusted earnings per diluted share. We
disclose this information to allow investors to evaluate our performance
exclusive of certain items that impact the comparability of results from period
to period and we believe it is helpful in understanding underlying operating
trends and cash flow generation.
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Adjusted earnings consist of net income determined in accordance with GAAP
adjusted to exclude the impact of the following:
Strategic initiatives. These adjustments primarily reflect professional and
legal fees incurred directly related to evaluating and executing certain
strategic initiatives including costs associated with acquisitions and related
integrations.
Corporate headquarters relocation. These adjustments reflect costs incurred in
connection with the strategic relocation of the Company's corporate headquarters
to Charlotte, NC . The costs are primarily related to employee relocation costs
and exit costs at the former corporate headquarters.
Restructuring charge - Metallized operations. This adjustment represents the
charges incurred in 2020 in connection with the decision to restructure a
portion of the Composite Fibers segment, primarily consisting of the
consolidation of our metallizing operation from Gernsbach, Germany to
Caerphilly, UK .
Cost optimization actions. These adjustments reflect charges incurred in
connection with initiatives to optimize the cost structure of the Company,
including costs related to the organizational change to a functional operating
model. The costs are primarily related to executive separations, other headcount
reductions, professional fees, asset write-offs and certain contract termination
costs. These adjustments, which have occurred at various times in the past, are
irregular in timing and relate to specific identified programs to reduce or
optimize the cost structure of a particular operating segment or the corporate
function.
Pension settlement expenses, net. This adjustment reflects professional fees
recorded in connection with the Company's termination of its qualified pension
plan and the related actions to settle all obligations to the plan's
participants. Since the pension plan was fully funded, the settlement of pension
obligations did not require the use of the Company's cash, but instead was
accomplished with plan assets.
Timberland sales and related costs. These adjustments exclude gains from the
sales of timberlands as these items are not considered to be part of our core
business, ongoing results of operations or cash flows. These adjustments are
irregular in timing and amount and may benefit our operating results.
Coronavirus Aid, Relief, and Economic Security (CARES) Act 2020. This adjustment
reflects taxes recorded as a result of the March 27, 2020 change in U.S. tax law
which, among others, allows net operating losses to be carried back five years.
Adjusted earnings and adjusted earnings per share are considered measures not
calculated in accordance with GAAP, and therefore are non-GAAP measures. The
non-GAAP financial information should not be considered in isolation from, or as
a substitute for, measures of financial performance prepared in accordance with
GAAP.
The following table sets forth the reconciliation of net income to adjusted
earnings for the period indicated:
Nine months
ended
2021 2020
In thousands, except per share Amount EPS Amount EPS
Net income $ 17,331 $ 0.39 $ 11,517 $ 0.26
Exclude: Loss from discontinued operations 614 0.01 135 -
Income from continuing operations 17,945 0.40 11,652 0.26
Adjustments (pre-tax)
Strategic initiatives 11,207 843
Corporate headquarters relocation 429
610
Restructuring charge - Metallized operations -
11,111
Cost optimization actions 687
4,367
Pension settlement expenses, net - 6,792 COVID 19 - incremental costs - 1,766 Asset impairment charge - 900 Timberland sales and related costs (4,638) (1,013) Total adjustments (pre-tax) 7,685 25,376 Income taxes (1) 49 (4,257) CARES Act of 2020 tax provision (benefit) (2) 295 (5,023) Total after-tax adjustments 8,029 0.18 16,096 0.36 Adjusted earnings$ 25,974 $ 0.58 $ 27,748 $ 0.62 (1)Tax effect on adjustments calculated based on the incremental effective tax rate of the jurisdiction in which each adjustment originated. (2)Tax impact recorded in connection with passage of the Coronavirus Aid, Relief, and Economic Security Act ("CARES") related to provisions that modified the "net operating loss" provisions of previous law to allow certain losses to be carried back five years. - 27 - -------------------------------------------------------------------------------- Segment Financial Performance Nine months endedSeptember 30 , Other and Dollars in thousands Composite Fibers Airlaid Materials Unallocated Total 2021 2020 2021 2020 2021 2020 2021 2020 Net sales$ 420,965 $ 387,267 $ 329,271 $ 293,949 $ - $ -$ 750,236 $ 681,216 Cost of products sold 354,629 319,403 283,825 243,526 (1,425) 11,171 637,029 574,100 Gross profit (loss) 66,336 67,864 45,446 50,423 1,425 (11,171) 113,207 107,116 SG&A 33,396 30,811 15,076 13,192 29,405 28,704 77,877 72,707
Gains on dispositions of plant,
equipment and timberlands, net - - - - (4,638) (1,010) (4,638) (1,010) Total operating income (loss) 32,940 37,053 30,370 37,231 (23,342) (38,865) 39,968 35,419 Non-operating expense - - - - (7,261) (14,992) (7,261) (14,992) Income (loss) before income taxes$ 32,940 $ 37,053 $ 30,370 $ 37,231 $ (30,603) $ (53,857) $ 32,707 $ 20,427 Supplementary Data Net tons sold 101,348 100,024 106,705 103,068 - - 208,053 203,092 Depreciation, depletion and amortization ($ in thousands) (1)$ 20,885 $ 19,652 $ 20,378 $ 16,598 $ 2,913 $ 7,060 $ 44,176 $ 43,310 Capital expenditures 8,240 9,121 5,962 6,606 4,317 4,438 18,519 20,165 (1)The amount presented in 2020 in the Other and unallocated column represents accelerated depreciation incurred in connection with the restructuring of the metallized operations. Segments Results of individual operating segments are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted inthe United States of America ; therefore, the financial results of individual segments are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the segments. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the segment are allocated primarily based on an estimated utilization of support area services or are included in "Other and Unallocated" in the table set forth above. Management evaluates results of operations of the operating segments before certain corporate level costs and the effects of certain gains or losses not considered to be related to the core business operations. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of the segments and the extent of cash flow generated from these core operations. Such amounts are presented under the caption "Other and Unallocated." In the evaluation of operating segments results, management does not use any measures of total assets. This presentation is aligned with the management and operating structure of our company. It is also on this basis that the Company's performance is evaluated internally and by the Company's Board of Directors. Sales and Costs of Products Sold Nine months ended September 30, In thousands 2021 2020 Change Net sales$ 750,236 $ 681,216 $ 69,020 Costs of products sold 637,029 574,100 62,929 Gross profit$ 113,207 $ 107,116 $ 6,091 Gross profit as a percent of Net sales 15.1 % 15.7 % - 28 -
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The following table sets forth the contribution to consolidated net sales by
each segment:
Nine months ended September 30,
Percent of Total 2021 2020
Segment
Composite Fibers 56.1 % 56.8 %
Airlaid Materials 43.9 43.2
Total 100.0 % 100.0 %
Net sales totaled $750.2 million and $681.2 million in the first nine months of
2021 and 2020, respectively.
Composite Fibers' net sales increased $33.7 million or 8.7% in the first nine
months of 2021 compared to the year-ago period, driven by favorable currency
translation of $22.2 million , and $7.8 million from higher selling prices.
During the first nine months of 2021, we announced price increases of 8% and 12%
in response to significantly higher input costs. Overall shipments increased
1.3% in the period-over-period comparison.
Composite Fibers' operating income of $32.9 million was $4.1 million lower than
the first nine months of 2020. The decline in operating results reflects the
adverse impact of significantly higher costs for raw materials, primarily
woodpulp, and higher energy prices, which in the aggregate increased $19.8
million . The adverse impact of inflation more than outpaced the $7.8 million
increase in selling prices. The primary drivers of the change in Composite
Fibers' operating income are summarized in the following chart (presented in
millions):
[[Image Removed: glt-20210930_g2.jpg]]
Airlaid Materials' net sales increased $35.3 million , in the year-over-year
comparison, and shipments increased 3.5% each driven by the addition of Mount
Holly . The segments sales were impacted by lower shipments in the hygiene and
wipes categories (excluding volumes added by Mount Holly ) as customers adjusted
their buying patterns following elevated year-end inventory levels maintained
due to the pandemic. Currency translation was $9.3 million favorable, and the
Mount Holly acquisition is included prospectively from the May 13, 2021 closing
of the transaction, adding $34.2 million of net sales.
Airlaid Materials' first nine months of 2021 operating income of $30.4 million
was $6.9 million lower when compared to the same period in 2020, due to higher
input costs, primarily pulp and energy prices which outpaced increases in
selling prices. Higher average selling prices largely due to raw material
pass-through provisions, added $16.5 million . Higher raw material and energy
prices more than offset the benefit of higher selling prices. The primary
drivers are summarized in the following chart (presented in millions):
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[[Image Removed: glt-20210930_g3.jpg]]
Other and Unallocated The amount of "Other and Unallocated" operating expense in
our table of Segment Financial Information totaled $23.3 million in the first
nine months of 2021 compared with $38.9 million in the first nine months of
2020. Excluding the items identified to present "adjusted earnings," unallocated
expenses for the comparison decreased $4.6 million primarily due to lower
incentive compensation in the comparison.
Income taxes During the first nine months of 2021, income from continuing
operations totaled $32.7 million and income tax expense totaled $14.8 million .
On adjusted pre-tax income of $40.4 million , income tax expense was $14.4
million in the first nine months of 2021. The comparable amounts in the same
period of 2020 were $45.8 million and $18.1 million , respectively. The income
tax expense in the nine months of 2020 includes a $5.0 million tax benefit
recorded in connection with passage of the CARES Act. The effective tax rate on
adjusted earnings was 35.7% in the first nine months of 2021.
Foreign Currency We own and operate facilities in Canada , Germany , France , the
United Kingdom and the Philippines . The functional currency of our Canadian
operations is the U.S. dollar. However, in Germany and France it is the Euro, in
the UK , it is the British Pound Sterling, and in the Philippines the functional
currency is the Peso. On an annual basis, our Euro denominated revenue exceeds
Euro expenses by an estimated €150 million. For the first nine months of 2021,
the average currency exchange rate was 1.19 dollar /euro compared with 1.14 in
the same period of 2020. With respect to the British Pound Sterling, Canadian
Dollar, and Philippine Peso, we have differing amounts of inflows and outflows
of these currencies, although to a lesser degree than the Euro. As a result, we
are exposed to changes in currency exchange rates and such changes could be
significant. The translation of the results from international operations into
U.S. dollars is subject to changes in foreign currency exchange rates.
The table below summarizes the translation impact on reported results that
changes in currency exchange rates had on our non-U.S. based operations from the
conversion of these operation's results for the first nine months of 2021.
In thousands Nine months ended September 30,
Favorable
(unfavorable)
Net sales $ 31,530
Costs of products sold (32,679)
SG&A expenses (2,101)
Income taxes and other (460)
Net loss $ (3,710)
The above table only presents the financial reporting impact of foreign currency
translations assuming currency exchange rates in 2021 were the same as 2020. It
does not present the impact of certain competitive advantages or disadvantages
of operating or competing in multi-currency markets.
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Three months ended
September 30, 2020
Overview We reported income from continuing operations for the third quarter of
2021 of $8.1 million , or $0.18 per diluted share, compared with $6.5 million , or
$0.15 per diluted share, in the same period a year ago. The 2021 results include
the acquisition of Mount Holly prospectively from the May 13, 2021 acquisition
date. Adjusted earnings from continuing operations for the third quarters of
2021 and 2020, were $9.5 million , or $0.21 per share, compared with $7.0
million , or $0.16 per share, respectively. The following table sets forth
summarized results of operations:
Three months ended September 30,
In thousands, except per share 2021 2020
Net sales $ 279,651 $ 233,473
Gross profit 38,357 38,251
Operating income 14,526 14,029
Continuing operations
Income 8,059 6,527
Earnings per share 0.18 0.15
Net income 7,527 6,527
Earnings per share $ 0.17 $ 0.15 The following table sets forth the reconciliation of net income (loss) to adjusted earnings for the periods indicate:
Three months
ended
2021 2020
In thousands, except per share Amount EPS Amount EPS
Net income $ 7,527 $ 0.17 $ 6,527 $ 0.15
Exclude: Loss from discontinued operations 532 0.01 - -
Income from continuing operations 8,059 0.18 6,527 0.15
Adjustments (pre-tax)
Strategic initiatives 2,773 843
Corporate headquarters relocation 68
610
Restructuring charge - Metallized operations -
57
Cost optimization actions 687
1,270
Pension settlement expenses, net -
389
COVID 19 - incremental costs -
586
Timberland sales and related costs (2,235) (412) Total adjustments (pre-tax) 1,293 3,343 Income taxes (1) 18 (375) CARES Act of 2020 tax provision (2) 112 (2,454) Total after-tax adjustments 1,423 0.03 514 0.01 Adjusted earnings$ 9,482 $ 0.21 $ 7,041 $ 0.16 (1)Tax effect on adjustments calculated based on the incremental effective tax rate of the jurisdiction in which each adjustment originated. (2)Tax benefit recorded in connection with passage of CARES related to provisions that modified the "net operating loss" provisions of previous law to allow certain losses to be carried back five years. - 31 - -------------------------------------------------------------------------------- Segment Financial Performance Three months endedSeptember 30 , Other and Dollars in thousands Composite Fibers Airlaid Materials Unallocated Total 2021 2020 2021 2020 2021 2020 2021 2020 Net sales$ 138,118 $ 132,419 $ 141,533 $ 101,054 $ - $ -$ 279,651 $ 233,473 Cost of products sold 121,028 112,031 121,102 83,699 (836) (508) 241,294 195,222 Gross profit 17,090 20,388 20,431 17,355 836 508 38,357 38,251 SG&A 11,278 9,924 5,689 4,438 9,099 10,273 26,066 24,635
Gains on dispositions of plant,
equipment and timberlands, net - - - - (2,235) (413) (2,235) (413) Total operating income (loss) 5,812 10,464 14,742 12,917 (6,028) (9,352) 14,526 14,029 Non-operating expense - - - - (2,916) (3,888) (2,916) (3,888) Income (loss) before income taxes$ 5,812 $ 10,464 $ 14,742 $ 12,917 $ (8,944) $ (13,240) $ 11,610 $ 10,141 Supplementary Data Net tons sold 32,737 35,009 43,526 34,752 - - 76,263 69,761 Depreciation, depletion and amortization ($ in thousands) (1)$ 6,904 $ 6,755 $ 7,763 $ 5,674 $ 1,043 $ 1,273 $ 15,710 $ 13,702 Capital expenditures 2,585 3,060 2,926 2,791 1,797 2,303 7,308 8,154
The sum of individual amounts set forth above may not agree to the condensed consolidated financial statements included herein due to rounding
Sales and Costs of Products Sold
Three months ended September 30,
In thousands 2021 2020 Change
Net sales $ 279,651 $ 233,473 $ 46,178
Costs of products sold 241,294 195,222 46,072
Gross profit $ 38,357 $ 38,251 $ 106
Gross profit as a percent of Net sales 13.7 % 16.4 %
The following table sets forth the contribution to consolidated net sales by
each segment:
Three months ended September 30,
Percent of Total 2021 2020
Segment
Composite Fibers 49.4 % 56.7 %
Airlaid Materials 50.6 43.3
Total 100.0 % 100.0 %
Net sales Consolidated net sales for the three months ended September 30, 2021
totaled $279.7 million , compared with $233.5 million for the same period in
2020. On a constant currency basis, net sales for Composite Fibers and Airlaid
Materials (including Mount Holly ) increased by 3.4% and 39.5%, respectively.
Composite Fibers' net sales increased $5.7 million or 4.3% in the third quarter
of 2021, compared to the year-ago quarter, mainly driven by higher selling
prices of $5.8 million and favorable currency translation of $1.2 million .
Overall, shipments were 6.5% lower primarily due to wallcover products. In Q3
2020, wallcover had a strong rebound in demand after volume dropped sharply in
the second quarter of 2020 due to the pandemic, making for a challenging
year-over-year comparison. In addition, a few wallcover customers took
unexpected downtime in late August, 2021.
Composite Fibers' operating income for the third quarter of 2021 totaled $5.8
million compared with $10.5 million in the third quarter of 2020. Higher raw
material and energy inflation of $12.4 million was partially offset by $5.8
million in higher selling prices, reducing earnings by net $6.6 million .
Favorable mix driven by higher demand in composite laminates and food and
beverage categories, coupled with strong production to meet customer demand,
positively impacted results by $3.1 million . The impact of currency and related
hedging activity negatively impacted earnings by $1.2 million mainly due to
favorable hedging gains on our underlying positions last year. The primary
drivers are summarized in the following chart (presented in millions):
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[[Image Removed: glt-20210930_g4.jpg]]
Airlaid Materials' net sales increased $40.5 million in the year-over-year
comparison, driven by the first full quarter of sales from Mount Holly as well
as higher selling prices from cost pass-through arrangements. Shipments were
25.2% higher driven by Mount Holly as well as improvements in demand for
tabletop and wipes products, slightly offset by lower shipments of hygiene
products. Currency translation was $0.5 million favorable.
Airlaid Materials' third quarter of 2021 operating income of $14.7 million was
$1.8 million higher when compared to the third quarter of 2020. Higher shipments
positively impacted results by $7.3 million . Selling price increases of $11.6
million , primarily due to raw material cost pass-through provisions, were more
than offset by higher raw material and energy prices of $13.4 million , reducing
earnings by net $1.8 million . Most pass-through contracts do not include energy
inflation which was $1.3 million during the quarter. Operations were unfavorable
$2.5 million mainly due to lower production compared to a strong quarter last
year and higher inflationary pressures experienced in the quarter. The impact of
currency and related hedging activity negatively impacted earnings by $1.2
million . The primary drivers are summarized in the following chart (presented in
millions):
[[Image Removed: glt-20210930_g5.jpg]]
Other and Unallocated The amount of operating expense not allocated to a segment
in the table of Segment Financial Information totaled $6.0 million in the third
quarter of 2021 compared with $9.4 million in the same period a year ago.
Excluding the items identified to present "adjusted earnings," unallocated
expenses for the third quarter of 2021 decreased $1.7 million compared to the
third quarter of 2020.
Income Taxes In the third quarter of 2021, income from continuing operations
totaled $11.6 million and income tax expense totaled $3.6 million . On adjusted
pre-tax income of $12.9 million , income tax expense was $3.4 million in the
third quarter of 2021. The comparable amounts in the same quarter of 2020 were
$13.5 million and $6.4 million , respectively. The effective tax rate on adjusted
earnings was 26.5% in the third quarter of 2021 and includes a $1.1 million
reduction in our valuation allowance on deferred tax assets.
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Foreign Currency For the three months endedSeptember 30, 2021 , the average currency exchange rate was1.18 dollar /euro compared with 1.17 in the same period of 2020. The table below summarizes the translation impact on reported results that changes in currency exchange rates had on our non-U.S. based operations from the conversion of these operation's results for the second quarter of 2021. Three months ended In thousands September 30, 2021 Favorable (unfavorable) Net sales $ 1,716 Costs of products sold (3,919) SG&A expenses (217) Income taxes and other (38) Net loss $ (2,458) The above table only presents the financial reporting impact of foreign currency translations assuming currency exchange rates in 2021 were the same as 2020. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets. LIQUIDITY AND CAPITAL RESOURCES Our business requires significant expenditures for new or enhanced equipment, to support our research and development efforts, and to support our business strategy. In addition, we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the periods presented: Nine months ended September 30, In thousands 2021 2020 Cash, cash equivalents and restricted cash at the beginning of period$ 111,665 $ 126,201 Cash provided (used) by Operating activities 38,497 24,539 Investing activities (186,003) (19,178) Financing activities 151,264 (60,963) Effect of exchange rate changes on cash (4,082) 2,361 Change in cash and cash equivalents from discontinued operations (481) (1,108) Net cash used (805) (54,349) Cash, cash equivalents and restricted cash at the end of period 110,860 71,852 Less: restricted cash in Prepaid and other current assets (2,000) (2,000) Less: restricted cash in Other assets (8,828) (10,611) Cash and cash equivalents at the end of period $
100,032
AtSeptember 30, 2021 , we had$100.0 million in cash and cash equivalents ("cash") held by both domestic and foreign subsidiaries. Approximately 91% of our cash and cash equivalents is held by our foreign subsidiaries but could be repatriated without incurring a significant amount of additional taxes. In addition to cash, as ofSeptember 30, 2021 ,$180.4 million was available under our existing revolving credit agreement. Cash provided by operating activities in the first nine months of 2021 totaled$38.5 million compared with$24.5 million in the same period a year ago. The increase was primarily due to improved operating results and improved working capital usage. During the first quarter of 2021 we used$11.8 million related to value-added tax liabilities identified while reviewing certain customer sales arrangements. During the third quarter of 2021, we recovered the amounts from the respective customer. Net cash used by investing activities was$186.0 million compared with$19.2 million in the same period a year ago. The increase was due to theMount Holly acquisition. Capital expenditures totaled$18.5 million and$20.2 million for the nine months endedSeptember 30, 2021 and 2020, respectively, and are expected to be$30 million to$35 million for the full year 2021. Net cash provided by financing activities totaled$151.3 million in the first nine months of 2021 compared with a use of$61.0 million in the same period of 2020. The change in financing activities primarily reflects$160 million in additional - 34 - -------------------------------------------------------------------------------- borrowings under our revolving credit facility to fund theMount Holly acquisition as well as miscellaneous term loan borrowing, the proceeds of which were used for general purposes. As discussed in Item 1 - Financial Information, Note - 16, our Credit Agreement contains a number of customary compliance covenants. As ofSeptember 30, 2021 , the leverage ratio, as calculated in accordance with the definition in our Credit Agreement, was 2.6x, well within the maximum limit allowed under our Credit Agreement. A breach of these requirements would give rise to certain remedies under the Revolving Credit Facility, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the Credit Agreement. Based on our expectations of future results of operations and capital needs, we do not believe the debt covenants will impact our operations or limit our ability to undertake financings that may be necessary to meet our capital needs. The following table sets forth our outstanding long-term indebtedness: In thousands September 30, 2021 December 31, 2020 Revolving credit facility, due Feb. 2024 $ 200,527 $
36,813
Term loan, dueFeb. 2024 226,080
249,715
2.40% Term Loan, dueJun. 2022 1,241
2,629
2.05% Term Loan, dueMar. 2023 9,270
14,737
1.30% Term Loan, dueJun. 2023 2,895
4,382
1.55% Term Loan, dueSep. 2025 5,674
7,143
1.10% Term Loan, due Mar. 2024 10,527 - Total long-term debt 456,214 315,419 Less current portion (27,441) (25,057) Unamortized deferred issuance costs (5,683)
(1,898)
Long-term debt, net of current portion $ 423,090 $
288,464
Financing activities include cash used for common stock dividends. In both the first nine months of 2021 and 2020, we used$18.2 million and$17.5 million , respectively, of cash for dividends on our common stock. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments. OnOctober 25, 2021 , we completed the private placement of$500 million in aggregate principal amount of 4.750% senior notes due 2029 (the "Notes"). The net proceeds from the Notes offering, together with cash on hand, were used to pay the purchase price of the Jacob Holm, to repay certain indebtedness ofJacob Holm , to repay outstanding revolving borrowings under our Credit Agreement, and to pay estimated fees and expenses. We are subject to various federal, state and local laws and regulations intended to protect the environment, as well as human health and safety. At various times, we have incurred significant costs to comply with these regulations and we could incur additional costs as new regulations are developed or regulatory priorities change. AtSeptember 30, 2021 , we had ample liquidity consisting of$100.0 million of cash on hand and$180.4 million of capacity under our revolving credit facility. We expect to meet all of our near and long-term cash needs from a combination of operating cash flow, cash and cash equivalents, our existing credit facility and other long-term debt. Off-Balance-Sheet Arrangements As ofSeptember 30, 2021 andDecember 31, 2020 , we had not entered into any off-balance-sheet arrangements. Financial derivative instruments, to which we are a party, and guarantees of indebtedness, which solely consist of obligations of subsidiaries, are reflected in the condensed consolidated balance sheets included herein in Item 1 - Financial Statements. - 35 -
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