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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2023
or
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☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
4350 Congress Street, Suite 600
Charlotte, North Carolina 28209
(Address of principal executive offices)
(704) 885-2555
(Registrant's telephone number, including area code)
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| Commission file number | | Exact name of registrant as specified in its charter | | IRS Employer Identification No. | | State or other jurisdiction of incorporation or organization | |
| 1-03560 | | Glatfelter Corporation | | 23-0628360 | | Pennsylvania | |
(N/A)
Former name or former address, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock | | GLT | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | ☐ | | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒.
Common Stock outstanding on July 28, 2023 totaled 45,045,910 shares.
GLATFELTER CORPORATION AND SUBSIDIARIES
REPORT ON FORM 10-Q
For the Quarterly Period Ended
June 30, 2023
Table of Contents
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| Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2023 and 2022 (unaudited) | | |
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Item 1B | | | |
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PART I
Item 1 – Financial Statements
GLATFELTER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
In thousands, except per share | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
Net sales | $ | 357,005 | | | $ | 363,963 | | | $ | 735,213 | | | $ | 745,643 | |
Costs of products sold | 338,872 | | | 326,566 | | | 680,866 | | | 676,581 | |
Gross profit | 18,133 | | | 37,397 | | | 54,347 | | | 69,062 | |
Selling, general and administrative expenses | 28,639 | | | 28,400 | | | 59,384 | | | 61,566 | |
Goodwill and other asset impairment charges | — | | | — | | | — | | | 117,349 | |
Gains (losses) on dispositions of plant, equipment and timberlands, net | (21) | | | 73 | | | (665) | | | (2,888) | |
Operating income (loss) | (10,485) | | | 8,924 | | | (4,372) | | | (106,965) | |
Non-operating income (expense) | | | | | | | |
Interest expense | (17,261) | | | (7,672) | | | (29,855) | | | (15,534) | |
Interest income | 559 | | | 38 | | | 830 | | | 55 | |
Other, net | (3,045) | | | (455) | | | (6,323) | | | (1,795) | |
Total non-operating expense | (19,747) | | | (8,089) | | | (35,348) | | | (17,274) | |
Income (loss) from continuing operations before income taxes | (30,232) | | | 835 | | | (39,720) | | | (124,239) | |
Income tax provision (benefit) | 6,399 | | | 3,295 | | | 10,093 | | | (13,489) | |
Loss from continuing operations | (36,631) | | | (2,460) | | | (49,813) | | | (110,750) | |
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Discontinued operations: | | | | | | | |
Income (loss) before income taxes | (309) | | | 408 | | | (711) | | | 371 | |
Income tax provision | — | | | — | | | — | | | — | |
Income (loss) from discontinued operations | (309) | | | 408 | | | (711) | | | 371 | |
Net loss | $ | (36,940) | | | $ | (2,052) | | | $ | (50,524) | | | $ | (110,379) | |
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Basic earnings per share | | | | | | | |
Loss from continuing operations | $ | (0.82) | | | $ | (0.05) | | | $ | (1.11) | | | $ | (2.47) | |
Income (loss) from discontinued operations | (0.01) | | | 0.01 | | | (0.02) | | | 0.01 | |
Basic loss per share | $ | (0.83) | | | $ | (0.04) | | | $ | (1.13) | | | $ | (2.46) | |
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Diluted earnings per share | | | | | | | |
Loss from continuing operations | $ | (0.82) | | | $ | (0.05) | | | $ | (1.11) | | | $ | (2.47) | |
Income (loss) from discontinued operations | (0.01) | | | 0.01 | | | (0.02) | | | 0.01 | |
Diluted loss per share | $ | (0.83) | | | $ | (0.04) | | | $ | (1.13) | | | $ | (2.46) | |
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Weighted average shares outstanding | | | | | | | |
Basic | 45,041 | | 44,841 | | | 44,999 | | 44,775 |
Diluted | 45,041 | | 44,841 | | | 44,999 | | 44,775 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GLATFELTER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
In thousands | 2023 | | 2022 | | 2023 | | 2022 |
Net loss | $ | (36,940) | | | $ | (2,052) | | | $ | (50,524) | | | $ | (110,379) | |
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Foreign currency translation adjustments | 2,820 | | | (28,675) | | | 9,483 | | | (39,590) | |
Net change in: | | | | | | | |
Deferred gains (losses) on derivatives, net of taxes of $96, $(2,029), $149 and $(2,629), respectively | (11) | | | 8,534 | | | 146 | | | 8,177 | |
Unrecognized retirement obligations, net of taxes of $(3), $(49), $(4) and $(101), respectively | 18 | | | 152 | | | 670 | | | 304 | |
Other comprehensive income (loss) | 2,827 | | | (19,989) | | | 10,299 | | | (31,109) | |
Comprehensive loss | $ | (34,113) | | | $ | (22,041) | | | $ | (40,225) | | | $ | (141,488) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GLATFELTER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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In thousands | June 30, 2023 | | December 31, 2022 |
Assets | | | |
Cash and cash equivalents | $ | 53,864 | | | $ | 110,660 | |
Accounts receivable, net | 189,628 | | | 195,665 | |
Inventories | 314,673 | | | 309,436 | |
Prepaid expenses and other current assets | 56,329 | | | 63,723 | |
Total current assets | 614,494 | | | 679,484 | |
| | | |
Plant, equipment and timberlands, net | 670,347 | | | 675,811 | |
Goodwill | 106,495 | | | 105,195 | |
Intangible assets, net | 106,043 | | | 108,670 | |
Other assets | 79,184 | | | 78,193 | |
Total assets | $ | 1,576,563 | | | $ | 1,647,353 | |
| | | |
Liabilities and Shareholders' Equity | | | |
Current portion of long-term debt | $ | 2,963 | | | $ | 40,435 | |
Short-term debt | 7,238 | | | 11,422 | |
Accounts payable | 161,148 | | | 217,625 | |
| | | |
Environmental liabilities | 2,000 | | | 2,200 | |
Other current liabilities | 89,539 | | | 88,724 | |
Total current liabilities | 262,888 | | | 360,406 | |
| | | |
Long-term debt | 853,025 | | | 793,252 | |
Deferred income taxes | 56,621 | | | 54,388 | |
Other long-term liabilities | 125,191 | | | 121,303 | |
Total liabilities | 1,297,725 | | | 1,329,349 | |
| | | |
Commitments and contingencies | | | |
| | | |
Shareholders’ equity | | | |
Common stock | 544 | | | 544 | |
Capital in excess of par value | 57,945 | | | 60,663 | |
Retained earnings | 448,339 | | | 498,863 | |
Accumulated other comprehensive loss | (87,596) | | | (97,895) | |
| 419,232 | | | 462,175 | |
Less cost of common stock in treasury | (140,394) | | | (144,171) | |
Total shareholders’ equity | 278,838 | | | 318,004 | |
Total liabilities and shareholders’ equity | $ | 1,576,563 | | | $ | 1,647,353 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GLATFELTER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) | | | | | | | | | | | |
| Six months ended June 30, |
In thousands | 2023 | | 2022 |
Operating activities | | | |
Net loss | $ | (50,524) | | | $ | (110,379) | |
Loss (income) from discontinued operations, net of taxes | 711 | | | (371) | |
Adjustments to reconcile to net cash used by continuing operations: | | | |
Depreciation, depletion and amortization | 31,701 | | | 34,936 | |
Amortization of debt issue costs and original issue discount | 3,281 | | | 963 | |
Pension settlement charge | 633 | | | — | |
Goodwill and other asset impairment charges | — | | | 117,349 | |
Russia/Ukraine conflict charges | — | | | 3,948 | |
Deferred income tax expense (benefit) | 959 | | | (22,186) | |
Gains on dispositions of plant, equipment and timberlands, net | (665) | | | (2,888) | |
Share-based compensation | 1,307 | | | 2,419 | |
Change in operating assets and liabilities: | | | |
Accounts receivable | 4,180 | | | (52,936) | |
Inventories | (1,656) | | | (45,148) | |
Prepaid and other current assets | 7,418 | | | 3,472 | |
Accounts payable | (58,129) | | | 9,516 | |
Accruals and other current liabilities | 3,633 | | | (16,910) | |
Other | 4,130 | | | (1,320) | |
Net cash used by operating activities from continuing operations | (53,021) | | | (79,535) | |
Investing activities | | | |
Expenditures for purchases of plant, equipment and timberlands | (17,458) | | | (22,697) | |
Proceeds from disposals of plant, equipment and timberlands, net | 735 | | | 3,173 | |
Acquisition, net of cash acquired | — | | | 1,413 | |
Other | — | | | (25) | |
Net cash used by investing activities from continuing operations | (16,723) | | | (18,136) | |
Financing activities | | | |
| | | |
Proceeds from term loan | 262,273 | | | — | |
Repayment of term loans | (226,451) | | | (23,793) | |
| | | |
Net borrowings (repayments) under revolving credit facility | (14,988) | | | 72,176 | |
Payments of borrowing costs | (10,071) | | | (1,102) | |
Payments of dividends | — | | | (12,498) | |
| | | |
Payments related to share-based compensation awards and other | (248) | | | (1,237) | |
Net cash provided by financing activities from continuing operations | 10,515 | | | 33,546 | |
Effect of exchange rate changes on cash | 1,096 | | | (3,587) | |
Net decrease in cash, cash equivalents and restricted cash | (58,133) | | | (67,712) | |
Decrease in cash, cash equivalents and restricted cash from discontinued operations | (428) | | | (231) | |
Cash, cash equivalents and restricted cash at the beginning of period | 119,162 | | | 148,814 | |
Cash, cash equivalents and restricted cash at the end of period | 60,601 | | | 80,871 | |
Less: restricted cash in Prepaid expenses and other current assets | (3,600) | | | (2,000) | |
Less: restricted cash in Other assets | (3,137) | | | (7,395) | |
Cash and cash equivalents at the end of period | $ | 53,864 | | | $ | 71,476 | |
| | | |
Supplemental cash flow information | | | |
Cash paid for: | | | |
Interest | $ | 27,001 | | | $ | 15,879 | |
Income taxes, net | 4,109 | | | 14,699 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GLATFELTER CORPORATION AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | Common stock | | Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
Balance at April 1, 2023 | $ | 544 | | | $ | 59,256 | | | $ | 485,279 | | | $ | (90,423) | | | $ | (142,069) | | | $ | 312,587 | |
Net loss | | | | | (36,940) | | | | | | | (36,940) | |
Other comprehensive income | | | | | | | 2,827 | | | | | 2,827 | |
Comprehensive loss | | | | | | | | | | | (34,113) | |
| | | | | | | | | | | |
Share-based compensation expense | | | 376 | | | | | | | | | 376 | |
Delivery of treasury shares: | | | | | | | | | | | |
RSUs and PSAs | | | (1,687) | | | | | | | 1,675 | | | (12) | |
Balance at June 30, 2023 | $ | 544 | | | $ | 57,945 | | | $ | 448,339 | | | $ | (87,596) | | | $ | (140,394) | | | $ | 278,838 | |
| | | | | | | | | | | |
Balance at April 1, 2022 | $ | 544 | | | $ | 61,873 | | | $ | 591,012 | | | $ | (91,424) | | | $ | (145,272) | | | $ | 416,733 | |
Net loss | | | | | (2,052) | | | | | | | (2,052) | |
Other comprehensive loss | | | | | | | (19,989) | | | | | (19,989) | |
Comprehensive loss | | | | | | | | | | | (22,041) | |
Cash dividends declared ($0.14 per share) | | | | | (6,273) | | | | | | | (6,273) | |
Share-based compensation expense | | | 1,510 | | | | | | | | | 1,510 | |
Delivery of treasury shares: | | | | | | | | | | | |
RSUs and PSAs | | | (828) | | | | | | | 821 | | | (7) | |
Balance at June 30, 2022 | $ | 544 | | | $ | 62,555 | | | $ | 582,687 | | | $ | (111,413) | | | $ | (144,451) | | | $ | 389,922 | |
| | | | | | | | | | | |
Balance at January 1, 2023 | $ | 544 | | | $ | 60,663 | | | $ | 498,863 | | | $ | (97,895) | | | $ | (144,171) | | | $ | 318,004 | |
Net loss | | | | | (50,524) | | | | | | | (50,524) | |
Other comprehensive income | | | | | | | 10,299 | | | | | 10,299 | |
Comprehensive loss | | | | | | | | | | | (40,225) | |
| | | | | | | | | | | |
Share-based compensation expense | | | 1,307 | | | | | | | | | 1,307 | |
Delivery of treasury shares: | | | | | | | | | | | |
RSUs and PSAs | | | (4,025) | | | | | | | 3,777 | | | (248) | |
Balance at June 30, 2023 | $ | 544 | | | $ | 57,945 | | | $ | 448,339 | | | $ | (87,596) | | | $ | (140,394) | | | $ | 278,838 | |
| | | | | | | | | | | |
Balance at January 1, 2022 | $ | 544 | | | $ | 64,779 | | | $ | 705,600 | | | $ | (80,304) | | | $ | (147,857) | | | $ | 542,762 | |
Net loss | | | | | (110,379) | | | | | | | (110,379) | |
Other comprehensive loss | | | | | | | (31,109) | | | | | (31,109) | |
Comprehensive loss | | | | | | | | | | | (141,488) | |
Cash dividends declared (0.14 per share) | | | | | (12,534) | | | | | | | (12,534) | |
Share-based compensation expense | | | 2,419 | | | | | | | | | 2,419 | |
Delivery of treasury shares: | | | | | | | | | | | |
RSUs and PSAs | | | (4,643) | | | | | | | 3,406 | | | (1,237) | |
Balance at June 30, 2022 | $ | 544 | | | $ | 62,555 | | | $ | 582,687 | | | $ | (111,413) | | | $ | (144,451) | | | $ | 389,922 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
GLATFELTER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.ORGANIZATION
Glatfelter Corporation and subsidiaries ("Glatfelter") is a leading global supplier of engineered materials with a strong focus on innovation and sustainability. Glatfelter's high quality, technology-driven, innovative, and customizable nonwovens solutions can be found in products that are Enhancing Everyday Life®. These include personal care and hygiene products, food and beverage filtration, critical cleaning products, medical and personal protection, packaging products, as well as home improvement and industrial applications. Headquartered in Charlotte, NC, our 2022 net sales were $1.5 billion. At December 31, 2022, we employed approximately 3,250 employees worldwide. Glatfelter’s operations utilize a variety of manufacturing technologies including airlaid, wetlaid, and spunlace with sixteen manufacturing sites located in the United States, Canada, Germany, the United Kingdom, France, Spain, and the Philippines. The Company has sales offices in all major geographies serving customers under the Glatfelter and Sontara brands. Additional information about Glatfelter may be found at www.glatfelter.com. The terms “we,” “us,” “our,” “the Company,” or “Glatfelter,” refer to Glatfelter Corporation and subsidiaries unless the context indicates otherwise.
2. ACCOUNTING POLICIES
Basis of Presentation The unaudited condensed consolidated financial statements (“financial statements”) include the accounts of Glatfelter and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. In our opinion, the financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these financial statements, we have assumed you have read the audited consolidated financial statements included in our 2022 Annual Report on Form 10-K.
Discontinued Operations The results of operations and cash flows of our former Specialty Papers business have been classified as discontinued operations for all periods presented in the condensed consolidated statements of income.
Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Management believes the estimates and assumptions used in the preparation of these financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes actual results may differ from those estimates and assumptions.
3.REVENUE
The following tables set forth disaggregated information pertaining to our net sales:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
In thousands | 2023 | | 2022 | | 2023 | | 2022 |
Revenue by product category | | | | | | | |
| | | | | | | |
Airlaid Materials | | | | | | | |
Feminine hygiene | $ | 51,882 | | | $ | 56,943 | | | $ | 110,127 | | | $ | 116,255 | |
Specialty wipes | 45,535 | | | 37,908 | | | 90,329 | | | 75,003 | |
Tabletop | 31,778 | | | 26,771 | | | 62,193 | | | 57,518 | |
Food pads | 3,361 | | | 3,475 | | | 6,901 | | | 6,951 | |
Home care | 6,781 | | | 5,513 | | | 14,140 | | | 11,798 | |
Adult incontinence | 7,063 | | | 6,260 | | | 14,422 | | | 12,989 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other | 6,111 | | | 6,838 | | | 13,840 | | | 12,658 | |
| 152,511 | | | 143,708 | | | 311,952 | | | 293,172 | |
Composite Fibers | | | | | | | |
Food & beverage | 70,755 | | | 74,465 | | | 149,699 | | | 149,688 | |
Wallcovering | 19,570 | | | 9,902 | | | 35,727 | | | 25,733 | |
Technical specialties | 20,542 | | | 18,603 | | | 41,995 | | | 41,739 | |
Composite laminates | 8,818 | | | 11,570 | | | 17,801 | | | 22,867 | |
Metallized | 6,040 | | | 8,798 | | | 13,094 | | | 19,140 | |
| | | | | | | |
| 125,725 | | | 123,338 | | | 258,316 | | | 259,167 | |
Spunlace | | | | | | | |
Consumer wipes | 34,759 | | | 39,549 | | | 72,868 | | | 85,706 | |
Critical cleaning | 17,584 | | | 27,783 | | | 46,733 | | | 52,061 | |
Health care | 16,808 | | | 15,434 | | | 27,183 | | | 29,039 | |
Hygiene | 5,034 | | | 6,233 | | | 10,694 | | | 12,146 | |
High performance | 4,608 | | | 4,018 | | | 7,817 | | | 8,130 | |
Beauty care | 627 | | | 3,900 | | | 848 | | | 6,222 | |
| | | | | | | |
| 79,420 | | | 96,917 | | | 166,143 | | | 193,304 | |
| | | | | | | |
Inter-segment sales elimination | (651) | | | — | | | (1,198) | | | — | |
Total | $ | 357,005 | | | $ | 363,963 | | | $ | 735,213 | | | $ | 745,643 | |
| | | | | | | |
Revenue by geography | | | | | | | |
| | | | | | | |
Airlaid Materials | | | | | | | |
Americas | $ | 85,492 | | | $ | 77,608 | | | $ | 175,329 | | | $ | 158,521 | |
Europe, Middle East and Africa | 63,519 | | | 63,355 | | | 129,510 | | | 126,491 | |
Asia Pacific | 3,500 | | | 2,745 | | | 7,113 | | | 8,160 | |
| 152,511 | | | 143,708 | | | 311,952 | | | 293,172 | |
Composite Fibers | | | | | | | |
Americas | 32,416 | | | 42,077 | | | 66,628 | | | 80,053 | |
Europe, Middle East and Africa | 72,680 | | | 59,868 | | | 146,530 | | | 133,472 | |
Asia Pacific | 20,629 | | | 21,393 | | | 45,158 | | | 45,642 | |
| 125,725 | | | 123,338 | | | 258,316 | | | 259,167 | |
Spunlace | | | | | | | |
Americas | 50,001 | | | 54,985 | | | 103,153 | | | 110,469 | |
Europe, Middle East and Africa | 23,289 | | | 30,245 | | | 48,352 | | | 60,070 | |
Asia Pacific | 6,130 | | | 11,687 | | | 14,638 | | | 22,765 | |
| 79,420 | | | 96,917 | | | 166,143 | | | 193,304 | |
| | | | | | | |
Inter-segment sales elimination | (651) | | | — | | | (1,198) | | | — | |
Total | $ | 357,005 | | | $ | 363,963 | | | $ | 735,213 | | | $ | 745,643 | |
4.CLOSURE OF OBER-SCHMITTEN, GERMANY FACILITY
In the second quarter of 2023, we announced our plans to close Composite Fibers’ Ober-Schmitten, Germany facility as part of the Company’s turnaround strategy that aimed at improving financial performance of the Company’s overall business. Pending the completion of negotiations with the Ober-Schmitten Economic Committee and Works Council (“Works Council”), we expect to cease operations at the site during the third quarter of 2023 with some final finishing, shipping wind-down and decommissioning to follow. In connection with the planned closure, we recognized the following costs which are included in our condensed consolidated statements of income:
| | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
In thousands | 2023 | | 2023 |
Severance and benefit continuation | 10,368 | | | 10,368 | |
Other costs | 424 | | | 373 | |
| | | |
Total | $ | 10,792 | | | $ | 10,741 | |
The Company now estimates that it will incur approximately $10.4 million of cash expenses in connection with employee severance and benefit costs associated with the termination of the employees at the Facility and has recognized an expense for this amount included in “Cost of Goods Sold” in its condensed consolidated financial statements for the three and six months ended June 30, 2023. This estimate is based on the Company’s estimate of the cost of the current proposed compromise of interest and social plan made to the Works Council. As negotiations between the Company and the Works Council have not been finalized, the total amount of severance and benefit continuation costs that will ultimately be recognized is subject to change until such time as negotiations with the local works council are concluded. The accrued and unpaid severance and benefit continuation totaled approximately $10.4 million as of June 30, 2023.
The Company has also recognized other shutdown related costs at the Facility, related to potential contract termination costs, site closure costs, and other associated costs, and the Company expects that it will continue to incur other shutdown related costs. The Company has recognized such other costs of approximately $0.4 million, which are predominately non-cash expenses and included in “Selling, general & administrative expenses” in its condensed consolidated financial statements for the three and six months ended June 30, 2023. The Company is currently unable to make a good faith determination of an estimate of the amount or range of the amounts of the charges expected to be recorded in connection with other major types of cost associated with the closure (such as contract termination costs and other associated costs) or the amount or range of amounts of such charges that will result in future cash expenditures.
5.GAINS ON DISPOSITION OF PLANT, EQUIPMENT AND TIMBERLANDS
The following table sets forth sales of timberlands and other assets completed during the first six months of 2023 and 2022:
| | | | | | | | | | | | | | | | | |
Dollars in thousands | Acres | | Proceeds | | Gain (loss) |
2023 | | | | | |
Timberlands | 216 | | $ | 630 | | | $ | 617 | |
Other | n/a | | 105 | | | 48 | |
Total | | | $ | 735 | | | $ | 665 | |
| | | | | |
2022 | | | | | |
Timberlands | 790 | | $ | 3,130 | | | $ | 2,962 | |
Other | n/a | | 43 | | | (74) | |
Total | | | $ | 3,173 | | | $ | 2,888 | |
6.GOODWILL AND OTHER ASSET IMPAIRMENT
No impairment charges were recognized during the first six months of 2023.
During the first quarter of 2022, in connection with an assessment of potential impairment of long-lived and indefinite lived intangible assets stemming from the compounding impacts resulting from the Russia/Ukraine military conflict and related sanctions, we recorded a $117.3 million non-cash asset impairment charge related to Composite Fibers' Dresden facility and an impairment of Composite Fibers' goodwill. Dresden is a single-line facility that produces wallcover base paper, the majority of which is sold into the Russian and Ukrainian markets. As a direct result of the economic impacts from the conflict, and the disruptions in the underlying financial systems and restrictions on our ability to export wallcover base paper to Russia due to related sanctions, management expected a significant reduction in wallcover revenues and associated cash flows for the foreseeable future. In addition, the conflict also impacted other Composite Fibers products that are also subject to export sanctions into this region, and continued to significantly impact energy prices. Accordingly, a charge was recorded to reduce the carrying value of the Dresden fixed assets and intangible assets (technological know-how, customer relationships, and an indefinite-lived trade name), along with Composite Fibers’ goodwill to fair value.
The following table summarizes the impairment charges recorded during the six months ended June 30, 2023 and 2022, respectively, in the accompanying condensed consolidated statements of income under the caption “Goodwill and other asset impairment charges:”
| | | | | | | | | | | |
In thousands | 2023 | | 2022 |
Plant, property and equipment | $ | — | | | $ | 27,619 | |
Technological know-how | — | | | 18,443 | |
Customer relationships | — | | | 11,695 | |
Tradename | — | | | 3,530 | |
Goodwill | — | | | 56,062 | |
Total | $ | — | | | $ | 117,349 | |
The fair value of the underlying assets was estimated using discounted cash flow models, independent appraisals and similar methods, all of which are Level 3 fair value classification.
7.DISCONTINUED OPERATIONS
For the three and six months ended June 30, 2023, we recognized a loss in discontinued operations of $0.3 million and $0.7 million, respectively, primarily related to an insurance claim and legal costs. For both the three and six months ended June 30 2022, we recognized income of $0.4 million which primarily represents the successful appeal of a sales and use tax audit partially offset by legal costs.
The following table sets forth a summary of cash flows from discontinued operations which is included in the condensed consolidated statements of cash flows:
| | | | | | | | | | | |
| Six months ended June 30, |
In thousands | 2023 | | 2022 |
Net cash used by operating activities | $ | (428) | | | $ | (231) | |
Net cash used by investing activities | — | | | — | |
Net cash provided by financing activities | — | | | — | |
Change in cash and cash equivalents from discontinued operations | $ | (428) | | | $ | (231) | |
8.EARNINGS PER SHARE
The following table sets forth the details of basic and diluted earnings per share (“EPS”) from continuing operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
In thousands, except per share | 2023 | | 2022 | | 2023 | | 2022 |
Loss from continuing operations | $ | (36,631) | | | $ | (2,460) | | | $ | (49,813) | | | $ | (110,750) | |
| | | | | | | |
Weighted average common shares outstanding used in basic EPS | 45,041 | | | 44,841 | | | 44,999 | | | 44,775 | |
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs | — | | | — | | | — | | | — | |
Weighted average common shares outstanding and common share equivalents used in diluted EPS | 45,041 | | | 44,841 | | | 44,999 | | | 44,775 | |
| | | | | | | |
Loss per share from continuing operations | | | | | | | |
Basic | $ | (0.82) | | | $ | (0.05) | | | $ | (1.11) | | | $ | (2.47) | |
Diluted | (0.82) | | | (0.05) | | | (1.11) | | | (2.47) | |
The following table sets forth potential common shares outstanding that were not included in the computation of diluted EPS for the periods indicated, because their effect would be anti-dilutive:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
In thousands | 2023 | | 2022 | | 2023 | | 2022 |
Potential common shares | 618 | | | 934 | | | 618 | | | 934 | |
9.ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the three months and six months ended June 30, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | Currency translation adjustments | | Unrealized gain (loss) on derivatives | | Change in pensions | | Change in other postretirement defined benefit plans | | Total |
| | | | | | | | | |
Balance at April 1, 2023 | $ | (99,579) | | | $ | 11,333 | | | $ | (2,587) | | | $ | 410 | | | $ | (90,423) | |
Other comprehensive income before reclassifications (net of tax) | 2,820 | | | 57 | | | — | | | — | | | 2,877 | |
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | | | (68) | | | 25 | | | (7) | | | (50) | |
Net current period other comprehensive income (loss) | 2,820 | | | (11) | | | 25 | | | (7) | | | 2,827 | |
Balance at June 30, 2023 | $ | (96,759) | | | $ | 11,322 | | | $ | (2,562) | | | $ | 403 | | | $ | (87,596) | |
| | | | | | | | | |
Balance at April 1, 2022 | $ | (80,672) | | | $ | 1,631 | | | $ | (11,356) | | | $ | (1,027) | | | $ | (91,424) | |
Other comprehensive income (loss) before reclassifications (net of tax) | (28,675) | | | 9,760 | | | — | | | — | | | (18,915) | |
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | | | (1,226) | | | 126 | | | 26 | | | (1,074) | |
Net current period other comprehensive income (loss) | (28,675) | | | 8,534 | | | 126 | | | 26 | | | (19,989) | |
Balance at June 30, 2022 | $ | (109,347) | | | $ | 10,165 | | | $ | (11,230) | | | $ | (1,001) | | | $ | (111,413) | |
| | | | | | | | | |
Balance at January 1, 2023 | $ | (106,242) | | | $ | 11,176 | | | $ | (3,247) | | | $ | 418 | | | $ | (97,895) | |
Other comprehensive income before reclassifications (net of tax) | 9,483 | | | 1,613 | | | — | | | — | | | 11,096 | |
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | | | (1,467) | | | 685 | | | (15) | | | (797) | |
Net current period other comprehensive income (loss) | 9,483 | | | 146 | | | 685 | | | (15) | | | 10,299 | |
Balance at June 30, 2023 | $ | (96,759) | | | $ | 11,322 | | | $ | (2,562) | | | $ | 403 | | | $ | (87,596) | |
| | | | | | | | | |
Balance at January 1, 2022 | $ | (69,757) | | | $ | 1,988 | | | $ | (11,482) | | | $ | (1,053) | | | $ | (80,304) | |
Other comprehensive income (loss) before reclassifications (net of tax) | (39,590) | | | 10,143 | | | — | | | — | | | (29,447) | |
Amounts reclassified from accumulated other comprehensive income (net of tax) | — | | | (1,966) | | | 252 | | | 52 | | | (1,662) | |
Net current period other comprehensive income (loss) | (39,590) | | | 8,177 | | | 252 | | | 52 | | | (31,109) | |
Balance at June 30, 2022 | $ | (109,347) | | | $ | 10,165 | | | $ | (11,230) | | | $ | (1,001) | | | $ | (111,413) | |
Reclassifications out of accumulated other comprehensive income and into the condensed consolidated statements of income were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | | |
In thousands | | 2023 | | 2022 | | 2023 | | 2022 | | |
Description | | | | | | | | | | Line Item in Statements of Income |
Cash flow hedges (Note 18) | | | | | | | | | | |
Gains on cash flow hedges | | $ | (400) | | | $ | (1,697) | | | $ | (1,318) | | | $ | (2,769) | | | Costs of products sold |
Tax expense (benefit) | | 332 | | | 480 | | | (149) | | | 792 | | | Income tax provision |
Net of tax | | (68) | | | (1,217) | | | (1,467) | | | (1,977) | | | |
| | | | | | | | | | |
Loss (gain) on interest rate swaps | | — | | | (9) | | | — | | | 11 | | | Interest expense |
Tax expense | | — | | | — | | | — | | | |