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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
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COMMISSION FILE NUMBER 1-13948
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 62-1612879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 NORTH POINT CENTER EAST, SUITE 600 30022-8246
ALPHARETTA, GEORGIA (Zip Code)
(Address of principal executive offices)
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1-800-514-0186
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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Common stock, par value $.10 per share (together with New York Stock Exchange, Inc.
associated preferred stock purchase rights)
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Securities registered pursuant to Section 12(g) of the Act:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
As of December 31, 1999, 15,636,888 shares of the Corporation's common
stock, par value $.10 per share, together with preferred stock purchase rights
associated therewith, were outstanding, and the aggregate market value of the
common stock on such date (based on the closing price of these shares on the New
York Stock Exchange) held by non-affiliates was approximately $210 million.
(Continued)
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DOCUMENTS INCORPORATED BY REFERENCE
Schweitzer-Mauduit International, Inc.'s 2000 Proxy Statement, filed with
the Commission dated March 14, 2000, contains certain of the information
required in this Form 10-K, and portions of that document are incorporated by
reference herein from the applicable sections thereof. The following chart
identifies the sections of this Form 10-K which incorporate by reference
portions of the Company's 2000 Proxy Statement. The Items of this Form 10-K,
where applicable, specify which portions of such document are incorporated by
reference. The portions of such document that are not incorporated by reference
shall not be deemed to be filed with the Commission as part of this Form 10-K.
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DOCUMENT OF WHICH PORTIONS ITEMS OF THIS FORM 10-K
ARE INCORPORATED BY REFERENCE IN WHICH INCORPORATED
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2000 Proxy Statement Part III
Item 10. Directors and Executive Officers of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related
Transactions
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PART I
ITEM 1. BUSINESS
BACKGROUND
Schweitzer-Mauduit International, Inc. ("SWM") was incorporated in Delaware
on August 21, 1995 as a wholly-owned subsidiary of Kimberly-Clark Corporation
("Kimberly-Clark") for the purpose of effectuating the tax-free spin-off of
Kimberly-Clark's U.S., French and Canadian business operations that manufacture
and sell tobacco-related papers and other specialty paper products (the
"Businesses"). Pursuant to a distribution agreement dated October 23, 1995,
Kimberly-Clark agreed to distribute in the form of a dividend to its
stockholders all of the common stock of SWM and on November 30, 1995, each
Kimberly-Clark stockholder of record on November 13, 1995 received one share of
SWM common stock for every ten shares of Kimberly-Clark common stock held on the
date of record (the "Distribution"). As a result of the Distribution, SWM became
an independent public company. (As used herein, the Company means SWM, SWM and
its several subsidiaries or, as determined by the context, one or more of its
several subsidiaries.)
On February 2, 1998, Schweitzer-Mauduit Spain, S.L. ("SM-Spain"), a
wholly-owned subsidiary of SWM, acquired 99.97 percent of the outstanding shares
of Companhia Industrial de Papel Pirahy ("Pirahy"), a specialty paper
manufacturer located in Santanesia, Brazil, near Rio de Janeiro. Pirahy,
subsequently renamed Schweitzer-Mauduit do Brasil, S.A. ("SWM-B"), is the
largest supplier of tobacco-related papers to the South American market. It also
produces printing and writing papers as well as papers for packaging and
labeling applications.
Additionally, on February 11, 1998, the Company's second tier subsidiary,
Schweitzer-Mauduit Enterprises S.A. ("SM-Enterprises"), wholly-owned by
Schweitzer-Mauduit France, S.A.R.L. ("SMF"), acquired all of the outstanding
shares of Ingefico, S.A. and 97.1 percent of the outstanding shares of its pulp
and specialty paper manufacturing subsidiaries, Groupe SAPAM S.A. ("Groupe
SAPAM") and Papeteries de la Moulasse S.A., located in Saint-Girons in the
southwestern part of France. Subsequently, SM-Enterprises acquired all the
remaining shares of Groupe SAPAM. SM-Enterprises and Ingefico, S.A. were then
merged into Groupe SAPAM. Papeteries de la Moulasse S.A. was renamed Papeteries
de Saint-Girons S.A. ("PdStG"). Approximately 90 percent of the net sales of
PdStG are of fine papers to the tobacco industry.
Financial information about foreign and domestic operations, contained
under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" appearing in Part II, Item 7 herein and in Note 13 to
Consolidated Financial Statements contained in "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" appearing in Part II, Item 8 herein, are incorporated in
this Item 1 by reference.
DESCRIPTION OF THE BUSINESS
GENERAL. The Company manufactures and sells paper and reconstituted
tobacco products to the tobacco industry as well as specialized paper products
for use in other applications. Tobacco industry products, which comprised 89
percent of the Company's 1999 consolidated net sales, include cigarette, plug
wrap and tipping papers used to wrap various parts of a cigarette ("Cigarette
Papers"), reconstituted tobacco leaf ("RTL") for use as filler in cigarettes and
cigars, reconstituted tobacco wrappers and binders for cigars, and paper
products used in cigarette packaging. These products are sold directly to the
major tobacco companies or their designated converters in North and South
America, Eastern and Western Europe, China and elsewhere.
Non-tobacco industry products include drinking straw wrap, filter papers,
lightweight printing and writing papers, coated papers for packaging and
labeling applications, business forms, furniture laminates, battery separator
paper and other specialized papers primarily for the North American, Western
European and Brazilian markets. These products are generally sold directly to
converters and other end-users in North America and Western Europe and through
brokers in Brazil. The non-tobacco industry products are a diverse mix of
products, certain of which represent commodity paper grades produced to maximize
machine operations.
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PRODUCTS. Each of the three principal types of paper used in
cigarettes -- cigarette, plug wrap and tipping papers -- serves a distinct
purpose in the function of a cigarette.
Cigarette paper wraps the column of tobacco in a cigarette. Certain
properties of cigarette paper, such as basis weight, porosity, opacity, tensile
strength, texture and whiteness must be closely controlled to tight tolerances.
Many of these characteristics are critical to meet runnability standards of the
high-speed production processes utilized by premium cigarette manufacturers.
Plug wrap paper forms the outer layer of a cigarette filter and is used to
hold the filter materials in a cylindrical form. Conventional plug wrap is
manufactured on flat wire paper machines using wood pulp. Porous plug wrap, a
highly porous paper, is manufactured on inclined wire paper machines using a
furnish consisting of "long fibers", such as abaca, and wood pulp. Porosity, a
measure of air permeability, ranges from a typical level of less than 100
Coresta on conventional plug wrap to 35,000 Coresta on high porosity papers.
High porosity plug wrap is sold under the registered trademark POROWRAP(R) and
is used on filter-ventilated cigarettes. High porosity papers can also be used
for such specialty products as battery separator paper.
Tipping paper, produced in white or buff color, joins the filter element to
the tobacco section of the cigarette. The ability to produce tipping paper which
is both printable and glueable at high speeds is critical to producing a
cigarette with a distinctive finished appearance.
Reconstituted tobacco is used by manufacturers of cigarettes, cigars and
other tobacco products primarily as a filler that is blended with virgin tobacco
in order to utilize otherwise wasted parts of the tobacco leaf. The Company
currently produces reconstituted tobacco in two forms: leaf in France and
wrapper and binder in the United States.
BUSINESS SEGMENTS. The Company is operated and managed based on the
geographical location of its manufacturing operations: the United States, France
and Brazil. As such, these geographical operations also represent the Company's
business segments for reporting purposes. While the products are comparable in
each segment, they vary based on the technological capabilities of each of the
manufacturing operations and the respective markets and customers served. Sales
by a segment into markets primarily served by a different segment occur where
specific product needs cannot be cost-effectively met by the manufacturing
operations domiciled in that segment.
MARKETS AND CUSTOMERS. The Company's U.S. business primarily supplies the
major, and many of the smaller, cigarette manufacturers in North America, and
also has significant sales in South America and Japan. The customer base for the
U.S. operations consists of approximately 60 customers in approximately 30
countries. The Company's French businesses rely predominantly on worldwide
exports, primarily to Western Europe, China, Eastern Europe and the former
Commonwealth of Independent States, and, in lesser but substantial amounts, to
Asia (excluding China), Africa, the Middle East and Australia. The customer base
for the French operations consists of a diverse group of over 200 customers in
more than 80 countries. The Company's Brazilian business primarily supplies
customers in Brazil, but with increasing sales to other South American
countries. The current customer base of the Brazilian operations consists of the
cigarette manufacturers in Brazil, as well as approximately 20 customers in
approximately ten countries outside Brazil. Customers of all three units include
international tobacco companies, regional tobacco manufacturers and government
monopolies.
Philip Morris Incorporated ("Philip Morris"), including its subsidiaries,
and B.A.T. Industries PLC ("BAT"), including its U.S. subsidiary Brown &
Williamson Tobacco Corporation, its Brazilian subsidiary Souza Cruz S.A. ("Souza
Cruz") and its other subsidiaries, are the Company's two largest customers.
Philip Morris and BAT, together with their respective affiliates and designated
converters, accounted for approximately 30 percent and 18 percent, respectively,
of the Company's 1999 consolidated net sales.
The Company's French paper businesses, together, are the largest exporter
of cigarette paper to China with an estimated 45 to 50 percent share of that
country's cigarette paper imports. However, as cigarette paper manufacturers in
China continue to increase capacity, the total volume of cigarette paper imports
into China is expected to continue to decline.
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LTR Industries, S.A. ("LTRI") is a 72-percent owned second tier subsidiary
of the Company which manufactures RTL in France. LTRI has many customers,
consisting primarily of the large cigarette manufacturers in Eastern and Western
Europe. A small number of these large customers account for a substantial
portion of LTRI's net sales. The loss of any one or more of these large
customers could have a significant adverse effect on LTRI's and the Company's
results of operations.
The Company exited the RTL business in the United States in the second
quarter of 1996. In the fourth quarter of 1997, the U.S. business temporarily
restarted operation of the U.S. RTL production line, but only to support the
growth of the French RTL business while alternatives for additional capacity
were being considered. The U.S. RTL production line ceased operations in the
fourth quarter of 1998.
PHILIP MORRIS SUPPLY AGREEMENT. In 1992, the Company's U.S. unit was
chosen to be the single source of supply of Cigarette Papers to Philip Morris'
U.S. operations. The initial five-year term of the supply agreement (the "Supply
Agreement") was extended by mutual agreement. In July 1998, Philip Morris and
the Company signed an Amended and Restated Supply Agreement for Fine Paper
Supply ("Amended Supply Agreement"). The Amended Supply Agreement extends the
Company's position as the supplier of Cigarette Papers to Philip Morris' U.S.
operations until June 30, 2002, except that Philip Morris has the right,
commencing in 1999 and continuing thereafter, to acquire up to ten percent of
its prior year purchases of Cigarette Papers from other suppliers, although
to-date it has chosen not to do so. By its terms, the Amended Supply Agreement
automatically renews for three successive terms of two years each unless either
party gives notice of non-renewal 24 months before the end of the then current
term. A supplement to the Amended Supply Agreement creates the potential for a
seven-year exclusive supply arrangement with Philip Morris U.S.A. for an
experimental new paper product currently being jointly developed. In January
2000, Philip Morris announced that it would conduct consumer testing of this new
product, a new type of cigarette paper that may make a cigarette less likely to
ignite certain fabrics. Philip Morris and the Company also have entered into a
licensing and royalty agreement covering future commercialization of this new
paper product, the commercial viability of which has not yet been determined.
SOUZA CRUZ SUPPLY AGREEMENT. On February 2, 1998, as part of the Company's
agreement to purchase Pirahy, the Brazilian operations entered into two
exclusive supply agreements with its former owner and its largest customer,
Souza Cruz, to supply all of Souza Cruz's needs for papers which SWM-B is
capable of producing. The supply agreement for tobacco-related papers, as
amended in February 2000, has an initial term of six years until February 2,
2004 and automatically renews for additional three-year terms unless either
party provides notice of phase-out prior to the date of expiration. The supply
agreement for coated paper used in the packaging of cigarette products, as
amended in February 2000, has an initial term of six years until February 2,
2004, with extensions to be negotiated prior to the date of expiration.
EMPLOYEE AND LABOR RELATIONS. As of December 31, 1999, the Company had
3,402 regular full-time active employees of whom 611 hourly employees and 281
salaried employees were located in the United States and Canada, 1,096 hourly
employees and 643 salaried employees were located in France and 728 hourly
employees and 43 salaried employees were located in Brazil.
North American Operations -- Hourly employees at the Lee, Massachusetts,
Spotswood, New Jersey and Ancram, New York mills are represented by locals of
the PACE International Union. During 1999, the Spotswood bargaining agreement
was modified to provide for lump sum payments in lieu of general wage increases
for 1999 through 2001. The current collective bargaining agreements expire at
the Ancram mill on September 30, 2001, at the Spotswood mill on June 15, 2002
and at the Lee mills on August 1, 2002. There have been no strikes or work
stoppages at any of these locations for approximately 20 years, and the Company
believes employee and union relations are positive.
The fiber operations of the Company's Canadian subsidiary are non-union.
The Company believes that employee relations are positive.
French Operations -- Hourly employees at the Company's mills in Quimperle,
Malaucene, Saint-Girons and Spay, France are union represented. The most recent
two-year collective bargaining agreements for each of the mills expired on
December 31, 1999. The French subsidiaries are in the process of negotiating new
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contracts at all of the mills. Over the years, there have been intermittent work
stoppages lasting from a few hours to several days. The Company believes that,
overall, employee relations are positive and comparable to similar French
manufacturing operations.
Brazilian Operations -- Hourly employees at the Pirahy mill are represented
by a union. The current collective bargaining agreement expires on May 31, 2000.
The Company believes that, overall, employee relations are positive and
comparable to similar Brazilian manufacturing operations.
RAW MATERIALS. Wood pulp is the primary fiber used in the Company's
operations. These operations consumed approximately 107,000 and 112,000 metric
tons of wood pulp in 1999 and 1998, respectively, all of which was purchased.
Company operations also use other cellulose fibers, the most significant of
which are in the form of flax fiber and tobacco stems and scraps, as the primary
raw materials for the Company's paper and reconstituted tobacco products,
respectively. While tobacco stems and scraps are generally the property of the
cigarette manufacturer for whom the reconstitution is contracted, the Company
and LTRI purchase some tobacco materials for use in the production of RTL and
wrapper and binder products.
Flax straw is purchased and subsequently processed into flax tow at
processing facilities in Canada and France. The flax tow is then converted into
flax pulp at pulping facilities in the United States and France. Flax tow and
flax pulp are also purchased externally, but these purchases only represent
approximately 30 percent of the flax pulp currently consumed by the Company's
U.S. and French operations.
Certain specialty papers are manufactured with other cellulose fibers, such
as abaca, and small amounts of secondary and recycled fibers. All of these
secondary and recycled fibers are purchased.
The Company believes that the raw materials purchased by the Company are
readily available from several sources and that the loss of a single supplier
would not have a material adverse effect on the Company's ability to procure
needed raw materials.
COMPETITION. The Company is the leading producer of Cigarette Papers in
the world. LTRI is the leading independent producer of RTL for use in
cigarettes. The Company does not sell its products directly to consumers or
advertise its products in consumer media. The specialized nature of these
tobacco-related papers requires research and development capability to develop
them and special papermaking equipment and skills to meet exacting customer
specifications. These factors have limited the number of competitors in each of
the tobacco-related paper categories discussed separately below.
Cigarette Paper -- Management believes that the Company has between 55 and
60 percent share of the North American cigarette paper market. The Ecusta
division of P.H. Glatfelter Company ("Ecusta") is the Company's major competitor
in the sale of cigarette paper in North America. European suppliers, such as
Miquel y Costas & Miquel S.A., a Spanish corporation ("Miquel y Costas"), also
compete in this market but, to date, have achieved no more than an estimated 10
percent market share. Management believes that the bases of cigarette paper
competition are price, consistent quality, level of technical service and
performance requirements of the customer's cigarette-making equipment.
The principal competitors of the Company's French cigarette paper
businesses are Wattens GmbH ("Wattens"), an Austrian subsidiary of Trierenberg
Holding ("Trierenberg"), Schoeller & Hoesch GmbH ("Schoeller & Hoesch"), a
German company acquired by P.H. Glatfelter Company in January 1998, Robert
Fletcher (Greenfield) Limited, Miquel y Costas and Julius Glatz GmbH. Papeteries
de Mauduit, S.A. ("PdM"), an indirect wholly-owned subsidiary of the Company in
France, sells approximately 65 to 70 percent of its products (cigarette paper
and porous and conventional plug wrap) in Western Europe and China. Management
believes that the bases of competition for PdM's products are the same as for
the Company's U.S. business.
The principal competitors of the Company's Brazilian cigarette paper
business are Ecusta (including Schoeller & Hoesch), Miquel y Costas and Wattens.
SWM-B has an estimated 75 percent market share of cigarette paper in Brazil and
an estimated 50 percent market share of cigarette paper in South America.
Management believes that the bases of cigarette paper competition for SWM-B are
the same as for the Company's U.S. business.
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Plug Wrap Paper -- Management believes that the Company's U.S. business has
between 70 and 75 percent share of the North American market for plug wrap
papers. The remainder of the North American market is shared by three
competitors: Ecusta (including Schoeller & Hoesch), Miquel y Costas and Wattens.
The Company's French businesses hold an estimated 65 percent of the Western
European high porosity plug wrap market. Schoeller & Hoesch is the Company's
principal competitor in that market along with Wattens. Through the Brazilian
business' supply of conventional plug wrap papers and the U.S. business' supply
of porous plug wrap papers, the Company has an estimated 75 percent share of the
South American market for plug wrap papers. Ecusta (including Schoeller &
Hoesch), Miquel y Costas and Wattens are the Company's principal competitors in
that market.
Management believes that the primary basis of competition for high porosity
plug wrap is technical capability with price being a less important
consideration. On the other hand, conventional plug wrap entails less technical
capability with the result that price and quality are the primary bases of
competition.
Tipping Paper -- Management believes that the Company's U.S. business has
between 60 and 65 percent share of the North American market for base tipping
paper which is subsequently printed by converters. Its principal competitors in
these markets are Ecusta and Tervakoski Oy, a Finnish subsidiary of Trierenberg.
Management believes that the bases for competition are consistent quality, price
and, most importantly, the ability to meet the runnability and printability
requirements of converting equipment and high-speed cigarette-making machines.
Papeteries de Malaucene S.A. ("PdMal"), another of the Company's indirect
wholly-owned French subsidiaries, operates a tipping paper mill in Malaucene,
France, and ranks among the largest converted tipping paper producers in Western
Europe, with an estimated 15 percent market share. PdMal produces printed and
unprinted, and laser and electrostatically perforated tipping papers. PdMal's
principal European competitors are Tann-Papier GmbH, an Austrian subsidiary of
Trierenberg, Benkert GmbH (Germany) and Miquel y Costas. Management believes
that the bases of competition for perforated tipping paper in Europe are
perforation technology, consistent quality and price.
The Company's Brazilian business has between 55 and 60 percent share of the
South American market for base tipping paper which is subsequently printed by
converters. The Company's principal competitors in Latin America are Ecusta
(including Schoeller & Hoesch) and Miquel y Costas. Management believes that the
bases of tipping paper competition for SWM-B are the same as for the Company's
U.S. business.
Reconstituted Tobacco -- LTRI is the leading independent producer of RTL.
Management believes that the basis of competition in this market is primarily
quality. However, sales volumes are influenced by worldwide virgin tobacco
prices (lower prices of virgin tobacco may result in lower reconstituted tobacco
sales volumes).
LTRI's principal competitors are (i) R.J. Reynolds Tobacco Company, which
produces RTL for both internal and external use, (ii) Yelets, an affiliate of
Japan Tobacco Inc. which operates in Russia, (iii) B.V. Deli-HTL Tabak
Maatschappiji B.V., an independent producer which operates in Holland, and (iv)
cigarette companies such as Philip Morris and BAT, which produce RTL primarily
for internal use.
Management estimates that approximately 50 percent of reconstituted cigar
wrapper and binder used in the U.S. market is produced internally by domestic
cigar manufacturers. The Company's Ancram mill and Nuway Microflake Partnership,
a cast process manufacturer, produce the balance.
Other Products -- As noted above, the Company and its subsidiaries produce
wrapping paper for drinking straws, filter papers, as well as papers for
lightweight printing and writing, coated papers for packaging and labeling
applications, business forms, furniture laminates and battery separators.
Management believes that price is the primary basis of competition for drinking
straw wrap, printing and writing and filter papers (collectively, "Filler
Papers"), while consistent quality and customer service are believed to be the
primary competitive factors for battery separator and business forms papers. The
Company does not possess a significant market share in any of the above
segments, except for battery separator papers, where it holds approximately 25
percent of the worldwide market. The Company continues, to the extent feasible,
to convert its production of less profitable Filler Papers to more profitable
niche applications.
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RESEARCH AND DEVELOPMENT; PATENTS AND TRADEMARKS. The Company has research
and laboratory facilities in Spay, France, Santanesia, Brazil and Alpharetta,
Georgia and employs more than 40 research personnel. The Company is dedicated to
developing Cigarette Papers and reconstituted tobacco product innovations and
improvements to meet the needs of individual customers. The development of new
components for tobacco products is the primary focus of these research and
development functions, which are working on several development projects for the
Company's major customers. The Company spent in the aggregate on product
research and development $6.7 million, $6.5 million and $6.4 million in 1999,
1998 and 1997, respectively.
The Company believes that its research and product development capabilities
are unsurpassed in the industry and have played an important role in
establishing the Company's reputation for high quality, superior products. The
Company's commitment to research and development has enabled the Company, for
example, to (i) produce high-performance papers designed to run on the
high-speed manufacturing machines of its customers, (ii) produce papers to
exacting specifications with very high uniformity, (iii) produce cigarette paper
with extremely low basis weights, and (iv) have an acceptance rate by its
customers in excess of 99 percent. The Company also believes it is in the
forefront of the manufacturing process, having invested heavily in modern
technology, including laser technology and modern paper-slitting equipment. The
Company believes that its commitment to research and development, coupled with
its investment in new technology and equipment, has positioned the Company to
take advantage of growth opportunities abroad where the demand for
American-style premium cigarettes continues to increase.
As of December 31, 1999, the Company and its subsidiaries collectively
owned 82 patents and had pending 52 patent applications covering a variety of
Cigarette Papers, RTL and cigar wrapper and binder products and processes in the
United States, Western Europe and several other countries. The Company believes
that such patents, together with its papermaking expertise and technical sales
support, have been instrumental in establishing it as the leading worldwide
supplier of Cigarette Papers, RTL and reconstituted wrapper and binder made by
the papermaking process.
Management believes that the Company's "POROWRAP(R)" trademark for highly
porous plug wrap paper, the "PDM" logo and the "JOB PAPIER A CIGARETTES",
"PAPETERIES DE MAUDUIT" and "SCHWEITZER" trade names also have been significant
contributors to the marketing of the Company's products.
BACKLOG; SEASONALITY. The Company has historically experienced a steady
flow of orders. Its mills typically receive and ship orders within a 30-day
period, except in the case of RTL where orders are generally placed well in
advance of delivery. The Company plans its manufacturing schedules and raw
material purchases based on its evaluation of customer forecasts and current
market conditions.
The U.S. business does not calculate or maintain records of order backlogs.
Philip Morris, its largest customer, provides forecasts of future demand, but
actual orders for Cigarette Papers are typically placed two weeks in advance of
shipment.
The French businesses do maintain records of order backlogs. For Cigarette
Papers, the order backlog was approximately $22 million and $24 million on
December 31, 1999 and 1998, respectively. This represented approximately 40 and
44 days of Cigarette Paper sales for the French businesses in 1999 and 1998,
respectively. LTRI's RTL business operates under a number of annual supply
agreements. The order backlog for RTL was approximately $44 million and $56
million on December 31, 1999 and 1998, respectively.
The Brazilian business does not calculate or maintain records of order
backlogs. Approximately 40 percent of its sales are on a consignment basis with
Souza Cruz, its largest customer. Souza Cruz also provides forecasts of future
demand in order for the Brazilian operations to manage levels of consignment
inventories.
Sales of the Company's products are not subject to seasonal fluctuations,
except in the United States where customer shutdowns of one to two weeks in
duration typically occur in July and December, and in Brazil where customer
orders are typically lower in December due to a January and February holiday
season.
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SALES AND DISTRIBUTION. Essentially all sales of tobacco-related products
by the U.S. and French businesses are sold by the Company's marketing, sales and
customer service organizations directly to cigarette manufacturers or their
designated converters, and to cigar manufacturers, except in China where sales
are generally made to trading companies for resale to cigarette producers. The
Brazilian business' tobacco-related products are sold by the Brazilian marketing
and sales organization directly to cigarette manufacturers, and through brokers
for non-tobacco related products. Most of the Company's U.S. and French
businesses' non-tobacco related products are sold on a direct basis.
ENVIRONMENTAL MATTERS. Capital expenditures for environmental controls to
meet legal requirements and otherwise relating to the protection of the
environment at the Company's facilities in the United States, France, Brazil and
Canada are estimated to be approximately $2 million to $4 million annually in
2000 and 2001. These expenditures are not expected to have a material adverse
effect on the Company's financial condition, results of operations or
competitive position; however, these estimates could be modified as a result of
changes in the Company's plans, changes in legal requirements or other factors.
RISKS FOR FOREIGN OPERATIONS. In addition to its U.S. operations, the
Company has manufacturing facilities in France, Brazil and Canada. Products made
in France, Brazil or in the United States are marketed in more than 90
countries. Because these countries are so numerous, it is not feasible to
generally characterize the risks involved. Such risks vary from country to
country and include such factors as tariffs, trade restrictions, monetary
exchange controls, changes in currency value, economic conditions and
international relations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Factors That May Affect Future Results"
appearing in Part II, Item 7 herein.
INSURANCE. The Company maintains coverage for most insurable risks that
are incident to its operations.
ITEM 2. PROPERTIES
As of December 31, 1999, the Company operated eight mills (which include
four fiber pulping operations) in the United States, France and Brazil that
produce specialty papers or reconstituted tobacco products. The Company also
operates flax fiber processing operations in France and Canada. The Company or
one of its subsidiaries owns each of these facilities except for a flax tow
storage facility in Killarney, Manitoba, which is leased. The Company and its
subsidiaries maintain administrative and sales offices in Alpharetta, Georgia,
in Quimperle and Paris, France, in Hong Kong, China, in Santanesia and Rio de
Janeiro, Brazil, and in Madrid, Spain. The Company's world headquarters are also
located in Alpharetta. All of these offices are leased except for the Quimperle
and Santanesia offices, which are owned by PdM and SWM-B, respectively.
Management believes that each of these facilities is well-maintained,
suitable for conducting the Company's operations and business, and adequately
insured.
The Company's U.S., French and Brazilian paper operations experienced
downtime on certain machines during 1999 because of reduced demand. Additional
paper production downtime is likely to be taken in 2000 in each of the Company's
three operations but to a lesser extent than in 1999. The U.S. RTL production
line had been temporarily restarted during the fourth quarter of 1997, in
support of increased sales volumes of LTRI while alternatives for additional
capacity were considered. During the fourth quarter of 1998, the Company
announced an expansion project for the French RTL business, and the U.S. RTL
production line ceased operations.
In addition to the operating equipment listed on the following page, the
Company and its subsidiaries have additional equipment which has been taken out
of service. These pieces of equipment are in various states of condition and may
or may not be usable should the Company need additional capacity. Further, it
may not be cost-effective to make upgrades which may be necessary to bring this
equipment back into service.
9
<PAGE> 10
The following are locations of the Company's principal facilities and
operating equipment as of December 31, 1999:
<TABLE>
<CAPTION>
PRODUCTION LOCATIONS EQUIPMENT PRODUCTS
- -------------------- --------- --------
<S> <C> <C>
Lee Mills 4 Paper Machines Base Tipping and Specialty Papers
Lee, Massachusetts Pulping Equipment Plug Wrap Paper
(4 mill sites)
Spotswood Mill 4 Paper Machines Cigarette Paper, Straw Wrap Paper
Spotswood, New Jersey Pulping Equipment
Ancram Mill 1 Paper Machine Reconstituted Tobacco Wrapper and
Ancram, New York 1 Reconstituted Tobacco Binder and Porous Plug Wrap Paper
Wrapper and Binder
Machine
Fiber Operations 5 Movable Fiber Mills Flax Fiber Processing
Manitoba, Canada
Papeteries de Mauduit Mill 10 Paper Machines Cigarette Paper, Plug Wrap Paper
Quimperle, France Pulping Equipment and Long Fiber Specialties
Papeteries de Malaucene Mill 1 Paper Machine Tipping and Specialty Papers
Malaucene, France 4 Printing Presses
11 Laser Perforating Lines
1 Electrostatic Perforating
Line
Papeteries de Saint-Girons Mill 3 Paper Machines Cigarette Paper, Plug Wrap Paper,
Saint-Girons, France Pulping Equipment Base Tipping and Specialty
Papers, Flax Pulp
LTR Industries Mill 2 Reconstituted Tobacco Reconstituted Tobacco Leaf, Flax
Spay, France Leaf Machines Fiber Processing, Research &
1 Fiber Mill Development
Pirahy Mill 4 Paper Machines Cigarette Paper, Plug Wrap Paper,
Santanesia, Brazil 1 Coating Machine Base Tipping and Specialty Papers
</TABLE>
<TABLE>
<CAPTION>
ADMINISTRATIVE LOCATIONS OFFICE SPACE FUNCTION
- ------------------------ ------------ --------
<S> <C> <C>
Alpharetta, Georgia Leased Office Space Company World Headquarters,
Research & Development, and
Administrative and Sales
-- U.S. Business
Madrid, Spain Leased Office Space Administrative Office for
International Investments
Quimperle, France Owned Office Space Administrative Offices for
French Businesses
Paris, France Leased Office Space Administrative and Sales Offices
for French Businesses
Hong Kong, China Leased Office Space Sales Office for French
Businesses
Santanesia, Brazil Owned Office Space Administrative Offices for
Brazilian Business, Research &
Development
Rio de Janeiro, Brazil Leased Office Space Administrative and Sales Offices
for Brazilian Business
</TABLE>
10
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
The following is a brief description of potentially material legal
proceedings to which the Company or any of its subsidiaries is a party, or of
which any of their properties is subject:
LITIGATION
Under the terms of the Distribution, the Company assumed liability for and
agreed to indemnify Kimberly-Clark from litigation arising out of the operation
of the Businesses, including certain tobacco industry class action and
individual lawsuits in which certain component suppliers to the tobacco industry
were named, including Kimberly Clark and in some cases LTRI. During 1999,
Kimberly-Clark and LTRI were dismissed from all tobacco-related litigation
pending against them.
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 adverse effect on the Company's
consolidated financial statements.
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 Distribution, Kimberly-Clark was named a potentially
responsible party ("PRP") under the provisions of the U.S. Comprehensive
Environmental Response, Compensation and Liability Act and analogous New Jersey
statutes in connection with the Global Landfill Reclaiming Corporation ("Global
Landfill") waste disposal site in Old Bridge, New Jersey. The Global Landfill
was utilized by Kimberly-Clark's Spotswood mill. The Company has assumed
Kimberly-Clark's liabilities for the Global Landfill site. The Company continues
to participate in the remediation of the Global Landfill as a member of a group
of PRP's that entered into a consent decree with the state of New Jersey in
1993. The Company previously recorded its pro-rata portion of the estimated
liability for remediation of this site, the remainder of which is not material.
The Company also 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. Recent test results show that the Company has achieved
compliance with the consent order and has reduced the concentration of landfill
gases to the levels specified in the consent order at 30 feet below ground level
in all of the gas monitoring wells. The Company will continue its current
remediation activities on a reduced monitoring schedule approved by MDEP for
this landfill, the remaining cost of which was previously accrued and is not
material.
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, Brazil and Canada. For these purposes,
the Company incurred total capital expenditures of $0.5 million in 1999, and
anticipates that it will incur approximately $2 million to $4 million annually
in 2000 and 2001. The major projects included in these estimates include
upgrading wastewater treatment facilities at various locations and installation
of ink solvent treatment equipment 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.
11
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the executive officers of the Company as of March 1,
2000, together with certain biographical information, are as follows:
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Wayne H. Deitrich............................ Chief Executive Officer
Jean-Pierre Le Hetet......................... Chief Operating Officer and
President -- French Operations
Peter J. Thompson............................ President -- U.S. Operations
Otto R. Herbst............................... President -- Brazilian Operations
Paul C. Roberts.............................. Chief Financial Officer and Treasurer
John W. Rumely, Jr........................... General Counsel and Secretary
Wayne L. Grunewald........................... Controller
</TABLE>
MR. WAYNE H. DEITRICH, 56, has served as Chief Executive Officer of the
Company since August 1995 and was elected Chairman of the Board of Directors
immediately after the Distribution. From June 1995 through August 1995, Mr.
Deitrich served as President -- Specialty Products Sector of Kimberly-Clark.
From 1993 through May 1995, Mr. Deitrich was the President -- Paper and
Specialty Products Sector of Kimberly-Clark, and from 1992 to 1993, he was
President -- Paper Sector of Kimberly-Clark. From 1988 through 1992, Mr.
Deitrich served as the President of Neenah Paper, a business unit of
Kimberly-Clark.
MR. JEAN-PIERRE LE HETET, 56, has served as Chief Operating Officer of the
Company since April 1998 in addition to having served as President -- French
Operations of the Company since August 1995. Mr. Le Hetet was elected to the
Board of Directors immediately after the Distribution. From 1991 through August
1995, Mr. Le Hetet was the President of Specialty Products, France, a business
unit of Kimberly-Clark. Prior to that time, Mr. Le Hetet served as General
Manager of Specialty Products, France.
MR. PETER J. THOMPSON, 37, has served as President -- U.S. Operations of
the Company since November 1998. From April 1998 through November 1998, Mr.
Thompson was Director -- Sales and Marketing for the U.S. Operations of the
Company. Mr. Thompson joined the Company in January 1997 as a Marketing Manager
in the U.S. Operations. Prior to joining the Company, he was employed by Tape,
Inc. from May 1995 through January 1997, where he held several senior management
positions in marketing, sales and finance. Mr. Thompson was employed by
Kimberly-Clark from June 1984 through May 1995 in a variety of financial
positions.
MR. OTTO R. HERBST, 40, has served as President -- Brazilian Operations of
the Company since April 1999. Prior to April 1999, he served as General Manager
for New Business and Services from 1997 through March 1999 for Interprint, a
manufacturer of security documents, telephone cards and business forms. From
1990 through 1997, Mr. Herbst served as Director of Agaprint, a manufacturer of
packaging materials, business forms, commercial printing papers, personalized
documents and envelopes.
MR. PAUL C. ROBERTS, 51, has served as Chief Financial Officer and
Treasurer of the Company since August 1995. From June 1995 through August 1995,
he served as Chief Financial Officer -- Specialty Products Sector of
Kimberly-Clark. From January 1995 through May 1995, he was Director -- Corporate
Strategic Analysis of Kimberly-Clark, and from 1988 through 1994, Mr. Roberts
was Director -- Operations Analysis and Control, Pulp and Paper Sector of
Kimberly-Clark.
MR. JOHN W. RUMELY, JR., 46, has served as General Counsel and Secretary of
the Company since January 1, 2000. From March 1998 through December 31, 1999, he
served as Associate General Counsel of the Company. From May 1989 through
February 1998, Mr. Rumely was Assistant General Counsel of Alumax Inc.
MR. WAYNE L. GRUNEWALD, 48, has served as Controller of the Company since
August 1995. From July 1995 through August 1995, he served as
Controller -- Specialty Products Sector of Kimberly-Clark. From December 1989
through June 1995, he was Controller -- U.S. Pulp and Newsprint, a business unit
of Kimberly-Clark.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
PRINCIPAL MARKET
Since the Distribution of the Company's Common Stock by Kimberly-Clark on
November 30, 1995, the Common Stock has been listed on the New York Stock
Exchange under the trading symbol "SWM".
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of March 1, 2000, there were 6,561 stockholders of record of the
Company's Common Stock. This number does not include shares held in "nominee" or
"street" name.
STOCK PRICE AND DIVIDEND INFORMATION
The dividend and market price data included in Note 15 to Consolidated
Financial Statements contained in "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA"
appearing in Part II, Item 8 herein is incorporated in this Item 5 by reference.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are qualified in their entirety by
reference to, and should be read in conjunction with, the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Annual Report. The financial statement data as of and for the years ended
December 31, 1999, 1998, 1997 and 1996 and the balance sheet data as of December
31, 1995 are on a consolidated basis. The income statement data for the year
ended December 31, 1995, which has been audited by Deloitte & Touche LLP,
independent auditors, has been derived from historical combined financial
statements for the eleven months ended November 30, 1995, and the consolidated
results of the Company for the one month ended December 31, 1995. The historical
combined financial statements of SWM and its predecessors for 1995 do not
reflect the results of operations or financial position that would have been
obtained had SWM been a separate, independent company and are not indicative of
SWM's future performance as a separate, independent company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales........................................... $504.4 $546.7 $460.6 $471.3 $462.9
Gross Profit........................................ 110.4 106.1 121.9 114.2 101.2
Operating Profit.................................... 64.6 59.1 81.9 74.0 58.7
Interest income from affiliates, net(1)............. -- -- -- -- 3.3
Net Income.......................................... 31.4 31.0 45.3 38.7 36.8
Net Income Per Share:
Basic............................................ $ 1.99 $ 1.94 $ 2.82 $ 2.41
Diluted.......................................... $ 1.99 $ 1.92 $ 2.77 $ 2.38
Unaudited Pro Forma Basic and Diluted
Net Income Per Share(2).......................... $ 1.81
Cash Dividends Declared and Paid Per Share.......... $ .60 $ .60 $ .60 $ .45
CASH FLOW AND BALANCE SHEET DATA:
Capital Spending.................................... $ 26.3 $ 36.7 $ 35.8 $ 51.5 $ 22.5
Depreciation and amortization....................... 22.2 24.8 14.4 13.4 13.4
Cash Provided By Operations......................... 60.7 67.1 67.3 90.4 64.9
Total Assets........................................ 436.6 474.7 391.0 380.6 347.0
Long-Term Debt...................................... 100.9 108.4 80.8 86.6 91.6
Equity.............................................. 184.2 197.0 179.5 156.0 129.9
</TABLE>
- ---------------
(1) Prior to the Distribution, SMF acted as the financing entity in connection
with the Kimberly-Clark European cash management program. Interest income
from affiliates reflects financing activities related to other operations of
Kimberly-Clark and certain of its affiliates until November 30, 1995, the
date of the Distribution, at which time the Company became a separate
independent company.
(2) Pro forma net income per share is presented based on data prepared under
assumptions as to the effects on the Company's financial statements of
certain intercompany, equity and operating transactions related to the
Distribution as though those transactions occurred at the beginning of 1995.
The pro forma financial data is unaudited, is presented for informational
purposes only and does not reflect the future earnings or results of
operations of the Company or what the earnings or results of operations of
the Company would have been had the Businesses been operated as a separate,
independent company for 1995. Pro forma net income per common share has been
computed based on the assumption that pro forma average shares outstanding
for all periods prior to the Distribution Date were the actual number of
shares issued and distributed in the Distribution.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN BACKGROUND INFORMATION
Schweitzer-Mauduit International, Inc. was incorporated on August 21, 1995
as a wholly-owned subsidiary of Kimberly-Clark Corporation for the purpose of
effectuating the tax-free spin-off of Kimberly-Clark's U.S., French and Canadian
business operations that manufactured and sold tobacco-related papers and other
specialty paper products. Through the November 30, 1995 Distribution date, the
Businesses in the United States and Canada were conducted as operating divisions
of Kimberly-Clark and one of its Canadian subsidiaries, respectively. The
Businesses in France were conducted by LTRI, a 72 percent-owned subsidiary of
Kimberly-Clark, and two indirect wholly-owned Kimberly-Clark subsidiaries, PdM
and PdMal. These latter two companies are owned by SMF, which prior to the
Distribution was a wholly-owned subsidiary of Kimberly-Clark.
On February 2, 1998, Schweitzer-Mauduit Spain, S.L., a wholly-owned Spanish
holding company established in 1997, acquired Companhia Industrial de Papel
Pirahy, a Brazilian specialty paper manufacturer. On February 11, 1998,
Schweitzer-Mauduit Enterprises, a second-tier French subsidiary of the Company,
acquired a French business named Ingefico, S.A. and its pulp and specialty paper
manufacturing subsidiaries.
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 the tobacco industry, manufacturing and
selling papers used in the manufacturing of cigarettes, paper products used in
cigarette packaging and reconstituted tobacco products. The Company's
non-tobacco industry products represented eleven percent of the Company's net
sales in 1999. The non-tobacco industry products are a diverse mix of products,
certain of which represent commodity paper grades produced to maximize machine
operations.
The Company is operated and managed based on the geographical location of
its manufacturing operations: the United States, France and Brazil. While the
products are comparable in each segment, they vary based on the technological
capabilities of each of the manufacturing operations and the respective markets
and customers served. Sales by a segment into markets primarily served by a
different segment occur where specific product needs cannot be cost-effectively
met by the manufacturing operations domiciled in that segment.
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 raw material in the U.S.
operations. The Company's Brazilian operations, acquired on February 2, 1998,
and the operations of the French business acquired on February 11, 1998, are
included in the Company's Consolidated Financial Statements since the beginning
of February 1998.
Adjustments to net sales set forth in the following tables consist of
eliminations of intercompany sales of products between segments. Adjustments to
operating profit consist of unallocated overhead expenses not associated with a
segment and eliminations of inter-segment transactions.
This section should be read in conjunction with the Company's Consolidated
Financial Statements included herein.
15
<PAGE> 16
RESULTS OF OPERATIONS
1999 Compared to 1998
By Segment for the Years Ended December 31, 1999 and 1998
(U.S. $ in millions)
<TABLE>
<CAPTION>
% OF CONSOLIDATED
% CHANGE ------------------
NET SALES 1999 1998 VS. 1998 1999 1998
- --------- ------ ------ -------- ------- -------
<S> <C> <C> <C> <C> <C>
United States................................ $166.3 $186.0 -10.6% 33.0% 34.0%
France....................................... 284.6 312.0 -8.8 56.4 57.1
Brazil....................................... 54.0 57.9 -6.7 10.7 10.6
Eliminations................................. (0.5) (9.2) (0.1) (1.7)
------ ------ ----- -----
Consolidated....................... $504.4 $546.7 -7.7% 100.0% 100.0%
====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
% RETURN
% OF CONSOLIDATED ON SALES
% CHANGE ------------------ ------------
OPERATING PROFIT 1999 1998 VS. 1998 1999 1998 1999 1998
- ---------------- ----- ----- -------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
United States..................... $ 9.3 $ 6.2 +50.0% 14.4% 10.5% 5.6% 3.3%
France............................ 55.2 60.3 -8.5 85.4 102.0 19.4 19.3
Brazil............................ 5.2 (2.3) N.M. 8.1 (3.9) 9.6 (4.0)
Unallocated/Eliminations.......... (5.1) (5.1) (7.9) (8.6)
----- ----- ----- -----
Consolidated............ $64.6 $59.1 +9.3% 100.0% 100.0% 12.8% 10.8%
===== ===== ===== =====
</TABLE>
- ---------------
N.M. -- Not meaningful
Net Sales
Net sales decreased by $42.3 million as a result of lower average selling
prices, unfavorable currency exchange rates and reduced sales volumes. Lower
world-wide selling prices and unfavorable sales mix had an unfavorable effect of
$18.4 million. The net sales comparison was unfavorably affected by $12.6
million from changes in currency exchange rates, primarily related to a
strengthened U.S. dollar versus the French franc and the Brazilian real.
Worldwide sales volumes declined by one percent, which unfavorably affected net
sales by $11.3 million. Sales volumes from the U.S. and French business units
declined by seven and two percent, respectively, while sales volumes of the
Brazilian business unit improved by eight percent. U.S. and French business unit
volumes declined in most major product lines. The improvement in the Brazilian
business' sales volumes was primarily in nontobacco-related papers and sales
outside Brazil. Sales volumes in 1999 benefited in each of the three business
units from sales related to Year 2000 concerns as certain customers increased
their year-end inventories.
Operating Profit
Despite lower net sales, operating profit increased by $5.5 million, with
higher operating profit in Brazil and the United States more than offsetting a
decline in France. The impact of sales volumes related to customers' Year 2000
concerns may have benefited 1999 operating profit by as much as $1.3 million to
$1.8 million. Operating profit in 1998 was negatively affected by one-time
pre-tax charges of $1.7 million and $4.2 million in the second and fourth
quarters, respectively.
In Brazil, operating profit improved by $7.5 million for the year as a
result of cost reduction activities, improved mill operations, increased sales
volumes, the lack of its portion of the fourth quarter 1998 charge and the
positive impact of the Brazilian currency devaluation which occurred in the
first quarter of 1999. These favorable items were partially offset by lower
average selling prices. The currency devaluation was a positive impact for the
Brazilian business unit since a portion of its sales are tied to the U.S.
dollar.
16
<PAGE> 17
The U.S. business unit's operating profit improved by $3.1 million as a
result of the benefits of cost savings programs and the lack of its portion of
the 1998 charges, which more than offset the effects of lower selling prices,
unfavorable sales mix and lower sales and production volumes.
In France, operating profit declined by $5.1 million as a result of lower
selling prices, unfavorable sales mix and lower sales and production volumes.
These negative effects were partially offset by the benefits of the French
business unit's cost reduction activities, improved mill operations and the lack
of its portion of the fourth quarter 1998 charge.
Non-manufacturing expenses decreased by $1.2 million, primarily due to a
reduction in selling expenses of the French business unit. Changes in the
average per ton wood pulp costs compared with the prior year favorably impacted
operating expenses by $2.7 million, although this benefit was offset by changes
in selling prices.
1998 Compared to 1997
By Segment for the Years Ended December 31, 1998 and 1997
(U.S. $ in millions)
<TABLE>
<CAPTION>
% OF CONSOLIDATED
% CHANGE ------------------
NET SALES 1998 1997 VS. 1997 1998 1997
- --------- ------ ------ -------- ------- -------
<S> <C> <C> <C> <C> <C>
United States................................ $186.0 $195.5 -4.9% 34.0% 42.4%
France....................................... 312.0 268.8 +16.1 57.1 58.4
Brazil....................................... 57.9 N.A. 10.6
Eliminations................................. (9.2) (3.7) (1.7) (0.8)
------ ------ ----- -----
Consolidated....................... $546.7 $460.6 +18.7% 100.0% 100.0%
====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
% RETURN
% OF CONSOLIDATED ON SALES
% CHANGE ------------------ ------------
OPERATING PROFIT 1998 1997 VS. 1997 1998 1997 1998 1997
- ---------------- ----- ----- -------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
United States................... $ 6.2 $21.2 -70.8% 10.5% 25.9% 3.3% 10.8%
France.......................... 60.3 66.4 -9.2 102.0 81.1 19.3 24.7
Brazil.......................... (2.3) N.A. (3.9) (4.0)
Unallocated/Eliminations........ (5.1) (5.7) (8.6) (7.0)
----- ----- ----- -----
Consolidated.......... $59.1 $81.9 -27.8% 100.0% 100.0% 10.8% 17.8%
===== ===== ===== =====
</TABLE>
- ---------------
N.A. -- Not applicable
Net Sales
Net sales increased by $86.1 million due primarily to sales at the two
newly-acquired companies, whose results are included in the Company's
consolidated results beginning in February 1998, and stronger sales volumes in
France. Net sales of the newly-acquired companies contributed $90.9 million in
the period. Excluding the acquisitions, worldwide sales volumes increased by
three percent, favorably affecting net sales by $11.7 million. Sales volumes
from the French businesses grew by nine percent, excluding the French
acquisition. Although unit sales volumes at the French paper operations
increased during the year, excluding the French acquisition, sales volumes over
the second half of the year for those operations were lower compared with the
prior year period. This second semester decline in French paper unit sales was
primarily due to reduced shipments to China, Russia and southeast Asia because
of import controls, currency convertibility and decreased demand as a result of
economic conditions in those countries. RTL volumes in France improved versus
the prior year, supported in part by production from the U.S. business unit's
RTL operation at its Spotswood mill, which ceased operation in the fourth
quarter of 1998. Sales volumes at the U.S. business unit, excluding its RTL
production for the French business, declined by a total of six percent due to
reduced domestic cigarette production by the Company's customers. Changes in
average world-wide selling prices and sales mix had an unfavorable effect of
$10.2 million. The net sales comparison was
17
<PAGE> 18
unfavorably affected by $6.3 million from changes in currency exchange rates,
primarily related to a strengthened U.S. dollar versus the French franc.
Operating Profit
Operating profit decreased by $22.8 million, with lower operating profit in
the United States and France and an operating loss in Brazil. Operating profit
in 1998 included pre-tax charges of $1.7 million and $4.2 million in the second
and fourth quarters, respectively. The second quarter 1998 charge was for a
voluntary retirement program in connection with an agreement with the labor
union at the Company's Spotswood mill to modify work rules and eliminate 67
hourly positions. The fourth quarter 1998 pre-tax charge consisted of non-cash
write-downs of assets related primarily to idled equipment that was no longer
expected to be used due to changed market conditions and one-time labor
payments, the majority of which related to operational changes. Additionally,
production downtime was taken in the United States, France and Brazil to control
inventory levels.
The U.S. business unit's operating profit declined by $15.0 million
primarily as a result of the one-time charges, lower sales and production
volumes, increased computer systems expenses, unfavorable sales mix and lower
selling prices. Amortization of capitalized software costs related to the new
integrated computer systems in the United States and associated incremental
operating expenses began in January 1998 and totaled $3.6 million for the year.
Additionally, start-up costs of $1.2 million were incurred in the first quarter
related to the new U.S. computer systems.
In France, operating profit declined by $6.1 million as a result of its
portion of the fourth quarter one-time charge, machine downtime at its paper
operations to control inventory levels, unfavorable changes in average selling
prices and sales mix, higher cost of RTL manufactured at and shipped from the
Spotswood mill and changes in currency exchange rates, partially offset by
higher sales volumes. Changes in currency exchange rates had an unfavorable
impact of approximately $1.1 million.
The Brazilian operations had an operating loss of $2.3 million for the year
primarily because of unfavorable second quarter results and one-time labor
payments.
Non-manufacturing expenses increased by $7.0 million solely caused by
expenses at the two acquired companies. Excluding expenses of the acquired
companies, non-manufacturing expenses were the same as the prior year. Per ton
wood pulp cost decreases compared with the prior year favorably impacted
operating expenses by $2.8 million, although this benefit was offset by changes
in selling prices.
NON-OPERATING EXPENSES
The decline in interest expense in 1999 compared to 1998 was primarily due
to lower average interest rates, changes in currency exchange rates and a lower
average amount of debt outstanding. The increase in interest expense in 1998
compared to 1997 was primarily a result of increased debt related to
acquisitions in Brazil and France in February 1998 and higher interest rates.
Interest expense in 1997 was primarily associated with debt incurred in
connection with the Distribution (see "Liquidity and Capital Resources"). The
weighted average effective interest rate on the Company's term loans was
approximately 4.5 percent in 1999, 5.1 percent in 1998 and 4.7 percent in 1997.
Other income, net consisted primarily of interest income, royalty income and
foreign currency transaction gains and losses in each of the years presented and
recovery of prior period business taxes in 1999.
INCOME TAXES
The noncurrent deferred income tax asset is primarily due to net operating
loss carryforwards ("NOLs") incurred through December 31, 1994 by other
businesses of Kimberly-Clark in France previously owned by SMF. Prior to the
spin-off, those other Kimberly-Clark businesses were merged and dividended to
Kimberly-Clark. Under French tax law, the NOLs of those other businesses were
retained by SMF. The SMF consolidated tax group in France has not paid income
taxes, except nominal amounts of minimum required income taxes, in the periods
presented in the financial statements and is not expected to pay normal income
18
<PAGE> 19
taxes until the NOLs have been fully utilized. Additionally, the noncurrent
deferred income tax asset beginning in 1998 includes amounts related to NOLs of
SWM-B, some of which were obtained in the 1998 acquisition of this Brazilian
business. Additional information concerning these NOLs is disclosed in Note 6 to
the Consolidated Financial Statements.
The effective tax rates for the years ended December 31, 1999, 1998 and
1997 were 39.0 percent, 32.1 percent and 36.0 percent, respectively.
The provision for income taxes in 1998 included the benefit of a reduction
in the valuation allowance recorded against certain French deferred income tax
assets arising from NOLs. This adjustment reduced the deferred provision for
income taxes by $5.2 million. The reduction in the valuation allowance was
recorded because of continued earnings and projected future earnings at the
French businesses that utilize the NOLs, reducing the uncertainty that these
NOLs will be fully utilized in the future. Excluding the impact of this
adjustment, the effective income tax rate for the year ended December 31, 1998
would have been 41.7 percent. The decrease from this adjusted 1998 effective
income tax rate of 41.7 percent to 39.0 percent in 1999 was due to the reduction
in the French statutory income tax rate from 41.7 percent in 1998 to 40.0
percent in 1999 and due to a greater proportion of the Company's 1999 earnings
being in Brazil and the United States, which had lower income tax rates than
France.
The provision for income taxes in 1997 was impacted by an increase in the
effective statutory income tax rate enacted in France during November 1997 from
36.7 percent to 41.7 percent for 1997 and 1998, retroactive to January 1, 1997,
and to 40.0 percent for 1999. The unfavorable effect on current taxes of the tax
rate increase, including a retroactive adjustment for the eleven-month period
ended November 30, 1997, was offset by the favorable effect on the deferred
provision for income taxes due to the increased value of the tax benefits to be
recognized from the NOLs retained by SMF estimated to be realized during 1997,
1998 and 1999, the periods of the higher income tax rates. The impact in 1997
attributable to deferred tax assets, net of liabilities, was a favorable $2.0
million on the deferred provision for income taxes. Also impacting the 1997
provision for income taxes was the enactment in France during December 1997 of a
law that eliminated taxation of a "provision for the fluctuating value of raw
materials" that had been included in French deferred taxes. Cancellation of this
deferred tax liability reduced the provision for income taxes by $2.1 million,
which was partially offset by establishment of a $1.0 million reserve for a
previously reported tax claim in France. (See additional information concerning
this tax claim in Note 6 to the Consolidated Financial Statements.) Including
the effect of the change in French income tax rates on the 1997 current
provision for income taxes, but excluding the effect on the deferred provision
for income taxes, and excluding the effect of the elimination of taxation of a
"provision for fluctuating value of raw materials" and the reserve for the tax
claim, the effective 1997 income tax rate would have been 39.9 percent. The
increase from this adjusted 1997 rate of 39.9 percent to the above-adjusted 41.7
percent 1998 effective income tax rate was due to a greater proportion of the
Company's 1998 earnings being in France, which had higher income tax rates than
other countries in which the Company operates.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------ -------
(U.S. $ IN MILLIONS)
<S> <C> <C> <C>
Cash Provided by (Used for):
Changes in operating working capital...................... $(9.0) $(1.9) $(10.8)
Operations................................................ 60.7 67.1 67.3
Capital spending.......................................... (26.3) (36.7) (35.8)
Capitalized software costs................................ (3.1) (4.0) (7.6)
</TABLE>
The Company's primary source of liquidity is cash flow from operations,
which is principally obtained through operating earnings. Impacting the cash
flow from operations are changes in operating working capital. In 1999, changes
in operating working capital contributed unfavorably to cash flow by $9.0
million due primarily to lower accounts payable. Accounts payable were lower in
1999 compared to 1998 as a result of
19
<PAGE> 20
payments in early 1999 for several large capital costs included in accounts
payable at December 31, 1998. In 1998, changes in operating working capital
contributed unfavorably to cash flow by $1.9 million, excluding the acquired
working capital balances of the Brazilian and French businesses acquired in
1998. In 1997, changes in operating working capital contributed unfavorably to
cash flow by $10.8 million due principally to lower accounts payable. Accounts
payable were lower in 1997 compared to 1996 as a result of payments in early
1997 for several large capital and purchased software costs included in accounts
payable at December 31, 1996. During 1997, the cash flow impact of lower
accounts receivable, due to the timing of collections, offset the impact of
higher inventory levels.
Cash flow from operations during these periods exceeded the level of
capital spending. Capital spending in 1999 included (i) $8.1 million toward the
speed-up of two machines in the French mills, (ii) $3.2 million toward the
expansion of converted tipping paper capacity at the Malaucene, France mill, and
(iii) $1.1 million toward replacement of a yankee dryer in the Spay, France
mill. Capital spending in 1998 included (i) $3.9 million toward the expansion of
the Malaucene mill, (ii) $3.0 million toward speed-ups of both RTL machines and
replacement of a yankee dryer hood at the Spay mill, (iii) $2.3 million for
speed-up of a paper machine at the Quimperle, France mill, (iv) $1.4 million to
modify a paper machine at the newly-acquired Saint-Girons mill, (v) $1.2 million
toward upgrades to a paper machine at the Spotswood mill, (vi) $1.0 million to
upgrade a coating machine at the newly-acquired Pirahy mill, and (vii) $1.0
million toward improvements at the Quimperle pulping facility. Capital spending
in 1997 included (i) $3.6 million to complete the new long fiber paper machine
at the Quimperle mill, (ii) $2.9 million at the Ancram mill toward upgrading the
forming section of a long fiber paper machine, (iii) $2.3 million for equipment
necessary to temporarily restart operation of the RTL production line at the
Spotswood mill, (iv) $1.5 million toward an effluent biological treatment
station at the Quimperle mill, (v) $1.0 million to complete upgrading the flax
pulping operations at the Spotswood mill, and (vi) $1.0 million toward a paper
machine upgrade project at the Spotswood mill.
In addition to capital spending, the Company incurred, and deferred on the
balance sheet, additional software development costs of $3.1 million in 1999.
These costs were incurred primarily in France, related to new integrated
information systems, and in Brazil to replace certain modules of its integrated
computer systems used by its former Brazilian parent company.
In February 1998, two acquisitions of tobacco-related paper suppliers were
completed. On February 2, 1998, SM-Spain paid approximately $62.0 million in
cash for 99.97 percent ownership interest in Pirahy. In connection with the
acquisition of Pirahy, the Company modified its existing credit agreement to
provide a $20.0 million term loan to SM-Spain. SM-Spain borrowed the remaining
funds for the transaction from SMF, which in turn utilized its existing cash
balances and borrowings from its revolving credit facilities. Additionally, on
February 11, 1998, SM-Enterprises paid 37.2 million French francs (approximately
$6.1 million) in cash and assumed approximately $5.8 million in existing net
debt for all of the outstanding shares of Ingefico, S.A. and 97.1 percent of the
outstanding shares of its pulp and specialty paper manufacturing subsidiaries,
Groupe SAPAM and Papeteries de la Moulasse S.A. Subsequently, SM-Enterprises
acquired all the remaining shares of Groupe SAPAM for $0.2 million in cash.
In December 1998, the Company announced that the Board of Directors had
authorized the repurchase of shares of the Company's common stock during the
period January 1, 1999 through December 31, 2000 in an amount not to exceed $20
million. The Company repurchased a total of 294,350 shares of its common stock
during 1999 for $4.3 million. The Company repurchased 155,700 shares of its
common stock during 1998 for $3.8 million under a previous program which was
effective through December 31, 1998.
On January 27, 2000, the Company announced that the Board of Directors had
declared a quarterly cash dividend of fifteen cents per share of common stock.
The dividend will be payable on March 13, 2000 to stockholders of record on
February 14, 2000.
The Company's ongoing requirements for cash are expected to consist
principally of amounts required for capital expenditures, stockholder dividends
and working capital. The Company has declared and paid quarterly dividends of
fifteen cents per share since the second quarter of 1996. Management currently
expects to continue this level of quarterly dividend. Other than expenditures
associated with environmental matters
20
<PAGE> 21
(see Note 12 of the Notes to Consolidated Financial Statements), as of December
31, 1999 the Company had unrecorded outstanding commitments for capital
expenditures of approximately $0.6 million. In addition to capital spending, the
Company is incurring software development costs related to new integrated
computer systems. The portion of software development costs which were
capitalized beginning in 1996 totaled $17.4 million through 1999 and were
deferred on the balance sheet until such systems are placed in service (see Note
3 of the Notes to Consolidated Financial Statements). In the United States,
where the largest portion of the costs to-date have been incurred, most of the
deferred costs began amortizing at the beginning of 1998 over a period of seven
years using the straight-line method. In France, a large portion of the
installation of its new systems has been completed and successfully began
operation during 1999 without significant start-up expenses. The Company will
continue to incur costs in 2000, but to a lesser extent, primarily in France and
Brazil, as additional software modules are purchased, designed and installed.
As of December 31, 1999, the Company had approximately $27 million still
available under its revolving credit facilities in the United States and France,
and on January 7, 2000, the Company renewed these facilities to January 26,
2001. The Company also has other bank credit facilities available in the United
States, France and Brazil.
The Company believes its cash flow from operations, together with
borrowings still available under its revolving and other credit facilities, will
be sufficient to fund its ongoing cash requirements.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which will require that all
derivative financial instruments be recognized as either assets or liabilities
on the balance sheet. In July 1999, the FASB issued SFAS No. 137, which delays
the effective date for the new requirements of SFAS No. 133 by one year. As a
result, SFAS No. 133 will be effective no later than for the Company's first
quarter of 2001. The Company is evaluating the effects of this new statement and
when to implement the new requirements.
OUTLOOK
Cigarette consumption and production in both the United States and Brazil
were lower in 1999 than in the prior year. U.S. cigarette consumption was
impacted by adverse publicity and by increases in the retail selling price of
cigarettes. The export of cigarettes manufactured in the United States also
declined in 1999 from prior year levels. These trends are expected to continue
in 2000. There appear to be signs of recovery in the Russian, Eastern European
and Asian cigarette markets as these economies are improving. The Company's
Brazilian business also expects to continue to increase its sales to Latin
American countries outside of Brazil. Worldwide cigarette production is expected
to increase approximately one percent in 2000, driven by growth in emerging
markets as well as growth in the ventilated and blended cigarette segments.
There continues to be excess worldwide manufacturing capacity for
tobacco-related papers, however, the amount of excess capacity is decreasing as
paper manufacturers, including the Company, are shutting down unneeded and less
efficient capacity. Pricing appears to be stabilizing in most key markets and
there may be opportunities for price increases as pulp prices rise.
Some production downtime was experienced on certain machines during 1999 in
the Company's U.S., French and Brazilian paper operations because of reduced
demand. Additional paper production downtime is likely to be taken in 2000 in
each of the Company's three operations but to a lesser extent than in 1999.
Fourth quarter 1999 sales benefited in each of the Company's three business
units from sales to certain customers that increased their year-end inventories
related to concerns of possible Year 2000 issues. This may have improved the
Company's consolidated fourth quarter operating profit by as much as $1.3 to
$1.8 million. Sales and operating results in the first quarter of 2000 are
expected to be negatively impacted by the positive timing impact experienced in
the fourth quarter of 1999.
21
<PAGE> 22
Cost savings are expected to continue from recently implemented capital
projects and from various cost savings programs, including the Company's
headcount reductions in the United States during 1999. With current market
conditions, cost reduction continues to be a priority in each of the Company's
business units.
The per ton costs of wood pulp have steadily increased during the latter
half of 1999 and a further increase was effective at the beginning of 2000. The
Company expects further increases in the per ton cost of wood pulp during 2000.
The French corporate income tax rate was scheduled to decline from 40.0
percent for 1999 to 36.7 percent for 2000. However, as a result of a tax law
enacted in December 1999, the rate applicable to the Company's French businesses
will be approximately 37.7 percent effective beginning January 1, 2000.
The company expects capital spending for 2000 to be approximately $20 to
$25 million, focused primarily on product quality improvements and cost
reduction opportunities. Capitalized software costs in 2000 are expected to
total approximately $2 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Many factors outside the control of the Company could impact the Company's
results. The following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual results for 2000 and beyond, to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company.
Year 2000 Compliance
Historically, many computer systems and other equipment with embedded chips
or processors utilized computer programs written using two digits to represent
the year rather than four digits. These programs may not properly recognize a
year "20XX". As a result, these programs may be unable to accurately process
certain data before, during or after the year 2000 and could result in
governmental and business systems failures or miscalculations causing
disruptions in operations. This problem has been commonly referred to as the
"Year 2000" issue.
Because of the numerous information systems, mill process controls and
operating systems, and vendors and service providers that the Company uses, as
well as the Company's many customers and customer locations around the world,
the Company could not exclude the possibility that some disruption in its
business due to the Year 2000 issue could occur. Therefore, the Company
developed and implemented plans to minimize the adverse effect of any such
potential business disruptions.
Prior to the end of 1999, each of the Company's business segments
inventoried its business operations, assessed its susceptibility to system
failures or processing errors as a result of Year 2000 issues and developed
plans to address those issues. The plans focused on three elements: information
systems software and hardware, mill process controls and operating systems, and
vendors and service providers. Each element was subdivided according to risk
potential. Those issues which were considered most critical to continuing
operations were given the highest priority. Plans were implemented and, where
necessary, modifications or corrective actions were completed in each of the
Company's businesses for all high risk issues identified, as well as most of the
medium risk issues identified.
In addition to the costs of new integrated computer systems which were
necessary irrespective of the approach to Year 2000, the Company's cost of
implementing its Year 2000 compliance plans totaled approximately $1.5 million.
Approximately two-thirds of the total cost was expensed and one-third included
in capital projects.
The Company has not experienced any business disruptions related to the
Year 2000 issue to-date. The Company is also not aware of any such issues with
respect to its information systems, mill process controls or operating systems.
Furthermore, the Company is not aware of any such issues at its many customers,
vendors and service providers. However, until the potential for such issues
arising has been eliminated by the passage
22
<PAGE> 23
of time, it is not possible to state with certainty that the Company's
operations will not be disrupted by Year 2000 issues.
Euro Currency Conversion
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing currencies
("legal currencies") and one common currency -- the euro. The euro now trades on
currency exchanges and may be used in business transactions. Beginning in
January 2002, new euro-denominated bills and coins will be issued, and legal
currencies will be withdrawn from circulation by no later than June 2002. The
Company established a committee to identify and implement changes necessary to
address the systems and business issues raised by the euro currency conversion.
These issues include, among others, the need to adapt computer and other
business systems and equipment to accommodate euro-denominated transactions,
competitive implications of increased price transparency within European Union
countries, changes in currency exchange costs and rate exposures, continuity of
contracts that require payment in a legal currency and tax implications of the
conversion.
The Company's French subsidiaries currently utilize multi-currency software
that was capable of euro-denominated sales and purchase transactions on January
1, 1999. Consideration has also been given to other potential issues in
connection with the conversion, including those mentioned above. The Company's
French subsidiaries are in the process of implementing already-purchased
software capable of translating current and historical data into euro currency
data, which implementation will be fully completed no later than January 1,
2002, at which time the euro will become the functional currency of the French
subsidiaries. The Company does not anticipate any significant negative
consequences of these issues and does not anticipate that the euro conversion
will have a material adverse impact on its financial condition or results of
operations.
International Business Risks
The Company and its subsidiaries are subject to international business
risks, including unsettled political and economic conditions, expropriation,
import and export controls and restrictions, exchange controls, inflationary
economies, currency risks and risks related to the restrictions of repatriation
of earnings or proceeds from liquidated assets of foreign subsidiaries.
Tax and Repatriation Matters
The Company and its subsidiaries are subject to income tax laws in each of
the countries in which it does business through wholly-owned subsidiaries and
through affiliates. The Company makes a comprehensive review of the income tax
requirements of each of its operations, files appropriate returns and makes
appropriate income tax planning analyses directed toward the minimization of its
income tax obligations in these countries. Appropriate income tax provisions are
determined on an individual subsidiary level and at the corporate level on both
an interim and annual basis. These processes are followed using an appropriate
combination of internal staff at both the subsidiary and corporate levels as
well as independent outside advisors in review of the various tax laws and in
compliance reporting for the various operations.
Dividend distributions are regularly made to the United States from certain
foreign subsidiaries and are appropriately considered in the provision for U.S.
income taxes. The Company intends for the undistributed earnings of certain
other foreign subsidiaries to be reinvested indefinitely. These undistributed
earnings are not subject to either additional foreign income taxes or U.S.
income taxes unless remitted as dividends. Accordingly, no provision has been
made for U.S. taxes on those earnings. The Company regularly reviews the status
of the accumulated earnings of each of its foreign subsidiaries and reevaluates
the aforementioned dividend policy as part of its overall financing plans.
Hedging Activities and Foreign Currency Exchange Risks
Management selectively hedges the Company's foreign currency risks, as well
as its exposure to interest rate increases on its variable rate long-term debt,
when it is practical and economical to do so. The instruments used to hedge
foreign currency risks are forward contracts and, to a lesser extent, option
contracts. The
23
<PAGE> 24
Company utilizes various forms of interest rate hedge agreements, including
interest rate swap agreements and forward rate agreements. These instruments are
purchased from well-known money center banks, insurance companies or government
agencies (counterparties). Usually, the contracts extend for no more than 12
months, although their contractual term has been as long as 18 months.
Management believes that credit risks with respect to the counterparties and the
foreign currency risks that would not be hedged, were the counterparties to fail
to fulfill their obligations under the contracts, are minimal in view of the
financial strength of the counterparties.
In addition to the effect of changes in currency exchange rates on
operating profit, foreign currency gains and losses have arisen from the
remeasurement of non-local currency denominated monetary assets and liabilities
into the currency of the country in which the operation is domiciled. These
gains and losses, related primarily to trade receivable and payable balances,
are included in other income, net.
Additional information concerning foreign currency related matters is
disclosed in Note 9 of the Notes to Consolidated Financial Statements.
Inflation
In recent years, inflation has not had a significant impact on the
Company's cost structure.
Effect of Changing Pulp Costs
Per ton pulp costs tend to be cyclical in nature and are a large component
of product costs. The Company consumed approximately 107,000 and 112,000 metric
tons of wood pulp in 1999 and 1998, respectively, including requirements of the
two companies acquired in 1998, and 71,000 metric tons of wood pulp in 1997.
During the period from January 1997 through December 1999, the U.S. list price
of the primary pulp grade used by the Company, northern bleached softwood kraft
pulp, ranged from a low of $500 per metric ton to a high of $610 per metric ton,
and increased to $640 per metric ton in January 2000. Generally, over time, the
Company has been able to increase its selling prices in response to increased
per ton pulp costs and has generally reduced them when pulp costs have
significantly declined. The Company may or may not be able to fully recover
future pulp cost increases, or fully retain future pulp cost decreases, in its
sales pricing structure.
Seasonality
Sales of the Company's products are not subject to seasonal fluctuations,
except in the United States and Brazil. In the United States, customer shutdowns
typically occur in July and December and typically have resulted in reduced net
sales and operating profit during those two months. Additionally, the U.S. mills
shut down equipment to perform additional maintenance during these months,
resulting in higher product costs and reduced operating profit. In Brazil,
customer orders are typically lower in December due to a holiday season through
much of January and February.
Environmental Matters
The Company is subject to federal, state, local and foreign environmental
protection laws and regulations with respect to the environmental impact of air,
water and other emissions from its mills as well as its disposal of solid waste
generated by its operations. The Company believes it is operating in compliance
with, or is taking action aimed at ensuring compliance with, such laws and
regulations. While the Company has incurred in the past several years, and will
continue to incur, capital and operating expenditures in order to comply with
these laws and regulations, these costs are not expected to materially affect
the Company's business or results of operations. The Company, or its
predecessor, has been named as a potentially responsible party at several waste
disposal sites, none of which, individually, or in the aggregate, in
management's opinion, is likely to have a material adverse effect on the
Company's financial condition, results of operations or liquidity. However,
there can be no assurance that such an effect will not occur at some future
time. Additional information concerning environmental matters is disclosed in
Note 12 of the Notes to Consolidated Financial Statements and in Part I, Item 3
"LEGAL PROCEEDINGS" herein.
24
<PAGE> 25
Legal Proceedings
Information concerning legal proceedings is disclosed in Note 11 of the
Notes to Consolidated Financial Statements and in Part I, Item 3 "LEGAL
PROCEEDINGS" herein. In addition, the Company and its subsidiaries are involved
in legal actions and claims arising in the ordinary course of business.
Litigation is subject to many uncertainties and, while it is not possible to
predict the outcome of the litigation pending against the Company and its
subsidiaries, management believes that such actions and claims will be resolved
without a material adverse effect on the Company's financial statements.
Reliance on Significant Customers
Most of the Company's customers are manufacturers of tobacco products
located in more than 90 countries around the world. Two such customers have
accounted for a significant portion of the Company's net sales in each of the
last several years, and the loss of one or both such customers, or a significant
reduction in one or both of these customers' purchases, could have a material
adverse effect on the Company's results of operations. See Note 14 of the Notes
to Consolidated Financial Statements.
Tobacco Products and Governmental Actions
In recent years, governmental entities, particularly in the United States,
have taken or have proposed actions that may have the effect of reducing
consumption of tobacco products. Reports and speculation with respect to the
alleged 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 and to increase taxes on such products, are intended to discourage the
consumption of cigarettes and other such products. In the fourth quarter of
1998, the major U.S. cigarette manufacturers reached agreement with all 50 U.S.
states and several commonwealths and territories to settle health care cost
recovery and other claims. In anticipation of these settlements and as a direct
result of these settlements, most of the U.S. cigarette manufacturers have
increased prices of cigarettes significantly. Domestic cigarette consumption has
declined, in part due to these price increases which, in turn, decreases demand
for the Company's products. During 1999, the U.S. Department of Justice filed a
multi-billion dollar civil suit against the tobacco industry. In addition,
litigation is pending against the major manufacturers of consumer tobacco
products seeking damages for health problems allegedly resulting from the use of
tobacco in various forms and for alleged violations of antitrust laws. It is not
possible to predict the outcome of such litigation or what effect adverse
developments in pending or future litigation may have on the tobacco industry,
its financial liquidity or relationships with its suppliers. Nor is it 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 the consumer tobacco products industry in general.
Approximately 89 to 90 percent of the Company's net sales are from products
used by the tobacco industry in the making and packaging of cigarettes or other
tobacco products. Management is unable to predict the effects that the
above-described legal and governmental actions might have on the Company's
results of operations and financial condition.
FORWARD-LOOKING STATEMENTS
Certain sections of this report, particularly the foregoing discussion
regarding the "Outlook" of the Company and "Factors That May Affect Future
Results", contain certain forward-looking statements, generally identified by
phrases such as "the Company expects" or words of similar effect.
Forward-looking statements are made 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 results of the Company will
be as estimated. Many factors outside the control of the Company also could
impact the realization of such estimates. The above-mentioned important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results for 2000
and beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Financial Statements:
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997...................... 27
Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................. 28
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1999, 1998
and 1997.............................................. 29
Consolidated Statements of Cash Flow for the years
ended December 31, 1999, 1998 and 1997................ 30
Notes to Consolidated Financial Statements............. 31
Report of Independent Auditors.............................. 54
Management's Responsibility for Financial Reporting......... 55
</TABLE>
Schedules have been omitted because they are either not required, not
applicable or the required information is included in the financial statements
or notes thereto.
26
<PAGE> 27
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
--------- --------- ---------
(U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Sales.................................... $504.4 $546.7 $460.6
Cost of products sold...................... 394.0 440.6 338.7
------ ------ ------
Gross Profit................................. 110.4 106.1 121.9
Selling expense............................ 19.5 21.0 17.4
Research expense........................... 6.7 6.5 6.4
General expense............................ 19.6 19.5 16.2
------ ------ ------
Operating Profit............................. 64.6 59.1 81.9
Interest expense........................... (5.8) (6.4) (4.1)
Other income, net.......................... 1.9 1.2 1.6
------ ------ ------
Income Before Income Taxes and Minority
Interest................................... 60.7 53.9 79.4
Provision for income taxes................. 23.7 17.3 28.6
------ ------ ------
Income Before Minority Interest.............. 37.0 36.6 50.8
Minority interest in earnings of
subsidiaries............................ 5.6 5.6 5.5
------ ------ ------
Net Income................................... $ 31.4 $ 31.0 $ 45.3
====== ====== ======
Net Income Per Common Share:
Basic...................................... $ 1.99 $ 1.94 $ 2.82
====== ====== ======
Diluted.................................... $ 1.99 $ 1.92 $ 2.77
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
27
<PAGE> 28
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1999 1998
------- -------
(U.S. $ IN MILLIONS)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 15.1 $ 6.7
Accounts receivable....................................... 72.1 69.5
Inventories............................................... 62.9 69.4
Current income tax refunds receivable..................... 2.2 2.8
Deferred income tax benefits.............................. 4.1 5.2
Prepaid expenses.......................................... 2.8 2.7
------ ------
Total Current Assets............................... 159.2 156.3
------ ------
Property
Land and improvements..................................... 7.0 7.2
Buildings and improvements................................ 63.4 69.0
Machinery and equipment................................... 370.9 379.6
Construction in progress.................................. 10.6 23.5
------ ------
Gross Property.......................................... 451.9 479.3
Less accumulated depreciation............................. 199.8 196.1
------ ------
Net Property....................................... 252.1 283.2
------ ------
Noncurrent Deferred Income Tax Benefits..................... 6.9 19.7
------ ------
Deferred Charges and Other Assets........................... 18.4 15.5
------ ------
Total Assets....................................... $436.6 $474.7
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt......................... $ 3.2 $ 4.4
Other short-term debt..................................... 8.8 11.3
Accounts payable.......................................... 46.3 58.1
Accrued expenses.......................................... 49.1 50.7
------ ------
Total Current Liabilities.......................... 107.4 124.5
------ ------
Long-Term Debt.............................................. 100.9 108.4
------ ------
Deferred Income Taxes....................................... 13.1 12.7
------ ------
Other Noncurrent Liabilities................................ 23.9 24.1
------ ------
Minority Interest........................................... 7.1 8.0
------ ------
Contingencies (See Notes 6, 10, 11 and 12)
Stockholders' Equity
Preferred Stock -- $.10 par value -- 10,000,000 shares
authorized, none issued................................. -- --
Common Stock -- $.10 par value -- 100,000,000 shares
authorized, 16,078,733 shares issued at both December
31, 1999 and 1998, respectively......................... 1.6 1.6
Additional paid-in capital................................ 60.7 60.7
Common stock in treasury, at cost -- 441,845 and 154,668
shares at December 31, 1999 and 1998, respectively...... (8.0) (3.8)
Retained earnings......................................... 156.7 134.8
Accumulated other comprehensive income (loss) --
Unrealized foreign currency translation adjustments..... (26.8) 3.7
------ ------
Total Stockholders' Equity......................... 184.2 197.0
------ ------
Total Liabilities and Stockholders' Equity................ $436.6 $474.7
====== ======
</TABLE>
See Notes to Consolidated Financial Statements
28
<PAGE> 29
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
---------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ISSUED TREASURY STOCK ADDITIONAL OTHER
------------------- ---------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) TOTAL
---------- ------ ------- ------ ---------- -------- ------------- ------
(U.S. $ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996.............. 16,052,621 $1.6 $60.0 $ 77.8 $ 16.6 $156.0
Net income............................ 45.3 45.3
Adjustments to unrealized foreign
currency translation................ (12.5) (12.5)
------
Comprehensive income.................. 32.8
------
Dividends declared ($0.60 per
share).............................. (9.6) (9.6)
Stock issued to directors as
compensation........................ 1,182 --
Stock issued for options exercised.... 11,640 0.3 0.3
---------- ---- ----- ------ ------ ------
BALANCE, DECEMBER 31, 1997.............. 16,065,443 1.6 60.3 113.5 4.1 179.5
Net income............................ 31.0 31.0
Adjustments to unrealized foreign
currency translation................ (0.4) (0.4)
------
Comprehensive income.................. 30.6
------
Dividends declared ($0.60 per
share).............................. (9.6) (9.6)
Purchases of treasury stock........... 155,700 $(3.8) (3.8)
Stock issued to directors as
compensation........................ 1,350 (1,032) --
Stock issued for options exercised.... 11,940 0.3 0.3
Adjustments due to rounding........... 0.1 (0.1) --
---------- ---- ------- ----- ----- ------ ------ ------
BALANCE, DECEMBER 31, 1998.............. 16,078,733 1.6 154,668 (3.8) 60.7 134.8 3.7 197.0
Net income............................ 31.4 31.4
Adjustments to unrealized foreign
currency translation................ (30.5) (30.5)
------
Comprehensive income.................. 0.9
------
Dividends declared ($0.60 per
share).............................. (9.5) (9.5)
Purchases of treasury stock........... 294,350 (4.3) (4.3)
Stock issued to directors as
compensation........................ (7,173) 0.1 0.1
---------- ---- ------- ----- ----- ------ ------ ------
BALANCE, DECEMBER 31, 1999.............. 16,078,733 $1.6 441,845 $(8.0) $60.7 $156.7 $(26.8) $184.2
========== ==== ======= ===== ===== ====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
29
<PAGE> 30
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1999 1998 1997
------ ------- ------
(U.S. $ IN MILLIONS)
<S> <C> <C> <C>
Operations
Net income................................................ $ 31.4 $ 31.0 $ 45.3
Depreciation and amortization............................. 22.2 24.8 14.4
Deferred income tax provision............................. 10.4 5.0 9.9
Minority interest in earnings of subsidiaries............. 5.6 5.6 5.5
Other..................................................... 0.1 2.6 3.0
Changes in operating working capital, excluding effects of
acquisitions:
Accounts receivable.................................... (2.6) (1.2) 8.1
Inventories............................................ 6.5 (1.4) (7.1)
Accounts payable....................................... (11.8) 2.4 (11.1)
Accrued expenses....................................... (1.6) 0.3 0.5
Prepaid expenses....................................... (0.1) 1.2 (1.7)
Accrued income taxes................................... 0.6 (3.2) 0.5
------ ------- ------
Net changes in operating working capital............. (9.0) (1.9) (10.8)
------ ------- ------
Cash Provided by Operations....................... 60.7 67.1 67.3
------ ------- ------
Investing
Capital spending.......................................... (26.3) (36.7) (35.8)
Capitalized software costs................................ (3.1) (4.0) (7.6)
Acquisitions, net of cash acquired........................ -- (65.4) --
Other..................................................... (2.5) (1.3) (4.7)
------ ------- ------
Cash Used for Investing........................... (31.9) (107.4) (48.1)
------ ------- ------
Financing
Cash dividends paid to SWM stockholders................... (9.5) (9.6) (9.6)
Cash dividends paid to minority owner..................... (5.2) (5.3) (4.5)
Changes in short-term debt................................ (2.5) 8.4 (0.8)
Proceeds from issuances of long-term debt................. 6.5 24.8 5.6
Payments on long-term debt................................ (5.4) (5.0) (3.9)
Purchases of treasury stock............................... (4.3) (3.8) --
Issuances of capital stock................................ -- 0.3 0.3
------ ------- ------
Cash Provided by (Used for) Financing............. (20.4) 9.8 (12.9)
------ ------- ------
Increase (Decrease) in Cash and Cash Equivalents............ 8.4 (30.5) 6.3
Cash and Cash Equivalents at beginning of year.............. 6.7 37.2 30.9
------ ------- ------
Cash and Cash Equivalents at end of year.................... $ 15.1 $ 6.7 $ 37.2
====== ======= ======
</TABLE>
See Notes to Consolidated Financial Statements
30
<PAGE> 31
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 1. BACKGROUND
On November 30, 1995, Kimberly-Clark Corporation ("Kimberly-Clark")
distributed all of the outstanding common stock of Schweitzer-Mauduit
International, Inc. (the "Distribution") to its stockholders, through a tax-free
spin-off of its U.S., French and Canadian business operations that manufactured
and sold tobacco-related papers and other specialty paper products (the
"Businesses"). Effective at the close of business on November 30, 1995, the
Company became an independent, publicly owned company as a result of the
Distribution.
In order to effectuate the spin-off of the Businesses, on August 21, 1995
and July 31, 1995, respectively, Schweitzer-Mauduit International, Inc. ("SWM")
and Schweitzer-Mauduit Canada, Inc. ("SM-Canada") were incorporated and
nominally capitalized. Prior to the Distribution, Kimberly-Clark transferred to
SWM (the "Transfer") (i) the assets and liabilities of its U.S.-based specialty
products business; (ii) all of the issued and outstanding shares of SM-Canada
and of Schweitzer-Mauduit France, S.A.R.L., a French corporation ("SMF"); and
(iii) 72 percent of the issued and outstanding shares of LTR Industries, S.A., a
French corporation ("LTRI"). After the Transfer, the Company consisted of the
operating assets and liabilities of Kimberly-Clark's U.S. specialty products
business and investments in SM-Canada (100 percent owned), SMF (100 percent
owned) and LTRI (72 percent owned). SMF, directly or indirectly, then owned 100
percent of two principal French operating subsidiaries, Papeteries de Mauduit
S.A. ("PdM") and Papeteries de Malaucene S.A. ("PdMal"), and a French holding
company, Schweitzer-Mauduit Enterprises S.A. ("SM-Enterprises"). The Transfer
was accounted for at historical cost in a manner similar to that in pooling of
interests accounting as the entities were all under common control. (As used
herein, the Company means SWM, SWM and its several subsidiaries or, as
determined by the context, one or more or its several subsidiaries.)
During 1997, the Company established and nominally capitalized
Schweitzer-Mauduit Spain, S.L. ("SM-Spain"), a 100 percent owned holding company
organized under the Spanish holding company regime.
NOTE 2. ACQUISITIONS
On February 2, 1998, SM-Spain paid approximately $62.0 in cash for 99.97
percent ownership interest in Companhia Industrial de Papel Pirahy ("Pirahy"), a
specialty paper manufacturer located near Rio de Janeiro, Brazil. In connection
with the acquisition of Pirahy, the Company modified its existing credit
agreement to provide a $20.0 term loan to SM-Spain. SM-Spain borrowed the
remaining funds for the transaction from SMF, which in turn utilized its
existing cash balances and borrowings from its revolving credit facilities.
Subsequently, Pirahy was renamed Schweitzer-Mauduit do Brasil, S.A. ("SWM-B").
On February 11, 1998, SM-Enterprises paid 37.2 million French francs
(approximately $6.1) in cash and assumed approximately $5.8 in existing net debt
for all of the outstanding shares of Ingefico, S.A. and 97.1 percent of the
outstanding shares of its pulp and specialty paper manufacturing subsidiaries,
Groupe SAPAM S.A. ("Groupe SAPAM") and Papeteries de la Moulasse S.A., located
in Saint-Girons, France. Subsequently, SM-Enterprises acquired all the remaining
shares of Groupe SAPAM for $0.2 in cash. SM-Enterprises and Ingefico, S.A. were
then merged into Groupe SAPAM. Papeteries de la Moulasse S.A. was renamed
Papeteries de Saint-Girons S.A. ("PdStG").
31
<PAGE> 32
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
The above acquisitions were accounted for under the purchase method of
accounting and, accordingly, the acquired assets and liabilities have been
recorded at their estimated fair values as of the respective dates of the
acquisitions. In conjunction with the acquisitions, liabilities were assumed as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired............................... $95.7
Less: Cash paid for the stock............................... (68.3)
Direct costs incurred................................. (2.0)
-----
Liabilities assumed....................................... $25.4
=====
</TABLE>
The operating results of the newly-acquired companies are included in the
Consolidated Statements of Income beginning February 1, 1998. Unaudited
consolidated pro forma net sales, net income, basic earnings per share and
diluted earnings per share, assuming the acquisitions had occurred at the
beginning of 1997, would have been $570.4, $44.2, $2.76 and $2.71, respectively.
Unaudited consolidated pro forma net sales and net income for 1998 would have
been $555.9 and $31.1, respectively. Unaudited consolidated pro forma basic and
diluted earnings per share for 1998 would have been $1.94 and $1.92, the same as
the Company's audited consolidated basic and diluted earnings per share.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements have been prepared in conformity with generally
accepted accounting principles, which require management to make estimates and
assumptions that affect amounts of assets and liabilities reported, disclosure
of contingent assets and liabilities at the date of the financial statements and
amounts of revenues and expenses reported for the periods. Actual results could
differ from these estimates. These financial statements are presented on a
consolidated basis and include the accounts of SWM and all its majority-owned
subsidiaries. All material intercompany and interdivisional transactions are
eliminated.
Revenue Recognition
Sales are generally recognized upon shipment of the product to the
customer.
Foreign Currency Translation
The income statements of foreign entities are translated into U.S. dollars
at average exchange rates prevailing during the periods. The balance sheets of
these entities are translated at period-end exchange rates, and the differences
from historical exchange rates are reflected in a separate component of
accumulated other comprehensive income (loss) as unrealized foreign currency
translation adjustments. Foreign currency gains and losses arising from
settlement of transactions in non-local currencies and remeasurement of
non-local currency denominated monetary assets and liabilities are included in
other income, net.
Earnings Per Share
Basic net income per common share is computed based on net income divided
by the weighted average number of common shares outstanding. The average number
of common shares used in the calculation of basic net income per common share
for 1999, 1998 and 1997 were 15,805,700, 16,018,700 and 16,059,900,
respectively. Diluted net income per common share is computed based on net
income divided by the weighted average number of common and potential common
shares outstanding. The average number of common and potential common shares
used in the calculation of diluted net income per common share for 1999, 1998
and 1997 were 15,807,200, 16,161,300 and 16,338,600, respectively. The only
potential common shares are those related to stock options outstanding during
the respective years.
32
<PAGE> 33
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Cash and Cash Equivalents
Cash and cash equivalents include cash, time deposits and readily
marketable securities with original maturities of three months or less. The
recorded amount reported in the balance sheet approximates fair value.
Inventories
Most U.S. inventories are valued at cost on the Last-In, First-Out ("LIFO")
method. The balance of the U.S. inventories and inventories of entities outside
the United States are valued at the lower of cost, using the First-In, First-Out
("FIFO") and weighted average methods, or market.
Property and Depreciation
Property, plant and equipment are stated at cost. Depreciable property is
depreciated on the straight-line method for accounting purposes. When property
is sold or retired, the cost of the property and the related accumulated
depreciation are removed from the balance sheet, and any gain or loss on the
transaction is included in income. The depreciable lives for the principal asset
categories are as follows:
<TABLE>
<CAPTION>
ASSET CATEGORY DEPRECIABLE LIFE
-------------- ----------------
<S> <C>
Machinery and Equipment.................. 5 to 20 years
Buildings................................ 20 to 40 years
Building Improvements.................... Lesser of 20 years or remaining life of
the relevant building or lease
</TABLE>
Capitalized Software Costs
The Company accounts for costs incurred in connection with software
developed for internal use in accordance with Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" issued in March 1998 by the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants. The Company
capitalizes certain purchases of software and software design and installation
costs in connection with major projects for software development for internal
use. These costs are included in Deferred Charges and Other Assets on the
consolidated balance sheet and are amortized on the straight line method for
accounting purposes over the estimated useful life not to exceed seven years.
Costs associated with business process redesign, end-user training, system
start-up and ongoing software maintenance are expensed as incurred.
Environmental Spending
Environmental spending is capitalized if such spending qualifies as
property, plant and equipment, substantially increases the economic value or
extends the useful life of an asset. All other such spending is expensed as
incurred. Environmental spending relating to an existing condition caused by
past operations is expensed. Liabilities are accrued when environmental
assessments or remedial efforts are probable, and the costs can be reasonably
estimated. Generally, timing of these accruals coincides with completion of a
feasibility study or commitment to a formal plan of action.
Impairment of Assets
The Company periodically assesses the likelihood of recovering the cost of
long-lived assets based on its expectation of future profitability and
undiscounted cash flow of the related operations. These factors, along with
management's plans with respect to the operations, are considered in assessing
the recoverability of property and purchased intangibles.
33
<PAGE> 34
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Income Taxes
Income tax expense and deferred income tax assets and liabilities are
determined under the asset and liability method. Deferred income taxes have been
provided on the differences between the financial reporting and tax basis of
assets and liabilities by applying enacted tax rates in effect for the years in
which the differences are expected to reverse.
In France, prior to the Distribution, SMF, PdM, PdMal and SMF's other
French subsidiaries unrelated to the tobacco-related and specialty papers
businesses were included in the consolidated income tax group of SMF, while LTRI
separately filed its own income tax returns. Those other SMF subsidiaries were
merged together, and the shares of the merged entity were distributed to
Kimberly-Clark prior to the Distribution. SMF remained part of SWM to permit PdM
and PdMal to utilize income tax loss carryforwards previously generated by those
other French operations. Subsequent to the Distribution, those other French
subsidiaries were no longer included in the consolidated income tax group of
SMF, and LTRI continues to separately file its own income tax returns.
Stock Compensation
Compensation cost for stock options is measured based on the intrinsic
value method under APB No. 25, "Accounting for Stock Issued to Employees" (See
Note 8). Payments in the form of shares of the Company made to third parties,
including the Company's outside Directors, are recorded at fair value based on
the market value of the Company's common stock at the time of payment.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which will require that all
derivative financial instruments be recognized as either assets or liabilities
on the balance sheet. In July 1999, the FASB issued SFAS No. 137, which delays
the effective date for the new requirements of SFAS No. 133 by one year. As a
result, SFAS No. 133 will be effective no later than for the Company's first
quarter of 2001. The Company is evaluating the effects of this new statement and
when to implement the new requirements.
34
<PAGE> 35
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 4. SUPPLEMENTAL DISCLOSURES
Supplemental Balance Sheet Data
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1999 1998
------- -------
<S> <C> <C>
Summary of Accounts Receivable:
Trade..................................................... $56.8 $57.4
Other..................................................... 17.2 14.0
Less allowances for doubtful accounts and sales
discounts.............................................. (1.9) (1.9)
----- -----
Total............................................. $72.1 $69.5
===== =====
Summary of Inventories by Major Class:
At the lower of cost on the FIFO and weighted average
methods or market:
Raw materials.......................................... $29.0 $28.1
Work in process........................................ 5.6 7.1
Finished goods......................................... 21.1 26.6
Supplies and other..................................... 12.0 13.2
----- -----
67.7 75.0
Excess of FIFO cost over LIFO cost..................... (4.8) (5.6)
----- -----
Total............................................. $62.9 $69.4
===== =====
</TABLE>
Total inventories included $25.5 and $30.8 of inventories subject to the
LIFO method of valuation at December 31, 1999 and 1998, respectively. If LIFO
inventories had been valued at FIFO cost, net income would have been decreased
by $0.5, $0.4 and $0.6 in 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1999 1998
------- -------
<S> <C> <C>
Summary of Accrued Expenses:
Accrued salaries, wages and employee benefits............. $29.2 $26.8
Other accrued expenses.................................... 19.9 23.9
----- -----
Total............................................. $49.1 $50.7
===== =====
</TABLE>
35
<PAGE> 36
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Analysis of Allowances for Doubtful Accounts and Sales Discounts:
<TABLE>
<CAPTION>
BALANCE AT WRITE-OFFS BALANCE
BEGINNING BALANCES CHARGED TO AND CURRENCY AT END OF
OF PERIOD ACQUIRED EXPENSE DISCOUNTS TRANSLATION PERIOD
---------- -------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999
Allowance for doubtful accounts...... $1.9 $0.6 $(0.1) $(0.5) $1.9
Allowance for sales discounts........ -- 0.1 (0.1) -- --
---- ---- ----- ----- ----
Total...................... $1.9 $0.7 $(0.2) $(0.5) $1.9
==== ==== ===== ===== ====
AS OF DECEMBER 31, 1998
Allowance for doubtful accounts...... $0.4 $1.5 $0.3 $(0.1) $(0.2) $1.9
Allowance for sales discounts........ -- -- 0.2 (0.2) -- --
---- ---- ---- ----- ----- ----
Total...................... $0.4 $1.5 $0.5 $(0.3) $(0.2) $1.9
==== ==== ==== ===== ===== ====
AS OF DECEMBER 31, 1997
Allowance for doubtful accounts...... $0.5 $ -- $(0.1) $ -- $0.4
Allowance for sales discounts........ -- 0.2 (0.2) -- --
---- ---- ----- ----- ----
Total...................... $0.5 $0.2 $(0.3) $ -- $0.4
==== ==== ===== ===== ====
</TABLE>
Supplemental Cash Flow Information
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Interest paid............................................... $ 6.4 $ 6.2 $ 4.2
Interest capitalized........................................ 0.2 0.1 0.5
Income taxes paid (1)....................................... 12.3 15.6 17.7
Decrease in cash and cash equivalents due to exchange rate
changes................................................... $ 0.9 $ 1.0 $ 2.5
</TABLE>
- ---------------
(1) The SMF consolidated tax group paid only nominal amounts of minimum required
income taxes in all periods presented due to the net operating loss
carryforwards retained in the Distribution.
NOTE 5. DEBT
In 1995, the Company, SMF and PdM Industries S.N.C. ("PdM Industries"), a
subsidiary owned 99 percent by PdM and one percent by SMF, entered into an
unsecured credit agreement (the "Credit Agreement") with a group of banks to
provide term and revolving loans totaling 375 million French francs (or
approximately $57 at December 31, 1999 and $67 at December 31, 1998) to SMF and
PdM Industries (the "French Credit Facility") and term and revolving loans
totaling $40.0 to the Company (the "U.S. Credit Facility" and, together with the
French Credit Facility, the "Credit Facilities"). The French Credit Facility
consists of a term loan to SMF in the amount of 250 million French francs (or
approximately $38 at December 31, 1999 and $45 at December 31, 1998) (the
"French Term Loan Facility") and a renewable 364-day revolving credit facility
available to both SMF and PdM Industries in an amount of up to 125 million
French francs (or approximately $19 at December 31, 1999 and $22 at December 31,
1998) (the "French Revolving Credit Facility"). Borrowings under the French
Credit Facility are guaranteed by the Company. The U.S. Credit Facility consists
of a term loan to the Company in the amount of $25.0 (the "U.S. Term Loan
Facility", and, together with the French Term Loan Facility, the "Term Loan
Facilities") and a renewable 364-day revolving credit facility available to the
Company in an amount of up to $15.0 (the "U.S. Revolving Credit Facility" and,
together with the French Revolving Credit Facility, the "Revolving Credit
36
<PAGE> 37
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Facilities"). In connection with the Distribution, the Company made cash
distributions to Kimberly-Clark principally financed by borrowings of the full
amounts by SWM and SMF under the Term Loan Facilities.
In February 1998, the Company completed the Brazilian and French
acquisitions (see Note 2). In anticipation of these acquisitions, the Company
modified its then existing Credit Agreement. The terms of the "Amended and
Restated Credit Agreement" entered into on January 30, 1998 were substantially
the same as the prior Credit Agreement, except that it (i) provided an
additional $20.0 term loan to SM-Spain (adding it to the Term Loan Facilities),
(ii) extended the maturities of the Term Loan Facilities by approximately two
years, and (iii) renewed the Revolving Credit Facilities. During January 1999,
the Revolving Credit Facilities were renewed with an expiration date of January
28, 2000 and in January 2000, the Revolving Credit Facilities were renewed again
with an expiration date of January 26, 2001. Loans under each of the Term Loan
Facilities are payable in three equal semi-annual installments beginning in
January 2002.
The interest rates under the Term Loan Facilities are based, at the
election of the Company, on either (a) the sum of (i) either 0.375 percent per
annum or 0.300 percent per annum (the "Applicable Margin"), determined by
reference to the Company's Leverage Ratio (as defined in the Amended and
Restated Credit Agreement) plus (ii) the London interbank offered rate
("LIBOR"), or (b) an alternate base rate. Beginning January 28, 2000, the
interest rates under the Revolving Credit Facilities are based, at the election
of the Company, on either (a) the sum of (i) 0.75 percent per annum plus (ii)
LIBOR, or (b) an alternate base rate.
The Amended and Restated Credit Agreement contains representations and
warranties which are customary for facilities of this type and covenants and
provisions that, among other things, require the Company maintain certain
defined financial ratios (a minimum Tangible Net Worth, a maximum Leverage Ratio
and a minimum Fixed Charge Coverage Ratio, all as defined in the Amended and
Restated Credit Agreement). Events of default under the Amended and Restated
Credit Agreement include, among other things, termination of the Company's
supply agreement with Philip Morris without entry into one or more suitable
replacement agreements.
The Company selectively enters into interest rate hedge agreements with
respect to its variable rate long-term borrowings under the Credit Facilities to
manage its exposure to interest rate increases when it is practicable and
cost-effective to do so. The weighted average effective interest rates on the
Term Loan Facilities for the years ended December 31, 1999, 1998 and 1997 were
4.5 percent, 5.1 percent and 4.7 percent, respectively.
At both December 31, 1999 and 1998, long-term debt other than the Term Loan
Facilities primarily consisted of obligations of the French operations related
to government-mandated profit sharing. These amounts bear interest at the five
year treasury note rate in France (6.0 percent at both December 31, 1999 and
1998) and are generally payable in the fifth year subsequent to the year the
profit sharing is accrued.
37
<PAGE> 38
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Following are the balances of long-term debt obligations as of December 31:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
French Term Loan............................................ $ 38.4 $ 44.7
U.S. Term Loan.............................................. 25.0 25.0
Spanish Term Loan........................................... 20.0 20.0
French Employee Profit Sharing.............................. 16.1 17.4
Other....................................................... 4.6 5.7
------ ------
104.1 112.8
Less current portion........................................ (3.2) (4.4)
------ ------
$100.9 $108.4
====== ======
</TABLE>
Following are the scheduled maturities for these long-term debt obligations
as of December 31, 1999:
<TABLE>
<S> <C>
2000........................................................ $ 3.2
2001........................................................ 3.9
2002........................................................ 59.8
2003........................................................ 31.6
2004........................................................ 4.4
Thereafter.................................................. 1.2
------
$104.1
======
</TABLE>
At December 31, 1999, the U.S. and French operations of the Company
together had approximately $34 of Revolving Credit Facilities available, of
which approximately $27 was unused. These facilities permit borrowing at
competitive interest rates and are available for general corporate purposes. The
Company pays commitment fees on the unused portion of these Revolving Credit
Facilities at an annual rate of .20 percent and may cancel the facilities
without penalty at any time prior to their expiration at January 26, 2001.
The Company also had other bank credit facilities available totaling
approximately $23, of which $1.8 was outstanding at December 31, 1999. No
commitment fees are paid on the unused portion of these facilities.
At December 31, 1999 and 1998, the estimated fair value of the Company's
long-term debt and short-term debt approximated the carrying amount. These fair
values were based on quoted market prices for the same or similar debt or on
current rates offered to the Company for obligations with the same maturities.
38
<PAGE> 39
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 6. INCOME TAXES
An analysis of the provision (benefit) for income taxes for the years ended
December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Current income taxes:
U.S. Federal.............................................. $ 0.4 $(1.7) $ 3.8
U.S. State................................................ 0.1 (0.3) 0.7
Foreign................................................... 12.8 14.3 14.2
----- ----- -----
13.3 12.3 18.7
----- ----- -----
Deferred income taxes:
U.S. Federal.............................................. 0.6 1.9 1.5
U.S. State................................................ 0.1 (0.1) 0.3
Foreign................................................... 9.7 3.2 8.1
----- ----- -----
10.4 5.0 9.9
----- ----- -----
Total............................................. $23.7 $17.3 $28.6
===== ===== =====
</TABLE>
Income before income taxes included income of $56.9 in 1999, $52.6 in 1998,
and $63.5 in 1997 from operations outside the United States.
A reconciliation of income taxes computed at the U.S. federal statutory
income tax rate to the provision for income taxes is as follows for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rate...................... $21.2 35.0% $18.9 35.0% $27.8 35.0%
State income taxes, net of federal tax
benefit....................................... 0.1 0.1 (0.3) (0.5) 0.6 0.8
Statutory rates outside the United States in
excess of U.S. statutory rate, net............ 2.7 4.4 3.9 7.2 4.2 5.3
French income tax rate increase -- deferred
benefit....................................... (0.2) (0.3) -- -- (2.0) (2.6)
Change in French tax law........................ -- -- -- -- (2.1) (2.6)
Adjustment of French valuation allowances....... -- -- (5.2) (9.6) -- --
Other, net...................................... (0.1) (0.2) -- -- 0.1 0.1
----- ---- ----- ---- ----- ----
Provision for income taxes...................... $23.7 39.0% $17.3 32.1% $28.6 36.0%
===== ==== ===== ==== ===== ====
</TABLE>
The provision for income taxes in 1999 was impacted by an increase in the
effective statutory income tax rate enacted in France in December 1999 for years
beginning in 2000 from the scheduled rate of 36.7 percent to 37.7 percent. The
favorable effect of $0.2 on the deferred provision for income taxes was due to
the increased value of deferred tax assets, primarily attributable to the tax
benefits from net operating loss carryforwards ("NOLs") of the SMF tax group
estimated to be realizable in future years, net of the increased value of
deferred tax liabilities.
The provision for income taxes in 1998 included the benefit of a reduction
in the valuation allowance recorded against certain French deferred income tax
assets arising from NOLs. This adjustment reduced the deferred provision for
income taxes by $5.2. The reduction in the valuation allowance was recorded
because of continued earnings and projected future earnings at the French
businesses that utilize the NOLs, reducing the uncertainty that these NOLs would
be fully utilized in the future.
39
<PAGE> 40
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
The provision for income taxes in 1997 was impacted by an increase in the
effective statutory income tax rate enacted in France in November 1997 from 36.7
percent to 41.7 percent for 1997 and 1998, retroactive to January 1, 1997, and
to 40.0 percent for 1999. The unfavorable effect on current taxes of the tax
rate increase, including a retroactive adjustment for the eleven-month period
ended November 30, 1997, was offset by the favorable effect on the deferred
provision for income taxes due to the increased value of the tax benefits to be
recognized from the NOLs retained by SMF estimated to be realized during 1997,
1998 and 1999, the periods of the higher income tax rates. The impact in 1997
attributable to deferred tax assets, net of liabilities, was a favorable $2.0 on
the deferred provision for income taxes. Also impacting the 1997 provision for
income taxes was the enactment in France in 1997 of a law that eliminated
taxation of a "provision for the fluctuating value of raw materials" that had
been included in French deferred taxes. Cancellation of this deferred tax
liability reduced the provision for income taxes by $2.1.
The Company considers the undistributed earnings of certain foreign
subsidiaries to be indefinitely reinvested or plans to repatriate such earnings
only when tax-effective to do so. Accordingly, no provision for U.S. federal and
state income taxes has been made thereon. Upon distribution of those earnings in
the form of dividends, loans to the U.S. parent, or otherwise, the Company could
be subject to both U.S. income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to foreign tax authorities. Determination
of the amount of unrecognized deferred U.S. tax liability is not practicable
because of the complexities associated with its hypothetical calculation.
Deferred income tax assets (liabilities) as of December 31, 1999 and 1998
were comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Current deferred income tax assets attributable to:
Inventories............................................... $ (0.8) $ (0.8)
Postretirement and other employee benefits................ 3.4 3.5
Other accrued liabilities................................. 1.6 1.8
Other..................................................... (0.1) 0.7
------ ------
Net current deferred income tax asset............. $ 4.1 $ 5.2
====== ======
Net noncurrent deferred income tax assets attributable to:
Operating and capital loss carryforwards.................. $ 44.9 $ 60.9
Accumulated depreciation and amortization................. (26.6) (28.2)
Other..................................................... 0.6 (0.2)
Valuation allowances...................................... (12.0) (12.8)
------ ------
Net noncurrent deferred income tax asset.......... $ 6.9 $ 19.7
====== ======
Net noncurrent deferred income tax liabilities attributable
to:
Accumulated depreciation and amortization................. $(21.3) $(19.8)
Postretirement and other employee benefits................ 7.9 7.9
Other..................................................... 0.3 (0.8)
------ ------
Net noncurrent deferred income tax liability...... $(13.1) $(12.7)
====== ======
</TABLE>
In the above presentation, the net noncurrent deferred income tax asset
relates to the French, Brazilian and Spanish tax jurisdictions, and the net
noncurrent deferred income tax liability relates to the U.S. and Canadian tax
jurisdictions. Total deferred income tax assets were $46.7 and $62.0 at December
31, 1999 and 1998, respectively. Total deferred income tax liabilities were
$48.8 and $49.8 at December 31, 1999 and 1998, respectively.
40
<PAGE> 41
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Under French tax law, the NOLs incurred through December 31, 1994 by the
SMF subsidiaries unrelated to the Businesses, which were distributed to
Kimberly-Clark prior to the Distribution, were retained by SMF as of January 1,
1995. In addition to SMF's remaining NOLs, NOLs were obtained in the acquisition
of Pirahy and were generated during 1998 by SWM-B and during 1998 and 1999 by
SM-Spain.
The following summarizes the changes in the Company's NOLs and the related
noncurrent deferred income tax asset and valuation allowance for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
TOTAL VALUATION NET
NOL'S ASSET ALLOWANCE ASSET
------ ----- --------- -----
<S> <C> <C> <C> <C>
Amount at December 31, 1996........................ $200.7 $73.6 $(18.1) $55.5
Decrease related to filing of 1996 French tax
returns.......................................... (1.4) (0.5) -- (0.5)
French income tax rate increase.................... -- 2.6 (0.5) 2.1
1997 utilization................................... (14.8) (6.2) -- (6.2)
Currency translation effect........................ (24.3) (8.9) 2.2 (6.7)
------ ----- ------ -----
Amount at December 31, 1997........................ 160.2 60.6 (16.4) 44.2
Obtained in acquisition............................ 10.3 3.2 -- 3.2
French valuation allowance adjustment.............. -- -- 5.2 5.2
1998 utilization, net of generated................. (13.9) (6.3) (0.8) (7.1)
Currency translation effect........................ 9.2 3.4 (0.8) 2.6
------ ----- ------ -----
Amount at December 31, 1998........................ 165.8 60.9 (12.8) 48.1
French income tax rate increase.................... -- 1.1 (0.3) 0.8
1999 utilization, net of generated................. (21.5) (8.3) (0.6) (8.9)
Currency translation effect........................ (24.2) (8.8) 1.7 (7.1)
------ ----- ------ -----
Amount at December 31, 1999........................ $120.1 $44.9 $(12.0) $32.9
====== ===== ====== =====
</TABLE>
Under current tax laws governing the tax jurisdictions in which the Company
has NOLs, remaining NOLs in France and Brazil carry forward indefinitely and
NOLs in Spain expire the later of ten years subsequent to the year generated or
ten years subsequent to the first year of taxable income in Spain. Of the $120.1
of NOLs still available at December 31, 1999, $3.8 will expire in 2009 or later
if not utilized against taxable income in Spain. The remaining $116.3 of NOLs
have no expiration date. The Company elected to include PdStG, acquired in
February 1998, in the SMF consolidated tax group beginning January 1, 1999.
Valuation allowances totaled $12.0 as of December 31, 1999, reducing the related
net deferred tax asset to an amount which is estimated to be realizable through
utilization of the NOLs. Although realization is not assured, management
believes it is more likely than not that the net deferred tax asset will be
realized. However, that amount could change if, among other considerations,
estimates of future taxable income or income tax regulations or interpretations
change during the carryforward periods.
Along with numerous other companies and banks in France, PdM 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. In
1999, the French taxing authority reduced its claim against PdM to exclude an
"abuse of law" penalty and to include instead a "bad faith" penalty. The total
claim by the French taxing authority is now $0.9 as of December 31, 1999,
including penalties and interest. The amount of penalties and interest related
to "bad faith" included in the tax claim against PdM is approximately $0.2.
PdM's adjusted accrual related to this exposure as of December 31, 1999 is $0.7.
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 1996 and the Company appealed this decision. In 1997, the case against
the other bank was stayed until the claim filed by the French taxing authority
against PdM has been resolved.
41
<PAGE> 42
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
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 consolidated tax group, any unfavorable outcome could
not be offset with the NOLs of the SMF consolidated tax group.
NOTE 7. POSTRETIREMENT AND OTHER BENEFITS
North American Pension Benefits
In connection with the Distribution, retirees of the Company's U.S. and
Canadian businesses prior to the Distribution remained participants of their
respective Kimberly-Clark plans. Subsequent to the Distribution, the Company and
its subsidiary in Canada established defined benefit retirement plans covering
substantially all full-time employees. Retirement benefits are based on years of
service and generally on the average compensation earned in the highest five of
the last 15 years of service. Employees as of the date of the Distribution
retained credit for prior service while employees of Kimberly-Clark. The
Company's funding policy is to contribute assets that, at a minimum, fully fund
the accumulated benefit obligation, subject to regulatory and tax deductibility
limits. Under the Distribution, Kimberly-Clark was required to transfer a
proportionate share of assets of its plans related to the employees who
transferred to the Company in the Distribution. The plan assets for the U.S. and
Canadian plans were transferred during 1997 from the Kimberly-Clark plans, in
which the employees had participated prior to the Distribution, to the Company's
plans upon receiving favorable determination letters from the Internal Revenue
Service and Revenue Canada, respectively, qualifying the Company's plans. Plan
assets are invested in a diversified portfolio consisting primarily of equity
and debt securities.
The components of net pension expense for U.S. employees for the years
ended December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Service cost.............................................. $ 2.4 $ 2.3 $ 2.1
Interest cost............................................. 4.8 4.4 3.6
Expected return on plan assets............................ (5.1) (4.3) (3.9)
Amortizations and other................................... 0.3 0.1 --
----- ----- -----
Net periodic pension cost................................. 2.4 2.5 1.8
Special termination benefits charge....................... 0.4 1.1 --
----- ----- -----
Total pension cost........................................ $ 2.8 $ 3.6 $ 1.8
===== ===== =====
</TABLE>
The assumed long-term rate of return on pension assets for purposes of
pension expense recognition for the U.S. employee plans was 10.0 percent for
each of the years 1999, 1998, and 1997. Transition adjustments for these plans
are being amortized on the straight-line method over 14 to 18 years. The
discount rates used to determine the projected benefit obligation and
accumulated benefit obligation for the U.S. employee pension plans were 8.00
percent and 6.75 percent at December 31, 1999 and 1998, respectively. The
assumed long-term rates of compensation increases used to determine the
projected benefit obligations for these plans were 4.0 percent for both December
31, 1999 and 1998.
42
<PAGE> 43
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
The funded status of the U.S. employee pension plans as of December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year......... $ 69.3 $54.4
Service cost........................................... 2.4 2.3
Interest cost.......................................... 4.8 4.4
Actuarial (gains) losses............................... (11.1) 8.4
Special termination benefits........................... 0.4 1.1
Gross benefits paid.................................... (1.8) (1.3)
------ -----
Projected benefit obligation at end of year............... 64.0 69.3
------ -----
Change in Plan Assets:
Fair value of plan assets at beginning of year............ 57.2 45.1
Actual return on plan assets........................... 7.4 10.3
Employer contributions................................. 2.6 3.1
Gross benefits paid.................................... (1.8) (1.3)
------ -----
Fair value of plan assets at end of year.................. 65.4 57.2
------ -----
Funded status at end of year................................ 1.4 (12.1)
Unrecognized actuarial (gains) losses....................... (7.6) 6.0
Unrecognized prior service cost and net transition
obligation................................................ 0.1 0.2
------ -----
Net accrued pension liability............................... $ (6.1) $(5.9)
====== =====
</TABLE>
The projected benefit obligation and accumulated benefit obligation for a
U.S. supplemental executive pension plan with accumulated benefit obligations in
excess of plan assets were $1.7 and $1.4, respectively, as of December 31, 1999,
and $2.4 and $0.9, respectively, as of December 31, 1998. This particular plan
is unfunded and therefore has no plan assets.
French Pension Benefits
In France, employees are covered under a government administered program.
In addition, the Company's French operations sponsor retirement indemnity plans
which pay a lump sum retirement benefit to employees who retire from the
Company. The Company's French operations also sponsor a supplemental executive
pension plan which is designed to provide a retirement benefit equal to between
50 and 65 percent of final earnings, depending upon years of service, after
considering other government and Company sponsored retirement plans. Plan assets
are principally invested in the general asset portfolio of a French insurance
company.
The Company's net pension expense for the French pension plans was $1.5,
$1.6 and $1.1 for the years ended December 31, 1999, 1998 and 1997,
respectively. The assumed long-term rates of return on pension assets for
purposes of pension expense recognition for the French plans were 6.5 percent
for 1999, 7.0 percent for 1998 and 8.0 percent for 1997. Transition adjustments
for these plans are being amortized on the straight-line method over 19 to 20
years. The discount rates used to determine the projected benefit obligation and
accumulated benefit obligation for the French plans were 5.5 percent and 6.0
percent at December 31, 1999 and 1998, respectively. The assumed long-term rates
of compensation increases used to determine the projected benefit obligation for
these plans were 2.5 percent at both December 31, 1999 and 1998.
43
<PAGE> 44
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the French pension plans were $14.3, $7.2 and $3.5,
respectively, as of December 31, 1999, and $15.4, $8.0 and $4.0, respectively,
as of December 31, 1998. The Company's net accrued pension liability for the
French plans was $5.3 and $4.5 at December 31, 1999 and 1998, respectively.
Brazilian Pension Benefits
In Brazil, employees are covered under a government administered program.
Postretirement Health Care and Life Insurance Benefits
In connection with the Distribution, retirees of the Company's U.S. and
Canadian businesses prior to the Distribution remained participants of their
respective Kimberly-Clark plans. Subsequent to the Distribution, the Company and
its subsidiary in Canada established unfunded health care and life insurance
benefit plans which will cover substantially all future retirees of the Company.
Eligibility for benefits under the Company's plans is based on years of service
and age at retirement. Employees as of the date of the Distribution retained
credit for prior service while employees of Kimberly-Clark. The Company's plans
are noncontributory for certain long service employees when they retire, but are
contributory for most other future retirees.
The components of U.S. employee postretirement health care and life
insurance benefit costs were as follows for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Service cost................................................ $ 0.3 $ 0.3 $ 0.3
Interest cost............................................... 0.6 0.5 0.5
Amortizations and other..................................... (0.3) (0.5) (0.4)
----- ----- -----
Net periodic postretirement benefit cost.................... 0.6 0.3 0.4
Special termination benefits charge......................... -- 0.3 --
----- ----- -----
Total postretirement benefit cost........................... $ 0.6 $ 0.6 $ 0.4
===== ===== =====
</TABLE>
The components of the unfunded U.S. employee postretirement health care and
life insurance benefit obligation included in other noncurrent liabilities as of
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year................... $ 8.1 $ 7.1
Service cost........................................... 0.3 0.3
Interest cost.......................................... 0.6 0.5
Actuarial (gains) losses............................... 0.6 0.8
Plan amendments........................................ -- (0.3)
Special termination benefits........................... -- 0.3
Gross benefits paid by the Company..................... (0.7) (0.6)
------ ------
Benefit obligation at end of year......................... 8.9 8.1
------ ------
Funded status at end of year................................ (8.9) (8.1)
Unrecognized actuarial (gains) losses....................... (4.7) (5.3)
Unrecognized prior service cost............................. (1.1) (1.3)
------ ------
Net accrued postretirement benefit liability................ $(14.7) $(14.7)
====== ======
</TABLE>
44
<PAGE> 45
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
For purposes of measuring the benefit obligation at December 31, 1999, a
5.5 percent annual rate of increase in the per capita cost of covered health
care benefits was assumed for 2000 and thereafter. For purposes of measuring the
benefit obligation at December 31, 1998, a 6.125 percent annual increase in the
per capita cost of health care benefits was assumed for 1999. The rate was
assumed to decrease to 5.0 percent for 2000 and remain at that level thereafter.
Discount rates of 8.00 percent and 6.75 percent were used to determine the
postretirement benefit obligations at December 31, 1999 and 1998, respectively.
A one-percentage point increase or decrease in the healthcare cost trend
rate would have a nominal effect on the total of the service and interest cost
components of the postretirement benefit obligation at December 31, 1999. A one
percentage point increase in the healthcare cost trend rate would increase the
total postretirement benefit obligation by $0.1 at December 31, 1999. Likewise,
a one percentage point decrease in the healthcare cost trend rate would decrease
the total postretirement benefit obligation by $0.1 at December 31, 1999.
Other Benefits
Substantially all U.S. employees have been given the opportunity to
participate in voluntary investment plans. Under the plans, the Company matches
a portion of employee contributions. The Company's cost under the plans
reflected in the accompanying consolidated income statements was $0.9 for 1999
and $1.0 for 1998 and 1997. At December 31, 1999, 1998 and 1997, 500,000 shares
of the Company's Common Stock were reserved for issuance under these plans, none
of which had been issued as of December 31, 1999. The shares may, at the
Company's option, be used by the Company to satisfy the Company's liability for
its matching contributions.
NOTE 8. STOCKHOLDERS' EQUITY
The Company's Certificate of Incorporation authorizes the issuance of up to
100,000,000 shares of Common Stock, par value $.10 per share, and 10,000,000
shares of Preferred Stock, par value $.10 per share. Each share of presently
outstanding Common Stock and each share of Common Stock issued after the date of
this report will have attached to it, one right to purchase from the Company one
one-hundredth (1/100) of a share of a series of Preferred Stock designated as
the Series A Junior Participating Preferred Stock (the "Series A Preferred
Stock") (a "Right"). Each Right entitles a shareholder to purchase from the
Company one one-hundredth (1/100) of a share of the Series A Preferred Stock at
a price of $65 per one one-hundredth (1/100) of a share, subject to certain
anti-dilution adjustments. The Rights, however, become exercisable only at such
time as a person or group acquires, or commences a public tender or exchange
offer for, 15 percent or more of the Company's Common Stock. The Rights have
certain anti-takeover effects since they may cause substantial dilution to a
person or group that attempts to acquire the Company on terms not approved by
the Company's Board of Directors. The Rights should not interfere with any
merger or other business combination approved by the Board of Directors since
they may be redeemed by the Company at $.01 per Right at any time until a person
or group has obtained beneficial ownership of 15 percent or more of the voting
stock. The Rights will expire at the close of business on October 1, 2005,
unless redeemed earlier by the Company.
The Series A Preferred Stock will be non-redeemable and, unless otherwise
provided in connection with the creation of a subsequent series of preferred
stock, will be subordinate to any other series of the Company's preferred stock.
Each share of Series A Preferred Stock will be entitled to receive when, as and
if declared, a quarterly dividend in an amount equal to the greater of $1 per
share or 100 times the cash dividends declared on the Company's Common Stock. In
addition, the Series A Preferred Stock is entitled to 100 times any non-cash
dividends (other than dividends payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock) declared on the Common
Stock, in like kind. In the event of a liquidation, the
45
<PAGE> 46
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
holders of the Series A Preferred Stock will be entitled to receive a
liquidation payment in an amount equal to the greater of $100 per share or 100
times the payment made per share of Common Stock. Each share of Series A
Preferred Stock will have 100 votes, voting together with the Common Stock. In
the event of any merger, consolidation or other transaction in which common
shares are exchanged, each share of Series A Preferred Stock will be entitled to
receive 100 times the amount received per share of Common Stock. The rights of
the Series A Preferred Stock as to dividends, liquidation and voting are
protected by antidilution provisions.
The Company's Equity Participation Plan provides that eligible employees
may be granted stock options which, when exercised, give the recipient the right
to purchase the Company's Common Stock at a price no less than the "fair market
value" (as defined in the Equity Participation Plan) of such stock at grant
date. Options awarded under the Equity Participation Plan only become
exercisable after specified periods of employment after the grant thereof (30
percent after the first year, 30 percent after the second year and the remaining
40 percent after the third year). Generally, such options expire ten years
subsequent to the date of grant.
SFAS No. 123 "Accounting for Stock Based Compensation" defines a fair value
based method of accounting for stock compensation, including stock options, to
employees. This statement provides entities a choice of recognizing related
compensation expense by adopting the fair value method or to measure
compensation using the intrinsic value method under Accounting Principles Board
Opinion No. 25 ("APB No. 25"). The Company has elected to continue to measure
compensation cost for stock compensation based on the intrinsic value method
under APB No. 25, "Accounting for Stock Issued to Employees". Payments in the
form of shares of the Company made to third parties, including the Company's
outside Directors, are recorded at fair value based on the market value of the
Company's common stock at the time of payment. Under APB No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. SFAS No. 123 requires presentation of pro forma net income and
earnings per share as if the Company had accounted for its employee stock
compensation under the fair value method of that statement. For purposes of the
pro forma disclosures, the estimated fair value of the stock compensation is
amortized to expense over the vesting period. Under the fair value method, the
Company's net income and earnings per share would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net Income:
As reported............................................... $31.4 $31.0 $45.3
Pro forma................................................. $29.8 $29.8 $44.3
Basic net income per share:
As reported............................................... $1.99 $1.94 $2.82
Pro forma................................................. $1.89 $1.86 $2.76
Diluted net income per share:
As reported............................................... $1.99 $1.92 $2.77
Pro forma................................................. $1.89 $1.84 $2.71
</TABLE>
The valuation under SFAS No. 123 was based on the Black-Scholes option
pricing model with the market value of the stock equal to the exercise price, an
estimated volatility over the ten year option term of 27 percent for the 1999
awards, 24 percent for the 1998 awards and 30 percent for the 1997 awards, a
risk-free rate of return based upon the zero coupon government bond yield and an
assumed quarterly dividend of $0.15 per share. At both December 31, 1999 and
1998, 1,500,000 shares of the Company's Common Stock were reserved under the
Equity Participation Plan. At December 31, 1999 and 1998, there were 70,410 and
607,040 shares, respectively, available for future awards.
46
<PAGE> 47
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
The following stock options were outstanding as of December 31, 1999, 1998
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 869,380 $24.95 764,360 $23.11 699,400 $22.09
Granted......................... 562,300 15.60 136,900 36.23 76,600 32.54
Forfeited....................... (17,170) 21.27 (19,940) 32.81 --
Cancelled....................... (8,500) 35.05 -- --
Exercised....................... -- (11,940) 23.93 (11,640) 23.51
---------- -------- --------
Outstanding at end of year........ 1,406,010 21.19 869,380 24.95 764,360 23.11
========== ======== ========
Options exercisable at year-end... 793,590 $22.83 655,200 $21.60 381,860 $21.60
========== ======== ========
Weighted-average per share fair
value of options granted during
the year........................ $ 6.57 $ 15.00 $ 12.40
========== ======== ========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$12.15 to $15.91.......................... 552,800 9.0 years $15.60 48,500 $15.69
$21.06 to $28.19.......................... 665,360 6.0 21.97 665,360 21.97
$32.43 to $34.07.......................... 88,100 7.3 32.91 47,390 32.75
$34.62 to $37.38.......................... 99,750 8.1 36.69 32,340 36.74
---------- --------
$12.15 to $37.38.......................... 1,406,010 7.4 years $21.19 793,590 $22.83
========== ========
</TABLE>
Effective December 2, 1999, the Company established a Restricted Stock Plan
which is intended to promote the long-term financial success of the Company by
attracting to the Company and retaining outstanding executive personnel and to
motivate such personnel by means of restricted stock grants. The Compensation
Committee of the Company's Board of Directors selects participants and
establishes the terms of any grant of restricted stock. The Company's Restricted
Stock Plan provides that such a grant immediately transfers ownership rights in
shares of the Company's Common Stock to the recipient of the grant, including
the right to vote the shares and to receive dividends thereon, at a share price
established by the Compensation Committee in its discretion. The recipient's
continued ownership of and right to freely transfer the restricted stock is
subject to such conditions on transferability and to such risks of forfeiture as
are established by the Compensation Committee at the time of grant, which may
include continued employment with the Company for a defined period, achievement
of specified management performance objectives or other conditions established
by the Compensation Committee. The number of shares which may be issued under
this Restricted Stock Plan is limited to the lesser of 200,000 shares or the
number of treasury shares held by the Company as of the date of any grant. No
single participant may be awarded, in the aggregate, more than 50 percent of the
shares authorized to be issued under the Restricted Stock plan. As of December
31, 1999, no restricted shares had been issued under the Restricted Stock Plan.
47
<PAGE> 48
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 9. FOREIGN CURRENCY
Foreign currency losses have arisen from settlement of transactions in
non-local currencies and the remeasurement of non-local currency denominated
monetary assets and liabilities into the currency of the country in which the
operation is domiciled. Such losses included in other income, net were nominal
in 1999, 1998 and 1997.
Foreign currency risks arise from transactions and commitments denominated
in non-local currencies. These transactions and commitments may include the
purchase of inventories or property, plant and equipment, the sale of products
and the repayment of loans.
Management selectively hedges the Company's foreign currency risks when it
is practicable and cost effective to do so. The instruments are purchased from
well-known money center banks, insurance companies or government agencies
(counterparties). Usually the contracts extend for no more than 12 months,
although their contractual term has been as long as 18 months. Credit risks with
respect to the counterparties, and the foreign currency risks that would not be
hedged if the counterparties fail to fulfill their obligations under the
contracts, are minimal in view of the financial strength of the counterparties.
Gains and losses on instruments that hedge firm commitments are deferred
and included in the basis of the underlying hedged items. Premiums paid for
options are amortized ratably over the life of the option. All other gains and
losses are included in period income or expense based on the period-end market
price of the instrument.
At December 31, 1999, there were outstanding forward contracts, which were
held for purposes other than trading, maturing at various dates in 2000, to
purchase $7.6 of various foreign currencies. These contracts have not given rise
to any significant net deferred gains or losses as of December 31, 1999.
NOTE 10. COMMITMENTS
Operating Leases
Future minimum obligations under non-cancelable operating leases having an
initial or remaining term in excess of one year as of December 31, 1999 are less
than $1 annually over the next five years. Rental expense under operating leases
was $4.3, $5.1 and $4.0 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Other Commitments
During 1998, PdM entered into a 10 year agreement with one of its vendors
in connection with PdM's purchases of calcium carbonate, a raw material used in
the manufacturing of some paper products. The vendor agreed to construct and
operate an on-site plant at the Quimperle, France mill. The cost to construct
the necessary building and equipment was approximately $7. PdM agreed to annual
minimum purchase commitments at prices which will vary according to quantities
consumed. If PdM buys less than the minimum purchase commitments, the vendor can
terminate the contract and require PdM to pay to the vendor the then net book
value of the building and equipment, determined using a straight-line method of
depreciation over the life of the agreement.
Similarly, a vendor of SWM-B operates a calcium carbonate plant on-site at
the Pirahy, Brazil mill. Under that agreement, which will expire in 2006, the
net raw material prices vary according to the quantities produced, however,
SWM-B is committed to pay at least the monthly fixed costs of the calcium
carbonate plant which are less than $0.1 per month.
48
<PAGE> 49
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Under each of the above agreements, the net raw material prices expected to
be paid are less than the net prices at which the raw material could otherwise
be purchased, and thus the commitments are not expected to result in losses.
Additionally, PdM's and SWM-B's current levels of calcium carbonate usage exceed
their respective contractual minimum commitments.
The Company enters into certain other immaterial contracts from time to
time for the purchase of certain raw materials. The Company also enters into
certain contracts for the purchase of equipment and related costs in connection
with its ongoing capital projects which, at December 31, 1999, totaled
approximately $0.6.
SWM-B has arrangements with local financial institutions through which
certain customers selected by SWM-B that desire extended payment terms can
obtain financing directly with such financial institutions. SWM-B negotiates the
terms of the financing and, upon agreement by all parties, SWM-B receives
immediate payment from the financial institution upon the sale of the related
product. Under these arrangements, SWM-B retains an unrecorded commitment to the
financial institutions in the event the customer defaults. SWM-B has total
arrangements available as of December 31, 1999 of approximately $4.5, of which
approximately $1.9 was being utilized.
NOTE 11. LEGAL PROCEEDINGS
Under the terms of the Distribution, the Company assumed liability for and
agreed to indemnify Kimberly-Clark from litigation arising out of the operation
of the Businesses, including certain tobacco industry class action and
individual lawsuits in which certain component suppliers to the tobacco industry
were named, including Kimberly Clark and, in some cases, LTRI. During 1999,
Kimberly-Clark and LTRI were dismissed from all tobacco-related litigation
pending against them.
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 adverse effect on the Company's
consolidated financial statements.
NOTE 12. 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 Distribution, Kimberly-Clark was named a potentially
responsible party ("PRP") under the provisions of the U.S. Comprehensive
Environmental Response, Compensation and Liability Act and analogous New Jersey
statutes in connection with the Global Landfill Reclaiming Corporation ("Global
Landfill") waste disposal site in Old Bridge, New Jersey. The Global Landfill
was utilized by Kimberly-Clark's Spotswood mill. The Company has assumed
Kimberly-Clark's liabilities for the Global Landfill site. The Company continues
to participate in the remediation of the Global Landfill as a member of a group
of PRP's that entered into a consent decree with the state of New Jersey in
1993. The Company previously recorded its pro-rata portion of the estimated
liability for remediation of this site, the remainder of which is not material.
49
<PAGE> 50
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
The Company also 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. Recent test results show that the Company has achieved
compliance with the consent order and has reduced the concentration of landfill
gases to the levels specified in the consent order at 30 feet below ground level
in all of the gas monitoring wells. The Company will continue its current
remediation activities on a reduced monitoring schedule approved by MDEP for
this landfill, the remaining cost of which was previously accrued and is not
material.
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, Brazil and Canada. For these purposes,
the Company incurred total capital expenditures of $0.5 in 1999, and anticipates
that it will incur approximately $2 to $4 annually in 2000 and 2001. The major
projects included in these estimates include upgrading wastewater treatment
facilities at various locations and installation of ink solvent treatment
equipment 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 13. BUSINESS SEGMENTS AND GEOGRAPHY
Business Segment Reporting
The Company is operated and managed based on the geographical location of
its manufacturing operations: the United States, France and Brazil. These
business segments manufacture and sell cigarette, plug wrap and tipping papers,
used to wrap various parts of a cigarette, reconstituted tobacco products, and
paper products used in cigarette packaging, primarily to the tobacco industry.
While the products are comparable in each segment, they vary based on the
technological capabilities of each of the manufacturing operations and the
respective markets and customers served. Sales by a segment into markets
primarily served by a different segment occur where specific product needs
cannot be cost-effectively met by the manufacturing operations domiciled in that
segment.
Tobacco industry products comprised 89 to 90 percent of the Company's
consolidated net sales in 1999 and 1998, and 94 percent in 1997. The Company's
non-tobacco industry products are a diverse mix of products, certain of which
represent commodity paper grades produced to maximize machine operations.
Consolidated Operations by Segment
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 raw material in the U.S.
operations. The Company's Brazilian operations acquired on February 2, 1998 and
the operations of the French business acquired on February 11, 1998 are included
in the Company's consolidated financial statements since the beginning of
February 1998.
Intercompany sales of products between segments are made at market prices
and are referred to as intersegment items. Expense amounts not associated with
segments are referred to as unallocated items.
50
<PAGE> 51
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Assets reported by segment represent assets which are directly used and an
allocated portion of jointly used assets. These assets include receivables from
other segments and are included in eliminations.
<TABLE>
<CAPTION>
NET SALES OPERATING PROFIT TOTAL ASSETS
------------------------ --------------------- ---------------
1999 1998 1997 1999 1998 1997 1999 1998
------ ------ ------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States................................ $166.3 $186.0 $195.5 $ 9.3 $ 6.2 $21.2 $147.6 $156.3
France....................................... 284.6 312.0 268.8 55.2 60.3 66.4 237.7 254.5
Brazil....................................... 54.0 57.9 N.A. 5.2 (2.3) N.A. 53.0 67.3
------ ------ ------ ----- ----- ----- ------ ------
Subtotal............................ 504.9 555.9 464.3 69.7 64.2 87.6 438.3 478.1
------ ------ ------
Intersegment sales by:
United States.............................. (0.2) (7.1) (1.2)
France..................................... (0.3) (2.1) (2.5)
Brazil..................................... -- -- N.A.
------ ------ ------
Subtotal............................ (0.5) (9.2) (3.7)
------ ------ ------
Unallocated items and eliminations, net...... -- -- -- (5.1) (5.1) (5.7) (1.7) (3.4)
------ ------ ------ ----- ----- ----- ------ ------
Consolidated................... $504.4 $546.7 $460.6 $64.6 $59.1 $81.9 $436.6 $474.7
====== ====== ====== ===== ===== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
CAPITAL SPENDING DEPRECIATION AND AMORTIZATION
------------------------- -------------------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
United States........................ $ 5.0 $ 9.2 $16.3 $ 8.9 $11.6 $ 6.8
France............................... 18.9 25.3 19.5 10.7 9.5 7.6
Brazil............................... 2.4 2.2 N.A. 2.6 3.7 N.A.
----- ----- ----- ----- ----- -----
Consolidated........... $26.3 $36.7 $35.8 $22.2 $24.8 $14.4
===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
N.A. -- Not Applicable
Consolidated Operations by Geographic Area
Long-lived assets, excluding deferred income tax assets and certain other
deferred charges, were $99.1, $134.3 and $32.3 in the United States, France and
Brazil, respectively, as of December 31, 1999, and $102.9, $144.4 and $49.1 in
the United States, France and Brazil, respectively, at December 31, 1998.
For purposes of the geographic disclosure in the following table, net sales
are attributed to geographic locations based on the location of the Company's
direct customers.
<TABLE>
<CAPTION>
NET SALES
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
United States............................................... $142.9 $156.2 $169.3
Europe and the former Commonwealth of Independent States.... 214.4 224.7 192.7
Asia/Pacific (including China).............................. 66.4 76.8 68.3
Latin America(1)............................................ 60.2 67.4 10.5
Other foreign countries..................................... 20.5 21.6 19.8
------ ------ ------
Consolidated.................................. $504.4 $546.7 $460.6
====== ====== ======
</TABLE>
- ---------------
(1) Substantially all of the Company's net sales to Latin America were to
customers in Brazil in each of the periods presented.
51
<PAGE> 52
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 14. MAJOR CUSTOMERS
Two of the Company's customers have accounted for a significant portion of
the Company's net sales in the periods presented in the financial statements,
and the loss of one or both such customers, or a significant reduction in one or
both of these customers' purchases, could have a material adverse effect on the
Company's results of operations. Net sales to Philip Morris Companies, Inc.
("Philip Morris"), together with its affiliates and designated converters,
accounted for approximately 30 percent, 28 percent and 36 percent of total
consolidated net sales for the years ended December 31, 1999, 1998 and 1997,
respectively. As a result of the acquisition of the Brazilian business in 1998,
a substantial portion of whose sales are to subsidiaries of B.A.T. Industries
PLC ("BAT"), net sales to BAT, together with its affiliates and designated
converters, increased to approximately 18 percent and 14 percent of consolidated
net sales for the years ended December 31, 1999 and 1998, respectively. Prior to
1998, BAT was a significant customer, but accounted for less than ten percent of
the Company's consolidated net sales. Each of the Company's segments reported
sales to these customers for each of the respective periods reported above.
The Company had sales to the minority shareholder of LTRI of $24.2, $16.8
and $14.0 in 1999, 1998 and 1997, respectively.
The Company's consolidated accounts receivable at December 31, 1999 and
1998 included balances from Philip Morris and BAT, together with their
respective affiliates and designated converters. The percentage of these
customers' balances of consolidated accounts receivable is less than each of
their respective percentages of consolidated net sales.
The Company performs ongoing credit evaluations on all of its customers'
financial condition and generally does not require collateral or other security
to support customer receivables. A substantial portion of the Company's
consolidated accounts receivable are due from companies in the tobacco industry
which has been and continues to be under substantial pressure from legal,
regulatory and tax developments. It is not possible to predict the outcome of
such litigation or what effect adverse developments in pending or future
litigation, regulatory actions and additional taxes may have on the tobacco
industry, its financial liquidity or relationships with its suppliers. Nor is it
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 the tobacco products industry in general.
52
<PAGE> 53
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 15. UNAUDITED QUARTERLY FINANCIAL DATA AND COMMON STOCK INFORMATION
The Company's Common Stock is listed on the New York Stock Exchange under
the ticker symbol "SWM". As of December 31, 1999, there were 6,712 stockholders
of record of the Company's Common Stock. This number does not include shares
held in "nominee" or "street" name.
<TABLE>
<CAPTION>
1999
------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Sales............................................. $128.6 $119.7 $125.5 $130.6 $504.4
Gross Profit.......................................... 29.4 24.7 27.2 29.1 110.4
Operating Profit...................................... 18.0 13.6 16.2 16.8 64.6
Net Income............................................ $ 9.1 $ 7.1 $ 7.6 $ 7.6 $ 31.4
Net Income Per Share:
Basic............................................... $ .57 $ .45 $ .48 $ .49 $ 1.99
Diluted............................................. .57 .45 .48 .49 1.99
Cash Dividends Declared and Paid Per Share............ $ .15 $ .15 $ .15 $ .15 $ .60
Market Price Per Share:
High................................................ $16.50 $17.50 $17.50 $13.88 $17.50
Low................................................. 11.50 11.50 12.81 11.69 11.50
Close............................................... $11.50 $15.00 $12.94 $13.44 $13.44
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------
FIRST SECOND(1) THIRD FOURTH(2) YEAR
------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Net Sales.......................................... $134.3 $144.0 $134.4 $134.0 $546.7
Gross Profit....................................... 31.1 27.7 26.7 20.6 106.1
Operating Profit................................... 20.6 15.6 15.2 7.7 59.1
Net Income......................................... $ 10.0 $ 12.2 $ 6.8 $ 2.0 $ 31.0
Net Income Per Share:
Basic............................................ $ .62 $ .76 $ .43 $ .13 $ 1.94
Diluted.......................................... .61 .75 .43 .13 1.92
Cash Dividends Declared and Paid Per Share......... $ .15 $ .15 $ .15 $ .15 $ .60
Market Price Per Share:
High............................................. $38.63 $35.38 $29.19 $22.19 $38.63
Low.............................................. 32.25 27.94 21.31 13.00 13.00
Close............................................ $34.50 $29.00 $21.75 $15.44 $15.44
</TABLE>
- ---------------
(1) Results for the second quarter 1998 included a deferred income tax benefit
as a result of an adjustment of valuation allowances against French NOLs of
$5.2, or $.32 per share, partially offset by a $1.7 pre-tax charge related
to a restructuring of the Spotswood mill workforce, the net income effect of
which was $(1.0), or $(.06) per share.
(2) Results for the fourth quarter 1998 included a $4.2 pre-tax charge, the net
income effect of which was $(2.2), or $(.14) per share, related to
write-downs of idled equipment and one-time labor payments.
53
<PAGE> 54
SCHWEITZER-MAUDUIT INTERNATIONAL INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Schweitzer-Mauduit International,
Inc.:
We have audited the accompanying consolidated balance sheets of
Schweitzer-Mauduit International, Inc. and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years ended December 31, 1999, 1998
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Schweitzer-Mauduit
International, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years ended December
31, 1999, 1998 and 1997 in conformity with generally accepted accounting
principles.
/s/Deloitte & Touche LLP
Atlanta, Georgia
January 21, 2000
54
<PAGE> 55
SCHWEITZER-MAUDUIT INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Schweitzer-Mauduit International, Inc. is responsible for
conducting all aspects of the business, including the preparation of the
financial statements in this Annual Report. The financial statements have been
prepared using generally accepted accounting principles considered appropriate
in the circumstances to present fairly the Company's consolidated financial
position, results of operations and cash flows on a consistent basis. Management
also has prepared the other information in this Annual Report and is responsible
for its accuracy and consistency with the financial statements.
As can be expected in a complex and dynamic business environment, some
financial statement amounts are based on management's estimates and judgments.
Even though estimates and judgments are used, measures have been taken to
provide reasonable assurance of the integrity and reliability of the financial
information contained in this Annual Report. These measures include an effective
control-oriented environment in which a company-wide internal control program
plays an important role, an Audit Committee of the Board of Directors which
oversees the financial reporting process, and independent audits. As part of
that responsibility, the Audit Committee recommended to the Board of Directors
the selection of the Company's independent public accountants, Deloitte & Touche
LLP.
One characteristic of a control-oriented environment is a system of
internal control over financial reporting and over safeguarding of assets
against unauthorized acquisition, use or disposition, designed to provide
reasonable assurance to management and the Board of Directors regarding
preparation of reliable published financial statements and such asset
safeguarding. The system is supported with written policies and procedures and
contains self-monitoring mechanisms. Appropriate actions are taken by management
to correct deficiencies as they are identified. All internal control systems
have inherent limitations, including the possibility of circumvention and
overriding of controls, and therefore, can provide only reasonable assurance as
to financial statement preparation and such asset safeguarding. Management
believes the Company's system of internal control maintains an appropriate
cost-benefit relationship.
The Company has also adopted a code of conduct which, among other things,
contains policies for conducting business affairs in a lawful and ethical manner
in each country in which it does business, for avoiding potential conflicts of
interest, and for preserving confidentiality of information and business ideas.
Internal controls have been implemented to provide reasonable assurance that the
code of conduct is followed.
The financial statements have been audited by Deloitte & Touche LLP. During
their audits, the independent auditors were given unrestricted access to all
financial records and related data. Management believes that all representations
made to the independent auditors during their audits were valid and appropriate.
During the audits conducted by the independent auditors, management
received minor recommendations to strengthen or modify internal controls in
response to developments and changes. Management has adopted, or is in the
process of adopting, all recommendations which are cost-effective.
/s/Wayne H. Dietrich
Wayne H. Deitrich
Chairman of the Board and Chief Executive Officer
/s/Paul C. Roberts
Paul C. Roberts
Chief Financial Officer and Treasurer
January 21, 2000
55
<PAGE> 56
PART II, CONTINUED
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section of the Company's Proxy Statement dated March 14, 2000 (the
"2000 Proxy Statement") captioned "Certain Information Regarding Directors and
Nominees" under "Proposal 1. Election of Directors" identifies members of the
Board of Directors of the Company and nominees, and is incorporated in this Item
10 by reference.
See also "Executive Officers of the Registrant" appearing in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information in the section of the 2000 Proxy Statement captioned
"Executive Compensation" under "Proposal 1. Election of Directors" is
incorporated in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information in the sections of the 2000 Proxy Statement captioned
"Security Ownership of Management" and "Security Ownership of Certain Beneficial
Holders" under "Proposal 1. Election of Directors" is incorporated in this Item
12 by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the section captioned "Certain Transactions and Business
Relationships" under "Proposal 1. Election of Directors" of the 2000 Proxy
Statement is incorporated in this Item 13 by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
(1) and (2) Financial Statements and Financial Statement Schedules:
See the Index to Financial Statements included in Item 8 of Part II
under the caption "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA".
Schedules have been omitted because they were not applicable or
because the required information has been included in the financial
statements or notes thereto.
(3) Exhibits:
See the Index to Exhibits that appears at the end of this document
and which is incorporated by reference herein.
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the fourth
quarter of 1999.
56
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ WAYNE H. DEITRICH
---------------------------------------
Wayne H. Deitrich
Chairman of the Board and
Chief Executive Officer
(principal executive officer)
Dated: March 3, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME POSITION DATE
---- -------- ----
<C> <S> <C>
/s/ WAYNE H. DEITRICH Chairman of the Board and March 3, 2000
- ----------------------------------------------------- Chief Executive Officer
Wayne H. Deitrich (principal executive officer)
/s/ PAUL C. ROBERTS Chief Financial Officer March 3, 2000
- ----------------------------------------------------- and Treasurer
Paul C. Roberts (principal financial officer)
/s/ WAYNE L. GRUNEWALD Controller March 3, 2000
- ----------------------------------------------------- (principal accounting
Wayne L. Grunewald officer)
* Director March 3, 2000
- -----------------------------------------------------
Claire L. Arnold
* Director March 3, 2000
- -----------------------------------------------------
Alan R. Batkin
* Director March 3, 2000
- -----------------------------------------------------
K.C. Caldabaugh
* Director March 3, 2000
- -----------------------------------------------------
Laurent G. Chambaz
* Director March 3, 2000
- -----------------------------------------------------
Richard D. Jackson
* Director March 3, 2000
- -----------------------------------------------------
Leonard J. Kujawa
* Director March 3, 2000
- -----------------------------------------------------
Jean-Pierre Le Hetet
* Director March 3, 2000
- -----------------------------------------------------
Larry B. Stillman
*By: /s/ JOHN W. RUMELY, JR. March 3, 2000
------------------------------------------------
John W. Rumely, Jr.
Attorney-In-Fact
</TABLE>
57
<PAGE> 58
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
2.1 -- Distribution Agreement (incorporated by reference to Exhibit
2.1 to Form 10/A Amendment 2, dated October 27, 1995).
2.2 -- Stock Purchase Agreement by and between SWM, Souza Cruz S.A.
and Contab Participacoes Ltda. dated December 16, 1997 for
the purchase of Companhia Industrial de Papel Pirahy
(incorporated by reference to Exhibit 2.1 to Form 8-K, dated
February 2, 1998).
3.1 -- Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to Form 10, dated September 12, 1995).
3.2 -- By-Laws, as amended on and through February 27, 1996
(incorporated by reference to Exhibit 3.2 to the Company's
Form 10-K for the year ended December 31, 1995).
4.1 -- Form of Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to Form 10/A Amendment 2, dated October 27,
1995).
4.2* -- Rights Agreement Amended and Restated as of April 22, 1999.
10.1 -- Transfer, Contribution and Assumption Agreement
(incorporated by reference to Exhibit 10.1 to Form 10/A
Amendment 2, dated October 27, 1995).
10.2 -- Employee Matters Agreement (incorporated by reference to
Exhibit 10.3 to Form 10/A Amendment 2, dated October 27,
1995).
10.3 -- Tax Sharing Agreement (incorporated by reference to Exhibit
10.4 to Form 10/A Amendment 2, dated October 27, 1995).
10.4 -- Outside Directors' Stock Plan (incorporated by reference to
Exhibit 10.5 to Form 10/A Amendment 2, dated October 27,
1995).
10.5 -- Annual Incentive Plan Amended and Restated as of February
25, 1999 (incorporated by reference to Exhibit 10.6 to the
Company's Form 10-K for the year ended December 31, 1998).
10.6 -- Equity Participation Plan Amended and Restated as of
February 25, 1999 (incorporated by reference to Exhibit 10.7
to the Company's Form 10-K for the year ended December 31,
1998).
10.7 -- Long-Term Incentive Plan Amended and Restated as of February
25, 1999 (incorporated by reference to Exhibit 10.8 to the
Company's Form 10-K for the year ended December 31, 1998).
10.9* -- Restricted Stock Plan effective as of December 2, 1999.
</TABLE>
58
<PAGE> 59
INDEX TO EXHIBITS -- CONTINUED
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
10.10 -- Supplemental Benefit Plan Amended and Restated as of
February 25, 1999 (incorporated by reference to Exhibit
10.11 to the Company's Form 10-K for the year ended December
31, 1998).
10.11 -- Executive Severance Plan Amended and Restated as of February
25, 1999 (incorporated by reference to Exhibit 10.12 to the
Company's Form 10-K for the year ended December 31, 1998).
10.12.1 -- Amended and Restated Agreement between Philip Morris
Incorporated and Schweitzer-Mauduit International, Inc. for
Fine Paper Supply, effective April 1, 1998+ (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended September 30, 1998).
10.12.2 -- Technology Ownership, Technical Assistance and Technology
License Agreement by and among Philip Morris Incorporated,
Philip Morris Products, Inc. and Schweitzer-Mauduit
International, Inc., effective April 1, 1998+ (incorporated
by reference to Exhibit 10.2 to the Company's Form 10-Q for
the quarter ended September 30, 1998).
10.13 -- Supply Agreement between Companhia Industrial de Papel
Pirahy and Souza Cruz S.A. dated as of February 2, 1998+
(incorporated by reference to Exhibit 10.10.1 to the
Company's Form 10-K for the year ended December 31, 1998).
10.14.1 -- Amended and Restated Credit Agreement dated January 29, 1998
between the Company, as Borrower and Guarantor, SMF, as
Borrower, PdM Industries, as Borrower, SM-Spain, as
Borrower, the Banks named therein and Societe Generale, as
Agent (the "Amended and Restated Credit Agreement")
(incorporated by reference to Exhibit 10 to the Company's
Form 10-Q for the quarter ended March 31, 1998).
10.14.2 -- Amendment No. 1, dated January 29, 1999, to the Amended and
Restated Credit Agreement (incorporated by reference to
Exhibit 10.13.2 to the Company's Form 10-K for the year
ended December 31, 1998).
10.14.3 -- Amendment No. 2, dated May 6, 1999, to the Amended and
Restated Credit Agreement (incorporated by reference to
Exhibit 10 to the Company's Form 10-Q for the quarter ended
June 30, 1999).
10.14.4* -- Amendment No. 3, dated January 7, 2000, to the Amended and
Restated Credit Agreement.
21.1* -- Subsidiaries of the Company.
23.1* -- Independent Auditors' Consent.
24.1* -- Powers of Attorney.
27.1* -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* Filed herewith.
+ Exhibit has been redacted pursuant to a Confidentiality Request under Rule
24(b)-2 of the Securities Exchange Act of 1934.
59
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
and
BANKBOSTON, N.A.
(formerly known as The First National Bank of Boston)
Rights Agent
Rights Agreement
Dated as of October 1, 1995
Amended and Restated as of April 22, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Definitions.............................................................................1
Section 2. Appointment of Rights Agent.....................................................................4
Section 3. Issue of Right Certificates.....................................................................4
Section 4. Form of Right Certificates......................................................................5
Section 5. Countersignature and Registration...............................................................6
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates.........................................6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights...................................7
Section 8. Cancellation and Destruction of Right Certificates..............................................8
Section 9. Availability of Preferred Shares................................................................8
Section 10. Preferred Shares Record Date....................................................................9
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights..............................9
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.....................................16
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power...........................16
Section 14. Fractional Rights and Fractional Shares........................................................17
Section 15. Rights of Action...............................................................................18
Section 16. Agreement of Right Holders ....................................................................18
Section 17. Right Certificate Holder Not Deemed a Stockholder..............................................19
Section 18. Concerning the Rights Agent....................................................................19
Section 19. Merger or Consolidation or Change of Name of Rights Agent......................................19
Section 20. Duties of Rights Agent.........................................................................20
Section 21. Change of Rights Agent.........................................................................22
Section 22. Issuance of New Right Certificates.............................................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 23. Redemption.....................................................................................23
Section 24. Exchange.......................................................................................24
Section 25. Notice of Certain Events.......................................................................25
Section 26. Notices........................................................................................26
Section 27. Supplements and Amendments.....................................................................26
Section 28. Successors.....................................................................................27
Section 29. Benefits of this Agreement.....................................................................27
Section 30. Severability...................................................................................27
Section 31. Governing Law..................................................................................27
Section 32. Counterparts...................................................................................27
Section 33. Descriptive Headings...........................................................................28
</TABLE>
ii
<PAGE> 4
RIGHTS AGREEMENT
Agreement, as of October 1, 1995, between Schweitzer-Mauduit
International, Inc., a Delaware corporation (the "Company"), and BankBoston,
N.A. (formerly known as The First National Bank of Boston), a national banking
association ("Rights Agent") amended and restated as of April 22, 1999.
The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company outstanding as of the close
of business on November 6, 1995 (the "Record Date"), each Right representing the
right to purchase one one-hundredth of a Preferred Share (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all Affiliates
and Associates (as such terms are hereinafter defined) of such Person,
shall be the Beneficial Owner (as such term is hereinafter defined) of
15% or more of the Common Shares of the Company then outstanding, but
shall not include the Company, any Subsidiary (as such term is
hereinafter defined) of the Company, any employee benefit plan of the
Company or any Subsidiary of the Company, or any entity holding Common
Shares for or pursuant to the terms of any such plan. Notwithstanding
the foregoing: (i) no Person shall become an "Acquiring Person" as the
result of an acquisition of Common Shares by the Company which, by
reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 15% or more of
the Common Shares of the Company then outstanding; provided, however,
that if a Person shall become the Beneficial Owner of 15% or more of
the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the
Company, become the Beneficial Owner of any additional Common Shares of
the Company, then such Person shall be deemed to be an "Acquiring
Person"; (ii) no Person shall become an "Acquiring Person" if the Board
of Directors of the Company determines in good faith that a Person who
would otherwise be an "Acquiring Person", as defined pursuant to the
foregoing provisions of this paragraph (a) has become such
inadvertently, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer
be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this
1
<PAGE> 5
paragraph (a), then such Person shall not be deemed to be an "Acquiring
Person" for any purposes of this Agreement; (iii) until such time as
the Spinoff (as such term is hereinafter defined) occurs,
Kimberly-Clark Corporation shall not be deemed an "Acquiring Person"
for purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether
such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and
between underwriters and selling group members with respect to
a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other
than these Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities
tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person
in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act
(or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any
of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section l(c)(ii)(B)) or
disposing of any securities of the Company.
2
<PAGE> 6
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a
Saturday, a Sunday, or day on which banking institutions in
Massachusetts, or the location of the principal office of the Rights
Agent, are authorized or obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00
P.M., Boston, Massachusetts time, on such date; provided, however, that
if such date is not a Business Day it shall mean 5:00 P.M., Boston,
Massachusetts time, on the next succeeding Business Day.
(f) "Common Shares" when used with reference to the
Company shall mean the shares of common stock, par value $0.10 per
share, of the Company. "Common Shares" when used with reference to any
Person other than the Company shall mean the capital stock (or equity
interest) with the greatest voting power of such other Person or, if
such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth
in Section 3 hereof.
(h) "Final Expiration Date" shall have the meaning set
forth in Section 7 hereof.
(i) "Person" shall mean any individual, firm, corporation
or other entity, and shall include any successor (by merger or
otherwise) of such entity.
(j) "Preferred Shares" shall mean shares of Series A
Junior Participating Preferred Stock, par value $0.10 per share, of the
Company having the rights and preferences set forth in Exhibit A
hereto.
(k) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(l) "Shares Acquisition Date" shall mean the first date
of public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such.
(m) "Spinoff" shall mean the distribution by
Kimberly-Clark Corporation to its shareholders of all of the issued and
outstanding shares of the Company.
3
<PAGE> 7
(n) "Subsidiary" of any Person shall mean any corporation
or other entity of which a majority of the voting power of the voting
equity securities or equity interest is owned, directly or indirectly,
by such Person.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable, upon ten (10) days' prior written notice to
the Rights Agent. The Rights Agent shall have no duty to supervise, and shall in
no event be liable for, the acts or omissions of any such co-Rights Agent.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth day after the
Shares Acquisition Date or (ii) the tenth business day (or such later
date as may be determined by action of the Board of Directors prior to
such time as any Person becomes an Acquiring Person) after the date of
the commencement by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or of the first public
announcement of the intention of any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares
for or pursuant to the terms of any such plan) to commence, a tender or
exchange offer the consummation of which would result in any Person
becoming the Beneficial Owner of Common Shares aggregating 15% or more
of the then outstanding Common Shares (including any such date which is
after the date of this Agreement and prior to the issuance of the
Rights; the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common
Shares registered in the names of the holders thereof (which
certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer
of Common Shares. As soon as practicable after the Distribution Date,
the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the
Rights Agent will, if requested, send) by first-class, insured,
postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Distribution Date, at the address of such
holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit B hereto (a "Right Certificate"),
evidencing one Right for each Common Share so held. As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable
thereafter, the Company will send a copy of a Summary of Rights to
Purchase Preferred Shares, in substantially
4
<PAGE> 8
the form of Exhibit C hereto (the "Summary of Rights"), by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Record Date, at the address of such holder
shown on the records of the Company. With respect to certificates for
Common Shares outstanding as of the Record Date, until the Distribution
Date, the Rights will be evidenced by such certificates registered in
the names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Distribution Date (or the earlier of
the Redemption Date or the Final Expiration Date), the surrender for
transfer of any certificate for Common Shares outstanding on the Record
Date, with or without a copy of the Summary of Rights attached thereto,
shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
(c) Certificates for Common Shares which become
outstanding (including, without limitation, reacquired Common Shares
referred to in the last sentence of this paragraph (c)) after the
Record Date but prior to the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date shall have impressed on,
printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof
to certain rights as set forth in a Rights Agreement between
Schweitzer-Mauduit International, Inc. and The First National
Bank of Boston, dated as of October 1, 1995 (the "Rights
Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal
executive offices of Schweitzer-Mauduit International, Inc.
Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. Schweitzer-Mauduit International, Inc. will mail
to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request
therefor. As described in the Rights Agreement, Rights issued
to any Person who becomes an Acquiring Person (as defined in
the Rights Agreement) shall become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification
5
<PAGE> 9
or designation and such legends, summaries or endorsements printed thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any applicable law or
with any rule or regulation made pursuant thereto or with, any rule or
regulation of any stock exchange on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of Section 22 hereof,
the Right Certificates shall entitle the holders thereof to purchase such number
of one one-hundredths of a Preferred Share as shall be set forth therein at the
price per one one-hundredth of a Preferred Share set forth therein (the
"Purchase Price"), but the number of such one one-hundredths of a Preferred
Share and the Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 14 hereof, at any time after the close of
business on the Distribution Date, and at or prior to the close of business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 1l(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such
6
<PAGE> 10
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the office of the Rights Agent designated for such purpose.
Thereupon the Rights Agent shall countersign and deliver to the person entitled
thereto a Right Certificate or Right Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights: Purchase Price: Expiration Date
of Rights.
(a) The registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as otherwise provided
herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent
at the office of the Rights Agent designated for such purpose, together
with payment of the Purchase Price for each one one-hundredth of a
Preferred Share as to which the Rights are exercised, at or prior to
the earliest of (i) the close of business on October 1, 2005 (the
"Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or
(iii) the time at which such Rights are exchanged as provided in
Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share pursuant to the exercise of a Right shall be $65.00 as
of October 1, 1995 and shall be subject to adjustment from time to time
as provided in Section 11 or 13 hereof and shall be payable in lawful
money of the United States of America in accordance with paragraph (c)
below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase and
certificate duly executed, accompanied by payment of the Purchase Price
for the shares to be purchased and an amount equal to any applicable
transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check,
cashier's check or money order payable to the order of the Company, the
Rights Agent shall thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares certificates for the number of
Preferred Shares to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests, or (B)
requisition from the depositary
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<PAGE> 11
agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which
case certificates for the Preferred Shares represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and
the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount
of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to
or upon the order of the registered holder of such Right Certificate,
registered in such name or names as may be designated by such holder
and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby,
a new Right Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated
to undertake any action with respect to a registered holder upon the
occurrence of any purported transfer or exercise as set forth in this
Section 7 unless such registered holder shall have (i) completed and
signed the certificate following the form of assignment or election to
purchase set forth on the reverse side of the Rights Certificate
surrendered for such assignment or exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to
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<PAGE> 12
ensure that all Preferred Shares delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such Preferred Shares (subject to
payment of the Purchase Price), be duly and validly authorized and issued and
fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Shares transfer books of the Company
are closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Shares transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price. Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the
Preferred Shares payable in Preferred Shares, (B) subdivide
the outstanding Preferred Shares, (C) combine the outstanding
Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11
(a), the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such
subdivision,
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<PAGE> 13
combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if
such Right had been exercised immediately prior to such date
and at a time when the Preferred Shares transfer books of the
Company were open, he would have owned upon such exercise and
been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par
value of the shares of capital stock of the Company issuable
upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in
the event any Person becomes an Acquiring Person, each holder
of a Right shall thereafter have a right to receive, upon
exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of the Company
as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-hundredths of
a Preferred Share for which a Right is then exercisable and
dividing that product by (y) 50% of the then current per
share market price of the Company's Common Shares (determined
pursuant to Section 11 (d) hereof) on the date of the
occurrence of such event. In the event that any Person shall
become an Acquiring Person and the Rights shall then be
outstanding, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by
the Rights.
From and after the occurrence of such event, any
Rights that are or were acquired or beneficially owned by any
Acquiring Person (or any Associate or Affiliate of such
Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under
any provision of this Agreement. No Right Certificate shall be
issued pursuant to Section 3 that represents Rights
beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any
time upon the transfer of any Rights to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence
or any Associate or Affiliate thereof or to any nominee of
such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an
Acquiring Person whose Rights would be void pursuant to the
preceding sentence shall be cancelled.
(iii) In the event that there shall not be
sufficient Common Shares issued but not outstanding or
authorized but unissued to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii), the
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<PAGE> 14
Company shall take all such action as may be necessary to
authorize additional Common Shares for issuance upon exercise
of the Rights. In the event the Company shall, after good
faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the
Company shall substitute, for each Common Share that would
otherwise be issuable upon exercise of a Right, a number of
Preferred Shares or fraction thereof such that the current per
share market price of one Preferred Share multiplied by such
number or fraction is equal to the current per share market
price of one Common Share as of the date of issuance of such
Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred
Shares entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Shares
(or shares having the same rights, privileges and preferences as the
Preferred Shares ("equivalent preferred shares")) or securities
convertible into Preferred Shares or equivalent preferred shares at a
price per Preferred Share or equivalent preferred share (or having a
conversion price per share, if a security convertible into Preferred
Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as defined in Section 11
(d)) on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of Preferred Shares outstanding
on such record date plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the
denominator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of additional Preferred
Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so
to be offered are initially convertible); provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right
be less than the aggregate par value of the shares of capital stock of
the Company issuable upon exercise of one Right. In case such
subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed
with the Rights Agent. Preferred Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose
of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such
rights, options or warrants are not so issued, the Purchase Price shall
be adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.
(c) In case the Company shall fix a record date for the
making of a distribution to all holders of the Preferred Shares
(including any such distribution made
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<PAGE> 15
in connection with a consolidation or merger in which the Company is
the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend
payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11 (b) hereof), the Purchase
Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the then
current per share market price of the Preferred Shares on such record
date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of
the assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Preferred Share and
the denominator of which shall be such current per share market price
of the Preferred Shares; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event
that such distribution is not so made, the Purchase Price shall again
be adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the
purpose of this Section 11 (d)(i)) on any date shall be deemed to be
the average of the daily closing prices per share of such Security for
the 30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that in the event
that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such
Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or
(B) any subdivision, combination or reclassification of such Security
and prior to the expiration of 30 Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such
case, the current per share market price shall be appropriately
adjusted to reflect the current market pride per share equivalent of
such Security. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the Security is not listed or admitted
to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is not
listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") or such other system then in use, or, if on any such
date the
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<PAGE> 16
Security is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market
maker making a market in the Security selected by the Board of
Directors of the Company. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Security
is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on
any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be
determined in accordance with the method set forth in Section 11(d)(i).
If the Preferred Shares are not publicly traded, the "current per share
market price" of the Preferred Shares shall be conclusively deemed to
be the current per share market price of the Common Shares as
determined pursuant to Section 1l (d)(i) (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
occurring after the date hereof), multiplied by one hundred. If neither
the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair
value per share as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement
filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in the Purchase Price; provided, however, that any adjustments
which by reason of this Section 11(e) are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one one-millionth of a Preferred Share or one
ten-thousandth of any other share or security as the case may be.
Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the date of the expiration of the
right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to
Section 11 (a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock of the
Company other than Preferred Shares, thereafter the number of such
other shares so receivable upon exercise of any Right shall be subject
to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and
the provisions of Sections 7, 9, 10 and 13 with respect to the
Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the adjusted Purchase Price, the
number of one one-hundredths of a Preferred Share purchasable from time
to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
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<PAGE> 17
(h) Unless the Company shall have exercised its election
as provided in Section 11 (i), upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11(b) and (c),
each Right outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a
Preferred Share) obtained by (i) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to
such adjustment of the Purchase Price and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in
substitution for any adjustment in the number of one one-hundredths of
a Preferred Share purchasable upon the exercise of a Right. Each of the
Rights outstanding after such adjustment of the number of Rights shall
be exercisable for the number of one one-hundredths of a Preferred
Share for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the
nearest one ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the
adjustment, and, if known at the time, the amount of the adjustment to
be made. This record date may be the date on which the Purchase Price
is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the
public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional
Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement
for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new
Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner
provided for herein and shall be registered in the names of the holders
of record of Right Certificates on the record date specified in the
public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-hundredths of a Preferred Share
issuable upon the exercise of the Rights, the Right Certificates
theretofore and thereafter issued may continue to express the Purchase
Price and the number of one one-hundredths of a Preferred Share which
were expressed in the initial Right Certificates issued hereunder.
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<PAGE> 18
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below one one-hundredth of the
then par value, if any, of the Preferred Shares issuable upon exercise
of the Rights, the Company shall take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and nonassessable Preferred
Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until
the occurrence of such event the issuing to the holder of any Right
exercised after such record date of the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such
exercise over and above the Preferred Shares and other capital stock or
securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions
in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Shares, issuance wholly
for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by
their terms are convertible into or exchangeable for Preferred Shares,
dividends on Preferred Shares payable in Preferred Shares or issuance
of rights, options or warrants referred to hereinabove in Section
11(b), hereafter made by the Company to holders of its Preferred Shares
shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i)
declare or pay any dividend on the Common Shares payable in Common
Shares or (ii) effect a subdivision, combination or consolidation of
the Common Shares (by reclassification or otherwise than by payment of
dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case (A) the number of one one-hundredths of a
Preferred Share purchasable after such event upon proper exercise of
each Right shall be determined by multiplying the number of one
one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of
Common Shares outstanding immediately before such event and the
denominator of which is the number of Common Shares outstanding
immediately after such event, and (B) each Common Share outstanding
immediately after such event shall have issued with respect to it that
number of Rights which each Common Share outstanding immediately prior
to such event had issued with respect to it. The adjustments provided
for in this
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<PAGE> 19
Section 11(n) shall be made successively whenever such a dividend is
declared or paid or such a subdivision, combination or consolidation is
effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof. The Rights Agent shall be fully protected in relying on such
certificate and on any adjustment therein contained. The Rights Agent shall not
be deemed to have knowledge of any such adjustment unless and until it shall
have received such certificate.
Section 13. Consolidation. Merger or Sale or Transfer of
Assets or Earning Power. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person and the Company shall not be the
continuing or surviving corporation of such consolidation or merger, (b) any
Person shall consolidate with the Company, or merge with and into the Company
and the Company shall be the continuing or surviving corporation of such merger
and, in connection with such merger, all or part of the Common Shares shall be
changed into or exchanged for stock or other securities of any other Person (or
the Company) or cash or any other property, or (c) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person other than the Company or one or more of
its wholly-owned Subsidiaries, then, and in each such case, proper provision
shall be made so that (i) each holder of a Right (except as otherwise provided
herein) shall thereafter have the right to receive, upon the exercise thereof at
a price equal to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50% of the then current per share market price of
the Common Shares of such other Person (determined pursuant to Section 1l(d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company
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<PAGE> 20
and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing. The Company shall not enter into any
transaction of the kind referred to in this Section 13 if at the time of such
transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or sales or
other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions
of Rights or to distribute Right Certificates which evidence fractional
Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Right Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal
to the same fraction of the current market value of a whole Right. For
the purposes of this Section 14(a), the current market value of a whole
Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be
the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if
on any such date the Rights are not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the
Board of Directors of the Company. If on any such date no such market
maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors of the
Company shall be used.
(b) The Company shall not be required to issue fractions
of Preferred Shares (other than fractions which are integral multiples
of one one-hundredth of a Preferred Share) upon exercise of the Rights
or to distribute certificates which evidence fractional Preferred
Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share). Fractions of Preferred Shares in
integral multiples of one one-hundredth of a Preferred Share may, at
the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide
that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial
owners of the Preferred Shares represented by such
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<PAGE> 21
depositary receipts. In lieu of fractional Preferred Shares that are
not integral multiples of one one-hundredth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash
equal to the same fraction of the current market value of one Preferred
Share. For the purposes of this Section 14(b), the current market value
of a Preferred Share shall be the closing price of a Preferred Share
(as determined pursuant to the second sentence of Section 11 (d)(i)
hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates
are transferable only on the registry books of the Rights Agent if
surrendered at the office of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of
transfer; and
(c) the Company and the Rights Agent may deem and treat
the person in whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Shares certificate) is
registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the
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<PAGE> 22
Right Certificates or the associated Common Shares certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and expenses and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust powers of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights
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<PAGE> 23
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Treasurer or
the Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the
Company and any other Person only for its own negligence, bad faith or
willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this
Agreement or in the Right Certificates (except its countersignature
thereof) or be required to verify the same, but all such
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<PAGE> 24
statements and recitals are and shall be deemed to have been made by
the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the
Rights Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor shall it be
responsible for any breach by the Company of any covenant or condition
contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the
manner, method or amount thereof) provided for in Section 3, 11, 13, 23
or 24, or the ascertaining of the existence of facts that would require
any such change or adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after actual notice that such
change or adjustment is required); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization
or reservation of any Preferred Shares to be issued pursuant to this
Agreement or any Right Certificate or as to whether any Preferred
Shares will, when issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments
and assurances as may reasonably be required by the Rights Agent for
the carrying out or performing by the Rights Agent of the provisions of
this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Secretary or
the Treasurer of the Company, and to apply to such officers for advice
or instructions in connection with its duties, and it shall not be
liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in
acting while waiting for those instructions. Any application by the
Rights Agent for written instructions from the Company may, at the
option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Rights Agreement and
the date on and/or after which such action shall be taken or such
omission shall be effective. The Rights Agent shall not be liable for
any action taken by, or omission of, the Rights Agent in accordance
with a proposal included in any such application on or after the date
specified in such application (which date shall not be less than five
Business Days after the date any such officer of the Company actually
receives such application, unless any such officer shall have consented
in writing to an earlier date) unless, prior to taking any such action
(or the effective date in the case of an omission), the Rights Agent
shall have received written instructions in response to such
application specifying the action to be taken or omitted.
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(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of
the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as fully
and freely as though it were not Rights Agent under this Agreement.
Nothing herein shall preclude the Rights Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act, default, neglect or
misconduct, provided reasonable care was exercised in the selection and
continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or any state of the United States or the District of Columbia, in good
standing, which is authorized under such laws to exercise corporate trust or
stock transfer powers and is subject to supervision or examination by federal or
state authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the
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<PAGE> 26
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at its
option, at any time prior to the earlier of (i) the close of business
on the tenth day (as such period may be extended pursuant to the
provisions of Section 27 hereof) following the Shares Acquisition Date
(or, if the Shares Acquisition Date shall have occurred prior to the
Record Date, the close of business on the tenth day (as such period may
be extended pursuant to the provisions of Section 27 hereof) following
the Record Date), or (ii) the Final Expiration Date, redeem all but not
less than all of the then outstanding Rights at a redemption price of
$.0l per Right, as such amount may be appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as
the "Redemption Price"), such Redemption Price to be payable in cash,
shares of Common Stock (based on the "current market price," as defined
in Section 11 (d) hereof, of the Common Stock at the time of
redemption) or such other form of consideration as may be deemed
appropriate by the Board of Directors of the Company; provided,
however, if the Board of Directors of the Company authorizes redemption
of the Rights in either of the circumstances set forth in clauses (i)
and (ii) below, such authorization shall require the concurrence of a
majority of the entire Board of Directors: (i) such authorization
occurs on or after the time a Person becomes an Acquiring Person, or
(ii) such authorization occurs on or after the date of a change
(resulting from a proxy or consent solicitation) in a majority of the
directors in office at the commencement of such solicitation if any
Person who is a participant in such solicitation has stated (or, if
upon the commencement of such solicitation, a majority of the entire
Board of Directors of the Company has determined in good faith) that
such Person (or any of its Affiliates or Associates) intends to take,
or may consider taking, any action which would result in such Person
becoming an Acquiring Person or which would cause the occurrence of any
event described in Section 11(a)(ii) or in Section 13(a), (b) or (c).
(b) Immediately upon the action of the Board of Directors
of the Company of ordering the redemption of the Rights pursuant to
paragraph (a) of this Section 23 and without any further action and
without any notice, the right to exercise the Rights will terminate and
the only right thereafter of the holders of Rights shall be to receive
the Redemption Price. The Company shall promptly give public notice of
redemption; provided, however, that the failure to give, or any defect
in, any such notice shall not
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<PAGE> 27
affect the validity of such redemption. Within 10 days after such
action of the Board of Directors ordering the redemption of the Rights
the Company shall mail a notice of redemption to all the holders of the
then outstanding Rights at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice
of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth
in this Section 23 or in Section 24 hereof, and other than in
connection with the purchase of Common Shares prior to the Distribution
Date.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its
option, at any time after any Person becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the
provisions of Section 11 (a)(ii) hereof) for Common Shares at an
exchange ratio of one Common Share per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter
referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange
at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the
terms of any such plan), together with all Affiliates and Associates of
such Person, becomes the Beneficial Owner of 50% or more of the Common
Shares then outstanding.
(b) Immediately upon the action of the Board of Directors
of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and
without any notice, the right to exercise such Rights shall terminate
and the only right thereafter of a holder of such Rights shall be to
receive that number of Common Shares equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company shall
promptly give public notice of any such exchange; provided, however,
that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a
notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice.
Each such notice of exchange will state the method by which the
exchange of the Common Shares for Rights will be effected and, in the
event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have
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become void pursuant to the provisions of Section 11(a)(ii) hereof)
held by each holder of Rights.
(c) In the event that there shall not be sufficient
Common Shares issued but not outstanding or authorized but unissued to
permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company shall take all such action as may be necessary
to authorize additional Common Shares for issuance upon exchange of the
Rights. In the event the Company shall, after good faith effort, be
unable to take all such action as may be necessary to authorize such
additional Common Shares, the Company shall substitute, for each Common
Share that would otherwise be issuable upon exchange of a Right, a
number of Preferred Shares or fraction thereof such that the current
per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one
Common Share as of the date of issuance of such Preferred Shares or
fraction thereof.
(d) The Company shall not be required to issue fractions
of Common Shares or to distribute certificates which evidence
fractional Common Shares. In lieu of such fractional Common Shares, the
Company shall pay to the registered holders of the Right Certificates
with regard to which such fractional Common Shares would otherwise be
issuable an amount in cash equal to the same fraction of the current
market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall
be the closing price of a Common Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any
dividend payable in stock of any class to the holders of its Preferred
Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regular quarterly cash dividend), (ii)
to offer to the holders of its Preferred Shares rights or warrants to
subscribe for or to purchase any additional Preferred Shares or shares
of stock of any class or any other securities, rights or options, (iii)
to effect any reclassification of its Preferred Shares (other than a
reclassification involving only the subdivision of outstanding
Preferred Shares), (iv) to effect any consolidation or merger into or
with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to, any other Person,
(v) to effect the liquidation, dissolution or winding up of the
Company, or (vi) to declare or pay any dividend on the Common Shares
payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise
than by payment of dividends in Common Shares), then, in each such
case, the Company shall give to each holder of a Right Certificate, in
accordance with Section 26 hereof, a notice of such proposed action,
which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the
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<PAGE> 29
date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and
the date of participation therein by the holders of the Common Shares
and/or Preferred Shares, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for
determining holders of the Preferred Shares for purposes of such
action, and in the case of any such other action, at least 10 days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or
Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii)
hereof shall occur, then the Company shall as soon as practicable
thereafter give to each holder of a Right Certificate, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which
notice shall describe such event and the consequences of such event to
holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Schweitzer-Mauduit International, Inc.
100 North Point Center East, Suite 600
Alpharetta, Georgia 30022
Attention: General Counsel
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
BankBoston, N.A.
(formerly known as The First National Bank of Boston)
c/o Equiserve L.P.
150 Royall Street
Canton, MA 02021
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. This Agreement may be
supplemented or amended at the times and for the purposes set forth below;
provided, however, that no proposed supplement or amendment to this Agreement
shall be effective
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unless (i) a majority of the entire Board of Directors, at a meeting of
Directors duly called and held, or the entire Board of Directors acting by
unanimous consent in lieu of a meeting, votes in favor of the adoption of such
proposed supplement or amendment. The Company may from time to time supplement
or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights. Without limiting the
foregoing, the Company may at any time prior to such time as any Person becomes
an Acquiring Person amend this Agreement to lower the thresholds set forth in
Sections 1(a) and 3(a) hereof from 15% to not less than the greater of (i) the
sum of .001% and the largest percentage of the outstanding Common Shares then
known by the Company to be beneficially owned by any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or any Subsidiary of the Company, or any entity holding Common Shares for or
pursuant to the terms of any such plan) and (ii) 10%.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
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<PAGE> 31
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
28
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
SCHWEITZER-MAUDUIT
INTERNATIONAL, INC.
Attest:
By: By:
----------------------------------- ------------------------------
Title: General Counsel and Secretary Title: Chief Executive Officer
BANKBOSTON, N.A.
(formerly known as The First
National Bank of Boston)
Attest:
By: By:
----------------------------------- ------------------------------
Title: Title:
-------------------------------- ---------------------------
29
<PAGE> 33
EXHIBIT A
EXCERPT FROM CERTIFICATE OF INCORPORATION
of
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
designating the
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
-------------------
Series A Junior Participating Preferred Stock:
Designation and Amount. Of the Ten Million (10,000,000) shares
of authorized Preferred Stock, One Million (1,000,000) shall be designated as
"Series A Junior Participating Preferred Stock", with the par value of Ten Cents
($0.10) per share (the "Series A Preferred Stock"). Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Series A Preferred Stock.
a. Dividends and Distributions.
(1) Subject to the rights of the holders of any shares of
any series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b)
subject to the provision for adjustment hereinafter set forth, 100
times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common
Stock since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend
<PAGE> 34
Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(2) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in paragraph
(1) of this Section immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share
on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(3) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
b. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(1) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Preferred Stock shall
entitle the holder thereof to 100 votes on all
<PAGE> 35
matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(2) Except as otherwise provided herein, in any Certificate
of Designations creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock
and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(3) Except as set forth herein, or as otherwise provided
by law, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
c. Certain Restrictions.
(1) Whenever quarterly dividends or other
dividends or distributions payable on the Series A Preferred Stock as
provided in Section (a)(2) are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(a) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock;
(b) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(c) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Corporation may at any
<PAGE> 36
time redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(d) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any shares of
stock ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(2) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for consideration
shares of stock of the Corporation unless the Corporation could, under
paragraph (1) of this Section (c), purchase or otherwise acquire such
shares at such time and in such manner.
d. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any Certificate of Designations
creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
e. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock unless, prior thereto,
the holders of shares of Series A Preferred Stock shall have received
$100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such
payment, provided that the holders of shares of Series A Preferred
Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount to be distributed per share to holders
of shares of Common Stock, or (2) to the holders of shares of stock
ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in
<PAGE> 37
shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under the proviso in clause (1) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that were outstanding immediately prior to
such event.
f. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property,
then in any such case each share of Series A Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per
share, subject to the provision for adjustment hereinafter set forth,
equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into
which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange
or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
g. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
h. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets,
junior to all series of any other class of the Corporation's Preferred
Stock.
i. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series
A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock, voting together as a
single class.
<PAGE> 38
Exhibit B
Form of Right Certificate
Certificate No. R- _____ Rights
NOT EXERCISABLE AFTER OCTOBER 1, 2005 OR EARLIER IF REDEMPTION
OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT
$[.01] PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT.
Right Certificate
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
This certifies that _______________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of ___________________, (the "Rights Agreement"),
between Schweitzer-Mauduit International, Inc., a Delaware corporation (the
"Company"), and [The First National Bank of Boston] (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 P.M., Boston,
Massachusetts time, on October 1, 2005 at the office of the Rights Agent
designated for such purpose, or at the office of its successor as Rights Agent,
one one-hundredth of a fully paid non-assessable share of Series A Junior
Participating Preferred Stock, par value $0.10 per share (the "Preferred
Shares"), of the Company, at a purchase price of $________ per one one-hundredth
of a Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above, are the number and
Purchase Price as of _______________ 199___, based on the Preferred Shares as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-hundredths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned offices of the Rights Agent.
<PAGE> 39
This Right Certificate, with or without other Right
Certificates, upon surrender at the office of the Rights Agent designated for
such purpose, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Preferred Shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $[.01] per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value $0.10 per
share.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of ____________________, 19___.
ATTEST: SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
By
- ------------------- -----------------------------------------
<PAGE> 40
Countersigned:
BANKBOSTON, N.A.
(formerly known as THE FIRST NATIONAL BANK OF BOSTON)
By:
- ---------------------------------
Authorized Signature
<PAGE> 41
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ________________________________ hereby sells,
assigns transfers unto (Please print name and address of Transferee) this Right
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _____________________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: , 19
------------------ ---
------------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a bank or trust company,
broker, dealer or other eligible institution participating in a recognized
signature guarantee medallion program.
================
CERTIFICATE
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
------------------------------------------
Signature
================
<PAGE> 42
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the Right Certificate)
To Schweitzer-Mauduit International, Inc.
The undersigned hereby irrevocably elects to exercise
_______________ Rights represented by this Right Certificate to purchase the
Preferred Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
---------------------
- -------------------------------------------------
(Please print name and address)
- -------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
---------------------
- -------------------------------------------------
(Please print name and address)
- -------------------------------------------------
Dated: , 19
------------ ---
------------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a bank or trust company,
broker, dealer or other eligible institution participating in a recognized
signature guarantee medallion program.
<PAGE> 43
Form of Reverse Side of Right Certificate -- continued
================
CERTIFICATE
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
------------------------------------------
Signature
================
NOTICE
The signature in the foregoing Form of Assignment and Election
must conform to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
<PAGE> 44
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On October 23, 1995, the Board of Directors of
Schweitzer-Mauduit International, Inc. (the "Company") acting by unanimous
consent in lieu of meeting, declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of common stock, par value $0.10
per share (the "Common Shares"), of the Company. The dividend is payable on
November 6, 1995, (the "Record Date") to the stockholders of record on that
date. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.10 per share (the "Preferred Shares"), of the Company at a price of
$65.00 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Company and Bank Boston
(formerly known as The First National Bank of Boston), as Rights Agent (the
"Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the entire Board of Directors prior to such time as any
Person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of such outstanding Common Shares (the earlier of such
dates being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate with a copy of this Summary of Rights
attached thereto.
The Rights Agreement provides that, until the Distribution
Date, the Rights will be transferred with and only with the Common Shares. Until
the Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the Record Date, upon transfer or new
issuance of Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Shares, outstanding as of the Record Date, even without such notation or
a copy of this Summary of Rights being attached thereto, will also constitute
the transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
<PAGE> 45
The Rights are not exercisable until the Distribution Date.
The Rights will expire on October 1, 2005 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one
one-hundredths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Shares or
a stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will
not be redeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be entitled to
an aggregate dividend of 100 times the dividend declared per Common Share. In
the event of liquidation, the holders of the Preferred Shares will be entitled
to a minimum preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Common Share.
Each Preferred Share will have 100 votes, voting together with the Common
Shares. Finally, in the event of any merger, consolidation or other transaction
in which Common Shares are exchanged, each Preferred Share will be entitled to
receive 100 times the amount received per Common Share. These rights are
protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share.
In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold, proper provision will be made so that each holder of a
Right will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right. In the event that (i)
any person becomes an Acquiring Person (unless such person first acquires 15% or
more of the outstanding Common Shares by a purchase pursuant to a tender offer
for all of the Common
<PAGE> 46
Shares for cash, which purchase increases such person's beneficial ownership to
80% or more of the outstanding Common Shares) or (ii) during such time as there
is an Acquiring Person, there shall be a reclassification of securities or a
recapitalization or reorganization of the Company or other transaction or series
of transactions involving the Company which has the effect of increasing by more
than 1% the proportionate share of the outstanding shares of any class of equity
securities of the Company or any of its subsidiaries beneficially owned by the
Acquiring Person, proper provision shall be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of Common Shares having a market value of two times the exercise
price of the Right.
At any time after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 15% or more of the
outstanding Common Shares and prior to the acquisition by such person or group
of 50% or more of the outstanding Common Shares, the Board of Directors of the
Company may exchange the Rights (other than Rights owned by such person or group
which have become void), in whole or in part, at an exchange ratio of one Common
Share, or one one-hundredth of a Preferred Share (or of a share of a class or
series of the Company's preferred stock having equivalent rights, preferences
and privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. No fractional Preferred Shares will be issued (other
than fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time until ten days following the Shares Acquisition
Date (as such period may be extended by the Board of Directors pursuant to the
Rights Agreement), the Board of Directors of the Company may redeem the Rights
in whole, but not in part, at a price of $[.01] per Right provided that in
certain circumstances such redemption will require the concurrence of a majority
of the entire Board of Directors. The redemption of the rights may be made
effective at such time on such basis and with such conditions as the Board of
Directors in its sole discretion may establish.
The Rights Agreement may be amended in certain instances so
long as a majority of the entire Board of Directors votes in favor of the
proposed amendment. The terms of the Rights may be amended by the Board of
Directors of the Company without the consent of the holders of the Rights,
including an amendment to lower the threshold for exercisability of the Rights
from 15% to not less than the greater of (i) any percentage greater than the
largest percentage of the outstanding Common Shares then known to the Company to
be beneficially owned by any person or group of affiliated or associated persons
and (ii) 10%, except that from and after such time as any person becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the Rights.
<PAGE> 47
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 10 dated September 12, 1995. A copy of the Rights Agreement is available
free of charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is hereby incorporated herein by reference.
<PAGE> 1
EXHIBIT 10.9
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
RESTRICTED STOCK PLAN
EFFECTIVE AS OF DECEMBER 2, 1999
1. PURPOSE
This Restricted Stock Plan ("Plan") of Schweitzer-Mauduit
International, Inc. (the "Corporation") is intended to (i) promote the
long-term financial success of the Corporation by attracting to and retaining
for the Corporation and its Affiliates outstanding executive personnel and (ii)
to motivate such personnel by means of Restricted Stock grants to contribute to
the Corporation's financial success.
2. EFFECTIVE DATE
The Plan shall be effective as of the date of its adoption by the
Board.
3. DEFINITIONS
"Affiliate" means any company in which the Corporation owns, directly
or indirectly, 20% or more of the equity interest (collectively, the
"Affiliates").
"Board" means the Board of Directors of the Corporation.
"Change of Control" shall mean the date as of which: (a) a third
person, including a "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, acquires actual or beneficial ownership of shares of the
Company having 15% or more of the total number of votes that may be cast for
the election of Directors of the Company; or (b) as the result of any cash
tender or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder, as amended from time to time.
"Committee" means the Compensation Committee of the Board, provided
that if the requisite number of members of the Compensation Committee are not
Non-Employee Directors, the Plan shall be administered by a committee, all of
whom are Non-Employee Directors, appointed by the Board and consisting of two
or more directors with full authority to act in the matter. The term
"Committee" shall mean the Compensation Committee or the committee appointed by
the Board, as the case may be.
<PAGE> 2
"Common Stock" means the common stock, par value $0.10 per share, of
the Corporation and shall include both treasury shares and authorized but
unissued shares and shall also include any security of the Corporation issued
in substitution, in exchange for, or in lieu of the Common Stock.
"Covered Employee" means a Participant who is, or is determined by the
Committee to be likely to become a "covered employee" within the meaning of
Section 162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Committee on which a
grant of Restricted Shares shall become effective (which date shall not be
earlier than the date on which the Committee takes action with respect
thereto).
"Non-Employee Director" means a person who is so defined for purposes
of rule 16b-3 under the Exchange Act, or any successor provision, and who is
also defined as an "outside director" for purposes of section 162(m) of the
Code or any successor section.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, as amended from time to time.
"Fair Market Value" means the mean between the high and low sales
prices of the Common Stock, on the relevant date as reported on the composite
list used by the Wall Street Journal for reporting stock prices, or if no such
trading in the Common Stock shall have taken place on that day, on the last
preceding day on which there was such trading in the Common Stock.
"Insider" has the meaning set forth in subsection 14(f) of this Plan.
"Immediate Family" has the meaning set forth in Rule 16(a)-1(e) of the
Exchange Act and any successor provision to the same effect.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan that may, in the Committee's
discretion, apply to grants of Restricted Shares pursuant to this Plan.
Management Objectives may be described in terms of Corporation-wide objectives
or objectives that are related to the performance of the individual
Participant, or of an Affiliate, division, operating unit, department, region,
function, or other organizational unit within the Corporation or an Affiliate
in which the Participant is employed. The Management Objectives may be made
relative to the performance of other corporations or business units of other
corporations provided they are Affiliates of the Corporation. The Management
Objectives applicable at the discretion of the Committee to any award to a
Covered Employee shall be based on specified and pre-established levels of or
growth in one or more of the following criteria:
1. the price of Common Stock;
2. market share;
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<PAGE> 3
3. sales;
4. return on equity, assets, capital or sales;
5. economic profit;
6. total shareholder return;
7. costs;
8. margins;
9. earning or earnings per share;
10. cash flow;
11. customer satisfaction;
12. pre-tax profit;
13 earnings before interest and taxes;
14. earnings before interest, taxes, depreciation and amortization;
15. debt/capital ratio;
16. revenues from new product development;
17. percentage of revenues derived from designated lines of business;
and
18. any combination of the foregoing.
If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Corporation or an Affiliate, or
the manner in which it conducts its business, or other events or circumstances
render the Management Objectives unsuitable, the Committee may in its
discretion modify such Management Objectives or the related pre-established
level of achievement, in whole or in part, as the Committee deems appropriate
and equitable, except in the case of a Covered Employee where such action would
result in the loss of an exemption of the award under Section 162(m) of the
Code that would otherwise have been available. In such case, the Committee
shall not make any modification of the Management Objectives or the
pre-established level of achievement.
"Participant" means a person who is selected by the Committee to
receive benefits under this Plan and who is at the time an officer or other key
employee of the Corporation or any one or more of its Affiliates, or who has
agreed to commence serving in any of such capacities (collectively, the
"Participants").
"Restricted Shares" means shares of Common Stock granted pursuant to
Section 6 of this Plan as to which neither the Substantial Risk of Forfeiture
nor the prohibition on Transferability referred to in Section 6 has expired.
"Retirement" and "Retire" means the termination of employment on or
after the date the Participant is entitled to receive immediate payments under
a qualified retirement plan of the Corporation or an Affiliate; provided,
however, if the Participant is not eligible to participate under a qualified
retirement plan of the Corporation or an Affiliate then such Participant shall
be deemed to have retired if his termination of employment is on or after the
date such Participant has attained age 55.
"Securities Act" means the Securities Act of 1933, as amended.
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<PAGE> 4
"Substantial Risk of Forfeiture" shall have the meaning given to such
term in Section 83 (c)(1) of the Code and Treasury Regulation 1.83-3 (c) or any
successor section.
"Substantially Vested" shall have the meaning given to such term in
Treasury Regulation 1.83-3(b) or any successor section.
"Transfer" or "Transferability" shall have the meaning given to such
terms in Treasury Regulation 1.83-3(d) or any successor section.
"Total and Permanent Disability" means Totally and Permanently
Disabled as defined in the Schweitzer-Mauduit International, Inc. Retirement
Plan, provided the Committee shall make a determination of Total and Permanent
Disability for any Participant hereunder.
4. ADMINISTRATION
The Committee shall administer the Plan and all agreements governing
the grant of Restricted Shares. The Committee, in its absolute discretion,
shall have the power to interpret and construe the Plan and any agreements
pursuant to which any Restricted Shares are granted. Should the Plan become
qualified under section 162(m) of the Code, the Committee shall thereafter take
no action and shall not make any determination in a manner that would result in
the disallowance of a deduction to the Corporation under section 162(m) of the
Code or any successor section that was intended to apply at the Date of Grant
and that would otherwise have been available for such grant. Any interpretation
or construction of any provisions of this Plan or the terms of any agreements
that grant Restricted Shares to a Participant by the Committee shall be final
and conclusive upon all persons. No member of the Board or the Committee shall
be liable for any action or determination made in good faith.
Within 60 days following the close of each calendar year that the Plan
is in operation, the Committee shall make a report to the Board specifying the
employees who received Restricted Shares under the Plan during the prior year,
the number and type of Restricted Shares granted to the individual employees
and the status of all prior Restricted Shares granted to such employees.
The Committee shall have the power to promulgate rules and other
guidelines in connection with the performance of its obligations, powers and
duties under the Plan, including its duty to administer and construe the Plan
and the agreements pursuant to which Restricted Shares are granted under the
Plan.
The Committee may authorize persons other than its members to carry
out its policies and directives, subject to the limitations and guidelines set
by the Committee, except that: (a) the authority to grant Restricted Shares,
the selection of employees for
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<PAGE> 5
participation and decisions concerning the timing, duration of restrictions on
Transferability, pricing, determination of Management Objectives and amount of
an award or grant of Restricted Shares shall not be delegated by the Committee;
(b) the authority to administer agreements granting Restricted Shares with
respect to persons who are subject to section 16 of the Exchange Act shall not
be delegated by the Committee; (c) any delegation shall satisfy all applicable
requirements of Rule 16b-3 of the Exchange Act, or any successor provision; and
(d) no such delegation shall result in the disallowance of a deduction to the
Corporation under section 162(m) of the Code or any successor section that
would otherwise have been available to such grant of Restricted Shares. Any
person to whom such authority is granted shall continue to be eligible to
receive Restricted Shares under the Plan.
5. ELIGIBILITY
The Committee shall from time to time select the Plan Participants
from those employees whom the Committee determines either to be in a position
to contribute materially to the success of the Corporation or its Affiliates or
to have in the past so contributed. Only employees (including officers and
directors who are employees) of the Corporation and its Affiliates are eligible
to participate in the Plan.
6. RESTRICTED SHARES
The Committee shall determine and designate from time to time those
Participants to whom Restricted Shares are to be granted and the number of such
shares to be granted to each Participant. For each grant, the Committee shall
cause to be delivered to the Participant a Restricted Share Agreement which
shall specify each restriction on Transferability and any Management Objectives
and other risks of forfeiture that shall apply to the shares so granted. The
Restricted Share Agreement may be in such form as the Committee may authorize
from time to time for the grant of Restricted Shares to Participants. Each such
grant shall be subject to all of the requirements contained in the following
provisions:
(a) The grant shall constitute an immediate transfer of the ownership
of shares of Common Stock to the Participant in consideration of the
performance of services, as such term is defined in Treasury
Regulation 1.83-3(f) or any successor section, entitling such
Participant to voting, dividend and other ownership rights, but
subject to Substantial Risk of Forfeiture and restrictions on
Transferability, which shall be noted in an appropriate legend on any
stock certificates evidencing Restricted Shares, hereinafter referred
to.
(b) The grant may be made in consideration of a payment by such
Participant that is less than the Fair Market Value per share on the
Date of Grant.
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<PAGE> 6
(c) Each grant shall provide that the Restricted Shares shall become
fully vested and all risk of forfeiture shall lapse in the event of a
Change of Control or upon the Total and Permanent Disability of the
Participant and, at the discretion of the Committee, upon the
occurrence of such other circumstances designated at the Date of Grant
by the Committee; provided, that the period in which the Restricted
Shares become Substantially Vested complies with the requirements of
Rule 16 of the Exchange Act.
(d) The grant shall provide that during the period a Substantial Risk
of Forfeiture is to continue, Transferability of the Restricted Shares
shall be prohibited or restricted in the manner and to the extent
prescribed by the Committee at the Date of Grant (which restrictions
may include, without limitation, rights of repurchase or first refusal
in the Company or provisions subjecting the Restricted Shares to a
continuing Substantial Risk of Forfeiture in the hands of any
transferee).
(e) Any grant of Restricted Shares may, but need not, specify
Management Objectives that, if achieved, will result in termination or
early termination of the restrictions on Transferability or the risk
of forfeiture applicable to such shares, Each grant may specify in
respect of such Management Objectives a minimum acceptable level of
achievement and may set forth a formula for determining the number of
Restricted Shares on which restrictions will terminate if performance
is at or above the minimum level, but falls short of full achievement
of the specified Management Objectives.
(f) Any such grant of Restricted Shares may, but need not, require
that any or all dividends or other distributions paid thereon during
the period of such restrictions be automatically deferred and
reinvested in additional Restricted Shares, which may be subject to
the same restrictions as the underlying award.
(g) Each grant of Restricted Shares shall be evidenced by an agreement
executed on behalf of the Corporation by an officer and delivered to
and accepted by the Participant and shall contain such terms and
provisions, consistent with this Plan, as the Committee may approve.
(h) All certificates representing Restricted Shares shall bear a
legend noting Transferability of the shares is subject to the terms of
this Plan and the Restricted Stock Agreement. Upon satisfaction of all
restrictions on Transferability and the lapse of any risk of
forfeiture of the Restricted Shares, the Participant shall surrender
the Restricted Share certificate to the Company for cancellation and
the Company shall issue a new stock certificate, without a restrictive
legend, for the same number of shares of Common Stock represented by
the surrendered Restricted Shares certificate.
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<PAGE> 7
7. SHARES SUBJECT TO THE PLAN
(a) Subject to adjustment as provided in Section 9 hereof, the number
of shares of Common Stock that: (i) may be issued or transferred as Restricted
Shares and released from Substantial Risk of Forfeiture or (ii) in payment of
dividend equivalents paid with respect to Restricted Shares granted under the
Plan shall not exceed in the aggregate the shares of treasury stock held by the
Corporation on the Date of Grant, less the number of shares of treasury stock
subject to any outstanding awards of Restricted Shares which have not
Substantially Vested.
(b) The use of any shares of Common Stock other than treasury shares
to award grants of Restricted Shares under this Plan shall require the prior
consent of the Board and the approval of the Corporation's shareholders as well
as compliance with the requirements of state and federal securities laws and
the rules of any exchange on which the Corporation's Common Stock is
registered.
8. INDIVIDUAL AND SHARE LIMITS
(a) No Participant shall be granted Restricted Shares, in the
aggregate, for more than fifty percent (50%) of the shares of Common Stock
authorized to be issued as Restricted Shares under this Plan.
(b) The number of shares of Common Stock issued as Restricted Shares
to all Participants during the term of this Plan shall not, in the aggregate,
exceed Two Hundred Thousand (200,000) shares of Common Stock.
(c) If Restricted Shares which had been granted to a Participant are
canceled, as such term is applied in section 162(m) of the Code, the shares of
Common Stock which had been subject to such canceled Restricted Shares shall
continue to be counted against the maximum number of shares of Common Stock
that can be issued under this Plan and the maximum number of Restricted Shares
that may be granted to such Participant pursuant to Section 8 (a) herein. In
the event that the number of Restricted Shares that may be granted is adjusted
as provided in section 9 hereof, the above limits shall automatically be
adjusted in the same ratio.
9. CHANGES IN CAPITALIZATION
In the event there are any changes in the Common Stock or the
capitalization of the Corporation through a corporate transaction, such as any
merger, any acquisition through the issuance of capital stock of the
Corporation, any consolidation, any separation of the Corporation (including a
spin-off or other distribution of stock by the Corporation), any reorganization
of the Corporation (whether or not such reorganization comes within the
definition of such term in section 368 of the Code), or any partial or complete
liquidation by the Corporation, recapitalization, stock dividend, stock split
or other change in the corporate capital structure, appropriate adjustments and
changes in the
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<PAGE> 8
number of Restricted Shares previously granted to each Participant shall be
made by the Committee, to the extent necessary, to preserve the benefit to the
Participants contemplated by the Plan and any such previous grant of Restricted
Shares and a comparable adjustment shall be made to the limitations contained
in sections 8(a) and (b) of the Plan; provided, however, that no such
adjustment or change may be made to the extent that such adjustment or change
will result in the disallowance of a deduction to the Corporation under section
162(m) of the Code, or any successor section, that would otherwise have been
available for a previous grant of Restricted Shares.
10. EFFECT ON OTHER PLANS
All benefits under the Plan shall constitute special compensation and
shall not affect the level of benefits provided to or received by any
Participant (or the Participant's estate or beneficiaries) as part of any
employee benefit plan of the Corporation or an Affiliate. The Plan shall not be
construed to affect in any way a Participant's rights and obligations under any
other plan maintained by the Corporation or an Affiliate on behalf of others
including such Participants.
11. TERM OF THE PLAN
The Plan shall remain in effect until the tenth anniversary of the
date of its adoption by the Board, unless the Plan is terminated prior thereto
by the Committee. No Restricted Shares may be granted after the termination
date of the Plan, but Restricted Shares theretofore granted shall continue in
force beyond that date pursuant to their terms.
12. NONRESIDENT ALIENS
In order to facilitate the making of any grant under this Plan, the
Committee may provide for such special terms for awards to Participants who are
foreign nationals, or who are employed by the Corporation or any Affiliate
outside of the United States of America, as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. Moreover, the Committee may approve such supplements to or amendments,
restatements or alternative versions of this Plan as it may consider necessary
or appropriate for such purposes, without thereby affecting the terms of this
Plan as in effect for any other purposes, and the Secretary or other
appropriate officer of the Corporation may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special
terms, supplements, amendments or restatements, however, shall include any
provisions that are inconsistent with the terms of this Plan then in effect
unless this Plan could be amended to eliminate such inconsistency without
approval by the stockholders of the Corporation; provided further, that no
action may be taken under this section 12 if such action would (1) materially
increase any benefits accruing to any Participant under the Plan, (2)
materially increase the number of securities which would be issued under the
Plan, (3) modify the requirements for eligibility to participate in the Plan,
(4) result in a failure to comply with applicable provisions of the Securities
Act, the Exchange Act or the Code or
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<PAGE> 9
(5) result in the disallowance of a deduction that would otherwise have been
available to the Corporation under section 162(m) of the Code, or any successor
section.
13. TRANSFERABILITY
(a) Except as otherwise determined by the Committee, no Restricted
Shares that have not yet Substantially Vested in the Participant and no right
to receive dividends thereon shall be transferable by a Participant other than
by will or the laws of descent and distribution.
(b) The Committee, in its discretion, may specify at the Date of Grant
that part or all of the shares of Common Stock that are not subject to a
Substantial Risk of Forfeiture and restrictions on Transferability referred to
in Section 6 of this Plan, shall be subject to further restrictions on
transfer.
(c) Notwithstanding the provisions of Section 13(a), but subject to
the prior approval of the Committee, Restricted Shares shall be transferable by
a Participant, without payment of consideration therefore by the transferee, to
any one or more members of the Participant's Immediate Family (or to one or
more trusts established solely for the benefit of one or more members of the
Participant's Immediate Family or to one or more partnerships in which the only
partners are members of the Participant's Immediate Family); provided, however,
that (i) no such transfer shall be effective unless reasonable prior notice
thereof is delivered to the Corporation and such transfer is thereafter
effected in accordance with any terms and conditions that shall have been made
applicable thereto by the Corporation or the Committee and (ii) any such
transferee shall be subject to the same terms and conditions thereunder as the
Participant.
14. GENERAL PROVISIONS
(a) No Right of Continued Employment. Neither the establishment of the
Plan nor the payment of any benefits hereunder nor any action of the
Corporation, its Affiliates, the Board of Directors of the Corporation or its
Affiliates, or the Committee shall be held or construed to confer upon any
person any legal right to be continued in the employ of the Corporation or its
Affiliates, and the Corporation and its Affiliates expressly reserve the right
to discharge any Participant without liability to the Corporation, its
Affiliates, the Board of Directors of the Corporation or its Affiliates, or the
Committee, except as to any rights which may be expressly conferred upon a
Participant under the Plan.
(b) Binding Effect. Any decision made or action taken by the
Corporation, the Board or by the Committee arising out of or in connection with
the construction, administration, interpretation and effect of the Plan shall
be conclusive and binding upon all persons.
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<PAGE> 10
(c) Inalienability of Benefits and Interest. Except as provided in
subsections 6(d) and 13(c), no benefit payable or interest in the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any such attempted action shall be void and
no such benefit or interest shall be in any manner liable for or subject to
debts, contracts, liabilities, engagements, or torts of any Participant or
beneficiary.
(d) Georgia Law to Govern. All questions pertaining to the
construction, interpretation, regulation, validity and effect of the provisions
of the Plan shall be determined in accordance with the laws of the State of
Georgia.
(e) Purchase of Common Stock. The Corporation and its Affiliates may
purchase from time to time shares of Common Stock in such amounts as they may
determine for purposes of the Plan. The Corporation and its Affiliates shall
have no obligation to retain, and shall have the unlimited right to sell or
otherwise deal with for their own account, any shares of Common Stock purchased
pursuant to this paragraph.
(f) Withholding. The Committee shall require the withholding of all
taxes as required by law. A Participant shall pay in cash any amount required
to be withheld under federal, state or local law with respect to the
Substantial Vesting of Restricted Shares or the Participant may elect with
respect to payment of any portion of the federal, state or local income tax
withholding required with respect to the Substantial Vesting of Restricted
Shares be satisfied by tendering to the Corporation Restricted Shares, which,
in the absence of such an election, would have been unrestricted as to such
Participant in connection with such Substantial Vesting. In the event that the
Fair Market Value of such shares tendered to satisfy the withholding tax
exceeds the sum of the consideration due from the Participant and the amount of
such tax, the excess amount shall be returned to the Participant, to the extent
possible, in whole shares of Common Stock, and the remainder in cash. The value
of a share of Common Stock tendered pursuant to this subsection 14(f) shall be
the Fair Market Value of the Common Stock, adjusted to reflect any non-lapse
conditions, on the date on which such shares are tendered to the Corporation.
An election pursuant to this subsection 14(f) shall be made in writing and
signed by the Participant. An election pursuant to this subsection 14(f) is
irrevocable. A Participant who Substantially Vests in Restricted Shares and who
is required to report to the Securities and Exchange Commission under section
16(a) of the Exchange Act (an "Insider") may satisfy the income tax withholding
due in respect of such substantial vesting event pursuant to this subsection
14(f) by tendering shares only if the Insider also satisfies an exemption under
section 16(a) of the Exchange Act (or the rules or regulations promulgated
thereunder) for such withholding.
(g) Code Section 83(b) Election. A Participant may elect to include in
his gross income for the taxable year in which Restricted Shares are granted
the excess of the Fair Market Value of the Restricted Shares on the Date of
Grant over the amount paid by the Participant for such shares by giving the
Corporation written notice of such election within thirty (30) days of the Date
of Grant in a manner that meets all Code requirements.
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<PAGE> 11
(h) Amendments. The Committee may at any time amend, suspend, or
discontinue the Plan or alter or amend any or all Restricted Shares and any
agreements pursuant to which Restricted Shares are granted under the Plan to
the extent (1) permitted by law, (2) permitted by the rules of any stock
exchange on which the Common Stock or any other security of the Corporation is
listed, (3) permitted under applicable provisions of the Securities Act and the
Exchange Act (including rule 16b-3); and (4) that such action would not result
in the disallowance of a deduction that would have otherwise have been
available to the Corporation under section 162(m) of the Code or any successor
section (including the rules and regulations promulgated thereunder) on such
grants; provided, however, that if any of the foregoing requires the approval
by stockholders of the Corporation of any such amendment, suspension or
discontinuance, then the Committee may take such action subject to the approval
of such stockholders. No such amendment, suspension, or termination of the Plan
shall, without the consent of the Participant, adversely alter or change any of
the Restricted Shares or the terms of any agreement pursuant to which
Restricted Shares were previously granted to the Participant under the Plan.
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<PAGE> 1
EXHIBIT 10.14.4
AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT
DATED JANUARY 7, 2000
This Amendment No. 3 dated as of January 7, 2000 ("Amendment") is
among Schweitzer-Mauduit International, Inc., a Delaware corporation ("Company"
or "Guarantor"), Schweitzer-Mauduit France S.A.R.L., a French corporation
("SMF"), PDM Industries, S.N.C., a French corporation ("PDM", together with the
Company and SMF, the "Borrowers"), the banks party hereto ("Banks") and Societe
Generale, as agent for the Banks ("Agent").
INTRODUCTION
A. The Borrowers, the Guarantor, the Banks and the Agent are
party to the Amended and Restated Credit Agreement dated as of January 30,
1998, as amended by Amendment No. 1 dated as of January 29, 1999 and Amendment
No. 2 dated as of May 6, 1999 (as amended, the "Credit Agreement").
B. The Borrowers have requested that the Banks agree to (1)
extend the Maturity Date of the U.S. Revolving Commitments and the French
Revolving Commitments under the Credit Agreement from January 28, 2000 to
January 26, 2001 and (2) make certain other amendments to the Credit Agreement.
THEREFORE, the Borrowers, the Guarantor, the Agent and the Banks
hereby agree as follows:
Section 1. Definitions; References. Unless otherwise defined in this
Amendment, terms used in this Amendment which are defined in the Credit
Agreement shall have the meanings assigned to such terms in the Credit
Agreement.
Section 2. Amendments. Upon the satisfaction of each of the conditions
precedent set forth in Section 4 below, the Credit Agreement is hereby amended
as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended as
follows:
(i) by deleting the date "January 28, 2000" in the
definition of "Maturity Date" and replacing it with the date "January
26, 2001"; and
(ii) by deleting the percentage ".45%" in the definition
of "Applicable Margin" and replacing it with the percentage ".75%".
(b) Section 2.03(a) of the Credit Agreement is hereby amended as
follows:
(i) by deleting the percentage ".15%" and replacing it
with the percentage ".20%"; and
<PAGE> 2
(ii) by deleting the date "March 31, 1999" and replacing
it with the date "March 31, 2000".
(c) Section 6.09(vi) of the Credit Agreement is amended in its
entirety as follows:
(vi) Debt of SMS and Schweitzer-Mauduit do Brasil S.A. in
an aggregate principal amount not to exceed $7,500,000.
Section 3. Representations and Warranties. The Borrowers and the
Guarantor represent and warrant to the Agent and the Banks as of the date
hereof:
(a) Any representations and warranties set forth in the Credit
Agreement and in the other Credit Documents (other than those made as of a
specific date) are true and correct in all material respects;
(b) (i) The execution, delivery and performance of this Amendment
are within the corporate power and authority of the Borrowers and the Guarantor
and have or will have been duly authorized by appropriate proceedings and (ii)
this Amendment constitutes a legal, valid, and binding obligation of the
Borrowers and the Guarantor enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the rights of creditors generally and general principles
of equity;
(c) No Default or Event of Default has occurred and is
continuing;and
(d) No Potential Phaseout Event has occurred.
Section 4. Effectiveness. This Amendment shall become effective and
the Credit Agreement shall be amended as provided in Section 2 of this
Amendment when the Agent shall have received this Amendment duly and validly
executed by the Borrowers, the Agent and the Banks.
Section 5. Reaffirmation of Guaranty. The Company hereby reaffirms its
obligations under Article VIII of the Credit Agreement and agrees to remain
liable for the repayment of the Guaranteed Obligations (as defined therein), as
such Guaranteed Obligations have been amended hereby.
Section 6. Choice of Law. This Amendment shall be governed by and
construed and enforced in accordance with the laws of the State of New York.
Section 7. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original.
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EXECUTED as of the date first set forth above.
BORROWERS:
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
By:
---------------------------------------
Wayne H. Deitrich
Chairman and Chief Executive Officer
SCHWEITZER-MAUDUIT FRANCE S.A.R.L.
By:
---------------------------------------
Jean-Pierre Le Hetet
Gerant (Manager)
PDM INDUSTRIES S.N.C.
By: Papeteries de Mauduit S.A., as Manager
By:
---------------------------------------
Jean-Pierre Le Hetet
Legal Representative
GUARANTOR:
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
By:
---------------------------------------
Wayne H. Deitrich
Chairman and Chief Executive Officer
AGENT:
SOCIETE GENERALE
By:
---------------------------------------
Nicolas Guerin
Vice President
-3-
<PAGE> 4
BANKS:
SOCIETE GENERALE
By:
---------------------------------------
Nicolas Guerin
Vice President
BANQUE NATIONALE DE PARIS
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
CREDIT LYONNAIS
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
NATEXIS BANQUE
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SUNTRUST BANK, ATLANTA
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
WACHOVIA BANK, N.A.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-4-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
The subsidiaries of the Company at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR
NAME ORGANIZATION
- ---- --------------------------
<S> <C>
Schweitzer-Mauduit Canada, Inc.................................... Manitoba Province (Canada)
Schweitzer-Mauduit Spain, S.L..................................... Spain
- LTR Industries S.A................................... France
- Schweitzer-Mauduit do Brasil, S.A.................... Brazil
Schweitzer-Mauduit France S.A.R.L................................. France
- Papeteries de Mauduit S.A............................ France
-- PDM Industries S.N.C............................ France
-- Papeteries de Malaucene S.A..................... France
-- Malaucene Industries S.N.C.................. France
- Groupe SAPAM S.A..................................... France
-- Papeteries de Saint-Girons S.A.................. France
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-99812, No. 33-99814, No. 33-99816, and No. 33-99848 of Schweitzer-Mauduit
International, Inc. and subsidiaries on Form S-8 of our report dated January
21, 2000, appearing in the Annual Report on Form 10-K of Schweitzer-Mauduit
International, Inc. and subsidiaries for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 3, 2000
<PAGE> 1
EXHIBIT 24.1
POWERS OF ATTORNEY
<PAGE> 2
POWER OF ATTORNEY
The undersigned, Claire L. Arnold, hereby constitutes and appoints
John W. Rumely, Jr. and Paul C. Roberts, or either of them, her true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for her and in her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Schweitzer-Mauduit
International, Inc. for the fiscal year ended December 31, 1999, and any and
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated this 24th day of February, 2000 /s/ CLAIRE L. ARNOLD
------------------------
Claire L. Arnold
<PAGE> 3
POWER OF ATTORNEY
The undersigned, Alan R. Batkin, hereby constitutes and appoints
John W. Rumely, Jr. and Paul C. Roberts, or either of them, his true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Schweitzer-Mauduit
International, Inc. for the fiscal year ended December 31, 1999, and any and
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated this 24th day of February, 2000 /s/ ALAN R. BATKIN
------------------------
Alan R. Batkin
<PAGE> 4
POWER OF ATTORNEY
The undersigned, K.C. Caldabaugh, hereby constitutes and appoints
John W. Rumely, Jr. and Paul C. Roberts, or either of them, his true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Schweitzer-Mauduit
International, Inc. for the fiscal year ended December 31, 1999, and any and
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated this 24th day of February, 2000 /s/ K.C. CALDABAUGH
------------------------
K.C. Caldabaugh
<PAGE> 5
POWER OF ATTORNEY
The undersigned, Laurent G. Chambaz, hereby constitutes and
appoints John W. Rumely, Jr. and Paul C. Roberts, or either of them, his true
and lawful attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Schweitzer-Mauduit
International, Inc. for the fiscal year ended December 31, 1999, and any and
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated this 24th day of February, 2000 /s/ LAURENT G. CHAMBAZ
------------------------
Laurent G. Chambaz
<PAGE> 6
POWER OF ATTORNEY
The undersigned, Richard D. Jackson, hereby constitutes and appoints
John W. Rumely, Jr. and Paul C. Roberts, or either of them, his true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Schweitzer-Mauduit
International, Inc. for the fiscal year ended December 31, 1999, and any and
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated this 24th day of February, 2000 /s/ RICHARD D. JACKSON
------------------------
Richard D. Jackson
<PAGE> 7
POWER OF ATTORNEY
The undersigned, Leonard J. Kujawa, hereby constitutes and
appoints John W. Rumely, Jr. and Paul C. Roberts, or either of them, his true
and lawful attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Schweitzer-Mauduit
International, Inc. for the fiscal year ended December 31, 1999, and any and
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated this 24th day of February, 2000 /s/ LEONARD J. KUJAWA
------------------------
Leonard J. Kujawa
<PAGE> 8
POWER OF ATTORNEY
The undersigned, Jean-Pierre Le Hetet, hereby constitutes and
appoints John W. Rumely, Jr. and Paul C. Roberts, or either of them, his true
and lawful attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Schweitzer-Mauduit
International, Inc. for the fiscal year ended December 31, 1999, and any and
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated this 24th day of February, 2000 /s/ JEAN-PIERRE LE HETET
------------------------
Jean-Pierre Le Hetet
<PAGE> 9
POWER OF ATTORNEY
The undersigned, Larry B. Stillman, hereby constitutes and
appoints John W. Rumely, Jr. and Paul C. Roberts, or either of them, his true
and lawful attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K of Schweitzer-Mauduit
International, Inc. for the fiscal year ended December 31, 1999, and any and
all amendments thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Dated this 24th day of February, 2000 /s/ LARRY B. STILLMAN
------------------------
Larry B. Stillman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SCHWEITZER-MAUDUIT FOR THE YEAR ENDED DECEMBER 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,100
<SECURITIES> 0
<RECEIVABLES> 72,100
<ALLOWANCES> 1,900
<INVENTORY> 62,900
<CURRENT-ASSETS> 159,200
<PP&E> 451,900
<DEPRECIATION> 199,800
<TOTAL-ASSETS> 436,600
<CURRENT-LIABILITIES> 107,400
<BONDS> 100,900
0
0
<COMMON> 1,600
<OTHER-SE> 182,600
<TOTAL-LIABILITY-AND-EQUITY> 436,600
<SALES> 504,400
<TOTAL-REVENUES> 504,400
<CGS> 394,000
<TOTAL-COSTS> 394,000
<OTHER-EXPENSES> 45,800
<LOSS-PROVISION> 700
<INTEREST-EXPENSE> 5,800
<INCOME-PRETAX> 60,700
<INCOME-TAX> 23,700
<INCOME-CONTINUING> 31,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,400
<EPS-BASIC> 1.99
<EPS-DILUTED> 1.99
</TABLE>
