<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ---------------
Commission file number 1-13948
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1612879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 NORTH POINT CENTER EAST
SUITE 600
ALPHARETTA, GEORGIA
30202-8246
(Address of principal executive offices)
(Zip Code)
1-800-514-0186
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
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 the past 90 days.
Yes X . No .
-------- --------
As of March 31, 1997, 16,056,491 shares of the Corporation's common stock, par
value $.10 per share, together with preferred stock purchase rights associated
therewith, were outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
<TABLE>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1996
------- -------
<S> <C> <C>
Net Sales ......................................... $ 113.0 $ 119.8
Cost of products sold ........................... 82.2 91.0
------ -------
Gross Profit ...................................... 30.8 28.8
Selling expense ................................. 4.2 4.4
Research expense ................................ 1.5 2.0
General expense ................................. 4.1 4.4
------ -------
Operating Profit .................................. 21.0 18.0
Interest expense ................................ (1.0) (1.4)
Other income (expense), net ..................... 0.1 -
------ -------
Income Before Income Taxes and Minority Interest .. 20.1 16.6
Provision for income taxes ...................... 7.5 6.3
------ -------
Income Before Minority Interest ................... 12.6 10.3
Minority interest in earnings of subsidiary ..... 1.3 0.9
------ -------
Net Income ........................................ $ 11.3 $ 9.4
====== =======
Net Income per Common Share $ .70 $ .59
====== =======
Cash Dividends Declared per Common Share .......... $ .15 $ -
====== =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
2
<PAGE> 3
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
<TABLE>
MARCH 31, DECEMBER 31,
1997 1996
- - --------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents ....................................................... $ 18.4 $ 30.9
Accounts receivable ............................................................. 70.1 65.1
Inventories ..................................................................... 49.6 49.2
Deferred income tax benefits .................................................... 3.1 3.3
Prepaid expenses ................................................................ 2.9 2.1
------- -------
Total Current Assets .......................................................... 144.1 150.6
------- -------
Gross Property .................................................................... 352.4 361.0
Less accumulated depreciation ................................................. 163.8 166.8
------- -------
Net Property ............................................................. 188.6 194.2
------- -------
Noncurrent Deferred Income Tax Benefits ........................................... 25.9 30.2
------- -------
Deferred Charges and Other Assets ................................................. 7.0 5.6
------- -------
Total Assets ...................................................................... $ 365.6 $ 380.6
======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current Liabilities
Current portion of long-term debt ............................................. $ 2.7 $ 2.9
Other short-term debt ......................................................... 0.6 1.3
Accounts payable .............................................................. 39.0 54.5
Accrued expenses .............................................................. 42.3 42.5
Income taxes payable .......................................................... 3.4 0.6
------- -------
Total Current Liabilities ................................................. 88.0 101.8
------- -------
Long-Term Debt .................................................................... 82.2 86.6
------- -------
Deferred Income Taxes ............................................................. 9.5 9.5
------- -------
Other Noncurrent Liabilities ...................................................... 20.4 19.7
------- -------
Minority Interest ................................................................. 7.8 7.0
------- -------
Contingencies (See Notes 4, 5 and 6)
Stockholders' Equity
Preferred Stock -$.10 par value - 10,000,000 shares authorized, none issued ... - -
Common Stock -$.10 par value - 100,000,000 shares authorized,
16,056,491 and 16,052,621 shares issued and outstanding at March 31, 1997
and December 31, 1996, respectively ........................................ l.6 1.6
Additional paid-in capital .................................................... 60.1 60.0
Retained earnings ............................................................. 86.7 77.8
Unrealized currency translation adjustments ................................... 9.3 16.6
------- -------
Total Stockholders' Equity ................................................. 157.7 156.0
------- -------
Total Liabilities and Stockholders' Equity ........................................ $ 365.6 $ 380.6
======= =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE> 4
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
U.S. $ IN MILLIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Operations
Net income ........................................ $ 11.3 $ 9.4
Depreciation ...................................... 3.3 3.6
Deferred income tax provision 2.2 1.4
Minority interest in earnings of subsidiary 1.3 0.9
Other 0.8 1.0
Changes in operating working capital .............. (19.1) (7.5)
------- -------
Cash Provided by (Used in) Operations ..... (0.2) 8.8
------- -------
Investing
Capital spending .................................. (5.7) (9.0)
Capitalized software costs ........................ (1.6) -
Other ............................................. (2.0) (0.6)
------- -------
Cash Used for Investing ................... (9.3) (9.6)
------- -------
Financing
Cash dividends paid to SWM stockholders ........... (2.4) -
Proceeds from issuances of common stock ........... 0.1 -
Changes in short-term debt ........................ (0.7) 0.5
Proceeds from issuances of long-term debt ........ 0.2 0.3
Payments on long-term debt ........................ (0.2) (1.8)
------- -------
Cash Used for Financing ................... (3.0) (1.0)
------- -------
Decrease in Cash and Cash Equivalents ..................... (12.5) (1.8)
Cash and Cash Equivalents at beginning of period .......... 30.9 5.9
------- -------
Cash and Cash Equivalents at end of period ................ $ 18.4 $ 4.1
======= =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
<PAGE> 5
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 1. NATURE OF THE BUSINESS
Schweitzer-Mauduit International, Inc. ("SWM" or the "Company") is a
diversified producer of premium specialty papers and the world's largest
supplier of fine papers to the tobacco industry. The Company was formed as a
spin-off from Kimberly-Clark Corporation ("Kimberly-Clark") on December 1,
1995.
NOTE 2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of SWM and all
its majority-owned subsidiaries. All material intercompany and interdivision
amounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission and on the same basis as the audited financial
statements included in the Company's 1996 Annual Report to Stockholders. All
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim periods have been
made and are of a normal recurring nature. Operating results for any quarter
are not necessarily indicative of the results for any other quarter or for the
full year. These financial statements should be read in connection with the
financial statements and notes thereto included in the Company's 1996 Annual
Report to Stockholders.
The average numbers of common shares outstanding used in the calculations
of net income per common share for the three months ended March 31, 1997 and
1996 were approximately 16,054,300 and 16,051,500, respectively.
NOTE 3. INVENTORIES
The following schedule details inventories by major class as of
March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- -------
<S> <C> <C>
At the lower of cost on the First-In, First-Out (FIFO)
and weighted average methods or market:
Raw materials ..................................... $ 18.0 $ 19.7
Work in process ................................... 9.0 10.4
Finished goods .................................... 19.8 16.3
Supplies and other ................................ 9.8 10.0
------- -------
56.6 56.4
Excess of FIFO cost over Last-In,
First-Out (LIFO) cost ............................... (7.0) (7.2)
------- -------
Total ............................................ $ 49.6 $ 49.2
======= =======
</TABLE>
5
<PAGE> 6
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 4. INCOME TAXES
The effective income tax rates for the three month periods ended March 31,
1997 and 1996 were 37.3 percent and 38.0 percent, respectively.
Along with numerous other companies and banks in France, Papeteries de
Mauduit S.A. ("PdM"), a French subsidiary of the Company, is subject to a tax
claim with respect to its purchase of certain bonds in 1988 which were
represented by the two selling banks as carrying specific tax benefits. The
French taxing authority is challenging the use by PdM of those benefits. The
tax claim against PdM by the French taxing authority is approximately $1.9 as
of March 31, 1997, including late payment penalties. The Company is vigorously
defending the claim based on the merits and has filed claims against each bank
on the basis of their misrepresentation of certain facts. The Company's claim
against one of the banks was rejected by a trial court in May 1996, and the
Company has appealed this decision. The case against the other bank has been
briefed, and oral presentations are expected to occur later this year. No
reserve has been established for this claim. Based on information currently
available, there exists a reasonable possibility of an unfavorable outcome for
this claim. Since the claim relates to a period prior to PdM joining the
French consolidated tax group, any unfavorable outcome could not be offset with
the net operating loss carryforwards of the French consolidated tax group.
NOTE 5. LEGAL PROCEEDINGS
On January 31, 1997, James E. McCune on behalf of himself and other
"nicotine dependent" West Virginia cigarette smokers filed, in the Circuit
Court of Kanawha County, West Virginia, a purported class action against
several tobacco companies, industry trade associations and consultants, tobacco
wholesalers and cigarette component manufacturers, including Kimberly-Clark,
seeking equitable relief and compensatory and punitive damages in an
unspecified amount for mental suffering and physical injuries allegedly
sustained as a result of having smoked cigarettes. Under the terms of the
spin-off agreements with Kimberly-Clark, the Company assumed liability for and
agreed to indemnify Kimberly-Clark from litigation arising out of the
operations of the Company's businesses, including this case. The nine-count
complaint sets forth several theories of liability, including intentional and
negligent misrepresentation, negligence, product liability, breach of warranty
and conspiracy. Among other things, the complaint alleges that nicotine is an
addictive substance, that the tobacco companies, by using reconstituted
tobacco, are able to control the precise amount of nicotine in their cigarettes
and that LTR Industries, a French subsidiary of the Company, specializes in the
reconstitution process to help the tobacco companies control nicotine levels.
As a component supplier, the Company believes that it has meritorious defenses
to this case, but due to the uncertainties of litigation, the Company cannot
predict its outcome. The Company is unable to make a meaningful estimate of
the amount or range of loss which could result from an unfavorable outcome of
this action. This case will be vigorously defended.
Also, the Company is involved in certain other legal actions and claims
arising in the ordinary course of business. Management believes that such
litigation and claims will be resolved without a material effect on the
Company's consolidated financial statements.
6
<PAGE> 7
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 6. ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws,
regulations and ordinances relating to various environmental matters. The
nature of the Company's operations expose it to the risk of claims with respect
to environmental matters and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims. Based on the
Company's experience to date, the Company believes that its future cost of
compliance with environmental laws, regulations and ordinances, and its
exposure to liability for environmental claims, will not have a material
adverse effect on the Company's financial condition or results of operations.
However, future events, such as changes in existing laws and regulations, or
unknown contamination of sites owned, operated or used for waste disposal by
the Company (including contamination caused by prior owners and operators of
such sites or other waste generators) may give rise to additional costs which
could have a material adverse effect on the Company's financial condition or
results of operations.
Prior to the spin-off, Kimberly-Clark was named a potentially responsible
party under the provisions of the U.S. Comprehensive Environmental Response,
Compensation and Liability Act, or analogous state statutes, at two waste
disposal sites utilized by the Company's Spotswood, New Jersey mill and one
site used by the Company's former Mt. Holly Springs, Pennsylvania mill. The
Company has assumed Kimberly-Clark's liabilities at these sites but does not
believe that any of these proceedings will result in the imposition of monetary
sanctions or will have a material adverse effect on the Company's business or
financial condition.
The Company assumed responsibility to administer a consent order between
Kimberly-Clark and the Massachusetts Department of Environmental Protection
("MDEP") governing the post-closure care of the Willow Hill Landfill in Lee,
Massachusetts. The Company is obligated to maintain the integrity of the cover
and sample groundwater monitoring wells, in addition to other long-term
maintenance responsibilities for this former non-hazardous waste disposal
facility. Under the terms of a consent order signed on January 24, 1997 with
MDEP resulting from a Comprehensive Site Assessment and a Corrective Action
Alternative Assessment ("CAAA") submitted by the Company to MDEP, the Company
has until September 10, 1997 to correct a gas migration problem by means of a
passive gas venting system, as the Company recommended in its CAAA, at a cost
of $0.1. If the passive venting system does not bring the site into compliance
by September 10, 1997, the Company must submit to MDEP, no later than December
1, 1997, a revised compliance plan which employs technologies other than
passive gas venting. If the site is not in full compliance by February 10,
1998, the Company must then implement, subject to MDEP's possible modification,
the compliance plan which it would have submitted. The cost of such a plan
could range from $0.3 to $1.5 in addition to an estimated $0.1 for annual
operating expenses.
The Company also assumed Kimberly-Clark's ownership of and responsibility
for the Valley Mill Landfill site in Lee, Massachusetts. The landfill was
operated by Kimberly-Clark from 1968 to 1969 and was capped in 1970. On
December 23, 1996 the Company received a Notice of Responsibility ("Notice")
from MDEP under Section 21E of the Massachusetts Oil and Material Release
Prevention and Response Act stating that an electro-magnetic survey ("Survey")
performed by a contractor of EPA at the site indicated that buried metallic
objects may be present in the subsurface. The Survey was conducted following
an anonymous call to MDEP alleging the site contains buried metal drums. The
Company will respond to the Notice and will investigate the information
reported in the Survey. Based on information currently available, the
Company believes the Survey only indicates the presence of crushed
drums
7
<PAGE> 8
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
disposed of at the site in 1968 and 1969 and previously reported to MDEP.
Although the Company can give no assurances as to the ultimate cost of
addressing this matter, the Company does not believe such costs will be
material.
Some or all of the Company's U.S. facilities may be subject to revised air
emissions and wastewater discharge standards under rules commonly known as the
"Cluster Rules". The first phase of the Cluster Rules, proposed by the EPA in
1993, would affect only wastewater discharges from the Ancram, New York and
Lee, Massachusetts mills and would require compliance by late 1999. The
Spotswood mill discharges its effluent to a publicly-owned treatment works.
Although the EPA originally indicated that the proposed rules would be
finalized in 1996, final rules have not yet been issued. The estimated capital
expenditures for compliance with the first phase of the proposed Cluster Rules
at the Ancram and Lee mills is between $4 and $7 in the aggregate. However,
due to uncertainty concerning applicable requirements under the final Cluster
Rules, the Company can give no assurance that this estimate will accurately
reflect the actual cost of compliance.
In addition, the later phases of the Cluster Rules (and/or Title V of the
Clean Air Act Amendments of 1990) may further regulate air emissions and
wastewater discharges from the Spotswood mill and require the Company to
install additional air pollution controls at its other U.S. facilities sometime
after the year 2000. Potential capital expenditures to comply with this
subsequent phase of the Cluster Rules and/or Title V of the Clean Air Act
Amendments cannot be estimated until after the EPA proposes applicable
requirements, if any.
The Company incurs spending necessary to meet legal requirements and
otherwise relating to the protection of the environment at the Company's
facilities in the United States, France and Canada, including the
aforementioned proposed Cluster Rules. For these purposes, the Company
anticipates that it will incur approximately $2 in capital expenditures in 1997
and approximately $5 to $10 annually in 1998 and 1999. The major projects
included in these estimates include upgrading wastewater treatment facilities
at various locations and installation of equipment to treat volatile organic
compound emissions in France. The foregoing capital expenditures are not
expected to reduce the Company's ability to invest in capacity expansion,
quality improvements, capital replacements, productivity improvements, or cost
containment projects, and are not expected to have a material adverse effect on
the Company's financial condition or results of operations.
NOTE 7. NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which will be effective for the Company's 1997 annual financial
statements, with earlier adoption prohibited. SFAS No. 128 simplifies the
standards for computing earnings per share ("EPS") and makes the computation
comparable to international standards. SFAS No. 128 replaces the presentation
of "primary" EPS with a presentation of "basic" EPS. The new standard also
requires dual presentation of "basic" and "diluted" EPS on the face of the
income statement for all companies with complex capital structures. The
Company will adopt SFAS No. 128 in the Company's 1997 Annual Report to
Stockholders and, as required, will restate all previously reported EPS data
presented. The Company's computation of "basic" EPS will be the same as EPS
previously reported and currently calculated. The Company's "diluted" EPS
amounts for current and previously reported periods are not expected to be
materially different than "basic" EPS amounts.
8
<PAGE> 9
ITEM 2. SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management believes that the following commentary and tables appropriately
discuss and analyze the comparative results of operations and the financial
condition of the Company for the periods covered.
OVERVIEW
The Company operates principally in one industry segment, which consists
of cigarette paper, tipping paper and plug wrap paper used to wrap various
parts of a cigarette and reconstituted tobacco products. The Company's
non-tobacco industry products represented approximately six percent of the
Company's net sales in 1996.
For purposes of the geographic disclosure in the following tables, the
term "United States" includes operations in the U.S. and Canada. The Canadian
operations exist primarily to produce flax fiber used as raw material in the
U.S. operations and have no material effect on such geographic disclosure.
Adjustments to net sales set forth in the following tables consist of
eliminations of intercompany sales of products between geographic areas.
Adjustments to operating profit consist of unallocated overhead expenses not
associated with geographic areas and eliminations of intercompany transactions.
RESULTS OF OPERATIONS
By Geography for the three months ended March 31, 1997 and 1996
(U.S. $ in millions)
<TABLE>
% Change % of 1997 % of 1996
Net Sales 1997 1996 vs. 1996 Consolidated Consolidated
- - --------- ---- ---- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
United States .......... $ 49.7 $ 58.3 - 14.8% 44.0% 48.7%
Outside United States .. 63.7 63.5 + 0.3 56.4 53.0
Eliminations ........... (0.4) (2.0) (0.4) (1.7)
------ ------ ----- -----
Consolidated .......... $113.0 $119.8 - 5.7% 100.0% 100.0%
====== ====== ===== =====
</TABLE>
<TABLE>
% Return on Sales
% Change % of 1997 --------------------
Operating Profit 1997 1996 vs. 1996 Consolidated 1997 1996
- - ---------------- ---- ---- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
United States .......... $ 7.7 $ 8.2 - 6.1% 36.7% 15.5% 14.1%
Outside United States .. 14.7 11.4 +28.9 70.0 23.1 18.0
Unallocated/Eliminations (1.4) (1.6) (6.7)
----- ------ -----
Consolidated .......... $21.0 $ 18.0 +16.7% 100.0% 18.6% 15.0%
===== ====== =====
</TABLE>
9
<PAGE> 10
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Net Sales
Net sales decreased by $6.8 million in the three month period ended March
31, 1997 compared with the corresponding period of the preceding year. The net
sales comparison was unfavorably affected by changes in currency exchange rates
($4.2 million) and by exiting the reconstituted tobacco leaf ("RTL") product
line in the U.S. at the beginning of the second quarter of 1996 ($2.9 million).
Excluding the U.S. RTL sales volumes, worldwide sales volumes increased in the
three month period ended March 31, 1997 by six percent, favorably affecting net
sales by $5.0 million. Sales volumes from the French businesses grew by 15
percent while, excluding RTL volumes in the U.S., sales volumes declined at the
U.S. business unit by four percent for the three month period. Volume gains
were realized in all major product lines in France and in both tipping and plug
wrap papers in the U.S. The strongest volume growth in France was in the
Company's higher margin products. In the U.S., cigarette paper volumes
declined because of the timing of domestic shipments and lower export sales.
Changes in selling prices and sales mix had an unfavorable effect of $4.7
million in the three month period compared with the same period of the
preceding year. Average selling prices declined in France mainly due to
unfavorable sales mix in several product lines. Average selling prices
declined in the U.S. primarily because of contractual price reductions related
to the decline in the per ton cost of wood pulp.
Operating Profit
Operating profit improved by $3.0 million in the three month period ended
March 31, 1997 compared with the corresponding period of the preceding year.
The improvement was primarily a result of the increased sales volumes in
France, improved mill operations in both France and the U.S., lower
non-manufacturing expenses and a decline in the per ton cost of wood pulp.
Non-manufacturing expenses declined due to changes in currency exchange rates
and timing differences in spending. Per ton wood pulp cost decreases compared
with the prior year favorably impacted operating profit by $4.3 million in the
three month period. These favorable effects were partially offset by lower
average selling prices in both France and the U.S. Changes in currency
exchange rates had a nominal impact on the operating profit change.
NON-OPERATING EXPENSES
Interest expense decreased by $0.4 million in the three month period ended
March 31, 1997 compared with the corresponding period of the preceding year.
The decrease was primarily due to lower interest rates in France in the current
year period.
INCOME TAXES
The effective income tax rates for the three month periods ended March 31,
1997 and 1996 were 37.3 percent and 38.0 percent, respectively.
10
<PAGE> 11
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations, the amount attributable to changes in
operating working capital, and the amount of cash used for capital expenditures
for the three months ended March 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(U.S. $in millions)
1997 1996
---- ----
<S> <C> <C>
Net cash provided by (used in) operations ........ $ (0.2) $ 8.8
Increase in operating working capital ............ (19.1) (7.5)
Capital expenditures ............................. 5.7 9.0
</TABLE>
The Company's primary source of liquidity is cash flow from operations,
which is principally obtained through operating earnings. The Company's net
cash provided by operations decreased from $8.8 million for the three months
ended March 31, 1996 to a use of cash of $0.2 million for the three months
ended March 31, 1997. Changes in operating working capital contributed
unfavorably to cash flow in both three month periods, but to a much greater
extent in the 1997 period. Changes in operating working capital in the 1997
period consisted primarily of a decrease in accounts payable, mainly associated
with payments for capital expenditures and capitalized software costs included
in accounts payable at December 31, 1996, and an increase in accounts
receivable mainly due to higher March 1997 sales compared with sales in
December 1996 and the timing of collections from certain customers.
More than one-half of the Company's assets and liabilities are outside the
United States, substantially all in France. The balance sheets of the
Company's foreign subsidiaries are translated at period-end currency exchange
rates, and the differences from historical exchange rates are reflected in
stockholders' equity as unrealized currency translation adjustments. As a
result of the strengthening U.S. dollar during the first three months of 1997
against other currencies, particularly the French franc, the Company's
consolidated total assets and liabilities declined by approximately five
percent as of March 31, 1997 compared with December 31, 1996.
Capital spending for the three months ended March 31, 1997 was less than
the level of capital spending of the same period of the prior year. Capital
spending for the three months ended March 31, 1997 included $1.3 million toward
the new $24 million long fiber paper machine in France, $0.9 million toward
upgrading the flax pulping operations at the Spotswood mill, and $0.7 million
toward upgrades to a paper machine at the Ancram mill. In addition to capital
spending, the Company incurred, and deferred on the balance sheet, additional
software development costs of $1.6 million in the three month period ended
March 31, 1997, toward new company-wide integrated computer systems that will
replace the currently used Kimberly-Clark systems.
During March 1997, the Quimperle, France mill successfully started up the
new long fiber paper machine. This machine will add approximately 6,000 metric
tons of annual capacity for the production of long fiber products such as
highly porous tobacco-related papers, alkaline battery separator paper, liners
for vacuum cleaner bags, and overlay papers.
11
<PAGE> 12
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
On April 24, 1997, the Board of Directors declared a quarterly cash
dividend of fifteen cents ($.15) per share of common stock. The dividend will
be payable on June 9, 1997 to stockholders of record on May 12, 1997.
Also on April 24, 1997, the Board of Directors authorized a program to
permit the repurchase of the Company's common stock through December 31, 1998
in an aggregate amount not to exceed $20 million. This will provide the
Company with flexibility in the event other timely strategic investments are
not available.
The Company's ongoing requirements for cash consist principally of amounts
required for capital expenditures, the new company-wide integrated computer
systems, stockholder dividends and working capital. Other than expenditures
associated with environmental matters (see Note 6 of the Notes to Unaudited
Consolidated Financial Statements) and other capital projects mentioned in the
Outlook section below, the Company had no material outstanding commitments as
of March 31, 1997. The principal sources of cash are expected to be cash flow
from operations and borrowings from commercial banks.
The Company believes its cash flow from operations, together with
borrowings available under its revolving credit facilities, will be sufficient
to fund its ongoing cash requirements.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which will be effective for the Company's 1997 annual financial
statements, with earlier adoption prohibited. SFAS No. 128 simplifies the
standards for computing earnings per share ("EPS") and makes the computation
comparable to international standards. SFAS No. 128 replaces the presentation
of "primary" EPS with a presentation of "basic" EPS. The new standard also
requires dual presentation of "basic" and "diluted" EPS on the face of the
income statement for all companies with complex capital structures. The
Company will adopt SFAS No. 128 in the Company's 1997 Annual Report to
Stockholders and, as required, will restate all previously reported EPS data
presented. The Company's computation of "basic" EPS will be the same as EPS
previously reported and currently calculated. The Company's "diluted" EPS
amounts for current and previously reported periods are not expected to be
materially different than "basic" EPS amounts.
12
<PAGE> 13
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
OUTLOOK
During the remainder of 1997, the Company expects to benefit from growth
in sales volumes, reflecting increased demand for the Company's products, and
from improved mill operations as a result of capital projects. The per ton
cost of wood pulp remained relatively stable through the first quarter of 1997
as it did during the second half of 1996. The Company does not expect
significant increases or decreases in the per ton cost of wood pulp during the
remainder of 1997. Additionally, the Company's customers in the U.S.
traditionally reduce their operating schedules around holidays during the third
and fourth quarters, which could soften the demand for the Company's products
and allow for additional maintenance and capital work.
The Company expects capital spending for 1997 to be less than that of
1996, but still higher than the historical average. Capital spending for 1997
is estimated at approximately $35 million, focused primarily on internal
capacity expansion, cost reduction opportunities and upgrades to environmental
treatment facilities. In addition, the Company expects to incur approximately
$10 million of software development costs in 1997, which will be deferred on
the balance sheet until such systems are placed in service beginning in 1998.
Certain comments contained herein concerning the business outlook and
anticipated financial results of the Company constitute forward-looking
statements and are based upon management's expectations and beliefs concerning
future events impacting the Company. There can be no assurances that such
events will occur or that the Company's results will be as estimated. Many
factors outside the control of the Company also could impact the realization of
such estimates.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
11. The following statement is filed as an exhibit to Part I of
this Form 10-Q:
The net income per common share computations included in the
Consolidated Statements of Income in Part 1, Item 1, of this Form
10-Q are based on the average number of shares of common stock
outstanding. The only "common stock equivalents" or other
potentially dilutive securities or agreements (as defined in
Accounting Principles Board Opinion No. 15) which were contained in
the Company's capital structure during the periods presented were
options outstanding under the Company's Equity Participation Plan.
Alternative computations of "primary" and "fully diluted" net income
per common share amounts assume the exercise of outstanding stock
options using the "treasury stock method". There is no significant
difference between net income per common share presented in Item 1
and net income per common share calculated on a "primary" and "fully
diluted" basis for the first three months of 1997 and 1996.
15. Independent Accountants' Report, dated April 17, 1997 from
Deloitte & Touche LLP to Schweitzer-Mauduit International, Inc.
23. Independent Accountants' Consent.
27. Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K:
(1) The Company filed a Current Report on Form 8-K dated March 10, 1997,
which reported the Company's announcement of the start-up of the new long
fiber paper machine in Quimperle, France.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Schweitzer-Mauduit International, Inc.
(Registrant)
By: /s/ PAUL C. ROBERTS
------------------------------
Paul C. Roberts
Chief Financial Officer and
Treasurer
(duly authorized officer and
principal financial officer)
By: /s/ WAYNE L. GRUNEWALD
------------------------------
Wayne L. Grunewald
Controller
(principal accounting officer)
May 8, 1997
15
<PAGE> 16
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------- ----------- ------------
11. --- The following statement is filed as an exhibit
to Part I of this Form 10-Q:
The net income per common share computations
included in the Consolidated Statements of Income
in Part 1, Item 1, of this Form 10-Q are based on
the average number of shares of common stock
outstanding. The only "common stock equivalents"
or other potentially dilutive securities or
agreements (as defined in Accounting Principles
Board Opinion No. 15) which were contained in the
Company's capital structure during the periods
presented were options outstanding under the
Company's Equity Participation Plan.
Alternative computations of "primary" and "fully
diluted" net income per common share amounts
assume the exercise of outstanding stock options
using the "treasury stock method". There is no
significant difference between net income per
common share presented in Item 1 and net income
per common share calculated on a "primary" and
"fully diluted" basis for the first three months
of 1997 and 1996.
15. --- Independent Accountants' Report, dated April 17,
1997 from Deloitte & Touche LLP to Schweitzer-Mauduit
International, Inc.
23. --- Independent Accountants' Consent.
27. --- Financial Data Schedule (for SEC use only).
<PAGE> 1
EXHIBIT 15
INDEPENDENT ACCOUNTANTS' REPORT
Schweitzer-Mauduit International, Inc.:
We have reviewed the accompanying consolidated balance sheet of
Schweitzer-Mauduit International, Inc. and subsidiaries as of March 31, 1997,
and the related consolidated statements of income and cash flow for the three
months ended March 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Schweitzer-Mauduit International,
Inc. as of December 31, 1996 and the related consolidated statements of income
and cash flow for the year then ended (not presented herein); and in our report
dated January 31, 1997, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1996 is fairly stated in all
material respects in relation to the balance sheet from which it has been
derived.
Deloitte & Touche LLP
Atlanta, Georgia
April 17, 1997
<PAGE> 1
EXHIBIT 23
May 8, 1997
Schweitzer-Mauduit International, Inc.
100 North Point Center East, Suite 600
Alpharetta, Georgia 30202-8246
Dear Sirs:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Schweitzer-Mauduit International, Inc. and subsidiaries for the
periods ended March 31, 1997 and 1996 as indicated in our report dated April
17, 1997; because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which was included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is
incorporated by reference in Registration Statements No. 33-99812, No.
33-99814, No. 33-99816, and No. 33-99848 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Yours truly,
Deloitte & Touche LLP
Atlanta, Georgia
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FINANCIAL STATEMENTS OF SCHWEITZER-MAUDUIT FOR THE THREE MONTHS ENDED MARCH 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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