Magnera Corp (MAGN)

ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report. Our discussion and analysis of 2023 compared to 2022 is included herein. For discussion and analysis of 2022 compared to 2021, please refer to Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the United States Securities and Exchange Commission on February 27, 2023 and is incorporated herein by reference.

Forward-Looking Statements This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-K are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among others, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

i.risks related to the military conflict between Russia and Ukraine and its impact on our production, sales, supply chain, cost of energy, and availability of energy due to natural gas supply issues into Europe;

ii.disruptions of our global supply chain, including the availability of key raw materials and transportation for the delivery of critical inputs and of products to customers, and the increase in the costs of transporting materials and products;

iii.risks associated with our ability to increase selling prices quickly or sufficiently enough to recover rapid cost inflation in our raw materials, energy, freight and other costs, and the potential reduction or loss of sales due to price increases;

iv.variations in demand for our products, including the impact of unplanned market-related downtime, variations in product pricing, or product substitution;

v.the impact of competition, changes in industry production capacity, including the construction of new facilities or new machines, the closing of facilities and incremental changes due to capital expenditures or productivity increases;

vi.risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;

vii.our ability to develop new, high value-added products;

viii.changes in the price or availability of raw materials we use, particularly woodpulp, pulp substitutes, synthetic pulp, other specialty fibers and abaca fiber;

ix.changes in energy-related prices and commodity raw materials with an energy component;

x.the impact of unplanned production interruption at our facilities or at any of our key suppliers;

xi.disruptions in production and/or increased costs due to labor disputes;

xii.the gain or loss of significant customers and/or on-going viability of such customers;

xiii.the impact of war, terrorism, and/or natural disasters;

xiv.the impact of unfavorable outcomes of audits by various state, federal or international tax authorities or changes in pre-tax income and its impact on the valuation of deferred taxes; and

xv.enactment of adverse state, federal or foreign tax or other legislation or changes in government legislation, policy or regulation.

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Introduction We manufacture a wide array of engineered materials and manage our company along three operating segments:

•Airlaid Materials with sales of airlaid nonwoven fabric-like materials used in feminine hygiene products, adult incontinence products, tabletop, specialty wipes, home care products and other airlaid applications;

•Composite Fibers with sales of single-serve tea and coffee filtration papers, wallcovering base materials, composite laminate papers, technical specialties including substrates for electrical applications, and metallized products; and

•Spunlace with sales of premium quality spunlace nonwovens for critical cleaning, high-performance materials, personal care, hygiene and medical applications.

Acquisitions As discussed in Item 8 - Financial Statements and Supplementary Data, Note 3 “Acquisitions,” we completed our acquisitions of Georgia-Pacific's U.S. nonwovens business (“Mount Holly”) on May 13, 2021 for $170.9 million and the acquisition of all outstanding equity of PMM Holdings (Luxembourg) AG ("Jacob Holm") on October 29, 2021 for $304.0 million. Refer to Note 3 - "Acquisitions" for additional information about these transactions.

RESULTS OF OPERATIONS

2023 versus 2022

Overview For the year ended December 31, 2023, we reported a loss from continuing operations of $78.1 million, or loss of $1.73 per share compared with a loss of $194.1 million and loss of $4.33 per share in 2022. The following table sets forth summarized GAAP-based consolidated results of operations:

We used $25.6 million of cash for operating activities in 2023 compared with a cash outflow of $40.8 million a year ago. During 2023 and 2022, capital expenditures totaled $33.8 and $37.7 million, respectively. Refer to Liquidity and Capital Resources for additional discussion of our sources and uses of cash.

The reported results are in accordance with generally accepted accounting principles in the United States (“GAAP”) and reflect a number of significant items both positive and negative to our Income from Continuing Operations, including: the Ober-Schmitten operations divestiture, turnaround strategy expenses, recognizing tornado related costs, strategic initiatives expenses, debt refinancing costs, and benefits from the sale of timberlands, among others. Excluding these items from reported results, our adjusted loss, a non-GAAP measure, was $38.7 million, or $0.86 loss per share for 2023, compared with our adjusted loss of $19.0 million, or $0.42 loss per share, a year ago. Operating income for our Airlaid Materials segment was $11.6 million lower in 2023 compared with 2022. Operating income for our Composite Fibers segment and Spunlace segment were $4.4 million and $7.2 million higher, respectively. In addition to the results reported in accordance with GAAP, we evaluate our performance using adjusted earnings and adjusted earnings before interest expense, interest income, income taxes, depreciation and amortization and stock-based compensation (“Adjusted EBITDA”). 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.

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Adjusted earnings consists of net income determined in accordance with GAAP adjusted to exclude the impact of the following:

Goodwill and Other Asset Impairment Charges. This adjustment represents non-cash charges recorded to reduce the carrying amount of certain long-lived assets of our Dresden and Ober-Schmitten, Germany facilities and goodwill of our Composite Fibers and Spunlace reporting segments.

Turnaround strategy costs. This adjustment reflects costs incurred in connection with the Company's turnaround strategy initiated in 2022 under its new chief executive officer to drive operational and financial improvement. These costs are primarily related to professional services fees and employee separation expenses.

Russia/Ukraine conflict charges. This adjustment represents a non-cash charge recorded to reduce the carrying amount of accounts receivable and inventory directly related to the Russia/Ukraine military conflict.

Strategic initiatives. These adjustments primarily reflect professional and legal fees incurred directly related to evaluating and executing certain strategic initiatives including costs associated with acquisitions, the pending merger, and related integrations.

Ober-Schmitten divestiture costs. This adjustment reflects the loss on sale of the Ober-Schmitten, Germany operations and professional and other costs directly associated with the sale of the facility.

Tornado insurance deductible costs. This adjustment reflects the deductible on an insured loss to a leased Spunlace facility in Tennessee resulting from tornadoes in December 2023.

Debt refinancing costs. Represents charges to write-off unamortized debt issuance costs in connection with the extinguishment of the Company’s €220.0 million Term Loan and IKB loans, as well as the amendment to the Company's credit facility. These costs also include an early repayment penalty related to the extinguishment of the IKB loans.

CEO transition costs. This adjustment reflects costs related to consulting services provided by the former CEO.

Corporate headquarters relocation. These adjustments reflect costs incurred in connection with the strategic relocation of the Company’s corporate headquarters to Charlotte, NC. The costs are primarily related to employee relocation costs and exit costs at the former corporate headquarters.

Cost optimization actions. These adjustments reflect charges incurred in connection with initiatives to optimize the cost structure of the Company, improve efficiencies or other objectives. Such actions may include asset rationalization, headcount reductions or similar actions. These adjustments, which have occurred at various times in the past, are irregular in timing and relate to specific identified programs to reduce or optimize the cost structure of a particular operating segment or the corporate function.

COVID-19 ERC recovery. This adjustment reflects the benefit recognized from employee retention credits claimed under the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and professional services fees directly associated with claiming this benefit.

Timberland sales and related costs. These adjustments exclude gains from the sales of timberlands as these items are not considered to be part of our core business, ongoing results of operations or cash flows. These adjustments are irregular in timing and amount and may benefit our operating results.

Discontinued Operations. In connection with the sale of the Specialty Papers business, its results of operations, are reported as discontinued operations for all periods presented. This adjustment reflects the net results of this discontinued operation.

Other tax adjustments. Tax effect on adjustments calculated based on the incremental effective tax rate of the jurisdiction in which each adjustment originated. For items originating in the U.S., no tax effect is recognized due to the previously established valuation allowance on the net deferred tax assets.

These adjustments are each unique and not considered to be on-going in nature. The transactions are irregular in timing and amount and may significantly impact our operating performance. As such, these items may not be indicative of our past or future performance and therefore are excluded for comparability purposes.

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Adjusted earnings and adjusted EBITDA are considered measures not calculated in accordance with GAAP, and therefore are non-GAAP measures. The non-GAAP financial information should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP. The following table sets forth the reconciliation of net income to adjusted earnings for the periods presented:

(1)For 2022, reflects goodwill impairment charge of $119.0 million and other asset impairment charges of $71.6 million.

(2)For 2023, primarily reflects employee separation costs of $6.1 million and professional fees of $2.7 million. For 2022, reflects professional services fees of $4.7 million and employee separation costs of $3.3 million.

(3)For 2023, reflects reductions in accounts receivable reserves due to subsequent collections of $1.4 million. For 2022, reflects accounts receivable reserves of $2.9 million and inventory reserves of $0.3 million.

(4)For 2023, reflects primarily professional services fees related to acquisitions or dispositions (including transaction advisory, legal and other consultant costs) of $1.7 million, a loss on the sale of our Costa Rica operations of $0.6 million, a write-off of purchased construction in process of $0.5 million, employee-related costs of $0.2 million, and other costs of $0.2 million. For 2022, reflects primarily professional services fees related to acquisitions (including transaction advisory, legal and other consultant costs) of $4.3 million, employee separation and other costs of $1.1 million, and other costs directly related to the acquisitions of $0.2 million.

(5)Reflects loss on sale of $17.8 million, legal fees of $0.5 million, employee separation costs of $0.1 million, and other costs of $0.4 million in connection with the sale of the Ober-Schmitten facility.

(6)Reflects the deductible on an insured tornado loss to a leased Spunlace facility in Tennessee in December 2023.

(7)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.

(8)For 2023, primarily reflects a pension settlement charge of $0.6 million related to the separation of our former CEO. For 2022, primarily reflects separation and transition related costs of $4.8 million partially offset by a $3.1 million non-cash benefit related to the forfeiture of stock-based compensation awards.

(9)For 2022, primarily reflects employee separation costs of $0.4 million, equipment write-down of $0.4 million and other costs of $0.1 million directly associated with closure of synthetic fiber production facility in the U.K.

(10) For 2023 and 2022, reflects the benefit recognized from employee retention credits claimed under the CARES Act of 2020 and the subsequent related amendments, partially offset by professional services fees directly related to claiming this benefit.

(11) Tax effect on adjustments calculated based on the incremental effective tax rate of the jurisdiction in which each adjustment originated. For items originating in the U.S., no tax effect is recognized due to the previously established valuation allowance on the net deferred tax assets.

(12) Tax effect of applying certain provisions of the CARES Act of 2020. The amount in 2023 also includes $2.4 million of valuation allowance added to deferred tax asset related to the Ober-Schmitten facility.

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EBITDA is a measure used by management to assess our operating performance and is calculated using

income (loss) from continuing operations and excludes interest expense, interest income, income taxes and

depreciation and amortization. Adjusted EBITDA is calculated using EBITDA and further excludes certain items management considers to be unrelated to the company’s core operations. The adjustments include, among others, the costs of strategic initiatives, turnaround strategy costs, costs associated with the Ober-Schmitten divestiture, debt refinancing costs, CEO transition costs, certain cost optimization and restructuring activities, certain COVID-19 ERC recovery, corporate headquarters relocation expenses, asset impairment charge, and share-based compensation expense, as well as the elimination of gains from sales of timberlands. Adjusted EBITDA is a performance measure that excludes costs that we do not consider to be indicative of our ongoing operating performance.

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Segment Financial Performance

Segments Results of individual operating segments are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual segments are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the segments. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the operating segment are allocated primarily based on an estimated utilization of support area services or are included in “Other and Unallocated” in the table above.

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Management evaluates results of operations of the segments before certain corporate level costs and the effects of certain gains or losses not considered to be related to the core business operations. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of operating segments, and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” In the evaluation of operating segment results, management does not use any measures of total assets. This presentation is aligned with the management and operating structure of our company. It is also on this basis that the Company’s performance is evaluated internally and by the Company’s Board of Directors.

Sales and Costs of Products Sold

The following table sets forth the contribution to consolidated net sales by each segment:

Net sales on a consolidated basis totaled $1,385.5 million and $1,491.3 million in 2023 and 2022, respectively. Sales decreased 7.1%, or 7.9% on a constant currency basis, primarily due to an 8.5% decrease in shipments.

Airlaid Materials’ net sales decreased $15.0 million or 2.5%, in the comparison of 2023 to 2022, mainly driven by lower shipments partially offset by higher selling prices from cost pass-through arrangements as raw material and energy costs remained high in the first half of 2023 compared to same period last year. Shipments decreased 5.1% driven by some of our larger customers destocking inventory coupled with weakness in the European market and competition from lower cost alternate substrates as consumers manage cost. Currency translation was $6.2 million favorable.

Airlaid Materials’ 2023 operating income of $43.2 million was $11.6 million lower than 2022. Lower shipments and product mix negatively impacted results by $4.2 million. Selling price increases and energy surcharges of $10.1 million that were particularly higher in the first half of the year mostly offset the higher raw material, energy and other inflationary costs of $11.3 million. For the full year 2023, primary raw material input costs increased $14.2 million, or 5%, as inflationary pressure persisted in the early part of 2023. Overall, the trend in primary raw material input costs was in-line with broader market indices for 2023. Energy costs decreased $2.9 million, or 8%, compared to 2022 as energy prices were less volatile. As of December 31, 2023, Airlaid Materials had approximately 77% of its net sales with contracts with pass-through provisions. Operations and other were unfavorable by $7.7 million mainly driven by lower production to manage inventory as some customers slowed ordering patterns to manage inventory levels. The impact of currency and related hedging positively 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):

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Composite Fibers’ net sales decreased $40.3 million or 7.7% in 2023 compared to 2022. The decline in net sales is primarily driven by a 8.1% decline in shipments. Shipments in all market categories, except for wallcover, were lower than in 2022 primarily due to customer destocking and pricing pressure driven by elevated inputs costs seen in the first half of 2023. Higher selling prices of $7.2 million, driven by price increases and energy surcharges to recover input cost inflation, partially offset the overall lower shipments. Currency translation was favorable $5.0 million.

Composite Fibers 2023 full year operating income of $21.3 million was $4.4 million higher than the full year operating income in 2022. Higher selling prices and energy surcharges of $7.2 million more than offset the continued inflation in energy, raw material, and freight, particularly in the first half of the year. Full year energy costs were slightly favorable with 2022 while primary raw material input costs decreased $3.6 million, or 2%, compared to 2022 as a result of inflationary pressures abating in second half of the year. Overall, the trend in primary raw material input costs was in-line with broader market indices for 2023 and energy prices were less volatile. As of December 31, 2023, Composite Fibers had approximately 50% of its net sales with contracts with pass-through provisions. Operations and other were favorable by $1.4 million mainly driven by lower depreciation and amortization expense as a result of the 2022 impairment in the Composite Fibers business, but partially offset by lower inclined wire production in 2023. The Ober-Schmitten site negatively impacted full year-over-year results by $8.3 million. The impact of currency and related hedging negatively impacted earnings by $1.8 million. The primary drivers of the change in Composite Fibers’ operating income are summarized in the following chart (presented in millions):

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Spunlace’s net sales decreased $48.0 million or 13.1% in 2023 compared to 2022. The decline in net sales is primarily due to lower shipments of 15.3% driven by market softness and access to cheaper products in Europe combined with production constraints experienced on the converting side by our customers in North America. Selling prices were higher $6.4 million driven by price increases and energy surcharges to recover input cost inflation particularly in first half of 2023. Currency translation was favorable $1.0 million.

Spunlace's 2023 operating loss of $2.1 million improved by $7.2 million compared to an operating loss of $9.3 million in 2022. Higher selling prices and energy surcharges particularly in the first half of the year were partially offset by higher raw material and energy costs that persisted in first half of the year but the price cost gap further improved in the second half of 2023 as inflationary pressures eased and overall positively impacted earnings by a combined $11.6 million. In 2023, primary raw material input costs increased slightly by $1.0 million while energy costs decreased by $6.2 million, or 20%, compared to 2022. Overall, the trend in primary raw material input costs was in-line with broader market indices for 2023 and energy prices were less volatile. As of December 31, 2023, Spunlace had approximately 48% of its net sales with contracts with pass-through provisions. Operations and others were favorable by $0.5 million as actions taken to improve operations and reduce overall spending were mostly offset by lower production to match customer demands. The impact of currency and related hedging positively impacted earnings by $0.4 million. The primary drivers of the change in Spunlace’s operating loss are summarized in the following chart (presented in millions):

Other and Unallocated The amount of net operating expenses not allocated to an operating segment and reported as “Other and Unallocated” in our table of Segment Financial Performance, totaled $59.8 million for 2023 compared with $226.4 million in 2022. Excluding the items identified to present “adjusted earnings,” unallocated expenses for the comparison increased $0.3 million. The higher costs were driven by higher incentive accruals in 2023 compared to 2022, largely offset by expenses related to a customer claim. Expenses for 2023 and 2022 included a customer claim and associated costs totaling $1.6 million and $3.1 million, respectively, related to a supplier's raw material defect that was identified in 2022 by Glatfelter and reported to the customer thereby avoiding the impacted product from reaching the end consumer. The Company is in discussions with the supplier and its insurance provider to recover Glatfelter's losses related to the issue. No recovery of losses was recorded in the 2022 or 2023 financials.

Gain on Sales of Plant, Equipment and Timberlands, net During each of the past two years, we sold certain assets, primarily timberlands. For a summary of these transactions, refer to Item 8 - Financial Statements and Supplementary Data, Note 7 - "Gain on Dispositions of Plant Equipment and Timberlands."

Interest expense, net For the year ended December 31, 2023, interest expense, net totaled $63.3 million compared with $32.8 million for 2022. The increase reflects our debt refinancing in 2023 in which we entered into a new €250.0 million term loan at a fixed rate of 11.25% per annum and extinguished our then existing €220 million term loan at a fixed rate of 3.75% per annum. For more detail regarding our debt activity, refer to Item 8 - Financial Statements and Supplementary Data, Note 20 - "Long-Term Debt."

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Income taxes For the year ended December 31, 2023, we recorded a $7.0 million income tax provision on a pretax loss of $71.1 million from continuing operations. The comparable amounts for 2022 were a $10.3 million income tax benefit on a pre-tax loss of $204.4 million. The income tax expense in 2023 includes a valuation allowance recorded for the operating losses in the U.S. and certain foreign jurisdictions for which no income tax benefit was recorded, partially offset by a deferred tax benefit associated with a notional interest deduction carryforward at a foreign subsidiary. The income tax benefit in 2022 includes deferred tax benefits associated with the asset impairment charges and related bad debt and inventory reserves, partially offset by a valuation allowance recorded for the operating losses in the U.S. and certain foreign jurisdictions for which no income tax benefit was recorded.

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 2023 compared to 2022, the average currency exchange rate of the euro strengthened relative to the U.S. dollar by approximately 2.6% , and the British pound sterling to the dollar strengthened by approximately 0.5%. 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.

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 period indicated.

The above table only presents the financial reporting impact of foreign currency translations assuming currency exchange rates in 2023 were the same as 2022, or “constant currency.” It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

Discontinued Operations We completed the sale of our Specialty Papers business on October 31, 2018. Its results of operations are reported as discontinued operations for all periods presented. There was an immaterial amount of activity in results of discontinued operations for 2023 and 2022.

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LIQUIDITY AND CAPITAL RESOURCES

Our business requires expenditures for new or enhanced equipment, research and development efforts, and to support our business strategy. In addition, we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the periods presented:

At December 31, 2023, we had $50.3 million in cash and cash equivalents (“cash”), of which approximately 89.0% was held by foreign subsidiaries. Cash held by our foreign subsidiaries can be repatriated without incurring a significant amount of additional taxes.

Cash used by operating activities during the year ended December 31, 2023, totaled $25.6 million compared with $40.8 million in the same period a year ago. The decrease in cash used was primarily due to a decrease in working capital usage of approximately $31.9 million, primarily due to: i) accounts receivable, which was driven by higher accounts receivables in 2022 due in part to the termination of the Spunlace factoring program in the U.S., and lower sales in 2023; ii) inventory, which was driven by higher inventory values in 2022 due to raw material and energy inflation and lower raw material levels in 2023, partially offset by; iii) accounts payable which declined in 2023 due to the abatement of inflationary impacts in 2022 and tighter credit terms by vendors reducing days to pay. Operating cash also improved $15.0 million from a decrease in income taxes paid in 2023, due to higher Canadian income taxes and withholding tax in 2022 and a U.K. income tax refund in 2023 and receipt of $7.6 million of of employee retention credit payments in 2023. These improvements in operating cash flow were partially offset by lower earnings in 2023 compared to 2022, an increase in interest paid of $26.0 million due to higher interest rates on our debt stemming from the debt refinancing in the first quarter of 2023. In addition, cash outflows related to our turnaround strategy and CEO transition increased $19.8 million in 2023 compared to 2022.

Net cash used by investing activities for 2023 totaled $37.1 million which primarily reflects capital expenditures totaling $33.8 million partially offset by $1.7 million in proceeds from the sales of timberlands. Net cash used by investing activities for 2022 totaled $33.1 million which primarily reflects capital expenditures totaling $37.7 million partially offset by $3.2 million in proceeds from the sales of timberlands. Capital expenditures are expected to total between $35 million and $40 million in 2024.

Net cash used by financing activities totaled $0.9 million in 2023 compared with $46.9 million in 2022. The change in the year-to-year comparison primarily reflects increased borrowings under our revolving credit facility for working capital and other operating expenditures in 2022.

Our revolving credit facility due in September 2026, contains a number of customary compliance covenants. As of December 31, 2023, the leverage ratio, as calculated in accordance with the definition in our Credit Agreement, was 3.4x, well within the maximum limit allowed under our Credit Agreement. A breach of these requirements would give rise to certain remedies under the Revolving Credit Facility, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the Credit Agreement. As discussed in Note 20 - “Long-Term Debt,” on March 30, 2023, we amended our Credit Agreement to increase the adjust leverage ratio (as defined in Credit Agreement) to 4.25 to 1.0 until 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.

Details of our outstanding long-term indebtedness are set forth under Item 8 - Financial Statements and Supplementary Data – Note 20 -“Long-Term Debt."

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We are subject to various federal, state and local laws and regulations intended to protect the environment, as well as human health and safety. At various times, we have incurred costs to comply with these regulations and we could incur additional costs as new regulations are developed or regulatory priorities change.

As more fully discussed in Item 8 - Financial Statements and Supplementary Data – Note 24 – “Commitments, Contingencies and Legal Proceedings,” we are involved in the Lower Fox River in Wisconsin (the “Fox River”), an EPA Superfund site for which we remain potentially liable for certain government oversight and long-term monitoring and maintenance costs. Although there remains some uncertainty as to the amount we may ultimately be required to spend, primarily for government oversight costs, the consent decree specifies the nature of our future obligations.

We expect to meet all 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.

At December 31, 2023, we had ample liquidity consisting of $50.3 million of cash on hand and $85.1 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.

In October 2022, our credit rating was downgraded by S&P Global Ratings to CCC+ based on its latest assessment of our business. Although the downgrade does not impact our current interest costs or cause a default on any of our debt, it may impact our cost or our ability to refinance our debt or issue new debt in the future on terms as favorable as we might otherwise be able to achieve without the downgrade. Furthermore, the downgrade may increase the risk that our vendors could reduce our credit limits which may require earlier or more frequent payments to operate within our limits which would negatively impact our cash flow.

Off-Balance-Sheet Arrangements As of December 31, 2023 and 2022, we had not entered into any off-balance-sheet arrangements. Financial derivative instruments, to which we are a party, and guarantees of indebtedness, which solely consist of obligations of subsidiaries, are reflected in the consolidated balance sheets included herein in Item 8 – Financial Statements and Supplementary Data.

ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report. Our discussion and analysis of 2022 compared to 2021 is included herein. For discussion and analysis of 2021 compared to 2020, please refer to Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the United States Securities and Exchange Commission on February 25, 2022 and is incorporated herein by reference.

Forward-Looking Statements This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-K are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among others, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

i.risks related to the military conflict between Russia and Ukraine and its impact on our production, sales, supply chain, cost of energy, and availability of energy due to natural gas supply issues into Europe from the Nord Stream 1 pipeline;

ii.risks associated with the impact of the COVID-19 pandemic, including global and regional economic conditions, changes in demand for our products, interruptions in our global supply chain, ability to continue production by our facilities, credit conditions of our customers or suppliers, or potential legal actions that could arise due to our operations during the pandemic;

iii.disruptions of our global supply chain, including the availability of key raw materials and transportation for the delivery of critical inputs and of products to customers, and the increase in the costs of transporting materials and products;

iv.risks associated with our ability to increase selling prices quickly or sufficiently enough to recover rapid cost inflation in our raw materials, energy, freight and other costs, and the potential reduction or loss of sales due to price increases;

v.variations in demand for our products, including the impact of unplanned market-related downtime, variations in product pricing, or product substitution;

vi.the impact of competition, changes in industry production capacity, including the construction of new facilities or new machines, the closing of facilities and incremental changes due to capital expenditures or productivity increases;

vii.risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;

viii.our ability to develop new, high value-added products;

ix.changes in the price or availability of raw materials we use, particularly woodpulp, pulp substitutes, synthetic pulp, other specialty fibers and abaca fiber;

x.changes in energy-related prices and commodity raw materials with an energy component;

xi.the impact of unplanned production interruption at our facilities or at any of our key suppliers;

xii.disruptions in production and/or increased costs due to labor disputes;

xiii.the gain or loss of significant customers and/or on-going viability of such customers;

xiv.the impact of war and terrorism;

xv.the impact of unfavorable outcomes of audits by various state, federal or international tax authorities or changes in pre-tax income and its impact on the valuation of deferred taxes;

xvi.enactment of adverse state, federal or foreign tax or other legislation or changes in government legislation, policy or regulation; and

xvii.our ability to finance, consummate and integrate acquisitions, including our acquisitions of Mount Holly and Jacob Holm.

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Introduction We manufacture a wide array of engineered materials and manage our company along three operating segments:

•Airlaid Materials with sales of airlaid nonwoven fabric-like materials used in feminine hygiene products, adult incontinence products, tabletop, specialty wipes, home care products and other airlaid applications;

•Composite Fibers with sales of single-serve tea and coffee filtration papers, wallcovering base materials, composite laminate papers, technical specialties including substrates for electrical applications, and metallized products; and

•Spunlace with sales of premium quality spunlace nonwovens for critical cleaning, high-performance materials, personal care, hygiene and medical applications.

COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic as the virus spread throughout the world. The COVID-19 pandemic and the actions undertaken throughout the world, in an attempt to contain the virus, have had an unprecedented and significant impact on global economies in terms of reduced GDP, inflation, volatile energy prices, disruptions in global supply chains, increased unemployment, and insolvencies in a variety of industries and markets. As a result, we have experienced and may continue to experience weaker or volatile demand for certain of our products due to the effects of the pandemic. Shortly after the pandemic began and through the first several months of 2021, our financial performance and results of operations were adversely impacted by the pandemic, particularly by weaker demand for tabletop products used by restaurants, catering and similar venues, all of which were impacted by “lockdowns” throughout many regions of the world. However, demand has improved as restaurants around the world have reopened. The majority of our other product portfolios are considered to be “essential or life-sustaining” and we continued to produce products used in the global response effort to the pandemic. We believe demand for certain of our products, such as Composite Fibers’ food and beverage filtration products and Airlaid Materials’ personal hygiene and wipes, will remain stable. The following discussion and analysis primarily focus on the financial results of operations and financial condition of our continuing operations.

Acquisition As discussed in Item 8 - Financial Statements and Supplementary Data, Note 3 “Acquisitions,” we completed our acquisitions of Georgia-Pacific's U.S. nonwovens business (“Mount Holly”) on May 13, 2021 for $170.9 million and the acquisition of all outstanding equity of PMM Holdings (Luxembourg) AG ("Jacob Holm") on October 29, 2021 for $304.0 million. Refer to Note 3 - "Acquisitions" for additional information about these transactions.

RESULTS OF OPERATIONS

2022 versus 2021

Overview For the year ended December 31, 2022, we reported a loss from continuing operations of $194.1 million, or loss of $4.33 per share compared with income of $6.7 million and $0.15 per share in 2021. The following table sets forth summarized GAAP-based consolidated results of operations:

We used $40.8 million of cash for operating activities in 2022 compared with a cash inflow of $71.0 million a year ago. During 2022 and 2021, capital expenditures totaled $37.7 and $30.0 million, respectively. Refer to Liquidity and Capital Resources for additional discussion of our sources and uses of cash.

The reported results are in accordance with generally accepted accounting principles in the United States (“GAAP”) and reflect a number of significant actions we undertook, including strategic initiatives, corporate headquarters relocation, cost optimization and the restructuring and consolidation of our metallized business, among others. Excluding these items from reported results, adjusted loss, a non-GAAP measure, was $19.0 million, or $0.42 loss per share for 2022,

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compared with adjusted earnings of $27.6 million, or $0.61 per diluted share, a year ago. The weaker financial performance largely reflects the adverse impact of significantly higher raw material and energy prices which were only partially offset by higher selling prices. Operating income for our Airlaid Materials segment was $12.6 million higher in 2022 compared with 2021 and Composite Fibers’ was $20.5 million lower. Spunlace, our new segment created in connection with the Jacob Holm acquisition, lost $9.3 million for the year compared to a loss of $1.3 for the two months included in 2021 post acquisition. In addition to the results reported in accordance with GAAP, we evaluate our performance using adjusted earnings and adjusted earnings before interest expense, interest income, income taxes, depreciation and amortization and stock-based compensation (“Adjusted EBITDA”). 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.

Adjusted earnings consists of net income determined in accordance with GAAP adjusted to exclude the impact of the following:

Goodwill and Other Asset Impairment Charges. This adjustment represents non-cash charges recorded to reduce the carrying amount of certain long-lived assets of our OberSchmitten, Germany facility and goodwill of our Composite Fibers reporting segment.

Turnaround strategy costs. This adjustment reflects costs incurred in connection with the Company's turnaround strategy initiated in 2022 under its new chief executive officer to drive operational and financial improvement. These costs are primarily related to professional services fees and employee separation costs.

Russia/Ukraine conflict charges. This adjustment represents a non-cash charge recorded to reduce the carrying amount of accounts receivable and inventory directly related to the Russia/Ukraine military conflict.

Strategic initiatives. These adjustments primarily reflect professional and legal fees incurred directly related to evaluating and executing certain strategic initiatives including costs associated with acquisitions, related integrations, and charges incurred to step-up acquired inventory to fair-value.

CEO transition costs. This adjustment reflects the net costs associated with the transition from our former CEO to our current CEO, including cash severance costs, forfeitures of stock-based compensation awards, and certain professional and legal fees incurred directly related to the transition.

Corporate headquarters relocation. These adjustments reflect costs incurred in connection with the strategic relocation of the Company’s corporate headquarters to Charlotte, NC. The costs are primarily related to employee relocation costs and exit costs at the former corporate headquarters.

Cost optimization actions. These adjustments reflect charges incurred in connection with initiatives to optimize the cost structure of the Company, improve efficiencies or other objectives. Such actions may include asset rationalization, headcount reductions or similar actions. These adjustments, which have occurred at various times in the past, are irregular in timing and relate to specific identified programs to reduce or optimize the cost structure of a particular operating segment or the corporate function.

COVID-19 ERC recovery. This adjustment reflects the benefit recognized from employee retention credits claimed under the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and professional services fees directly associated with claiming this benefit.

Timberland sales and related costs. These adjustments exclude gains from the sales of timberlands as these items are not considered to be part of our core business, ongoing results of operations or cash flows. These adjustments are irregular in timing and amount and may benefit our operating results.

Discontinued Operations. In connection with the sale of the Specialty Papers business, its results of operations, including the loss recorded in 2018 connection with the sale, are reported as discontinued operations for all periods presented. This adjustment reflects the net results of this discontinued operation.

Other tax adjustments. For 2022, reflects the tax effect of applying certain provisions of the CARES Act of 2020. For 2021, reflects the tax impact related to the reversal of permanent reinvestment assertion for certain foreign jurisdictions and a foreign tax benefit related to the establishment of a center of excellence.

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These adjustments are each unique and not considered to be on-going in nature. The transactions are irregular in timing and amount and may significantly impact our operating performance. As such, these items may not be indicative of our past or future performance and therefore are excluded for comparability purposes.

Adjusted earnings and adjusted EBITDA are considered measures not calculated in accordance with GAAP, and therefore are non-GAAP measures. The non-GAAP financial information should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP. The following table sets forth the reconciliation of net income to adjusted earnings for the periods presented:

(1)Reflects goodwill impairment charge of $119.0 million and other asset impairment charges of $71.6 million.

(2)Reflects professional services fees (primarily consulting) of $4.7 million and employee separation costs of $3.3 million.

(3)Reflects accounts receivable reserves of $2.9 million and inventory reserves of $0.3 million.

(4)For 2022, reflects primarily professional services fees related to acquisitions (including transaction advisory, legal and other consultant costs) of $4.3 million, employee separation and other costs of $1.1 million, and other costs directly related to the acquisitions of $0.2 million. For 2021, reflects professional services fees related to acquisitions (including transaction advisory, legal, audit and valuation specialists) of $22.4 million, employee separation and other costs of $0.8 million, inventory valuation step-up costs of $6.1 million and other costs of $1.6 million, all of which are directly related to acquisitions.

(5)Primarily reflects cash severance and transition related costs of $4.8 million partially offset by a $3.1 million non-cash benefit related to the forfeiture of stock-based compensation awards. We expect to recognize an additional non-cash charge in Q1 2023 related to settlement accounting when we settle a portion of the former CEO's non-qualified pension obligation under the terms of the pension plan.

(6)Primarily reflects employee separation costs of $0.4 million, equipment write-down of $0.4 million and other costs of $0.1 million directly associated with closure of synthetic fiber production facility in the U.K.

(7)Reflects the benefit recognized from employee retention credits claimed under the CARES Act of 2020 and the subsequent related amendments, partially offset by professional services fees directly related to claiming this benefit.

(8)Tax effect on adjustments calculated based on the incremental effective tax rate of the jurisdiction in which each adjustment originated. For items originating in the U.S., no tax effect is recognized due to the previously established valuation allowance on the net deferred tax assets.

(9)For 2022, reflects the tax effect of applying certain provisions of the CARES Act of 2020. For 2021, reflects the tax impact related to the reversal of permanent reinvestment assertion for certain foreign jurisdictions and a foreign tax benefit related to the establishment of a center of excellence.

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EBITDA is a measure used by management to assess our operating performance and is calculated using

income (loss) from continuing operations and excludes interest expense, interest income, income taxes and

depreciation and amortization. Adjusted EBITDA is calculated using EBITDA and further excludes certain items management considers to be unrelated to the company’s core operations. The adjustments include, among others, the costs of strategic initiatives, turnaround strategy costs, CEO transition costs, certain cost optimization and restructuring activities, certain COVID-19 ERC recovery, corporate headquarters relocation expenses, asset impairment charge, and share-based compensation expense, as well as the elimination of gains from sales of timberlands. Adjusted EBITDA is a performance measure that excludes costs that we do not consider to be indicative of our ongoing operating performance.

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Segment Financial Performance

Segments Results of individual operating segments are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual segments are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the segments. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the operating segment are allocated primarily based on an estimated utilization of support area services or are included in “Other and Unallocated” in the table above.

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Management evaluates results of operations of the segments before certain corporate level costs and the effects of certain gains or losses not considered to be related to the core business operations. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of operating segments, and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” In the evaluation of operating segment results, management does not use any measures of total assets. This presentation is aligned with the management and operating structure of our company. It is also on this basis that the Company’s performance is evaluated internally and by the Company’s Board of Directors.

Sales and Costs of Products Sold

The following table sets forth the contribution to consolidated net sales by each segment:

Net sales on a consolidated basis totaled $1,491.3 million and $1,084.7 million in 2022 and 2021, respectively. The $406.6 million increase was primarily driven by including a full year of net sales for Mount Holly and Jacob Holm, both of which were acquired in 2021, and higher selling prices and surcharges to recover higher input cost inflation.

Airlaid Materials’ net sales increased $131.3 million or 27.9%, in the comparison of 2022 to 2021, mainly driven by higher selling prices from cost-pass-through arrangements with customers and pricing actions to recover significant inflation in raw materials and energy. Shipments increased 11.3% driven by higher shipments in all market categories except for home care. Currency translation was $36.1 million unfavorable.

Airlaid Materials’ 2022 operating income of $54.8 million was $12.6 million higher than 2021. Higher shipments and product mix positively impacted results by $11.7 million. Selling price increases of $82.5 million fully offset the higher raw material prices and energy inflation costs of $79.3. In 2022, primary raw material input costs increased $66.2 million, or 26% and energy costs increased $13.1 million, or 58%, compared to 2021. The increase in primary raw material input costs was approximately in-line with broader market indices, however, energy costs, in general, increased less than broader market indices due to our entering into certain forward purchases which partially mitigated the impact of rising energy costs. We expect prices for both energy and raw materials to remain elevated for the foreseeable future. As of December 31, 2022, Airlaid Materials had approximately 77% of its net sales with contracts with pass-through provisions. Operations were favorable $2.9 million driven by higher production, which offset other general inflationary pressures. The impact of currency and related hedging negatively impacted earnings by $5.2 million. The primary drivers are summarized in the following chart (presented in millions):

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Composite Fibers’ net sales decreased $32.9 million or 5.9% in 2022 compared to 2021. The decline in net sales is primarily driven by a 22.0% decline in shipments. In particular, wallcover shipments declined 45.1% due to lower shipments to customers in Russia and Ukraine resulting from the ongoing conflict in the region, including sanctions prohibiting the sale of certain wallcover and tea filter materials into Russia. Shipments in all other market categories were also lower in 2022. Higher selling prices of $73.5 million, driven by price increases and energy surcharges to recover input cost inflation, partially offset the overall lower shipments. Currency translation was unfavorable $50.4 million.

Composite Fibers’ 2022 operating income of $16.9 million was $20.5 million lower than 2021. Lower shipments, primarily in our Dresden facility, negatively impacted results by $9.7 million. Higher selling prices and energy surcharges of $73.4 million fell $11.8 million short of recovering continued inflation in energy and raw materials of $85.2 million. In 2022, energy costs increased $33.8 million, or 57%, and primary raw material input costs increased $29.8 million, or 13%, compared to 2021. The increase in primary raw material input costs was approximately in-line with broader market indices, however, energy costs, in general, increased less than broader market indices due to our entering into certain forward purchases which partially mitigated the impact of rising energy costs. Freight inflation reported as part of raw material and energy inflation increased approximately $18.6 million, or 85%, compared to 2021. To help mitigate the substantial energy inflation charges and higher raw material costs, we revised some of our customer contracts to include pass-through costs provisions. As of December 31, 2022, Composite Fibers had approximately 47% of its net sales with contracts with pass-through provisions. Operations were lower $8.3 million dollars mainly driven by market related downtime in our German facilities related to Russia/Ukraine sanctions and to manage inventory levels which was partially offset by lower energy consumption and lower spending. The impact of currency and related hedging positively impacted earnings by $9.3 million primarily due to the weakening of the British pound sterling for which our expenses exceed sales in this currency.

The primary drivers are summarized in the following chart (presented in millions):

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Spunlace’s net sales for 2022 were approximately $365.9 million. An operating loss of $9.3 million was mainly driven by higher raw material and energy costs only partially offset by higher selling prices and energy surcharges. The results for 2021 were included prospectively from the October 29, 2021 acquisition date.

Other and Unallocated The amount of net operating expenses not allocated to an operating segment and reported as “Other and Unallocated” in our table of Segment Financial Performance, totaled $226.4 million for 2022 compared with $49.7 million in 2021. Excluding the items identified to present “adjusted earnings,” unallocated expenses for the comparison increased $3.7 million. Expenses for 2022 included a one-time customer claim and associated costs totaling $3.1 million related to a supplier's raw material defect that was identified by Glatfelter and reported to the customer thereby avoiding the impacted product from reaching the end consumer. The Company has initiated discussions with the supplier and its insurance provider to recover Glatfelter's losses related to the issue. No recovery of losses was recorded in the 2022 financials.

Gain on Sales of Plant, Equipment and Timberlands, net During each of the past two years, we sold certain assets, primarily timberlands. For a summary of these transactions, refer to Item 8 - Financial Statements and Supplementary Data, Note 7 - "Gain on Dispositions of Plant Equipment and Timberlands."

Interest expense, net For the year ended December 31, 2022, interest expense, net totaled $32.8 million compared with $12.3 million for 2021. The increase reflects additional net borrowings in 2021 totaling $497.3 million incurred to finance the two acquisitions completed in May 2021 and October 2021. In addition, in connection with the October 2021 issuance of our 4.750% senior notes to finance the Jacob Holm acquisition, we refinanced the amounts outstanding under our variable-rate revolving credit facility which averaged approximately 1.6% at the time they were refinanced, with the proceeds of the fixed-rate notes.

Income taxes For the year ended December 31, 2022, we recorded a $10.3 million income tax benefit on a pretax loss of $204.4 million from continuing operations. The comparable amounts for 2021 were $7.0 million income tax provision on a pre-tax income of $13.7 million. The income tax benefit in 2022 includes deferred tax benefits associated with the asset impairment charges and related bad debt and inventory reserves, partially offset by a valuation allowance recorded for the operating losses in the U.S. and certain foreign jurisdictions for which no income tax benefit was recorded. The 2021 income tax provision reflects the impact of $3.6 million of tax expense related to the reversal of a permanent reinvestment assertion for certain foreign jurisdictions and a foreign tax benefit of $10.7 million related to the establishment of a center of excellence.

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 2022 compared to 2021, the average currency exchange rate of the euro weakened relative to the U.S. dollar by approximately 11.0% , and the British pound sterling to the dollar weakened by approximately 10.1%. 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

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significant. The translation of the results from international operations into U.S. dollars is subject to changes in foreign currency exchange rates.

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 period indicated.

The above table only presents the financial reporting impact of foreign currency translations assuming currency exchange rates in 2022 were the same as 2021, or “constant currency.” It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

Discontinued Operations We completed the sale of our Specialty Papers business on October 31, 2018. Its results of operations are reported as discontinued operations for all periods presented. There was an immaterial amount of activity in results of discontinued operations for 2022 and 2021.

LIQUIDITY AND CAPITAL RESOURCES

Our business requires expenditures for new or enhanced equipment, research and development efforts, and to support our business strategy. In addition, we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the periods presented:

At December 31, 2022, we had $110.7 million in cash and cash equivalents (“cash”), of which approximately 95.8% was held by foreign subsidiaries. Cash held by our foreign subsidiaries can be repatriated without incurring a significant amount of additional taxes. As of December 31, 2022, the company had available liquidity of $87.4 million.

Cash used by operating activities totaled $40.8 million in 2022 compared with a cash inflow of $71.0 million a year ago. The increase in cash used was primarily due to an increase in working capital usage of approximately $74.1 million, primarily related to inventory and accounts receivable, which were driven by inflation and selling price increases, the termination of a factoring arrangement previously utilized by certain former Jacob Holm entities, a $20.7 million reduction in adjusted EBITDA, a $8.9 million increase in income taxes paid and a $26.2 million increase in interest paid partially offset by a $21.5 million reduction in cash payments for strategic initiatives.

Net cash used by investing activities for 2022 totaled $33.1 million which primarily reflects capital expenditures totaling $37.7 million partially offset by $3.2 million in proceeds from the sales of timberlands. In 2021, net cash used in investing activities of $489.8 million reflects the $464.9 million combined purchase price, net of cash acquired, of the two acquisitions completed in 2021, capital expenditures of $30.0 million partially offset by $5.6 million in proceeds from the

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sale of timberlands. Capital expenditures are expected to total between $35 million and $40 million, including $4 to $5 million for Spunlace integration, in 2023.

Net cash provided by financing activities totaled $46.9 million in 2022 compared with $462.4 million in 2021. The change in the year-to-year comparison primarily reflects the issuance of bonds of $500 million to finance our acquisitions in 2021. 2022 reflects increased borrowings under our revolving credit facility for working capital and other operating expenditures.

In October 2021, we issued $500 million aggregate principal amount of 4.750% senior notes due 2029 (the “Notes”). The net proceeds from the offering of the Notes, together with cash on hand, were used to pay the purchase price of the Jacob Holm acquisition, certain indebtedness of Jacob Holm, outstanding borrowings under the Revolving Credit Facility including amounts previously borrowed to purchase Mount Holly, and to pay fees and expenses.

Our revolving credit facility due in September 2026, contains a number of customary compliance covenants. As of December 31, 2022, the leverage ratio, as calculated in accordance with the definition in our Credit Agreement, was 6.0x, well within the maximum limit allowed under our Credit Agreement. A breach of these requirements would give rise to certain remedies under the Revolving Credit Facility, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the Credit Agreement. As discussed in Note 16 - “Long Term Debt,” on May 9, 2022, we amended our Credit Agreement to increase the maximum leverage ratio to 6.75 to 1.0 until the quarter ended December 31, 2023, after which the maximum ratio will step down to 4.0 to 1.0.

Details of our outstanding long-term indebtedness are set forth under Item 8 - Financial Statements and Supplementary Data – Note 20 -“Long-Term Debt."

Financing activities includes cash used for common stock dividends. In 2022, we used $18.8 million of cash for dividends on our common stock compared with $24.5 million in 2021. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. During the third quarter of 2022, our Board of Directors suspended the Company’s quarterly cash dividend to focus efforts on optimizing the operational and financials results of the business.

We are subject to various federal, state and local laws and regulations intended to protect the environment, as well as human health and safety. At various times, we have incurred costs to comply with these regulations and we could incur additional costs as new regulations are developed or regulatory priorities change.

As more fully discussed in Item 8 - Financial Statements and Supplementary Data – Note 24 – “Commitments, Contingencies and Legal Proceedings,” we are involved in the Lower Fox River in Wisconsin (the “Fox River”), an EPA Superfund site for which we remain potentially liable for certain government oversight and long-term monitoring and maintenance costs. Pursuant to a consent decree with certain government agencies entered into in January 2019, we paid $20.5 million for past government oversight costs. Although there remains some uncertainty as to the amount we may ultimately be required to spend, primarily for government oversight costs, the consent decree specifies the nature of our future obligations.

We expect to meet all 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.

In October 2022, our credit rating was downgraded by S&P Global Ratings to CCC+ based on its latest assessment of our business. Although the downgrade does not impact our current interest costs or cause a default on any of our debt, it may impact our cost or our ability to refinance our debt or issue new debt in the future on terms as favorable as we might otherwise be able to achieve without the downgrade. Furthermore, the downgrade may increase the risk that our vendors could reduce our credit limits which may require earlier or more frequent payments to operate within our limits which would negatively impact our cash flow.

Off-Balance-Sheet Arrangements As of December 31, 2022 and 2021, we had not entered into any off-balance-sheet arrangements. Financial derivative instruments, to which we are a party, and guarantees of indebtedness, which solely consist of obligations of subsidiaries, are reflected in the consolidated balance sheets included herein in Item 8 – Financial Statements and Supplementary Data.

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ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report. Our discussion and analysis of 2021 compared to 2020 is included herein. For discussion and analysis of 2020 compared to 2019, please refer to Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the United States Securities and Exchange Commission on February 25, 2021 and is incorporated herein by reference.

Forward-Looking Statements This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-K are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among others, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

i.risks associated with the impact of the COVID-19 pandemic, including global and regional economic conditions, changes in demand for our products, interruptions in our global supply chain, ability to continue production by our facilities, credit conditions of our customers or suppliers, or potential legal actions that could arise due to our operations during the pandemic;

ii.disruptions of our global supply chain, including the availability of key raw materials and transportation for the delivery of critical inputs and of products to customers, and the increase in the costs of transporting materials and products;

iii.variations in demand for our products, including the impact of unplanned market-related downtime, variations in product pricing, or product substitution;

iv.the impact of competition, changes in industry production capacity, including the construction of new facilities or new machines, the closing of facilities and incremental changes due to capital expenditures or productivity increases;

v.risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;

vi.geopolitical matters, including any impact to our operations from events in Russia, Ukraine and Philippines;

vii.our ability to develop new, high value-added products;

viii.changes in the price or availability of raw materials we use, particularly woodpulp, pulp substitutes, synthetic pulp, other specialty fibers and abaca fiber;

ix.changes in energy-related prices and commodity raw materials with an energy component;

x.the impact of unplanned production interruption at our facilities or at any of our key suppliers;

xi.disruptions in production and/or increased costs due to labor disputes;

xii.the gain or loss of significant customers and/or on-going viability of such customers;

xiii.the impact of war and terrorism;

xiv.the impact of unfavorable outcomes of audits by various state, federal or international tax authorities or changes in pre-tax income and its impact on the valuation of deferred taxes;

xv.enactment of adverse state, federal or foreign tax or other legislation or changes in government legislation, policy or regulation; and

xvi.our ability to finance, consummate and integrate acquisitions, including our acquisitions of Mount Holly and Jacob Holm.

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Introduction We manufacture a wide array of engineered materials and manage our company along three operating segments:

•Composite Fibers with sales of single-serve tea and coffee filtration papers, wallcovering base materials, composite laminate papers, technical specialties including substrates for electrical applications, and metallized products;

•Airlaid Materials with sales of airlaid nonwoven fabric-like materials used in feminine hygiene products, adult incontinence products, tabletop, specialty wipes, home care products and other airlaid applications; and

•Spunlace with sales of premium quality spunlace nonwovens for critical cleaning, high-performance materials, personal care, hygiene and medical applications.

COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic as the virus spread throughout the world. The COVID-19 pandemic and the actions undertaken throughout the world in an attempt to contain the virus have had an unprecedented and significant impact on global economies in terms of reduced GDP, inflation, volatile energy prices, disruptions in global supply chains, increased unemployment, and insolvencies in a variety of industries and markets. As a result, we have experienced and may continue to experience weaker or volatile demand for certain of our products due to the effects of the pandemic. Shortly after the pandemic began and through the first several months of 2021, our financial performance and results of operations were adversely impacted by the pandemic, particularly by weaker demand for tabletop products used by restaurants, catering and similar venues, all of which were impacted by “lockdowns” throughout many regions of the world. However, demand is improving as restaurants around the world begin to reopen. The majority of our other product portfolios are considered to be “essential or life-sustaining” and we continued to produce products used in the global response effort to the pandemic. We believe demand for certain of our products, such as Composite Fibers’ food and beverage filtration products and Airlaid Materials’ personal hygiene and wipes, will remain stable. The following discussion and analysis primarily focus on the financial results of operations and financial condition of our continuing operations.

Acquisition As discussed in Item 8 - Financial Statements and Supplementary Data, Note 3 “Acquisitions,” we completed our acquisitions of Georgia-Pacific's U.S. nonwovens business (“Mount Holly”) on May 13, 2021 for $170.9 million and the acquisition of all outstanding equity of PMM Holdings (Luxembourg) AG ("Jacob Holm") on October 29, 2021 for $304.0 million. Refer to Note 3 - "Acquisitions" for additional information about these transactions.

RESULTS OF OPERATIONS

2021 versus 2020

Overview For the year ended December 31, 2021, we reported income from continuing operations of $6.7 million, or $0.15 per share compared with $20.8 million and $0.47 per share in 2020. The following table sets forth summarized GAAP-based consolidated results of operations:

We generated $71.0 million of cash from operations in 2021 compared with $109.0 million a year ago. During 2021 and 2020, capital expenditures totaled $30.0 and $28.1 million, respectively. Refer to Liquidity and Capital Resources for additional discussion of our sources and uses of cash.

The reported results are in accordance with generally accepted accounting principles in the United States (“GAAP”) and reflect a number of significant actions we undertook, including strategic initiatives, corporate headquarters relocation, cost optimization and the restructuring and consolidation of our metallized business, among others. Excluding

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these items from reported results, adjusted earnings, a non-GAAP measure, was $27.6 million, or $0.61 per diluted share 2021, compared with $37.4 million, or $0.84 per diluted share, a year ago. The weaker financial performance largely reflects the adverse impact of significantly higher raw material and energy prices. Operating income for our Composite Fibers segment was $14.7 million lower in 2021 compared with 2020 and Airlaid Materials’ operating income was $4.1 million lower. Spunlace, our new segment created in connection with the Jacob Holm acquisition, lost $1.3 million for the two months since the acquisition was completed. In addition to the results reported in accordance with GAAP, we evaluate our performance using adjusted earnings and adjusted earnings per diluted share. 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.

Adjusted earnings consists of net income determined in accordance with GAAP adjusted to exclude the impact of the following:

Discontinued Operations. In connection with the sale of the Specialty Papers business, its results of operations, including the loss recorded in 2018 connection with the sale, are reported as discontinued operations for all periods presented. This adjustment reflects the net results of this discontinued operation.

Strategic initiatives. These adjustments primarily reflect professional, investment banker and legal fees incurred directly related to evaluating and executing certain strategic initiatives, including costs associated with acquisitions, related integrations and charges incurred to step-up acquired inventory to fair-value.

Corporate headquarters relocation. These adjustments reflect costs incurred in connection with the strategic relocation of the Company’s corporate headquarters to Charlotte, NC. The costs are primarily related to employee relocation costs and exit costs at the former corporate headquarters.

Restructuring charge – Metallized operations. This adjustment represents charges incurred in 2020 in connection with the decision to restructure a portion of the Composite Fibers segment, primarily consisting of the consolidation of our metallizing operation from Gernsbach, Germany to Caerphilly, UK.

Cost optimization actions. These adjustments reflect charges incurred in connection with initiatives to optimize the cost structure of the Company, including costs related to the organizational change to a functional operating model. The costs are primarily related to executive separations, other headcount reductions, professional fees, asset write-offs and certain contract termination costs. These adjustments, which have occurred at various times in the past, are irregular in timing and relate to specific identified programs to reduce or optimize the cost structure of a particular operating segment or the corporate function.

COVID-19 incremental costs. This adjustment represents incremental cash costs incurred directly related to the COVID-19 pandemic such as employee incentive payments, enhanced hygiene protocols, safety and supplies, and professional fees primarily associated with the CARES Act benefit.

Asset Impairment Charge. This adjustment represents a non-cash charge recorded to reduce the carrying amount of a tradename intangible asset of the Dresden wallcover business due to the impact of the COVID-19 pandemic on the underlying forecasted revenue stream.

Pension settlement expenses, net. This adjustment reflects professional fees recorded in connection with the Company’s termination of its qualified pension plan and the related actions to settle all obligations to the plan’s participants. Since the pension plan was fully funded, the settlement of pension obligations did not require the use of the Company’s cash, but instead was accomplished with plan assets.

Timberland sales and related costs. These adjustments exclude gains from the sales of timberlands as these items are not considered to be part of our core business, ongoing results of operations or cash flows. These adjustments are irregular in timing and amount and may benefit our operating results.

Other tax adjustments. In 2021, these adjustments primarily reflect the tax impact related to the reversal of the permanent reinvestment assertion for certain foreign jurisdictions and a foreign tax benefit related to the establishment of a center of excellence. In 2020, a tax benefit was recorded in connection with passage of the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) related to provisions that modified the “net operating loss” provisions of previous law to allow certain losses to be carried back five years.

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These adjustments are each unique and not considered to be on-going in nature. The transactions are irregular in timing and amount and may significantly impact our operating performance. As such, these items may not be indicative of our past or future performance and therefore are excluded for comparability purposes.

Adjusted earnings and adjusted earnings per diluted share are considered measures not calculated in accordance with GAAP, and therefore are non-GAAP measures. The non-GAAP financial information should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP. The following table sets forth the reconciliation of net income to adjusted earnings for the periods presented:

(1)Tax effect on adjustments calculated based on the incremental effective tax rate of the jurisdiction in which each adjustment originated.

(2)In 2021, reflects the tax impact related to the reversal of permanent reinvestment assertion for certain foreign jurisdictions and a foreign tax benefit related to the establishment of a center of excellence. In 2020, a tax benefit was recorded in connection with passage of the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) related to provisions that modified the “net operating loss” provisions of previous law to allow certain losses to be carried back five years.

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Segment Financial Performance

Segments Results of individual operating segments are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual segments are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the segments. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the operating segment are allocated primarily based on an estimated utilization of support area services or are included in “Other and Unallocated” in the table above.

Management evaluates results of operations of the segments before certain corporate level costs and the effects of certain gains or losses not considered to be related to the core business operations. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of operating segments and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” In the evaluation of operating segment results, management does not use any measures of total assets. This presentation is aligned with the management and operating structure of our company. It is also on this basis that the Company’s performance is evaluated internally and by the Company’s Board of Directors.

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Sales and Costs of Products Sold

The following table sets forth the contribution to consolidated net sales by each segment:

Net sales on a consolidated basis totaled $1,084.7 million and $916.5 million in 2021 and 2020, respectively. The $168.2 million increase was primarily driven by $60.6 million from the Mount Holly acquisition and $57.6 million from the Jacob Holm acquisition. In addition, higher average selling prices favorably impacted the comparison by $50.6 million and shipping volumes decreased 3.6% on an organic basis.

Composite Fibers’ net sales increased $31.7 million or 6.0% in 2021 compared to 2020 driven by favorable currency translation of $18.5 million and $17.0 million from higher selling prices. During 2021, we announced price increases of 8% and 12% in response to significantly higher input costs. Overall shipments decreased 1.9% in the year-to-year comparison.

Composite Fibers’ 2021 operating income of $37.4 million was $14.7 million lower than 2020. The decline in operating results reflects the adverse impact of significantly higher costs for raw materials, primarily woodpulp, and higher energy prices in Europe, which increased $36.4 million in the aggregate. The adverse impact of inflation more than outpaced the $17.0 million increase in selling prices. The primary drivers are summarized in the following chart (in millions):

Airlaid Materials’ net sales increased $78.8 million, in the comparison of 2021 to 2020, and shipments increased 8.4% each driven by the addition of Mount Holly, which is included prospectively from the May 13, 2021 closing of the transaction. Mount Holly is estimated to generate approximately $100.0 million of net sales on an annual basis. The Airlaid Materials' net sales were impacted by lower shipments in the hygiene and wipes categories (excluding volumes added by Mount Holly). Currency translation was $6.5 million favorable.

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Airlaid Materials’ 2021 operating income of $42.3 million was $4.0 million lower than 2020. Higher shipments positively impacted results by $10.2 million. Selling price increases of $33.6 million, primarily due to raw material cost-pass through provisions and an energy surcharge, were more than offset by higher input costs. Operations were unfavorable $7.3 million as a result of higher spending and inflationary pressures. The impact of currency and related hedging negatively impacted earnings by $2.8 million. The primary drivers are summarized in the following chart (in millions):

Spunlace Spunlace net sales totaled $57.6 million and operating loss totaled $1.3 million for the period October 29, 2021 to December 31, 2021. Shipments were adversely affected by a larger customer's actions to recalibrate orders for wipes to manage year-end inventory, in addition to production delays that were impacted by raw material availability. These factors, combined with unfavorable mix, negatively impacted profitability by approximately $0.7 million. In addition, raw material inflation, particularly on synthetic fibers, coupled with higher than anticipated energy costs, lowered profits by approximately $1.5 million. Operations further negatively impacted results by $1.4 million from lower production, higher than anticipated waste rates and COVID-related labor challenges. The preliminary purchase price allocation resulted in depreciation and amortization of approximately $1.7 million after including the acquisition step-up to fixed and intangible assets.

Other and Unallocated The amount of net operating expenses not allocated to an operating segment and reported as “Other and Unallocated” in our table of Segment Financial Performance, totaled $49.7 million for 2021 compared with $49.2 million in 2020. Excluding the items identified to present “adjusted earnings,” unallocated expenses for the comparison increased $1.3 million.

Gain on Sales of Plant, Equipment and Timberlands, net During each of the past two years, we sold certain assets, primarily timberlands. For a summary of these transactions, refer to Item 8 - Financial Statements and Supplementary Data, Note 7 - "Gain on Dispositions of Plant Equipment and Timberlands."

Interest expense, net For the year ended December 31, 2021, interest expense, net totaled $12.3 million compared with $6.6 million for 2020. The increase reflects additional net borrowings totaling $497.3 million incurred to finance the two acquisitions completed in May 2021 and October 2021. In addition, in connection with the October 2021 issuance of our 4.750% senior notes to finance the Jacob Holm acquisition, we refinanced the amounts outstanding under our variable-rate revolving credit facility which averaged approximately 1.6% at the time they were refinanced, with the proceeds of the fixed-rate notes.

Income taxes For the year ended December 31, 2021, we recorded a $7.0 million income tax provision on a pretax income of $13.7 million from continuing operations. The comparable amounts for 2020 were $11.6 million income tax provision on a pre-tax income of $32.4 million. During 2021, the effective tax rate reflects the impact of $3.6 million of tax expense related to the reversal of a permanent reinvestment assertion for certain foreign jurisdictions and a foreign tax benefit of $10.7 million related to the establishment of a center of excellence. The income tax expense in 2020 includes the impact of nondeductible excise tax totaling $8.3 million partially offset by a $6.1 million benefit recorded in connection with passage of the CARES Act. This Act, which was signed into law on March 27, 2020, modified the “net operating loss” provisions of previous law to allow certain losses to be carried back five years. These amounts are excluded from net income when arriving at adjusted earnings.

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On adjusted pre-tax income of $40.8 million, income tax expense was $13.2 million in 2021. The comparable amounts in 2020 were $60.5 million and $23.1 million, respectively. The effective tax rate on adjusted earnings was 32.4% in the 2021 compared to 38.2% in 2020.

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 €150 million. For 2021 compared to 2020, the average currency exchange rate of the euro strengthened relative to the U.S. dollar by approximately 3.7% , and the British pound sterling to the dollar strengthened by approximately 7.2%. 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.

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 period indicated.

The above table only presents the financial reporting impact of foreign currency translations assuming currency exchange rates in 2021 were the same as 2020, or “constant currency.” It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

Discontinued Operations We completed the sale of our Specialty Papers business on October 31, 2018. Its results of operations are reported as discontinued operations for all periods presented. There was an immaterial amount of activity in results of discontinued operations for 2021 and 2020.

LIQUIDITY AND CAPITAL RESOURCES

Our business requires expenditures for new or enhanced equipment, research and development efforts, and to support our business strategy. In addition, we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the periods presented:

At December 31, 2020, we had $138.5 million in cash and cash equivalents (“cash”), of which approximately 90% was held by foreign subsidiaries. Cash held by our foreign subsidiaries can be repatriated without incurring a significant amount of additional taxes. In addition to cash, as of December 31, 2021, $118.3 million was available under our existing revolving credit agreement.

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Cash provided by operating activities totaled $71.0 million in 2021 compared with $109.0 million a year ago. The cash from operations includes $22.9 million of cash payments related to strategic initiatives and a $20.4 million tax refund in 2020 associated with the CARES Act. Working capital benefits from accounts payable were largely offset by uses of working capital for accounts receivable and inventory. Operating cash flow in 2021 only includes the EBITDA of the two acquisitions prospectively from their date of acquisition. Operating cash flow in 2020 includes $5.3 million of outflows associated with the metallized restructuring and $6.2 million related to the pension settlement. The following table sets forth a measure of "Adjusted EBITDA" a non-GAAP financial measure used by management to assess the cash generated by our core business operations. Pro forma Adjusted EBITDA presents this measure adjusted to include the historical results of the Mount Holly and Jacob Holm acquisitions for 2021 which aligns with the definition of this measure in accordance with our credit agreement for calculation of covenant compliance.

(1)Represents pro forma Mount Holly EBITDA for the period January 1, 2021 through the May 13, 2021 acquisition date, adjusted to eliminate certain corporate cost overhead allocated to Mount Holly during its period of ownership by its previous parent.

(2)Represents pro forma Jacob Holm EBITDA for the period January 1, 2021 through the October 29, 2021 acquisition date.

EBITDA is a measure used by management to assess our operating performance and is calculated using

income (loss) from continuing operations and excludes interest expense, interest income, income taxes and

depreciation and amortization. Adjusted EBITDA is calculated using EBITDA and further excludes certain items management considers to be unrelated to the company’s core operations. The adjustments include the costs of strategic initiatives, certain cost optimization and restructuring activities, certain COVID-19 costs, corporate headquarters relocation expenses, pension settlement expenses, asset impairment charge, share-based compensation expense and debt refinancing, as well as the elimination of gains from sales of timberlands. Adjusted EBITDA is a performance measure that excludes costs that we do not consider to be indicative of our ongoing operating performance.

Net cash used by investing activities reflects the $464.9 million combined purchase price, net of cash acquired, of the two acquisitions completed in 2021. Capital expenditures totaled $30.0 million in 2021 compared with $28.1 million in 2020. Capital expenditures are expected to total between $45 million and $50 million in 2022.

Net cash provided by financing activities totaled $462.4 million in 2021 compared with a use of $100.3 million in 2020. The change in the year-to-year comparison primarily reflects the issuance of bonds to finance our acquisitions in 2021.

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Details of our outstanding long-term indebtedness are set forth under Item 8 - Financial Statements and Supplementary Data – Note 20 -“Long-Term Debt."

In October 2021, we issued $500 million aggregate principal amount of 4.750% senior notes due 2029 (the “Notes”). The net proceeds from the offering of the Notes, together with cash on hand, were used to pay the purchase price of the Jacob Holm acquisition, certain indebtedness of Jacob Holm, outstanding borrowings under the Revolving Credit Facility including amounts previously borrowed to purchase Mount Holly, and to pay fees and expenses.

Our revolving credit facility due in September 2026, contains a number of customary compliance covenants, the most restrictive of which is a maximum leverage ratio of 5.25x at the end of 2021. As of December 31, 2021, the leverage ratio, as calculated in accordance with the definition in our amended credit agreement, was 3.8x, within the limits set forth in our credit agreement.

Financing activities includes cash used for common stock dividends. In 2021, we used $24.5 million of cash for dividends on our common stock compared with $23.5 million in 2020. In the second quarter of 2021, we increased the quarterly cash dividend by 3.7%. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments.

We are subject to various federal, state and local laws and regulations intended to protect the environment, as well as human health and safety. At various times, we have incurred costs to comply with these regulations and we could incur additional costs as new regulations are developed or regulatory priorities change.

As more fully discussed in Item 8 - Financial Statements and Supplementary Data – Note 24 – “Commitments, Contingencies and Legal Proceedings,” we are involved in the Lower Fox River in Wisconsin (the “Fox River”), an EPA Superfund site for which we remain potentially liable for certain government oversight and long-term monitoring and maintenance costs. Pursuant to a consent decree with certain government agencies entered into in January 2019, we paid $20.5 million for past government oversight costs. Although there remains some uncertainty as to the amount we may ultimately be required to spend, primarily for government oversight costs, the consent decree specifies the nature of our future obligations.

We expect to meet all 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.

Off-Balance-Sheet Arrangements As of December 31, 2021 and 2020, we had not entered into any off-balance-sheet arrangements. Financial derivative instruments, to which we are a party, and guarantees of indebtedness, which solely consist of obligations of subsidiaries, are reflected in the consolidated balance sheets included herein in Item 8 – Financial Statements and Supplementary Data.

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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this annual report. Our discussion and analysis of 2020 compared to 2019 is included herein. For discussion and analysis of 2019 compared to 2018, please refer to Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the United States Securities and Exchange Commission on February 26, 2020 and is incorporated herein by reference.

Forward-Looking Statements    This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-K are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among others, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

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Introduction  We manufacture a wide array of engineered materials and manage our company along two operating segments:

Specialty Papers’ results of operations and financial condition are reported as discontinued operations. The following discussion and analysis primarily focuses on the financial results of operations and financial condition of our continuing operations.

COVID-19 Pandemic  On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic as the virus spread throughout the world. As the virus continued its rapid spread, a significant portion of the world’s economies were significantly impacted by government mandates that all “non-essential” businesses close and that residents “shelter-in-place” or practice “social distancing.” These actions have had, and are likely to have, a continuing significant adverse impact on a wide range of economies and industries throughout the world, including certain markets we serve.

The COVID-19 pandemic and the actions undertaken throughout the world in an attempt to contain the virus have had an unprecedented and significant adverse impact on global economies in terms of reduced GDP, increased unemployment, and insolvencies in a variety of industries and markets. As a result, we have experienced and may continue to experience weaker demand for certain of our products due to the effects of the pandemic, and there may be periods during which demand for our products is insufficient to enable us to operate our production facilities in an economical manner which may force us to take machine downtime to curtail production to match demand.

Our financial performance and results of operations have been impacted by the weaker economic conditions related to the pandemic as demand for wallcover products were significantly weaker particularly during the second quarter of 2020, although shipping volumes increased significantly during the second half of 2020. In addition, demand for tabletop products has been significantly adversely impacted by the pandemic and the effect on venues, such as restaurants, which use tabletop products. The majority of our other product portfolios is considered to be “essential” consumer staples. We believe demand for certain of our products, such as Composite Fibers’ food & beverage filtration products and Airlaid Materials’ personal hygiene and wipes, will remain strong. To date, we have successfully maintained our global supply chain securing critical raw materials with minimal disruptions or incremental costs and the demand for substantially all products has been stable as our customers continued to serve critical products to end-user consumers.

As disclosed in Item 1A – Risk Factors to this Annual Report, approximately $79 million of our net sales in 2020 was earned from customers located in Ukraine, Russia, and members of the Commonwealth of Independent States. The large majority of our net sales from this region consists of wallcover base material. During the second quarter of 2020, our wallcover net sales were significantly impacted by temporary suspension of operations of many of our customers due to government orders related to the pandemic. Although our customers have resumed operations and demand for our wallcover products returned to more normalized levels, if the governmental authorities reimplement actions to fight any resurgence of COVID-19 in these regions, or if economic hardships continue, sales to some of our customers, such as wallpaper printers, may be adversely impacted. In addition, as authorities instituted restrictions limiting business operations, social distancing and other health and safety measures, restaurants and similar venues globally were forced to significantly curtail or close their businesses. As a result, tabletop volumes in our Airlaid Materials segment were significantly lower in 2020.

The health and safety of our employees and their families are a top priority, and we remain committed to taking all the necessary measures to protect them. We have instituted appropriate new safety, hygiene, and communication protocols throughout our facilities to ensure we maintain our ability to produce product. Accordingly, we continue to proactively work to identify and mitigate risks to safeguard the continuity of our business. We believe we are well positioned from a liquidity and leverage perspective following the successful restructuring and cost optimization initiatives in 2019 and 2020 and the debt refinancing in 2019. As a result, we believe we are able to supply our customers high-quality engineered materials necessary to manufacture a variety of essential and life-sustaining consumer staples including wipes, health and hygiene products, and food and beverage items during this challenging time.

RESULTS OF OPERATIONS

2020 versus 2019

Overview For the year ended December 31, 2020 we reported income from continuing operations of $20.8 million, or $0.47 per share compared with a loss of $25.2 million, or $0.57 per share in 2019.

The following table sets forth summarized GAAP-based consolidated results of operations:

We generated $109.0 million of cash from operations in 2020 compared with $102.8 million a year ago. The amount reported for 2019 includes $53.4 million of cash, before tax, available to us as a result of the pension plan termination and settlement of all liabilities. During 2020 and 2019, capital expenditures totaled $28.1 and $27.8 million, respectively.

The results presented above are in accordance with generally accepted accounting principles in the United States (“GAAP”) and reflect a number of significant actions we undertook including cost optimization, the restructuring and consolidation of our metallized business, debt refinancing and termination and settlement of our qualified pension plan, among others. Excluding these items from reported results, adjusted earnings, a non-GAAP measure, was $37.4 million, or $0.84 per diluted share for 2020, compared with $33.2 million, or $0.75 per diluted share, a year ago. Operating income for our segments, Composite Fibers and Airlaid Materials, increased by $4.2 million, or 8.8%, and $5.2 million, or 12.6%, respectively. Although growth in aggregate shipping volumes was limited due to the COVID-19 pandemic, the segments’ results benefited from a favorable mix of products sold, efficient operations and disciplined cost control. In addition, interest expense, net declined $2.7 million reflecting the benefits of our debt refinancing in 2019.

Adjusted earnings consists of net income determined in accordance with GAAP adjusted to exclude the impact of the following:

Discontinued Operations. In connection with the sale of the Specialty Papers business, its results of operations, including the loss recorded in 2018 connection with the sale, are reported as discontinued operations for all periods presented. This adjustment reflects the net results of this discontinued operation.

Restructuring charge – Metallized operations. This adjustment represents the charges incurred in connection with the decision to restructure a portion of the Composite Fibers segment, primarily consisting of the consolidation of our metallizing operation from Gernsbach, Germany to Caerphilly, U.K. The adjustment includes a non-cash charge of $5.0 million associated with accelerated depreciation and the write-off of inventory and spare parts in addition to cash severance costs totaling $6.1 million.

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Cost optimization actions. These adjustments reflect charges incurred in connection with initiatives to optimize the cost structure of the Company, including costs related to the organizational change to a functional operating model. The costs are primarily related to executive separations, other headcount reductions, professional fees, asset write-offs and certain contract termination costs. These adjustments, which have occurred at various times in the past, are irregular in timing and relate to specific identified programs to reduce or optimize the cost structure of a particular operating segment or the corporate function.

Corporate headquarters relocation. These adjustments reflect costs incurred in connection with the strategic relocation of the Company’s corporate headquarters to Charlotte, NC. The costs are primarily related to employee relocation costs and exit costs at the previous corporate headquarters.

Pension settlement expenses, net. This adjustment reflects expenses incurred in connection with the termination of the Company’s qualified pension plan in 2019 and the reversion of excess pension plan assets to the Company. In the fourth quarter of 2019, the Company incurred a $75.3 million pension settlement charge in connection with the termination of the plan. Since the pension plan was fully funded, the settlement of the pension obligations did not require the use of the Company’s cash, but instead was accomplished with plan assets. In connection with the reversion of excess pension plan assets in the second quarter of 2020, the Company incurred pension settlement expenses related to excise taxes, net of post settlement adjustments and certain related professional fees.

COVID-19 incremental costs. This adjustment represents incremental cash costs incurred directly related to the COVID-19 pandemic such as mill employee incentive payments, enhanced hygiene protocols, safety and supplies and professional fees primarily associated with the CARES Act benefit.

Asset Impairment Charge. This adjustment represents a non-cash charge recorded to reduce the carrying amount of a tradename intangible asset of the Dresden wallcover business due to the impact of the COVID 19 pandemic on the underlying forecasted revenue stream.

Airlaid capacity expansion costs. These adjustments reflect non-capitalized, one-time costs incurred related to the start-up of a new airlaid production facility in Fort Smith, Arkansas and implementation of a new business system.

Strategic initiatives. These adjustments primarily reflect professional and legal fees incurred directly related to evaluating and executing certain strategic initiatives including costs associated with acquisitions and the related integration.

Debt refinancing costs. Represents a charge to write-off unamortized debt issuance costs in connection with the redemption of the Company’s $250 million, 5.375% Notes.

Fox River environmental matter. This adjustment excludes a gain and reflects a decrease in the Company’s overall reserve for the Fox River matter primarily due to the resolution of the litigation in the first quarter of 2019.

Timberland sales and related costs. These adjustments exclude gains from the sales of timberlands as these items are not considered to be part of our core business, ongoing results of operations or cash flows. These adjustments are irregular in timing and amount and may benefit our operating results.

Coronavirus Aid, Relief, and Economic Security (CARES) Act 2020. This adjustment reflects the tax benefit recognized as a result of the March 27, 2020 change in U.S. tax law which, among others, allows net operating losses to be carried back five years.

These adjustments are each unique and not considered to be on-going in nature. The transactions are irregular in timing and amount and may significantly impact our operating performance. As such, these items may not be indicative of our past or future performance and therefore are excluded for comparability purposes.

Adjusted earnings and adjusted earnings per diluted share are considered measures not calculated in accordance with GAAP, and therefore are non-GAAP measures. The non-GAAP financial information should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP. The following table sets forth the reconciliation of net income to adjusted earnings for the years ended December 31, 2020 and 2019:

Segment Financial Performance

The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.

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Segments Results of individual operating segments are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual segments are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the segments. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the operating segment are allocated primarily based on an estimated utilization of support area services or are included in “Other and Unallocated” in the table above.

Management evaluates results of operations of the segments before certain corporate level costs and the effects of certain gains or losses not considered to be related to the core business operations. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of operating segments and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” In the evaluation of operating segment results, management does not use any measures of total assets. This presentation is aligned with the management and operating structure of our company. It is also on this basis that the Company’s performance is evaluated internally and by the Company’s Board of Directors.

Sales and Costs of Products Sold

The following table sets forth the contribution to consolidated net sales by each segment:

Net sales on a consolidated basis totaled $916.5 million and $927.7 million in 2020 and 2019, respectively. The $11.2 million decrease was primarily driven by lower average selling prices partially offset by favorable currency translation. Shipping volumes increased 0.1%.

Composite Fibers’ net sales increased $3.4 million, or 0.7%, and totaled $525.1 million in 2020. The increase was primarily due to a more favorable mix of products sold and $7.1 million from favorable currency translation. Shipping volumes increased 1.0% and lower selling prices adversely impacted the comparison by $11.3 million.

Composite Fibers’ operating income for the year ended December 31, 2020 increased $4.2 million to $52.1 million compared to a year ago. The segment’s results were favorably impacted by $10.4 million from lower raw material and energy prices, operational efficiencies, and volume/mix improvements. Currency was $0.9 million unfavorable compared to the prior year. The primary drivers are summarized in the following chart (in millions):

Airlaid Materials’ net sales totaled $391.4 million in 2020, a $14.6 million decrease in the year-over-year comparison driven by $13.7 million of lower selling prices. Shipping volumes declined slightly as the closure of restaurants globally due to the COVID-19 pandemic resulted in significantly lower tabletop volumes. This decline was partially offset by strong shipments of home care, food pads and wipes products. Lower selling prices primarily reflects contractual pass-through arrangements. Currency translation was favorable $4.4 million.

Airlaid Materials’ operating income totaled $46.3 million, an increase of $5.2 million, or 12.6% compared to a year ago. The increase was primarily due to lower raw material and energy costs partially offset by lower selling prices, primarily reflecting pass-through arrangements. Currency translation was favorable $2.0 million. The primary drivers are summarized in the following chart (in millions):

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Other and Unallocated The amount of net operating expenses not allocated to an operating segment and reported as “Other and Unallocated” in our table of Segment Financial Performance, totaled $49.2 million for 2020 compared with $34.4 million in 2019. Excluding the items identified to present “adjusted earnings,” unallocated expenses for the comparison declined $1.3 million primarily reflecting cost reduction initiatives, position elimination and less travel.

Gain on Sales of Plant, Equipment and Timberlands, net    During each of the past two years, we completed the following sales of assets: