# Mativ Holdings, Inc. (MATV) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Mativ Holdings, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1000623/000100062322000016/swm-20211231.htm
Accession: 0001000623-22-000016
Filing date: 2022-03-01
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MATV/
All MD&A years: /company/MATV/mda/
Next year: /company/MATV/mda/fy2022/ (FY 2022)

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K and the selected financial data included in Part II, Item 6, "Selected Financial Data" of this Annual Report on Form 10-K. The discussion of our financial condition and results of operations includes various forward-looking statements about our markets, the demand for our products and our future prospects. These statements are based on certain assumptions that we consider reasonable. For information about risks and exposures relating to us and our business, you should read the sections entitled "Factors That May Affect Future Results," in Part I, Item 1A of this Annual Report on Form 10-K and "Forward Looking Statements" at the end of this Item 7. Unless the context indicates otherwise, references to "SWM," the "Company," "we," "us," "our," or similar terms include Schweitzer-Mauduit International, Inc. and our consolidated subsidiaries.

This Management's Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of our financial statements with an understanding of our recent performance, our financial condition and our prospects. The following will be discussed and analyzed:

•    SUMMARY;

•    CRITICAL ACCOUNTING POLICIES AND ESTIMATES;

•    RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS;

•    RESULTS OF OPERATIONS;

•    LIQUIDITY AND CAPITAL RESOURCES;

•    OTHER FACTORS AFFECTING LIQUIDITY AND CAPITAL RESOURCES;

• OUTLOOK; and

•    FORWARD-LOOKING STATEMENTS.

COVID-19 Pandemic

We continue to monitor the impact of the COVID-19 pandemic (including its variant strains) on all aspects of our business. At present, all of our facilities remain operational. Furthermore, there have been only isolated and temporary customer shutdowns, and the Company is maintaining active dialogue with all key customers and suppliers regarding supply chain and production planning. Further, senior management is meeting regularly to address all aspects of the pandemic, including employee safety, continuity of business operations, sales and profit impacts directly or indirectly related to the pandemic, and potential governmental and third-party responses to the pandemic. Further details about the risks and impacts discussed in the section below can be found in the forward-looking statements.

In general, our business was resilient in the face of sales volatility and limited visibility during the early stages of the pandemic in 2020, while those areas that were most negatively affected, such as transportation and construction, began improving during the fourth quarter of 2020 and performed well during 2021. Full year 2021 double-digit sales growth in AMS, excluding the benefit of acquisitions, demonstrates the strength of the demand recovery. However, increased global economic activity and high demand across many industries has caused significant input cost inflation and strained supply chains, which have negatively impacted profitability (more detailed discussion below throughout MD&A).

Liquidity & Debt Overview. The Company had $1,270.3 million of total debt, $74.7 million of cash, and undrawn capacity on its $500.0 million revolving line of credit facility (the "Revolving Credit Facility") of $102.2 million at the end of 2021. Per the terms of the Company's $700.0 million credit agreement (the "Credit Agreement"), net leverage was 4.8x at the end of 2021, versus a current maximum covenant ratio of 5.5x. The Company’s nearest debt maturity is the Revolving Credit Facility which is due in 2023. Please refer to liquidity and capital resources section for additional detail.

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SUMMARY

In 2021, SWM reported net income of $88.9 million on total net sales of $1,440.0 million. Compared to the prior year, net sales increased $365.6 million, due primarily to incremental sales from the April 2021 Scapa acquisition of $305.6 million and March 13, 2020 Tekra acquisition. Within AMS (excluding Scapa), the organic sales growth was driven by strong gains in filtration, transportation, and construction end-markets as product lines across the portfolio demonstrated robust demand. These gains were partially offset by a decline in healthcare sales caused by difficult comparisons to 2020 when certain products benefited significantly from the pandemic (for example, facemask materials). EP segment net sales decreased $21.6 million compared to prior year primarily the result of 4% unfavorable price/mix impacts and a 2% volume decline attributable to lower tobacco-related papers, including LIP, as certain customers reduced inventories following a significant safety stock build in 2020. Continued rapid growth in HnB products and 3% favorable currency benefits were partial favorable offsets to those factors within the EP segment.

Net income increased to $88.9 million in 2021 compared to $83.8 million in 2020. Escalating input cost inflation, particularly for polypropylene resin and wood pulp, and supply chain challenges across the business negatively impacted net income, as the cost increases were not fully offset by sales growth and price increases implemented by the Company. Several large items also affected the 2021 results and year-over-year comparisons. The most significant expenses related to the Scapa acquisition, including $21.4 million of acquisition and integration costs, $17.5 million incremental purchase accounting expenses, and $6.9 million of acquisition-related foreign currency exchange impacts. These costs were partially offset by a $35.2 million gain on the sales of the Spotswood, New Jersey facility, which was closed at the end of 2020. The company recognized $9.4 million benefit and $18.4 million provision for income taxes in the years ended December 31, 2021, and 2020, respectively.

Cash provided by operations was $58.1 million in 2021 down from $161.6 million in 2020. Other uses and proceeds of cash during 2021 included $630.6 million consideration to acquire Scapa, $688.6 million net in proceeds from long debt issuances and repayments, $55.3 million in cash dividends paid to SWM stockholders, $38.9 million of capital spending including capitalized software and $35.3 million proceeds from the sale of Spotswood.

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CRITICAL ACCOUNTING ESTIMATES

We disclose those accounting estimates that we consider to be significant in determining the amounts to be utilized for communicating our consolidated financial position, results of operations and cash flows in the first note to our consolidated financial statements included elsewhere herein. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S., which require management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported and disclosure of contingencies. Changes in these estimates could have a material impact on our financial position, results of operations, and cash flows. We discussed with the Audit Committee of the Board of Directors the estimates and judgments made for each of the following items and our accounting for and presentation of these items in the accompanying financial statements:

Accounting for Income Taxes

Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. The complexity of our global structure requires technical expertise in determining the allocation of income to each of these jurisdictions and consolidated income tax expense.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and incorporate assumptions about the amount of future state, federal, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Accounting Standards Codification Topic No. 740, Income Taxes ("ASC 740"), states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. We (1) record unrecognized tax benefits as liabilities in accordance with ASC 740 and (2) adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

Revenue Recognition

We have two main sources of revenue: product sales and materials conversion. We recognize product sales revenues when control of a product is transferred to the customer. For the majority of product sales, transfer of control occurs when the products are shipped from one of our manufacturing facilities to the customer. The cost of delivering finished goods to our customers is recorded as a component of cost of products sold. Those costs include the amounts paid to a third party to deliver the finished goods. Freight costs billed to and paid by a customer are included in net sales. We also provide services to customers through the conversion of customer-owned raw materials into processed finished goods. In these transactions, we generally recognize revenue as processing is completed.

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Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, which generally occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Generally, we consider collectability of amounts due under a contract to be probable upon inception of a sale based on an evaluation of the credit worthiness of each customer. If collectability is not considered to be probable, we defer recognition of revenue on satisfied performance obligations until the uncertainty is resolved. Any variable consideration, such as discounts or price concessions, is set forth in the terms of the contract at inception and is included in the assessment of the transaction price at the outset of the arrangement. We estimate these amounts at least quarterly based on the expected forecast quantities to be provided to customers and reduce revenues recognized accordingly. The transaction price is allocated to the individual performance obligations due under the contract based on the relative stand-alone fair value of the performance obligations identified in the contract. We typically use an observable price to determine the stand-alone selling price for separate performance obligations.

We do not typically include extended payment terms or significant financing components in our contracts with customers. Certain product sales contracts may include cash-based incentives (volume rebates or credits), which are accounted for as variable consideration.  We estimate these amounts at least quarterly based on the expected forecast quantities to be provided to customers and reduce revenues recognized accordingly. Incidental items that are immaterial in the context of the contract are recognized as expense in the period incurred. We generally expense sales commissions when incurred because the amortization period is one year or less. These costs are recorded within sales and marketing expenses. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. As a practical expedient, we treat shipping and handling activities that occur after control of the good transfers as fulfillment activities, and therefore, does not account for shipping and handling costs as a separate performance obligation.

Accounting for Contingencies

We accrue an estimated loss by taking a charge to income when the likelihood that a future event, such as a legal proceeding, will result in a loss or the incurrence of a liability is probable, and the amount of loss can be reasonably estimated. We disclose material contingencies if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial condition, results of operations, and our cash flows.

For further information, please see "Litigation" in Part I, Item 3, "Legal Proceedings" and Note 20. Commitments and Contingencies, of the Notes to Consolidated Financial Statements.

Property, Plant and Equipment Valuation

Certain of our manufacturing processes are capital intensive; as a result, we make substantial investments in property, plant and equipment which are recorded at cost. Net property, plant and equipment comprised 19% of our total assets as of December 31, 2021. Property, plant and equipment is depreciated on the straight-line method over the estimated useful lives of the assets. Production machines and related equipment are not subject to substantial technological changes rendering them obsolete and are generally depreciated over estimated useful lives of 10 to 20 years. When indications of impairment exist, we assess the likelihood of recovering the cost of long-lived assets based on our expectation of future profitability and undiscounted cash flow of the related asset group. These factors, along with management's plans with respect to the operations, are considered in assessing the recoverability of property, plant and equipment. Changes in management's estimates and plans could significantly impact our financial condition, results of operations and cash flows.

As a result of excess capacity in the tobacco-related papers industry and increased purchased material and operating costs experienced in the last several years, competitive selling prices for certain of our products are not sufficient to cover our costs with a reasonable margin. Such competitive pressures have resulted in downtime of certain paper machines and, in some cases, accelerated depreciation or impairment of certain equipment, and employee severance.

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We have also incurred restructuring costs in our AMS segment in pursuit of synergies from integrating our acquisitions. In recent years, we have restructured our operations to improve our competitiveness and profitability. As a result, we incurred significant charges related to asset impairments, accelerated depreciation and employee severances.

Management continues to evaluate how to operate our production facilities more effectively. Further restructuring actions are possible that might require additional impairments or accelerated depreciation of some equipment.

Business Combinations

Accounting for business combinations requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed ("net assets") at their acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the net assets acquired at their respective fair values as of the acquisition date. The estimated fair values are based upon quoted market prices and widely accepted valuation techniques, which require significant estimates and assumptions including, but not limited to, estimating future cash flows and developing appropriate growth and discount rates. In particular, the estimated fair value of intangible assets acquired may consider available historical information along with expectations and assumptions about future performance. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. Changes in these assumptions may have a significant impact on the fair value of assets acquired and liabilities assumed. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill, based on new information obtained about the facts and circumstances that existed as of the acquisition date. Upon the conclusion of the measurement period or final determination of the values of net assets acquired, whichever comes first, any subsequent adjustments are recorded to our consolidated financial statements. See Note 5. Business Acquisitions, of the Notes to Consolidated Financial Statements for additional information.

Goodwill and Unamortized Intangible Assets

Goodwill is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill is measured as the excess of consideration transferred over the net assets acquired at their respective fair values as of the acquisition date. Goodwill is tested for impairment at the reporting unit level. Fair value of a reporting unit is typically based upon estimated future cash flows discounted at a rate commensurate with the risk involved or market-based comparables. If the carrying amount of the reporting unit’s net assets exceeds its fair value, then an analysis will be performed to compare the implied fair value of goodwill with the carrying amount of goodwill. An impairment loss will be recognized in an amount equal to the excess of the carrying amount over its implied fair value. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. The annual impairment tests performed on October 1, 2021, and 2020 did not indicate any impairment of goodwill.

Intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss would be indicated when estimated undiscounted future cash flows from the use of the asset are less than its carrying amount. An impairment loss would be measured as the difference between the fair value (based on discounted future cash flows) and the carrying amount of the asset. Estimated useful lives range from 10 to 23 years for customer relationships and 4 to 20 years for developed technology, patents and other intangible assets. Certain trade names are estimated to have indefinite useful lives and as such are not amortized. Intangible assets with indefinite lives are reviewed for impairment following a method similar to the impairment testing for Goodwill.  Testing of these assets is performed annually and whenever events and circumstances indicate that impairment may have occurred. The annual impairment tests performed on October 1, 2021, and 2020 did not indicate any impairment of intangible assets.

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The fair value estimates used in the assessment of impairment for both goodwill and intangible assets consider historical trends in addition to significant assumptions including projections of future performance. Changes in these assumptions can have a significant impact on the assessment of fair value.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

For a discussion regarding recently adopted accounting pronouncements, see Recently adopted Accounting Pronouncements included in Note 2. Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements.

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RESULTS OF OPERATIONS

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[[/GREPCENT_TABLE]]

(1) Results during the year ended December 31, 2021 include Scapa from the April 15, 2021 acquisition date to December 31, 2021.

(2) Results during the year ended December 31, 2020 include Tekra from the March 13, 2020 acquisition date to December 31, 2020.

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Year Ended December 31, 2021, Compared with the Year Ended December 31, 2020

Net Sales

(dollars in millions)

[[GREPCENT_TABLE]]
[["","2021","","2020","","Change","","Percent Change"],["Advanced Materials & Structures","$","930.7","","","$","543.5","","","$","387.2","","","71.2","%"],["Engineered Papers","509.3","","","530.9","","","(21.6)","","","(4.1)"],["Total","$","1,440.0","","","$","1,074.4","","","$","365.6","","","34.0","%"]]
[[/GREPCENT_TABLE]]

Net sales were $1,440.0 million in 2021 compared with $1,074.4 million in 2020. The increase in net sales consisted of the following (dollars in millions):

[[GREPCENT_TABLE]]
[["","Amount","","Percent"],["Incremental net sales from Scapa","$","305.6","","","28.4","%"],["Changes in volume, product mix and selling prices (excluding Scapa)","42.5","","","4.0","%"],["Changes due to net foreign currency impacts","17.7","","","1.6"],["Changes in royalties","(0.2)","","","\u2014"],["Total","$","365.6","","","34.0","%"]]
[[/GREPCENT_TABLE]]

AMS segment net sales were $930.7 million for 2021 compared to $543.5 million during 2020. The increase of $387.2 million or 71.2% included the benefit from the Scapa acquisition (closed April 15, 2021), and Tekra acquisition (completed March 13, 2020). The increase in organic sales was driven by more than 20% gains in filtration and transportation end-markets with strong growth across water, process, and air filtration materials. Within transportation, automotive paint protection films rebounded sharply following Covid-related disruptions in 2020. Construction sales also increased by more than 10% with broad strength across the portfolio. Healthcare sales (excluding Scapa) declined due to certain products that benefited from COVID-19 related demand in the prior year, such as facemask materials. Industrial sales were essentially flat. While organic sales increased by more than 10%, management believes growth could have been even stronger if not for key raw material shortages constraining growth in transportation films, and other supply chain issues, including labor shortages, impacting the business overall.

The EP segment net sales were $509.3 million for 2021 compared to $530.9 million during 2020. The decrease of $21.6 million, or 4.1%, was primarily the result of a 2% volume decline, and unfavorable price/mix impacts of 4%, which were partially offset by a 3% currency benefit mainly related to the Euro. The volume decline was primarily attributable to lower tobacco-related papers, including LIP, as certain customers resumed more normalized order patterns compared to 2020, when they built safety stocks in response to the pandemic. High growth in HnB products offset declines within the tobacco business. Non-tobacco paper volumes increased slightly.

Gross Profit

(dollars in millions)

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[[/GREPCENT_TABLE]]

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Gross profit for the year ended December 31, 2021, increased by $22.0 million, or 7.1%, to $330.3 million from $308.3 million in the prior year. AMS gross profit increased by $43.3 million primarily due to the incremental benefit of the acquired Scapa and Tekra businesses and strong organic sales growth in transportation, filtration, and construction end-markets. These sales increases were partially offset by higher raw material costs, primarily of polypropylene resin, which were not fully offset by selling price increases the Company has implemented. Other inflationary factors such as higher energy and freight costs also negatively affected the gross margin. In addition, the limited supply of certain specialty resins used to manufacture transportation films, has constrained growth of this product line, which is typically a positive contributor to margins.

In the EP segment, gross profit decreased by $21.3 million, primarily due to LIP volume decline and associated negative mix impact, significantly higher wood pulp costs, and increases in energy and freight costs. Contracts with several large customers have recently reset to higher selling prices to reflect recent wood pulp costs; these increases were not effective during most of 2021. Currency movements resulted in a $6.7 million benefit to gross profit.

Nonmanufacturing Expenses

(dollars in millions)

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Nonmanufacturing expenses in the year ended December 31, 2021, increased by $69.3 million, or 41.3%, to $236.9 million from $167.6 million in the prior year. The increase included $21.4 million of transaction and integration costs associated with the Scapa acquisition and the addition of ongoing SG&A costs from the acquired Scapa operations.

Restructuring and Impairment Expense

(dollars in millions)

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

The Company incurred total restructuring and impairment expense of $10.1 million in the year ended December 31, 2021, compared to $11.9 million in the year ended December 31, 2020, a decrease of $1.8 million.

In the year ended December 31, 2021, restructuring expense in the EP segment included $4.7 million primarily relating to costs associated with closing the Spotswood, New Jersey facility and preparing it for sale, medical benefits and other accruals relating to the Spotswood facility as well as $0.8 million severance-related restructuring expenses associated with the closure of the Winkler facility in Canada. The EP segment also recognized $2.7 million of restructuring expenses in 2021 primarily related to severance accruals at our manufacturing operations in France.

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In the year ended December 31, 2020, restructuring expense included $6.7 million in the EP segment relating to severance and other accruals as a result of the decision to shut down the Spotswood, New Jersey facility. The EP segment also recognized $4.6 million of restructuring expenses in 2020 primarily related to severance accruals at our manufacturing operations in France and Poland. These restructuring charges relate to ongoing cost optimization initiatives to remain competitive within the EP segment.

In the AMS segment, the Company recognized $1.9 million restructuring and impairment expense in the 2021 period related to equipment impairment charges versus $0.5 million in the 2020 period related to severance accruals.

Operating Profit

(dollars in millions)

[[GREPCENT_TABLE]]
[["","","","","","Percent Change","","Return on Net Sales"],["","2021","","2020","","Change","","","2021","","2020"],["Advanced Materials & Structures","$","61.6","","","$","64.8","","","$","(3.2)","","","(4.9)","%","","6.6","%","","11.9","%"],["Engineered Papers","100.5","","","116.8","","","(16.3)","","","(14.0)","","","19.7","","","22.0"],["Unallocated expenses","(78.8)","","","(52.8)","","","(26.0)","","","(49.2)"],["Total","$","83.3","","","$","128.8","","","$","(45.5)","","","(35.3)","%","","5.8","%","","12.0","%"]]
[[/GREPCENT_TABLE]]

Operating profit was $83.3 million in the year ended December 31, 2021, compared with $128.8 million during the prior year.

The AMS segment's operating profit in the year ended December 31, 2021, was $61.6 million compared to $64.8 million in the prior year period, down 4.9%. The margin declined to 6.6% in 2021 compared to 11.9% in the prior-year period. The decline was attributable to a combination of factors including inflation pressure and supply chain challenges which resulted in higher raw material, energy and freight costs. In addition, the limited supply of certain specialty resins used to manufacture transportation films has constrained growth of this product line, which is typically a positive contributor to margins. Purchase accounting expenses in 2021 were also $17.5 million higher than prior-year period as a result of Scapa acquisition.

The EP segment's operating profit in the year ended December 31, 2021, was $100.5 million, a decrease of $16.3 million, or 14.0%, from $116.8 million in the prior year.  The decrease in operating profit and margin was primarily due to the LIP volume decline and associated negative mix impact, as well as significantly higher wood pulp costs and increases in energy and freight as discussed above. These decreases were partially offset by a total of $7.3 million lower restructuring expenses and other costs primarily related to the Spotswood plant shutdown. Currency movements resulted in a $5.7 million benefit to operating profit.

Unallocated expenses in the year ended December 31, 2021, were $78.8 million, up $26.0 million, or 49.2%, from the $52.8 million in the prior year period. The increase was primarily due to $21.4 million transaction and integration costs related to the Scapa acquisition, and $6.0 million of costs incurred within Scapa as shared services such as finance, HR, and IT, which were reported in the Company's segment financials as unallocated expenses. The Company incurred lower incentive compensation costs versus 2020.

Non-Operating Expenses, Net

Interest expense was $46.1 million in the year ended December 31, 2021, an increase of $15.6 million from $30.5 million in the year ended December 31, 2020.  Excluding a benefit of $4.5 million prior year expense reversal related to the favorable settlement of Brazil tax assessments, the interest expense increased $20.1 million due mainly to higher average debt balances as a result of the Scapa acquisition.

The weighted average effective interest rate on our debt facilities was approximately 4.04% and 4.02% for the years ended December 31, 2021, and 2020, respectively.

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Other income, net was $35.9 million during the year ended December 31, 2021 mainly reflecting a $35.2 million gain from the sale of the Spotswood facility, $4.0 million sale of carbon dioxide credits in France as well as $1.6 million favorable Brazil tax assessment settlement, offset by $6.9 million realized foreign currency loss related to timing of the Scapa acquisition cash settlement. Other expense, net was $1.0 million during the year ended December 31, 2020.

Income Taxes

The $9.4 million benefit and $18.4 million provision for income taxes in the years ended December 31, 2021, and 2020, respectively, resulted in an effective tax rate of (12.9)% compared with 18.9% in the prior year. The net change was primarily due to net favorable valuation allowance release and unfavorable mix of earnings.

Income from Equity Affiliates

Income from equity affiliates, net of income taxes, was $6.4 million in the year ended December 31, 2021, compared with income of $4.9 million during the prior year, and reflects the results of operations of CTM and CTS, driven by increased volumes.

Net Income and Income per Share

Net income in the year ended December 31, 2021, was $88.9 million, or $2.80 per diluted share, compared with $83.8 million, or $2.66 per diluted share, during the prior year period.  

For a comparison of the Company’s results of operations for the year ended December 31, 2019 to the year ended December 31, 2020, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the U.S. Securities and Exchange Commission on March 1, 2021.

LIQUIDITY AND CAPITAL RESOURCES

A major factor in our liquidity and capital resource planning is our generation of cash flow from operations, which is sensitive to changes in the mix of products sold, volume and pricing of our products, as well as changes in our production volumes, costs and working capital. Our liquidity is supplemented by funds available under our revolving credit facility with a syndicate of banks that is used as either operating conditions or strategic opportunities warrant.

Cash Requirements

As of December 31, 2021, $52.3 million of our $74.7 million of cash and cash equivalents was held by foreign subsidiaries. Cash paid for income taxes (net of refunds) was $22.4 million for the year ended December 31, 2021. We believe that our sources of liquidity and capital, including cash on-hand, cash generated from operations and our existing credit facilities, will be sufficient to finance our continued operations, our current growth plan, and dividend payments.

Cash Provided by Operations

Net cash provided by operations was $58.1 million in the year ended December 31, 2021, compared with $161.6 million in the prior year. The decrease was primarily related to unfavorable year-over-year movements in working capital related cash flows as well as cash costs related to advisory fees, transaction expenses, and integration costs all relating to the Scapa acquisition

46

Working Capital

As of December 31, 2021, we had net operating working capital of $366.7 million including cash and cash equivalents of $74.7 million, compared with net operating working capital of $232.3 million including cash and cash equivalents of $54.7 million as of December 31, 2020. These changes primarily reflect the impact of the Scapa acquisition, the timing of payments and collections as well as increased raw material prices and timing of shipments.

In 2021, net changes in operating working capital decreased cash flow by $61.4 million. In 2020, net changes in operating working capital decreased cash flow by $5.7 million. The most significant working capital related cash outflow item was related to higher receivables related to strong sales growth in AMS, and higher costs of inventories on hand related to significantly higher raw material prices.

Cash Used for Investing

Cash used for investing activities during 2021 was $636.5 million compared to $203.1 million in the prior year. The change primarily reflects the net $630.6 million consideration to acquire Scapa versus $169.3 million for Tekra in prior year.

Capital Spending

Capital spending including capitalized software was $38.9 million, and $33.3 million in 2021 and 2020, respectively.  During 2021 and 2020 capital spending was primarily related to replacement and maintenance of aging assets, development of new products, rebuild of certain paper manufacturing lines, cost reduction initiatives, and IT infrastructure.

Cash Provided by (Used for) Financing Activities

During 2021, financing activities consisted primarily of $744.5 million proceeds from borrowings under the revolving credit facility, primarily to fund the Scapa acquisition including $350 million under the Term Loan B Facility and $343.0 million incremental borrowings of revolver loans, $55.3 million in cash paid for dividends declared to SWM stockholders, $55.9 million payments on long-term debt, $14.6 million payment for debt issuance costs associated with the amendment of our Credit Agreement as discussed in Note 14. Debt of the notes to the Consolidated Financial statements, the buyout of the leased property at Knoxville for $15.4 million and share repurchases of $3.4 million.

During 2020, financing activities consisted primarily of $212.7 million proceeds from borrowings under the revolving credit facility, primarily to fund the Tekra acquisition, net repayments on borrowings of $165.3 million, cash dividends of $55.0 million paid to SWM stockholders and share repurchases of $1.0 million.

Dividend Payments

We have declared and paid cash dividends on our common stock every fiscal quarter since the second quarter of 1996. On February 23, 2022, we announced a cash dividend of $0.44 per share payable on March 25, 2022, to stockholders of record as of the close of business on March 11, 2022. The covenants contained in our Indenture and Credit Agreement, each, as defined below in "Debt Instruments and Related Covenants," require that we maintain certain financial ratios, as disclosed in Note 14. Debt, of the Notes to Consolidated Financial Statements, none of which under normal business conditions materially limit our ability to pay such dividends. We will continue to assess our dividend policy in light of our overall strategy, cash generation, debt levels and ongoing requirements for cash to fund operations and to pursue possible strategic opportunities.

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Share Repurchases

In 2021 and 2020, we repurchased 78,790 shares and 27,779 shares, respectively, of our common stock at a cost of $3.4 million and $1.0 million, respectively, for the value of employees' stock-based compensation share awards surrendered to satisfy their personal statutory income tax withholding obligations.

Debt Instruments and Related Covenants

[[GREPCENT_TABLE]]
[["Debt Instruments and Related Covenants ($ in millions)","For the Years Ended December 31,"],["2021","","2020"],["Proceeds from issuances of long-term debt","744.5","","","212.7"],["Payments on long-term debt","(55.9)","","","(165.3)"],["Net proceeds from borrowings","$","688.6","","","$","47.4"]]
[[/GREPCENT_TABLE]]

Net proceeds from borrowings were $688.6 million during 2021. 

On February 10, 2021, we amended our existing Credit Agreement to provide for an additional Term Loan Facility “Term Loan B” which provides for additional capacity of $350 million. See Note 14. Debt, of the Notes to Consolidated Financial Statements for additional information about the Term Loan B. The Credit Agreement was further amended effective February 22, 2022 to adjust the step-down schedule for the maximum net debt to EBITDA ratio. See Note 25. Subsequent Event, of the Notes to Consolidated Financial Statements for additional information about the amendment.

Credit Agreement

On September 25, 2018, the Company entered into a $700.0 million credit agreement (the “Credit Agreement”), which replaced the Company’s previous senior secured credit facilities and provides for a five-year $500.0 million revolving line of credit (the “Revolving Credit Facility”) and a seven-year $200.0 million bank term loan facility (the “Term Loan A Facility”). Subject to certain conditions, including the absence of a default or event of default under the Credit Agreement, the Company may request incremental loans to be extended under the Revolving Credit Facility or as additional Term Loan Facilities so long as the Company is in pro forma compliance with the financial covenants set forth in the Credit Agreement and the aggregate of such increases does not exceed $400.0 million. See Note 14. Debt, of the Notes to Consolidated Financial Statements, for more information.

On February 10, 2021, we amended our Credit Agreement to, among other things, add a new seven-year $350 million Term Loan B Facility (the “Term Loan B Facility”) and to decrease the incremental loans that may be extended at the Company’s request to $250 million. The balance under the Term Loan B Facility was $348.2 million as of December 31, 2021.

Borrowings under the Revolving Credit Facility currently bear interest, at the Company’s option, at either (i) 2.25% in excess of LIBOR or (ii) 1.25% in excess of an alternative base rate. Borrowings under the Term Loan A Facility currently bear interest, at the Company’s option, at either (i) 2.50% in excess of LIBOR or (ii) 1.50% in excess of an alternative base rate. The Term Loan amortizes at the rate of 1.0% per year and will mature on September 25, 2025. Any borrowings under the Term Loan B Facility will bear interest, at the Company's option, at either (i) 3.75% in excess of a reserve adjusted LIBOR rate (subject to a minimum floor of 0.75%) or (ii) 2.75% in excess of an alternative base rate. Unused borrowing capacity under the Credit Agreement was $102.2 million as of December 31, 2021. We also had availability under our bank overdraft facilities and lines of credit of $1.8 million as of December 31, 2021.

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Under the terms of the amended Credit Agreement, the Company is required to maintain certain financial ratios and comply with certain financial covenants, including maintaining a net debt to EBITDA ratio, as defined in the amended Credit Agreement, calculated on a trailing four fiscal quarter basis, not greater than 5.50x and an interest coverage ratio, also as defined in the amended Credit Agreement, of not less than 3.00x. The net debt to EBITDA ratio will decrease over the course of 24 months, returning to 4.50x effective as of June 30, 2023. In addition, borrowings and loans made under the amended Credit Agreement are secured by substantially all of the Company’s and the guarantors’ personal property, excluding certain customary items of collateral, and will be guaranteed by the Company’s existing and future wholly owned direct material domestic subsidiaries and by SWM Luxembourg.

The Company was in compliance with all of its covenants under the Credit Agreement at December 31, 2021. With the current level of borrowing and forecasted results, we expect to remain in compliance with our Credit Agreement financial covenants.

Our total debt to capital ratios, as calculated under the Credit Agreement, at December 31, 2021 and December 31, 2020 were 65.1% and 47.7%, respectively.

Indenture for 6.875% Senior Unsecured Notes Due 2026

On September 25, 2018, the Company closed a private offering of $350.0 million of 6.875% senior unsecured notes due 2026 (the “Notes”). The Notes were sold in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended, pursuant to a purchase agreement between the Company, certain subsidiaries of the Company and J.P. Morgan Securities LLC, as representative of the initial purchasers. The Notes are guaranteed on a senior unsecured basis by each of the Company’s existing and future wholly owned subsidiaries that is a borrower under or that guarantees obligations under the Credit Agreement or that guarantees certain other indebtedness, subject to certain exceptions.

The Notes were issued pursuant to an Indenture, dated as of September 25, 2018 (the “Indenture”), by and among the Company, the guarantors listed therein and Wilmington Trust, National Association, as trustee. The Indenture provides that interest on the Notes will accrue from September 25, 2018, and is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2019, and the Notes mature on October 1, 2026.

The Company may redeem some or all of the Notes at any time on or after October 1, 2021, at the redemption prices set forth in the Indenture, together with accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company sells certain assets or consummates certain change of control transactions, the Company will be required to make an offer to repurchase the Notes, subject to certain conditions.

For a comparison of liquidity and capital resources and the Company’s cash flow activities for the fiscal year ended December 31, 2020 and 2019, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S. Securities and Exchange Commission on March 1, 2021.

OTHER FACTORS AFFECTING LIQUIDITY AND CAPITAL RESOURCES

The following table represents our future contractual cash requirements for the next five years and thereafter for our long-term debt obligations and other commitments ($ in millions):

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[[GREPCENT_TABLE]]
[["","Payments due for the years ended"],["Contractual Obligations","Total","","2022","","2023","","2024","","2025","","2026","","Thereafter"],["Current debt (1)","$","7.2","","","$","7.2","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Long-term debt (2)","1,279.2","","","\u2014","","","399.7","","","6.3","","","192.5","","","349.5","","","331.2"],["Debt interest (3)","250.4","","","53.9","","","52.2","","","44.3","","","43.3","","","35.1","","","21.6"],["Restructuring obligations (4)","6.2","","","3.9","","","0.5","","","0.5","","","0.4","","","0.3","","","0.6"],["Minimum operating lease payments (5)","29.8","","","8.5","","","6.0","","","5.0","","","3.7","","","2.3","","","4.3"],["Purchase obligations - raw materials (6)","55.0","","","51.3","","","2.7","","","1.0","","","\u2014","","","\u2014","","","\u2014"],["Purchase obligations - energy (7)","43.1","","","37.5","","","2.4","","","0.5","","","0.5","","","0.5","","","1.7"],["Tax Act transition obligation (8)","18.8","","","2.2","","","4.1","","","5.5","","","7.0","","","\u2014","","","\u2014"],["Other contractual obligations (9) (10) (11)","5.0","","","5.0","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total","$","1,694.7","","","$","169.5","","","$","467.6","","","$","63.1","","","$","247.4","","","$","387.7","","","$","359.4"]]
[[/GREPCENT_TABLE]]

(1)    Current debt excludes debt issuance costs of $3.9 million; see Note 14. Debt, of the Notes to Consolidated Financial Statements.

(2)    Long-term debt excludes debt issuance costs of $12.1 million in unamortized discount on the senior unsecured notes; see additional information regarding long-term debt in Note 14. Debt, of the Notes to Consolidated Financial Statements.

(3)    The amounts reflected in debt interest are based upon the short-term and long-term scheduled principal maturities and interest rates in effect as of December 31, 2021. Where specific maturities are not stated, such as for an overdraft line-of-credit, a repayment date coinciding with the end of the year was used for purposes of these calculations. With respect to our variable-rate debt outstanding at December 31, 2021, a 100 basis point increase in interest rates would increase our debt interest obligation by $4.4 million in 2022, taking into account the effect of the interest rate hedge transactions the Company has entered into as of December 31, 2021. For more information regarding our outstanding debt and associated interest rates, as well as hedging strategies in place which serve to fix the interest rate on a large portion of our debt, see Note 14. Debt, of the Notes to Consolidated Financial Statements.

(4)    Restructuring obligations are more fully discussed in Note 13. Restructuring and Impairment Activities, of the Notes to Consolidated Financial Statements.

(5)    Minimum operating lease payments relate to our future minimum obligations under non-cancelable operating leases having an initial or remaining term in excess of one year as of December 31, 2021.

(6)    Minimum purchase obligations for raw materials include our calcium carbonate purchase agreement at our plant in Quimperlé, France. See Note 20. Commitments and Contingencies, of the Notes to Consolidated Financial Statements for additional information.

(7)    Purchase obligations for energy including natural gas, electricity, and steam. See Note 20. Commitments and Contingencies, of the Notes to Consolidated Financial Statements for additional information.

(8)    On December 22, 2017, the United States enacted the Tax Act into law, which requires a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. Companies may elect to pay the tax over eight years based on an installment schedule outlined in the Tax Act. We have made this election and have reflected our transition tax due by year as a contractual obligation. See Note. 17. Income Taxes, of the Notes to Consolidated Financial Statements for additional information.

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(9)    Other contractual obligations relate to commitments for capital projects. Other contractual obligations exclude $9.8 million of unrecognized tax benefits associated with uncertain tax positions for which there is no contractual obligation. We had no other long-term liabilities as defined for purposes of this disclosure by the SEC as of December 31, 2021.

(10)    Other contractual obligations do not include any amounts for our pension obligations. The pension obligations are funded by our separate pension trusts, which held $335.4 million in assets at December 31, 2021. The combined projected benefit obligation ("PBO") of our U.K., U.S. and French pension plans was underfunded by $11.4 million and $25.7 million as of December 31, 2021, and 2020, respectively. We make contributions to our pension trusts based on many factors including regulatory guidelines, investment returns of the trusts and availability of cash for pension contributions versus other priorities. We expect 2022 funding to be in compliance with the Pension Protection Act of 2006. For information regarding our long-term pension obligations and trust assets, see Note 18. Postretirement and Other Benefits, of the Notes to Consolidated Financial Statements.

(11)    Other contractual obligations do not include any amounts for our postretirement healthcare and life insurance benefits. Such payments are dependent upon our retirees incurring costs and filing claims; therefore, future payments are uncertain. Our net payments under these plans were insignificant for the years ended December 31, 2021, and 2020, respectively. Based on this past experience, we currently expect our share of the net payments during 2021 to be insignificant.

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OUTLOOK

For the AMS segment, we expect our growth outlook to be driven by macro factors affecting our served end-markets, including healthcare, filtration, transportation, construction, and industrial, as well as industry demand for many of our key applications. We expect water and other specialty filtration applications, surface protection products within transportation, and our healthcare products to deliver growth exceeding GDP, or other global growth benchmarks, over the long-term due to the relative strong demand for the specific products we provide. Generally, we believe that our sales into the construction and industrial end-markets will perform relatively in line with long-term broad economic growth in the U.S. and to some extent Europe and China. Excluding potential impacts from raw material price movements across both operating segments, the Company generally projects profit growth in the AMS segment as a result of expected organic sales growth. For the EP segment, we expect our performance to be driven by macro factors, such as the expected long-term trend of reduced cigarette consumption and foreign exchange movements, and the potential regulatory changes in the tobacco industry or tax-related price increases. Following the Scapa acquisition, given AMS’s increased relative size compared to EP, the Company believes it is now better positioned to deliver long-term organic sales and profit growth.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to the safe harbor created by that Act and other legal protections. Forward-looking statements include, without limitation, those regarding the incurrence of additional debt and expected maturities of the Company’s debt obligations, the adequacy of our sources of liquidity and capital, acquisition integration and growth prospects (including international growth), the cost and timing of our restructuring actions, the impact of ongoing litigation matters and environmental claims, the amount of capital spending and/or common stock repurchases, future cash flows, purchase accounting impacts, impacts and timing of our ongoing operational excellence and other cost-reduction and cost-optimization initiatives, the impact of the COVID-19 pandemic on our operations, profitability, and cash flow, the expected benefits and accretion of the Scapa acquisition and integration and other statements generally identified by words such as "believe," "expect," "intend," "guidance," "plan," "forecast," "potential," "anticipate," "confident," "project," "appear," "future," "should," "likely," "could," "may," "will," "typically" and similar words.

These forward-looking statements are prospective in nature and not based on historical facts, but rather on current expectations and on numerous assumptions regarding the business strategies and the environment in which the Company’s business shall operate in the future and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. No assurance can be given that such expectations will prove to have been correct and persons reading this presentation are therefore cautioned not to place undue reliance on these forward-looking statements which speak only as at the date of this press release. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that may cause actual results to differ materially from our expectations as of the date of this report. These risks include, among other things, those set forth in Part I, Item 1A. "Risk Factors" of this report as well as the following factors:

•Risks associated with pandemics and other public health emergencies, including the continued impact of, and the governmental and third-party response to, the COVID-19 pandemic and its variant strains (including any proposed new regulation concerning mandatory COVID-19 vaccination of employees);

•Changes in sales or production volumes, pricing and/or manufacturing costs of Recon products, cigarette paper (including for LIP cigarettes), including any change by our customers in their tobacco and tobacco-related blends for their cigarettes, their target inventory levels and/or the overall demand for their products, new technologies such as e-cigarettes, inventory adjustments and rebalancings in our EP segment. Additionally, competition and changes in AMS end-market products due to changing customer demands;

•Changes in the Chinese economy, including relating to the demand for reconstituted tobacco, premium cigarettes and netting and due to impact of tariffs;

•Risks associated with the implementation of our strategic growth initiatives, including diversification, and the Company's understanding of, and entry into, new industries and technologies;

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•Changes in the source and intensity of competition in our commercial segments;

•Our ability to attract and retain key personnel;

•Weather conditions, including potential impacts, if any, from climate change, known and unknown, seasonality factors that affect the demand for virgin tobacco leaf and natural disasters or unusual weather events;

•Seasonal or cyclical market and industry fluctuations which may result in reduced net sales and operating profits during certain periods;

•Increases in commodity prices and lack of availability of such commodities, including energy, wood pulp and resins, which could impact the sales and profitability of our products;

•Adverse changes in the oil, gas, automotive, construction and infrastructure, and mining sectors impacting key AMS segment customers;

•Increases in operating costs due to inflation or otherwise, such as labor expense, compensation and benefits costs;

•Employee retention and labor shortages;

•Changes in employment, wage and hour laws and regulations in the U.S., France and elsewhere, including the loi de Securisation de l'emploi in France, unionization rule and regulations by the National Labor Relations Board in the U.S., equal pay initiatives, additional anti-discrimination rules or tests and different interpretations of exemptions from overtime laws;

•Labor strikes, stoppages, disruptions or other disruptions at our facilities;

•The impact of tariffs, and the imposition of any future additional tariffs and other trade barriers, and the effects of retaliatory trade measures;

•Existing and future governmental regulation and the enforcement thereof, for example relating to the tobacco industry, taxation and the environment (including the impact thereof on our Chinese joint ventures);

•New reports as to the effect of smoking on human health or the environment;

•Changes in general economic, financial and credit conditions in the U.S., Europe, China and elsewhere, including the impact thereof on currency exchange rates (including any weakening of the Euro and Real) and on interest rates;

•The phasing out of USD LIBOR rates after 2023 and the replacement with SOFR;

•Changes in the manner in which we finance our debt and future capital needs, including potential acquisitions;

•The success of, and costs associated with, our current or future restructuring initiatives, including the granting of any needed governmental approvals and the occurrence of work stoppages or other labor disruptions;

•Changes in the discount rates, revenue growth, cash flow growth rates or other assumptions used by the Company in its assessment for impairment of assets and adverse economic conditions or other factors that would result in significant impairment charges;

•Supply chain disruptions, including the failure of one or more material suppliers, including energy, resin and pulp suppliers, to supply materials as needed to maintain our product plans and cost structure;

•International conflicts and disputes, which restrict our ability to supply products into affected regions, due to the corresponding effects on demand, the application of international sanctions, or practical consequences on transportation, banking transactions, and other commercial activities in troubled regions;

•Compliance with the FCPA and other anti-corruption laws or trade control laws, as well as other laws governing our operations;

•The pace and extent of further international adoption of LIP cigarette standards and the nature of standards so adopted;

•Risks associated with our 50%-owned, non-U.S. joint ventures relating to control and decision-making, compliance, accounting standards, transparency and customer relations, among others;

•A failure in our risk management and/or currency or interest rate swaps and hedging programs, including the failures of any insurance company or counterparty;

•The number, type, outcomes (by judgment or settlement) and costs of legal, tax, regulatory or administrative proceedings, litigation and/or amnesty programs, including those in Brazil, France and Germany;

•The outcome and cost of the LIP-related intellectual property litigation against Glatz in Europe;

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•Risks associated with our technological advantages in our intellectual property and the likelihood that our current technological advantages are unable to continue indefinitely;

•Risks associated with acquisitions or other strategic transactions, including acquired liabilities and restrictions, retaining customers from businesses acquired, achieving any expected results or synergies from acquired businesses, complying with new regulatory frameworks, difficulties in integrating acquired businesses or implementing strategic transactions generally and risks associated with international acquisition transactions, including in countries where we do not currently have a material presence;

•Risks associated with dispositions, including post-closing claims being made against us, disruption to our other businesses during a sale process or thereafter, credit risks associated with any buyer of such disposed assets and our ability to collect funds due from any such buyer;

•Risks associated with our global asset realignment initiatives, including: changes in tax law, treaties, interpretations, or regulatory determinations; audits made by applicable regulatory authorities and/or our auditor; and our ability to operate our business in a manner consistent with the regulatory requirements for such realignment;

•Increased taxation on tobacco-related products;

•Costs and timing of implementation of any upgrades or changes to our information technology systems;

•Failure by us to comply with any privacy or data security laws or to protect against theft of customer, employee and corporate sensitive information;

•Changes in tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities;

•Changes in construction and infrastructure spending and its impact on demand for certain products;

•Potential loss of consumer awareness and demand for acquired companies’ products if it is decided to rebrand those products under the Company’s legacy brand names; and

•Other factors described elsewhere in this document and from time to time in documents that we file with the SEC.

All forward-looking statements made in this document are qualified by these cautionary statements. Forward-looking statements herein are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.

Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such and should only be viewed as historical data.

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