MATIV HOLDINGS, INC. The following is a discussion of our financial condition and results of operations. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report and the audited consolidated financial statements and related notes and the selected financial data included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . The discussion of our financial condition and results of operations includes various forward-looking statements about our markets, the demand for our products, our future prospects and other matters. These statements are based on certain assumptions and estimates that we consider reasonable. For information about risks and exposures relating to us and our business, you should read the section entitled "Risk Factors" in Part 1, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 and the sections entitled "Forward-Looking Statements" at the end of this Item 2. Unless the context indicates otherwise, references to "SWM," "we," "us," "our," the "Company" or similar terms includeSchweitzer-Mauduit International, Inc. and our consolidated subsidiaries. This Management's Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of our financial statements with an understanding of our recent performance, our financial condition and our prospects. COVID-19 Pandemic We continue to monitor the impact of the COVID-19 pandemic (including its variant strains) on all aspects of our business. In general, many areas that were resilient to the economic challenges and volatility in 2020 remain healthy, such as tobacco, healthcare, and filtration, while those areas that were most affected, such as transportation and construction, began improving during the fourth quarter of 2020 and continued to perform well during 2021. At present, all of our facilities are operational. Furthermore, there have been only isolated and temporary customer shutdowns, and the Company is maintaining active dialogue with all key customers and suppliers regarding supply chain and production planning. Many of the Company's products in our AMS segment have been deemed "essential" (e.g., filtration and healthcare) by local governments and thus the production facilities are not expected to have further shutdowns unless local governments mandate temporary closure or there are additional health and safety concerns beyond the current circumstances. Given the recent financial results, we believe the Company's operating cash flows and available liquidity are ample to support operations and financial obligations. The Company also continues to actively assess the credit worthiness of its customers in the context of the potential business disruptions from COVID-19 but has not yet seen evidence of a material change to its ability to collect accounts receivable balances. This is an uncertain period with events and circumstances changing frequently, and while senior management is meeting regularly to address all aspects of the pandemic, the magnitude and duration of economic disruption is difficult to predict and will depend on the scope, severity and duration of the pandemic. Further details about the risks and impacts discussed in the section below can be found in the forward-looking statements. End-markets and sales. Management believes many of the Company's end-markets have been and will remain relatively insulated from COVID-19-related economic challenges; however, some end-markets were temporarily negatively affected by decreased demand, particularly transportation, which has recovered since the peak impacts in mid-2020. In addition, sales results may continue to demonstrate some variability as customers manage inventories and safety stocks to protect against future potential supply chain disruptions. Tobacco (EP) - The Company's largest single end-market is the tobacco industry, which has not been materially affected by the pandemic. The Company believes customers increased their inventory levels in 2020 to minimize supply chain impacts of potential future COVID-19 related disruptions. Healthcare (AMS) - Management believes sales of these products, mostly consumables, are not sensitive to COVID-19-related economic weakness, with the exception of those used in hospitals as consumer foot traffic has been reduced due to minimizing non-essential visits. 30 --------------------------------------------------------------------------------
Filtration (AMS) - The Company believes these products are generally less sensitive to economic volatility than typical industrial goods. Within the portfolio, air filtration products have seen accelerated demand due to heightened focus on air quality and attempts to minimize the spread of COVID-19.
Transportation (AMS) - The Company's primary products are aftermarket automotive paint protection films, which faced pronounced temporary near-term negative impacts, beginning late in the first quarter of 2020 through most of the third quarter of 2020, as a result of significant auto industry disruption and consumer purchasing behaviors as a result of COVID-19. However, since late in the third quarter of 2020, the Company's transportation sales have improved significantly. Construction (AMS) - Management believes these end-markets have been impacted by local self-distancing regulations that may affect the construction industry, but these end markets have exhibited recent improvements and could be further positively supported by a potential increase in government-sponsored infrastructure spending. Industrial (AMS & EP) - The Company's products service a broad range of applications, some of which are considered to be sensitive to economic activity and associated impacts of COVID-19, while other applications have been relatively unaffected. Liquidity & Debt Overview. The Company currently has$1,280.9 million of total debt,$65.9 million of cash, and undrawn capacity on its$500.0 million revolving line of credit facility (the "Revolving Credit Facility") of$107.1 million at the end of the second quarter of 2021. Per the terms of the Company's$700.0 million credit agreement (the "Credit Agreement"), net leverage was 4.4x at the end of the second quarter, versus a maximum covenant ratio of 4.5x, though covenants contain an acquisition-related provision, allowing net leverage to reach 5.0x throughout 2021. The Company's nearest debt maturity is the Revolving Credit Facility which is due in 2023. Please refer to liquidity and capital resources section for additional detail.
SUMMARY
($ in millions, except per
share amounts) Three Months Ended Six Months Ended
June 30, Percent of Net Sales June 30, Percent of Net Sales
2021 2020 2021 2020 2021 2020 2021 2020
Net sales $ 377.8 $ 254.2 100.0 % 100.0 % $ 666.0 $ 515.7 100.0 % 100.0 %
Gross profit 88.1 74.3 23.3 29.2 168.9 148.6 25.4 28.8
Restructuring & impairment
expense 2.3 1.6 0.6 0.6 4.0 1.7 0.6 0.3
Operating profit 15.9 34.4 4.2 13.5 49.4 68.5 7.4 13.3
Interest expense 13.1 8.1 3.5 3.2 16.0 15.0 2.4 2.9
Net income $ 1.8 $ 21.5 0.5 % 8.5 % $ 23.4 $ 44.0 3.5 % 8.5 %
Diluted earnings per share $ 0.06 $ 0.68 $ 0.74 $ 1.40
Cash provided by operations $ 7.1 $ 44.2 $ 19.8 $ 49.3
Capital spending $ 9.2 $ 7.5 $ 16.3 $ 14.9
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RESULTS OF OPERATIONS
Three Months EndedJune 30, 2021 Compared with the Three Months EndedJune 30, 2020 Net Sales ($ in millions) Three Months Ended June 30, 2021 June 30, 2020 Change Percent Change Advanced Materials & Structures$ 252.0 $ 132.8 $ 119.2 89.8 % Engineered Papers 125.8 121.4 4.4 3.6 Total$ 377.8 $ 254.2 $ 123.6 48.6 %
Net sales were
Amount Percent
Incremental net sales from Scapa $ 95.0 37.4 %
Changes in volume, product mix and selling prices (excluding Scapa)
20.3 7.9
Changes due to net foreign currency impacts 8.9 3.5
Changes due to royalties (0.6) (0.2)
Total $ 123.6 48.6 %
AMS segment net sales were $252.0 million for the three months ended June 30,
2021 compared to $132.8 million during the prior-year period. The increase of
$119.2 million or 89.8% included the benefit from the Scapa acquisition
(completed April 15, 2021 ). Scapa net sales were $95.0 million for the three
months ended June 30, 2021 . The increase in organic sales reflected rapid growth
in transportation sales as they continued to rebound sharply from negative
COVID-19 impacts that began early in 2020. Filtration sales were up over 25%,
with strong gains across water, process, and air filtration product lines, as
were construction sales, with broad strength across building materials and
infrastructure products. Healthcare sales (excluding Scapa) declined as certain
products that saw short-term COVID-related demand spikes, such as facemask
materials, started to normalize. Industrial sales declined during the quarter
though mostly in lower-margin products.
EP segment net sales during the three months ended June 30, 2021 of $125.8
million increased by $4.4 million , or 3.6%, versus net sales of $121.4 million
in the prior-year quarter. The increase in net sales was primarily the result of
3% volume increase and unfavorable price/mix of 4%, which were partially offset
by a 6% currency benefit (related to the Euro). The negative price/mix effect
was primarily a function of lower LIP volumes, as certain customers resumed more
normalized order patterns versus 2020 when they built inventories.
Gross Profit
($ in millions)
Three Months Ended Percent of Net Sales
June 30, 2021 June 30, 2020 Change Percent Change 2021 2020
Net sales $ 377.8 $ 254.2 $ 123.6 48.6 % 100.0 % 100.0 %
Cost of products sold 289.7 179.9 109.8 61.0 76.7 70.8
Gross profit $ 88.1 $ 74.3 $ 13.8 18.6 % 23.3 % 29.2 %
Gross profit increased by
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AMS gross profit increased by
In the EP segment, gross profit decreased by$6.0 million , primarily due to unfavorable price/mix impacts from lower LIP volumes, higher wood pulp input costs, and inefficiencies related to the transition of certain volumes from the recently closedSpotswood, NJ facility to other sites. These negative factors were partially offset by$4.0 million of favorable foreign currency exchange. Nonmanufacturing Expenses ($ in millions) Three Months Ended Percent of Net Sales June 30, 2021 June 30, 2020 Change Percent Change 2021 2020 Selling expense$ 11.9 $ 8.8$ 3.1 35.2 % 3.1 % 3.5 % Research expense 5.4 3.6 1.8 50.0 1.4 1.4 General expense 52.6 25.9 26.7 103.1 14.0 10.2 Nonmanufacturing expenses$ 69.9 $ 38.3$ 31.6 82.5 % 18.5 % 15.1 % Nonmanufacturing expenses in the three months endedJune 30, 2021 increased by$31.6 million to$69.9 million from$38.3 million in the prior-year period. The increase included$12.1 million of transaction and integration costs associated with the Scapa acquisition, other SG&A costs from Scapa operations, and higher deferred compensation expenses and third-party consulting expenses. Restructuring and Impairment Expense ($ in millions) Three Months Ended Percent of Net Sales June 30, 2021 June 30, 2020 Change 2021 2020
Advanced Materials & Structures $ - $ 0.5
$ (0.5) - % 0.4 % Engineered Papers 2.3 1.1 1.2 1.8 0.9 Unallocated expenses - - - - - Total$ 2.3 $ 1.6$ 0.7 0.6 % 0.6 % The Company incurred total restructuring and impairment expense of$2.3 million and$1.6 million in the three months endedJune 30, 2021 and 2020, respectively. In the 2021 period, restructuring expense in the EP segment included$0.9 million related to the 2020 decision to shut down theSpotswood, New Jersey facility and included costs associated with closing the facility, maintaining the property and preparing it for sale.
In the 2021 period the EP segment also recognized
In the comparable 2020 period, restructuring expense primarily related to
severance accruals for employees at our manufacturing operations in the
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Operating Profit
($ in millions)
Three Months Ended Return on Net Sales
June 30, 2021 June 30, 2020 Change Percent Change 2021 2020
Advanced Materials & Structures $ 18.9 $ 13.1 $ 5.8 44.3 % 7.5 % 9.9 %
Engineered Papers 24.2 31.7 (7.5) (23.7) 19.2 26.1
Unallocated expenses (27.2) (10.4) (16.8) 161.5
Total $ 15.9 $ 34.4 $ (18.5) (53.8) % 4.2 % 13.5 %
Operating profit was
The AMS segment's operating profit in the three months endedJune 30, 2021 was$18.9 million compared to$13.1 million in the prior-year period. The increase of$5.8 million , or 44.3%, was driven by strong organic sales growth and the incremental benefit of the acquired Scapa business, partially offset by$7.1 million higher purchase accounting expenses associated with Scapa acquisition. The profit margin percentage decline was primarily attributable to higher raw material costs as the magnitude and speed of the inflationary pressure was not fully offset by pricing actions during the quarter. The EP segment's operating profit in the three months endedJune 30, 2021 was$24.2 million , a decrease of$7.5 million , or 23.7%, from$31.7 million in the prior-year period. The decrease was primarily driven by lower sales in high-margin LIP products, significant wood pulp cost increases, and the inefficiencies related to theSpotswood closure and transition. Currency movements resulted in a$3.1 million benefit to operating profit, mainly from the Euro and Brazilian Real. Unallocated expenses in the three months endedJune 30, 2021 were$27.2 million compared to$10.4 million in the prior-year period, an increase of$16.8 million , or 161.5%, primarily due to Scapa acquisition and integration related costs of$12.1 million , largely comprised of third-party advisory and diligence costs, transaction fees, and integration expenses. The increase also included$1.5 million of costs incurred within Scapa as shared services for corporate functions such as finance, HR, and IT, which were reported in the Company's segment financials as unallocated expenses. The remainder of the increase was driven by higher certain administrative costs, third-party consulting fees for HR and finance, as well as higher IT expenses to support the growth of the business.
Non-Operating Expenses
Interest expense was$13.1 million in the three months endedJune 30, 2021 , an increase from$8.1 million in the prior-year period. The increase was primarily due to higher average debt balances as a result of the Scapa acquisition which closed inApril 2021 .
Other expense, net, was
Income Taxes
A
34
--------------------------------------------------------------------------------Income from Equity Affiliates
Income from equity affiliates, which reflects the results of operations of CTM and CTS, was$2.8 million in the three months endedJune 30, 2021 compared with income of$0.9 million during the prior-year period, and reflects the results of operations of CTM and CTS.
Net Income and Income per Share
Net income in the three months ended
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Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020
Net Sales
($ in millions)
Six Months Ended
June 30, 2021 June 30, 2020 Change Percent Change
Advanced Materials & Structures $ 415.0 $ 255.7 $ 159.3 62.3 %
Engineered Papers 251.0 260.0 (9.0) (3.5)
Total $ 666.0 $ 515.7 $ 150.3 29.1 %
Net sales were
Amount Percent
Incremental net sales from Scapa $ 95.0 18.4 %
Changes in volume, product mix and selling prices (excluding Scapa)
39.4 7.6
Changes due to net foreign currency impacts 16.1 3.1 %
Changes due to royalties (0.2) -
Total $ 150.3 29.1 %
AMS segment net sales were $415.0 million for the six months ended June 30, 2021
compared to $255.7 million during the prior-year period. The increase of $159.3
million , or 62.3%, included the benefit from the Scapa acquisition of $95.0
million (completed April 15, 2021 ) and Tekra acquisition (completed March 13,
2020 ). The increase in organic sales was driven by strong double digit gains in
filtration, transportation, and construction end-markets. Transportation sales
continued to rebound sharply from COVID-19 related pressures that began early in
2020. Filtration and construction end-markets also delivered strong sales
increase, with gains across water, process, and air filtration product lines, as
well as building materials and infrastructure products. Healthcare sales
declined due to certain products that benefited from COVID-19 related demand in
the prior year. Industrial sales declined mostly in lower-margin product lines.
EP segment net sales during the six months ended June 30, 2021 of $251.0 million
decreased by $9.0 million versus net sales of $260.0 million in the prior-year
period. The decrease in net sales was primarily the result of the volume decline
in LIP sales, and unfavorable price/mix impacts of 6%, partially offset by a 5%
currency benefits mainly related to the Euro.
Gross Profit
($ in millions)
Six Months Ended Percent of Net Sales
June 30, 2021 June 30, 2020 Change Percent Change 2021 2020
Net sales $ 666.0 $ 515.7 $ 150.3 29.1 % 100.0 % 100.0 %
Cost of products sold 497.1 367.1 130.0 35.4 74.6 71.2
Gross profit $ 168.9 $ 148.6 $ 20.3 13.7 % 25.4 % 28.8 %
Gross profit increased by $20.3 million during the six months ended June 30,
2021 to $168.9 million versus the prior-year period of $148.6 million . AMS gross
profit increased by $29.1 million primarily due to the incremental benefit of
the acquired Scapa and Tekra business and strong organic sales growth in
transportation, filtration, and construction end-markets, partially offset by
higher input costs, primarily of polypropylene resin. In the EP segment, gross
profit decreased by $8.8 million , primarily due to negative price/mix impacts,
significantly higher wood pulp costs, and inefficiencies related to the
Spotswood transition, partially offset by favorable impact of foreign currency
movements.
36
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Nonmanufacturing Expenses
($ in millions)
Six Months Ended Percent of Net Sales
June 30, 2021 June 30, 2020 Change Percent Change 2021 2020
Selling expense $ 21.0 $ 18.3 $ 2.7 14.8 % 3.2 % 3.5 %
Research expense 9.2 6.8 2.4 35.3 1.4 1.3
General expense 85.3 53.3 32.0 60.0 12.8 10.3
Nonmanufacturing expenses $ 115.5 $ 78.4 $ 37.1 47.3 % 17.4 % 15.1 %
Nonmanufacturing expenses in the six months ended June 30, 2021 increased by
$37.1 million to $115.5 million from $78.4 million in the prior-year period. The
increase included $15.7 million of transaction and integration costs associated
with the Scapa acquisition, other SG&A costs from Scapa operations, and higher
deferred compensation expenses and third party consulting expenses.
Restructuring and Impairment Expense
($ in millions)
Six Months Ended Percent of Net Sales
June 30, 2021 June 30, 2020 Change 2021 2020
Advanced Materials & Structures $ - $ 0.5 $ (0.5) - % 0.2 %
Engineered Papers 4.0 1.2 2.8 1.6 0.5
Unallocated expenses - - - - -
Total $ 4.0 $ 1.7 $ 2.3 0.6 % 0.3 %
The Company incurred total restructuring and impairment expense of $4.0 million
in the six months ended June 30, 2021 compared with $1.7 million in the six
months ended June 30, 2020 . In the 2021 period, restructuring expense included
$2.4 million in the EP segment relating to severance and other accruals as a
result of the decision to shut down the Spotswood, New Jersey facility.
In the 2021 period the EP segment also recognized $1.6 million of restructuring
expenses primarily related to severance accruals at our manufacturing operations
in France . In the comparable 2020 period, the restructuring expense primarily
related to severance accruals for employees at our manufacturing operations in
the U.S. , Brazil , France and Poland .
In the AMS segment, the Company recognized no restructuring and impairment
expense in the 2021 period versus
Operating Profit
($ in millions)
Six Months Ended Return on Net Sales
June 30, 2021 June 30, 2020 Change Percent Change 2021 2020
Advanced Materials & Structures $ 40.2 $ 26.8 $ 13.4 50.0 % 9.7 % 10.5 %
Engineered Papers 54.1 65.1 (11.0) (16.9) 21.6 25.0
Unallocated expenses (44.9) (23.4) (21.5) (91.9)
Total $ 49.4 $ 68.5 $ (19.1) (27.9) % 7.4 % 13.3 %
Operating profit was
37
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The AMS segment's operating profit in the six months ended June 30, 2021 was
$40.2 million compared to $26.8 million in the prior-year period. The increase
of $13.4 million , or 50.0%, primarily reflected strong organic sales growth and
the incremental benefit of the acquired Scapa business, partially offset by
higher raw material costs as well as $8.0 million higher purchase accounting
expenses associated with Scapa acquisition. The negative net impact from higher
input costs, which accelerated throughout the period and had not yet been offset
by selling price increases the Company has begun implementing, resulted in a
lower operating profit margin of 9.7% in the six months ended June 30, 2021
compared to 10.5% in the prior-year period.
The EP segment's operating profit in the six months ended June 30, 2021 was
$54.1 million , a decrease of $11.0 million , or 16.9%, from $65.1 million in the
prior-year period. The decrease was primarily due to lower gross profit as a
result of a significant increase in wood pulp prices which had not yet been
offset by selling price increases, which will be effective in the second half of
the year. Operating profit in the first half of 2021 was also negatively
impacted by higher restructuring expenses and Spotswood transition
inefficiencies as discussed above. Currency movements resulted in a $6.1 million
benefit to operating profit, due mostly to lower local currency operating costs
in Brazil Real and strength of the Euro.
Unallocated expenses in the six months ended June 30, 2021 were $44.9 million
compared to $23.4 million in the prior-year period, an increase of $21.5
million , or 91.9%, primarily due to $15.7 million transaction and integration
costs related to the Scapa acquisition, and $1.5 million of costs incurred
within Scapa as shared services for corporate functions such as finance, HR, and
IT, which were reported in the Company's segment financials as unallocated
expenses. The remainder of the increase related to higher administrative and
third party consulting costs to support growth of the business.
Non-Operating Expenses
Interest expense was$16.0 million in the six months endedJune 30, 2021 , an increase from$15.0 million in the prior-year period. Excluding a benefit of$4.5 million prior year expense reversal related to the favorable settlement ofBrazil tax assessments as discussed in Note 12. Contingencies of the notes to the unaudited condensed consolidated financial statements, the interest expense increased$5.5 million due mainly to higher average debt balances as a result of the Scapa acquisition which closed inApril 2021 . Other expense, net, was$2.9 million during the six months endedJune 30, 2021 , compared to Other income of$0.3 million during the six months endedJune 30, 2020 . The 2021 period included$6.9 million realized foreign currency loss related to timing of the Scapa acquisition cash settlement. This expense was partially offset by$1.6 million favorableBrazil tax assessment settlement and$2.0 million sale ofcarbon dioxide credits inFrance .
Income Taxes
A$10.9 million provision for income taxes in the six months endedJune 30, 2021 resulted in an effective tax rate of 35.7% compared with 19.9% in the prior-year period. The increase was materially due to unfavorable discrete items and mix of earnings by jurisdiction.
Income from Equity Affiliates
Income from equity affiliates was$3.8 million in the six months endedJune 30, 2021 compared with income of$0.9 million during the prior-year period, due to increased volumes.
Net Income and Income per Share
Net income in the six months endedJune 30, 2021 was$23.4 million , or$0.74 per diluted share, compared with$44.0 million , or$1.40 per diluted share, during the prior-year period. 38 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
A major factor in our liquidity and capital resource planning is our generation of cash flow from operations, which is sensitive to changes in the mix of products sold, sales volume and selling prices of our products, as well as changes in our production volumes, costs, foreign currency exchange rates and working capital. Our liquidity is supplemented by funds available under our Credit Agreement with a syndicate of banks that is used as either operating conditions or strategic opportunities warrant.
Cash Requirements
As ofJune 30, 2021 ,$54.7 million of the Company's$65.9 million of cash and cash equivalents was held by foreign subsidiaries. We believe that our sources of liquidity and capital, including cash on-hand, cash generated from operations and our existing credit facilities, will be sufficient to finance our continued operations. We believe the proceeds from our Term Loan B Facility (as defined below) along with our existing credit facilities will be sufficient to fund our current growth plan. Cash Provided by Operations Net cash provided by operations was$19.8 million in the six months endedJune 30, 2021 compared with$49.3 million in the prior-year period. The decrease was primarily related to unfavorable year-over-year movements in working capital related cash flows as well as cash costs related to advisory fees, transaction expenses, and integration costs all relating to the Scapa acquisition.
Working Capital
As ofJune 30, 2021 , the Company had net working capital of$352.6 million , including cash and cash equivalents of$65.9 million , compared with net working capital of$232.3 million , including cash and cash equivalents of$54.7 million as ofDecember 31, 2020 . These changes primarily reflect the timing of payments and collections as well as increased raw material prices and timing of shipments.
In the six months ended
Cash Used for Investing
Cash used for investing activities during the six months endedJune 30, 2021 was$649.0 million , compared to$183.8 million in the prior-year. The change primarily reflects the net$630.5 million consideration to acquire Scapa versus$169.3 million Tekra in prior year. Capital spending and capitalized software totaled$17.6 million , up$1.0 million .
Cash Provided by Financing Activities
During the six months endedJune 30, 2021 , financing activities consisted of$703.7 million proceeds from borrowings under the revolving credit facility primarily to fund the Scapa acquisition including$350 million under the Term Loan B Facility and$313 million incremental borrowings of revolver loans,$27.6 million in cash paid for dividends declared to SWM stockholders,$17.8 million payments on long-term debt,$14.5 million payment for debt issuance costs associated with the amendment of our Credit Agreement as discussed in Note 10. Debt of the notes to the unaudited condensed consolidated financial statements, and share repurchases of$3.1 million . In the prior-year period, financing activities consisted of$212.0 million net proceeds from borrowings under the Revolving Credit Facility primarily to fund theTekra acquisition,$27.4 million in cash paid for dividends declared to SWM stockholders,$87.1 million payments on long-term debt, and share repurchases of$0.9 million .
The Company presently believes that the sources of liquidity discussed above are sufficient to meet its anticipated funding needs for the foreseeable future.
39
--------------------------------------------------------------------------------Dividend Payments
We have declared and paid cash dividends on our common stock every fiscal quarter since the second quarter of 1996. OnAugust 4, 2021 , we announced a cash dividend of$0.44 per share payable onSeptember 24, 2021 to stockholders of record as ofAugust 20, 2021 . The covenants contained in our Indenture and Credit Agreement require that we maintain certain financial ratios as disclosed in Note 10. Debt of the notes to the unaudited condensed consolidated financial statements, none of which under normal business conditions we would expect to materially limit our ability to pay such dividends. We plan to continue to assess our dividend policy in light of our capital allocation strategy, cash generation, debt levels and ongoing requirements for cash to fund operations and to pursue possible strategic opportunities. Debt Instruments and Related Covenants Debt Instruments Six Months Ended ($ in millions) June 30, 2021 June 30,
2020
Proceeds from issuances of long-term debt$ 703.7 $ 212.0 Payments on long-term debt (17.8) (87.1) Net proceeds from borrowings$ 685.9 $ 124.9
Net proceeds from borrowings were
OnFebruary 10, 2021 we amended our Credit Agreement to, among other things, add a new seven year Term Loan B facility, which provides for additional capacity of$350 million (the "Term Loan B Facility"). See Note 10. Debt of the notes to unaudited condensed consolidated financial statements for additional information about the Term Loan B Facility. Other than potential borrowings under the Term Loan B Facility, the Company does not expect to incur any significant additional borrowings during 2021. Unused borrowing capacity under the Credit Agreement was$107.1 million as ofJune 30, 2021 . We also had availability under our bank overdraft facilities of$6.3 million as ofJune 30, 2021 . The Company was in compliance with all of its covenants under the Indenture and Credit Agreement atJune 30, 2021 . With the current level of borrowing and forecasted results, we expect to remain in compliance with financial covenants under the Credit Agreement.
Our total debt to capital ratios, as calculated under the Credit Agreement, at
Off-Balance Sheet Arrangements
As of
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 that are
subject to the safe harbor created by that Act and other legal protections.
Forward-looking statements include, without limitation, those regarding the
incurrence of additional debt and expected maturities of the Company's debt
obligations, the adequacy of our sources of liquidity and capital, integration,
and growth prospects (including international growth), the cost and timing of
our restructuring actions, the impact of ongoing litigation matters and
environmental claims, the amount of capital spending and/or common stock
repurchases, future cash flows, purchase accounting impacts, impacts and timing
of our ongoing operational excellence and other cost-reduction and
cost-optimization initiatives, the impact of the COVID-19 pandemic on our
40
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operations, profitability, and cash flow, the expected benefits and accretion of
the Scapa acquisition and integration and other statements generally identified
by words such as "believe," "expect," "intend," "guidance," "plan," "forecast,"
"potential," "anticipate," "confident," "project," "appear," "future," "should,"
"likely," "could," "may," "will," "typically" and similar words. These
forward-looking statements are prospective in nature and not based on historical
facts, but rather on current expectations and on numerous assumptions regarding
the business strategies and the environment in which the Company's business
shall operate in the future and are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed or implied
by those statements. These statements are not guarantees of future performance
and involve certain risks and uncertainties that may cause actual results to
differ materially from our expectations as of the date of this report. These
risks include, among other things, those set forth in Part I, Item 1A. Risk
Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 ,
as well as the following factors:
•Risks associated with pandemics and other public health emergencies, including
the continued impact of, and the governmental and third party response to, the
COVID-19 pandemic (including its variant strains);
•Changes in sales or production volumes, pricing and/or manufacturing costs of
Recon products, cigarette paper (including for LIP cigarettes), including any
change by our customers in their tobacco and tobacco-related blends for their
cigarettes, their target inventory levels and/or the overall demand for their
products, new technologies such as e-cigarettes, inventory adjustments and
rebalancings in our EP segment. Additionally, competition and changes in AMS
end-market products due to changing customer demands;
•Changes in the Chinese economy, including relating to the demand for
reconstituted tobacco, premium cigarettes and netting and due to impact of
tariffs;
•Risks associated with the implementation of our strategic growth initiatives,
including diversification, and the Company's understanding of, and entry into,
new industries and technologies;
•Changes in the source and intensity of competition in our commercial segments;
•Our ability to attract and retain key personnel;
•Weather conditions, including potential impacts, if any, from climate change,
known and unknown, seasonality factors that affect the demand for virgin tobacco
leaf and natural disasters or unusual weather events;
•Seasonal or cyclical market and industry fluctuations which may result in
reduced net sales and operating profits during certain periods;
•Increases in commodity prices and lack of availability of such commodities,
including energy, wood pulp and resins, which could impact the sales and
profitability of our products;
•Adverse changes in the oil, gas, automotive, construction and infrastructure,
and mining sectors impacting key AMS segment customers;
•Increases in operating costs due to inflation or otherwise, such as labor
expense, compensation and benefits costs;
•Employee retention and labor shortages;
•Changes in employment, wage and hour laws and regulations in the U.S. , France
and elsewhere, including the loi de Securisation de l'emploi in France ,
unionization rule and regulations by the National Labor Relations Board in the
U.S. , equal pay initiatives, additional anti-discrimination rules or tests and
different interpretations of exemptions from overtime laws;
•Labor strikes, stoppages, disruptions or other disruptions at our facilities;
•The impact of tariffs, and the imposition of any future additional tariffs and
other trade barriers, and the effects of retaliatory trade measures;
•Existing and future governmental regulation and the enforcement thereof, for
example relating to the tobacco industry, taxation and the environment
(including the impact thereof on our Chinese joint ventures);
•New reports as to the effect of smoking on human health or the environment;
•Changes in general economic, financial and credit conditions in the U.S. ,
Europe , China and elsewhere, including the impact thereof on currency exchange
rates (including any weakening of the Euro and Real) and on interest rates and
the effects of the ongoing discussions between the U.K. and European Union to
determine the terms of the U.K.'s withdrawal from the European Union ;
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•Changes in the method pursuant to which LIBOR rates are determined and the
phasing out of USD LIBOR after 2023;
•Changes in the manner in which we finance our debt and future capital needs,
including potential acquisitions;
•The success of, and costs associated with, our current or future restructuring
initiatives, including the granting of any needed governmental approvals and the
occurrence of work stoppages or other labor disruptions;
•Changes in the discount rates, revenue growth, cash flow growth rates or other
assumptions used by the Company in its assessment for impairment of assets and
adverse economic conditions or other factors that would result in significant
impairment charges;
•The failure of one or more material suppliers, including energy, resin and pulp
suppliers, to supply materials as needed to maintain our product plans and cost
structure;
•International conflicts and disputes, which restrict our ability to supply
products into affected regions, due to the corresponding effects on demand, the
application of international sanctions, or practical consequences on
transportation, banking transactions, and other commercial activities in
troubled regions;
•Compliance with the FCPA and other anti-corruption laws or trade control laws,
as well as other laws governing our operations;
•The pace and extent of further international adoption of LIP cigarette
standards and the nature of standards so adopted;
•Risks associated with our 50%-owned, non-U.S. joint ventures relating to
control and decision-making, compliance, accounting standards, transparency and
customer relations, among others;
•A failure in our risk management and/or currency or interest rate swaps and
hedging programs, including the failures of any insurance company or
counterparty;
•The number, type, outcomes (by judgment or settlement) and costs of legal, tax,
regulatory or administrative proceedings, litigation and/or amnesty programs,
including those in Brazil , France and Germany ;
•The outcome and cost of LIP-related intellectual property infringement and
validity litigation in Europe and the Glatz's German Patent Court invalidation
proceedings;
•Risks associated with our technological advantages in our intellectual property
and the likelihood that our current technological advantages are unable to
continue indefinitely;
•Risks associated with acquisitions or other strategic transactions, including
acquired liabilities and restrictions, retaining customers from businesses
acquired, achieving any expected results or synergies from acquired businesses,
complying with new regulatory frameworks, difficulties in integrating acquired
businesses or implementing strategic transactions generally and risks associated
with international acquisition transactions, including in countries where we do
not currently have a material presence;
•Risks associated with dispositions, including post-closing claims being made
against us, disruption to our other businesses during a sale process or
thereafter, credit risks associated with any buyer of such disposed assets and
our ability to collect funds due from any such buyer;
•Risks associated with our global asset realignment initiatives, including:
changes in tax law, treaties, interpretations, or regulatory determinations;
audits made by applicable regulatory authorities and/or our auditor; and our
ability to operate our business in a manner consistent with the regulatory
requirements for such realignment;
•Increased taxation on tobacco-related products;
•Costs and timing of implementation of any upgrades or changes to our
information technology systems;
•Failure by us to comply with any privacy or data security laws or to protect
against theft of customer, employee and corporate sensitive information;
•Changes in tax rates, the adoption of new U.S. or international tax legislation
or exposure to additional tax liabilities;
•Changes in construction and infrastructure spending and its impact on demand
for certain products;
•Potential loss of consumer awareness and demand for acquired companies'
products if it is decided to rebrand those products under the Company's legacy
brand names; and
•Other factors described elsewhere in this document and from time to time in
documents that we file with the SEC ..
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All forward-looking statements made in this document are qualified by these cautionary statements. Forward-looking statements herein are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such and should only be viewed as historical data.
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