Net Income of $2.0 Million Diluted Earnings Per Share of $0.13, Excluding Pre-Tax Restructuring Expenses of $3.7 million, Diluted Earnings Per Share of $0.28
ALPHARETTA, Ga., Aug. 7 /PRNewswire-FirstCall/ --
Summary of Results
(Amounts in Millions, Except Per Share Amounts)
2008 2007
Second Year-To- Second Year-To-
Quarter Date Quarter Date
Net Sales$202.0 $391.8 $171.8 $342.1
Restructuring Expenses 3.75.73.46.1
Operating Profit4.84.86.0 15.1
Net Income 2.00.81.05.2
Earnings Per Share - Diluted $0.13 $0.05 $0.06 $0.33
Plus: Restructuring Expenses
Per Share - Diluted 0.15 0.24 0.14 0.25
Earnings Per Share Without
Restructuring Expenses -
Diluted*$0.28 $0.29 $0.20 $0.58
Average Shares - Diluted 15.7 15.7 15.9 15.8
* Earnings Per Share Without Restructuring Expenses - Diluted is a
non-GAAP financial measure that is calculated by adding the Earnings Per
Share reduction caused by Restructuring Expenses to Earnings Per Share -
Diluted.
Schweitzer-Mauduit International, Inc. (NYSE: SWM) today reported second
quarter 2008 net income of $2.0 million compared with net income of $1.0
million during the second quarter of 2007. Diluted earnings per share were
$0.13 compared with $0.06 in the prior-year quarter. Restructuring expenses
decreased earnings per share during the second quarters of 2008 and 2007 by
$0.15 and $0.14, respectively. Excluding restructuring expenses, earnings per
share increased 40 percent to $0.28 for the second quarter of 2008 from $0.20
during the second quarter of 2007.
Wayne H. Deitrich, Chairman of the Board and Chief Executive Officer,
commented that, "The second quarter 2008 financial results for
Schweitzer-Mauduit improved as expected relative to both the first quarter of
2008 and the second quarter of 2007. Earnings increased primarily due to
higher sales volumes for reconstituted tobacco leaf, or RTL, and cigarette
paper used in lower ignition propensity, or LIP, cigarettes. We also
benefited from the January 2008 purchase of the 28 percent minority interest
of LTR Industries, S.A., or LTRI. Operation of the recently rebuilt paper
machine at our Papeteries de Mauduit mill, or PdM, improved during the second
quarter, but still contributed to an increase in production cost versus last
year. We continue to experience significant inflationary cost increases,
especially energy, and unfavorable currency impacts. As a result of increased
earnings benefiting cash generation, planned reductions in capital spending
and reductions in working capital, we lowered debt during the second quarter.
On July 1, 2008, we announced the exit of the coated papers business in
Brazil, which is a further action to restore profitability to this operation."
Additional information regarding Schweitzer-Mauduit's second quarter 2008
results and full year outlook can be found in our report to the U.S.
Securities and Exchange Commission filed on August 6, 2008 on Form 10-Q.
Restructuring Expenses
Schweitzer-Mauduit initiated restructuring activities during the last two
years in France, the United States and Brazil. As a result of these
restructuring actions, we have realized restructuring expenses for asset
impairment and other non-cash charges as well as cash expenses primarily
associated with employee severance amounts. All announced restructuring
activities are expected to be completed during 2008.
The primary restructuring-related activities that occurred throughout the
second quarter of 2008 included the announced exit of the coated papers
business in Brazil, concluding the shutdown of production operations at the
Lee Mills in the United States, progress towards the transfer of base tipping
paper manufacturing to Brazil and continuing efforts to implement changes at
two paper mills in France, PdM and Papeteries de Malaucene.
In accordance with applicable U.S. generally accepted accounting
principles, restructuring expenses associated with these actions were
recognized during the second quarters of both 2008 and 2007, resulting in
pre-tax charges of $3.7 and 3.4 million, respectively, including a 2008 asset
impairment charge of $1.9 million in Brazil due to our exit of the coated
papers business.
Second Quarter 2008 Results
Net sales were $202.0 million during the second quarter, a 17.6 percent
increase over the prior-year quarter. Net sales increased $15.1 million as a
result of favorable foreign currency exchange rate impacts, $10.1 million due
to higher average selling prices, primarily due to an improved mix of products
sold, and $5.0 million from increased sales volumes.
Operating profit was $4.8 million for the second quarter, a decrease of
20.0 percent versus the prior-year quarter. Excluding pre-tax restructuring
expenses from both periods, operating profit was $8.5 million versus $9.4
million during the prior year, a decrease of 9.6 percent. The decline in
operating profit was primarily due to inflationary cost increases of $9.0
million, start-up costs of $3.9 million associated with PdM's paper machine
rebuild and unfavorable fixed cost absorption of $1.8 million, caused by
reduced paper machine production volume primarily in the United States.
Partially offsetting these negative impacts were higher average selling prices
of $7.6 million, primarily due to an improved mix of products sold including
RTL and cigarette paper for LIP cigarettes, increased sales volumes of $3.7
million and lower nonmanufacturing expenses.
Excluding restructuring expenses from each unit's second quarter operating
profit results for 2008 and 2007, the French segment decreased 16.7 percent,
the U.S. segment increased 23.7 percent and the Brazil segment's loss
increased by $2.1 million.
Interest expense was higher by $1.3 million as a result of increased
average debt levels. There was no minority interest in earnings of
subsidiaries for the second quarter of 2008 compared with $2.1 million in 2007
as a result of our purchase of the LTRI minority interest during January 2008.
No provision for income taxes was recorded during the second quarter of
2008 compared with a $1.2 million, or 27.9 percent effective tax rate, during
the second quarter of 2007. The lack of a tax provision during the current
year quarter was due to the favorable tax impact of our foreign holding
company structure and the geographic mix of taxable earnings.
Net income and diluted earnings per share increased versus the prior-year
second quarter by $1.0 million and $0.07 per share, respectively. Excluding
restructuring expenses, earnings per share totaled $0.28 for the second
quarter of 2008 compared with $0.20 per share in the prior-year quarter, an
increase of 40 percent.
Year-To-Date Results
Net sales were $391.8 million during the first half of 2008, a 14.5
percent increase over the prior-year period. Net sales increased $26.5
million as a result of favorable foreign currency exchange rate impacts, $17.8
million due to higher average selling prices, primarily due to an improved mix
of products sold, and $5.4 million from increased sales volumes.
Operating profit was $4.8 million for the first half of 2008 versus $15.1
million in the prior-year period. Excluding pre-tax restructuring expenses
from both periods, operating profit was $10.5 million during the first half of
2008 versus $21.2 million during the prior year, a decrease of 50.5 percent.
Lower operating profit was primarily due to inflationary cost increases of
$16.3 million, start-up costs of $9.2 million related to the rebuild of a
paper machine at PdM, unfavorable foreign currency impacts of $4.6 million and
unfavorable fixed cost absorption of $2.8 million. These unfavorable impacts
were partially offset by the benefits of higher average selling prices of
$12.7 million, primarily due to an improved mix of products sold, increased
sales volumes of $5.9 million and lower nonmanufacturing expenses.
Interest expense was higher by $2.4 million as a result of significantly
increased average debt levels. Minority interest in earnings of subsidiaries
declined from $3.8 million in 2007 to $0.2 million in 2008 as a result of our
purchase of the minority interest in LTRI during January 2008.
An income tax benefit of $2.6 million was recorded during the first half
of 2008 compared with an income tax provision of $3.1 million, reflecting a
25.4 percent effective tax rate, during the first half of 2007. The change in
income tax amounts between 2008 and 2007 was due to the favorable tax impact
of our foreign holding company structure and the geographic mix of taxable
earnings.
Net income and diluted net income per share were lower than the first half
of 2007 by $4.4 million and $0.28, respectively. Excluding restructuring
expenses, earnings per share totaled $0.29 for the first half of 2008 compared
with $0.58 per share in the prior-year period, a decrease of 50 percent.
Cash Flow and Quarterly Dividend
Cash provided by operations totaled $20.3 million for the second quarter
of 2008 compared with $8.0 million cash used by operations during the first
quarter of 2008. Second quarter 2008 operating cash flow was positively
impacted by a $10.0 million decrease in operating working capital and improved
operating results. Capital spending was $5.4 million during the second
quarter of 2008 compared with $18.6 million during the first quarter of 2008,
a decrease of 71 percent, reflecting the absence of any significant major
projects during the quarter.
As a result of these factors, net debt decreased during the second
quarter by $10.7 million, or 5.7 percent, to $178.6 million as of June 30,
2008 and total debt was 34.4 percent of capital, at the upper end of our
target range of 25 to 35 percent.
Schweitzer-Mauduit is announcing a quarterly common stock dividend of
$0.15 per share. The dividend will be payable on September 15, 2008 to
stockholders of record on August 18, 2008.
Business Comments and Outlook
Mr. Deitrich added, "We are pleased with the improved performance seen in
the second quarter, both in terms of earnings and cash generation. Increases
in sales of reconstituted tobacco leaf products in France, especially given
full ownership of this business, and cigarette paper for LIP cigarettes in the
United States are expected to further benefit earnings this year and beyond.
However, significant improvement in our traditional tobacco papers business is
less certain. Schweitzer-Mauduit faces continuing challenges for further
earnings growth in the second half of 2008 primarily as a result of persistent
inflationary cost increases, unfavorable foreign currency impacts, ongoing
implementation of customer pricing actions, restructuring activities underway
across the company and the start-up of our new joint venture paper mill in
China. We project that quarterly earnings per share, excluding restructuring
expenses, during the balance of this year will approximate the level seen
during the second quarter, with full year 2008 earnings ranging between $0.75
and $0.90. This equates to an annualized rate of earnings, excluding
restructuring expenses, in the range of $1.00 to $1.20 per share. Further, we
expect cash generation, working capital, capital spending and other cash uses
to be relatively stable through the balance of 2008 and therefore anticipate
additional borrowings of approximately $10 million."
Conference Call
Schweitzer-Mauduit will hold a conference call to review second quarter
2008 results and update our business developments and outlook with investors
and analysts at 10:30 a.m. eastern time on Thursday, August 7, 2008. The
conference call will be simultaneously broadcast over the Internet at
www.schweitzer-mauduit.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.
About Schweitzer-Mauduit International
Schweitzer-Mauduit International, Inc. is a diversified producer of
premium specialty papers and the world's largest supplier of fine papers to
the tobacco industry. We also manufacture specialty papers for use in other
applications. Schweitzer-Mauduit and its subsidiaries conduct business in
over 90 countries and employ 3,300 people worldwide, with operations in the
United States, France, Brazil, the Philippines, Indonesia, Canada and a joint
venture in China. For further information, please visit the Company's Web
site at www.schweitzer-mauduit.com .
Forward-Looking Statements
This press release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 and is subject to the
safe harbor created by that Act. Actual results may differ materially from
the results suggested by these statements for a number of reasons, including
the following:
-- We have manufacturing facilities in 6 countries and sell products in
over 90 countries. As a result, we are subject to a variety of import and
export, tax, foreign currency, labor and other regulations within these
countries. Changes in these regulations, or adverse interpretations or
applications, as well as changes in currency exchange rates, could adversely
impact our business in a variety of ways, including increasing expenses,
decreasing sales, limiting our ability to repatriate funds and generally
limiting our ability to conduct business.
-- Our financial performance is dependent upon the cost of raw materials,
particularly wood pulp, purchased energy, chemicals and labor. Recently, the
cost of some of these items has increased significantly, and the nature of our
agreements with our customers may make it difficult to pass changes in these
costs on to our customers in a timely and effective manner.
-- Our sales are concentrated to a limited number of customers. In 2007,
41 percent of our sales were to our 2 largest customers. The loss of 1 or
both such customers, or a significant reduction in 1 or both of these
customers' purchases, could have a material adverse effect on our results of
operations.
-- Our financial performance is materially impacted by sales of both RTL
products and cigarette paper for LIP cigarettes. A significant change in the
sales or production volumes, pricing or manufacturing costs of these products
could have a material impact on future financial results.
-- As a result of excess capacity in the tobacco-related papers industry
and increased purchased material and operating costs experienced in the last
several years, competitive levels of selling prices for certain of our
products are not sufficient to cover those costs with a margin that we
consider reasonable. Such competitive pressures have resulted in downtime of
certain paper machines and, in some cases, accelerated depreciation or
impairment charges for certain equipment and employee severance expenses
associated with downsizing activities. Management continues to evaluate how
to operate our production facilities more effectively with reduced production
volumes, and additional restructuring activities are possible for the second
half of 2008. Management also continues to evaluate the recoverability of the
property, plant and equipment, deferred tax assets and other assets of the
businesses.
-- Our Credit Agreement contains certain financial covenants including,
but not limited to, a net debt to adjusted EBITDA ratio. While we currently
project that we will not fail to comply with any of these covenants, changes
from the expected results of operations, higher than expected capital
spending, an unanticipated need for additional borrowing or other factors
could cause us to violate 1 or more of the covenants in our Credit Agreement.
In the event we breach the net debt to adjusted EBITDA covenant, we believe
that we could obtain a temporary waiver of that covenant, obtain an amendment
of our Credit Agreement or access the markets for additional capital.
However, there is no assurance that the required bank consents could be
obtained for a temporary waiver or an amendment, that a temporary waiver or
amendment of our Credit Facilities would be adequate to fully resolve the
condition giving rise to the default or that we could successfully access the
markets for additional capital.
-- In recent years, governmental and quasi-governmental entities around
the world, particularly in the United States and western Europe, have taken or
have proposed actions that may have the effect of reducing consumption of
tobacco products. Reports with respect to the possible harmful physical
effects of cigarette smoking and use of tobacco products have been publicized
for many years and, together with actions to restrict or prohibit advertising
and promotion of cigarettes or other tobacco products, to limit smoking in
public places and to increase taxes on such products, are intended to
discourage the consumption of cigarettes and other such products. Also in
recent years, certain governmental entities, particularly in North America and
Europe, have enacted, considered or proposed actions that would require
cigarettes to meet specifications aimed at reducing their likelihood of
igniting fires when the cigarettes are not actively being smoked.
Furthermore, it is not possible to predict what additional legislation or
regulations relating to tobacco products will be enacted, or to what extent,
if any, such legislation or regulations might affect our business.
For additional factors and further discussion of these factors, please see
our Annual Report on Form 10-K for the year ended December 31, 2007.
Non-GAAP Financial Measures
Certain financial measures and comments contained in this press release
exclude restructuring 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 this document.
Schweitzer-Mauduit 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. Many investors are interested in understanding the performance
of our ongoing businesses and comparing our results from normal operations
from one period to the next. By providing the non-GAAP financial measures,
together with the reconciliations and comments, we believe we are enhancing
investors' understanding of our business results.
Contact: Bill Foust Pete Thompson
770-569-4203770-569-4277
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Unaudited 20082007 Change
Net Sales $202.0 $171.8 + 17.6 %
Cost of products sold 177.8 145.8 + 21.9
Gross Profit 24.226.0 - 6.9
Selling expense 5.8 5.4 + 7.4
Research expense 2.5 2.0 + 25.0
General expense 7.4 9.2 - 19.6
Total nonmanufacturing expenses 15.716.6 - 5.4
Restructuring expense 3.7 3.4 + 8.8
Operating Profit 4.8 6.0 - 20.0
Interest expense 2.8 1.5 + 86.7
Other income (expense), net 0.6(0.2) N.M.
Income Before Income Taxes, Minority
Interest and Loss from Equity Affiliates 2.6 4.3 - 39.5
Provision for income taxes- 1.2N.M.
Minority interest in earnings of
subsidiaries - 2.1N.M.
Loss from equity affiliates 0.6 - N.M.
Net Income $2.0$1.0N.M. %
Net Income Per Share:
Basic $0.13 $0.06N.M. %
Diluted$0.13 $0.06N.M. %
Dividends Declared Per Share$0.15 $0.15
Average Common Shares Outstanding:
Basic 15,395,900 15,605,300
Diluted, including Common Share
Equivalents 15,702,100 15,887,800
N.M. Not Meaningful
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Unaudited 20082007 Change
Net Sales $391.8 $342.1 + 14.5 %
Cost of products sold 347.6 287.8 + 20.8
Gross Profit 44.254.3 - 18.6
Selling expense 12.211.0 + 10.9
Research expense 4.5 4.0 + 12.5
General expense 17.018.1 - 6.1
Total nonmanufacturing expenses 33.733.1 + 1.8
Restructuring expense 5.7 6.1 - 6.6
Operating Profit 4.815.1 - 68.2
Interest expense 5.2 2.8 + 85.7
Other expense, net1.0 0.1N.M.
Income (Loss) Before Income Taxes,
Minority Interest and Loss from
Equity Affiliates (1.4) 12.2N.M.
Provision (benefit) for income taxes (2.6)3.1N.M.
Minority interest in earnings of
subsidiaries 0.2 3.8 - 94.7
Loss from equity affiliates 0.2 0.1N.M.
Net Income $0.8$5.2 - 84.6 %
Net Income Per Share:
Basic $0.05 $0.33 - 84.8 %
Diluted$0.05 $0.33 - 84.8 %
Dividends Declared Per Share$0.30 $0.30
Average Common Shares Outstanding:
Basic 15,402,000 15,551,500
Diluted, including Common Share
Equivalents 15,658,200 15,803,800
N.M. Not Meaningful
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. $ IN MILLIONS)
June 30,December 31,
Unaudited 2008 2007
ASSETS
Cash and cash equivalents$9.4 $4.0
Accounts receivable 103.1 100.6
Inventories 126.7 131.2
Other current assets 11.8 11.4
Net property, plant and equipment 493.9 456.0
Intangibles and goodwill 19.0 2.8
Other noncurrent assets 76.6 69.0
Total Assets$840.5$775.0
LIABILITIES & STOCKHOLDERS' EQUITY
Current debt$16.2 $13.6
Other current liabilities 190.4 201.6
Long-term debt 171.8 87.3
Pension and other postretirement benefits39.9 38.9
Deferred income tax liabilities 25.8 25.0
Deferred revenue 15.0 18.1
Other noncurrent liabilities 22.8 22.7
Total Liabilities481.9 407.2
Minority interest -26.0
Stockholders' equity358.6 341.8
Total Liabilities and
Stockholders' Equity $840.5$775.0
SCHWEITZER-MAUDUIT INTERNATIONAL,
INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30,
(U.S. $ IN MILLIONS)
Unaudited2008 2007
Net income$0.8 $5.2
Depreciation and amortization 23.8 19.4
Restructuring impairment/accelerated
depreciation 3.0 1.5
Amortization of deferred revenue (3.1) (3.2)
Deferred income tax benefit (11.8) (4.0)
Minority interest in earnings of subsidiaries 0.2 3.8
Other items1.5 0.3
Net changes in operating working capital (2.1) (1.1)
Cash Provided by Operations12.3 21.9
Capital spending (24.0)(18.3)
Capitalized software costs(2.2) (4.5)
Acquisition of minority interest (51.3) -
Equity investment in foreign subsidiaries (1.9) (6.5)
Other investing (3.7) (1.0)
Cash Used for Investing (83.1)(30.3)
Cash dividends paid to SWM stockholders (4.7) (4.7)
Changes in debt 82.1 2.8
Purchases of treasury stock (1.2) (0.1)
Other financing0.1 4.7
Cash Provided by Financing 76.3 2.7
Effect of Exchange Rate
Changes on Cash (0.1) 0.5
Increase (Decrease) in Cash and Cash
Equivalents $5.4 $(5.2)
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
BUSINESS SEGMENT REPORTING
(U.S. $ IN MILLIONS)
The Company is operated and managed based on the geographical location of
its manufacturing operations: the United States, France and Brazil. For
purposes of the segment disclosure in the following tables, the term "United
States" includes operations in the United States and Canada. The Canadian
operations only produce flax fiber used as a raw material in the U.S.
operations. The term "France" includes operations in France, the Philippines
and Indonesia because the results of the Philippine and Indonesian operations
are not material for segment reporting purposes and their sales are integrated
with sales of the Company's French operations in southeast Asia. Sales of
products between segments are made at market prices and elimination of these
sales are referred to in the following tables as intersegment sales. Expense
amounts not associated with segments are referred to as unallocated expenses.
Net Sales
For the three months For the six months
ended June 30,ended June 30,
20082007 % Change 20082007 % Change
France $129.2 $102.7 + 25.8 % $250.0 $203.0 + 23.2 %
United States57.756.2 + 2.7 113.2 113.1 + 0.1
Brazil 20.317.1 + 18.7 38.234.5 + 10.7
Subtotal 207.2 176.0 401.4 350.6
Intersegment sales by:
France (0.7) (1.3) (1.3) (2.3)
United States (1.6) (0.7) (2.3) (1.5)
Brazil (2.9) (2.2) (6.0) (4.7)
Consolidated $202.0 $171.8 + 17.6 % $391.8 $342.1 + 14.5 %
Operating Profit (Loss)
For the three monthsFor the six months
ended June 30, ended June 30,
2008 2007 % Change 2008 2007 % Change
France$6.5 $6.0 + 8.3 % $5.6 $13.2 - 57.6 %
United States 3.9 3.4 + 14.7 9.37.9 + 17.7
Brazil(4.4) (0.4) N.M.(6.1) (0.2) N.M.
Unallocated expenses (1.2) (3.0) - 60.0(4.0) (5.8) - 31.0
Consolidated$4.8 $6.0 - 20.0 % $4.8 $15.1 - 68.2 %
Restructuring Expense
For the three months For the six months
ended June 30,ended June 30,
2008 2007 2008 2007
France $1.0 $3.0 $2.6 $5.4
United States 0.8 0.4 1.2 0.7
Brazil 1.9 -1.9 -
Consolidated $3.7 $3.4 $5.7 $6.1
Operating Profit (Loss) Without Restructuring Expense*
For the three months For the six months
ended June 30, ended June 30,
2008 2007 % Change 2008 2007 % Change
France $7.5 $9.0 - 16.7 %$8.2 $18.6 - 55.9 %
United States4.7 3.8 + 23.7 10.58.6 + 22.1
Brazil (2.5) (0.4) N.M. (4.2) (0.2) N.M.
Unallocated expenses(1.2) (3.0) - 60.0 (4.0) (5.8) - 31.0
Consolidated $8.5 $9.4 - 9.6 % $10.5 $21.2 - 50.5 %
* Operating Profit (Loss) Without Restructuring Expense is a non-GAAP
financial measure that is calculated by adding Restructuring expense to
Operating Profit (Loss).
N.M. Not Meaningful
SOURCE Schweitzer-Mauduit International, Inc.
