E-Brest – Top Finance News

Main Menu

  • Domestic resource cost
  • Environmental dumping
  • Gross substitutes
  • Earnings response coefficient
  • Accounts

E-Brest – Top Finance News

Header Banner

E-Brest – Top Finance News

  • Domestic resource cost
  • Environmental dumping
  • Gross substitutes
  • Earnings response coefficient
  • Accounts
Gross substitutes
Home›Gross substitutes›GLATFELTER CORP MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

GLATFELTER CORP MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

By Brian Baize
August 2, 2022
1
0

The following discussion should be read in conjunction with the information contained in the unaudited condensed consolidated financial statements and accompanying notes included herein and Glatfelter’s financial statements and MD&A and discussion of financial condition and results operations included in our 2021 Annual Report on Form 10-K (“2021 Form 10-K”).

Forward-Looking Statements This Quarterly Report on Form 10-Q includes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical fact, including statements regarding industry prospects and future
consolidated financial position or results of operations, made in this Report on
Form 10-Q are forward looking. We use words such as "anticipates", "believes",
"expects", "future", "intends" and similar expressions to identify
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. Our actual results may differ
significantly from such expectations. The following discussion includes
forward-looking statements all of which are inherently difficult to predict.
Although we make such statements based on assumptions that we believe to be
reasonable, there can be no assurance that actual results will not differ
materially from our expectations. Accordingly, we identify the following
important factors, among others, which could cause our results to differ from
any results that might be projected, forecasted or estimated in any such
forward-looking statements:

i.risks related to the military conflict between Russia and Ukraine and its
impact on our production, sales, supply chain, cost of energy, and availability
of energy due to potential natural gas supply issues into Europe from the Nord
Stream 1 pipeline;
ii.risks associated with the impact of the COVID-19 pandemic, including global
and regional economic conditions, changes in demand for our products,
interruptions in our global supply chain, ability to continue production by our
facilities, credit conditions of our customers or suppliers, or potential legal
actions that could arise due to our operations during the pandemic;
iii.disruptions of our global supply chain, including the availability of key
raw materials and transportation for the delivery of critical inputs and of
products to customers, and the increase in the costs of transporting materials
and products;
iv.risks associated with our ability to increase selling prices quickly or
sufficiently enough to recover rapid cost inflation in our raw materials,
energy, freight and other costs;
v.variations in demand for our products, including the impact of unplanned
market-related downtime, variations in product pricing, or product substitution;
vi.the impact of competition, changes in industry production capacity, including
the construction of new facilities or new machines, the closing of facilities
and incremental changes due to capital expenditures or productivity increases;
vii.risks associated with our international operations, including local economic
and political environments and fluctuations in currency exchange rates;
viii.our ability to develop new, high value-added products;
ix.changes in the price or availability of raw materials we use, particularly
woodpulp, pulp substitutes, synthetic pulp, other specialty fibers and abaca
fiber;
x.changes in energy-related prices and commodity raw materials with an energy
component;
xi.the impact of unplanned production interruption at our facilities or at any
of our key suppliers;
xii.disruptions in production and/or increased costs due to labor disputes;
xiii.the gain or loss of significant customers and/or on-going viability of such
customers;
xiv.the impact of war and terrorism;
xv.the impact of unfavorable outcomes of audits by various state, federal or
international tax authorities or changes in pre-tax income and its impact on the
valuation of deferred taxes;
xvi.enactment of adverse state, federal or foreign tax or other legislation or
changes in government legislation, policy or regulation; and
xvii.our ability to finance, consummate and integrate acquisitions, including
our acquisitions of Mount Holly and Jacob Holm.

Introduction We manufacture a wide range of engineered materials and manage our business through three operating segments:

•Composite Fibers with sales of single-serve tea and coffee filtration papers,
wallcovering base materials, composite laminate papers, technical specialties
including substrates for electrical applications, and metallized products;
•Airlaid Materials with sales of airlaid nonwoven fabric-like materials used in
feminine hygiene products, adult incontinence products, tabletop, specialty
wipes, home care products and other airlaid applications; and
                                     - 28 -

--------------------------------------------------------------------------------

•Spunlace with the sale of premium quality spunlace nonwovens for critical cleaning, high performance materials, personal care, hygiene and medical applications.

The operating results and financial position of the former Specialty Papers business are presented as discontinued operations. The following is a discussion and analysis primarily of the financial results of operations and the financial condition of our continuing operations.


Acquisition As discussed in Item 1 - Financial Statements and Supplementary
Data, Note 3 "Acquisitions," we completed our acquisitions of Georgia-Pacific's
U.S. nonwovens business ("Mount Holly") on May 13, 2021 for $170.9 million and
the acquisition of all outstanding equity of PMM Holdings (Luxembourg) AG
("Jacob Holm") on October 29, 2021 for $304.0 million. Refer to Note 3 -
"Acquisitions""for additional information about these transactions.

RESULTS OF OPERATIONS

Six months ended June 30, 2022 compared to the six months ended June 30, 2021

Overview For the first six months of 2022, we reported a loss from continuing
operations of $110.8 million, or $2.47 per share compared with income of $9.9
million and $0.22 per diluted share in the year earlier period. The following
table sets forth summarized consolidated results of operations:
                                       Six months ended June 30,
In thousands, except per share            2022                 2021
Net sales                        $      745,643             $ 470,585
Gross profit                             69,062                74,850
Operating income (loss)                (106,965)               25,442
Continuing operations
Income (loss)                          (110,750)                9,886
Earnings per share                        (2.47)                 0.22
Net income (loss)                      (110,379)                9,804
Earnings per share                        (2.46)                 0.22


The reported results are in accordance with generally accepted accounting
principles in the United States ("GAAP") and reflect the impact of a number of
significant items including a goodwill and other asset impairment charge related
to our Dresden operations and Composite Fibers segment, strategic initiatives,
corporate headquarters relocation and cost optimization, among others. On an
adjusted earnings basis, a non-GAAP measure, we had a loss from continuing
operations of $7.8 million, or $0.17 per share for the first six months of 2022,
compared with income of $16.5 million, or $0.37 per diluted share, a year ago.

Our operating results for the first six months of 2022 reflect: i) the impact of
Russia/Ukraine military conflict which commenced on February 24, 2022 and the
compounding impacts, including sanctions on the sale of certain products into
Russia, adversely impacted sales, prices paid for energy, production and
collection of receivables and resulted in the recording of a $117.3 million
asset impairment charge; ii) the completion of two significant acquisitions in
2021, which collectively added $246.9 million of net sales; iii) the adverse
impact of significant inflationary pressures, particularly energy costs, which
outpaced our efforts to realize higher selling prices; and iv) interest expense
increased reflecting the acquisition financing.

In addition to the results reported in accordance with GAAP, we evaluate our
performance using adjusted earnings and adjusted earnings per share. We disclose
this information to allow investors to evaluate our performance exclusive of
certain items that impact the comparability of results from period to period,
and we believe it is helpful in understanding underlying operating trends and
cash flow generation.

Adjusted earnings include net earnings determined in accordance with GAAP adjusted to exclude the impact of the following items:

Strategic initiatives. These adjustments primarily reflect professional and legal fees incurred directly related to the evaluation and execution of certain strategic initiatives, including costs associated with acquisitions, related integrations and charges incurred to return acquired inventory to fair value. .

                                     - 29 -

--------------------------------------------------------------------------------

Corporate headquarters relocation. These adjustments reflect costs incurred in
connection with the strategic relocation of the Company's corporate headquarters
to Charlotte, NC. The costs are primarily related to employee relocation costs
and exit costs at the former corporate headquarters.

Cost optimization actions. These adjustments reflect charges incurred in
connection with initiatives to optimize the cost structure of the Company,
improve efficiencies or other objectives. Such actions may include asset
rationalization, headcount reductions or similar actions. These adjustments,
which have occurred at various times in the past, are irregular in timing and
relate to specific identified programs to reduce or optimize the cost structure
of a particular operating segment or the corporate function.

Goodwill and other asset impairment charges. This adjustment represents a
non-cash charge recorded to reduce the carrying amount of certain long-lived
assets, intangible assets and goodwill of our Dresden facility and the Composite
Fibers reporting segment. The impairment was directly related to the adverse
impact of the Russia/Ukraine military conflict on our projected revenue and
EBITDA.

Russia/Ukraine conflict charges. This adjustment represents a non-cash charge recognized to reduce the carrying value of accounts receivable and inventory directly related to the Russia/Ukraine military conflict.

Timberland sales and related costs. These adjustments exclude gains from the
sales of timberlands as these items are not considered to be part of our core
business, ongoing results of operations or cash flows. These adjustments are
irregular in timing and amount and may benefit our operating results.

Coronavirus Aid, Relief, and Economic Security (CARES) Act 2020. This adjustment
reflects taxes recorded in connection with passage of the Coronavirus Aid,
Relief, and Economic Security Act ("CARES") related to provisions that modified
the "net operating loss" provisions of previous law to allow certain losses to
be carried back five years.

These adjustments are each unique and not considered to be on-going in nature.
The transactions are irregular in timing and amount and may significantly impact
our operating performance. As such, these items may not be indicative of our
past or future performance and therefore are excluded for comparability
purposes.

Adjusted earnings and adjusted earnings per share are considered measures not
calculated in accordance with GAAP, and therefore are non-GAAP measures. The
non-GAAP financial information should not be considered in isolation from, or as
a substitute for, measures of financial performance prepared in accordance with
GAAP.

The following table presents the reconciliation of net earnings and adjusted earnings for the period indicated:

                                                                       Six 

months ended June 30th,

                                                               2022                                  2021
In thousands, except per share                      Amount               EPS               Amount              EPS
Net income (loss)                                $ (110,379)         $   (2.46)         $   9,804          $    0.22
Exclude: Loss (income) from discontinued
operations, net of tax                                 (371)             (0.01)                82                  -
Income (loss) from continuing operations           (110,750)             (2.47)             9,886               0.22
Adjustments (pre-tax):
Goodwill and other asset impairment charges (1)     117,349                                     -
Russia/Ukraine conflict charges (2)                   3,948                                     -
Strategic initiatives (3)                             2,488                                 8,434
Corporate headquarters relocation                       223                                   361
Cost optimization actions (4)                           941                                     -
Timberland sales and related costs                   (2,962)                               (2,403)
Total adjustments (pre-tax)                         121,987                                 6,392
Income taxes (5)                                    (19,167)                                   31
CARES Act of 2020 tax provision (6)                     175                                   183
Total after-tax adjustments                         102,995               2.30              6,606               0.15
Adjusted earnings (loss) from continuing
operations                                       $   (7,755)         $   

(0.17) $16,492 $0.37


(1)Reflects goodwill impairment charge of $56.1 million and other asset
impairment charges of $61.3 million. Refer to Note 6, Goodwill and Other Asset
Impairment, for details of this item.
(2)Reflects bad debt expense charges of $2.9 million and inventory reserves
charges $1.0 million. Refer to Note 6, Goodwill and Other Asset Impairment, for
details of this item.
(3)For 2022, primarily reflects professional services fees (including legal,
audit, valuation specialists and consulting) of $1.7 million, employee
separation and other costs of $0.8 million and other costs, all of which are
directly related to acquisitions. For 2021, primarily reflects
                                     - 30 -

--------------------------------------------------------------------------------

professional services fees related to acquisitions (including legal, audit and
valuation specialists) of $7.1 million, employee separation and other costs of
$0.6 million, inventory valuation step-up costs of $0.5 million and other costs,
all of which are directly related to acquisitions.
(4)Primarily reflects employee separation costs of $0.4 million, equipment
write-down of $0.4 million and other costs of $0.1 million directly associated
with closure of synthetic fiber production facility in the U.K..
(5)Tax effect on adjustments calculated based on the incremental effective tax
rate of the jurisdiction in which each adjustment originated. For items
originating in the U.S., no tax effect is recognized due to the previously
established valuation allowance on the net deferred tax assets. No tax effects
were recognized on the goodwill impairment as there were no related deferred
taxes.
(6)Reflects the tax effect of applying certain provisions of the CARES Act of
2020.


Sector financial performance

                                          Six months ended June 30,
Dollars in thousands                                           2022           2021
Net Sales
Composite Fibers                                           $  259,167      $ 282,847
Airlaid Material                                              293,172        187,738
Spunlace                                                      193,304              -
Total                                                      $  745,643      $ 470,585

Operating income (loss)
Composite Fibers                                           $    5,444      $  27,128
Airlaid Material                                               24,165         15,628
Spunlace                                                       (3,380)             -
Other and unallocated                                        (133,194)       (17,314)
Total                                                      $ (106,965)     $  25,442

Depreciation and amortization
Composite Fibers                                           $   11,315      $  13,981
Airlaid Material                                               15,171         12,615
Spunlace                                                        5,859              -
Other and unallocated                                           2,591          1,870
Total                                                      $   34,936      $  28,466

Capital expenditures
Composite Fibers                                           $   10,258      $   5,655
Airlaid Material                                                5,532          3,036
Spunlace                                                        3,886              -
Other and unallocated                                           3,021          2,520
Total                                                      $   22,697      $  11,211

Tons shipped (metric)
Composite Fibers                                               52,457         68,611
Airlaid Material                                               83,733         63,179
Spunlace                                                       40,094              -
Total                                                         176,284      $ 131,790


Segments Results of individual operating segments are presented based on our
management accounting practices and management structure. There is no
comprehensive, authoritative body of guidance for management accounting
equivalent to accounting principles generally accepted in the United States of
America; therefore, the financial results of individual segments are not
necessarily comparable with similar information for any other company. The
management accounting process uses assumptions and allocations to measure
performance of the segments. Methodologies are refined from time to time as
management accounting practices are enhanced and businesses change. The costs
incurred by support areas not
                                     - 31 -

--------------------------------------------------------------------------------

directly aligned with the segment are allocated primarily based on an estimated
utilization of support area services or are included in "Other and Unallocated"
in the table set forth above.

Management evaluates results of operations of the operating segments before
certain corporate level costs and the effects of certain gains or losses not
considered to be related to the core business operations. Management believes
that this is a more meaningful representation of the operating performance of
its core businesses, the profitability of the segments and the extent of cash
flow generated from these core operations. Such amounts are presented under the
caption "Other and Unallocated." In the evaluation of operating segments
results, management does not use any measures of total assets. This presentation
is aligned with the management and operating structure of our company. It is
also on this basis that the Company's performance is evaluated internally and by
the Company's Board of Directors.


Sales and cost of goods sold

                                               Six months ended June 30,
In thousands                                   2022                   2021          Change
Net sales                                $    745,643             $ 470,585       $ 275,058
Costs of products sold                        676,581               395,735         280,846
Gross profit                             $     69,062             $  74,850       $  (5,788)
Gross profit as a percent of Net sales            9.3   %              15.9 

%


The following table sets forth the contribution to consolidated net sales by
each segment:

                           Six months ended June 30,
Percent of Total               2022                 2021
Segment
Composite Fibers                       34.8  %      60.1  %
Airlaid Materials                      39.3         39.9
Spunlace                               25.9            -
Total                                 100.0  %     100.0  %

Net sales totaled $745.6 million and $470.6 million in the first six months of 2022 and 2021, respectively. Revenue from Composite Fibers and Airlaid Materials (of which Mont Holly) decreased by 2.0% and increased by 63.7% respectively, at constant exchange rates. The Spunlace segment, formed through the acquisition of Jacob Holm, recorded net sales of approximately
$193.3 million in the first six months of 2022.

Composite Fibers' net sales decreased $23.7 million or 8.4% in the first six
months of 2022, compared to the year-ago quarter. Wallcover shipments were below
prior year by 49% due to lower shipments to customers in Russia and Ukraine,
resulting from the continuation of the military conflict in this region and
prohibition of the export of sanctioned wallcover base paper and tea filter
products to Russia. Lower shipments were partially offset by higher selling
prices of $32.0 million. Currency translation was unfavorable $18.0 million.

Composite Fibers had operating income of $5.4 million in the first six months of
2022 compared with $27.1 million in the year-ago period. Higher selling prices
and energy surcharges of $32.0 million fell $14.0 million short of recovering
continued inflation in energy and raw material. Lower shipments and market
related downtime, primarily in our Dresden facility, negatively impacted results
by $12.2 million. The impact of currency and related hedging positively impacted
earnings by $4.5 million. The primary drivers of the change in Composite Fibers'
operating income are summarized in the following chart (presented in millions):
                                     - 32 -

--------------------------------------------------------------------------------

                     [[Image Removed: glt-20220630_g2.jpg]]


Airlaid Materials' net sales increased $105.4 million in the year-over-year
comparison driven by higher shipments in all major product categories and higher
selling prices from cost-pass-through arrangements with customers. Shipments
were 32.5% higher driven by strong growth in the tabletop, wipes, and hygiene
product categories, including the benefit from a full six months of Mount Holly
in 2022. Currency translation was $14.1 million unfavorable.

Airlaid Materials' operating income, for the first six months of 2022, of $24.2
million was $8.5 million higher than the same period in 2021. Higher shipments
and product mix positively impacted results by $11.9 million. Selling price
increases of $36.4 million was $2.4 million short of offsetting the higher raw
material prices and energy inflation costs. Operations were favorable $1.6
million driven by higher production, which offset other general inflationary
pressures. The impact of currency and related hedging negatively impacted
earnings by $2.5 million. The primary drivers are summarized in the following
chart (presented in millions):

                     [[Image Removed: glt-20220630_g3.jpg]]

Spunlace net sales for the first six months were approximately $193.3 million.
An operating loss of $3.4 million was mainly driven by higher raw material and
energy costs only partially offset by higher selling prices and energy
surcharges.

Asset Impairment 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 directly sold into the
Russian and Ukrainian markets. As a direct
                                     - 33 -

--------------------------------------------------------------------------------

result of the economic impacts from the conflict, including disruptions in the
underlying financial systems and prohibition of the export of sanctioned
wallcover base paper to Russia, management expects a significant reduction in
wallcover revenues and associated cash flows for the foreseeable future. In
addition, the conflict is expected to significantly impact energy prices and
also impact other Composite Fibers products that are subject to export sanctions
into Russia. During the year ended December 31, 2021, we had total net sales of
wallcover and other products to customers in Russia and Ukraine totaling
approximately $95 million. We do not expect significant sales to customers in
this region for the foreseeable future as a result of the military conflict, its
impact on Ukrainian customers, and the economic sanctions on sales of certain
products to customers in Russia. 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 Fiber's goodwill to fair value.

In addition, as a result of economic sanctions and disruptions to the financial
markets, certain customers are not able to satisfy outstanding accounts
receivables. As such, during the first quarter of 2022, we recognized bad debt
expense of approximately $2.9 million directly related to Russian and Ukrainian
customers which is included in "Selling, general and administrative expenses" in
the accompanying condensed consolidated statements of income for the six months
ended June 30, 2022. At June 30, 2022, we had accounts receivable, net of
reserves, from customers in this region totaling approximately $2.6 million
which we expect to collect in normal course. However, if circumstances change
such that some customers are unable to satisfy their obligations, we may be
required to recognize additional bad debt expense in future periods.
Furthermore, during the first quarter of 2022, we increased inventory reserves
by approximately $1.0 million, primarily related to wallcover products. The
charge related to inventory reserves is included in "Cost of products sold" in
the accompanying condensed consolidated statements of income for the six months
ended June 30, 2022. Substantially all other products which we will no longer be
able to export to Russia due to sanctions can be sold to existing customers
outside the Russia/Ukraine region.

Other and Unallocated The amount of operating expense not allocated to a
reporting segment in the Segment Financial Information totaled $133.2 million in
the first six months of 2022 compared with $17.3 million in the same period a
year ago. Excluding the items identified to present "adjusted earnings,"
unallocated expenses for the first six months of 2022 decreased $0.3 million
compared to the same period in 2021.

Income taxes In the first six months of 2022, our loss from continuing
operations totaled $124.2 million and we recorded an income tax benefit of $13.5
million. On adjusted pre-tax loss of $2.3 million, income tax provision was $5.5
million in the first six months of 2022, which primarily related to reserves for
uncertain tax positions and valuation allowances for losses for which no tax
benefit could be recognized. The comparable amounts in the first six months of
2021 were adjusted pre-tax income of $27.5 million and income tax expense of
$11.0 million, respectively.

Foreign Currency We own and operate facilities in Canada, Germany, France, the
United Kingdom, Spain, and the Philippines. The functional currency of our
Canadian operations is the U.S. dollar. However, in Germany, France and Spain,
it is the euro, in the UK, it is the British pound sterling, and in the
Philippines the functional currency is the peso. On an annual basis, our euro
denominated net sales exceeds euro expenses by an estimated €150 million. For
the first six months of 2022, the average currency exchange rate was 1.09
dollar/euro compared with 1.20 in the same period of 2021. With respect to the
British pound sterling, Canadian dollar, and Philippine peso, we have differing
amounts of inflows and outflows of these currencies, although to a lesser degree
than the euro. As a result, we are exposed to changes in currency exchange rates
and such changes could be significant. The translation of the results from
international operations into U.S. dollars is subject to changes in foreign
currency exchange rates.

The table below summarizes the translation impact on reported results that changes in exchange rates have had on ourWE operations based on the conversion of the results of these operations for the first six months of 2022.

In thousands                Six months ended June 30,
                                    Favorable
                                  (unfavorable)

Net sales                  $                  (32,135)
Costs of products sold                         31,774
SG&A expenses                                   2,010
Income taxes and other                            241
Net loss                   $                    1,890


                                     - 34 -
--------------------------------------------------------------------------------

The above table only presents the financial reporting impact of foreign currency
translations assuming currency exchange rates in 2022 were the same as 2021. It
does not present the impact of certain competitive advantages or disadvantages
of operating or competing in multi-currency markets.


Three months completed June 30, 2022 compared to the three months ended June 30, 2021

Overview For the second quarter of 2022, we reported a loss from continuing operations of $2.5 millionWhere $0.05 per share compared to an income of $1.5 million and $0.03 per diluted share during the prior year period. The following table presents the summarized consolidated results of operations:

                                       Three months ended June 30,
In thousands, except per share             2022                  2021
Net sales                        $      363,963               $ 244,911
Gross profit                             37,397                  35,554
Operating income                          8,924                   8,123
Continuing operations:
Income (loss)                            (2,460)                  1,492
Earnings per share                        (0.05)                   0.03
Net income (loss)                        (2,052)                  1,410
Earnings per share                        (0.05)                   0.03


The reported results are in accordance with generally accepted accounting
principles in the United States ("GAAP") and reflect the impact of significant
items including strategic initiatives and corporate headquarters relocation
costs, among others. On an adjusted earnings basis, a non-GAAP measure, we had a
loss from continuing operations of $1.6 million, or $0.04 per share for the
second quarter of 2022, compared with income of $8.0 million, or $0.18 per
diluted share, a year ago.

Our second quarter of 2022 operating results reflect: i) the continuation of the
compounding impacts of the Russia/Ukraine military conflict commencing on
February 24, 2022 including the adverse impact of the prohibition of the export
of sanctioned products into Russia; ii) the completion of two significant
acquisitions in 2021, which collectively added $123.2 million of net sales; iii)
the adverse impact of significant inflationary pressures, particularly energy
costs, which outpaced our efforts to realize higher selling prices; and iv)
interest expense increased reflecting the acquisition financing.

The following table presents the reconciliation of net earnings and adjusted earnings for the period indicated:

                                                                    Three 

months ended June 30th,

                                                            2022                                  2021
In thousands, except per share                    Amount              EPS               Amount              EPS
Net income (loss)                              $  (2,052)         $   (0.04)         $   1,410          $    0.03
Exclude: Income from discontinued operations,
net of tax                                          (408)             (0.01)                82                  -
Income (loss) from continuing operations          (2,460)             (0.05)             1,492               0.03
Adjustments (pre-tax):

Strategic initiatives (1)                            653                                 7,831
Corporate headquarters relocation                    135                                   206

Timberland sales and related costs                     -                                (1,553)
Total adjustments (pre-tax)                          788                                 6,484
Income taxes (2)                                     (20)                                  (50)
CARES Act of 2020 tax provision (3)                   96                                    90
Total after-tax adjustments                          864               0.01              6,524               0.15
Adjusted earnings (loss) from continuing
operations                                     $  (1,596)         $   

(0.04) $8,016 $0.18


(1)For 2022, primarily reflects professional services fees (including legal,
audit, valuation specialists and consulting) of $0.5 million, employee
separation and other costs of $0.4 million and other costs, all of which are
directly related to acquisitions. For 2021, reflects professional services fees
related to acquisitions (including transaction advisory, legal, audit and
valuation specialists) of $6.5 million, employee separation and other costs of
$0.6 million, inventory valuation step-up costs of $0.5 million and other costs
all of which are directly related to acquisitions.
(2)Tax effect on adjustments calculated based on the incremental effective tax
rate of the jurisdiction in which each adjustment originated. For items
originating in the U.S., no tax effect is recognized due to the previously
established valuation allowance on the net deferred tax assets.
(3)Reflects the tax effect of applying certain provisions of the CARES Act of
2020.
                                     - 35 -

--------------------------------------------------------------------------------

Sector financial performance

                                          Three months ended June 30,
Dollars in thousands                                             2022           2021
Net sales
Composite Fibers                                              $ 123,338      $ 141,598
Airlaid Material                                                143,708        103,313
Spunlace                                                         96,917              -
Total                                                         $ 363,963      $ 244,911

Operating income (loss)
Composite Fibers                                              $   5,779      $  11,063
Airlaid Material                                                 11,944          8,431
Spunlace                                                         (1,808)             -
Other and unallocated                                            (6,991)       (11,371)
Total                                                         $   8,924      $   8,123

Depreciation and amortization
Composite Fibers                                              $   4,796      $   7,000
Airlaid Material                                                  7,542          6,767
Spunlace                                                          2,945              -
Other and unallocated                                             1,169            966
Total                                                         $  16,452      $  14,733

Capital expenditures
Composite Fibers                                              $   4,131      $   2,882
Airlaid Material                                                  2,064          1,297
Spunlace                                                          1,801              -
Other and unallocated                                             2,353          1,653
Total                                                         $  10,349      $   5,832

Tons shipped (metric)
Composite Fibers                                                 24,246         34,471
Airlaid Material                                                 40,681         34,315
Spunlace                                                         19,358              -
Total                                                            84,285      $  68,786


Segments Results of individual operating segments are presented based on our
management accounting practices and management structure. There is no
comprehensive, authoritative body of guidance for management accounting
equivalent to accounting principles generally accepted in the United States of
America; therefore, the financial results of individual segments are not
necessarily comparable with similar information for any other company. The
management accounting process uses assumptions and allocations to measure
performance of the segments. Methodologies are refined from time to time as
management accounting practices are enhanced and businesses change. The costs
incurred by support areas not directly aligned with the segment are allocated
primarily based on an estimated utilization of support area services or are
included in "Other and Unallocated" in the table set forth above.

Management evaluates results of operations of the operating segments before
certain corporate level costs and the effects of certain gains or losses not
considered to be related to the core business operations. Management believes
that this is a more meaningful representation of the operating performance of
its core businesses, the profitability of the segments
                                     - 36 -

--------------------------------------------------------------------------------

and the extent of cash flow generated from these core operations. Such amounts
are presented under the caption "Other and Unallocated." In the evaluation of
operating segments results, management does not use any measures of total
assets. This presentation is aligned with the management and operating structure
of our company. It is also on this basis that the Company's performance is
evaluated internally and by the Company's Board of Directors.

Sales and cost of goods sold

                                               Three months ended June 30,
In thousands                                   2022                      2021          Change
Net sales                                $     363,963               $ 244,911       $ 119,052
Costs of products sold                         326,566                 209,357         117,209
Gross profit                             $      37,397               $  35,554       $   1,843
Gross profit as a percent of Net sales            10.3   %                

14.5%


The following table sets forth the contribution to consolidated net sales by
each segment:

                           Three months ended June 30,
Percent of Total                2022                  2021
Segment
Composite Fibers                         33.9  %      57.8  %
Airlaid Materials                        39.5         42.2
Spunlace                                 26.6            -
Total                                   100.0  %     100.0  %


Net sales totaled $364.0 million and $244.9 million in the second quarter of
2022 and 2021, respectively. Net sales for Composite Fibers and Airlaid
Materials (including Mount Holly) decreased by 4.4% and increased by 47.7%,
respectively, on a constant currency basis. The Spunlace segment, formed in
connection with the Jacob Holm acquisition, had net sales of approximately $96.9
million in the second quarter of 2022.

Composite Fibers' net sales decreased $18.3 million or 12.9% in the second
quarter of 2022, compared to the year-ago quarter. Higher selling prices of
$14.4 million were more than offset by lower shipments of 29.7%. Wallcover
shipments were below prior year by 62% due to lower shipments to customers in
Russia and Ukraine, resulting from the continuation of the geopolitical conflict
in this region and prohibition of the export of sanctioned wallcover and tea
filter products into Russia. Currency translation was unfavorable $12.0 million.

Composite Fibers had operating income for the second quarter of $5.8 million
compared with $11.1 million operating income in the second quarter of 2021.
Lower shipments and market-related downtime, primarily in our Dresden facility,
negatively impacted results by $6.4 million. Higher selling prices and energy
surcharges of $14.4 million fell $2.5 million short of fully recovering
continued inflation in energy, raw material and freight of $16.9 million. The
impact of currency and related hedging positively impacted earnings by $3.6
million mainly driven by weakening of the British Pound. The primary drivers of
the change in Composite Fibers' operating income are summarized in the following
chart (presented in millions):
                                     - 37 -

--------------------------------------------------------------------------------

                     [[Image Removed: glt-20220630_g4.jpg]]


Airlaid Materials' net sales increased $40.4 million in the year-over-year
comparison driven by the Mount Holly acquisition, higher shipments in all major
product categories, and higher selling prices from cost-pass-through
arrangements with customers. Shipments were 18.6% higher driven by strong growth
in the wipes, tabletop, and hygiene product categories. Currency translation was
$8.9 million unfavorable.

Airlaid Materials' second quarter operating income of $11.9 million was $3.5
million higher when compared to the second quarter of 2021. Higher shipments
positively impacted results by $3.9 million. Selling price increases and energy
surcharges of $18.0 million fully offset the higher raw material and energy
costs which improved results by $0.8 million. Operations were slightly favorable
by $0.3 million as higher production was mostly offset by general inflationary
pressures. The impact of currency and related hedging negatively impacted
earnings by $1.5 million due to a weakening Euro. The primary drivers are
summarized in the following chart (presented in millions):

                     [[Image Removed: glt-20220630_g5.jpg]]

Spunlace net sales for the second quarter were approximately $96.9 million. An operating loss of $1.8 million was mainly due to higher raw material and energy costs which were only partially offset by higher selling prices and energy surcharges.

Other and Unallocated The amount of operating expense not allocated to a
reporting segment in the Segment Financial Information totaled $7.0 million in
the second quarter of 2022 compared with $11.4 million in the same period a year
ago. Excluding the items identified to present "adjusted earnings," unallocated
expenses for the second quarter of 2022 increased $1.3 million compared to the
second quarter of 2021.
                                     - 38 -

--------------------------------------------------------------------------------

Income taxes In the second quarter of 2022, our income from continuing
operations totaled $0.8 million and we recorded an income tax provision of $3.3
million. On adjusted pre-tax income of $1.6 million, the income tax expense was
$3.2 million in the second quarter of 2022, which primarily related to reserves
for uncertain tax positions and valuation allowances for losses for which no tax
benefit could be recognized. The comparable amounts in the same quarter of 2021
were adjusted pre-tax income of $12.0 million and income tax expense of $4.0
million, respectively.

Foreign Currency We own and operate facilities in Canada, Germany, France, the
United Kingdom, Spain, and the Philippines. The functional currency of our
Canadian operations is the U.S. dollar. However, in Germany, France and Spain,
it is the Euro, in the UK, it is the British pound sterling, and in the
Philippines the functional currency is the peso. On an annual basis, our euro
denominated net sales exceeds euro expenses by an estimated €150 million. For
the three months ended June 30, 2022, the average currency exchange rate was
1.07 dollar/euro compared with 1.19 in the same period of 2021. With respect to
the British pound sterling, Canadian dollar, and Philippine peso, we have
differing amounts of inflows and outflows of these currencies, although to a
lesser degree than the euro. As a result, we are exposed to changes in currency
exchange rates and such changes could be significant. The translation of the
results from international operations into U.S. dollars is subject to changes in
foreign currency exchange rates.

The table below summarizes the translation impact on reported results that changes in exchange rates have had on ourWE operations based on the conversion of the results of these operations for the second quarter of 2022.

In thousands                Three months ended June 30, 2022
                                        Favorable
                                      (unfavorable)

Net sales                  $                         (20,875)
Costs of products sold                                21,553
SG&A expenses                                          1,384
Income taxes and other                                   190
Net loss                   $                           2,252


The above table only presents the financial reporting impact of foreign currency
translations assuming currency exchange rates in 2022 were the same as 2021. It
does not present the impact of certain competitive advantages or disadvantages
of operating or competing in multi-currency markets.


CASH AND CAPITAL RESOURCES

Our business requires significant expenditures for new or enhanced equipment, to
support our research and development efforts, and to support our business
strategy. In addition, we have mandatory debt service requirements of both
principal and interest. The following table summarizes cash flow information for
each of the periods presented:


                                     - 39 -

--------------------------------------------------------------------------------

                                                                         Six months ended June 30,
In thousands                                                             2022                   2021
Cash, cash equivalents and restricted cash at the beginning of
period                                                             $      148,814          $   111,665
Cash provided (used) by
Operating activities                                                      (79,535)               1,365
Investing activities                                                      (18,136)            (181,136)
Financing activities                                                       33,546              165,138
Effect of exchange rate changes on cash                                    (3,587)              (1,432)
Change in cash and cash equivalents from discontinued operations             (231)                (238)
Net cash used                                                             (67,943)             (16,303)
Cash, cash equivalents and restricted cash at the end of period            80,871               95,362
Less: restricted cash in Prepaid and other current assets                  (2,000)              (2,000)
Less: restricted cash in Other assets                                      (7,395)              (9,197)
Cash and cash equivalents at the end of period                     $       

71,476 $84,165


At June 30, 2022, we had $71.5 million in cash and cash equivalents ("cash")
held by both domestic and foreign subsidiaries. Approximately 89.3% of our cash
and cash equivalents is held by our foreign subsidiaries but could be
repatriated without incurring a significant amount of additional taxes.

Cash used by operating activities in the first six months of 2022 totaled $79.5
million compared with cash provided by operating activities of $1.4 million in
the same period a year ago. The increase was primarily due to an increase in
working capital usage, primarily accounts receivable, inventory and the
termination of a factoring arrangement previously utilized by certain former
Jacob Holm entities, an $11.5 million reduction in adjusted EBITDA, a $7.6
million increase in income taxes paid and a $13.0 million increase in interest
paid.

Adjusted EBITDA                                                             Six months ended June 30,
In thousands                                                                 2022                  2021

Net income (loss)                                                     $      (110,379)         $   9,804
Exclude: Income (loss) from discontinued operations, net of tax                  (371)                82
Add back: Taxes on Continuing operations                                      (13,489)            11,211
Depreciation and amortization                                                  34,936             28,466
Interest expense, net                                                          15,479              3,272
EBITDA                                                                        (73,824)            52,835

Adjustments:

Goodwill and other asset impairment charges                                   117,349                  -
Russia/Ukraine conflict charges                                                 3,948                  -
Strategic initiatives                                                           2,488              8,434
Share-based compensation (1)                                                    2,419              2,537

Corporate headquarters relocation                                                 223                361
Cost optimization actions                                                         589                  -

Timberland sales and related costs                                             (2,962)            (2,403)
Adjusted EBITDA                                                       $        50,230          $  61,764

(1) Adjusted EBITDA for 2021 has been restated to add share-based compensation in accordance with our amended credit agreement. The stock-based compensation adjustment represents the non-cash amount of stock-based compensation expense included in results of operations.

EBITDA is a measure used by management to assess our operating performance and
is calculated using income (loss) from continuing operations and excludes
interest expense, interest income, income taxes and depreciation and
amortization. Adjusted EBITDA is calculated using EBITDA and further excludes
certain items management considers to be unrelated to the company's core
operations. The adjustments include asset impairment charges, costs of strategic
initiatives, certain cost optimization and restructuring activities, corporate
headquarters relocation expenses, as well as the elimination of gains
                                     - 40 -

--------------------------------------------------------------------------------

from the sale of woodlots. Adjusted EBITDA is a performance measure that excludes costs that we do not consider to be indicative of our ongoing operating performance.

Net cash used by investing activities was $18.1 million compared with $181.1
million in the same period a year ago. During the six months ended June 30,
2021, we used $172.3 million for the Mount. Holly acquisition. Capital
expenditures totaled $22.7 million and $11.2 million for the six months ended
June 30, 2022 and 2021, respectively, and are expected to be $45 million to $50
million, including $7 million to $8 million for Spunlace integration, for the
full year 2022.

Net cash provided by financing activities totaled $33.5 million in the first six
months of 2022 compared with $165.1 million in the same period of 2021. The
change in financing activities primarily reflects a decrease in borrowings under
our revolving credit agreement. In 2021, we used borrowings under the revolving
credit facility to pay for the Mount Holly acquisition.

As discussed in Item 1 - Financial Information, Note - 16, our Credit Agreement
contains a number of customary compliance covenants. As of June 30, 2022, the
leverage ratio, as calculated in accordance with the definition in our Credit
Agreement, was 5.3x, well within the maximum limit allowed under our Credit
Agreement. A breach of these requirements would give rise to certain remedies
under the Revolving Credit Facility, among which are the termination of the
agreement and accelerated repayment of the outstanding borrowings plus accrued
and unpaid interest under the Credit Agreement. As discussed in Note 16 - "Long
Term Debt," on May 9, 2022, we amended our Credit Agreement to increase the
maximum leverage ratio to 6.75 to 1.0 until the quarter ended December 31, 2023,
after which the maximum ratio will step down to 4.0 to 1.0.

Details of our outstanding long-term debt are presented in Section 1 – Financial Statements – Note 16 – “Long-term debt”.

Financing activities include cash used for common stock dividends. In the first
six months of 2022 and 2021, we used $12.5 million and $12.0 million,
respectively, of cash for dividends on our common stock. Our Board of Directors
determines what, if any, dividends will be paid to our shareholders. Dividend
payment decisions are based upon then-existing factors and conditions and,
therefore, historical trends of dividend payments are not necessarily indicative
of future payments.

We are subject to various federal, state and local laws and regulations intended
to protect the environment, as well as human health and safety. At various
times, we have incurred significant costs to comply with these regulations and
we could incur additional costs as new regulations are developed or regulatory
priorities change.

At June 30, 2022, we had ample liquidity consisting of $71.5 million of cash on
hand and $131.6 million of capacity under our revolving credit facility. We
expect to meet all of our near and long-term cash needs from a combination of
operating cash flow, cash and cash equivalents, our existing credit facility and
other long-term debt.

Off-Balance-Sheet Arrangements As of June 30, 2022 and December 31, 2021, we had
not entered into any off-balance-sheet arrangements. Financial derivative
instruments, to which we are a party, and guarantees of indebtedness, which
solely consist of obligations of subsidiaries, are reflected in the condensed
consolidated balance sheets included herein in Item 1 - Financial Statements.
                                     - 41 -

————————————————– ——————————

© Edgar Online, source Previews

Related posts:

  1. Peak Adjustable Medical Beds Market To Develop With Sustainable CAGR In 2021 – 2026
  2. International Meat Substitutes Market Alternatives, Future Pattern and Main Distribution Channel Evaluation – Past Meat, Backyard Protein Worldwide, The Nisshin OilliO Group, Sonic Biochem Restricted
  3. Whole Drive Alternative Market: Promising Progress Alternatives in 2026 – Breakout Stay
  4. Sweetwater Can Carry The Seniors Again – NBC 7 San Diego

Categories

  • Accounts
  • Domestic resource cost
  • Earnings response coefficient
  • Environmental dumping
  • Gross substitutes
  • TERMS AND CONDITIONS
  • PRIVACY AND POLICY