Schweitzer-Mauduit: Swm Announces Fourth Quarter 2013 Results
The following excerpt is from the company's SEC filing
ALPHARETTA, GA, February 5, 2014 -- Schweitzer-Mauduit International, Inc. (“SWM” or the “Company”) (NYSE: SWM) today reported fourth quarter 2013 earnings results for the period ended December 31, 2013.
•Fourth quarter net sales of $196.5 million increased 0.9% versus the prior-year quarter; full year net sales were $772.8 million, versus $778.5 million in 2012
•Fourth quarter Adjusted Diluted Earnings Per Share from Continuing Operations (see non-GAAP reconciliations) was $0.91, versus $0.95 in the prior-year quarter and $3.82 in full year 2013 versus $3.77 in 2012
•Fourth quarter results include a $37.2 million non-cash impairment charge with no associated tax benefit recorded related to the mothballed Philippine RTL mill; construction has been halted since 2011
•Including the $37.2 million non-cash impairment charge, fourth quarter net loss of $9.7 million compared to net income of $16.5 million in the prior-year quarter; full year net income of $76.1 million in 2013 versus $79.8 million in 2012
•During the fourth quarter, SWM acquired DelStar, Inc. for $231.3 million in cash and established a third reporting segment called Filtration; the transaction is expected to add approximately $0.25 to $0.27 to 2014 Adjusted Diluted Earnings Per Share from Continuing Operations, excluding the impact of purchase accounting items.
•Fourth quarter tobacco paper sales volumes, including the Chinese joint venture CTM (which is not included in Paper Segment results), decreased 8% versus the prior-year quarter; full year 2013 volumes were down 2% versus 2012
•Fourth quarter Lower Ignition Propensity (LIP) cigarette paper sales volumes, which are part of the Paper Segment, increased 1% versus the prior-year quarter and increased 3% for full year 2013 versus 2012
•Fourth quarter Reconstituted Tobacco Segment sales volumes decreased 7% versus the prior-year quarter and decreased 10% for full year 2013 compared to 2012
Frederic Villoutreix, Chairman of the Board and Chief Executive Officer, commented, "Our fourth quarter Adjusted Diluted Earnings Per Share from Continuing Operations of $0.91 was a good finish to the year, despite a challenging tobacco industry. As expected, our Reconstituted Tobacco Leaf (RTL) sales in the fourth quarter rebounded sequentially as our customers with annual commitments fulfilled those obligations. We are pleased with the 2013 results, particularly with our ability to maintain profits despite significant industry headwinds and the absence of any new LIP market conversions. Our continued focus on operational excellence, with another year of more than $25 million of year-over-year pre-tax savings in 2013, was a key contributor to our performance, providing favorable offsets to inflationary increases and the lower RTL volume. Our Paper Segment volumes were up 2% over 2012, as we worked diligently to offset tobacco industry challenges with share gains and higher volumes of non-tobacco products. Beyond the strong financial performance in 2013, we executed an acquisition in our long-term efforts to diversify the Company. DelStar creates the platform for our new Filtration Segment and offers SWM compelling organic and acquisition-related growth prospects, and the potential for high-return commercial projects. We welcome DelStar to the SWM team and look forward to sharing more about this new business area with our stockholders."
Steve Dunmead, SWM’s Chief Operating Officer, added, "As indicated in our last earnings release, 2014 will pose some difficult challenges, but there are several positive long-term growth catalysts taking place at the same time. We are on track to open the new CTS joint venture RTL mill in China during 2014, the DelStar integration is largely complete, and we are already aggressively pursuing several promising joint commercial initiatives with DelStar. Absent non-cash purchase accounting adjustments, the DelStar acquisition is expected to generate approximately $0.25 to $0.27 of earnings per share in 2014. In addition, we are pleased to report that we have proactively renewed and extended several existing major EU LIP multi-year contracts. Consistent with our expectations, we made certain pricing concessions in exchange for favorable share commitments, further solidifying our industry leadership position in tobacco papers."
"The RTL business will continue to face pressure in 2014, with volumes expected to be down close to 20% within our Reconstituted Tobacco Segment, net of some planned transfers to CTS. Overall volume, including CTS, is forecasted to be down approximately 10%. Customer inventory overhangs and accelerated smoking attrition rates in Western geographies, combined with potential changes in some of our customers' tobacco blends are driving this expected 2014 weakness. Throughout its 50-year history, RTL has experienced periodic volatility, and we are developing several product enhancements and exploring ways to leverage our reconstitution technologies in new market segments to help provide longer-run growth opportunities in RTL. The current weakness in RTL and the resulting uncertain outlook on the timetable to resume construction at our Philippines RTL mill prompted us to record a partial and non-cash impairment of these assets in the fourth quarter in the amount of $37.2 million. We are still hopeful, however, that future growth from several RTL product initiatives will lead to the necessary volume demands to restart construction. Separately, while we are still optimistic about future LIP prospects in Russia and other countries, we don’t expect revenue from any new LIP geographies in 2014."
Mr. Villoutreix continued, "Considering these factors, our 2014 outlook for Adjusted Diluted Earnings Per Share from Continuing Operations is $3.40, assuming foreign currency exchange rates remain similar to current levels. This excludes non-cash purchase accounting impacts from the DelStar acquisition, as well as start-up costs for CTS and other restructuring costs. While the decline in EPS expected in 2014 represents difficult tobacco market conditions, specifically for RTL, our cash flow is expected to remain quite robust. In this regard, we have been buying stock during the first quarter of 2014 under the $50 million stock buyback authorization approved during 2013."
"Despite our expectations for lower earnings in 2014, several of our long-term key profit drivers remain solid. DelStar provides a strong platform for growth in our Filtration Segment through its current and future product offerings and realization of several exciting commercial synergies, as well as the potential for follow-on acquisitions. In addition, the outlook for global LIP adoptions remains promising, and our Chinese RTL joint venture is set to open in 2014, with profits expected to be realized beginning in 2015. We continue to drive solid free cash flow generation, and several operating as well as non-operating initiatives are underway, already benefiting our 2014 earnings guidance."
Net sales were $196.5 million in the quarter ended December 31, 2013, versus $194.7 million in the prior-year quarter. The Paper Segment’s revenues were down 3%, Reconstituted Tobacco Segment sales increased 2%, and the new Filtration Segment added $4.2 million in revenue subsequent to the December 12, 2013 close of the DelStar acquisition. Consolidated full year 2013 net sales were $772.8 million, a decrease of $5.7 million, or 0.7% from the prior year.
Adjusted Diluted Earnings Per Share from Continuing Operations was $0.91 in the fourth quarter of 2013, down from $0.95 in the prior year period. For the full year 2013, Adjusted Diluted Earnings Per Share from Continuing Operations was $3.82, up from $3.77 in 2012.
Adjusted Operating Profit from Continuing Operations (see non-GAAP reconciliations) was $38.8 million in the quarter ended December 31, 2013 versus $38.9 million in the prior-year quarter. For the full year 2013, Adjusted Operating Profit from Continuing Operations was $167.3 million, down 3.4% from $173.1 million in 2012. The key driver of this decline was lower 2013 RTL volumes, which carry high margins.
Restructuring and impairment expense aggregated $38.4 million during the fourth quarter of 2013, an increase of $39.0 million from the prior-year quarter. The largest component was the $37.2 million non-cash impairment of the Philippine RTL mill assets, which resulted in a new carrying value equivalent to the estimated fair value of $31.5 million. During the fourth quarter of 2012, restructuring and impairment income was $0.6 million and included adjustments to our French pre-retirement accruals due to changes in French retirement laws. For the full year 2013, restructuring and impairment expense aggregated $41.3 million, up from $21.4 million in 2012. The largest component of 2012 restructuring and impairment expense was a $16.9 million impairment charge related to the Spotswood, New Jersey mill in connection with a modification to the Company's long-term supply contract with Altria.
The effective income tax rate for continuing operations for the fourth quarter of 2013, excluding the impact of the Philippines RTL impairment and deferred tax asset valuations aggregating $1.1 million, was 31.1%, up from 29.7% in the fourth quarter of 2012. For the full year 2013, the effective income tax rate, excluding the impact of the Philippines RTL impairment and other items was 31.6%, versus 32.3% in 2012. The 2012 effective tax rate for continuing operations excludes the impact of the Spotswood impairment and RTL Philippines losses.
Financial results of discontinued operations included results of the Company's paper mills in the Philippines, which had been closed at the end of 2012, and in Indonesia prior to its sale during 2013. Prior-year results have been recast to a comparable basis.
Net loss was $9.7 million for the quarter ended December 31, 2013, a decrease of $26.2 million from net income in the prior-year quarter, which was more than accounted for by the $37.2 million impairment of the mothballed Philippines RTL mill assets. Net income for the year ended December 31, 2013 was $76.1 million, a decrease of $3.7 million compared to the prior year. Adjusted Net Income from Continuing Operations (a non-GAAP measure, see non-GAAP reconciliations) was $120.2 million for full year 2013 compared to $119.0 million in 2012.
Operating cash from continuing operations was $175.8 million for the year ended December 31, 2013, compared with $178.1 million in the prior year.
Net Debt at December 31, 2013 was $113.4 million, compared to $4.8 million at December 31, 2012. The Company's higher debt position is largely the result of debt financing for the December 2013 DelStar acquisition, with a purchase price of $231.3 million, offset by cash flow from operations during the year net of capital spending and dividend payments.
Capital spending was $29.1 million and $27.2 million during the years ended December 31, 2013 and 2012, respectively. For 2014, capital spending is expected to be approximately $30 million, including DelStar.
The Company also announced that a quarterly cash dividend of $0.36 per share will be payable on March 20, 2014 to stockholders of record on February 28, 2014. As discussed previously, the Company’s Capital Allocation Strategy aims to return at least 1/3 of free cash flow to stockholders, largely in the form of dividends, with share repurchases executed on an opportunistic basis. The Company did not repurchase any shares during the fourth quarter. During 2014, the Company has repurchased approximately 294,000 shares for $13.6 million through February 4, 2014.
The DelStar contribution of $0.25 to $0.27 to the Company’s 2014 outlook for Adjusted Diluted Earnings Per Share from Continuing Operations excludes the impact from the non-cash amortization of acquired intangible assets, such as customer relationships and technology, and a one-time inventory step-up charge of $3.3 million. The ongoing non-cash amortization expenses for intangible assets total approximately $3 million per year. The expected DelStar contribution includes integration and management retention expenses as well as the interest costs for debt incurred to purchase the business.
SWM will hold a conference call to review fourth quarter 2013 results with investors and analysts at 8:30 a.m. eastern time on Thursday, February 6, 2014. The conference call will be simultaneously broadcast over the Internet at www.swmintl.com. To listen to the call, please go to the Web site at least 15 minutes prior to the call to register and to download and install any necessary audio software. For those unable to listen to the live broadcast, a replay will be available on the Web site shortly after the call.
SWM will use a presentation in conjunction with its conference call. The presentation can be found on the company's Web site in advance of the earnings conference call. The presentation can also be accessed via the earnings conference call webcast.
SWM is a leading global provider of highly engineered solutions and advanced materials for a variety of industries. Although SWM primarily serves the tobacco industry, it also manufactures specialty papers for other applications and acquired DelStar, Inc. in late 2013 to further expand its product portfolio and the markets it serves. SWM and its subsidiaries conduct business in over 90 countries and employ approximately 3,000 people worldwide, with operations in the United States, France, Brazil, Canada, Poland and China, including two joint ventures. For further information, please visit the company's Web site at www.swmintl.com.
•Changes in sales or production volumes, pricing or manufacturing costs of reconstituted tobacco products and cigarette paper for lower ignition propensity cigarettes due to changing customer demands, new technologies such as e-cigarettes, or otherwise;
•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;
•Our ability to attract and retain key personnel, due to our prior restructuring actions, the industry in which we operate or otherwise;
•Weather conditions, including potential impacts, if any, from climate change, known and unknown, seasonality factors that affect the demand for virgin tobacco leaf and natural disasters or unusual weather events;
•Higher commodity prices and lack of availability thereof, including energy, wood pulp and polymers, could impact the profitability of our products;
•Increases in operating costs due to inflation or otherwise, such as labor expense, compensation and benefits costs, including costs related to the comprehensive health care reform law enacted in the first quarter of 2010;
•Employee retention and labor shortages, changes in employment, wage and hour laws and regulations in the U.S. and France, including loi de Securisation de l'emploi, equal pay initiatives, additional anti-discrimination rules or tests and different interpretations of exemptions from overtime laws;
•Changes in general economic, financial and credit conditions in the U.S. and elsewhere, including the impact thereof on currency (including any weakening of the euro) and interest rates;
•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;
•Labor activities at our facilities and new regulations or changes in existing regulations and procedures by the National Labor Relations Board or other authorities;
•Risks associated with acquisitions or other strategic transactions, including acquired liabilities, retaining customers from businesses acquired, achieving any expected synergies from acquired businesses, difficulties in integrating acquired businesses or implementing strategic transactions generally and risks associated with international acquisition transactions;
•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 legal entity and business realignment initiatives, including changes in law, treaties, timing of execution and regulatory determinations;
•Costs and timing of implementation of any upgrades to our information technology systems, any failure by us to comply with any privacy or data security laws or any failure by us to protect against theft of customer and corporate sensitive information; and
All forward-looking statements made in this document are qualified by these cautionary statements. These forward-looking statements 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.
For additional factors and further discussion of these factors, please see SWM's Annual Report on Form 10-K for the period ended December 31, 2012 and Quarterly Report on Form 10-Q for the period ended September 30, 2013. The fourth quarter and full year 2013 financial results reported in this release are preliminary and unaudited. Final results are expected to be announced when the Company files its Annual Report on Form 10-K for the year ended December 31, 2013 on or about February 28, 2014. Final results could differ from the preliminary results reported in this release. The Company assumes no obligation and does not intend to update this information prior to filing its Annual Report on Form 10-K for the year ended December 31, 2013.
Certain financial measures and comments contained in this press release exclude restructuring and impairment expenses. Financial measures which exclude this item have not been determined in accordance with accounting principles generally accepted in the United States and are therefore "non-GAAP" financial measures. Reconciliations of these non-GAAP financial measures to the most closely analogous measure determined in accordance with accounting principles generally accepted in the United States are included in the financial schedules attached to this release.
SWM management believes that investors' understanding of the Company's performance is enhanced by disclosing these non-GAAP financial measures as a reasonable basis for comparison of the company's ongoing results of operations. By providing the non-GAAP financial measures, together with the reconciliations and comments, management believes it is enhancing investors' understanding of the Company's business results.
Three Months Ended December 31, 2013 2012 % ChangeNet Sales$196.5 $194.7 0.9 %Cost of products sold134.6 129.4 4.0Gross Profit61.9 65.3 (5.2) Selling expense5.7 6.6 (13.6)Research expense4.2 2.7 55.6General expense14.3 17.1 (16.4)Total nonmanufacturing expenses24.2 26.4 (8.3) Restructuring and impairment expense38.4 (0.6) N.M.Operating (Loss) Profit(0.7) 39.5 N.M.Interest expense0.9 0.8 12.5Other income, net2.7 1.2 N.M.Income from Continuing Operations before Income Taxes and Income from Equity Affiliates1.1 39.9 (97.2) Provision for income taxes13.0 11.9 9.2Income from equity affiliates0.7 1.8 (61.1)(Loss) Income from Continuing Operations(11.2) 29.8 N.M.(Loss) income from Discontinued Operations1.5 (13.3) N.M.Net Income (Loss)$(9.7) $16.5 N.M. Net Income (Loss) per Share - Basic: (Loss) Income per share from continuing operations$(0.35) $0.97 N.M.(Loss) income per share from discontinued operations0.05 (0.44) N.M.Net (loss) income per share – basic$(0.30) $0.53 N.M. Net Income (Loss) per Share – Diluted: (Loss) Income per share from continuing operations$(0.35) $0.96 N.M.(Loss) income per share from discontinued operations0.04 (0.43) N.M.Net (loss) income per share – diluted$(0.31) $0.53 N.M. Cash Dividends Declared Per Share$0.36 $0.150 Weighted Average Shares Outstanding: Basic31,099,500 30,654,900 Diluted31,312,900 31,018,900
Year Ended December 31, 2013 2012 % ChangeNet Sales$772.8 $778.5 (0.7)%Cost of products sold520.1 519.0 0.2Gross Profit252.7 259.5 (2.6) Selling expense20.9 21.9 (4.6)Research expense15.3 9.9 54.5General expense50.3 54.6 (7.9)Total nonmanufacturing expenses86.5 86.4 0.1 Restructuring and impairment expense41.3 21.4 93.0Operating Profit124.9 151.7 (17.7)Interest expense2.9 3.3 (12.1)Other income, net5.7 1.2 N.M.Income from Continuing Operations before Income Taxes and Income from Equity Affiliates127.7 149.6 (14.6) Provision for income taxes53.0 49.5 7.1Income from equity affiliates3.8 4.0 (5.0)Income from Continuing Operations78.5 104.1 (24.6)Loss from Discontinued Operations(2.4) (24.3) (90.1)Net Income$76.1 $79.8 (4.6)% $76.1 $79.8 Net Income (Loss) per Share - Basic: Income per share from continuing operations$2.51 $3.33 (24.6)%Loss per share from discontinued operations(0.07) (0.79) (91.1)Net income per share – basic$2.44 $2.54 (3.9)% Net Income (Loss) per Share – Diluted: Income per share from continuing operations$2.49 $3.29 (24.3)%Loss per share from discontinued operations(0.08) (0.78) (89.7)Net income per share – diluted$2.41 $2.51 (4.0)% Cash Dividends Declared Per Share$1.36 $0.45 Weighted Average Shares Outstanding: Basic31,056,700 30,986,200 Diluted31,238,300 31,341,900
December 31, 2013 December 31, 2012ASSETS Cash and cash equivalents$272.0 $151.2Accounts receivable107.6 95.4Inventories132.8 111.6Other current assets22.6 23.8Property, plant and equipment, net393.2 401.4Goodwill118.7 5.7Other noncurrent assets176.9 97.6Total Assets$1,223.8 $886.7 LIABILITIES AND STOCKHOLDERS’ EQUITY Current debt$4.2 $4.2Other current liabilities139.7 122.7Long-term debt381.2 151.8Pension and other postretirement benefits28.7 41.5Deferred income tax liabilities80.3 28.4Other noncurrent liabilities28.3 26.3Stockholders’ equity561.4 511.8Total Liabilities and Stockholders’ Equity$1,223.8 $886.7
Note: In connection with the Company's acquisition of DelStar, Inc. during fourth quarter of 2013, the Company recorded $112.6 million of Goodwill, $80.9 million of intangible assets (included in Other Noncurrent Assets), of which $59.1 million will be amortized over approximately 20 years, and an increase of $4.2 million to inventory to record it at purchase price fair value.
Year Ended December 31, 2013 2012Net income$76.1 $79.8Less: Loss from discontinued operations(2.4) (24.3)Income from continuing operations78.5 104.1 Depreciation and amortization37.3 38.5Impairment37.2 20.2Deferred income tax provision17.3 13.1Pension and other postretirement benefits1.1 1.0Stock-based compensation3.2 6.9Income from equity affiliate(3.8) (4.0)Excess tax benefits of stock-based awards(0.5) (1.4)Cash dividends received from equity affiliates3.7 3.0Other items1.0 (0.1)Net changes in operating working capital0.8 (3.2)Net cash provided (used) by operating activities of: Continuing operations175.8 178.1 Discontinued operations2.3 (3.5)Cash Provided by Operations178.1 174.6 Capital spending(29.1) (27.2)Capitalized software costs(0.5) (0.9)Investment in equity affiliates— (21.0)Acquisitions, net of cash(231.3) —Other investing7.2 (2.6)Cash Used for Investing(253.7) (51.7) Cash dividends paid to SWM stockholders(39.5) (14.1)Changes in short-term debt— (1.9)Proceeds from issuances of long-term debt455.6 43.0Payments on long-term debt(228.1) (31.8)Purchases of treasury stock(1.7) (50.0)Proceeds from exercise of stock options0.5 2.8Excess tax benefits of stock-based awards0.5 1.4Cash Provided by (Used in) Financing187.3 (50.6) Effect of Exchange Rate Changes on Cash9.1 2.4 Increase in Cash and Cash Equivalents$120.8 $74.7
Three Months Ended December 31, Year Ended December 31, 2013 2012 2013 2012Operating (loss) profit from continuing operations$(0.7) $39.5 $124.9 $151.7Plus: Restructuring & impairment expense (income)38.4 (0.6) 41.3 21.4Plus: Purchase accounting adjustments1.1 — 1.1 —Adjusted Operating Profit from Continuing Operations$38.8 $38.9 $167.3 $173.1 Net (Loss) income from continuing operations$(11.2) $29.8 $78.5 $104.1Plus: Restructuring & impairment expense (income), net of tax37.9 (0.4) 39.9 14.9Plus: Purchase accounting adjustments, net of tax0.7 — 0.7 —Plus: Income tax valuation allowance1.1 — 1.1 —Adjusted Net Income from Continuing Operations$28.5 $29.4 $120.2 $119.0 Net (loss) income per share - diluted$(0.31) $0.53 $2.41 $2.51Plus: Loss per share from discontinued operations(0.04) 0.43 0.08 0.78(Loss) income from continuing operations per diluted share(0.35) 0.96 2.49 3.29Plus: Restructuring & impairment expense (income) per share1.21 (0.01) 1.28 0.48Plus: Purchase accounting adjustments per share$0.02 $— $0.02 $—Plus: Income tax valuation allowance per share$0.03 $— $0.03 $—Adjusted Diluted Earnings Per Share from Continuing Operations$0.91 $0.95 $3.82 $3.77 (Loss) income from continuing operations$(11.2) $29.8 $78.5 $104.1Plus: Interest expense0.9 0.8 2.9 3.3Plus: Income tax provision13.0 11.9 53.0 49.5Plus: Depreciation & amortization10.3 9.8 37.3 38.5Plus: Restructuring & impairment expense (income)38.4 (0.6) 41.3 21.4Adjusted EBITDA from Continuing Operations$51.4 $51.7 $213.0 $216.8 Cash provided by operating activities of continuing operations$54.6 $49.9 $175.8 $178.1Less: Capital spending(8.9) (6.8) (29.1) (27.2)Less: Capitalized software costs(0.1) (0.4) (0.5) (0.9)Free Cash Flow from Continuing Operations$45.6 $42.7 $146.2 $150.0 December 31, 2013 December 31, 2012 Total Debt$385.4 $156.0 Less: Cash272.0 151.2 Net Debt$113.4 $4.8 2014E 2014E Diluted Earnings Per Share from Continuing Operations$3.15 Plus: Purchase accounting inventory step-up amortization per share0.07 Plus: Purchase accounting intangible asset amortization per share0.06 Plus: CTS start-up expenses per share0.12 2014E Adjusted Diluted Earnings Per Share from Continuing Operations$3.40
The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here. Schweitzer-Mauduit International next reports earnings on February 05, 2014.
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