# Mativ Holdings, Inc. (MATV) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Mativ Holdings, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1000623/000100062323000021/matv-20221231.htm
Accession: 0001000623-23-000021
Filing date: 2023-03-01
Report date: 2022-12-31
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/
Previous year: /company/MATV/mda/fy2021/ (FY 2021)
Next year: /company/MATV/mda/fy2023/ (FY 2023)

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. 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 "Mativ," the "Company," "we," "us," "our," or similar terms include Mativ Holdings, Inc. and our consolidated subsidiaries.

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide a reader of our financial statements with an understanding of our recent performance, our financial condition and our prospects.

Merger

On July 6, 2022, the Company completed its previously announced merger with Neenah, Inc. ("Neenah") under the terms of an Agreement and Plan of Merger ("Merger Agreement"), pursuant to which a wholly-owned subsidiary merged with and into Neenah (the "Merger"), with Neenah surviving as a direct and wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, each share of Neenah common stock outstanding was exchanged for 1.358 shares of common stock in the Company. As a result of the Merger, the Company issued approximately 22.8 million shares of its common stock to Neenah shareholders under the terms of the Merger Agreement. Based on our closing stock price on July 5, 2022, the total value of shares issued to Neenah shareholders was approximately $534.1 million.

Upon completion of the Merger, the Company changed its name to Mativ Holdings, Inc. Shares of the Company's common stock commenced trading on the New York Stock Exchange under the ticker symbol "MATV" as of market open on July 6, 2022. The Company's previous ticker symbol was "SWM". Refer to Note 5. Business Acquisitions in the Notes to Consolidated Financial Statements for further information related to the Merger.

Prior to the completion of the Merger, we operated in two reporting segments: Advanced Materials & Structures and Engineered Papers. Effective with the Merger, the reporting segments are: Advanced Technical Materials ("ATM") and Fiber-Based Solutions ("FBS"). ATM is comprised of the legacy SWM Advanced Materials & Structures segment and FBS is comprised of the legacy SWM Engineered Papers segment. As such, there were no changes to the historical results of these segments. The merged Neenah segments have been allocated to ATM and FBS based on performance, market focus, technologies, and reporting structure. Refer to Note 21. Segment Information in the Notes to Consolidated Financial Statements for further information on our segments.

This MD&A discusses the financial condition and results of operations of the Company as of and for the year ended December 31, 2022, which includes Neenah.

During the year ended December 31, 2022, the Company became aware of a cyber attack that had been made against certain systems within the Company’s network environment. The attack temporarily affected operations and caused delays in execution of sales transactions at some locations. In addition, the Company incurred financial costs to investigate and remediate the incident, some of which are expected to be mitigated by insurance. During the incident, the attackers accessed and exfiltrated Company data, including some personally identifying information of certain Company employees. The Company believes it has contained the incident, which only affected certain systems, and it has restored operations and notified affected individuals. The Company has put in place remediation measures designed to help prevent future similar attacks and has proactively undertaken to implement certain other enhancements to its security system.

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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 consolidated financial statements:

Income Taxes

Our income tax expense (benefit), 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 (benefit).

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 record unrecognized tax benefits as liabilities in accordance with ASC 740 and 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 recognize revenue when control of a product is transferred to the customer. Control is transferred 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.

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

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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 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 contracts with an original expected length of one year or less and 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.

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 occurrence 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, refer to "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 24% of our total assets as of December 31, 2022. 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 5 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 FBS end-markets 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. We have also incurred restructuring costs in our ATM 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.

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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. Refer to 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, during the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset may be impaired. We first evaluate qualitative factors, such as macroeconomic conditions and our overall financial performance by reporting unit to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. 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. We then evaluate how significant each of the identified factors could be to the fair value or carrying amount of a reporting unit and weigh these factors in totality in forming a conclusion of whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount (the “Step 0 Test”). Goodwill is not impaired if we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. Otherwise, we would proceed to the goodwill impairment test. In the goodwill impairment test, 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, 2022 and 2021 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 12 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, 2022 and 2021 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, refer to Recently adopted Accounting Pronouncements included in Note 2. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

SUMMARY

In 2022, Mativ reported net loss of $6.6 million on total net sales of $2,167.4 million. Compared to the prior year, net sales increased $727.4 million, or 50.5%. Sales reflected the addition of the Neenah operations, organic sales growth primarily from price increases across the product lines, and negative currency impacts. ATM segment net sales increased $465.5 million, or 50.0%, compared to prior year primarily driven by the addition of the Neenah operations, with strong growth in release liners, and protective solutions. FBS segment net sales increased $261.9 million, or 51.4% compared to prior year primarily due to the addition of the Neenah operations and strong gains in packaging and specialty papers. The Company has implemented price increases across the segments in response to higher input costs.

The Company had net loss of $6.6 million in 2022 compared to net income of $88.9 million in 2021. The Company incurred significant merger and divestiture expenses that impacted net income, which included $72.6 million of expenses related to the Neenah merger and associated integration, as well as $19.3 million of restructuring and impairment costs primarily related to the divestiture of a financially immaterial portion of the business that served the industrials end-market. In addition, the Company incurred an incremental $29.4 million of non-cash purchase accounting expenses related to the Neenah merger.

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RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2022 (1)","","2021 (2)","","2020 (3)"],["","(in millions, except per share amounts)"],["Net sales","$","2,167.4","","","$","1,440.0","","","$","1,074.4"],["Cost of products sold","1,729.8","","","1,109.7","","","766.1"],["Gross profit","437.6","","","330.3","","","308.3"],["Selling expense","74.2","","","46.7","","","36.9"],["Research and development expense","26.6","","","20.3","","","13.8"],["General expense","266.1","","","169.9","","","116.9"],["Total nonmanufacturing expenses","366.9","","","236.9","","","167.6"],["Restructuring and impairment expense","19.3","","","10.1","","","11.9"],["Operating profit","51.4","","","83.3","","","128.8"],["Interest expense","86.1","","","46.1","","","30.5"],["Other income (expense), net","10.3","","","35.9","","","(1.0)"],["Income (Loss) before income taxes and income from equity affiliates","(24.4)","","","73.1","","","97.3"],["Income tax expense (benefit)","(12.6)","","","(9.4)","","","18.4"],["Income from equity affiliates, net of income taxes","5.2","","","6.4","","","4.9"],["Net income (loss)","$","(6.6)","","","$","88.9","","","$","83.8"],["Dividends paid to Common Stockholders","(0.9)","","","(0.6)","","","(0.7)"],["Undistributed earnings available to Common Stockholders","\u2014","","","(0.5)","","","(0.4)"],["Net income (loss) attributable to Common Stockholders","$","(7.5)","","","$","87.8","","","$","82.7"],["Net income (loss) per share"],["Basic","$","(0.18)","","","$","2.83","","","$","2.68"],["Diluted","$","(0.18)","","","$","2.80","","","$","2.66"]]
[[/GREPCENT_TABLE]]

(1) Results during the year ended December 31, 2022 include Neenah from the July 6, 2022 acquisition date to December 31, 2022.

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

(3) 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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Comparison of the Years Ended December 31, 2022 and 2021

Net Sales

The following table presents net sales by segment (in millions):

[[GREPCENT_TABLE]]
[["","2022","","2021","","Change","","Percent Change"],["Advanced Technical Materials","$","1,396.2","","","$","930.7","","","$","465.5","","","50.0","%"],["Fiber-Based Solutions","771.2","","","509.3","","","261.9","","","51.4","%"],["Total","$","2,167.4","","","$","1,440.0","","","$","727.4","","","50.5","%"]]
[[/GREPCENT_TABLE]]

Net sales of $2,167.4 million during the year ended December 31, 2022 increased $727.4 million, or 50.5% compared to the prior year-end. ATM segment net sales of $1,396.2 million during the year ended December 31, 2022 increased $465.5 million, or 50.0% compared to prior year-end. Sales reflected the addition of the Neenah operations, organic sales growth from price increases and volume growth across the product lines, and negative currency impacts. The Company implemented price increases across the segment in response to higher input costs. The strongest sales gains in ATM were in release liners, and protective solutions.

FBS segment net sales of $771.2 million during the year ended December 31, 2022 increased $261.9 million, or 51.4% compared to the prior year-end. Sales reflected the addition of the Neenah operations, organic sales growth primarily from price increases across the product lines, and negative currency impacts. The Company implemented price increases across the segment in response to higher input costs. The strongest sales gains in FBS were in packaging and specialty papers products.

Gross Profit

The following table presents gross profit (in millions):

[[GREPCENT_TABLE]]
[["","","","","","Percent Change","","Percent of Net Sales"],["","2022","","2021","","Change","","","2022","","2021"],["Net sales","$","2,167.4","","","$","1,440.0","","","$","727.4","","","50.5","%","","100.0","%","","100.0","%"],["Cost of products sold","1,729.8","","","1,109.7","","","620.1","","","55.9","%","","79.8","%","","77.1","%"],["Gross profit","$","437.6","","","$","330.3","","","$","107.3","","","32.5","%","","20.2","%","","22.9","%"]]
[[/GREPCENT_TABLE]]

Gross profit of $437.6 million during the year ended December 31, 2022 increased $107.3 million, or 32.5%, compared to the prior year-end. ATM gross profit increased $87.6 million, or 47.8% and FBS gross profit increased $19.7 million, or 13.4%, which reflected the addition of the Neenah operations, organic growth, as well as price increases more than offsetting higher input costs, including pulps and fibers, resins, and energy. In addition, the Company incurred $19.3 million related to purchase accounting expenses which increased Cost of products sold.

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Nonmanufacturing Expenses

The following table presents nonmanufacturing expenses (in millions):

[[GREPCENT_TABLE]]
[["","","","","","Percent Change","","Percent of Net Sales"],["","2022","","2021","","Change","","","2022","","2021"],["Selling expense","$","74.2","","","$","46.7","","","$","27.5","","","58.9","%","","3.4","%","","3.2","%"],["Research and development expense","26.6","","","20.3","","","6.3","","","31.0","%","","1.2","%","","1.4","%"],["General expense","266.1","","","169.9","","","96.2","","","56.6","%","","12.3","%","","11.8","%"],["Nonmanufacturing expenses","$","366.9","","","$","236.9","","","$","130.0","","","54.9","%","","16.9","%","","16.4","%"]]
[[/GREPCENT_TABLE]]

Nonmanufacturing expenses of $366.9 million during the year ended December 31, 2022 increased $130.0 million, or 54.9%, compared to the prior year-end. The increase is primarily due to direct and indirect merger acquisition and integration costs of $72.6 million, an increase in amortization expenses related to Neenah's intangible assets of $10.0 million, as well as the addition of Neenah's general expenses.

Restructuring and Impairment Expense

The following table presents restructuring and impairment expense by segment (in millions):

[[GREPCENT_TABLE]]
[["","","","","","","","Percent of Net Sales"],["","2022","","2021","","Change","","","2022","","2021"],["Advanced Technical Materials","$","17.2","","","$","1.9","","","$","15.3","","","","","1.2","%","","0.2","%"],["Fiber-Based Solutions","1.3","","","8.2","","","(6.9)","","","","","0.2","%","","1.6","%"],["Unallocated expenses","0.8","","","\u2014","","","0.8"],["Total","19.3","","","$","10.1","","","$","9.2","","","","","0.9","%","","0.7","%"]]
[[/GREPCENT_TABLE]]

The Company incurred total restructuring and impairment expense of $19.3 million in the year ended December 31, 2022, compared to $10.1 million in the year ended December 31, 2021, an increase of $9.2 million, or 91.1%.

In the ATM segment, the Company incurred $17.2 million of restructuring and impairment expenses in the year ended December 31, 2022, of which $13.9 million was related to the write-down of certain assets in conjunction with the divestiture of a portion of the legacy SWM ATM segment serving the industrials end-market. The assets were sold during the third quarter for net proceeds of $4.6 million and a loss of $0.4 million. The remaining $3.3 million of restructuring and impairment expenses is primarily related to the termination of a contract with an existing customer and the closure of the Appleton, Wisconsin facility, a facility acquired through the Merger. The Company recognized $1.9 million of restructuring and impairment expense in the prior-year period related to equipment impairment charges.

In the year ended December 31, 2022, the FBS segment recognized $1.3 million of restructuring and impairment expense primarily related to pension benefits for the Winkler, Manitoba facility. In the prior-year period, restructuring and impairment expense in the FBS segment included $4.7 million primarily related 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 of severance-related restructuring expenses associated with the closure of the Winkler facility in Canada. The FBS segment also recognized $2.7 million of restructuring expenses in 2021 primarily related to severance accruals at our manufacturing operations in France.

Restructuring and impairment costs related to the Merger are included in corporate expenses as other unallocated expenses as these costs are not included in management's evaluation of the segments' performance. Unallocated and impairment expense for the year ended December 31, 2022 included $0.8 million related to the modification of leases due to the Merger. There were no unallocated expenses related to restructuring in the prior year-end.

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Operating Profit

The following table presents operating profit by segment (in millions):

[[GREPCENT_TABLE]]
[["","","","","","Percent Change","","Return on Net Sales"],["","2022","","2021","","Change","","","2022","","2021"],["Advanced Technical Materials","$","98.8","","","$","61.6","","","$","37.2","","","60.4","%","","7.1","%","","6.6","%"],["Fiber-Based Solutions","106.6","","","100.5","","","6.1","","","6.1","%","","13.8","%","","19.7","%"],["Unallocated expenses","(154.0)","","","(78.8)","","","(75.2)","","","(95.4)","%"],["Total","$","51.4","","","$","83.3","","","$","(31.9)","","","(38.3)","%","","2.4","%","","5.8","%"]]
[[/GREPCENT_TABLE]]

Operating profit was $51.4 million in the year ended December 31, 2022, compared to $83.3 million in the year ended December 31, 2021, a decrease of $31.9 million, or 38.3%.

In the ATM segment, operating profit in the year ended December 31, 2022 was $98.8 million compared to $61.6 million in the year ended December 31, 2021, an increase of 60.4%. In the FBS segment, operating profit in the year ended December 31, 2022 was $106.6 million, an increase of $6.1 million, or 6.1%, compared to the prior year-end. In both segments, operating profit reflected the addition of the Neenah operations and the benefit of price increases more than offsetting higher input costs, partially offset by $29.4 million in purchase accounting expenses and higher intangible asset amortization expenses associated with the Merger. 

Unallocated expenses in the year ended December 31, 2022 were $154.0 million, an increase of $75.2 million, or 95.4%, compared to the prior year-end. The increase was primarily due to $72.6 million in merger and integration costs related to the Merger, the addition of Neenah's unallocated expenses, and expenses related to the cybersecurity incident.

Interest Expense

Interest expense was $86.1 million in the year ended December 31, 2022, an increase of $40.0 million, or 86.8%, compared to the year ended December 31, 2021. Excluding a benefit of $4.5 million prior year expense reversal related to the favorable settlement of Brazil tax assessments as discussed in Note 20. Commitments and Contingencies of the Notes to Consolidated Financial Statements, interest expense increased mainly due to the incremental expense of assuming Neenah's debt and higher average floating interest rates.

The weighted average effective interest rate on our debt facilities, including the impact of interest rate hedges, was approximately 5.11% and 4.04% for the years-ended December 31, 2022 and 2021, respectively.

Other Income (Expense), Net

Other income (expense), net was income of $10.3 million in the year ended December 31, 2022, a decrease of $25.6 million, or 71.3%, compared to the year ended December 31, 2021. The current year included $7.3 million of sales of carbon dioxide credits in France, a $2.9 million gain on sale of equipment at the Winkler facility, and $2.0 million of foreign currency loss (net of derivatives activity). Other income (expense), net was income of $35.9 million during the year ended December 31, 2021, mainly reflecting a $35.2 million gain from the sale of the Spotswood facility, a $4.0 million sale of carbon dioxide credits in France, as well as a $1.6 million favorable Brazil tax assessment settlement, offset by $6.9 million in realized foreign currency loss related to timing of the Scapa acquisition cash settlement.

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Income Taxes

The $12.6 million and $9.4 million benefit for income taxes in the years-ended December 31, 2022 and 2021, respectively, resulted in an effective tax rate of 51.6% compared with (12.9)% in the prior year. The net change was primarily due to adjustments to valuation allowances in the current and prior period, significant one-time items related to the Neenah merger in 2022 and favorable mix of earnings in the current period.

Income from Equity Affiliates

Income from equity affiliates, net of income taxes, was $5.2 million in the year ended December 31, 2022, compared to $6.4 million during the prior year and reflects the results of operations of China Tobacco Mauduit (Jiangmen) Paper Industry Co. LTD and China Tobacco Schweitzer (Yunnan) Reconstituted Tobacco Co. LTD. The decline in profitability was due to higher input costs.

Net Income (Loss) and Loss per Share

Net loss in the year ended December 31, 2022 was $6.6 million, or $0.18 per diluted share, compared to net income of $88.9 million, or $2.80 per diluted share, during the prior year period.  

For a comparison of the Company’s results of operations for the year ended December 31, 2021 to the year ended December 31, 2020, refer to 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, 2021, which was filed with the U.S. Securities and Exchange Commission on March 1, 2022.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity & Debt Overview

As of December 31, 2022, the Company had $1,693.9 million of total debt, $124.4 million of cash, and undrawn capacity on its $600.0 million revolving line of credit facility (the "Revolving Facility") of $404.0 million. Per the terms of the Company's amended Credit Agreement, net leverage was 3.71x at December 31, 2022, versus a current maximum covenant ratio of 5.50x. The Company’s nearest debt maturity is our 6.875% senior unsecured notes which are due in 2026.

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, 2022, $83.2 million of our $124.4 million of cash and cash equivalents was held by foreign subsidiaries. Cash paid for income taxes (net of refunds) was $26.0 million for the year ended December 31, 2022. 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 $202.2 million in the year ended December 31, 2022, compared with $58.1 million in the prior year. The increase was primarily related to favorable year-over-year movements in working capital related cash flows, as well as cash realized from favorable interest rate swaps. The Company incurred significant costs for advisory fees, transaction expenses, and integration costs all related to the Merger.

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Working Capital

As of December 31, 2022, we had net operating working capital of $544.1 million including cash and cash equivalents of $124.4 million, compared with net operating working capital of $366.7 million including cash and cash equivalents of $74.7 million as of December 31, 2021. Results reflect additional working capital brought onto the balance sheet as a result of the Neenah merger, as well as unfavorable year-over-year movements in working capital related to the growth in inventories (higher cost inventories due to rising input costs), partially offset by reduction in receivables.

In the year ended December 31, 2022, net changes in operating working capital increased cash flow by $64.4 million primarily related to the decrease in accounts receivables as a result of the accounts receivable sales agreement entered into during the current year. Refer to Note 6. Accounts Receivable, Net for further information on our accounts receivable sales programs. In 2021, net changes in operating working capital decreased cash flow by $61.4 million. The most significant working capital related cash outflow is related to higher receivables due to sales growth in both FBS and ATM and higher costs of inventories on hand related to significantly higher input costs.

Cash Used in Investing

Cash used for investing activities in the year ended December 31, 2022 was $481.3 million compared to $636.5 million in the prior year. Cash used in investing activities in the current year reflects Merger consideration of $518.5 million related to the repayment on Neenah’s outstanding debt (refer below in “Cash Provided by Financing Activities” for additional discussion) and acquisition related costs incurred by Neenah, partially offset by $55.9 million cash acquired. Refer to Note 5. Business Acquisitions in the Notes to Consolidated financial statements for further discussion of the total consideration transferred to merge with Neenah. In addition, capital spending was $56.9 million. The cash used in investing activities was partially offset by $35.8 million received from settlement of cross-currency swap contracts.

Cash used in investing in the prior year primarily reflects the net $630.6 million consideration to acquire Scapa.

Cash Provided by Financing Activities

Cash provided by financing activities in the year ended December 31, 2022 was $331.6 million compared to $599.9 million in the prior year. During the year ended December 31, 2022, financing activities consisted primarily of $775.0 million of proceeds from borrowings under the Delayed Draw Term Loan Facility and Revolving Facility. The proceeds from the Delayed Draw Term Loan was used to repay Neenah's outstanding debt of $504.9 million upon consummation of the Merger. Refer to Note 5. Business Acquisitions in the Notes to Consolidated Financial statements for further discussion of the total Merger consideration. The proceeds was partially offset by $341.8 million of payments on our long-term debt, which includes a pay down of $227.0 million on our Revolving Facility, $72.2 million in cash paid for dividends declared to the Company's stockholders, and $22.1 million of payments for debt issuance costs associated with the amendment of our Credit Agreement and the Bridge Facility, as discussed in Note 14. Debt of the Notes to Consolidated Financial Statements.

During prior year ended December 31, 2021, financing activities consisted primarily of $744.5 million proceeds from borrowings under the revolving credit facility, primarily to fund the Scapa acquisition including $350.0 million under the Term Loan B Facility and $343.0 million incremental borrowings of revolver loans, $55.9 million payments on long-term debt, $55.3 million in cash paid for dividends declared to stockholders, the buyout of leased property at Knoxville for $15.4 million, $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 Consolidated Financial Statements, and share repurchases of $3.4 million.

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Dividend Payments

We have declared and paid cash dividends on our common stock every fiscal quarter since the second quarter of 1996. On February 22, 2023, we announced a cash dividend of $0.40 per share payable on March 24, 2023, to stockholders of record as of the close of business on March 7, 2023. The covenants contained in our Indenture and amended 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.

Share Repurchases

In 2022 and 2021, we repurchased 273,027 shares and 78,790 shares, respectively, of our common stock at a cost of $6.9 million and $3.4 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

The following table presents activity related to our debt instruments for the years-ended (in millions):

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["2022","","2021"],["Proceeds from issuances of long-term debt","$","775.0","","","$","744.5"],["Payments on long-term debt","(341.8)","","","(55.9)"],["Other financing","0.3","","","\u2014"],["Net proceeds from borrowings","$","433.2","","","$","688.6"]]
[[/GREPCENT_TABLE]]

Net proceeds from borrowings were $433.2 million during the year ended December 31, 2022 compared to net proceeds from borrowings of $688.6 million during the prior year-end. 

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 provided 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. Refer to 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 $350.0 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 $250.0 million. The Credit Agreement was further amended effective February 22, 2022 to adjust the step-down schedule for the maximum net debt to EBITDA ratio. Refer to Note 14. Debt of the Notes to Consolidated Financial Statements for additional information about the Term Loan B Facility. The balance under the Term Loan B Facility was $344.8 million as of December 31, 2022.

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In connection with the Merger, we further amended our Credit Agreement on May 6, 2022 in order to extend the maturity of the Revolving Credit Facility and the Term Loan A Facility to May 6, 2027, and to increase the availability under the Revolving Credit Facility, subject to consummation of the Merger, to $600.0 million. Additionally, we added a $650.0 million delayed draw term loan facility (the "Delayed Draw Term Loan Facility") to be funded concurrent with the closing of the Merger.

Unused borrowing capacity under the amended Credit Agreement was $404.0 million as of December 31, 2022. We also had availability under our bank overdraft facilities and lines of credit of $1.7 million as of December 31, 2022.

We had obtained financing commitments for a $648.0 million senior 364-day unsecured bridge facility and $500.0 million senior secured revolving credit facility in conjunction with the proposed Merger. On May 6, 2022, the Debt Commitment Letter was amended, reducing the Bridge Facility and senior secured revolving credit facility to $50.0 million and zero, respectively.

On July 5, 2022, in connection with the consummation of the Merger, the Company borrowed $650.0 million under the Delayed Draw Term Loan Facility. The funds were used to repay all of Neenah's outstanding debt of $445.9 million under its term loan B facility and $59.0 million under its global secured revolving credit facility, as well as pay down $100.0 million of our Revolving Facility. In addition, we terminated the Bridge Facility. Refer to Note 14. Debt, of the Notes to Consolidated Financial Statements, for further information related to the Delayed Draw Term Loan Facility. In addition, upon consummation of the Merger, we assumed Neenah's project financing agreement for the construction of a melt blown machine (the "German Loan Agreement"). The German Loan Agreement provided €10.0 million ($10.7 million as of May 30, 2022) of construction financing which is secured by the melt blown machine. Refer to Note 14. Debt for further information related to the German Loan Agreement.

In December 2022, $127.0 million of cash from operations was used to repay our Revolving Facility.

Borrowings under the amended Term Loan A Facility ("Term Loan A Credit Facility") will bear interest, at a rate equal to either (1) a forward-looking term rate based on the Secured Overnight Financing Rate (“Term SOFR”), plus the applicable margin or (2) the highest of (a) the federal funds effective rate plus 0.5%, (b) the rate of interest as published by the Wall Street Journal as the “bank prime loan” rate, and (c) Term SOFR plus 1.0%, in each case plus the applicable margin. The applicable margin for borrowings under the Term Loan A Credit Facility is expected to range from 1.25% to 2.75% for SOFR loans and from 0.25% to 1.75% for base rate loans, in each case depending on the Company’s then current net debt to EBITDA ratio.

Borrowings under the amended Revolving Facility or the Delayed Draw Term Loan facility in U.S. dollars will bear interest, at the Company’s option, at a rate equal to either (1) a forward-looking term rate based on Term SOFR, plus the applicable margin or (2) the highest of (a) the federal funds effective rate plus 0.5%, (b) the rate of interest as published by the Wall Street Journal as the “bank prime loan” rate, and (c) one-month Term SOFR plus 1.0%, in each case plus the applicable margin. Borrowings under the Revolving Facility in Euros will bear interest at a rate equal to the reserve-adjusted Euro interbank offered rate, or EURIBOR, plus the applicable margin. The applicable margin for borrowings under the revolving credit agreement is expected to range from 1.00% to 2.50% for SOFR loans and EURIBOR loans, and from 0.00% to 1.50% for base rate loans, in each case, depending on the Company’s then current net debt to EBITDA ratio.

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.

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 maximum allowable net debt to EBITDA ratio will decrease quarterly returning to 4.50x effective as of December 2023. In addition, borrowings and loans made under the amended Credit Agreement are secured by substantially all of the Company’s

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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 amended Credit Agreement at December 31, 2022. With the current level of borrowing and forecasted results, we expect to remain in compliance with our amended Credit Agreement financial covenants.

Our total debt to capital ratios, as calculated under the amended Credit Agreement, at December 31, 2022 and December 31, 2021 were 59.0% and 65.1%, 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 amended 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.

The Indenture contains certain covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to incur additional indebtedness, make certain dividends, repurchase Company stock or make other distributions, make certain investments, create liens, transfer or sell assets, merge or consolidate and enter into transactions with the Company’s affiliates. Such covenants are subject to a number of exceptions and qualifications set forth in the Indenture. The Indenture also contains certain customary events of default, including failure to make payments in respect of the principal amount of the Notes, failure to make payments of interest on the Notes when due and payable, failure to comply with certain covenants and agreements and certain events of bankruptcy or insolvency. The Company was in compliance with all of its covenants under the Indenture at December 31, 2022.

For a comparison of liquidity and capital resources and the Company’s cash flow activities for the fiscal year ended December 31, 2021 and 2020, refer to 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, 2021, which was filed with the U.S. Securities and Exchange Commission on March 1, 2022.

Notional Cash Pooling

On November 15, 2022, certain of the Company’s subsidiaries entered into a notional cash pooling arrangement with JP Morgan to manage global liquidity requirements. As part of the pooling agreement, the participating subsidiaries combine their cash balances in pooling accounts at JP Morgan with the ability to offset bank overdrafts of one participant against the positive cash account balances held by another participant. Under the terms of the notional pooling agreement, the financial institution has the right, ability, and intent to offset a positive balance in one account against an overdrawn amount in another account. Amounts in each of the accounts are unencumbered and unrestricted with respect to use. As such, the net cash balance related to this pooling arrangement is included in Cash and cash equivalents in the Consolidated Balance Sheets.

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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):

[[GREPCENT_TABLE]]
[["","Payments due for the years ended"],["Contractual Obligations","Total","","2023","","2024","","2025","","2026","","2027","","Thereafter"],["Current debt (1)","$","41.1","","","$","41.1","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Long-term debt (2)","1,682.2","","","\u2014","","","41.2","","","41.4","","","380.3","","","892.0","","","327.3"],["Debt interest (3)","529.1","","","123.4","","","120.7","","","118.0","","","109.6","","","48.6","","","8.8"],["Restructuring obligations (4)","4.9","","","3.1","","","0.4","","","0.3","","","0.3","","","0.2","","","0.6"],["Minimum operating lease payments (5)","45.2","","","11.5","","","10.3","","","7.9","","","5.5","","","4.0","","","6.0"],["Minimum financing lease payments (5)","32.3","","","2.3","","","2.3","","","2.2","","","2.2","","","2.2","","","21.1"],["Purchase obligations - raw materials (6)","103.5","","","102.5","","","1.0","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Purchase obligations - energy (7)","90.4","","","77.3","","","11.7","","","0.5","","","0.5","","","0.4","","","\u2014"],["Tax Act transition obligation (8)","18.5","","","4.6","","","6.2","","","7.7","","","\u2014","","","\u2014","","","\u2014"],["Other contractual obligations (9) (10) (11)","12.8","","","11.8","","","0.7","","","0.1","","","0.1","","","0.1","","","\u2014"],["Total","$","2,560.0","","","$","377.6","","","$","194.5","","","$","178.1","","","$","498.5","","","$","947.5","","","$","363.8"]]
[[/GREPCENT_TABLE]]

(1) Current debt excludes debt issuance costs of $6.4 million; refer to Note 14. Debt of the Notes to Consolidated Financial Statements.

(2) Long-term debt excludes debt issuance costs of $23.0 million in unamortized discount on the credit facility; refer to 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, 2022. 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, 2022, a 100 basis point increase in interest rates would increase our debt interest obligation by $4.0 million in 2023, taking into account the effect of the interest rate hedge transactions the Company has entered into as of December 31, 2022. 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, refer to 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 and financing 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, 2022.

(6) Minimum purchase obligations for raw materials include our calcium carbonate purchase agreement at our plant in Quimperlé, France.

(7) Purchase obligations for energy including natural gas, electricity, and steam.

(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. Refer to 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 $19.9 million of unrecognized tax benefits associated with uncertain tax positions, for which there are no contractual obligations, inclusive of $8.1 million of uncertain tax positions that will offset a related deferred tax asset. We had no other long-term liabilities as defined for purposes of this disclosure by the SEC as of December 31, 2022.

(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 $492.5 million in assets at December 31, 2022. The combined projected benefit obligation ("PBO") of our pension plans was underfunded by $26.8 million and $11.4 million as of December 31, 2022 and 2021, 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 2023 funding to be in compliance with the Pension Protection Act of 2006. For information regarding our long-term pension obligations and trust assets, refer to 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, 2022 and 2021, respectively. As such, we currently expect our share of the net payments to be insignificant during 2022.

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OUTLOOK

For the ATM segment, we expect our growth outlook to be driven by macro factors affecting our five served end-markets – filtration, protective solutions, release liners, healthcare, and industrials – as well as industry demand for many of our key applications. We expect water and other specialty filtration applications, protective solutions products, and release liners to deliver growth exceeding GDP (as well as relative outperformance during periods of GDP declines), driven by non-cyclical positive macro and application-specific demand drivers. We expect 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 our sales into the industrial end-market 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, the Company generally projects near and long-term profit growth in the ATM segment as a result of expected organic sales growth, as well as near-term (one to three years) Merger-related cost synergy benefits. For the FBS segment, we expect our performance to be driven by macro factors, such as the expected long-term trend of reduced combustibles consumption and other mature paper-based applications, with positive offsets from innovation and increased portfolio focus to growth areas such as premium packaging and consumer products. Due to recently elevated inflation and higher interest rates, coupled with increased geopolitical uncertainties impacting Europe, we believe the near-term global macro demand environment limits near-term demand visibility. However, looking longer term, given ATM’s relative size compared to FBS (approximately 65% of annualized post-Merger net sales), the Company believes it is well-positioned to deliver consolidated long-term organic sales and profit growth while also generating strong cash flows to support debt reduction, cash returns to shareholders, and growth investments.

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 (the "Act") that are subject to the safe harbor created by the 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 Neenah merger and 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. These statements are not guarantees of future performance and involve certain risks and uncertainties 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 the implementation of our strategic growth initiatives, including diversification, and the Company's understanding of, and entry into, new industries and technologies;

•Risks associated with acquisitions, dispositions, strategic transactions and global asset realignment initiatives of Mativ;

•Adverse changes in the filtration, release liners, protective solutions, construction and infrastructure and healthcare sectors impacting key ATM segment customers;

•Changes in the source and intensity of competition in our commercial end-markets: filtration, protective solutions, release liners, healthcare, and industrials for ATM, and packaging and specialty papers and engineered papers (tobacco and alternatives) for FBS;

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•Adverse changes in sales or production volumes, pricing and/or manufacturing costs in our ATM or FBS operating segments;

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

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

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

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

•Business disruptions from the Merger that will harm the Company's business, including current plans and operations;

•The possibility that Mativ may be unable to successfully integrate Neenah's operations with those of Mativ and achieve expected synergies and operating efficiencies within the expected time-frames or at all;

•Potential adverse reactions or changes to business relationships resulting from the Merger, including as it relates to the Company's ability to successfully renew existing client contracts on favorable terms or at all and obtain new clients;

•Our ability to attract and retain key personnel, including as a result of the Merger, labor shortages, labor strikes, stoppages or other disruptions;

•The substantial indebtedness Mativ has incurred and assumed in connection with the Merger and the need to generate sufficient cash flows to service and repay such debt;

•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;

•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;

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

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

•Uncertainty as to the long-term value of the common stock of Mativ, including the dilution caused by Mativ’s issuance of additional shares of its common stock in connection with the Merger;

•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 rules 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;

•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 that may materially restrict or adversely affect how we conduct business and our financial results;

•Weather conditions, including potential impacts, if any, from climate change, known and unknown, and natural disasters or unusual weather events;

•International conflicts and disputes, such as the ongoing conflict between Russia and Ukraine, 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;

•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;

•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;

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•Increased scrutiny from stakeholders related to environmental, social and governance ("ESG") matters, particularly our sales of combustible products business within the tobacco industry which represented approximately 20% of the Company's net sales for the year ended December 31, 2022, as well as our ability to achieve our broader ESG goals and objectives;

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

•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;

•The impact of cybersecurity risks related to breaches of security pertaining to sensitive Company, customer, or vendor information, as well as breaches in the technology that manages operations and other business processes; 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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