SEC Info - Schweitzer Mauduit International Inc.

Operating lease right-of-use assets

Other assets

i 19.8

i 20.9

Finance lease right-of-use assets

Property, plant and equipment, net

i 3.0

i 2.9

Total right of use assets

i 22.8

i 23.8

Liabilities

Classification

Current operating lease obligation

Accrued expenses

i 5.2

i 4.9

Long-term operating lease obligation

Other liabilities

i 15.6

i 17.2

Total operating lease obligation

i 20.8

i 22.1

Current finance lease obligation

Current debt

i 0.5

i 0.4

Long-term finance lease obligation

Long-term debt

i 3.0

i 2.8

Total finance lease obligation

i 3.5

i 3.2

Assets

Finance

Operating

Total

Finance

Operating

Total

Land and improvements

i —

i 0.1

i —

i 0.1

Buildings and improvements

i 3.1

i 25.9

i 29.0

i 2.9

i 21.8

i 24.7

Machinery and equipment

i 1.1

i 4.3

i 5.4

i 0.7

i 4.5

i 5.2

Gross property, plant and equipment

i 4.2

i 30.3

i 34.5

i 3.6

i 26.4

i 30.0

Less: Accumulated depreciation

( i 1.2)

( i 10.5)

( i 11.7)

( i 0.7)

( i 5.5)

( i 6.2)

Right-of-use assets

i 3.0

i 19.8

i 22.8

i 2.9

i 20.9

i 23.8

i Components of lease expense incurred by the Company are as follow ($ in millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lease Cost

Year Ended December 31, 2020

Year ended December 31, 2019

Finance lease cost (cost resulting from lease payments)

Interest expense on lease liabilities

i 0.2

Amortization of right-of-use assets

i 0.5

i 0.4

Operating lease cost

i 6.8

i 6.2

Short-term lease expense

i 0.4

i 0.3

Variable lease expense

i —

Sublease income

i —

Total Lease Cost

i 7.9

i 7.1

i i

The following table represents future contractual lease liabilities for the next five years and thereafter for finance and operating leases ($ in millions):

Maturity of Lease Liabilities

Finance

Operating

Total

2021

i 0.7

i 6.3

i 7.0

2022

i 0.7

i 5.1

i 5.8

2023

i 0.6

i 3.5

i 4.1

2024

i 0.5

i 2.9

i 3.4

2025

i 0.6

i 1.8

i 2.4

Thereafter

i 1.0

i 5.4

i 6.4

Total Lease Payments

i 4.1

i 25.0

i 29.1

Less: Interest

i 0.6

i 4.2

i 4.8

Present Value of Lease Liabilities

i 3.5

i 20.8

i 24.3

/ /


Lease Term and Discount Rate	December 31, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	i 5.8		i 6.7
Finance leases	i 6.3		i 7.3
Weighted-average discount rate
Operating leases	i 6.19	%	i 6.49	%
Finance leases	i 5.26	%	i 5.27	%

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Other Information (millions)	Year Ended December 31, 2020	Year ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	i 6.9	i 6.3
Operating cash flows from finance leases	i 0.2	i 0.3
Financing cash flows from finance leases	i 0.5	i 0.2
Leased assets obtained in exchange for new finance lease liabilities	i 0.4	i 0.6
Leased assets obtained in exchange for new operating lease liabilities	i 3.9	i 3.3

Note 5. i Business Acquisitions

On March 13, 2020, the Company completed the acquisition of i 100% of the equity interest in Tekra, LLC and Trient, LLC, “Tekra,” pursuant to the definitive agreement signed as of February 20, 2020. Tekra is a converter of high-performance films and substrates which enhances the Company’s films capabilities. Tekra, part of the AMS segment, operates i two manufacturing facilities located in Wisconsin.

The consideration transferred to acquire Tekra was $ i 169.3 million, net of $ i 1.6 million cash and cash equivalents acquired, subject to working capital adjustments that were finalized as of September 30, 2020. The purchase price was funded with borrowings from our revolving credit facility.

The acquisition has been accounted for as a business combination with the assets acquired and liabilities assumed measured at their fair values as of the acquisition date, primarily using Level 3 inputs.

The estimated purchase price allocation disclosed as of March 31, 2020, was revised during the second and third quarters as new information was received and analyzed resulting in a decrease in net intangible assets of $ i 3.4 million, and other adjustments, consisting primarily of reclassifications within working capital, leading to a net decrease in total consideration of $ i 1.8 million.

i The consideration paid for Tekra and the final fair values of the assets acquired, and liabilities assumed as of the March 13, 2020 acquisition date were as follows ($ in millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Fair Value as of March 13, 2020
Cash and cash equivalents	$	i 1.6
Accounts receivable	i 8.6
Inventory	i 14.2
Other current assets	i 0.2
Property, plant and equipment	i 7.3
Identifiable intangible assets	i 81.8
Other noncurrent assets	i 3.7
Total assets	$	i 117.4

Accounts payable	$	i 3.0
Other current liabilities	i 2.0
Other noncurrent liabilities	i 2.7

Net assets acquired	$	i 109.7

Goodwill	i 61.2

Total consideration	$	i 170.9

The fair value of receivables acquired approximates the gross contractual value. The contractual amount not expected to be collected is immaterial.

Acquired inventory was comprised of finished goods and raw materials. The fair value of finished goods was based on net realizable value adjusted for the costs of selling and a reasonable profit margin on selling effort. The fair value of raw materials was determined to approximate book value.

Acquired intangible assets include customer relationships, tradenames and unpatented developed technologies. Intangible assets were valued using the multi-period excess earnings and relief-from-royalty methods, both forms of the income approach which considers a forecast of future cash flows generated from the use of each asset. i The following table shows the final fair values assigned to identifiable intangible assets ($ in millions):


	Fair Value as of March 13, 2020		Weighted-Average Amortization Period (Years)
Amortizable intangible assets:
Customer relationships	$	i 63.0	i 15
Tradenames and other	i 10.8		i 15
Developed technology	i 8.0		i 10
Total amortizable intangible assets	$	i 81.8

The excess of the acquisition consideration over the fair values of the acquired assets and assumed liabilities is assigned to goodwill, of the AMS segment, and is primarily attributable to expected revenue synergies and expected to be deductible for tax purposes.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the twelve months ended December 31, 2020, the Company recognized $ i 1.1 million in direct and indirect acquisition-related costs for the Tekra acquisition, respectively. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the consolidated statements of income.

The amounts of Net sales and Income from continuing operations of Tekra included in the Company's consolidated income statement from the acquisition date are as follows ($ in millions):


	Three Months Ended December 31, 2020		March 13, 2020 - December 31, 2020
Net Sales	$	i 23.7	$	i 77.3
Income from Continuing Operations	$	i 1.8	$	i 1.9

Unaudited pro forma net sales for the twelve months ended December 31, 2020 and 2019 were $ i 1.1 billion and $ i 1.1 billion, respectively. Preparation of pro forma income from continuing operations for the periods presented is impractical given recent changes to the ownership structure of the acquired entities prior to the transaction.

Note 6. i Accounts Receivable

Accounts receivable, net are summarized as follows ($ in millions):


	December 31,
	2020		2019
Trade receivables	$	i 130.9	$	i 114.6
Business tax credits, including VAT	i 4.0		i 5.2
Hedge contracts receivable	i 0.3		i 4.9
Other receivables	i 14.4		i 20.0
Less allowance for doubtful accounts and sales discounts	( i 1.1)		( i 1.5)
Total accounts receivable, net	$	i 148.5	$	i 143.2

Note 7. i Inventories

Inventories are valued at the lower of cost (using the First-In, First-Out and weighted average methods) or market. The Company's costs included in inventory primarily include resins, pulp, chemicals, direct labor, utilities, maintenance, depreciation, finishing supplies and an allocation of certain overhead costs. Machine start-up costs or abnormal machine shut downs are expensed in the period incurred and are not reflected in inventory. The definition of market value, with respect to all inventories, is net realizable value. The Company reviews inventories at least quarterly to determine the necessity of write-offs for excess, obsolete or unsalable inventory. The Company estimates write-offs for inventory obsolescence and shrinkage based on its judgment of future realization. These reviews require the Company to assess customer and market demand. During the year 2020, 2019 and 2018, there were no material inventory write-offs. i The following schedule details inventories by major class ($ in millions):


	December 31,
	2020		2019
Raw materials	$	i 65.3	$	i 61.1
Work in process	i 23.2		i 20.7
Finished goods	i 83.5		i 65.3
Supplies and other	i 7.7		i 14.3
Inventories	$	i 179.7	$	i 161.4

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. i Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Interest is capitalized as a component of the cost of construction for large projects. Expenditures for betterments are capitalized whereas normal repairs and maintenance are expensed as incurred. Property, other than land, is depreciated on a straight-line basis for financial reporting purposes. When property is sold or retired, the cost of the property and the related accumulated depreciation are removed from the balance sheet, and any gain or loss on the transaction is normally included in cost of products sold.

Property, plant and equipment (and related depreciable lives) consisted of the following ($ in millions):


	December 31,
	2020		2019
Land and improvements	$	i 13.6	$	i 14.8
Buildings and improvements ( i 20 to i 40 years or remaining life of relevant lease)	i 144.0		i 142.3
Machinery and equipment ( i 5 to i 20 years)	i 524.4		i 622.6
Construction in progress	i 23.1		i 24.0
Gross property, plant and equipment	i 705.1		i 803.7
Less: Accumulated depreciation	i 366.1		i 473.4
Property, plant and equipment, net	$	i 339.0	$	i 330.3

Depreciation expense was $ i 42.2 million, $ i 35.8 million and $ i 38.1 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Note 9. i Joint Ventures

The Company has i two joint ventures with China National Tobacco Corporation, or CNTC. CNTC is the principal operating company under China’s State Tobacco Monopoly Administration. CNTC and the Company’s subsidiary, Schweitzer-Mauduit International China, Limited, or SM-China, each own i 50% of each of the joint ventures. The paper joint venture China Tobacco Mauduit (Jiangmen) Paper Industry Co. LTD, or CTM, produces tobacco-related papers in China. The second joint venture China Tobacco Schweitzer (Yunnan) Reconstituted Tobacco Co. LTD, or CTS, produces reconstituted tobacco leaf products. The joint ventures pay to each the Company and CNTC sales-based royalties and management fees, of which SWM recognized $ i 2.0 million, $ i 2.1 million and $ i 2.2 million in 2020, 2019 and 2018, respectively, in Other (expense) income, net in the consolidated statements of income.

The Company uses the equity method to account for its ownership interest in both joint ventures. At December 31, 2020 and 2019, the Company’s equity investment in joint ventures was $ i 59.3 million and $ i 52.4 million, respectively. The Company’s share of the net income (loss) was included in Income (loss) from equity affiliates, net of income taxes within the consolidated statements of income. We evaluate our equity method investments for impairment when events or changes in circumstances indicate, in our judgment, that the carrying value of such investment may have experienced an other than temporary decline in value. When evidence of loss in value has occurred, we compare the estimated fair value of the investment to the carrying value of the investment to determine whether impairment has occurred. We assess the fair value of our equity method investment using commonly accepted techniques, and may use more than one method, including, but not limited to, internally developed analysis and analysis of external data. If the estimated fair value is less than the carrying value and we consider the decline in value to be other than temporary, the excess of the carrying value over the estimated fair value is recognized in the consolidated financial statements as an impairment.

i Below is summarized and combined balance sheet information of the China joint ventures as of December 31, 2020 and 2019 ($ in millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31,
	2020		2019
Current assets	$	i 110.0	$	i 99.4
Noncurrent assets	i 166.6		i 168.0
Current liabilities	i 67.6		i 43.1
Long-term liabilities	i 60.2		i 88.4
Stockholder's equity	i 148.8		i 135.9

Below is summarized and combined statement of operations information of the China joint ventures for the years ended December 31, 2020, 2019 and 2018 ($ in millions):

For the Years Ended December 31,

2020

2019

2018

Net sales

i 101.3

i 103.5

i 109.7

Gross profit

i 33.0

i 32.2

i 33.4

Net income

i 9.7

i 8.3

i 7.4

Note 10. i Goodwill

The Company evaluates goodwill for impairment at least annually during the fourth quarter. The annual tests during the fourth quarters of 2020, 2019 and 2018 resulted in i i i no / / impairment. Each of the Company's i two reportable segments, AMS and EP, have goodwill. There are i no accumulated impairment losses in the AMS segment as of December 31, 2020. The EP segment has recorded $ i 2.7 million in accumulated impairment losses in previous years.

The changes in the carrying amount of goodwill for each reportable segment were as follows ($ in millions):

Advanced Materials & Structures

Engineered Papers

Total

Goodwill as of December 31, 2018

i 333.1

i 5.0

i 338.1

Foreign currency translation adjustments

( i 0.6)

( i 0.1)

( i 0.7)

Goodwill as of December 31, 2019

i 332.5

i 4.9

i 337.4

Goodwill acquired during the period

i 61.2

i —

i 61.2

Foreign currency translation adjustments

i 4.7

i 0.4

i 5.1

Goodwill as of December 31, 2020

i 398.4

i 5.3

i 403.7

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. i Intangible Assets

i i

The gross carrying amount and accumulated amortization for intangible assets which are in our AMS segment consisted of the following ($ in millions):

Gross
Carrying
Amount

Accumulated
Amortization

Accumulated Impairments

Accumulated Foreign Exchange

Net
Carrying
Amount

Amortized Intangible Assets

Customer relationships

i 339.8

i 88.5

i —

( i 2.9)

i 254.2

Developed technology

i 42.1

i 14.1

i —

( i 0.2)

i 28.2

Trade names

i 32.7

i 1.4

i 20.7

i 0.3

i 10.3

Non-compete agreements

i 2.9

i 2.4

i —

i 0.5

Patents

i 1.5

i 0.5

i —

i 1.0

Total

i 419.0

i 106.9

i 20.7

( i 2.8)

i 294.2

Unamortized Intangible Assets

Trade names

i 20.0

—

i 0.1

( i 0.6)

i 20.5

Gross
Carrying
Amount

Accumulated
Amortization

Accumulated Impairments

Accumulated Foreign Exchange

Net
Carrying
Amount

Amortized Intangible Assets

Customer relationships

i 276.3

i 67.7

i —

i 1.8

i 206.8

Developed technology

i 34.0

i 10.9

i —

i 0.4

i 22.7

Trade names

i 21.8

i 0.8

i 20.7

i 0.3

i —

Non-compete agreements

i 2.9

i 2.2

i —

i 0.7

Patents

i 1.5

i 0.4

i —

i 1.1

Total

i 336.5

i 82.0

i 20.7

i 2.5

i 231.3

Unamortized Intangible Assets

Trade names

i 20.0

—

i 0.1

i —

i 19.9

/ /

Amortization expense of intangible assets was $ i 24.6 million, $ i 20.3 million and $ i 20.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. Finite-lived intangibles in the AMS segment are expensed using the straight-line amortization method.

i The following table shows the estimated aggregate amortization expense for the next five years ($ in millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For the year ending December 31,	Estimated Amortization Expense
2021	$	i 25.6
2022	i 25.5
2023	i 25.2
2024	i 24.9
2025	i 24.6

Note 12. i Other Assets

Other assets consisted of the following ($ in millions):


	December 31,
	2020		2019
Capitalized software costs, net of accumulated amortization	$	i 12.9	$	i 11.9

Grantor trust assets	i 18.0		i 14.7
Net pension assets	i 9.3		i 5.9
Long-term supplies inventory	i 6.6		i 6.9
Operating lease assets	i 19.8		i 20.9
Other assets	i 2.6		i 8.9
Total	$	i 69.2	$	i 69.2

The Company's ICMS credits in Brazil are fully reserved. These credits do not expire. The Company is exploring other actions to utilize the credits. Charges and credits associated with normal ongoing activity are included in Cost of products sold in the Consolidated Statements of Income. Future material changes as a result of new legislation or a change in our operations will be reported separately.

Grantor trust assets consist primarily of cash surrender values in Company-owned life insurance policies held by a trust to be used for the eventual payment of employee deferred compensation. These assets are restricted from Company use until all obligations are satisfied.

Note 13. i Restructuring and Impairment Activities

The Company incurred restructuring and impairment expenses of $ i 11.9 million, $ i 3.7 million and $ i 1.7 million in the years ended December 31, 2020, 2019 and 2018, respectively.

In the AMS segment, the Company incurred $ i 0.5 million, $ i 1.1 million and $ i 1.5 million in restructuring and impairment expenses during the years ended December 31, 2020, 2019 and 2018, respectively. Restructuring and impairment expense for the year ended December 31, 2020 related to severance accruals as a result of department realignments. Restructuring and impairment expense for the year ended December 31, 2019 consisted of $ i 1.1 million in impairment charges at our U.S. and Chinese manufacturing facilities. Restructuring and impairment expense for the year ended December 31, 2018 consisted of $ i 1.1 million in severance accruals for employees at our U.S. manufacturing operations, as well as $ i 0.4 million in impairment charges at our U.S. manufacturing facilities.

In the EP segment, restructuring and impairment expenses were $ i 11.3 million, $ i 2.6 million and $ i 0.2 million during the years ended December 31, 2020, 2019 and 2018, respectively.

During the third quarter of 2020, we announced plans to shut down the Spotswood, New Jersey facility and shift the production of paper made there to other SWM facilities. This decision was part of our ongoing manufacturing

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

optimization efforts and involved the co-development of a new paper production technology with one of the Company’s key customers. Production of paper at this facility ceased during December of 2020.

As a result of this decision, $ i 6.7 million of restructuring and impairment expense was recognized in the year ended December 31, 2020 related to severance and other accruals. In the year ended December 31, 2020, we also recorded $ i 4.9 million of other restructuring related charges in Cost of products sold, of which, $ i 2.0 million was to write-down the value of certain spare parts and consignment inventories to estimated net realizable value and $ i 2.9 million resulted from the acceleration of depreciation and amortization for machinery and equipment due to the change in the estimated lives of these assets driven by the decision to shut down the facility.

In addition to restructuring costs relating to the Spotswood facility, the EP segment recognized $ i 4.6 million in restructuring and impairment expense in the year ended December 31, 2020, related to severance accruals for employees at our manufacturing facilities in Brazil, France, Poland and the U.S. During 2019, restructuring and impairment expenses in the EP segment consisted of $ i 2.6 million in severance accruals for employees at our manufacturing facilities in France. These restructuring charges relate to ongoing cost optimization initiatives to remain competitive within the EP segment. The cost optimization initiative project started in 2019 and is expected to be completed in 2022. The EP segment has recognized $ i 6.9 million of restructuring charges cumulatively through December 31, 2020 related to this project.

In 2018, restructuring and impairment expenses in the EP segment consisted of $ i 0.2 million in severance accruals for employees at our manufacturing facilities in France.

The Company expects to recognize approximately $ i 2.2 million in restructuring related costs for retention based severance and other costs associated with closing the Spotswood, New Jersey facility during 2021. In addition, the Company expects to record an immaterial amount of restructuring expense in the EP segment in 2021 primarily for severance related to the cost optimization initiatives.

The following table summarizes total restructuring and related charges:

For the Years Ended December 31,

2020

2019

2018

Restructuring and impairment expense:

Severance

i 11.6

i 2.6

i 1.3

Other

i 0.3

i 1.1

i 0.4

Total restructuring and impairment expense

i 11.9

i 3.7

i 1.7

Other restructuring related charges - Cost of products sold

Accelerated depreciation and amortization

i 2.9

i —

Spare parts and consignment inventory write-down to estimated net realizable value

i 2.0

i —

Total other restructuring related charges - Cost of products sold

i 4.9

i —

Total restructuring costs and related charges

i 16.8

i 3.7

i 1.7

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring liabilities were classified within Accrued expenses and Other Liabilities in each of the Consolidated Balance Sheets as of December 31, 2020 and 2019. Changes in the restructuring liabilities, substantially all of which are employee-related, are summarized as follows ($ in millions):




	2020		2019
Balance at beginning of year	$	i 0.5	$	i 1.4
Accruals for announced programs	i 11.9		i 3.7
Cash payments	( i 5.2)		( i 4.2)
Other	i —		( i 0.4)
Exchange rate impacts	i 0.2		i —
Balance at end of period	$	i 7.4	$	i 0.5

Note 14. i Debt

Total debt, net of debt issuance costs, is summarized in the following table ($ in millions):




	December 31, 2020		December 31, 2019
Revolving credit agreement - U.S. dollar borrowings	$	i 50.0	$	i —

Term loan facility	i 195.5		i 197.5


i 6.875% senior unsecured notes due October 1, 2026, net of discount of $ i 6.1 million and $ i 6.9 million as of December 31, 2020 and 2019, respectively	i 343.9		i 343.1
French employee profit sharing	i 5.0		i 4.8
Finance lease obligations	i 3.5		i 3.2
Other	i —		i —
Debt issuance costs	( i 4.6)		( i 5.9)
Total debt	i 593.3		i 542.7
Less: Current debt	( i 2.8)		( i 1.9)
Long-term debt	$	i 590.5	$	i 540.8

Credit Facility

On September 25, 2018, the Company entered into a $ i 700.0 million credit agreement (the “Credit Agreement”), which replaced the Company’s previous senior secured credit facilities and provides for a i five-year $ i 500.0 million revolving line of credit (the “Revolving Credit Facility”) and a i seven-year $ i 200.0 million bank term loan facility (the “Term Loan 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 the Term Loan Facility 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 $ i 400.0 million.

Borrowings under the Revolving Credit Facility will initially bear interest, at the Company’s option, at either (i) i 1.75% in excess of a reserve adjusted London Interbank Offered Rate (“LIBOR”) or (ii) i 0.75% in excess of an alternative base rate. Borrowings under the Term Loan Facility will initially bear interest, at the Company’s option, at either (i) i 2.00% in excess of a reserve adjusted LIBOR rate or (ii) i 1.00% in excess of an alternative base rate. The Term Loan amortizes at the rate of i 1.0% per year and will mature on September 25, 2025.

Under the terms of the Credit Agreement, the Company will be required to maintain certain financial ratios and comply with certain financial covenants, including maintaining a net debt to EBITDA ratio, as defined in the Credit Agreement, calculated on a trailing four fiscal quarter basis, not greater than i 4.50 and an interest coverage ratio, also as defined in the Credit Agreement, of not less than i 3.00. In addition, borrowings and loans made under the Credit

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Agreement are secured by substantially all of the personal property of the Company and its domestic subsidiaries, while the obligations of the Luxembourg-based holding subsidiaries were secured by a pledge of certain of the equity interests held in their operating subsidiaries. The Company was in compliance with all of its covenants under the Credit Agreement at December 31, 2020.

As of December 31, 2020, the average interest rate was i 1.94% on outstanding Revolving Credit Facility borrowings and i 2.19% on outstanding Term Loan Facility borrowings.

Indenture for i 6.875% Senior Unsecured Notes Due 2026

On September 25, 2018, the Company closed a private offering of $ i 350.0 million of i 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 (as defined below) or that guarantees certain other indebtedness, subject to certain exceptions.

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. Prior to October 1, 2021, the Company may redeem some or all of the Notes at a price equal to i 100% of the principal amount thereof, plus a “make-whole” premium as set forth in the Indenture. The Company may redeem up to i 35% of the original aggregate principal amount of the Notes on or prior to October 1, 2021 with the proceeds of certain equity offerings at a redemption price equal to i 106.875% of the principal amount of the Notes. 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, 2020.

The effective interest rate on the i 6.875% senior unsecured notes due 2026, taking into account all underwriter and original issue discounts, was i 7.248%. The weighted average effective interest rate on our debt facilities was approximately i 4.02% and i 4.42% for the years ended December 31, 2020 and 2019, respectively.

French Employee Profit Sharing

At both December 31, 2020 and 2019, long-term debt other than the Amended Credit Agreement primarily consisted of obligations of the French operations related to government-mandated profit sharing. Each year, representatives of the workers at each of the French businesses can make an election for the profit sharing amounts from the most recent year ended to be invested in a financial institution or with their respective employer. To the extent that funds are invested with the Company, these amounts bear interest at i 0.20% and i 0.62% at December 31, 2020 and 2019, respectively, and are generally payable in the fifth year subsequent to the year in which the profit sharing is accrued.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Bank Overdrafts

The Company also had bank overdraft facilities of $ i 6.7 million and $ i 6.1 million, at December 31, 2020 and 2019, respectively, of which none was outstanding at either December 31, 2020 or 2019. Interest is incurred on outstanding amounts at market rates, which were i 0.26% and i 0.26%, respectively, at December 31, 2020 and 2019. i No commitment fees are paid on the unused portion of these facilities.

Rate Swap Agreements

From time to time, the Company enters into interest rate swap transactions to manage the Company's interest rate risk and cross-currency swaps designated as a hedge of a portion of the Company's net investment in certain Euro-denominated subsidiaries. See Note 15. Derivatives for additional information.

Principal Repayments

Under the Credit Agreement, the Company selects an "interest period" for each of its borrowings from the Revolving Credit Facility. The Company can repay such borrowings and borrow again at a subsequent date if it chooses to do so, providing it flexibility and efficient use of any excess cash. The Company currently has the intent and ability to allow its debt balances to remain outstanding and expects to continue to file notices of continuation related to its borrowings outstanding at December 31, 2020 such that those amounts are not expected to be repaid prior to the September 2023 expiration of the Revolving Credit Facility. i Following are the expected maturities for the Company's debt obligations as of December 31, 2020 ($ in millions):


2021	$	i 4.1
2022	i 4.1
2023	i 53.5
2024	i 2.6
2025	i 188.8
Thereafter	i 344.8
Total *	$	i 597.9

Fair Value of Debt

At December 31, 2020 and 2019, the fair market value of the Company's i 6.875% senior unsecured notes was $ i 371.0 million and $ i 378.3 million, respectively. The fair market value for the senior unsecured notes was determined using quoted market prices, which are directly observable Level 1 inputs. The fair market value of all other debt as of December 31, 2020 and 2019 approximated the respective carrying amounts as the interest rates are variable and based on current market indices.

Debt Issuance Costs

In conjunction with the Indenture and Credit Agreement, the Company capitalized approximately $ i 3.6 million in deferred debt issuance costs during the year ended December 31, 2018 which will be amortized over the term of the related debt instruments. Additionally, the Company wrote-off $ i 0.5 million in deferred debt issuance costs related to the prior debt facilities. As of December 31, 2020, and 2019, the Company's total deferred debt issuance costs, net of accumulated amortization, were $ i 4.6 million and $ i 5.9 million, respectively.

Amortization expense of $ i 1.3 million and $ i 1.2 million was recorded during the years ended December 31, 2020 and 2019, respectively, and has been included as a component of Interest expense in the accompanying Consolidated Statements of Income. i Following is the expected future amortization of the Company's deferred debt issuance costs as of December 31, 2020 ($ in millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2021	$	i 1.3
2022	i 1.3
2023	i 1.1
2024	i 0.4
2025	i 0.4
Thereafter	i 0.1
Total	$	i 4.6

Note 15. i Derivatives

In the normal course of business, the Company is exposed to foreign currency exchange rate risk and interest rate risk on its variable-rate debt. To manage these risks, the Company utilizes a variety of practices including, where considered appropriate, derivative instruments. The Company has no derivative instruments for trading or speculative purposes or any derivatives with credit risk-related contingent features. All derivative instruments used by the Company are either exchange traded or are entered into with major financial institutions in order to reduce credit risk and risk of nonperformance by third parties. The fair values of the Company's derivative instruments are determined using observable inputs and are considered Level 2 assets or liabilities.

The Company utilizes currency forward, swap and, to a lesser extent, option contracts to selectively hedge its exposure to foreign currency risk when it is practical and economical to do so. The use of these contracts minimizes transactional exposure to exchange rate changes. We designate certain of our foreign currency hedges as cash flow hedges. Changes in the fair value of cash flow hedges are reported as a component of Other comprehensive income (loss) and reclassified into earnings when the forecasted transaction affects earnings. For foreign exchange contracts not designated as cash flow hedges, changes in the contracts' fair value are recorded to net income each period.

The Company selectively hedges its exposure to interest rate increases on variable-rate, long-term debt when it is practical and economical to do so. Changes in the fair value of interest rate contracts considered cash flow hedges are reported as a component of Other comprehensive income (loss) and reclassified into earnings when the forecasted transaction affects earnings.

The Company also uses cross currency swap contracts to selectively hedge its exposure to foreign currency related changes in its net investments in certain foreign operations. We designate these cross currency swap contracts as net investment hedges. Changes in the fair value of these hedges are deferred within the foreign currency translation component of Accumulated other comprehensive income and reclassified into earnings when the foreign investment is sold or substantially liquidated.

On September 11, 2019, the Company entered into a pay-fixed, receive-variable interest rate swap with a maturity date of January 31, 2027. The instrument is a hedge on a portion of the Company’s debt facility through the existing credit agreement. Under the terms of the interest rate swap, SWM will pay a fixed amount of interest each period in an amount equal to i 1.724% on a notional amount of $ i 185 million and receive interest payments monthly in an amount equal to the One-Month USD-LIBOR rate on the notional amount. The notional amount will reduce throughout the term of the swap as follows:

•September 13, 2019 - December 31, 2020 $ i 185 million notional

•December 31, 2020 - December 31, 2021 $ i 150 million notional

•December 31, 2021 - January 31, 2027 $ i 100 million notional

As with the previous interest rate swap, the terms of the swap mirror the terms of the underlying debt, including timing of the payments and interest rates.

On October 24, 2018, the Company also entered into a i three-year cross-currency swap with a major financial institution designated as a hedge of a portion of the Company's net investment in certain Euro-denominated

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

subsidiaries. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $ i 75 million swapped to € i 65.4 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of i 6.875% per annum and pay to our swap counterparty Euro interest at a fixed rate of i 3.6725% per annum. The cross-currency swap will mature on October 1, 2021.

On January 29, 2019, the Company entered into a cross-currency swap with a major financial institution designated as a hedge of a portion of the Company's net investment in certain Euro-denominated subsidiaries. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $ i 75 million swapped to € i 66.0 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of i 6.875% per annum and pay to our swap counterparty Euro interest at a fixed rate of i 4.0525% per annum. The cross-currency swap will mature on October 1, 2021.

On September 11, 2019, the Company entered into a cross-currency swap arrangement with a major financial institution designed as a hedge having a maturity date of April 1, 2023. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $ i 100 million swapped to € i 90.9 million at maturity. Under the terms of the new cross-currency swap, SWM will pay a fixed amount of Euro-denominated interest at a rate of i 5.638% semiannually and receive U.S. dollar denominated payments at a rate of i 6.875% semiannually on the notional amount of the swap.

The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at December 31, 2020 ($ in millions):

Asset Derivatives

Liability Derivatives

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

Derivatives Designated as Hedges:

Foreign exchange contracts

Accounts receivable

i 0.9

Accrued expenses

i 11.0

Foreign exchange contracts

Other assets

i —

Other liabilities

i 12.3

Interest rate contracts

Accounts receivable

i 0.3

Accrued expenses

i —

Interest rate contracts

Other assets

i —

Other liabilities

i 7.8

Total derivatives designated as hedges

i 1.2

i 31.1

Derivatives Not Designated as Hedges:

Foreign exchange contracts

Accounts receivable

i —

Accounts payable

i —

Total derivatives not designated as hedges

i —

Total derivatives

i 1.2

i 31.1

The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at December 31, 2019 ($ in millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Asset Derivatives

Liability Derivatives

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

Derivatives Designated as Hedges:

Foreign exchange contracts

Accounts receivable

i 4.8

Accrued expenses

i 5.6

Foreign exchange contracts

Other assets

i 6.3

Other liabilities

i 5.5

Interest rate contracts

Accounts receivable

i —

Accrued expenses

i 0.2

Total derivatives designated as hedges

i 11.1

i 11.3

Derivatives Not Designated as Hedges:

Foreign exchange contracts

Accounts receivable

i 0.1

Accounts payable

i —

Total derivatives not designated as hedges

i 0.1

i —

Total derivatives

i 11.2

i 11.3

The following table provides the gross effect that derivative instruments in cash flow hedging relationships had on accumulated other comprehensive income (loss), or AOCI, and results of operations ($ in millions):

Derivatives Designated as Cash Flow Hedging Relationships

Unrealized Gain (Loss) Recognized in AOCI on Derivatives, Net of Tax for the Year Ended December 31,

Location of Loss (Gain) Reclassified from AOCI

Loss (Gain) Reclassified
from AOCI, Net of Tax

2020

2019

2018

2020

2019

2018

Derivatives designated as cash flow hedge

Foreign exchange contracts

( i 5.3)

( i 0.7)

( i 1.7)

Net sales

( i 3.4)

( i 1.2)

i 0.8

Foreign exchange contracts

i 1.4

( i 2.3)

i 0.1

Other income, net

i 1.4

( i 1.9)

i 0.1

Interest rate contracts

( i 7.7)

i 4.6

i 4.0

Interest expense

i —

i 7.6

i 2.8

Derivatives designated as investment hedge

Foreign exchange contracts

( i 14.2)

i —

Other income (expense), net

i —

Total

( i 25.8)

i 1.6

i 2.4

( i 2.0)

i 4.5

i 3.7

The Company's designated derivative instruments are highly effective. As such, related to the hedge ineffectiveness or amounts excluded from hedge effectiveness testing, there were no gains or losses recognized immediately in income for the years ended December 31, 2020, 2019 or 2018, other than those related to the cross-currency swap, noted below.

The Company’s cross currency swaps were designated with terms based on the spot rate of the EUR. Future changes in the components related to the spot change on the notional will be recorded in OCI and remain there until the hedged subsidiaries are substantially liquidated. All coupon payments are recorded in earnings and the initial value of excluded components currently recorded in Accumulated other comprehensive loss as an unrealized translation adjustment are amortized to interest expense over the remaining term of the swap. For the year ended December 31, 2020, 2019 and 2018, respectively, $ i 6.5 million, $ i 1.1 million and $ i 1.9 million was recognized in income as derivative amounts excluded from effectiveness testing as Interest expense.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the effect derivative instruments not designated as hedging instruments had on net income ($ in millions):


Derivatives Not Designated as Cash Flow Hedging Instruments	Amount of Gain / (Loss) Recognized in Other Income / Expense
	2020		2019		2018



Foreign exchange contracts	$	i 0.1	$	i 1.1	$	( i 2.5)
Total	$	i 0.1	$	i 1.1	$	( i 2.5)

Note 16. i Accrued Expenses

Accrued expenses consisted of the following ($ in millions):


	December 31,
	2020		2019
Accrued salaries, wages and employee benefits	$	i 48.7	$	i 46.1




Other accrued expenses	i 52.2		i 40.4
Total	$	i 100.9	$	i 86.5

Note 17. i Income Taxes

For financial reporting purposes, income before income taxes includes the following components ($ in millions):


	For the Years Ended December 31,
	2020		2019		2018
United States	$	i 29.1	$	i 60.0	$	i 55.8
Foreign	i 68.2		i 36.9		i 61.0
Total	$	i 97.3	$	i 96.9	$	i 116.8

An analysis of the provision (benefit) for income taxes from continuing operations follows ($ in millions):

For the Years Ended December 31,

2020

2019

2018

Current income taxes:

U.S. federal

i 7.3

i 8.1

( i 9.2)

U.S. state

i 1.5

i 0.8

Foreign

i 14.8

i 9.7

i 11.6

i 23.6

i 18.6

i 3.2

Deferred income taxes:

U.S. federal

( i 5.3)

i 2.3

i 3.6

U.S. state

i 1.0

( i 1.9)

i 1.4

Foreign

( i 0.9)

( i 3.8)

i 2.5

( i 5.2)

( i 3.4)

i 7.5

Total

i 18.4

i 15.2

i 10.7

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of income taxes computed at the U.S. Federal statutory income tax rate to the provision for income taxes is as follows ($ in millions):

For the Years Ended December 31,

2020

2019

2018

Amount

Percent

Amount

Percent

Amount

Percent

Tax provision at U.S. statutory rate

i 20.4

i 21.0

i 20.3

i 21.0

i 24.5

i 21.0

Foreign income tax rate differential

i 2.7

i 0.6

i 0.5

i 2.5

i 2.2

Income from passthrough entities

i 2.3

i 1.7

i 1.6

i 0.7

i 0.6

Global intangible low tax inclusion

i 4.8

( i 0.1)

i 7.0

i 6.0

Foreign derived intangible income

( i 0.3)

( i 0.2)

( i 4.2)

( i 3.6)

State income tax, net of federal benefit

i 1.8

( i 0.2)

i 1.7

i 1.5

Adjustments to valuation allowances

( i 3.9)

( i 3.7)

( i 3.8)

( i 2.5)

( i 2.1)

Transition tax

i —

( i 0.7)

( i 0.6)

( i 11.6)

( i 10.0)

Other tax credits

( i 0.8)

( i 2.0)

( i 2.1)

( i 2.6)

( i 2.3)

Foreign tax credits

( i 9.9)

( i 10.0)

( i 3.5)

( i 3.6)

( i 5.1)

( i 4.4)

Other foreign operational taxes

i 3.5

i 2.9

i 3.0

i 3.1

i 2.7

Remeasurement of deferred taxes due to tax law

i 0.4

i 0.9

i 1.0

( i 1.8)

( i 1.5)

Non-deductible compensation

i 0.4

i 1.1

i 0.4

i 0.3

Other, net

( i 3.0)

( i 1.9)

( i 1.4)

( i 1.2)

Provision for income taxes

i 18.4

i 18.9

i 15.2

i 15.7

i 10.7

i 9.2

On December 22, 2017, the Tax Act was enacted into law effective January 1, 2018. The new legislation contains several key tax provisions that affected the Company, which include but are not limited to a one-time deemed repatriation tax on post-1986 accumulated earnings and profits of the undistributed earnings of foreign subsidiaries (“transition tax”), a reduction of the federal corporate income tax rate from 35% to 21%, and other U.S. reform items. In 2018, the Company decreased its provisional estimates of transition tax, related currency implications, state taxes and deferred tax rate change effect of the new law by $ i 13.9 million. The reduction from the provisional 2017 amounts was primarily due to further analysis of transition tax on accumulated earnings and foreign taxes paid. As of December 31, 2018, the Company completed its accounting for the tax effects of the Tax Act.

A provision for income taxes of $ i 18.4 million and $ i 15.2 million in the years ended December 31, 2020 and 2019, respectively, resulted in an effective tax rate of i 18.9% as compared with i 15.7% in 2019. The Company’s effective tax rates differ from the statutory federal income tax rate of 21% due to varying tax rates in foreign jurisdictions, the relative amounts of income we earn in those jurisdictions and a $ i 4.2 million year over year reduction due to the one-time Brazil ICMS litigation accrual in 2019.

Prior to the passage of the U.S. Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely reinvested and accordingly, no deferred taxes were provided. Due to the Tax Act, the Company has significant previously taxed earnings and profits from its foreign subsidiaries, as a result of transition tax, that is generally able to be repatriated free of U. S. federal tax. In addition, future earnings of foreign subsidiaries are generally expected to be able to be repatriated free of U.S. federal income tax because these earnings were taxed in the U.S. under the GILTI regime or would be eligible for a 100% dividends received deduction. As a result of the Company’s treasury policy to simplify and expediate the intercompany cash flows to SWM US, as evidenced by the implementation of the Cash Pool, and in light of the Company’s demonstrated goal of driving growth though inorganic/acquisitional means, the Company has decided to no longer assert indefinite reinvestment with respect to earnings generated by foreign subsidiaries prior to January 1, 2018. Therefore, the Company does not intend to assert indefinite reinvestment of its foreign subsidiaries to the extent of each CFC’s earnings and profits and to the extent of any foreign partnership’s U.S. tax capital accounts. As a result,

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the Company has provided for non-U.S. withholding taxes, U.S. federal tax related to currency movement on previously-taxed earnings and profits, and U.S. state taxes on unremitted earnings.

Net deferred income tax assets (liabilities) were comprised of the following ($ in millions):


	December 31,
	2020		2019
Deferred Tax Assets
Receivable allowances	$	i 0.5	$	i 0.4



Postretirement and other employee benefits	i 21.0		i 19.0

Derivatives	i 2.5		i 0.1
Net operating loss and tax credit carryforwards	i 104.4		i 93.7
Capital loss carryforward	i 12.1		i 6.9
Accruals and other liabilities	i 0.7		i —

Intangibles	i 37.6		i 45.7
Other	i 4.4		i 3.9
	i 183.2		i 169.7
Less: Valuation allowance	( i 166.6)		( i 157.4)
Net deferred income tax assets	$	i 16.6	$	i 12.3

Deferred Tax Liabilities


Net property, plant and equipment	$	( i 55.7)	$	( i 52.6)
Accruals and other liabilities	i —		( i 0.6)

Investment in subsidiaries	( i 3.2)		( i 3.5)


Other	( i 0.3)		( i 0.1)


Net deferred income tax liabilities	$	( i 59.2)	$	( i 56.8)

Total net deferred income tax liabilities	$	( i 42.6)	$	( i 44.5)

As of December 31, 2020, the Company had approximately $ i 99.5 million of tax-effected operating loss carryforwards available to further reduce future taxable income in various jurisdictions which will expire on various dates as follows:


	2020
2021-2024	$	i 0.1
2025-2037	i 19.6

Indefinite	i 79.8
	$	i 99.5

In addition, the Company has $ i 2.9 million and $ i 1.8 million of foreign and state tax credits that will expire between 2029 – 2030 and 2021 – 2036, respectively.

The Company's deferred tax asset valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards for certain entities. The valuation allowance on deferred tax assets as of December 31, 2020, in Luxembourg, Spain and the Philippines total $ i 151.8 million, $ i 9.1 million and $ i 0.4 million respectively, fully reserving the net deferred tax asset balances in these locations. In addition, there is a valuation allowance on ICMS tax credits of $ i 4.1 million in Brazil and certain state tax credits of $ i 1.2 million.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's assumptions, judgments and estimates relative to the valuation of these net deferred tax assets take into account available positive and negative evidence of realizability, including recent financial performance, the ability to realize benefits of restructuring and other recent actions, projections of the amount and category of future taxable income and tax planning strategies. Actual future operating results and the underlying amount and category of income in future periods could differ from the Company's current assumptions, judgments and estimates. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets.

The following table summarizes the activity related to the Company's unrecognized tax benefits related to income taxes ($ in millions):

December 31,

2020

2019

2018

Uncertain tax position balance at beginning of year

i 1.7

i 1.1

i 1.0

Increases related to current year tax positions

i 0.3

i 0.6

Decreases related to prior year tax positions

i —

( i 0.2)

Decreases related to expiration of statute of limitations

i —

( i 0.3)

Uncertain tax position balance at end of year

i 2.0

i 1.7

i 1.1

The liability for unrecognized tax benefits included $ i 2.0 million as of December 31, 2020 that if recognized would impact the Company's effective tax rate. We do not anticipate a decrease in unrecognized tax benefits by the end of 2021 as a result of a lapse of the statute of limitations and other regulatory filings. The Company's policy with respect to penalties and interest in connection with income tax assessments or related to unrecognized tax benefits is to classify penalties as provision for income taxes and interest as interest expense in its Consolidated Statements of Income. There were no material income tax penalties or interest accrued during the years ended December 31, 2020, 2019 and 2018.

The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign jurisdictions. The Company finalized Belgium and France audits for tax years 2017 – 2018 and 2016 - 2017, respectively during 2020. All expected impacts have been recorded in 2020 or earlier. We are no longer subject to U.S. federal examinations by the IRS for tax years before 2016. The following tax years remain subject to examination by the respective major tax jurisdictions:

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Jurisdiction			Fiscal Years
Belgium			2019-2020
Brazil			2015-2020
Canada			2016-2020
China			2018-2020
France			2018-2020
Germany			2016-2020
Hong Kong			2014-2020
Luxembourg			2015-2020
Philippines			2017-2020
Poland			2015-2020
Spain			2016-2020
United Kingdom			2018-2020
United States
Federal			2016-2020
State			2014-2020

Note 18. i Postretirement and Other Benefits

North American Pension and Postretirement Healthcare and Life Insurance Benefits

The U.S. operations have defined benefit retirement plans that cover certain full-time employees. Retirement benefits are based on either a cash balance benefit formula or a final average pay formula for certain employees who were "grandfathered" and retained retirement benefits under the terms of the plan prior to its amendment to include a cash balance benefit formula. Benefits related to the U.S. defined benefit and pension plan are frozen for all employees.

The U.S. operations also have unfunded healthcare and life insurance benefit plans, or OPEB plans, which cover certain of its retirees through age i 65. Some employees who retained benefits under the terms of the Company's plans prior to certain past amendments receive retiree healthcare coverage at rates subsidized by the Company. For other eligible employees, retiree healthcare coverage access is offered at full cost to the retiree. The postretirement healthcare plans include a limit on the Company's share of costs for current and future retirees. The U.S. operations' retiree life insurance plans are noncontributory. The Company's Canadian postretirement benefits liability and U.S. OPEB liability are immaterial and therefore not included in these disclosures.

French Pension Benefits

In France, employees are covered under a government-administered program. In addition, the Company's French operations sponsor retirement indemnity plans, which pay a lump sum retirement benefit to all of its permanent employees who retire. In addition, the Company's French operations sponsor a supplemental executive pension plan. Plan assets are principally invested in the general asset portfolio of a French insurance company.

U.S. and French Pension Disclosures

The U.S. and French pension plans accounted for the majority of the Company's total plan assets and total Accumulated Benefit Obligations (ABO) at December 31, 2020 for the Company and all of its consolidated subsidiaries.

The Company uses a measurement date of December 31 for its pension plans in the United States and France. i The funded status of these plans as of December 31, 2020 and 2019 was as follows ($ in millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pension Benefits

United States

France

2020

2019

2020

2019

Change in Projected Benefit Obligation, or PBO:

PBO at beginning of year

i 119.9

i 112.3

i 31.9

i 29.5

Service cost

i —

i 1.3

i 1.0

Interest cost

i 3.7

i 4.6

i 0.2

i 0.4

Actuarial loss

i 9.7

i 11.1

i 0.6

i 3.2

Participant contributions

i —

i 0.5

i 0.7

Gross benefits paid

( i 8.2)

( i 8.1)

( i 1.7)

( i 2.3)

Currency translation effect

i —

i 3.0

( i 0.6)

PBO at end of year

i 125.1

i 119.9

i 35.8

i 31.9

Change in Plan Assets:

Fair value of plan assets at beginning of year

i 125.8

i 113.1

i 1.1

i 2.1

Actual return on plan assets

i 16.8

i 20.8

i —

i 0.2

Employer contributions

i —

i 1.2

i 1.1

Participant contributions

i —

Gross benefits paid

( i 8.2)

( i 8.1)

( i 1.6)

( i 2.3)

Currency translation effect

i —

i 0.1

i —

Fair value of plan assets at end of year

i 134.4

i 125.8

i 0.8

i 1.1

Funded status at end of year

i 9.3

i 5.9

( i 35.0)

( i 30.8)

The PBO, ABO and fair value of pension plan assets for the Company's U.S. and French defined benefit pension plans as of December 31, 2020 and 2019 as follows ($ in millions):

United States

France

2020

2019

2020

2019

PBO

i 125.1

i 119.9

i 35.8

i 31.9

ABO

i 125.1

i 119.9

i 35.8

i 31.9

Fair value of plan assets

i 134.4

i 125.8

i 0.8

i 1.1

As of December 31, 2020, the pre-tax amounts in accumulated other comprehensive income that have not been recognized as components of net periodic benefit cost for the U.S. and French pension plans are as follows ($ in millions):


	Pension Benefits
	United States		France
Accumulated loss	$	i 17.8	$	i 16.0
Prior service credit	i —		( i 2.6)
Accumulated other comprehensive loss	$	i 17.8	$	i 13.4

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amounts in accumulated other comprehensive loss at December 31, 2020, which are expected to be recognized as components of U.S. and French net periodic benefit cost in 2021 are as follows ($ in millions):


	Pension Benefits
	United States		France
Amortization of accumulated loss	$	( i 3.6)	$	( i 1.2)
Amortization of prior service credit	i —		i 0.3
Total	$	( i 3.6)	$	( i 0.9)

Actuarial assumptions are used to determine the Company's benefit obligations. The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle pension obligations. The discount rate fluctuates from year to year based on current market interest rates for high-quality, fixed-income investments. The Company also evaluates the expected average duration of its pension obligations in determining its discount rate. An assumed long-term rate of compensation increase is also used to determine the PBO. i The weighted average assumptions used to determine benefit obligations as of December 31, 2020 and 2019 were as follows:


	Pension Benefits
	United States				France
	2020		2019		2020		2019
Discount rate	i 2.30	%	i 3.20	%	i 0.32	%	i 0.53	%
Rate of compensation increase	i —	%	i —	%	i 1.97	%	i 1.96	%

The components of net pension benefit costs for U.S. employees and net pension benefit costs for French employees during the years ended December 31, 2020, 2019 and 2018 were as follows ($ in millions):

U.S. Pension Benefits

French Pension Benefits

2020

2019

2018

2020

2019

2018

Service cost

i —

i 1.3

i 1.0

i 1.1

Interest cost

i 3.7

i 4.6

i 4.3

i 0.2

i 0.4

Expected return on plan assets

( i 4.9)

( i 5.8)

( i 0.1)

Amortizations and other

i 3.3

i 2.0

i 3.2

i 1.0

i 0.9

i 1.1

Net periodic benefit cost

i 2.1

i 0.8

i 1.7

i 2.4

i 2.2

i 2.5

Assumptions are used to determine net periodic benefit costs. In addition to the discount rate and rate of compensation increase, which are used to determine benefit obligations, an expected long-term rate of return on plan assets is also used to determine net periodic pension benefit costs. The weighted average assumptions used to determine net periodic benefit costs for the years ended December 31, 2020, 2019 and 2018 were as follows:


	Pension Benefits
	United States						France
	2020		2019		2018		2020		2019		2018
Discount rate	i 3.20	%	i 4.29	%	i 3.60	%	i 0.53	%	i 1.28	%	i 1.28	%
Expected long-term rate of return on plan assets	i 4.41	%	i 5.14	%	i 5.00	%	i 3.00	%	i 3.00	%	i 3.00	%
Rate of compensation increase	i —	%	i —	%	i —	%	i 1.97	%	i 1.96	%	i 1.75	%

The Company's investment strategy with respect to its U.S. pension plan assets is to maximize the return on investment of plan assets at an acceptable level of risk and to assure the plans' fiscal health. The target asset allocation varies based on the funded status of the plan in an effort to match the duration of the plan's liabilities to

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

investments in long duration fixed income assets over time. The Company's investments under the French pension plans are primarily invested as directed by governmental authorities, their contracted providers or the participants without direction from the Company. The primary goal of the Company's pension plans is to maintain the highest probability of assuring future benefit payments to participants while providing growth of capital in real terms. To achieve this goal, the investment philosophy is to protect plan assets from large investment losses, particularly over time, while steadily growing the assets in a prudent manner. While there cannot be complete assurance that the objectives will be realized, the Company believes that the likelihood of realizing the objectives are reasonable based upon this investment philosophy. The Company has an investment committee that meets on a periodic basis to review the portfolio returns and to determine asset mix targets. i The U.S. and French pension plans' asset target allocations by asset category for 2021 and actual allocations by asset category at December 31, 2020 and 2019 were as follows:

United States

France

2021 Target

2020

2019

2020

2019

Asset Category

Cash and cash equivalents

i —%

i 1%

i 36%

i 41%

Equity securities*

Domestic large cap

i 2

i 5

i 30

i 31

Domestic small cap

i 1

i 3

i —

International

i 6

i 15

i —

Fixed income securities

i 91

i 90

i 76

i 32

i 26

Alternative investments**

i —

i 2

Total

i 100%

* None of the Company's pension plan assets are targeted for investment in SWM stock, except that it is possible that one or more mutual funds held by the plan could hold shares of SWM.

** Investments in this category under the U.S. pension plan only may include hedge funds and may include real estate under the French pension plan.

The Company's pension assets are classified according to an established fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument's level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The three levels of the fair value hierarchy are described below:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth by level, within the fair value hierarchy, the U.S. and French pension plans' assets at fair value as of December 31, 2020 ($ in millions):

United States

France

Plan Asset Category

Total

Other*

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Cash equivalents

i 1.0

i —

i 1.0

i —

i 0.3

i —

Equity securities

Domestic large cap

i 2.7

i —

i 0.2

i —

Domestic small cap

i 1.3

i —

International

i 8.2

i —

Fixed income securities

US Government securities

i 13.9

i —

Corporate bonds

i 99.6

i —

International bonds

i 1.2

i —

Other

i 6.5

i —

i 0.3

i —

i 0.3

Alternative investments**

i —

Total

i 134.4

i 133.4

i 1.0

i —

i 0.8

i 0.5

i 0.3

The following table sets forth by level, within the fair value hierarchy, the U.S. and French pension plans' assets at fair value as of December 31, 2019 ($ in millions):

United States

France

Plan Asset Category

Total

Other*

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Cash equivalents

i 0.9

i —

i 0.9

i —

i 0.4

i —

Equity securities

Domestic large cap

i 6.8

i —

i 0.3

i —

Domestic small cap

i 4.3

i —

International

i 19.1

i —

Fixed income securities

US Government securities

i 20.9

i —

Corporate bonds

i 55.8

i 5.5

i —

i 50.3

i —

International bonds

i 0.8

i —

Other

i 17.2

i —

i 0.3

i —

i 0.3

Alternative investments**

i —

i 0.1

i —

i 0.1

Total

i 125.8

i 74.6

i 0.9

i 50.3

i —

i 1.1

i 0.7

i 0.4

* Investments held in Mutual Funds are measured at Net Asset Value ("NAV"), as determined by the fund manager, as a practical expedient and not are subject to hierarchy level classification disclosure.

** Alternative investments include ownership interests in shares of registered investment companies.

i The Company expects the following estimated undiscounted future pension benefit payments for the United States and France, which are to be made from pension plan and employer assets, net of amounts that will be funded from retiree contributions, and which reflect expected future service, as appropriate ($ in millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	United States		France
	Pension Benefits		Pension Benefits
2021	$	i 8.6	$	i 0.4
2022	i 8.5		i 1.0
2023	i 8.2		i 1.1
2024	i 8.1		i 1.7
2025	i 8.0		i 1.7
2026 - 2030	i 36.7		i 10.2

The Company is not required to contribute during 2020 to its U.S. and French pension plans; although, it may make discretionary contributions dependent on market conditions to remain aligned with its investment policy statement.

Other Foreign Pension Benefits

In Brazil, employees are covered under government-administered programs. Employees in the United Kingdom are covered by auto enrollment schemes where employee contributions are compulsory and also have the backing of government administered programs. In Canada, the employee pension benefits are not material and therefore are not included in the above disclosures.

Other Benefits

We sponsor a qualified defined contribution plan covering substantially all U.S. employees. Under the plan, the Company matches a portion of employee contributions. The Company's cost under the plan was $ i 4.0 million, $ i 3.9 million and $ i 3.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company provides U.S. executives, certain other key personnel and its directors the opportunity to participate in deferred compensation plans. Participating employees can elect to defer a portion of their salaries and certain other compensation. Participating directors can elect to defer their meeting fees, as a cash deferral, as well as their quarterly retainer fees, as deferred stock unit credits. The Company's liability balance under these deferred compensation plans totaled $ i 14.5 million and $ i 19.7 million at December 31, 2020 and 2019, respectively, which were included in the Consolidated Balance Sheets in Other liabilities. In connection with these plans, the Company has a grantor trust into which it has contributed funds toward its future obligations under the various plans (See Note 12. Other Assets). The balance of grantor trust assets totaled $ i 18.0 million and $ i 14.7 million at December 31, 2020 and 2019, respectively, which were included in Other assets in the Consolidated Balance Sheets. These assets are restricted from Company use until all obligations are satisfied.

In accordance with French law, certain salaried employees in France may accumulate unused regular vacation and supplemental hours of paid leave that can be credited to an individual's Compte Epargne Temps, or CET. The CET account may grow over an individual's career and the hours accumulated may be withdrawn upon retirement or under other special circumstances at the individual's then current rate of pay. The balance of the Company's liability for this program reflected in the accompanying Consolidated Balance Sheets in Other liabilities was $ i 7.0 million and $ i 6.3 million at December 31, 2020 and 2019, respectively.

Note 19. i Stockholders' Equity

Restricted Stock Plan

In April 2015, the Company adopted a new 2015 Long-term Incentive Plan, or LTIP, which replaced its existing Restricted Stock Plan ("RSP"). The LTIP is intended to promote the Company's long-term financial success by attracting and retaining outstanding executive personnel and to motivate such personnel by means of equity grants.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Compensation Committee of the Company's Board of Directors selects participants and establishes the terms of any grant of restricted stock. The Company's LTIP provides that issuance of restricted stock immediately transfers ownership rights in shares of its Common Stock to the recipient of the grant, including the right to vote the shares and to receive dividends thereon. Other types of stock awards are available under the LTIP, but not currently used. The recipient's continued ownership of and right to freely transfer the restricted stock is subject to such conditions on transferability and to such risks of forfeiture as are established by the Compensation Committee at the time of the grant, which may include continued employment with the Company for a defined period, achievement of specified management performance objectives or other conditions established by the Compensation Committee. The number of shares which may be issued under the LTIP is limited to i 5,000,000. Restricted shares outstanding under the RSP have all vested in accordance with the terms of each grant. No further grants of shares will be issued under the RSP. No single participant may be awarded, in the aggregate, more than i 750,000 shares during any fiscal year.

As of December 31, 2020, i 988,180 restricted shares had been issued under the Company's restricted LTIP plans, of which i 405,299 shares of issued restricted stock were not yet vested and for which $ i 2.1 million in unrecognized compensation expense is expected to be recognized over a weighted average period of i 1.8 years. i The following table presents restricted stock activity for the years 2020, 2019 and 2018:

2020

2019

2018

# of Shares

Weighted Average Fair Value at Date of Grant

# of Shares

Weighted Average Fair Value at Date of Grant

# of Shares

Weighted Average Fair Value at Date of Grant

Nonvested restricted shares outstanding at January 1

i 221,622

i 37.08

i 184,190

i 40.33

i 283,338

i 37.26

Granted

i 339,454

i 34.27

i 155,982

i 35.62

i 142,475

i 39.58

Forfeited

( i 36,749)

i 33.98

( i 8,869)

i 41.34

( i 12,858)

i 40.06

Vested

( i 119,028)

i 37.15

( i 109,681)

i 40.12

( i 228,765)

i 35.86

Nonvested restricted shares outstanding at December 31

i 405,299

i 34.96

i 221,622

i 37.08

i 184,190

i 40.33

Restricted Stock Plan Performance Based Shares

During 2020, the Company recognized $ i 3.9 million for i 266,221 shares earned under the 2020-2021 award opportunity and $ i 4.2 million of compensation expense earned under the 2019-2020 award opportunity. During 2019, the Company recognized $ i 5.6 million for i 331,150 shares earned under the 2019-2020 award opportunity and $ i 2.2 million of compensation expense earned under the 2018-2019 award opportunity. During 2018, the Company recognized $ i 2.0 million of compensation expense for i 91,396 shares earned under the 2018-2019 award opportunity and $ i 2.2 million of compensation expense earned under the 2017-2018 award opportunity.

Basic and Diluted Shares Reconciliation

The Company uses the two-class method to calculate earnings per share. The Company has granted restricted stock that contains non-forfeitable rights to dividends on unvested shares. Since these unvested shares are considered participating securities under the two-class method, the Company allocates earnings per share to common stock and participating securities according to dividends declared and participation rights in undistributed earnings.

100

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Diluted net income per common share is computed based on net income divided by the weighted average number of common and potential common shares outstanding. Potential common shares during the respective periods are those related to dilutive stock-based compensation, including long-term share-based incentive compensation, and directors' accumulated deferred stock compensation which may be received by the directors in the form of stock or cash. i A reconciliation of the average number of common and potential common shares outstanding used in the calculations of basic and diluted net income per share follows ($ in millions, shares in thousands):

For the Years Ended December 31,

2020

2019

2018

Numerator (basic and diluted):

Net income

i 83.8

i 85.8

i 94.5

Less: Dividends paid to participating securities

( i 0.7)

( i 0.4)

( i 0.3)

Less: Undistributed earnings available to participating securities

( i 0.4)

( i 0.2)

( i 0.3)

Undistributed and distributed earnings available to common stockholders

i 82.7

i 85.2

i 93.9

Denominator:

Average number of common shares outstanding

i 30,832.7

i 30,652.2

i 30,551.3

Effect of dilutive stock-based compensation

i 271.5

i 186.1

i 141.6

Average number of common and potential common shares outstanding

i 31,104.2

i 30,838.3

i 30,692.9

Note 20. i Commitments and Contingencies

Other Commitments

The EP segment's PDM Industries plant has a minimum annual commitment of approximately $ i 1.3 million per year for calcium carbonate purchases, a raw material used in the manufacturing of some paper products, which totals approximately $ i 5.1 million through 2024. Future purchases are expected to be at levels that exceed such minimum levels under these contracts.

The Company enters into certain other immaterial contracts from time to time for the purchase of certain raw materials. The Company also enters into certain contracts for the purchase of equipment and related costs in connection with its ongoing capital projects.

The Company has agreements with an energy co-generation supplier in France whereby the supplier constructed and operates a co-generation facility at certain plants and supplies steam that is used in the operation of these plants. The Company is committed to purchasing minimum annual amounts of steam generated by these facilities under the agreements through 2030. These minimum annual commitments total approximately $ i 4.2 million. The Company's current and expected requirements for steam at these facilities are at levels that exceed the minimum levels under the contracts.

The EP segment's Brazilian plant, SWM-B, has an agreement for the transmission and distribution of energy that covers all of the plant's consumption of electrical energy valued at approximately $ i 3.8 million annually through 2021. Additionally, SWM-B has an agreement for natural gas purchases valued at approximately $ i 4.3 million during 2021. The French plants have contracts for natural gas to be distributed to and consumed at PdM, LTRI and St. Girons. The total value of the natural gas and distribution to be provided under these contracts is estimated at approximately $ i 10.6 million through 2023. Additionally, the French plants have contracts for electricity to be distributed to and consumed at PdM, LTRI and St. Girons. The value of the electricity and distribution to be provided under these contracts is estimated at approximately $ i 7.5 million in 2021. The Spay, France plant has a contract to consume biomass at approximately $ i 0.6 million annually through 2022.

101

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has certain other letters of credit, guarantees and surety bonds outstanding at December 31, 2020, which are not material either individually or in the aggregate.

Litigation

Brazil

Imposto sobre Circulação de Mercadorias e Serviços ("ICMS"), a form of value-added tax in Brazil, was assessed to SWM-B in December of 2000. SWM-B received i two assessments from the tax authorities of the State of Rio de Janeiro (the "State") for unpaid ICMS taxes on certain raw materials from January 1995 through October 1998 and from November 1998 through November 2000 (collectively, the "Raw Materials Assessments"). The Raw Materials Assessments concerned the accrual and use by SWM-B of ICMS tax credits generated from the production and sale of certain non-tobacco related grades of paper sold domestically. SWM-B contested the Raw Materials Assessments based on Article 150, VI of the Brazilian Federal Constitution of 1988, which grants immunity from ICMS taxes to papers intended for printing books, newspapers and periodicals, on the ground that tax immunity extends to the raw material inputs used to produce such papers. In 2015, the first chamber of the Federal Supreme Court decided the first Raw Materials Assessment in favor of SWM-B. On May 24, 2019, the second chamber of the Federal Supreme Court decided the second Raw Materials Assessment against SWM-B in the amount of approximately $ i 9.5 million based on the foreign currency exchange rate at December 31, 2020. SWM-B, with assistance of outside counsel, is evaluating the decision and exploring its options and other defenses to partially satisfy or reduce the judgment and SWM-B plans to pursue these avenues vigorously. However, because the outcome of any reductions and defenses is uncertain, SWM-B recorded a liability sufficient to satisfy this amount in the second quarter of 2019. This judgment may be settled over the course of i 60 months after all possible challenges are concluded. Interest and penalties will continue to accrue until the judgment is paid.

SWM-B received assessments from the tax authorities of the State for unpaid ICMS and Fundo Estadual de Combate à Pobreza ("FECP," a value-added tax similar to ICMS) taxes on interstate purchases of electricity. The State issued i four sets of assessments against SWM-B, one for May 2006 - November 2007, a second for January 2008 - December 2010, a third for September 2011 - September 2013, which was replaced by a smaller assessment for January - June 2013, and a fourth for July 2013 - December 2017 (collectively the "Electricity Assessments"). SWM-B challenged all Electricity Assessments in administrative proceedings before the State tax council (in the first-level court Junta de Revisão Fiscal and the appellate court Conselho de Contribuintes) based on Resolution 1.610/89, which defers these taxes on electricity purchased by an "electricity-intensive consumer." In 2014, a majority of the Conselho de Contribuintes sitting en banc ruled against SWM-B in each of the first and second Electricity Assessments ($ i 3.6 million and $ i 6.9 million, respectively, based on the foreign currency exchange rate at December 31, 2020), and SWM-B is now pursuing challenges to these assessments in the State judicial system where SWM-B obtained preliminary injunctions against enforcement of both assessments. In March 2020, the first-level judicial court ruled in favor of SWM-B in the second Electricity Assessment, a decision that is now on appeal. The third Electricity Assessment was dismissed on technical grounds by the Conselho de Contribuintes in 2018 after the State admitted the tax did not apply as it had asserted. Instead, in August 2018, the State filed a revised third Electricity Assessment in the amount of $ i 0.5 million for ICMS on electricity purchased during part of 2013, and a fourth Electricity Assessment in the amount of $ i 7.7 million pertaining to ICMS and FECP on electricity purchased from July 2013 to December 2017. SWM-B filed challenges to these 2018 assessments in the first-level administrative court on the same grounds as the older cases. The Junta de Revisão Fiscal rejected SWM-B’s challenge to the revised third Electricity Assessment, but the Conselho de Contribuintes agreed with SWM-B that the 2013 claim was time-barred. Both the Junta de Revisão Fiscal and the Conselho de Contribuintes ruled against SWM-B in the fourth Electricity Assessment. Both 2019 decisions from the Conselho de Contribuintes are being appealed to the full bench of the Conselho de Contribuintes. The State issued a new regulation effective January 1, 2018 that only specific industries are “electricity-intensive consumers,” a list that excludes paper manufacturers. SWM-B contends this regulation shows that paper manufacturers were electricity-intensive consumers eligible to defer ICMS before 2018.

SWM-B cannot determine the outcome of the Electricity Assessments matters; as such so i no loss has been accrued in our consolidated financial statements for them.

102

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Germany

Environmental Matters

The Company's operations are subject to various nations' federal, state and local laws, regulations and ordinances relating to environmental matters. The nature of the Company's operations exposes it to the risk of claims with respect to various environmental matters, and there can be no assurance that material costs or liabilities will not be incurred in connection with such claims. While the Company has incurred in the past several years, and will continue to incur, capital and operating expenditures in order to comply with environmental laws and regulations, it believes that its future cost of compliance with environmental laws, regulations and ordinances, and its exposure to liability for environmental claims and its obligation to participate in the remediation and monitoring of certain hazardous waste disposal sites, will not have a material effect on its financial condition or results of operations. However, future events, such as changes in existing laws and regulations, or unknown contamination or costs of remediation of sites owned, operated or used for waste disposal by the Company (including contamination caused by prior owners and operators of such sites or other waste generators) may give rise to additional costs which could have a material effect on its financial condition or results of operations.

Indemnification Matters

In connection with its spin-off from Kimberly-Clark in 1995, the Company undertook to indemnify and hold Kimberly-Clark harmless from claims and liabilities related to the businesses transferred to it that were not identified as excluded liabilities in the related agreements. As of December 31, 2020, there are i no claims pending under this indemnification that the Company deems to be material.

General Matters

In the ordinary course of conducting business activities, the Company and its subsidiaries become involved in certain other judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include insured and uninsured regulatory, employment, intellectual property, general and commercial liability, environmental and other matters. At this time, the Company does not expect any of these proceedings to have a material effect on its reputation, business, financial condition, results of operations or cash flows. However, the Company can give no assurance that the results of any such proceedings will not materially affect its reputation, business, financial condition, results of operations or cash flows.

103

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21. i Segment Information

The Company's i i two / operating product line segments are also the Company's reportable segments: Advanced Materials and Structures and Engineered Papers. The AMS segment primarily produces engineered resin-based rolled goods such as nets, films, and other non-wovens for use in high-performance applications in the filtration, transportation, infrastructure and construction, medical, and industrial end-markets. The EP segment primarily produces cigarette papers including LIP papers, plug wrap papers and base tipping papers used to wrap various parts of a cigarette for sale to cigarette manufacturers and reconstituted tobacco leaf, or RTL, and wrapper and binder products for sale to cigarette and cigar manufacturers. The EP segment also includes commercial and industrial products such as lightweight printing and writing papers, battery separator paper, drinking straw wrap, filter paper and other specialized papers.

Information about Net Sales and Operating Profit

The Company primarily evaluates segment performance and allocates resources based on operating profit. Expense amounts not associated with segments are referred to as unallocated expenses.

($ in millions)

Net Sales

For the Years Ended December 31,

2020

2019

2018

Advanced Materials & Structures

i 543.5

i 50.6

i 477.2

i 46.7

i 467.9

i 44.9

Engineered Papers

i 530.9

i 49.4

i 545.6

i 53.3

i 573.4

i 55.1

Consolidated

i 1,074.4

i 100.0

i 1,022.8

i 100.0

i 1,041.3

i 100.0

($ in millions)

Operating Profit

For the Years Ended December 31,

2020

2019

2018

Advanced Materials & Structures

i 64.8

i 50.3

i 64.3

i 48.0

i 49.5

i 36.7

Engineered Papers

i 116.8

i 90.7

i 119.2

i 89.0

i 121.8

i 90.2

Unallocated

( i 52.8)

( i 41.0)

( i 49.5)

( i 37.0)

( i 36.3)

( i 26.9)

Consolidated

i 128.8

i 100.0

i 134.0

i 100.0

i 135.0

i 100.0

($ in millions)

Capital Spending

Depreciation

2020

2019

2018

2020

2019

2018

Advanced Materials & Structures

i 14.5

i 16.1

i 15.0

i 14.5

i 12.8

i 14.1

Engineered Papers

i 15.5

i 12.0

i 11.7

i 27.5

i 22.8

i 23.9

Unallocated

i 0.1

i 0.5

i 0.3

i 0.2

i 0.1

Consolidated

i 30.1

i 28.6

i 27.0

i 42.2

i 35.8

i 38.1

Assets are managed on a total company basis and are therefore not disclosed at the segment level.

Information about Geographic Areas

i Long-lived assets by geographic area as of year-end were as follows ($ in millions):

104

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-Lived Assets

2020

2019

2018

United States

i 122.1

i 118.5

i 115.8

France

i 169.3

i 158.8

i 167.4

Brazil

i 15.2

i 19.5

i 20.8

Poland

i 12.9

i 14.7

i 16.8

Other foreign countries

i 32.4

i 30.7

i 27.7

Consolidated

i 351.9

i 342.2

i 348.5

Note 22. i Major Customers

There were no individual customers in the AMS segment which made up 10% or more of the Company's 2020, 2019 or 2018 consolidated net sales. In our EP segment, there were no individual customers which made up 10% or more of the Company's consolidated net sales for the years ended December 31, 2020 or 2019. For the year ended December 31, 2018, one customer, together with its respective affiliates and designated converters, accounted for i 10% of the Company's consolidated net sales. The loss of one or more such customers, or a significant reduction in one or more of these customers' purchases, could have a material adverse effect on the Company's results of operations.

There were no individual customers in the AMS segment which made up 10% or more of the Company's consolidated accounts receivable at December 31, 2020 or 2019. In the EP segment, there were no individual customers which made up 10% or more of the Company's consolidated accounts receivable at December 31, 2020. At December 31, 2019, one customer, together with its respective affiliates and designated converters, accounted for i 11% or more of the Company's consolidated accounts receivable.

Note 23. i Supplemental Disclosures

Analysis of Allowances for Doubtful Accounts:

($ in millions)

For the Years Ended December 31,

2020

2019

2018

Allowance for Doubtful Accounts

Beginning balance

i 1.5

i 1.7

i 1.0

Bad debt expense

i 1.0

i 0.4

i 1.2

Recoveries

i —

( i 0.3)

( i 0.2)

Write-offs and discounts

( i 1.4)

( i 0.3)

Ending balance

i 1.1

i 1.5

i 1.7

Supplemental Cash Flow Information

($ in millions)

For the Years Ended December 31,

2020

2019

2018

Interest paid

i 31.4

i 29.1

i 24.0

Income taxes paid

i 14.8

i 20.8

i 23.2

Capital spending in accounts payable and accrued liabilities

i 5.2

i 5.9

i 5.0

105

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 24. i Quarterly Financial Information (Unaudited)

The following tables summarize the Company's unaudited quarterly financial data for the years ended December 31, 2020 and 2019 ($ in millions, except per share amounts):

2020

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Year

Net sales

i 261.5

i 254.2

i 279.3

i 279.4

i 1,074.4

Gross profit

i 74.3

i 80.2

i 79.5

i 308.3

Restructuring and impairment expense

i 0.1

i 1.6

i 6.0

i 4.2

i 11.9

Operating profit

i 34.1

i 34.4

i 37.0

i 23.3

i 128.8

Income from continuing operations

i 22.5

i 21.5

i 24.5

i 15.3

i 83.8

Net income

i 22.5

i 21.5

i 24.5

i 15.3

i 83.8

Net income per share:

Income per share from continuing operations - basic

i 0.72

i 0.69

i 0.78

i 0.49

i 2.68

Net income per share - basic

i 0.72

i 0.69

i 0.78

i 0.49

i 2.68

Income per share from continuing operations - diluted

i 0.72

i 0.68

i 0.78

i 0.48

i 2.66

Net income per share - diluted

i 0.72

i 0.68

i 0.78

i 0.48

i 2.66

2019

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Year

Net sales

i 258.0

i 269.9

i 256.4

i 238.5

i 1,022.8

Gross profit

i 67.9

i 79.0

i 72.2

i 70.9

i 290.0

Restructuring and impairment expense

i —

i 0.4

i 1.6

i 1.7

i 3.7

Operating profit

i 30.4

i 44.2

i 34.6

i 24.8

i 134.0

Income from continuing operations

i 17.4

i 20.5

i 27.7

i 20.2

i 85.8

(Loss) income from discontinued operations

i —

Net income

i 17.4

i 20.5

i 27.7

i 20.2

i 85.8

Net income per share:

Income per share from continuing operations - basic

i 0.57

i 0.66

i 0.90

i 0.65

i 2.78

Loss per share from discontinued operations - basic

i —

Net income per share - basic

i 0.57

i 0.66

i 0.90

i 0.65

i 2.78

Income per share from continuing operations - diluted

i 0.56

i 0.66

i 0.90

i 0.64

i 2.76

Loss per share from discontinued operations - diluted

i —

Net income per share - diluted

i 0.56

i 0.66

i 0.90

i 0.64

i 2.76

106

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 25. i Subsequent Event

On January 27, 2021, we issued an announcement (the “Rule 2.7 Announcement”) pursuant to Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers (the “Code”) disclosing the terms of a recommended cash offer to acquire the entire issued and to be issued ordinary share capital of Scapa Group plc, a company incorporated in England and Wales (“Scapa”) and listed on the AIM market of the London Stock Exchange (the “Offer”).

Under the terms of the Offer, Scapa shareholders will receive £ i 2.10 in cash for each ordinary share of Scapa (together, the “Scapa Shares”), which values the entire issued and to be issued ordinary share capital of Scapa at approximately £ i 402.9 million (or approximately $ i 551.9 based on an exchange rate of US$ i 1.37:£1). The Offer is intended to be effected by means of a scheme of arrangement (the “Scheme”) under Part 26 of the United Kingdom Companies Act 2006, as amended (the “Companies Act”). SWM Bidco reserves the right to elect (with the consent of the U.K. Panel on Takeovers and Mergers (the “Panel”) and subject to the terms of the Co-operation Agreement described below) to implement the Offer by way of a Takeover Offer (as such term is defined in Part 28 of the Companies Act) as an alternative to the Scheme.

The Offer will be subject to conditions and certain further terms, including, among others, (i) the Scheme becoming effective no later than 11:59 p.m. (London time) on July 27, 2021 or such later date as agreed by the parties (the “Long Stop Date”), (ii) the approval of the Scheme by a majority in number of Scapa shareholders present and voting (and entitled to vote), either in person or by proxy, at a general meeting of Scapa shareholders (including any adjournment, postponement or reconvention thereof) (the “General Meeting”) representing at least i 75% in value of the Scapa Shares voted by such shareholders; (iii) the passing of the special resolution or resolutions to be proposed by Scapa at the General Meeting in connection with, among other things, the amendment of the articles of association of Scapa and such other matters as may be necessary to implement the Scheme; (iv) the sanction of the Scheme by the High Court of Justice in England and Wales; and (v) the receipt of certain merger control and regulatory approvals or the lapse of relevant periods or notifications thereunder. The conditions to the Offer are set out in full in the Rule 2.7 Announcement. Subject to the satisfaction or waiver of all relevant conditions, it is expected that the Scheme will become effective during the second quarter of 2021.

On January 26, 2021, in anticipation of our announcement of our offer to acquire Scapa Group we entered into a currency forward contract with a major financial institution. The terms of the contract provide for an exchange of a notional amount of GBP i 439 million for USD, calculated using the contract rate as applicable at the settlement date, which will be on or before the “Long Stop Date” as it relates to the scheme. The currency forward contract will be recognized at fair value in our consolidated financial statements with subsequent changes in the fair value of the instrument recognized in earnings.

On February 10, 2021 we amended our existing Credit Agreement to provide for, among other things an additional Term Loan Facility “Term Loan B” in the amount of $ i 350 million and a temporary increase in our Maximum Net Debt/EBITDA ratio to i 5.5x. This ratio will decrease over the course of i 24 months, returning to i 4.50x effective as of June 30, 2023.

107

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Schweitzer-Mauduit International, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Schweitzer-Mauduit International, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted FASB Accounting Standards Update 2016-02, Leases, using the modified retrospective approach.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes - Refer to Notes 2 and 17 to the consolidated financial statements

108

Critical Audit Matter Description

The Company operates and is subject to income taxes in the U.S. and numerous foreign jurisdictions with complex tax laws and regulations which resulted in provision for income taxes of $18.4 million for the year ended December 31, 2020. The complexity of the Company’s global structure requires technical expertise in determining the allocation of income to each of these jurisdictions and the consolidated provision for income taxes. In addition, there have been recent significant changes in tax laws in various jurisdictions, including the Tax Cut and Jobs Act (the “Tax Act”) in the United States, which require specialized knowledge, skills and judgment in the accounting and reporting of the Company’s provision for income taxes. The Tax Act contains several key tax features that affect the Company, including (i) a provision designed to tax Global Intangible Low Taxed Income (“GILTI”) of foreign subsidiaries and (ii) a deduction for Foreign-Derived Intangible Income (“FDII”).

We identified the accounting for income taxes as a critical audit matter because the complexity of the Company’s global structure and recent changes in tax laws that required complex auditor judgment and an increased extent of effort, including the need to involve our U.S. and international income tax specialists, to evaluate the Company’s interpretation and application of tax laws in relevant jurisdictions, the allocation of income to each of these jurisdictions, and the income tax impact of the legal entity ownership structure.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the provision for income taxes included the following, among others:

•Tested the effectiveness of controls over management’s application of income tax laws to its global corporate structure, including controls over the identification and assessment of changes to tax laws in the various jurisdictions in which it operates, including the Tax Act, and controls related to the allocation of income to the Company’s various tax jurisdictions.

•Obtained an understanding of the Company’s overall legal entity structure by reading and evaluating the Company’s organizational charts and associated documentation, including legal documents.

•We read minutes of the meetings of the board of directors and inquired of Company personnel, including legal, to evaluate whether there were any significant changes in the legal entity structure that were relevant to the provision for income taxes.

•With the assistance of our U.S. and international income tax specialists, we evaluated management’s application of relevant tax laws to its legal entity structure and the effect on the Company’s income tax provision, including the Company’s calculations of current period income tax expense and deductions associated with GILTI and FDII, by reviewing and evaluating management’s income tax calculations and assessing the Company’s compliance with tax laws.

•With the assistance of our U.S. and international income tax specialists, we evaluated management’s income reporting to the various tax jurisdictions in which the Company operates based on its global corporate structure.

/s/ Deloitte & Touche LLP

Atlanta, Georgia

We have served as the Company's auditor since 1995.

109

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time frames specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, 2020, was made under the supervision and with the participation of our management including our principal executive officer and principal financial officer. Based upon this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective.

Our management, including our Chief Executive Officer and our Chief Financial Officer and Principal Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, is designed to provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on the Company's evaluation under the framework in Internal Control - Integrated Framework, our management has concluded that, as of December 31, 2020, our internal control over financial reporting is effective based on these criteria. As of December 31, 2020, we had no material weaknesses based on our tests using the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on its assessment of our internal control over financial reporting, which is included herein.

The SEC's general guidance permits the exclusion of an assessment of the effectiveness of a registrant's controls and procedures as they relate to its internal control over financial reporting for an acquired business during the first year following such acquisition if, among other circumstances and factors, there is not an adequate amount of time between the acquisition date and the date of assessment. In March 2020, we acquired Tekra LLC and Trient LLC, "Tekra" which was treated as a business combination in accordance with guidance provided by ASC 805. In accordance with the SEC guidance, the scope of our evaluation of internal controls over financial reporting as of December 31, 2020 did not include the internal control over financial reporting of these acquired operations. Assets acquired in these transactions represented 6.0% of our total consolidated assets at December 31, 2020 and net sales generated by the acquired operations represented 7.2% of our consolidated net sales for the year ended December 31, 2020. From the acquisition date to December 31, 2020, the processes and systems of the acquired operations did not significantly impact our internal control over financial reporting.

110

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

111

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Schweitzer-Mauduit International, Inc. and Subsidiaries

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Schweitzer-Mauduit International, Inc. and Subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 1, 2021, expressed an unqualified opinion on those financial statements.

As described in Management's Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Tekra, LLC and Trient, LLC, which were acquired on March 13, 2020, and whose financial statements constitute 6% of total assets and 7% of net sales of the consolidated financial statement amounts as of and for the year ended December 31, 2020. Accordingly, our audit did not include the internal control over financial reporting at Tekra, LLC and Trient, LLC.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become

112

inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Atlanta, Georgia

113

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

We have posted a copy of our Code of Conduct on our website at www.swmintl.com/about-us/governance/codes-of conduct. Our Code of Conduct applies to all employees, officers and directors of the Company and its subsidiaries worldwide.

All other information called for by this Item is hereby incorporated by reference to the sections of our proxy statement relating to our 2021 Annual Meeting of Stockholders (the "2021 Proxy Statement") captioned "Proposal One - Election of Directors," "Corporate Governance" and "Section 16(a) Beneficial Ownership Reporting Compliance." Information with respect to our executive officers is set forth in Part I, Item 1 of this Form 10-K under the caption, "Executive Officers of the Registrant."

Item 11. Executive Compensation

The information in the section of the 2021 Proxy Statement captioned "Executive Compensation," including the item captioned "Compensation Discussion and Analysis," is incorporated in this Item 11 by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance under Equity Compensation Plans

The information in the section of the 2021 Proxy Statement entitled "Stock Ownership" is incorporated in this Item 12 by reference. The following table provides information, as of December 31, 2020, with respect to the shares of our Common Stock that may be issued under our existing equity compensation plans:


Plan Category						Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by stockholders:
Outside Directors Stock Plan (1)						98,033
Long-Term Incentive Plan (2)						4,011,820
Total approved by stockholders						4,109,853
Equity compensation plans not approved by stockholders						—
Grand total						4,109,853

(1) The Outside Directors Stock Plan consists of shares registered for the purpose of issuance to our outside directors for payment of their retainer fees quarterly in advance. Director's stock retainer fees in 2020 consisted of $23,750 quarterly which are payable in our Common Stock. The number of shares issued each quarter is determined based on the then fair market value of the shares, which is determined in accordance with the plan at the closing price on the date one day prior to the date of distribution. Certain directors have elected to defer receipt of quarterly retainer fees under the terms of our Deferred Compensation Plan No. 2 for Non-Employee Directors, resulting in an accumulation of stock unit credits. Upon retirement or earlier termination from the Board, these stock unit credits will be distributed in the form of cash or shares of SWM Common Stock. While held in the deferred compensation plan account, these stock unit credits carry no voting rights and cannot be traded as Common Stock, although declared dividends create additional stock unit credits. As of December 31, 2020, deferred retainer fees have resulted in 146,072 accumulated stock unit credits, excluding credited dividends (198,758 accumulated stock unit credits including credited dividends).

(2) The Long-Term Incentive Plan and former Restricted Stock Plan are described in Note 19. Stockholders' Equity, of the Notes to Consolidated Financial Statements in Part II, Item 8 herein. Shares awarded under the

114

terms of these plans are subject to forfeiture and cannot be sold or otherwise transferred until fully vested or such restrictions are otherwise lifted. Such shares are deemed by us to be issued and outstanding and are subject to all other financial interests, including our declared dividends. As of December 31, 2020, 405,299 shares issued under these plans remained restricted.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information in the sections of the 2021 Proxy Statement captioned "Corporate Governance," including the items captioned "Transactions with Related Persons" and "Board of Directors and Standing Committees" is incorporated in this Item 13 by reference.

Item 14. Principal Accountant Fees and Services

The information in the section of the 2021 Proxy Statement captioned "Proposal Two - Ratification of the Selection of the Independent Registered Public Accounting Firm" is incorporated in this Item 14 by reference.

115

PART IV.

Item 15. Exhibits and Financial Statement Schedules

(a) The consolidated financial statements and financial statement schedules filed as part of this report are listed in the Index to the Consolidated Financial Statements set forth in Part II, Item 8.

(b) The exhibits filed as part of this report are listed below:

116


Exhibit Number						Exhibit
2.1						Equity Interest Purchase Agreement, dated December 14, 2016, by and among DelStar Technologies, Inc., Baldwin Enterprises, Inc., Conwed Plastics LLC, and, solely for certain limited purposes as set forth therein, Schweitzer-Mauduit International, Inc. and Leucadia National Corporation (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed December 14, 2016).***
2.2						Equity Interest Purchase Agreement, dated February 17, 2020, by and among DelStar Technologies, Inc., EIS Buyer, LLC, Tekra, LLC, Trient, LLC, certain other parties identified therein and solely for certain limited purposes as set forth therein, Schweitzer-Mauduit International, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed February 18, 2020).***
2.3						Rule 2.7 Announcement dated January 27, 2021 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on January 27, 2021).
2.4						Co-operation Agreement, dated January 27, 2021, between AMS Holdco 2 Limited and Scapa Group plc (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on January 27, 2021).
3.1						Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 10-Q for the quarter ended September 30, 2009).
3.2						Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on February 22, 2019).
4.1						Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarter ended September 30, 2000).
4.2						Indenture, dated as of September 25, 2018, by and among Schweitzer-Mauduit International, Inc., the guarantors listed therein and Wilmington Trust, National Association (including the form of Note attached as an exhibit thereto) (incorporated by reference to Exhibit 4.1 to the Company's Current report on Form 8-K filed on September 25, 2018).
*4.3						Description of registrant's securities
10.1						Schweitzer-Mauduit International, Inc. 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities Exchange Commission on April 29, 2015).**
10.2						Outside Directors' Stock Plan (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).**
10.3						Annual Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 22, 2019).**
10.4.1						Deferred Compensation Plan (incorporated by reference to Exhibit 10.8.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000).**
10.4.2						Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.8.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000).**
10.5						Restricted Stock Plan (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31 , 2011).**
10.6.1						Executive Severance Plan (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008).**
10.6.2						2016 Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016).**
10.6.3						2016 Executive Severance Plan Participation Agreement (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016).**
10.7						Deferred Compensation Plan No. 2 for Non-Employee Directors (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013).**
10.8						Deferred Compensation Plan No. 2. (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013).**
*10.9						Summary of Non-Management Director Compensation (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 20 20 ).**

117


Exhibit Number						Exhibit
10.10.1						Restricted Stock Award Agreement (2015 Long-Term Incentive Plan - Cliff Vesting Shares) (incorporated by reference to Exhibit 10.16.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2015).**
10.10.2						Restricted Stock Award Agreement (2015 LTIP I & II - Service-Based Shares Grant 1) (incorporated by reference to Exhibit 10.16.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2015).**
10.10.3						Restricted Stock Award Agreement (2015 LTIP I & II - Service-Based Shares Grant 2) (incorporated by reference to Exhibit 10.16.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2015).**
10.10.4						Performance Award Agreement (2015 Long-Term Incentive plan - Performance Shares) (incorporated by reference to Exhibit 10.16.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2015).**
10.10.5						Performance Award Agreement (2015 Long-Term Incentive plan - Performance Shares with Cliff Vesting) (incorporated by reference to Exhibit 10.16.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 2015).**
10.11.1						Restricted Stock Agreement (Restricted Stock Plan - Cliff Vesting Shares) (incorporated by reference to Exhibit 10.20.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013).**
10.11.2						Restricted Stock Agreement (French Participants - Cliff Vesting) (incorporated by reference to Exhibit 10.20.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013).**
10.11.3						Restricted Stock Agreement (Restricted Stock Plan - Performance Share Award) (incorporated by reference to Exhibit 10.20.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013).**
10.11.4						Restricted Stock Agreement (French Participants - Performance Shares) (incorporated by reference to Exhibit 10.20.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013).**
10.12						Offer Letter, dated March 28, 2017, between Schweitzer-Mauduit International, Inc. and Jeffrey Kramer (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 30, 2017).
10.13						Letter of Agreement, dated March 28, 2017, between Schweitzer-Mauduit International, Inc. and Frédéric Villoutreix (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 30, 2017).
10.14.1						Consulting Agreement, dated March 28, 2017, between Schweitzer-Mauduit International, Inc. and Frédéric Villoutreix (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on March 30, 2017).
10.14.2						Non-disclosure Agreement (Exhibit A to the Consulting Agreement, dated March 28, 2017, between Schweitzer-Mauduit International, Inc. and Frédéric Villoutreix (incorporated by reference to Exhibit 10.3.1 to the Company's Current Report on Form 8-K filed on March 30, 2017)).
10.15						Letter of Agreement, dated January 5, 2018, between Schweitzer-Mauduit International, Inc. and R. Andrew Wamser, Jr. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 11, 2018).**
10.16						Separation Agreement, dated January 5, 2018, between Schweitzer-Mauduit International, Inc. and Allison Aden (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on January 11, 2018).**

118


Exhibit Number						Exhibit
10.17						Credit Agreement, dated September 25, 2018, between Schweitzer-Mauduit International, Inc., certain subsidiaries of the borrower from time to time party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, SunTrust Robinson Humphrey, Inc. and AgFirst Farm Credit Bank as joint lead arrangers and Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, SunTrust Robinson Humphrey, Inc. and AgFirst Farm Credit Bank as co-syndication agents (incorporated by reference to Exhibit 10.1 to the Company's Current report on Form 8-K filed on September 25, 2018).
10.18						First Amendment, dated as of February 9, 2021, to the Credit Agreement, dated September 25, 2018, by and among Schweitzer-Mauduit International, Inc., SWM Luxembourg, the other loan parties party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 10 , 2021).
10.19						Letter of Agreement, dated March 26, 2019, between Schweitzer-Mauduit International, Inc. and Michael L. Schmit (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 29, 2019).**
10.20						Letter of Agreement with Michel Fievez regarding SWM Transition Incentive Compensation (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019).**
10.21						Mutual Agreement for the Termination of Employment, dated October 17, 2019, between Schweitzer-Mauduit International, Inc. and Michel Fievez (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 18, 2019).**
10.22						Consulting Agreement, dated October 17, 2019, between Schweitzer-Mauduit International, Inc. and Michel Fievez (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 18, 2019).**
10.23						Employment Agreement, dated October 18, 2019, between Schweitzer-Mauduit International, Inc. and Omar Hoek (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on October 18, 2019).**
10.24						Form of Director Deed of Irrevocable Undertaking (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 27, 2021).
10.25						Backstop Credit Agreement, dated as of January 27, 2021, among Schweitzer-Mauduit International, Inc., the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., as bookrunner and lead arranger (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on January 27, 2021).
*21.1						Subsidiaries of the Company.
*23.1						Consent of Independent Registered Public Accounting Firm.
*24.1						Powers of Attorney.
*31.1						Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
*31.2						Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a) of the Securities Exchange Act of 1934, as amended.
*32						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ‡
99.2						Form of Indemnification Agreement (incorporated by reference by Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
101						The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline eXtensible Business Reporting Language ("iXBRL"): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flow, and (vi) Notes to Consolidated Financial Statements (furnished herewith).
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

119

* Filed herewith.

** Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K

*** Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule to the SEC upon request.

‡ These Section 906 certifications are not being incorporated by reference into the Form 10-K filing or otherwise deemed to be filed with the SEC.

120

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		Schweitzer-Mauduit International, Inc.
		By:
Dated:	March 1, 2021		/s/ *Dr. Jeffrey Kramer*
			Dr. Jeffrey Kramer
			Chief Executive Officer
			(principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

121

Name

Position

Date

/s/ Dr. Jeffrey Kramer

Chief Executive Officer and Director

Dr. Jeffrey Kramer

(principal executive officer)

/s/ Andrew Wamser

Executive Vice President and Chief Financial Officer

Andrew Wamser

(principal financial officer)

/s/ Michael Schmit

Corporate Controller and Chief Accounting Officer

Michael Schmit

(principal accounting officer)

Director

Deborah Borg

Director

Mark Bye

Director

Jeffrey Keenan

Director

Marco Levi

Director

Kimberly Ritrievi

Director

John D. Rogers

Director

Anderson D. Warlick

*By:

/s/ Ricardo Nunez