Glatfelter (GLT) - 2020 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2020, including income, balance sheet, and cash flow statements, showing improved net income and a slight decrease in total assets Condensed Consolidated Statements of Income (Q1 2020 vs Q1 2019) | In thousands, except per share | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Net sales | $231,560 | $229,133 | | Gross profit | $36,875 | $35,617 | | Operating income | $12,281 | $11,664 | | Income from continuing operations | $7,406 | $4,603 | | Net income | $7,406 | $5,286 | | Diluted earnings per share | $0.17 | $0.12 | Condensed Consolidated Balance Sheets | In thousands | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $461,394 | $477,332 | | Total assets | $1,244,192 | $1,283,794 | | Total current liabilities | $211,815 | $230,503 | | Total liabilities | $701,282 | $727,835 | | Total shareholders' equity | $542,910 | $555,959 | Condensed Consolidated Statements of Cash Flows (Q1 2020 vs Q1 2019) | In thousands | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used by operating activities | ($5,603) | ($24,145) | | Net cash used by investing activities | ($7,014) | ($7,240) | | Net cash used by financing activities | ($6,847) | ($23,611) | | Net decrease in cash | ($20,401) | ($55,654) | Notes to Condensed Consolidated Financial Statements These notes provide detailed information supporting the financial statements, covering restructuring, revenue segmentation, tax impacts, retirement plans, and environmental liabilities - In Q1 2020, the company initiated restructuring actions in the Composite Fibers segment, consolidating its metallizing operation from Germany to the U.K. This resulted in a $2.5 million non-cash charge for accelerated depreciation and $3.5 million in cash severance costs. An additional $4.0 to $5.0 million in charges are expected in Q2 and Q3 2020[34][35] Net Sales by Segment (Q1 2020 vs Q1 2019) | In thousands | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Composite Fibers | $132,711 | $128,717 | | Airlaid Materials | $98,849 | $100,416 | | Total | $231,560 | $229,133 | - The passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 resulted in a $2.6 million benefit to the income tax provision for Q1 2020. The act allows for a five-year carryback of certain net operating losses[48] - The company's qualified pension plan was terminated in 2019. As of March 31, 2020, $51.1 million in assets remained in the pension trust, with approximately $33 million expected to revert to the company in Q2 2020 after satisfying obligations[62][63] - The reserve for the Fox River environmental matter was $21.8 million as of March 31, 2020. The company does not believe that its costs will exceed the accrued amounts by a material amount[100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2020 financial results, highlighting improved segment performance, strong liquidity, and minimal COVID-19 impact due to essential business operations - The company's business was determined to be 'essential or life-sustaining' during the COVID-19 pandemic, and financial performance was not meaningfully impacted through Q1 2020. Demand for personal hygiene and wipes products is expected to remain strong[109][110] Q1 2020 vs Q1 2019 Performance Summary | In thousands, except per share | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net sales | $231,560 | $229,133 | | Operating income | $12,281 | $11,664 | | Income from continuing operations | $7,406 | $4,603 | | Earnings per share (continuing ops) | $0.17 | $0.10 | Reconciliation of Net Income to Adjusted Earnings (Non-GAAP) | In thousands, except per share | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Income from continuing operations | $7,406 | $4,603 | | Total after-tax adjustments | $3,404 | $2,680 | | Adjusted earnings | $10,810 | $7,283 | | Adjusted EPS | $0.24 | $0.16 | - Composite Fibers' operating income increased 33.1% to $15.1 million, driven by a 14.1% increase in shipping volumes and a $4.0 million benefit from lower wood pulp and energy prices[114][132] - Airlaid Materials' operating income increased 19.8% to $12.0 million, driven by a 5.6% increase in shipping volume and favorable operations, which offset lower selling prices from contractual pass-throughs[114][135] - The company expects capital expenditures for the full year 2020 to be between $30 million and $35 million[146] - As of March 31, 2020, the company had ample liquidity, with $104.2 million in cash and $108.0 million of available capacity under its revolving credit facility. The leverage ratio was 2.2x, well within the 4.0x covenant limit[150][153] Quantitative and Qualitative Disclosures About Market Risks This section details the company's market risk exposure, primarily from interest rate fluctuations and foreign currency exchange rates, with hedging strategies in place - As of March 31, 2020, 90.3% of the company's long-term debt was at variable interest rates. However, after giving effect to a €180 million notional value interest rate swap, the exposure to variable rates is reduced to approximately 33.4% of total debt[156][157] - A hypothetical 100 basis point increase in the interest rate on variable rate debt would increase annual interest expense by $0.7 million[156] - The company has significant foreign currency risk, particularly with the Euro, as its annual Euro-denominated revenue exceeds Euro expenses by an estimated €140 million[159] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal control over financial reporting - The chief executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[161] - No changes in internal control over financial reporting occurred during Q1 2020 that have materially affected, or are reasonably likely to materially affect, internal controls[162] PART II – OTHER INFORMATION Risk Factors This section introduces new risk factors related to the COVID-19 pandemic, detailing potential adverse impacts on operations, supply chain, and customer demand - A new risk factor has been added to address the potential impacts of the COVID-19 pandemic, which could adversely affect business operations, demand, and financial condition[163][165] - Specific risks from the pandemic include forced curtailment of operations due to reduced demand or government mandates, disruption of the global supply chain, and financial instabilities or insolvencies of customers[166][167] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files (XBRL) for financial reporting - The filing includes CEO and CFO certifications pursuant to Sections 302(a) and 906 of the Sarbanes-Oxley Act of 2002[170] - Inline XBRL instance documents and related taxonomy files are included as exhibits[170]