Glatfelter Corp

Previous wording

As previously announced on February 7, 2024, we entered into certain definitive agreements with Berry Global Group, Inc. (“Berry”) for Berry to spin-off and merge the majority of its Health, Hygiene and Specialties segment including its Global Nonwovens and Films business (“HHNF”) with Glatfelter (the “Merger”). The board of directors of both Berry and Glatfelter have unanimously approved the Merger. The Merger is expected to occur through a series of transactions, including a Reverse Morris Trust transaction such that HHNF will become a wholly owned subsidiary of Glatfelter. Upon completion of the Merger, Berry shareholders will hold 90% of the outstanding shares of Glatfelter and Glatfelter shareholders will continue to hold 10% of the outstanding shares of Glatfelter. The combined company’s Board of Directors will include 6 members chosen by Berry and 3 chosen from Glatfelter’s existing Board of Directors, with Curt Begle, the current president of the Health, Hygiene & Specialties Division of Berry becoming the Chief Executive Officer. The transaction is expected to close in the second half of 2024, subject to Glatfelter shareholder approval and customary closing conditions and regulatory approvals. Prior to the completion of the Merger, Glatfelter and HHNF will continue to operate as independent companies.

Current wording

As previously announced on February 7, 2024, we entered into certain definitive agreements with Berry Global Group, Inc. (“Berry”) for Berry to spin-off and merge the majority of its Health, Hygiene and Specialties segment including its Global Nonwovens and Films business (“HHNF”) with Glatfelter (the “Merger”). The board of directors of both Berry and Glatfelter have unanimously approved the Merger. The Merger is expected to occur through a series of transactions, including a Reverse Morris Trust transaction such that HHNF will become a wholly owned subsidiary of Glatfelter. Upon completion of the Merger, Berry shareholders will hold 90% of the outstanding shares of Glatfelter and Glatfelter shareholders will continue to hold 10% of the outstanding shares of Glatfelter. The combined company’s Board of Directors will include 6 members chosen by Berry and 3 chosen from Glatfelter’s existing Board of Directors, with Curt Begle, the current president of the Health, Hygiene & Specialties Division of Berry, becoming the Chief Executive Officer.

Previous wording

The reported results are in accordance with generally accepted accounting principles in the United States (“GAAP”) and reflect the impact of a number of significant items including strategic initiatives, turnaround strategy costs, debt refinancing, and CEO transition costs, among others. Our operating results for the three months ended March 31, 2024 reflect: i) the impact of European market challenges resulting in lower sales volumes, as well as, lower production; ii) higher interest expense stemming from the debt refinancing in the first quarter of 2023; iii) costs incurred related to the merger with Berry’s HHNF business.

Current wording

The reported results are in accordance with generally accepted accounting principles in the United States (“GAAP”) and reflect the impact of a number of significant items including strategic initiatives, turnaround strategy costs, debt refinancing, and CEO transition costs, among others. Our operating results for the six months ended June 30, 2024 reflect: i) the impact of European market challenges resulting in lower sales volumes, as well as, lower production; ii) higher interest expense stemming from the debt refinancing in the first six months of 2023; iii) costs incurred related to the merger with Berry’s HHNF business.

Previous wording

(1)For 2024, reflects primarily professional services fees related to the Berry HHNF merger (including transaction advisory, legal and other consultant costs) of $10.5 million and personnel retention, to offset the risk of potential employee departures due to the pending transaction, and other costs of $0.4 million. For 2023, reflects consulting and legal fees of $0.5 million, employee separation costs of $0.1 million, and other costs of $0.1 million.

Current wording

(1)For 2024, primarily reflects consulting and legal fees associated with the pending Berry HHNF merger of $13.9 million, and personnel retention, to offset the risk of potential employee departures due to the pending transaction, and other costs of $1.1 million. For 2023, primarily reflects integration activities including consulting and legal fees of $0.7 million, the write-off of a construction in process asset deemed unusable of $0.5 million, employee separation costs of $0.1 million, and other costs of $0.4 million.

Previous wording

(2)For 2024, primarily reflects employee separation costs. For 2023, reflects employee separation costs of $3.3 million and $1.2 million in professional fees.

Current wording

(2)For 2024, primarily reflects employee separation costs. For 2023, reflects employee separation costs of $4.0 million and $2.7 million in professional fees.

Previous wording

(3)In 2023, reflects $1.8 million write-off of deferred debt issuance costs in connection with the Company’s debt refinancing and $0.1 million in early repayment penalties and write-off of unamortized financing fees on the IKB Deutsche Industriebank AG, Düsseldorf ("IKB") loans.

Current wording

(4)Reflects $1.8 million write-off of deferred debt issuance costs in connection with the Company’s debt refinancing in Q1 2023, and $0.1 million in early repayment penalties and write-off of unamortized financing fees on the IKB loans.

Previous wording

(4)In 2023, reflects pension settlement charge related to former CEO separation.

Current wording

(5)Reflects pension settlement charge related to former CEO's separation.

Previous wording

Net sales totaled $327.3 million and $378.2 million in the three months ended March 31, 2024 and 2023, respectively. Net sales for Airlaid Materials, Composite Fibers and Spunlace decreased by 18.0%, 13.1% and 7.9%, respectively, on a constant currency basis.

Current wording

Net sales totaled $656.7 million and $735.2 million in the six months ended June 30, 2024 and 2023, respectively. Net sales for Airlaid Materials, Composite Fibers and Spunlace decreased by 16.0%, 9.5% and 2.3%, respectively, on a constant currency basis.

Previous wording

Airlaid Materials’ 2024 first quarter operating income of $5.0 million was $9.0 million lower than the first quarter operating income in 2023. Lower shipments and product mix negatively impacted results by $1.8 million. Selling price decreases and lower energy surcharges of $20.3 million offset lower raw material, energy, and other inflationary costs of $17.9 million. For the first quarter of 2024, primary raw material input costs decreased by $15.3 million, or 19%. Energy costs decreased by $2.0 million, or 20%, compared to 2023. As of March 31, 2024, Airlaid Materials had approximately 77% of its net sales with contracts with pass-through provisions. Operations and other costs were unfavorable by $3.7 million mainly driven by lower production and higher wage inflation. The impact of currency and related hedging negatively impacted earnings by $1.0 million. The primary drivers of the change in Airlaid Materials’ operating income are summarized in the following chart (presented in millions):

Current wording

Airlaid Materials’ first six months of operating income of $12.5 million was $11.1 million lower when compared to the first six months of 2023. Selling price decreases of $33.3 million were mostly offset by lower raw material, energy, and other inflation costs of $32.1 million. For the first six months of 2024, primary raw material input costs decreased by $29 million, or 18%, and energy costs decreased by $2.1 million, or 12%, compared to the same six months of 2023. As of June 30, 2024, Airlaid Materials had approximately 76% of its net sales with contracts with pass-through provisions. Operations were unfavorable by $5.8 million mainly driven by lower production and higher wage inflation. The impact of currency and related hedging negatively impacted earnings by $1.5 million. The primary drivers of the change in Airlaid Materials’ operating income are summarized in the following chart (presented in millions):

Previous wording

Composite Fibers’ net sales were $16.4 million lower in the first quarter of 2024, compared to 2023 due to lower selling prices of $11.1 million. Even though shipments were higher 0.7%, it was largely driven by composite laminates category that have lower average selling prices compared to other inclined wire products lowering the revenue for the quarter. Currency translation was favorable by $0.9 million.

Current wording

Composite Fibers’ net sales were $25.0 million lower in the first six months of 2024, compared to 2023 due to lower selling prices of $18.6 million. Even though shipments were higher 1.9%, it was largely driven by the composite laminates and food and beverage categories that have lower average selling prices compared to other inclined wire products lowering the revenue for the six months. Currency translation was favorable by $0.4 million.

Previous wording

Spunlace’s net sales were $6.6 million lower in the first quarter of 2024 compared to 2023, mainly driven by lower selling prices of $4.2 million due to cost pass-through arrangements and lower year over year shipments of 2.0%. Currency translation was slightly favorable by $0.2 million.

Current wording

Spunlace’s net sales were$3.8 million lower in the first six months of 2024 compared to 2023, mainly driven by lower selling prices of $6.4 million due to cost pass-through arrangements. Shipments were slightly higher year over year by 1.3%. Currency translation was slightly unfavorable by $0.1 million.

Previous wording

Other and Unallocated The amount of operating expense not allocated to a reporting segment in the Segment Financial Information totaled $17.5 million in the first quarter of 2024 compared with $11.9 million in the same period a year ago. Excluding the items identified to present “adjusted earnings,” unallocated expenses for the first quarter of 2024 decreased $0.7 million compared to the first quarter of 2023 mainly driven by lower professional services costs.

Current wording

Other and Unallocated The amount of operating expense not allocated to a reporting segment in the Segment Financial Information totaled $26.0 million in the first six months of 2024 compared with $31.7 million in the same period a year ago. Excluding the items identified to present “adjusted earnings,” unallocated expenses for the first six months of 2024 decreased $2.6 million compared to the first six months of 2023 mainly driven by a loss recovery settlement with a supplier for faulty material supplied to Glatfelter in 2022 and lower professional services costs.

Previous wording

Foreign Currency We own and operate facilities in Canada, Germany, France, the United Kingdom, Spain, and the Philippines. The functional currency of our Canadian operations is the U.S. dollar. However, in Germany, France and Spain, it is the euro, in the UK, it is the British pound sterling, and in the Philippines the functional currency is the peso. On an annual basis, our euro denominated net sales exceeds euro expenses by an estimated €190 million. For the three months ended March 31, 2024, the average currency exchange rate was 1.09 dollar/euro compared with 1.01 in the same period of 2023. With respect to the British pound sterling, Canadian dollar, and Philippine peso, we have differing amounts of inflows and outflows of these currencies, although to a lesser degree than the euro. As a result, we are exposed to changes in currency exchange rates and such changes could be significant. The translation of the results from international operations into U.S. dollars is subject to changes in foreign currency exchange rates.

Current wording

Foreign Currency We own and operate facilities in Canada, Germany, France, the United Kingdom, Spain, and the Philippines. The functional currency of our Canadian operations is the U.S. dollar. However, in Germany, France and Spain, it is the euro, in the UK, it is the British pound sterling, and in the Philippines the functional currency is the peso. On an annual basis, our euro denominated net sales exceeds euro expenses by an estimated €170 million. For the six months ended June 30, 2024, the average currency exchange rate was 1.09 dollar/euro compared with 1.01 in the same period of 2023. With respect to the British pound sterling, Canadian dollar, and Philippine peso, we have differing amounts of inflows and outflows of these currencies, although to a lesser degree than the euro. As a result, we are exposed to changes in currency exchange rates and such changes could be significant. The translation of the results from international operations into U.S. dollars is subject to changes in foreign currency exchange rates.

Previous wording

Overview For the first quarter of 2024, we reported a loss from continuing operations of $26.2 million, or $0.58 per share compared with a loss of $13.2 million or $0.29 per share in the same period in 2023. The following table sets forth summarized consolidated results of operations:

Current wording

Overview For the second quarter of 2024, we reported a loss from continuing operations of $15.8 million, or $0.35 per share compared with a loss of $36.6 million or $0.82 per share in the same period in 2023. The following table sets forth summarized consolidated results of operations:

Previous wording

In addition to the results reported in accordance with GAAP, we evaluate our performance using financial metrics not calculated in accordance with GAAP, including adjusted earnings and adjusted earnings before interest expense, interest income, income taxes, depreciation and amortization and share-based compensation (“Adjusted EBITDA”). On an adjusted earnings basis, a non-GAAP measure, we had an adjusted loss from continuing operations of $14.9 million, or $(0.33) per share for the first quarter of 2024, compared with a loss of $5.9 million, or $(0.13) per share, a year ago. Our Adjusted EBITDA, also a non-GAAP measure, was $23.8 million for the three months ended March 31, 2024 as compared to $24.8 million for the same period in 2023. We disclose this information to allow investors to evaluate our performance exclusive of certain items that impact the comparability of results from period to period and we believe it is helpful in understanding underlying operating trends and cash flow generation.

Current wording

In addition to the results reported in accordance with GAAP, we evaluate our performance using financial metrics not calculated in accordance with GAAP, including adjusted earnings and adjusted earnings before interest expense, interest income, income taxes, depreciation and amortization and share-based compensation (“Adjusted EBITDA”). On an adjusted earnings basis, a non-GAAP measure, we had an adjusted loss from continuing operations of $11.3 million, or $0.25 per share for the second quarter of 2024, compared with a loss of $20.5 million, or $0.45 per share, a year ago. Our Adjusted EBITDA, also a non-GAAP measure, was $25.6 million for the three months ended June 30, 2024 as compared to $17.3 million for the same period in 2023. We disclose this information to allow investors to evaluate our performance exclusive of certain items that impact the comparability of results from period to period and we believe it is helpful in understanding underlying operating trends and cash flow generation.

Previous wording

(6)Tax effect of applying certain provisions of the CARES Act of 2020.

Current wording

(6)Tax effect of applying certain provisions of the CARES Act of 2020. The amount in 2023 also includes $2.4 million of deferred tax expense resulting from valuation allowance for Ober-Schmitten facility.

Previous wording

Airlaid Materials’ first quarter net sales decreased $27.9 million in the year-over-year comparison mainly driven by lower selling prices from cost pass-through arrangements and lower energy surcharges in Europe as both raw materials and energy input costs declined compared to last year. Shipments were 3.7% lower driven by declines in the hygiene categories mainly due to pricing actions taken in 2023 to retain margins in this category. Currency translation was favorable by $0.7 million.

Current wording

Airlaid Materials’ second quarter net sales decreased $21.9 million in the year-over-year comparison mainly driven by lower selling prices from cost pass-through arrangements and lower energy surcharges in Europe as both raw materials and energy input costs declined compared to last year. Shipments were 3.7% lower driven by declines in the hygiene categories mainly due to pricing actions taken in 2023 to retain margins as well as lower shipments in the wipes category related to timing. Currency translation was unfavorable by $0.7 million.

Previous wording

Composite Fibers 2024 first quarter operating income of $8.3 million was $2.1 million higher than the first quarter operating income in 2023. The price-cost gap continued to trend positive this quarter as the decrease in input prices paid for raw materials, energy, freight, and packaging were more favorable than selling price declines, resulting in earnings improvement of $2.5 million. First quarter energy costs were lower by $2.9 million, or 12% compared to 2023 while primary raw material input costs decreased by $10.6 million, or 7%, compared to 2023. As of March 31, 2024, Composite Fibers had approximately 46% of its net sales with contracts with pass-through provisions. Operations and other costs were unfavorable by $0.5 million mainly driven by lower production. The impact of currency and related hedging negatively impacted earnings by $0.2 million. The primary drivers of the change in Composite Fibers’ operating income are summarized in the following chart (presented in millions):

Current wording

Composite Fibers' 2024 second-quarter operating income of $6.0 million was $5.1 million higher than the second-quarter operating income in 2023. The price-cost gap continued to trend positive this quarter as the decrease in input prices paid for raw materials, energy, freight, and packaging were more favorable than selling price declines, resulting in an earnings improvement of $0.9 million. Second quarter energy costs were lower by $1.4 million, or 10% compared to 2023 while primary raw material input costs decreased by $7.0 million, or 4%, compared to second quarter of 2023. As of June 30, 2024, Composite Fibers had approximately 45% of its net sales with contracts with pass-through provisions. Operations and other costs were favorable by $1.9 million mainly driven by higher inclined wire production. The impact of currency and related hedging positively impacted earnings by $0.1 million. The primary drivers of the change in Composite Fibers’ operating income are summarized in the following chart (presented in millions):

Previous wording

Spunlace's 2024 first quarter operating income of $2.8 million was $4.8 million higher compared to the operating loss of $2.0 million in 2023. Lower selling prices and energy surcharges were unfavorable by $4.2 million but were more than fully offset by lower raw material and energy costs of $7.4 million. In the first quarter of 2024, primary raw material input costs decreased by $7 million, or 16% while energy costs were lower 6% compared to 2023. As of March 31, 2024, Spunlace had approximately 49% of its net sales with contracts with pass-through provisions. Operations and others were

Current wording

Spunlace's 2024 second-quarter operating income of $2.3 million was $3.6 million higher compared to the operating loss of $1.3 million in second quarter of 2023. Lower selling prices and energy surcharges were unfavorable by $2.2 million but were more than fully offset by lower raw material and energy costs of $4.1 million. In the second quarter of 2024, primary raw material input costs decreased by $3.8 million, or 10% while energy costs were lower by 6% compared to second quarter of 2023. As of June 30, 2024, Spunlace had approximately 50% of its net sales with contracts with pass-through provisions. Operations and others were favorable by $1.3 million driven by higher production to meet customer

Previous wording

32 - favorable by $2.2 million as actions taken to improve operations, reduce overall spending, and headcount actions provided positive results. The impact of currency and related hedging negatively impacted earnings by $0.2 million. The primary drivers of the change in Spunlace’s operating income are summarized in the following chart (presented in millions):

Current wording

38 - demand. The impact of currency and related hedging negatively impacted earnings by $0.4 million. The primary drivers of the change in Spunlace’s operating income are summarized in the following chart (presented in millions):

Previous wording

Income taxes In the first quarter of 2024, our U.S. GAAP pre-tax loss from continuing operations totaled $21.0 million and we recorded an income tax provision of $5.2 million, which primarily related to the tax provision for foreign jurisdictions, reserves for uncertain tax positions, and valu ation allowances for domestic and foreign jurisdiction losses for which no tax benefit could be recognized. The comparable amounts in the same quarter of 2023 were a pre-tax loss of$9.5 million and an income tax provision of$3.7 million.

Current wording

Income taxes In the second quarter of 2024, our U.S. GAAP pre-tax loss from continuing operations totaled $12.8 million and we recorded an income tax expense of $3.0 million which primarily related to the tax provision for foreign jurisdictions, reserves for uncertain tax positions, and valu ation allowances for domestic and foreign jurisdiction losses for which no tax benefit could be recognized. The comparable amounts in the same quarter of 2023 were a pre-tax loss of$30.2 million and an income tax provision of$6.4 million.

Previous wording

The table below summarizes the translation impact on reported results that changes in currency exchange rates had on our non-U.S. based operations from the conversion of these operation’s results for the first quarter of 2024.

Current wording

The table below summarizes the translation impact on reported results that changes in currency exchange rates had on our non-U.S. based operations from the conversion of these operation’s results for the second quarter of 2024.

Previous wording

At March 31, 2024, we had $30.2 million in cash and cash equivalents (“cash”) held by both domestic and foreign subsidiaries. Approximately 99.6% of our cash and cash equivalents is held by our foreign subsidiaries but could be repatriated without incurring a significant amount of additional taxes.

Current wording

At June 30, 2024, we had $33.9 million in cash and cash equivalents (“cash”) held by both domestic and foreign subsidiaries. Approximately 94.8% of our cash and cash equivalents is held by our foreign subsidiaries but could be repatriated without incurring a significant amount of additional taxes.

Previous wording

Cash used by operating activities in the first three months of 2024 totaled $33.5 million compared with $30.6 million in the same period a year ago. The increase in cash used was primarily due to an increase in interest paid of $5.4 million due to the higher interest rates on our debt stemming from the debt refinancing in the first quarter of 2023, an increase in working capital usage of approximately $2.1 million and income taxes paid of $1.1 million. Operating cash improved $5.8 million primarily due to a lump-sum payment in Q1 2023 to our former CEO under the terms of his non-qualified pension plan.

Current wording

Cash used by operating activities in the first six months of 2024 totaled $20.6 million compared with $53.0 million in the same period a year ago. The decrease in cash used was primarily due to an improvement in working capital usage of approximately $37.6 million, partially offset by an increase in interest paid of $6.1 million due to the higher interest rates on our debt stemming from the debt refinancing in the first six months of 2023 and higher professional costs associated with the pending merger. Operating cash also improved $5.8 million primarily due to a lump-sum payment in Q1 2023 to our former CEO under the terms of his non-qualified pension plan.

Previous wording

Net cash used by investing activities was $7.5 million in the first three months of 2024 compared with $8.8 million in the same period a year ago. Capital expenditures totaled $7.5 million and $9.5 million for the three months ended March 31, 2024 and 2023, respectively. Capital expenditures are expected to total between $35 million and $40 million in 2024.

Current wording

Net cash used by investing activities was $13.2 million in the first six months of 2024 compared with $16.7 million in the same period a year ago. Capital expenditures totaled $13.2 million and $17.5 million for the six months ended June 30, 2024 and 2023, respectively. Capital expenditures are expected to total between $30 million and $35 million in 2024.

Previous wording

Net cash provided by financing activities totaled $20.8 million in the first three months of 2024 compared with $15.2 million in the same period of 2023. The change in financing activities primarily reflects additional borrowings under our existing revolving credit facility . In 2023, we entered into a €250.0 million Term Loan in which the proceeds were used to fully extinguish the €220.0 million Term Loan, the IKB term loans and reduced the revolving credit facility balance.

Current wording

Net cash provided by financing activities totaled $16.9 million in the first six months of 2024 compared with $10.5 million in the same period of 2023. The change in financing activities primarily reflects additional borrowings under our existing revolving credit facility. In 2023, we entered into a €250.0 million Term Loan in which the proceeds were used to fully extinguish the €220.0 million Term Loan, the IKB term loans and reduced the revolving credit facility balance.

Previous wording

As discussed in Item 1 - Financial Information, Note - 15, our Credit Agreement and AG Loan contains a number of customary compliance covenants. As of March 31, 2024, the leverage ratio, as calculated in accordance with the definition in our Credit Agreement and AG Loan, was 3.7x, well within the maximum limit. A breach of these requirements would give rise to certain remedies under the Credit Agreement and AG Loan, among which are the termination, and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest. As discussed in Note 15 -“Long Term Debt,”on March 30, 2023, we amended our Credit Agreement to permit the maximum leverage ratio (calculated as consolidated senior secured debt to consolidated adjusted EBITDA) to be 4.25 to 1.0 through the quarter ended December 31, 2024, stepping down to 4.0 to 1.0 at March 31, 2025, and 3.50 to 1.0 at March 31, 2026.

Current wording

As discussed in Item 1 - Financial Information, Note - 15, our Credit Agreement and AG Loan contains a number of customary compliance covenants. As of June 30, 2024, the leverage ratio, as calculated in accordance with the definition in our Credit Agreement and AG Loan, was 3.5x, well within the maximum limit. A breach of these requirements would give rise to certain remedies under the Credit Agreement and AG Loan, among which are the termination, and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest. As discussed in Note 15 -“Long Term Debt,”on March 30, 2023, we amended our Credit Agreement to permit the maximum leverage ratio (calculated as consolidated senior secured debt to consolidated adjusted EBITDA) to be 4.25 to 1.0 through the quarter ended December 31, 2024, stepping down to 4.0 to 1.0 at June 30, 2025, and 3.50 to 1.0 at June 30, 2026.

Previous wording

At March 31, 2024, we had ample liquidity consisting of $30.2 million of cash on hand and $53.4 million of capacity under our revolving credit facility. We expect to meet all of our near and long-term cash needs from a combination of operating cash flow, cash and cash equivalents, our existing credit facility and other long-term debt.

Current wording

At June 30, 2024, we had ample liquidity consisting of $33.9 million of cash on hand and $78.9 million of capacity under our revolving credit facility. We expect to meet all of our near and long-term cash needs from a combination of operating cash flow, cash and cash equivalents, our existing credit facility and other long-term debt.