UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended

June 30, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
			For the transition period from __________________to __________________

1-13948

(Commission file number)

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

62-1612879

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

100 North Point Center East,

Suite 600

Alpharetta,

Georgia

30022

(Address of principal executive offices)

(Zip Code)

1-800-514-0186

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, $0.10 par value

SWM

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer," “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The Company had ~~31,344,604~~31,457,517 shares of common stock issued and outstanding as of August ~~5, 2020.~~4, 2021.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.

TABLE OF CONTENTS

Page

Part I. - Financial Information

Item 1.

Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3230

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

4543

Item 4.

Controls and Procedures

4543

Part II. - Other Information

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4744

Item 3.

Defaults Upon Senior Securities

4744

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(dollars in millions, except per share amounts)

(Unaudited)


		Three Months Ended						Six Months Ended							Three Months Ended				Six Months Ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net sales	Net sales	$	254.2	$	269.9	$	515.7	$	527.9	Net sales	$	377.8	$	254.2	$	666.0	$	515.7
Cost of products sold	Cost of products sold	179.9		190.9		367.1		381.0		Cost of products sold	289.7		179.9		497.1		367.1
Gross profit	Gross profit	74.3		79.0		148.6		146.9		Gross profit	88.1		74.3		168.9		148.6

Selling expense	Selling expense	8.8		8.6		18.3		17.2		Selling expense	11.9		8.8		21.0		18.3
Research and development expense	Research and development expense	3.6		3.7		6.8		7.0		Research and development expense	5.4		3.6		9.2		6.8
General expense	General expense	25.9		22.1		53.3		47.7		General expense	52.6		25.9		85.3		53.3
Total nonmanufacturing expenses	Total nonmanufacturing expenses	38.3		34.4		78.4		71.9		Total nonmanufacturing expenses	69.9		38.3		115.5		78.4

Restructuring and impairment expense	Restructuring and impairment expense	1.6		0.4		1.7		0.4		Restructuring and impairment expense	2.3		1.6		4.0		1.7
Operating profit	Operating profit	34.4		44.2		68.5		74.6		Operating profit	15.9		34.4		49.4		68.5
Interest expense	Interest expense	8.1		15.1		15.0		22.9		Interest expense	13.1		8.1		16.0		15.0
Other (expense) income, net	Other (expense) income, net	(0.3)		(2.7)		0.3		(3.3)		Other (expense) income, net	(0.3)		(0.3)		(2.9)		0.3
Income from continuing operations before income taxes and income from equity affiliates		26.0		26.4		53.8		48.4
Income before income taxes and income from equity affiliates										Income before income taxes and income from equity affiliates	2.5		26.0		30.5		53.8

Provision for income taxes	Provision for income taxes	5.4		5.2		10.7		9.6		Provision for income taxes	3.5		5.4		10.9		10.7
Income (loss) from equity affiliates, net of income taxes		0.9		(0.7)		0.9		(0.9)
Income from continuing operations		21.5		20.5		44.0		37.9
Income from equity affiliates, net of income taxes										Income from equity affiliates, net of income taxes	2.8		0.9		3.8		0.9

Net income	Net income	$	21.5	$	20.5	$	44.0	$	37.9	Net income	$	1.8	$	21.5	$	23.4	$	44.0

Net income per share - basic:	Net income per share - basic:									Net income per share - basic:
Income per share from continuing operations		$	0.69	$	0.66	$	1.41	$	1.23

Net income per share – basic	Net income per share – basic	$	0.69	$	0.66	$	1.41	$	1.23	Net income per share – basic	$	0.06	$	0.69	$	0.75	$	1.41

Net income per share – diluted:	Net income per share – diluted:									Net income per share – diluted:
Income per share from continuing operations		$	0.68	$	0.66	$	1.40	$	1.22

Net income per share – diluted	Net income per share – diluted	$	0.68	$	0.66	$	1.40	$	1.22	Net income per share – diluted	$	0.06	$	0.68	$	0.74	$	1.40

Weighted average shares outstanding:	Weighted average shares outstanding:									Weighted average shares outstanding:

Basic	Basic	30,792,600		30,661,400		30,752,500		30,641,100		Basic	31,045,100		30,792,600		31,009,900		30,752,500

Diluted	Diluted	31,006,700		30,809,300		30,958,400		30,791,000		Diluted	31,402,400		31,006,700		31,371,700		30,958,400

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in millions)

(Unaudited)


		Three Months Ended						Six Months Ended							Three Months Ended				Six Months Ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020

Net income	Net income	$	21.5	$	20.5	$	44.0	$	37.9	Net income	$	1.8	$	21.5	$	23.4	$	44.0
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	0.6		2.2		(2.9)		3.1		Foreign currency translation adjustments	9.4		0.6		(0.5)		(2.9)
Less: Reclassification adjustment for realized translation adjustments		—		(0.2)		—		(0.4)

Unrealized (losses) gain on derivative instruments	Unrealized (losses) gain on derivative instruments	(0.7)		0.9		(13.4)		1.3		Unrealized (losses) gain on derivative instruments	(2.4)		(0.7)		2.0		(13.4)
Less: Reclassification adjustment for gains on derivative instruments included in net income		0.6		(1.8)		0.6		(2.7)
Less: Reclassification adjustment for losses on derivative instruments included in net income										Less: Reclassification adjustment for losses on derivative instruments included in net income	1.6		0.6		1.6		0.6

Net (loss) from postretirement benefit plans		(0.4)		—		(0.3)		—
Reclassification adjustment for amortization of postretirement benefit plans' costs included in net periodic benefit cost		1.2		1.0		1.6		1.5
Net loss from postretirement benefit plans										Net loss from postretirement benefit plans	(0.1)		(0.4)		0		(0.3)
Amortization of postretirement benefit plans' costs included in net periodic cost										Amortization of postretirement benefit plans' costs included in net periodic cost	0.9		1.2		2.5		1.6
Other comprehensive income (loss)	Other comprehensive income (loss)	1.3		2.1		(14.4)		2.8		Other comprehensive income (loss)	9.4		1.3		5.6		(14.4)
Comprehensive income	Comprehensive income	$	22.8	$	22.6	$	29.6	$	40.7	Comprehensive income	$	11.2	$	22.8	$	29.0	$	29.6

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions, except per share amounts)

(Unaudited)


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	63.9	$	103.0	Cash and cash equivalents	$	65.9	$	54.7
Accounts receivable, net	Accounts receivable, net	151.3		143.2		Accounts receivable, net	229.4		148.5
Inventories	Inventories	172.1		161.4		Inventories	247.0		179.7
Income taxes receivable	Income taxes receivable	8.2		12.5		Income taxes receivable	18.7		6.2

Other current assets	Other current assets	8.9		7.4		Other current assets	17.7		7.3
Total current assets	Total current assets	404.4		427.5		Total current assets	578.7		396.4

Property, plant and equipment, net	Property, plant and equipment, net	325.5		330.3		Property, plant and equipment, net	476.3		339.0

Deferred income tax benefits	Deferred income tax benefits	4.1		3.7		Deferred income tax benefits	0		2.6
Investment in equity affiliates	Investment in equity affiliates	52.6		52.4		Investment in equity affiliates	64.0		59.3
Goodwill	Goodwill	397.9		337.4		Goodwill	666.7		403.7
Intangible assets	Intangible assets	321.2		251.2		Intangible assets	541.7		314.7
Other assets	Other assets	72.4		69.2		Other assets	95.9		69.2
Total assets	Total assets	$	1,578.1	$	1,471.7	Total assets	$	2,423.3	$	1,584.9

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities	Current liabilities					Current liabilities
Current debt	Current debt	$	2.6	$	1.9	Current debt	$	18.3	$	2.8
Accounts payable	Accounts payable	53.1		66.4		Accounts payable	113.4		60.5
Income taxes payable	Income taxes payable	3.4		2.8		Income taxes payable	5.8		2.7

Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	77.6		86.5		Accrued expenses and other current liabilities	106.9		100.9
Total current liabilities	Total current liabilities	136.7		157.6		Total current liabilities	244.4		166.9

Long-term debt	Long-term debt	666.4		540.8		Long-term debt	1,262.6		590.5

Long-term income tax payable	Long-term income tax payable	17.6		21.4		Long-term income tax payable	16.6		17.7
Pension and other postretirement benefits	Pension and other postretirement benefits	32.2		31.6		Pension and other postretirement benefits	43.3		36.5
Deferred income tax liabilities	Deferred income tax liabilities	46.4		48.2		Deferred income tax liabilities	112.2		45.1
Other liabilities	Other liabilities	71.4		74.4		Other liabilities	91.2		78.6
Total liabilities	Total liabilities	970.7		874.0		Total liabilities	1,770.3		935.3
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $0.10 par value; 10,000,000 shares authorized; NaN issued or outstanding	Preferred stock, $0.10 par value; 10,000,000 shares authorized; NaN issued or outstanding	—		—		Preferred stock, $0.10 par value; 10,000,000 shares authorized; NaN issued or outstanding	0		0
Common stock, $0.10 par value; 100,000,000 shares authorized; 31,345,414 and 30,896,661 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		3.1		3.1
Common stock, $0.10 par value; 100,000,000 shares authorized; 31,426,129 and 31,324,745 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively						Common stock, $0.10 par value; 100,000,000 shares authorized; 31,426,129 and 31,324,745 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	3.1		3.1
Additional paid-in-capital	Additional paid-in-capital	87.2		78.8		Additional paid-in-capital	97.3		92.2
Retained earnings	Retained earnings	654.1		638.4		Retained earnings	658.9		666.2
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax	(137.0)		(122.6)		Accumulated other comprehensive loss, net of tax	(106.3)		(111.9)
Total stockholders’ equity	Total stockholders’ equity	607.4		597.7		Total stockholders’ equity	653.0		649.6
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,578.1	$	1,471.7	Total liabilities and stockholders’ equity	$	2,423.3	$	1,584.9

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in millions, except per share amounts)

(Unaudited)


		Common Stock Issued													Common Stock Issued
		Shares	Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, March 31, 2019		30,889,589	$	3.1	$	72.0	$	610.8	$	(123.8)	$	562.1

Net income		—	—		—		20.5		—		20.5
Other comprehensive income, net of tax		—	—		—		—		2.1		2.1
Dividends declared ($0.44 per share)		—	—		—		(13.6)		—		(13.6)
Restricted stock issuances, net		5,084	—		—		—		—		—
Stock-based employee compensation expense		—	—		1.5		—		—		1.5

Stock issued to directors as compensation		698	—		0.1		—		—		0.1
Purchases and retirement of common stock		(773)	—		—		(0.1)		—		(0.1)
Balance, June 30, 2019		30,894,598	$	3.1	$	73.6	$	617.6	$	(121.7)	$	572.6
														Shares	Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, March 31, 2020	Balance, March 31, 2020	31,192,522	$	3.1	$	81.0	$	646.2	$	(138.3)	$	592.0	Balance, March 31, 2020	31,192,522	$	3.1	$	81.0	$	646.2	$	(138.3)	$	592.0

Net income	Net income	—	—		—		21.5		—		21.5		Net income	—	—		—		21.5		—		21.5
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—		—		1.3		1.3		Other comprehensive income, net of tax	—	—		—		—		1.3		1.3
Dividends declared ($0.44 per share)	Dividends declared ($0.44 per share)	—	—		—		(13.7)		—		(13.7)		Dividends declared ($0.44 per share)	—	—		—		(13.7)		—		(13.7)
Restricted stock issuances, net	Restricted stock issuances, net	1,853	—		—		—		—		—		Restricted stock issuances, net	1,853	—		—		—		—		—
Stock-based employee compensation expense	Stock-based employee compensation expense	—	—		2.0		—		—		2.0		Stock-based employee compensation expense	—	—		2.0		—		—		2.0
Modification to director stock-based compensation plan	Modification to director stock-based compensation plan	—	—		4.0		—		—		4.0		Modification to director stock-based compensation plan	—	—		4.0		—		—		4.0

Stock issued to directors as compensation	Stock issued to directors as compensation	1,068	—		0.2		—		—		0.2		Stock issued to directors as compensation	1,068	—		0.2		—		—		0.2

Purchases and retirement of common stock	Purchases and retirement of common stock	(434)	—		—		0.1		—		0.1		Purchases and retirement of common stock	(434)	—		—		0.1		—		0.1
Balance, June 30, 2020	Balance, June 30, 2020	31,195,009	$	3.1	$	87.2	$	654.1	$	(137.0)	$	607.4	Balance, June 30, 2020	31,195,009	$	3.1	$	87.2	$	654.1	$	(137.0)	$	607.4

Balance, March 31, 2021													Balance, March 31, 2021	31,407,136	$	3.1	$	94.6	$	670.9	$	(115.7)	$	652.9

Net income													Net income	—	—		—		1.8		—		1.8
Other comprehensive loss, net of tax													Other comprehensive loss, net of tax	—	—		—		—		9.4		9.4
Dividends declared ($0.44 per share)													Dividends declared ($0.44 per share)	—	—		—		(13.8)		—		(13.8)
Restricted stock issuances, net													Restricted stock issuances, net	19,566	—		—		—		—		—
Stock-based employee compensation expense													Stock-based employee compensation expense	—	—		2.5		—		—		2.5

Stock issued to directors as compensation													Stock issued to directors as compensation	484	—		0.2		—		—		0.2

Purchases and retirement of common stock													Purchases and retirement of common stock	(1,057)	—		—		—		—		—
Balance, June 30, 2021													Balance, June 30, 2021	31,426,129	$	3.1	$	97.3	$	658.9	$	(106.3)	$	653.0

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Common Stock Issued
Shares Amount Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total
Balance, December 31, 2018 30,771,244 $ 3.1 $ 71.1 $ 608.2 $ (124.5) $ 557.9
Cumulative effects of changes in accounting standards — — — (0.3) — (0.3)
Net income — — — 37.9 — 37.9
Other comprehensive income, net of tax — — — — 2.8 2.8
Dividends declared ($0.88 per share) — — — (27.2) — (27.2)
Restricted stock issuances, net 146,105 — — — — —
Stock-based employee compensation expense — — 2.4 — — 2.4
Stock issued to directors as compensation 2,394 — 0.1 — — 0.1
Purchases and retirement of common stock (25,145) — — (1.0) — (1.0)
Balance, June 30, 2019 30,894,598 $ 3.1 $ 73.6 $ 617.6 $ (121.7) $ 572.6
Balance, December 31, 2019 30,896,661 $ 3.1 $ 78.8 $ 638.4 $ (122.6) $ 597.7
Net income — — — 44.0 — 44.0
Other comprehensive loss, net of tax — — — — (14.4) (14.4)
Dividends declared ($0.88 per share) — — — (27.4) — (27.4)
Restricted stock issuances, net 321,858 — — — — —
Stock-based employee compensation expense — — 4.1 — — 4.1
Modification to director stock-based compensation plan — — 4.0 — — 4.0
Stock issued to directors as compensation 2,198 — 0.3 — — 0.3
Purchases and retirement of common stock (25,708) — — (0.9) — (0.9)
Balance, June 30, 2020 31,195,009 $ 3.1 $ 87.2 $ 654.1 $ (137.0) $ 607.4


	Common Stock Issued
	Shares	Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 31, 2019	30,896,661	$	3.1	$	78.8	$	638.4	$	(122.6)	$	597.7

Net income	—	—		—		44.0		—		44.0
Other comprehensive loss, net of tax	—	—		—		—		(14.4)		(14.4)
Dividends declared ($0.88 per share)	—	—		—		(27.4)		—		(27.4)
Restricted stock issuances, net	321,858	—		—		—		—		—
Stock-based employee compensation expense	—	—		4.1		—		—		4.1
Modification to director stock-based compensation plan	—	—		4.0		—		—		4.0

Stock issued to directors as compensation	2,198	—		0.3		—		—		0.3

Purchases and retirement of common stock	(25,708)	—		—		(0.9)		—		(0.9)
Balance, June 30, 2020	31,195,009	$	3.1	$	87.2	$	654.1	$	(137.0)	$	607.4

Balance, December 31, 2020	31,324,745	$	3.1	$	92.2	$	666.2	$	(111.9)	$	649.6

Net income	—	—		—		23.4		—		23.4
Other comprehensive loss, net of tax	—	—		—		—		5.6		5.6
Dividends declared ($$0.88 per share)	—	—		—		(27.6)		—		(27.6)
Restricted stock issuances, net	168,096	—		—		—		—		—
Stock-based employee compensation expense	—	—		4.6		—		—		4.6

Stock issued to directors as compensation	1,074	—		0.5		—		—		0.5
Purchases and retirement of common stock	(67,786)	—		—		(3.1)		—		(3.1)
Balance, June 30, 2021	31,426,129	$	3.1	$	97.3	$	658.9	$	(106.3)	$	653.0

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(dollars in millions)

(Unaudited)


		Six Months Ended							Six Months Ended
		June 30, 2020		June 30, 2019			June 30, 2021		June 30, 2020
Operating	Operating					Operating
Net income	Net income	$	44.0	$	37.9	Net income	$	23.4	$	44.0

Non-cash items included in net income:	Non-cash items included in net income:					Non-cash items included in net income:
Depreciation and amortization	Depreciation and amortization	32.5		28.9		Depreciation and amortization	44.9		32.5

Deferred income tax	Deferred income tax	1.6		(0.7)		Deferred income tax	6.8		1.6
Pension and other postretirement benefits	Pension and other postretirement benefits	1.8		1.3		Pension and other postretirement benefits	1.9		1.8
Stock-based compensation	Stock-based compensation	4.2		2.5		Stock-based compensation	4.6		4.2
(Income) loss from equity affiliates		(0.9)		0.9
Income from equity affiliates						Income from equity affiliates	(3.8)		(0.9)
Brazil tax assessment accruals, net	Brazil tax assessment accruals, net	—		10.9		Brazil tax assessment accruals, net	(6.1)		0

Other items	Other items	(3.7)		0.9		Other items	(0.9)		(3.7)
Changes in operating working capital, net of assets acquired:	Changes in operating working capital, net of assets acquired:					Changes in operating working capital, net of assets acquired:
Accounts receivable	Accounts receivable	(8.4)		(12.2)		Accounts receivable	(14.2)		(8.4)
Inventories	Inventories	(1.4)		(2.6)		Inventories	(11.1)		(1.4)
Prepaid expenses	Prepaid expenses	(1.3)		(1.9)		Prepaid expenses	(4.3)		(1.3)
Accounts payable		(12.9)		(2.2)
Accrued expenses and other current liabilities		(6.8)		(4.9)
Accounts payable and other current liabilities						Accounts payable and other current liabilities	(11.2)		(19.7)

Accrued income taxes	Accrued income taxes	0.6		(3.8)		Accrued income taxes	(10.2)		0.6
Net changes in operating working capital	Net changes in operating working capital	(30.2)		(27.6)		Net changes in operating working capital	(51.0)		(30.2)

Net cash provided by operations	Net cash provided by operations	49.3		55.0		Net cash provided by operations	19.8		49.3
Investing	Investing					Investing
Capital spending	Capital spending	(14.9)		(15.2)		Capital spending	(16.3)		(14.9)
Capitalized software costs	Capitalized software costs	(1.7)		(2.8)		Capitalized software costs	(1.3)		(1.7)
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(169.3)		—		Acquisitions, net of cash acquired	(630.5)		(169.3)

Other investing	Other investing	2.1		0.8		Other investing	(0.9)		2.1
Net cash used in investing	Net cash used in investing	(183.8)		(17.2)		Net cash used in investing	(649.0)		(183.8)

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(dollars in millions)

(Unaudited)


		Six Months Ended							Six Months Ended
		June 30, 2020		June 30, 2019			June 30, 2021		June 30, 2020
Financing	Financing					Financing
Cash dividends paid to SWM stockholders	Cash dividends paid to SWM stockholders	(27.4)		(27.2)		Cash dividends paid to SWM stockholders	(27.6)		(27.4)
Short-term borrowings (payments), net		—		(0.1)

Proceeds from issuances of long-term debt	Proceeds from issuances of long-term debt	212.0		0.1		Proceeds from issuances of long-term debt	703.7		212.0
Payments on long-term debt	Payments on long-term debt	(87.1)		(15.3)		Payments on long-term debt	(17.8)		(87.1)
Purchases of common stock	Purchases of common stock	(0.9)		(1.0)		Purchases of common stock	(3.1)		(0.9)
Payments for debt issuance costs						Payments for debt issuance costs	(14.5)		0

Net cash provided by (used in) financing		96.6		(43.5)
Net cash provided by financing						Net cash provided by financing	640.7		96.6
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(1.2)		(0.3)		Effect of exchange rate changes on cash and cash equivalents	(0.3)		(1.2)
Decrease in cash and cash equivalents		(39.1)		(6.0)
Increase (decrease) in cash and cash equivalents						Increase (decrease) in cash and cash equivalents	11.2		(39.1)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	103.0		93.8		Cash and cash equivalents at beginning of period	54.7		103.0
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	63.9	$	87.8	Cash and cash equivalents at end of period	$	65.9	$	63.9

Supplemental Cash Flow Disclosures	Supplemental Cash Flow Disclosures					Supplemental Cash Flow Disclosures
Cash paid for interest, net	Cash paid for interest, net	$	14.1	$	15.5	Cash paid for interest, net	$	19.7	$	14.1
Cash paid for taxes, net	Cash paid for taxes, net	$	8.1	$	13.6	Cash paid for taxes, net	$	14.2	$	8.1
Change in capital spending in accounts payable and accrued liabilities	Change in capital spending in accounts payable and accrued liabilities	$	2.9	$	3.7	Change in capital spending in accounts payable and accrued liabilities	$	5.1	$	2.9

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Note 1. General

Nature of Business

Schweitzer-Mauduit International, Inc. ("SWM," "we," or the "Company"), headquartered in the United States of America, is a multinational diversified producer of highly engineered solutions and advanced materials for a variety of industries. The Company maintains 2 operating product line segments: Advanced Materials & Structures and Engineered Papers.

The Advanced Materials & Structures ("AMS") segment ~~produces mostly~~offers design and manufacturing solutions for the filtration, transportation, healthcare, construction and industrial end-markets. We manufacture resin-based rolled goods such as nets, films and meltblown materials, ~~typically through an extrusion process or~~bonding products and adhesive components, along with providing adhesives and other ~~non-woven technologies. AMS also provides~~coating solutions and converting ~~and coating services. These products are used in a variety of specialty applications across the filtration, transportation, infrastructure and construction, medical, and industrial end-markets.~~services for our customers.

The Engineered Papers ("EP") segment primarily serves the tobacco industry with production of various cigarette papers and reconstituted tobacco products ("Recon"). Traditional reconstituted tobacco leaf ("RTL") is used as a blend with virgin tobacco in cigarettes and used ~~as wrappers and binders for~~in the production of small cigars. Recon, as well as low ignition propensity ("LIP") cigarette paper, a specialty product with fire-safety features, are two key profit drivers, which together account for more than half of segment net sales. The EP segment also produces non-tobacco papers for premium applications, such as energy storage and industrial commodity paper grades.

We conduct business in over 90 countries and operate 2439 production locations worldwide, with ~~locations~~facilities in the U.S., Canada, United Kingdom, France, Luxembourg, Belgium, Russia, Brazil, China, Italy, Germany, Malaysia, India and Poland. We also have a 50% equity interest in 2 joint ventures in China. The first, China Tobacco Mauduit

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Jiangmen) Paper Industry Ltd. ("CTM"), produces various cigarette ~~and porous plug wrap~~ papers and the second, China Tobacco Schweitzer (Yunnan) Reconstituted Tobacco Co. Ltd. ("CTS"), produces RTL.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and the notes thereto have been prepared in accordance with the instructions of Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission ("SEC") and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). However, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods.

The results of operations for the three or six months ended June 30, ~~2020~~2021 are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements and these notes thereto included herein should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the SEC on March ~~2, 2020.~~1, 2021.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned, majority-owned and controlled subsidiaries. The Company’s share of the net income of its 50%-owned joint ventures in China is included in the condensed consolidated statements of income as Income from equity affiliates, net of income taxes. Intercompany balances and transactions have been eliminated.

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, inventory valuation, useful lives of tangible and intangible assets, fair values, sales returns and rebates, receivables valuation, pension, postretirement and other benefits, restructuring and impairment, taxes and contingencies. Furthermore, the Company considered the ~~potential~~continuing impact from the global economic and social disruption caused by the novel coronavirus (“COVID-19”) in estimates used in the Company’s financial statements as of and for the period ended June 30, ~~2020.~~2021. The Company determined changes to these estimates did not have a material impact on our assessment of recoverability of our assets, including Accounts receivable, net, Goodwill, Intangible assets or long-lived assets. There may also be long-term undetermined effects on some of our customers and suppliers, and as a result of these uncertainties, actual results could differ materially from these estimates and assumptions.

Recently Adopted Accounting Standards

In March 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). The update requires that an entity measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects a current estimate of credit losses expected to be incurred. The Company adopted this guidance as of January 1, 2020 on a prospective basis. There was no material impact upon adoption and the Company does not expect the provisions of this update to have a material impact on the condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendment eliminates the second step of the analysis that required the measurement of a goodwill impairment by comparing the implied value of a reporting unit’s goodwill and the goodwill’s carrying amount. While the provisions of the standard will simplify the measurement of goodwill impairments, the Company does not expect a material impact from adoption, which was effective as of January 1, 2020.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurements." The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company has adopted this guidance effective as of January 1, 2020, the provisions of which will not impact existing fair value measurements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The new standard provides updated guidance surrounding implementation costs associated with cloud computing arrangements that are service contracts. The provisions of this ASU are effective for years beginning after December 15, 2019. The Company adopted the provisions of this guidance prospectively as of January 1, 2020. There was no material impact upon adoption and the Company does not expect the provisions of this update to have a material impact on the condensed consolidated financial statements.

~~Recently Issued Accounting Standards~~

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The new standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted. The new standard requires the amendments to be applied on a retrospective basis for all periods presented. The Company is currently in the process of evaluating the impact of the pronouncement and does not expect the adoption of this guidance to have a material impact on the condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The new standard simplifies income tax accounting requirements by removing certain exceptions to the general principles in Topic 740, Income Taxes. The provisions of this ASU ~~are~~were adopted effective ~~for years beginning after December 15, 2020 with early adoption permitted. The Company is currently in the process of evaluating the impact of the pronouncement~~January 1, 2021 and ~~does~~did not ~~expect the adoption of this guidance to~~ have a material impact on the condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans." The new standard modifies the annual disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans and requires the amendments to be applied on a retrospective basis for all

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

periods presented. The provisions of this ASU were adopted effective January 1, 2021 and the required changes, are not expected to have a material impact and will be reflected in the annual financial statements for the year ended December 31, 2021.

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The new standard provides optional expedients and exceptions for applying generally accepted accounting principles ("GAAP") to contracts, hedging relationships, and other transactions affected by reference rate reform and the anticipated discontinuance of the London Interbank Offered Rate ("LIBOR") if certain criteria are met. The amendments in this ASU are effective for all entities as of March 12, 2020, through December 31, 2022. The Company does not currently have any contracts that have been changed to a new reference rate but will continue to evaluate the applicability and impact of the guidance.

109

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2. Revenue Recognition

The Company has 2 main sources of revenue: product sales and materials conversion. The Company recognizes product sales revenues when control of a product is transferred to the customer. For the majority of product sales, transfer of control occurs when the products are shipped from one of the Company’s manufacturing facilities to the customer. The cost of delivering finished goods to the Company’s customers is recorded as a component of ~~cost~~Cost of products sold. Those costs include the amounts paid to a third party to deliver the finished goods. Any freight costs billed to and paid by a customer are included in net sales. The Company also provides services to customers through the conversion of customer-owned raw materials into processed finished goods. In these transactions, the Company generally recognizes revenue as processing is completed.

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, which generally occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Generally, the Company considers collectability of amounts due under a contract to be probable upon inception of a sale based on an evaluation of the credit worthiness of each customer. If collectability is not considered to be probable, the Company defers recognition of revenue on satisfied performance obligations until the uncertainty is resolved. We record estimates for bad debts based on our expectations for the collectability of amounts due from customers, considering historical collection history, expectations for future activity and other discrete events as applicable.

Variable consideration, such as discounts or price concessions, is set forth in the terms of the contract at inception and is included in the assessment of the transaction price at the outset of the arrangement. The transaction price is allocated to the individual performance obligations due under the contract based on the relative stand-alone fair value of the performance obligations identified in the contract. The Company typically uses an observable price to determine the stand-alone selling price for separate performance obligations.

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

Following is the Company’s Net sales disaggregated by revenue source ($ in millions). Sales and usage-based taxes are excluded from Net sales.


		Three Months Ended																							Three Months Ended
		June 30, 2020										June 30, 2019											June 30, 2021				June 30, 2020
		AMS		EP		Total		AMS		EP		Total			AMS		EP		Total		AMS		EP		Total
Product revenues	Product revenues	$	127.1	$	109.9	$	237.0	$	122.7	$	128.3	$	251.0	Product revenues	$	246.1	$	113.1	$	359.2	$	127.1	$	109.9	$	237.0
Materials conversion revenues	Materials conversion revenues	5.0		10.1		15.1		2.0		13.8		15.8		Materials conversion revenues	3.6		11.7		15.3		5.0		10.1		15.1
Other revenues	Other revenues	0.7		1.4		2.1		2.0		1.1		3.1		Other revenues	2.3		1.0		3.3		0.7		1.4		2.1
Total revenues ⁽¹⁾	Total revenues ⁽¹⁾	$	132.8	$	121.4	$	254.2	$	126.7	$	143.2	$	269.9	Total revenues (1)	$	252.0	$	125.8	$	377.8	$	132.8	$	121.4	$	254.2

(1) Revenues include net hedging gains and losses for the three months ended June 30, ~~2020~~2021 and ~~2019.~~

2020.

1110

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Six Months Ended
June 30, 2020 June 30, 2019
AMS EP Total AMS EP Total
Product revenues $ 244.1 $ 234.6 $ 478.7 $ 240.2 $ 249.5 $ 489.7
Materials conversion revenues 8.8 23.0 31.8 3.9 28.7 32.6
Other revenues 2.8 2.4 5.2 3.1 2.5 5.6
Total revenues (1) $ 255.7 $ 260.0 $ 515.7 $ 247.2 $ 280.7 $ 527.9


	Six Months Ended
	June 30, 2021						June 30, 2020
	AMS		EP		Total		AMS		EP		Total
Product revenues	$	404.4	$	222.1	$	626.5	$	244.1	$	234.6	$	478.7
Materials conversion revenues	5.9		26.8		32.7		8.8		23.0		31.8
Other revenues	4.7		2.1		6.8		2.8		2.4		5.2
Total revenues (1)	$	415.0	$	251.0	$	666.0	$	255.7	$	260.0	$	515.7

(1) Revenues include net hedging gains and losses for the six months ended June 30, ~~2020~~2021 and ~~2019.~~

2020.

Net sales are attributed to the following geographic locations based on the location of the Company’s direct customers ($ in millions):


		Three Months Ended																							Three Months Ended
		June 30, 2020										June 30, 2019											June 30, 2021				June 30, 2020
		AMS		EP		Total		AMS		EP		Total			AMS		EP		Total		AMS		EP		Total
United States	United States	$	88.8	$	38.7	$	127.5	$	87.4	$	50.9	$	138.3	United States	$	154.1	$	38.4	$	192.5	$	88.8	$	38.7	$	127.5
Europe and the former Commonwealth of Independent States	Europe and the former Commonwealth of Independent States	11.1		39.8		50.9		13.4		41.0		54.4		Europe and the former Commonwealth of Independent States	55.8		48.1		103.9		11.1		39.8		50.9
Asia/Pacific (including China)	Asia/Pacific (including China)	25.7		24.0		49.7		20.5		27.5		48.0		Asia/Pacific (including China)	28.5		23.5		52.0		25.7		24.0		49.7
Latin America		2.5		9.6		12.1		1.5		12.3		13.8
Americas														Americas	9.1		11.1		20.2		5.3		11.5		16.8
Other foreign countries	Other foreign countries	4.7		9.3		14.0		3.9		11.5		15.4		Other foreign countries	4.5		4.7		9.2		1.9		7.4		9.3
Total revenues⁽¹⁾	Total revenues⁽¹⁾	$	132.8	$	121.4	$	254.2	$	126.7	$	143.2	$	269.9	Total revenues (1)	$	252.0	$	125.8	$	377.8	$	132.8	$	121.4	$	254.2

(1) Revenues include net hedging gains and losses for the three months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Six Months Ended
June 30, 2020 June 30, 2019
AMS EP Total AMS EP Total
United States $ 172.1 82.6 $ 254.7 $ 170.7 98.3 $ 269.0
Europe and the former Commonwealth of Independent States 23.7 83.3 107.0 26.6 86.1 112.7
Asia/Pacific (including China) 46.4 52.8 99.2 37.7 47.9 85.6
Latin America 4.8 20.6 25.4 3.5 23.4 26.9
Other foreign countries 8.7 20.7 29.4 8.7 25.0 33.7
Total revenues⁽¹⁾
$ 255.7 $ 260.0 $ 515.7 $ 247.2 $ 280.7 $ 527.9


	Six Months Ended
	June 30, 2021						June 30, 2020
	AMS		EP		Total		AMS		EP		Total
United States	$	259.8	$	75.8	$	335.6	$	172.1	$	82.6	$	254.7
Europe and the former Commonwealth of Independent States	73.6		97.5		171.1		23.7		83.3		107.0
Asia/Pacific (including China)	60.9		45.7		106.6		46.4		52.8		99.2
Americas	13.5		22.2		35.7		9.2		24.3		33.5
Other foreign countries	7.2		9.8		17.0		4.3		17.0		21.3
Total revenues (1)	$	415.0	$	251.0	$	666.0	$	255.7	$	260.0	$	515.7

(1) Revenues include net hedging gains and losses for the six months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Note 3. Other Comprehensive ~~Loss~~Income (Loss)

Comprehensive income includes Net income, as well as certain items charged and credited directly to stockholders' equity, which are excluded from net income. The Company has presented Comprehensive income in the condensed consolidated statements of comprehensive income (loss). Reclassification adjustments of derivative instruments are presented in Net sales, Other (expense) income, net, or Interest expense in the condensed consolidated statements of income. See Note 11. Derivatives for additional information. Amortization of accumulated pension and other post-employment benefit ("OPEB"), liabilities are included in the computation of net periodic pension and OPEB costs, which are more fully discussed in Note 13. Postretirement and Other Benefits.

Components of Accumulated other comprehensive loss, net of tax, were as follows ($ in millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Components of Accumulated other comprehensive loss, net of tax, were as follows ($ in millions):~~

June 30, 2020 December 31, 2019
Accumulated pension and OPEB liability adjustments, net of income tax benefit of $12.3 million and $12.8 million at June 30, 2020 and December 31, 2019, respectively $ (23.0) $ (24.3)
Accumulated unrealized loss on derivative instruments, net of income tax benefit of $4.2 million and $1.6 million at June 30, 2020 and December 31, 2019, respectively (16.3) (3.5)
Accumulated unrealized foreign currency translation adjustments, net of income tax benefit of $7.1 million and $5.0 million at June 30, 2020 and December 31, 2019, respectively (97.7) (94.8)
Accumulated other comprehensive loss $ (137.0) $ (122.6)


	June 30, 2021		December 31, 2020


Accumulated pension and OPEB liability adjustments, net of income tax benefit of $11.7 million and $11.6 million at June 30, 2021 and December 31, 2020, respectively	$	(18.0)	$	(20.5)
Accumulated unrealized loss on derivative instruments, net of income tax benefit of $2.6 million and $2.8 million at June 30, 2021 and December 31, 2020, respectively	(9.5)		(13.1)
Accumulated unrealized foreign currency translation adjustments, net of income tax benefit of $6.8 million and $10.1 million at June 30, 2021 and December 31, 2020, respectively	(78.8)		(78.3)
Accumulated other comprehensive loss	$	(106.3)	$	(111.9)

Changes in the components of Accumulated other comprehensive ~~loss~~income (loss) were as follows ($ in millions):


		Three Months Ended																							Three Months Ended
		June 30, 2020										June 30, 2019											June 30, 2021				June 30, 2020
		Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax			Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax
Net gain (loss) on pension and OPEB liability adjustments	Net gain (loss) on pension and OPEB liability adjustments	$	1.1	$	(0.3)	$	0.8	$	0.8	$	0.2	$	1.0	Net gain (loss) on pension and OPEB liability adjustments	$	1.2	$	(0.4)	$	0.8	$	1.1	$	(0.3)	$	0.8
Unrealized (loss) gain on derivative instruments	Unrealized (loss) gain on derivative instruments	0.2		(0.3)		(0.1)		(1.0)		0.1		(0.9)		Unrealized (loss) gain on derivative instruments	(2.6)		1.8		(0.8)		0.2		(0.3)		(0.1)
Unrealized (loss) gain on foreign currency translation		(0.8)		1.4		0.6		1.9		0.1		2.0
Unrealized gain (loss) on foreign currency translation														Unrealized gain (loss) on foreign currency translation	9.3		0.1		9.4		(0.8)		1.4		0.6
Total	Total	$	0.5	$	0.8	$	1.3	$	1.7	$	0.4	$	2.1	Total	$	7.9	$	1.5	$	9.4	$	0.5	$	0.8	$	1.3


		Six Months Ended																							Six Months Ended
		June 30, 2020										June 30, 2019											June 30, 2021				June 30, 2020
		Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax			Pre-tax		Tax		Net of Tax		Pre-tax		Tax		Net of Tax
Unrealized gain (loss) on pension and OPEB liability adjustments	Unrealized gain (loss) on pension and OPEB liability adjustments	$	1.8	$	(0.5)	$	1.3	$	0.2	$	1.3	$	1.5	Unrealized gain (loss) on pension and OPEB liability adjustments	$	2.3	$	0.2	$	2.5	$	1.8	$	(0.5)	$	1.3
Unrealized (loss) gain on derivative instruments		(15.4)		2.6		(12.8)		(1.5)		0.1		(1.4)
Unrealized (loss) gain on foreign currency translation		(4.9)		2.0		(2.9)		0.3		2.4		2.7
Unrealized gain (loss) on derivative instruments														Unrealized gain (loss) on derivative instruments	3.8		(0.2)		3.6		(15.4)		2.6		(12.8)
Unrealized gain (loss) on foreign currency translation														Unrealized gain (loss) on foreign currency translation	2.8		(3.3)		(0.5)		(4.9)		2.0		(2.9)
Total	Total	$	(18.5)	$	4.1	$	(14.4)	$	(1.0)	$	3.8	$	2.8	Total	$	8.9	$	(3.3)	$	5.6	$	(18.5)	$	4.1	$	(14.4)

Note 4. Business Acquisitions

Scapa

On ~~March 13, 2020, the Company~~April 15, 2021, SWM completed ~~the~~its previously announced acquisition of ~~100%~~Scapa Group plc (“Scapa”), a UK based innovation, design, and manufacturing solutions provider for healthcare and industrial markets for aggregate cash consideration of $630.6 million, net of $22.7 million of cash and cash equivalents acquired and including $568.9 million for the ~~equity interest in Tekra, LLC~~purchase of all Scapa ordinary shares, $75.9 million for the repayment of Scapa debt and ~~Trient, LLC, “Tekra,” pursuant~~$8.5 million for the repayment of acquisition costs incurred by Scapa. The acquisition adds to ~~the definitive agreement signed as~~SWM’s portfolio of February 20, 2020. The Company purchased all of the equity interests in Tekra. As a result of the transaction, Tekra and its subsidiaries became wholly-owned subsidiaries of the Company. Tekra is a converter of high-performance films and substrates which enhancesprecision engineered performance materials, expands the Company’s ~~films capabilities. Tekra,~~innovation, design, and formulation capabilities, and brings a variety of new coating and converting technologies. Scapa, part of the AMS segment operates ~~two~~globally with manufacturing ~~facilities located~~and sales operations in ~~Wisconsin.~~

~~The consideration transferred to acquire Tekra was $169.3 million, net of $1.6 million cash~~the Americas, Asia and cash equivalents acquired, and subject to working capital adjustments which will be finalized during the third quarter of 2020. The purchase price was funded with borrowings from our revolving credit facility.Europe.

1312

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The purchase price was funded with borrowings under the amended Credit Agreement, as defined and discussed in Note 10. Debt.

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

The acquisition consideration allocation below is preliminary, pending completion of the fair value ~~analysis~~analyses of acquired assets and liabilities, ~~including~~include deferred taxes and the ~~finalization~~valuations of ~~the working capital settlement expected to be completed during third quarter of 2020.~~certain intangibles and personal property. The excess of the acquisition consideration over the estimated fair values of the acquired assets and assumed liabilities is assigned to goodwill. The goodwill which is assigned to the AMS reportable segment, is primarily attributable to expected revenue ~~synergies. The estimated purchase price~~synergies and is not expected to be deductible for tax purposes. As additional information becomes available, we may further revise the preliminary acquisition consideration allocation ~~disclosed as of March 31, 2020, was revised~~ during the ~~second quarter as new information was received and analyzed resulting in a decrease in net intangible assets~~remainder of ~~$3.4 million, and other adjustments, disclosed in~~ the ~~table below, consisting primarily~~measurement period, which will not exceed twelve months from the closing of ~~reclassifications within working capital, leading to a net decrease in total consideration of $1.8 million. We do not expect further~~the acquisition. Such revisions or changes ~~to the final working capital adjustment or purchase price allocation to~~may be material.

The consideration paid for ~~Tekra~~Scapa and the preliminary estimated fair values of the assets acquired, and liabilities assumed as of the ~~March 13, 2020~~April 15, 2021 acquisition date were as follows ($ in millions):

June 30, 2020 Adjustments Previously disclosed March 31, 2020
Cash and cash equivalents $ 1.6 $ (0.5) $ 2.1
Accounts receivable 8.6 (0.2) 8.8
Inventory 14.2 0.1 14.1
Other current assets 0.2 — 0.2
Property, plant and equipment 7.3 — 7.3
Identifiable intangible assets 81.8 (3.4) 85.2
Other noncurrent assets 3.7 0.4 3.3
Total assets $ 117.4 $ (3.6) $ 121.0
Accounts payable $ 3.0 $ 0.6 $ 2.4
Other current liabilities 2.0 (1.6) 3.6
Other noncurrent liabilities 2.7 — 2.7
Net assets acquired $ 109.7 $ (2.6) $ 112.3
Goodwill 61.2 0.8 60.4
Total consideration $ 170.9 $ (1.8) $ 172.7


	Preliminary Fair Value as of April 15, 2021
Cash and cash equivalents	$	22.7
Accounts receivable	67.7
Inventory	60.9
Other current assets	9.8
Property, plant and equipment	152.1
Identifiable intangible assets	246.2
Other noncurrent assets	26.3
Total assets	$	585.7

Current debt	$	15.0
Accounts payable and other current liabilities	85.9
Deferred income tax liabilities	61.5
Other noncurrent liabilities	33.1

Net assets acquired	$	390.2

Goodwill	263.1

Total consideration	$	653.3

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.

Property, plant and equipment is comprised of buildings and leasehold improvements, machinery and equipment, furniture and fixtures, computer equipment, and construction in progress. The preliminary estimated fair value was

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

primarily determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.

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. The following table shows the preliminary fair values assigned to identifiable intangible assets ($ in millions):

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


		Preliminary Fair Values as of June 30, 2020		Weighted-Average Amortization Period (Years)		Fair Value		Weighted-Average Amortization Period (Years)
Amortizable intangible assets:	Amortizable intangible assets:				Amortizable intangible assets:
Customer relationships	Customer relationships	$	63.0	15	Customer relationships	$	201.3	15
Tradenames and other	Tradenames and other	10.8		15	Tradenames and other	7.7		10
Developed technology	Developed technology	8.0		10	Developed technology	37.2		7
Total amortizable intangible assets	Total amortizable intangible assets	$	81.8		Total amortizable intangible assets	$	246.2

The preliminary estimate of deferred tax effects resulting from the acquisition include the expected federal, state, and foreign tax consequences associated with temporary differences between the preliminary fair values of the assets

acquired, liabilities assumed and the respective tax basis.

During the three and six months ended June 30, ~~2020,~~2021 the Company recognized ~~$1.1 million in~~ direct and indirect acquisition-related costs for the ~~Tekra~~Scapa acquisition of $5.1 million and $8.7 million, respectively. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the condensed consolidated statements of income.

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


	April 15, 2021 - June 30, 2021
Net sales	$	95.0
Net loss from continuing operations	$	(6.0)

Tekra

On March 13, 2020, the Company completed the acquisition of 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 2 manufacturing facilities located in Wisconsin.

The consideration transferred to acquire Tekra was $169.3 million, net of $1.6 million cash and cash equivalents acquired, subject to working capital adjustments that were finalized in 2020. The purchase price was funded with borrowings from our Revolving Credit Facility (See Note 10. Debt).

The acquisition was 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 of 2020 as new information was received and analyzed resulting in a decrease in net intangible assets of $3.4 million, and other adjustments, consisting primarily of reclassifications within working capital, leading to a net decrease in total consideration of $1.8 million.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 are as follows ($ in millions):


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

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

Net assets acquired	$	109.7

Goodwill	61.2

Total consideration	$	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. 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	$	63.0	15
Tradenames and other	10.8		15
Developed technology	8.0		10
Total amortizable intangible assets	$	81.8

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the three and six months ended June 30, 2020, the Company recognized $1.1 million in direct and indirect acquisition-related costs for the Tekra acquisition.Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the condensed consolidated statements of income.

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

Three Months Ended June 30, 2020 March 13, 2020 - June 30, 2020
Net Sales $ 25.0 $ 30.5
Income from Continuing Operations $ (0.7) $ (0.3)


	Three Months Ended June 30, 2020		March 13, 2020 - June 30, 2020
Net sales	$	25.0	$	30.5
Net income from continuing operations	$	(0.7)	$	(0.3)

~~Unaudited~~Pro Forma Financial Information

The supplemental pro forma ~~net sales for~~financial information presents the ~~six months ended June 30, 2020 and 2019 were $539.6 million and $583.1 million, respectively. Preparation~~combined results of ~~pro forma income from continuing~~ operations for the periods presented, isas if the Scapa acquisition had occurred on January 1, 2020 and the Tekra acquisition had occurred on January 1, 2019 and therefore both included in the pro forma results for periods presented. The supplemental pro forma financial information includes the following adjustments related to the Scapa acquisition: amortization of intangible assets and fair value adjustments to inventory, interest expense for the additional indebtedness incurred to complete the acquisition, transaction and severance costs, and applicable tax adjustments based on statutory rates in the jurisdictions where the adjustments occurred. The supplemental pro forma financial information does not include Tekra net income for the period from January 1-March 13, 2020 as preparation of this information was deemed impractical ~~given recent~~due to changes toin the ownership structure of the acquired entities prior to the ~~transaction.~~acquisition. For the three and six months ended June 30, 2021, pro forma net income increased by $14.6 million and $10.1 million, respectively. For the three and six months ended June 30, 2020 pro forma net income decreased by $7.8 million and $27.0 million, respectively.

The supplemental pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the Scapa and Tekra acquisitions occurred as of January 1, 2020 and January 1, 2019, respectively, nor is it necessarily indicative of the of the future results of the combined company.


	Three Months Ended
	June 30, 2021		June 30, 2020
Net sales	$	387.2	$	319.1
Net income from continuing operations	$	3.6	$	9.2


	Six Months Ended
	June 30, 2021		June 30, 2020
Net sales	$	797.0	$	728.5
Net income (loss) from continuing operations(1)	$	35.5	$	(43.0)

(1) Supplemental pro forma financial information includes the impact of restructuring and the impairment of goodwill and intangible assets totaling $67.5 million on Scapa net income for the six months ended June 30, 2020.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5. Net Income Per Share

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.

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 stock-based incentive compensation and directors’ accumulated deferred stock compensation, which may be received by the directors in the form of stock or cash. 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):

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


		Three Months Ended						Six Months Ended							Three Months Ended				Six Months Ended
		June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Numerator (basic and diluted):	Numerator (basic and diluted):									Numerator (basic and diluted):
Net income	Net income	$	21.5	$	20.5	$	44.0	$	37.9	Net income	$	1.8	$	21.5	$	23.4	$	44.0
Less: Dividends paid to participating securities	Less: Dividends paid to participating securities	(0.2)		(0.1)		(0.4)		(0.2)		Less: Dividends paid to participating securities	(0.2)		(0.2)		(0.3)		(0.4)
Less: Undistributed earnings available to participating securities	Less: Undistributed earnings available to participating securities	(0.1)		(0.1)		(0.2)		(0.1)		Less: Undistributed earnings available to participating securities	0.1		(0.1)		0		(0.2)
Undistributed and distributed earnings available to common stockholders	Undistributed and distributed earnings available to common stockholders	$	21.2	$	20.3	$	43.4	$	37.6	Undistributed and distributed earnings available to common stockholders	$	1.7	$	21.2	$	23.1	$	43.4

Denominator:	Denominator:									Denominator:
Average number of common shares outstanding	Average number of common shares outstanding	30,792.6		30,661.4		30,752.5		30,641.1		Average number of common shares outstanding	31,045.1		30,792.6		31,009.9		30,752.5
Effect of dilutive stock-based compensation	Effect of dilutive stock-based compensation	214.1		147.9		205.9		149.9		Effect of dilutive stock-based compensation	357.3		214.1		361.8		205.9
Average number of common and potential common shares outstanding	Average number of common and potential common shares outstanding	31,006.7		30,809.3		30,958.4		30,791.0		Average number of common and potential common shares outstanding	31,402.4		31,006.7		31,371.7		30,958.4

Note 6. Inventories

Inventories are valued at the lower of cost (using the First-In, First-Out and weighted average methods) or net realizable value. 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 shutdowns are expensed in the period incurred and are not reflected in inventory. 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.~~shrinkage. These reviews require the Company to assess customer and market demand. The following schedule details inventories by major class ($ in millions):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Raw materials	Raw materials	$	72.1	$	61.1	Raw materials	$	106.5	$	65.3
Work in process	Work in process	23.7		20.7		Work in process	38.5		23.2
Finished goods	Finished goods	65.4		65.3		Finished goods	93.6		83.5
Supplies and other	Supplies and other	10.9		14.3		Supplies and other	8.4		7.7
Total	Total	$	172.1	$	161.4	Total	$	247.0	$	179.7

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7. Goodwill

The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, ~~2020~~2021 were as follows ($ in millions):


		AMS		EP		Total			AMS		EP		Total
Goodwill as of December 31, 2019		$	332.5	$	4.9	$	337.4
Goodwill as of December 31, 2020								Goodwill as of December 31, 2020	$	398.4	$	5.3	$	403.7
Goodwill acquired during the period	Goodwill acquired during the period	61.2		—		61.2		Goodwill acquired during the period	263.1		0		263.1
Foreign currency translation adjustments	Foreign currency translation adjustments	(0.7)		—		(0.7)		Foreign currency translation adjustments	0.1		(0.2)		(0.1)
Goodwill as of June 30, 2020		$	393.0	$	4.9	$	397.9
Goodwill as of June 30, 2021								Goodwill as of June 30, 2021	$	661.6	$	5.1	$	666.7

Note 8. Intangible Assets

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


		June 30, 2020																			June 30, 2021
		Gross Carrying Amount		Accumulated Amortization		Accumulated Impairments		Accumulated Foreign Exchange		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Accumulated Impairments		Accumulated Foreign Exchange		Net Carrying Amount
Amortized Intangible Assets (AMS)
Amortized Intangible Assets												Amortized Intangible Assets
Customer relationships	Customer relationships	$	339.3	$	77.5	$	—	$	1.9	$	259.9	Customer relationships	$	540.9	$	102.6	$	0	$	(1.9)	$	440.2
Developed technology	Developed technology	42.0		12.4		—		0.4		29.2		Developed technology	79.4		16.8		0		0.1		62.5
Trade names	Trade names	32.6		1.0		20.7		0.3		10.6		Trade names	40.4		2.0		20.7		0.3		17.4
Non-compete agreements	Non-compete agreements	2.9		2.3		—		—		0.6		Non-compete agreements	2.9		2.4		0		0		0.5
Patents	Patents	1.5		0.5		—		—		1.0		Patents	1.5		0.6		0		0		0.9

Total	Total	$	418.3	$	93.7	$	20.7	$	2.6	$	301.3	Total	$	665.1	$	124.4	$	20.7	$	(1.5)	$	521.5

Unamortized Intangible Assets (AMS)
Unamortized Intangible Assets												Unamortized Intangible Assets
Trade names	Trade names	$	20.0	$	—	$	0.1	$	—	$	19.9	Trade names	$	20.0	$	—	$	0.1	$	(0.3)	$	20.2

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


		December 31, 2019																			December 31, 2020
		Gross Carrying Amount		Accumulated Amortization		Accumulated Impairments		Accumulated Foreign Exchange		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Accumulated Impairments		Accumulated Foreign Exchange		Net Carrying Amount
Amortized Intangible Assets (AMS)
Amortized Intangible Assets												Amortized Intangible Assets
Customer relationships	Customer relationships	$	276.3	$	67.7	$	—	$	1.8	$	206.8	Customer relationships	$	339.8	$	88.5	$	0	$	(2.9)	$	254.2
Developed technology	Developed technology	34.0		10.9		—		0.4		22.7		Developed technology	42.1		14.1		0		(0.2)		28.2

Trade names	Trade names	21.8		0.8		20.7		0.3		—		Trade names	32.7		1.4		20.7		0.3		10.3
Non-compete agreements	Non-compete agreements	2.9		2.2		—		—		0.7		Non-compete agreements	2.9		2.4		0		0		0.5
Patents	Patents	1.5		0.4		—		—		1.1		Patents	1.5		0.5		0		0		1.0

Total	Total	$	336.5	$	82.0	$	20.7	$	2.5	$	231.3	Total	$	419.0	$	106.9	$	20.7	$	(2.8)	$	294.2

Unamortized Intangible Assets (AMS)
Unamortized Intangible Assets												Unamortized Intangible Assets
Trade names	Trade names	$	20.0	$	—	$	0.1	$	—	$	19.9	Trade names	$	20.0	$	—	$	0.1	$	(0.6)	$	20.5

Amortization expense of intangible assets was ~~$6.4~~$10.7 million and ~~$5.1~~$6.4 million for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$11.3~~$17.2 million and ~~$10.2~~$11.3 million for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Finite-lived intangibles in the AMS segment are expensed using the straight-line amortization method. The estimated average aggregate amortization expense is ~~$25.2~~$44.9 million in each of the next five years.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9. Restructuring and Impairment Activities

The Company incurred restructuring and impairment expense of ~~$1.6~~$2.3 million and ~~$0.4~~$1.1 million in the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$1.7~~$4.0 million and ~~$0.4~~$1.2 million in the six months ended June 30, 2021 and 2020, ~~and 2019, respectively.~~respectively, in the EP segment.

InDuring the ~~AMS segment,~~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 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 as of December 31, 2020.

As a result of this decision, $1.0 million of restructuring and impairment expense was ~~$0.5~~recognized in the three months ended June 30, 2021 related to the costs associated with closing this facility, maintaining the property and preparing it for sale.

In addition to restructuring costs relating to the Spotswood facility, the EP segment recognized $1.3 million and ~~$0.0~~$1.1 million for the three months ended June 30, 2021 and 2020, respectively, related to severance accruals for employees at other manufacturing facilities. 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 ~~2019, respectively,~~is expected to be completed in 2022.The EP segment has recognized $8.5 million of restructuring charges cumulatively through June 30, 2021 related to this project.

The Company expects to record additional restructuring related costs in the EP segment during 2021 of approximately $1.0 million relating to the shutdown of the Spotswood, New Jersey facility, primarily associated with closing the facility and maintaining the property until it is sold. The Company does not expect to incur significant restructuring expenses related to the cost optimization initiatives in the EP segment during the remainder of 2021.

In the AMS segment, there were $0 million and $0.5 million of restructuring and ~~$0.0~~impairment expenses for the three months ended June 30, 2021 and 2020, respectively and $0 million and $0.5 million in the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

~~In the EP segment,~~The following table summarizes total restructuring and ~~impairment expense was $1.1 million and $0.4 million~~related charges for the three ~~months ended June 30, 2020~~ and ~~2019, respectively, and $1.2 million and $0.4 million in the~~ six months ended June 30, ~~2020~~2021 and ~~2019, respectively. In~~2020:


	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Restructuring and impairment expense:
Severance	$	1.3	$	1.6	$	1.6	$	1.7
Other	1.0		0		2.4		0
Total restructuring and impairment expense	$	2.3	$	1.6	$	4.0	$	1.7

The following table summarizes changes in restructuring liabilities during the ~~six months~~periods ended June 30, ~~2020, Restructuring~~2021 and ~~impairment expense consisted of $1.7 million for severance accruals for employees at our manufacturing facilities~~2020.($ in France, Brazil, Poland, and the U.S. In the six months ended June 30, 2019, Restructuring and impairment expense consisted of $0.4 million in severance accruals for employees at our manufacturing facilities in Brazil, France and the U.S.millions):

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Six Months Ended
	June 30, 2021		June 30, 2020
Balance at beginning of year	$	7.4	$	0.5
Accruals for announced programs	1.5		1.7
Cash payments	(3.7)		(0.8)
Foreign exchange impact	(0.1)		0
Balance at end of period	$	5.1	$	1.4

Restructuring liabilities were classified within Accrued expenses and other current liabilities in each of the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. Changes in the restructuring liabilities, substantially all of which are employee-related, during the periods ended June 30, 2020 and December 31, 2019 are summarized as follows ($ in millions):

Six Months Ended Year Ended
June 30,
2020 December 31,
2019
Balance at beginning of year $ 0.5 $ 1.4
Accruals for announced programs 1.7 3.7
Cash payments (0.8) (4.2)
Other — (0.4)
Balance at end of period $ 1.4 $ 0.5

sheets.

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Note 10. Debt

The components of total debt are summarized in the following table ($ in millions):


		June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Revolving credit facility - U.S. dollar borrowings	Revolving credit facility - U.S. dollar borrowings	$	127.0	$	—	Revolving credit facility - U.S. dollar borrowings	$	388.0	$	50.0

Term loan facility		196.5		197.5
Term loan A facility						Term loan A facility	194.5		195.5

Term loan B facility						Term loan B facility	350.0		0
6.875% senior unsecured notes due October 1, 2026, net of discount of $5.6 million and $6.1 million at June 30, 2021 and December 31, 2020, respectively						6.875% senior unsecured notes due October 1, 2026, net of discount of $5.6 million and $6.1 million at June 30, 2021 and December 31, 2020, respectively	344.4		343.9
French employee profit sharing						French employee profit sharing	3.9		5.0
Finance lease obligations						Finance lease obligations	18.0		3.5

6.875% senior unsecured notes due October 1, 2026, net of discount of $6.5 million and $6.9 million at June 30, 2020 and December 31, 2019, respectively		343.5		343.1
French employee profit sharing		3.9		4.8
Finance lease and capital lease obligations, respectively		3.3		3.2

Debt issuance costs		(5.2)		(5.9)
Debt issuance costs and discounts						Debt issuance costs and discounts	(17.9)		(4.6)
Total debt	Total debt	669.0		542.7		Total debt	1,280.9		593.3
Less: Current debt	Less: Current debt	(2.6)		(1.9)		Less: Current debt	(18.3)		(2.8)
Long-term debt	Long-term debt	$	666.4	$	540.8	Long-term debt	$	1,262.6	$	590.5

Credit Facility

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

On February 10, 2021 we amended our Credit Agreement to, among other things, add a new seven year $350 million Term Loan B Facility (the “Term Loan B Facility”) and to decrease the incremental loans that may be extended at the Company’s request to $250.00 million. The balance under the Term Loan B Facility was $350 million as of June 30, 2021.

Borrowings under the Revolving Credit Facility ~~will initially~~currently bear interest, at the Company’s option, at either (i) ~~1.50%~~2.25% in excess of ~~a reserve adjusted~~ LIBOR or (ii) ~~0.75%~~1.25% in excess of an alternative base rate. Borrowings under the Term Loan A Facility ~~will initially~~currently bear interest, at the Company’s option, at either (i) ~~1.75%~~2.50% in excess of ~~a reserve adjusted~~ LIBOR ~~rate~~ or (ii) ~~1.00%~~1.50% in excess of an

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

alternative base rate. The Term Loan amortizes at the rate of 1.0% per year and will mature on September 25, 2025. Any borrowings under the Term Loan B Facility will bear interest, at the Company's option, at either (i) 3.75% in excess of a reserve adjusted LIBOR rate (subject to a minimum floor of 0.75%) or (ii) 2.75% in excess of an alternative base rate.

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

The Company was in compliance with all of its covenants under the Credit Agreement at June 30, ~~2020.~~2021.

Indenture for 6.875% Senior Unsecured Notes Due 2026

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

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

The Company may redeem some or all of the Notes at any time on or after October 1, 2021, at the redemption prices set forth in the Indenture, together with accrued and unpaid interest, if any, to, but excluding, the redemption date. Prior to October 1, 2021, the Company may redeem some or all of the Notes at a price equal to 100% of the principal amount thereof, plus a “make-whole” premium as set forth in the Indenture. The Company may redeem up to 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 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 June 30, ~~2020.~~2021.

As of June 30, ~~2020,~~2021, the average interest rate was ~~1.94%~~2.46% on outstanding Revolving Credit Facility borrowings, ~~and 2.19%~~2.63% on outstanding Term Loan A Facility borrowings, and 4.50% on outstanding Term Loan B Facility borrowings. The effective rate on the 6.875% senior unsecured notes due 2026 was 7.248%. The weighted average effective interest rate on the Company's debt facilities, including the impact of interest rate hedges, was approximately ~~3.92%~~4.11% and ~~4.43%~~3.92% for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, the Company's total deferred debt issuance costs and discounts, net of accumulated amortization, were ~~$5.2~~$17.9 million and ~~$5.9~~$4.6 million, respectively. Amortization expense of ~~$0.6~~$1.6 million and $0.6 million was recorded during the six months ended June 30, ~~20206~~2021 and ~~2019,~~2020, respectively, and has been included as a component of Interest expense in the accompanying condensed consolidated statements of income.

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 June 30, 2020 such that those amounts are not expected to be repaid prior to the September 2023 expiration of the Revolving Credit Facility. Following are the expected maturities for the Company's debt obligations as of June 30, ~~2020~~2021 ($ in millions):


2020		$	2.2
2021	2021	3.9		2021	$	17.7
2022	2022	3.9		2022	5.8
2023	2023	130.3		2023	393.6
2024	2024	2.5		2024	4.6
2025				2025	190.7
Thereafter	Thereafter	531.4		Thereafter	686.4
Total	Total	$	674.2	Total	$	1,298.8

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Fair Value of Debt

At June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the fair market value of the Company's 6.875% senior unsecured notes was ~~$359.2~~$370.6 million and ~~$378.3~~$371.0 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 June 30, ~~2020~~2021 and December 31, ~~2019~~2020 approximated the respective carrying amounts as the interest rates are variable and based on current market indices.

Debt Issuance Costs

In conjunction with amendment to our Credit Agreement on February 10, 2021, the Company capitalized approximately $14.5 million of debt issuance costs during six months ended June 30, 2021 which will be amortized over the term of the various facilities under the amended Credit Agreement.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11. 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 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 Accumulated other comprehensive 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 values 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 Accumulated other comprehensive 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 our 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 ~~January 20, 2017,~~June 30, 2021 the Company entered into anpay-fixed, receive-variable interest rate ~~swap transaction~~swaps with a ~~major financial institution for a three year term on a notional amount~~maturity date of ~~$315 million.~~December 31, 2027. The ~~interest rate swap is intended to manage the Company's interest rate risk by fixing the interest rate on~~instruments hedge a portion of the ~~Company's~~Company’s debt ~~currently outstanding under its credit~~ facility ~~that was previously subject to a floating interest rate equal to 1-month LIBOR plus a credit spread. The swap provides for~~through the ~~Company to pay a fixed rate of 1.65% per annum in addition to~~Credit Agreement. Under the credit spread on such portion of its outstanding debt in exchange for receiving a variable interest rate based on 1-month LIBOR. On September 25, 2018, in conjunction with the debt refinancing discussed in Note 11. Debt, the Company settled a notional amount of $130 million which resulted in a gain of $1.8 million as of the settlement date. This gain will be amortized on a ratable basis from Accumulated other comprehensive loss into income as interest expense over the remaining termterms of the interest rate ~~swap. On September 11, 2019,~~swaps, SWM will pay a fixed amount of interest each period in an amount equal to 0.974% and 1.4135% on notional amounts of $260 million and $140 million, respectively, and receive interest payments monthly in an amount equal to the ~~Company terminated this interest~~One-Month USD-LIBOR rate ~~swap. Concurrently,~~ on the notional amount. The notional amount will reduce throughout the term of the swap as follows:

•June 30, 2021 - December 31, 2021 $400 million notional

•December 31, 2021 - December 31, 2024 $350 million notional

•December 31, 2024 - December 31, 2025 $300 million notional

•December 31, 2025 - December 31,2026 $200 million notional

•December 31, 2026 - December 31, 2027 $190 million notional

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.~~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 1.724% on a notional amount of $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 $185 million notional

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

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

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

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

On January 20, 2017, the Company entered into a 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 subsidiaries. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $100 million swapped to €93.7 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of 1.65% per annum and pay to our swap counterparty Euro interest at a fixed rate of -0.18% per annum. On September 11, 2019, SWM entered into an offsetting swap with a major financial institution whose terms perfectly mirrored the January 20, 2017 swap and which economically offset the previous cross-currency swap. At the maturity date of the new swap and the previous swap, January 20, 2020, there was no cash impact to the Company to settle these instruments as they perfectly offset each other.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On October 24, 2018, the Company entered into a ~~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 subsidiaries. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $75 million swapped to €65.4 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of 6.875% per annum and pay to our swap counterparty Euro interest at a fixed rate of 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 $75 million swapped to €66.0 million at maturity. The Company will receive from our swap counterparty U.S. dollar interest at a fixed rate of 6.875% per annum and pay to our swap counterparty Euro interest at a fixed rate of 4.0525% per annum. The cross-currency swap will mature on October 1, 2021.

On September 11, 2019, the Company entered into a new pay-EUR, receive-USD cross-currency swap arrangement with a major financial institution 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 $100 million swapped to €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 5.638% semiannually and receive USD denominated payments at a rate of 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 condensed consolidated balance sheet locations at June 30, ~~2020~~2021 ($ in millions):

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Asset Derivatives

Liability Derivatives

Asset Derivatives

Liability Derivatives

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value

Derivatives designated as hedges:

Foreign exchange contracts

Accounts receivable, net

1.4

Accrued expenses and other current liabilities

4.2

Foreign exchange contracts

Accounts receivable, net

1.3

Accrued expenses and other current liabilities

5.8

Foreign exchange contracts

Other assets

6.5

Other liabilities

3.1

Foreign exchange contracts

Other assets

Other liabilities

8.2

Interest rate contracts

Accounts receivable, net

—

Other liabilities

9.1

Interest rate contracts

Accounts receivable, net

0.2

Other liabilities

5.8

Total derivatives designated as hedges

7.9

16.4

Total derivatives designated as hedges

1.5

19.8

Derivatives not designated as hedges:

Foreign exchange contracts

Accounts receivable, net

0.2

Accrued expenses and other current liabilities

—

Foreign exchange contracts

Accounts receivable, net

Accrued expenses and other current liabilities

0.2

Total derivatives not designated as hedges

0.2

—

Total derivatives not designated as hedges

0.2

Total derivatives

8.1

16.4

Total derivatives

1.5

20.0

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following table presents the fair value of asset and liability derivatives and the respective condensed consolidated balance sheet locations at December 31, ~~2019~~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, net $ 4.8 Accrued expenses $ 5.6
Foreign exchange contracts Other assets 6.3 Other liabilities 5.5
Interest rate contracts Accounts receivable, net — Accrued expenses 0.2
Interest rate contracts Other assets — Other liabilities —
Total derivatives designated as hedges $ 11.1 $ 11.3
Derivatives not designated as hedges:
Foreign exchange contracts Accounts receivable, net 0.1 Accounts payable —
Total derivatives not designated as hedges $ 0.1 $ —
Total derivatives $ 11.2 $ 11.3

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedges:
Foreign exchange contracts	Accounts receivable, net	$	0.9	Accrued expenses	$	11.0
Foreign exchange contracts	Other assets	0		Other liabilities	12.3
Interest rate contracts	Accounts receivable, net	0.3		Accrued expenses	0
Interest rate contracts	Other assets	0		Other liabilities	7.8
Total derivatives designated as hedges		$	1.2		$	31.1

Derivatives not designated as hedges:
Foreign exchange contracts	Accounts receivable, net	0		Accounts payable	0
Total derivatives not designated as hedges		$	0		$	0
Total derivatives		$	1.2		$	31.1

The following table provides the gross effect that derivative instruments designated in hedging relationships had on Accumulated other comprehensive loss and results of operations ($ in millions):


Derivatives Designated in Hedging Relationships	Derivatives Designated in Hedging Relationships	Unrealized (Loss) Gain Recognized in AOCI on Derivatives, Net of Tax													Location of (Loss) Gain Reclassified from AOCI		(Loss) Gain Reclassified from AOCI														Derivatives Designated in Hedging Relationships	Unrealized (Loss) Gain Recognized in AOCI on Derivatives, Net of Tax							Location of (Loss) Gain Reclassified from AOCI	(Loss) Gain Reclassified from AOCI

		Three Months Ended						Six Months Ended							Three Months Ended							Six Months Ended							Three Months Ended			Six Months Ended						Three Months Ended		Six Months Ended
		June 30,						June 30,							June 30,							June 30,							June 30,			June 30,						June 30,		June 30,
		2020		2019		2020		2019			2020		2019		2020		2019			2021			2020		2021		2020			2021		2020		2021		2020
Derivatives designated as cash flow hedge	Derivatives designated as cash flow hedge																		Derivatives designated as cash flow hedge
Foreign exchange contracts	Foreign exchange contracts	$	(0.8)	$	(0.3)	$	(5.8)	$	(0.2)	Net sales	$	(1.0)	$	(0.4)	$	(1.6)	$	(0.6)	Foreign exchange contracts	$	0.7		$	(0.8)	$	0.1	$	(5.8)	Net sales	$	(0.4)	$	(1.0)	$	(1.0)	$	(1.6)
Foreign exchange contracts	Foreign exchange contracts	0.9		0.4		1.4		0.1		Other income (expense), net	0.4		0.5		1.0		0.1		Foreign exchange contracts	(1.0)			0.9		(0.1)		1.4		Other income (expense), net	(1.2)		0.4		(0.6)		1.0
Interest rate contracts	Interest rate contracts	(0.8)		0.8		(9)		1.4		Interest expense	—		1.7		—		3.2		Interest rate contracts	(2.1)			(0.8)		2.0		(9.0)		Interest expense	0		0		0		0
Derivatives designated as net investment hedge	Derivatives designated as net investment hedge																		Derivatives designated as net investment hedge
Foreign exchange contracts	Foreign exchange contracts	(5.4)		—		6.6		—		Other income (expense), net	—		—		—		—		Foreign exchange contracts	(1.8)			(5.4)		5.2		6.6		Other income (expense), net	0		0		0		0
Total	Total	$	(6.1)	$	0.9	$	(6.8)	$	1.3		$	(0.6)	$	1.8	$	(0.6)	$	2.7	Total	$	(4.2)		$	(6.1)	$	7.2	$	(6.8)		$	(1.6)	$	(0.6)	$	(1.6)	$	(0.6)

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 three and six months ended June 30, ~~2020~~2021 or ~~2019,~~2020, other than those related to the cross-currency swap, noted below.

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 three months ended June 30, 2021 and 2020, ~~and 2019,~~ respectively, ~~$0.0~~$1.0 million and ~~$0.2 million was reclassified from Accumulated other comprehensive loss into income as interest expense and~~ $2.0 ~~million and $0.4~~ million was recognized in income as derivative amounts excluded from effectiveness testing as Interest expense. For the six months ended June 30, 2021 and 2020, ~~and 2019,~~ respectively, ~~$0.0~~$2.1 million and ~~$0.4 million was reclassified from Accumulated other comprehensive loss into income as interest expense and~~ $3.5 ~~million and $0.9~~ million was recognized in income as derivative amounts excluded from effectiveness testing as Interest expense.

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


Derivatives Not Designated as Cash Flow Hedging Instruments	Derivatives Not Designated as Cash Flow Hedging Instruments	Location of Gain Recognized in Income	Amount of Gain Recognized in Income													Derivatives Not Designated as Cash Flow Hedging Instruments	Location of Gain Recognized in Income		Amount of Gain (loss) Recognized in Income

			Three Months Ended						Six Months Ended								Three Months Ended				Six Months Ended
			June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019				June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Foreign exchange contracts	Foreign exchange contracts	Other income, net	$	0.3	$	0.1	$	0.5	$	—	Foreign exchange contracts	Other income (loss), net	$	6.3	$	0.3	$	(0.3)	$	0.5

~~Note~~ 12. Commitments and Contingencies

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 2 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~~Different chambers of the Federal Supreme Court decided one Raw Materials Assessment 2in favor of SWM-B and the other against SWM-B in the amount of approximately $8.9 million, based on the foreign currency exchange rate at June 30, 2020. SWM-B, with assistance of outside counsel, is currently 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. SWM-B recorded ana liability ~~sufficient~~of $8.6 million in Other Liabilities to satisfy ~~this amount~~the adverse judgment in the second quarter of ~~2019. This judgment may be settled over~~2019 and continued to pursue appeals. On April 9, 2021, SWM-B resolved the ~~course~~remaining Raw Materials Assessment by paying $2.6 million under a tax amnesty program. All litigation is now concluded and this matter is fully resolved. As the result of ~~60 months after all possible challenges are concluded.~~the favorable settlement, we recognized a total benefit of $6.1 million in the first quarter of 2021, of which $4.5 million was in Interest expense and ~~penalties will continue to accrue until the judgment is paid.~~$1.6 million was in Other expense, net.

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 4 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

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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 ($~~3.4~~3.7 million and ~~$6.5~~$7.2 million, respectively, based on the foreign currency exchange rate at June 30, ~~2020)~~2021), 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

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 ~~$0.5~~$0.6 million for ICMS on electricity purchased during part of 2013, and a fourth Electricity Assessment in the amount of ~~$7.2~~$8.0 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 ~~subject to further appeals~~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. ~~In March 2020, the first-level judicial court ruled in favor of SWM-B in the second Electricity Assessment.~~

SWM-B cannot determine the outcome of the Electricity Assessments matters; as such, 0 loss has been accrued in our condensed consolidated financial statements.

Germany

In January 2015, the Company initiated patent infringement proceedings in Germany against Glatz under multiple LIP-related patents. In December 2017, the Dusseldorf Appeal Court affirmed the German District Court judgment on infringement of EP1482815 against Glatz. The Company filed an action against Glatz in the German District Court to set the amount of damages for the infringement and Glatz has filed a counterclaim. Glatz has filed an action in the German Patent Court to invalidate the German part of EP1482815. The German Patent Court held that some of the patent claims at issue were invalid and also that another claim at issue was valid. The Company has appealed the portion of the decision with respect to the claims held to be invalid. The hearing on this invalidity appeal has ~~not yet~~ been ~~scheduled.~~scheduled for September 2021. The cost, timing and outcome of intellectual property litigation can be unpredictable and thus no assurances can be given as to the outcome or impact on us of such litigation.

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 or cash flows.~~operations. However, future events, such as changes in existing laws and regulations, ~~(including the enforcement thereof),~~ 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)~~, or similar circumstances arising at our unconsolidated joint ventures,~~ may give rise to additional costs which could have a material effect on ~~the Company's~~its financial condition or results of operations.

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

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13. Postretirement and Other Benefits

The Company sponsors pension benefits in the United States, France, United Kingdom, Italy, and Canada and OPEB benefits related to postretirement healthcare and life insurance in the United States and Canada. The Company’s Canadian and Italian pension benefits and U.S. and Canadian OPEB ~~benefits~~liability are not material and therefore are not included in the following disclosures.

Pension and OPEB Benefits

The components of net pension ~~and OPEB~~ benefit costs for U.S. ~~employees~~, French and ~~net pension benefit costs for French~~UK employees during the three or six months ended June 30, ~~2020~~2021 and ~~2019~~2020 were as follows ($ in millions):

Three Months Ended June 30,
U.S. Pension Benefits French Pension Benefits
2020 2019 2020 2019
Service cost $ — $ — $ 0.3 $ 0.3
Interest cost 1.0 1.1 0.1 0.1
Expected return on plan assets (1.3) (1.4) — —
Amortizations and other 0.8 0.5 0.1 0.2
Net periodic benefit cost $ 0.5 $ 0.2 $ 0.5 $ 0.6


	Three Months Ended June 30,
	U.S. Pension Benefits				French Pension Benefits				UK Pension Benefits
	2021		2020		2021		2020		2021		2020
Service cost	$	0	$	0	$	0.4	$	0.3	$	0	$	0
Interest cost	0.7		1.0		0.1		0.1		0.8		0
Expected return on plan assets	(1.0)		(1.3)		0		0		(0.9)		0
Amortizations and other	0.9		0.8		0.2		0.1		0		0
Net periodic benefit cost	$	0.6	$	0.5	$	0.7	$	0.5	$	(0.1)	$	0


		Six Months Ended June 30,															Six Months Ended June 30,
		U.S. Pension Benefits						French Pension Benefits							U.S. Pension Benefits				French Pension Benefits				UK Pension Benefits
		2020		2019		2020		2019			2021		2020		2021		2020		2021		2020
Service cost	Service cost	$	—	$	—	$	0.6	$	0.5	Service cost	$	0	$	0	$	0.7	$	0.6	$	0	$	0
Interest cost	Interest cost	1.9		2.3		0.1		0.2		Interest cost	1.4		1.9		0.1		0.1		0.8		0
Expected return on plan assets	Expected return on plan assets	(2.5)		(2.9)		—		—		Expected return on plan assets	(2.0)		(2.5)		0		0		(0.9)		0
Amortizations and other	Amortizations and other	1.6		1.0		0.4		0.4		Amortizations and other	1.8		1.6		0.5		0.4		0		0
Net periodic benefit cost	Net periodic benefit cost	$	1.0	$	0.4	$	1.1	$	1.1	Net periodic benefit cost	$	1.2	$	1.0	$	1.3	$	1.1	$	(0.1)	$	0

The components of net periodic benefit cost other than the service cost component are included in Other (expense) income, net in the condensed consolidated statements of income. During the fiscal year ending December 31, ~~2020,~~2021, the Company expects to recognize approximately ~~$3.2~~$3.6 million of amortization in Accumulated other comprehensive loss related to its U.S. pension and OPEB plans and approximately ~~$0.9~~$1.0 million for its French pension plans.

Note 14. Income Taxes

For interim financial reporting, the Company estimates the annual tax rate based on projected taxable income for the full year and records a quarterly income tax provision in accordance with ASC No. 740-270 "Accounting for Income Taxes in Interim Periods." These interim estimates are subject to variation due to several factors, including the ability of the Company to accurately forecast pre-tax and taxable income and loss by jurisdiction, changes in laws or regulations, and expenses or losses for which tax benefits are not recognized. Jurisdictions with a projected loss for the year or an actual year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of including these jurisdictions on the quarterly effective tax rate calculations

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

could result in a higher or lower effective tax rate during a quarter, based upon the mix and timing of actual earnings versus annual projections.

As a result of the Tax Cuts and Jobs Act of 2017, the Company has significant previously taxed earnings and profits ~~(“PTEP”)~~ from its foreign subsidiaries ~~as a result~~that it is generally able to repatriate free of U.S. federal tax, due to transition tax and global intangible low taxed income (“GILTI”)~~, that is generally able to be repatriated free of U. S. federal tax.~~ treatment. Further, to the extent that any untaxed earnings and profits are distributed from foreign subsidiaries, such dividends should be eligible for a 100% dividends received deduction.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Therefore, the Company does not ~~intend to~~ assert indefinite reinvestment on earnings generated after December 31, 2017. ~~Note, the~~The Company provides for deferred non-U.S. withholding taxes and U.S. state taxes on hypothetical repatriation of earnings generated after December 31, 2017.

All unrecognized tax positions could impact the Company's effective tax rate if recognized. With respect to penalties and interest incurred from income tax assessments or related to unrecognized tax benefits, the Company’s policy is to classify penalties as provision for income taxes and interest as interest expense in its condensed consolidated statement of income. There were no0 material income tax penalties or interest accrued during the three or six months ended June 30, ~~2020~~2021 or ~~2019.~~2020.

The Company's effective tax rate was 140.0% and 20.8% for the three months ended June 30, 2021 and 2020, respectively. The increase was materially due to unfavorable discrete items and mix of earnings by jurisdiction. The Company's effective tax rate from continuing operations was ~~20.8%~~35.7% and ~~19.7%~~19.9% for the ~~three~~six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The increase was materially due to an unfavorable ~~change in~~ discrete items and mix of earnings by jurisdiction offset by a net favorable impact of U.S. tax credits. The Company's effective tax rate from continuing operations was 19.9% and 19.8% for the six months ended June 30, 2020 and 2019, respectively.

jurisdiction.

Note 15. Segment Information

The Company's 2 operating product line segments are also the Company's reportable segments: Advanced Materials & Structures and Engineered Papers. The AMS segment ~~primarily~~designs and produces ~~engineered~~ resin-based rolled goods such as nets, films and meltblown materials, typically through an extrusion process or other ~~non-wovens for use in high-performance applications in~~non-woven technologies across the filtration, ~~infrastructure and~~transportation, healthcare, construction, ~~transportation, medical~~ and industrial ~~end-markets. It~~end-markets, and it provides converting and adhesive and other coating services related to some of these products. AMS segment consists of the operations of various acquisitions. The EP segment primarily produces various cigarette papers and Recon for sale to cigarette manufacturers. The EP segment also includes non-tobacco paper for battery separators, printing and writing, drinking straw wrap and furniture laminates.

Information about Net Sales and Operating Profit

The accounting policies of these segments are the same as those described in Note 2. Summary of Significant Accounting Policies in the notes to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. 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)	($ in millions)	Net Sales																																($ in millions)	Net Sales

		Three Months Ended														Six Months Ended																Three Months Ended						Six Months Ended
		June 30, 2020						June 30, 2019						June 30, 2020								June 30, 2019						June 30, 2021				June 30, 2020					June 30, 2021	June 30, 2020
Advanced Materials & Structures		$	132.8	52.2	%	$	126.7	46.9	%	$	255.7	49.6	%	$	247.2	46.8	%
Engineered Papers		121.4		47.8		143.2		53.1		260.0		50.4		280.7		53.2
AMS																		AMS	$	252.0	66.7		%	$	132.8	52.2	%	$	415.0	62.3	%	$	255.7		49.6	%
EP																		EP	125.8		33.3			121.4		47.8		251.0		37.7		260.0			50.4
Total Consolidated	Total Consolidated	$	254.2	100.0	%	$	269.9	100.0	%	$	515.7	100.0	%	$	527.9	100.0	%	Total Consolidated	$	377.8	100.0		%	$	254.2	100.0	%	$	666.0	100.0	%	$	515.7		100.0	%

~~SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


($ in millions)	($ in millions)	Operating Profit																																($ in millions)	Operating Profit

		Three Months Ended														Six Months Ended																Three Months Ended						Six Months Ended
		June 30, 2020						June 30, 2019						June 30, 2020								June 30, 2019						June 30, 2021				June 30, 2020					June 30, 2021	June 30, 2020
Advanced Materials & Structures		$	13.1	38.1	%	$	20.4	46.2	%	$	26.8	39.1	%	$	35.3	47.3	%
Engineered Papers		31.7		92.1		32.5		73.5		65.1		95.0		61.2		82.1
AMS																		AMS	$	18.9	118.9		%	$	13.1	38.1	%	$	40.2	81.4	%	$	26.8		39.1	%
EP																		EP	24.2		152.2			31.7		92.1		54.1		109.5		65.1			95.0
Unallocated	Unallocated	(10.4)		(30.2)		(8.7)		(19.7)		(23.4)		(34.1)		(21.9)		(29.4)		Unallocated	(27.2)		(171.1)			(10.4)		(30.2)		(44.9)		(90.9)		(23.4)			(34.1)
Total Consolidated	Total Consolidated	$	34.4	100.0	%	$	44.2	100.0	%	$	68.5	100.0	%	$	74.6	100.0	%	Total Consolidated	$	15.9	100.0		%	$	34.4	100.0	%	$	49.4	100.0	%	$	68.5		100.0	%

($ in millions) Segment Assets
June 30,
2020 December 31,
2019
Advanced Materials & Structures $ 961.2 $ 781.2
Engineered Papers 469.0 512.4
Unallocated 147.9 178.1
Total Consolidated $ 1,578.1 $ 1,471.7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our financial condition and results of operations. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report and the audited consolidated financial statements and related notes and the selected financial data included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. The discussion of our financial condition and results of operations includes various forward-looking statements about our markets, the demand for our products, our future prospects and other matters. These statements are based on certain assumptions and estimates that we consider reasonable. For information about risks and exposures relating to us and our business, you should read the section entitled "Risk Factors" in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and the sections entitled "Forward-Looking Statements" at the end of this Item ~~2 and "Risk Factors" in Part II, Item 1A of this report.~~2. Unless the context indicates otherwise, references to "SWM," "we," "us," "our," the "Company" or similar terms include Schweitzer-Mauduit International, Inc. and our consolidated subsidiaries.

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

COVID-19 ~~Overview~~Pandemic

As a result of global economic and social disruption caused by the novel coronavirus (“COVID-19”), the Company’s sales, manufacturing operations, profitability, and cash flow have been, and are expected toWe continue to ~~be impacted for~~monitor the ~~current year. This is a highly uncertain period with events and circumstances changing frequently, and while senior management is meeting regularly to address~~impact of the COVID-19 pandemic (including its variant strains) on all aspects of our business. In general, many areas that were resilient to the ~~challenge,~~economic challenges and volatility in 2020 remain healthy, such as tobacco, healthcare, and filtration, while those areas that were most affected, such as transportation and construction, began improving during the ~~magnitude and duration of economic disruption is difficult to predict. This overview is intended to provide management’s view of COVID-19’s impact on the Company’s first six months~~fourth quarter of 2020 and projected future impacts to assist investors in understanding these developments. These comments contain forward looking statements about operations, financial performance and liquidity, and are current as of August 5, 2020. Further details about the risks and impacts discussed in the section below can be found in the forward-looking statements and Part II, Item 1A. Risk Factors.

~~Health and Safety.~~ The company maintains a primary commitment to the health of our global teams. As such, the Company has reviewed and modified our standard operating procedures to reflect the increased needs from the COVID-19 pandemic, and continues to reassess our safety practices as developments occur and new information becomes available. All non-essential travel and visitors to our sites have been forbidden. We have reviewed all work responsibilities and those employees who are able have been instructed to work remotely. At operating sites, only essential production employees remain, and we have increased our health and safety protocols. These protocols include a stepped-up focus and employee education on hygiene and sterilization procedures. We have implemented social distancing requirements and staggered schedules where appropriate. We have also increased guidelines for all employees on how to safely handle potential infections, including temperature checks prior to entering the site and self-quarantine/return to work requirements.

~~End-markets and sales.~~ SWM serves a variety of end-markets around the world, each with unique demand dynamics. Management believes many of the Company’s end-markets have been, and will remain relatively insulated from COVID-19-related economic challenges; however, some end-markets have been, and are expected to continue to be negatively affected by decreased demand, particularly transportation. In addition, quarterly sales results in 2020 have, and may continue to demonstrate, some volatility from potential inventory builds as customers manage inventories and safety stocks to protect against potential supply chain disruptions.

~~Tobacco (EP)~~ - The Company’s largest single end-market is the tobacco industry, and at this time, management anticipates minimal impact to overall demand in 2020, outside of typically expected industry attrition, given the consumer staple nature of the industry.

~~Medical (AMS)~~ - The Company’s medical products are largely used in finger bandages, diagnostic test strips, and hospital-setting products, and management believes sales of these products are not sensitive to COVID-19-related economic weakness.

~~Filtration (AMS)~~ ~~- The Company serves water and other filtration markets, and management believes these products are generally less sensitive to economic volatility than typical industrial goods.~~

~~Transportation (AMS)~~ - The Company’s primary products are aftermarket automotive paint protection films, which management believes can deliver steady long-term growth due to increasing global consumer adoption of these products. In 2020, however, this category has faced, and is likely to continue to face near-term negative impacts as a result of significant auto industry disruption and near-term consumer purchasing behaviors as a result of COVID-19.

~~Infrastructure & Construction (AMS)~~ - The Company’s key products service highway development, residential construction, oil & gas site services and various other industrial projects which must move soil and require erosion and sediment control. Management believes these end-markets have been impacted by local self-distancing regulations that may affect the construction industry, but these end markets could be positively supported by a potential increase in infrastructure spending if governments provide stimulus funding to reinvigorate economic activities.

~~Industrial (AMS & EP)~~ ~~- The Company’s products service a broad range of applications, most of which are considered to be sensitive to economic activity and associated impacts of COVID-19.~~

~~Manufacturing & Operations.~~ Beyond the potential general demand impacts described above, the Company’s operations have been moderately affected by external supply chain and customer-driven disruptions as well as within the Company’s manufacturing footprint. During the first quarter and into the early weeks of the second quarter, four of the Company's 24 sites temporarily shut down production in response to local government mandates and/or proactive safety measures to protect employees. In these cases, the Company continued to ~~ship products from inventories on hand, and the financial impact of these disruptions is not expected to have a material impact on the Company’s full year results.~~perform well during 2021. At present, all of our facilities are operational. Furthermore, there have been only isolated and temporary customer shutdowns, and the Company is maintaining active dialogue with all key customers and suppliers regarding supply chain and production planning. ~~The Company’s primary raw materials remain readily available in the global marketplace and no significant procurement challenges have risen.~~ Many of the Company’s products in our AMS segment have been deemed “essential” (e.g., filtration and ~~medical)~~healthcare) by local governments and thus the production facilities are not expected to have further shutdowns unless local governments mandate temporary closure or there are additional health and safety concerns beyond the current circumstances.

~~Financial Results Impacts & Outlook.~~ ~~During~~Given the first quarter, the Company generally performed above internal expectations despite moderate COVID-19 related impacts, the most significant of which was the reduced sales of transportation films sold into China. During the second quarter,recent financial results, we believe the Company’s results were impacted due to softer demand in several regions as a result of decreased customer ordering beginning in March 2020 when the pandemic impact spread globally and cases dramatically increased. While the Company expects demand to recover later in 2020, it is challenging to predict domestic and international health and safety developments, the magnitude and duration of the global economic downturn, and the magnitude and timing of a subsequent recovery. As such the Company has elected to withdraw its 2020 financial guidance (please refer to first quarter 2020 earnings press release and Form 8-K filed with the SEC on May 6, 2020 for additional commentary), though it still expects to be profitable and for operating cash ~~flow~~flows and available liquidity are ample to ~~exceed capital spending requirements in 2020.~~

In response to the COVID-19 outbreak, the Company has conducted, and continues to, conduct extensive sensitivity analyses on the potential 2020 financial impacts, particularly on cash flow and liquidity. These sensitivity tests include a range of outcomes from demand-only disruption, to multi-week shutdowns across our manufacturing footprint with all sales, production, and shipping halted. At present, the Company believes it has sufficient liquidity to fund the Company’ssupport operations and financial obligations under likely scenarios despite the expected challenges of the near-term economic environment. These obligations include approximately $55 million of expected annual cash dividend payments to stockholders in 2020 ($27 million of which has been paid as of June 30, 2020). While management believes a meaningful escalation of manufacturing disruptions is unlikely, the Company’s cash on hand, credit facility availability, and ability to manage expenses and capital expenditures, should provide sufficient liquidity to support the Company’s operating needs and financial obligations.

The Company also continues to actively assess the credit worthiness of its customers in the context of the potential business disruptions from COVID-19 but has not yet seen evidence of a material change to its ability to collect accounts receivable balances.

This is an uncertain period with events and circumstances changing frequently, and while senior management is meeting regularly to address all aspects of the pandemic, the magnitude and duration of economic disruption is difficult to predict and will depend on the scope, severity and duration of the pandemic. Further details about the risks and impacts discussed in the section below can be found in the forward-looking statements.

End-markets and sales. Management believes many of the Company’s end-markets have been and will remain relatively insulated from COVID-19-related economic challenges; however, some end-markets were temporarily negatively affected by decreased demand, particularly transportation, which has recovered since the peak impacts in mid-2020. In addition, sales results may continue to demonstrate some variability as customers manage inventories and safety stocks to protect against future potential supply chain disruptions.

Tobacco (EP) – The Company’s largest single end-market is the tobacco industry, which has not been materially affected by the pandemic. The Company believes customers increased their inventory levels in 2020 to minimize supply chain impacts of potential future COVID-19 related disruptions.

Healthcare (AMS) – Management believes sales of these products, mostly consumables, are not sensitive to COVID-19-related economic weakness, with the exception of those used in hospitals as consumer foot traffic has been reduced due to minimizing non-essential visits.

Filtration (AMS)– The Company believes these products are generally less sensitive to economic volatility than typical industrial goods. Within the portfolio, air filtration products have seen accelerated demand due to heightened focus on air quality and attempts to minimize the spread of COVID-19.

Transportation (AMS)– The Company’s primary products are aftermarket automotive paint protection films, which faced pronounced temporary near-term negative impacts, beginning late in the first quarter of 2020 through most of the third quarter of 2020, as a result of significant auto industry disruption and consumer purchasing behaviors as a result of COVID-19. However, since late in the third quarter of 2020, the Company’s transportation sales have improved significantly.

Construction (AMS)– Management believes these end-markets have been impacted by local self-distancing regulations that may affect the construction industry, but these end markets have exhibited recent improvements and could be further positively supported by a potential increase in government-sponsored infrastructure spending.

Industrial (AMS & EP)– The Company’s products service a broad range of applications, some of which are considered to be sensitive to economic activity and associated impacts of COVID-19, while other applications have been relatively unaffected.

Liquidity & Debt Overview. The Company currently has ~~$669.0~~$1,280.9 million of total debt, ~~$63.9~~$65.9 million of cash, and undrawn capacity on its $500.0 million revolving line of credit facility (the "Revolving Credit Facility") of ~~$368.5~~$107.1 million at the end of the second ~~quarter.~~quarter of 2021. Per the terms of the Company's $700.0 million credit ~~facility,~~agreement (the "Credit Agreement"), net leverage was ~~2.8x~~4.4x at the end of the second quarter, versus a maximum covenant ratio of 4.5x, though covenants contain an acquisition-related provision, allowing net leverage to reach 5.0x throughout ~~2020.~~2021. The Company’s nearest debt maturity is the ~~revolving credit facility~~Revolving Credit Facility which is due in 2023. Please refer to liquidity and capital resources section for additional detail.

SUMMARY


($ in millions, except per share amounts)	($ in millions, except per share amounts)	Three Months Ended														Six Months Ended															($ in millions, except per share amounts)	Three Months Ended					Six Months Ended
		June 30,						Percent of Net Sales						June 30,								Percent of Net Sales					June 30,					Percent of Net Sales				June 30,	Percent of Net Sales
		2020		2019		2020		2019		2020		2019		2020		2019			2021		2020		2021		2020		2021		2020			2021		2020
Net sales	Net sales	$	254.2	$	269.9	100.0	%	100.0	%	$	515.7	$	527.9	100.0	%	100.0	%	Net sales	$	377.8	$	254.2	100.0	%	100.0	%	$	666.0	$	515.7		100.0	%	100.0	%
Gross profit	Gross profit	74.3		79.0		29.2		29.3		148.6		146.9		28.8		27.8		Gross profit	88.1		74.3		23.3		29.2		168.9		148.6			25.4		28.8
Restructuring & impairment expense	Restructuring & impairment expense	1.6		0.4		0.6		0.1		1.7		0.4		0.3		0.1		Restructuring & impairment expense	2.3		1.6		0.6		0.6		4.0		1.7			0.6		0.3
Operating profit	Operating profit	34.4		44.2		13.5		16.4		68.5		74.6		13.3		14.1		Operating profit	15.9		34.4		4.2		13.5		49.4		68.5			7.4		13.3
Interest expense	Interest expense	8.1		15.1		3.2		5.6		15.0		22.9		2.9		4.3		Interest expense	13.1		8.1		3.5		3.2		16.0		15.0			2.4		2.9
Income from continuing operations		21.5		20.5		8.5		7.6		44.0		37.9		8.5		7.2

Net income	Net income	$	21.5	$	20.5	8.5	%	7.6	%	$	44.0	$	37.9	8.5	%	7.2	%	Net income	$	1.8	$	21.5	0.5	%	8.5	%	$	23.4	$	44.0		3.5	%	8.5	%
Diluted earnings per share from continuing operations		$	0.68	$	0.66					$	1.40	$	1.22

Diluted earnings per share	Diluted earnings per share	$	0.68	$	0.66					$	1.40	$	1.22					Diluted earnings per share	$	0.06	$	0.68					$	0.74	$	1.40
Cash provided by operations	Cash provided by operations	$	44.2	$	42.0					$	49.3	$	55.0					Cash provided by operations	$	7.1	$	44.2					$	19.8	$	49.3
Capital spending	Capital spending	$	7.5	$	7.9					$	14.9	$	15.2					Capital spending	$	9.2	$	7.5					$	16.3	$	14.9

3231

RESULTS OF OPERATIONS

Three Months Ended June 30, ~~2020~~2021 Compared with the Three Months Ended June 30, ~~2019~~2020

Net Sales

($ in millions)


		Three Months Ended											Three Months Ended
		June 30, 2020		June 30, 2019		Change		Percent Change			June 30, 2021		June 30, 2020		Change		Percent Change
Advanced Materials & Structures	Advanced Materials & Structures	$	132.8	$	126.7	$	6.1	4.8	%	Advanced Materials & Structures	$	252.0	$	132.8	$	119.2	89.8	%
Engineered Papers	Engineered Papers	121.4		143.2		(21.8)		(15.2)		Engineered Papers	125.8		121.4		4.4		3.6
Total	Total	$	254.2	$	269.9	$	(15.7)	(5.8)	%	Total	$	377.8	$	254.2	$	123.6	48.6	%

Net sales were ~~$254.2~~$377.8 million in the three months ended June 30, ~~2020~~2021 compared with ~~$269.9~~$254.2 million in the prior-year period. The ~~decrease~~increase in net sales consisted of the following ($ in millions):


		Amount		Percent			Amount		Percent

Changes in volume, product mix and selling prices		$	(13.0)	(4.8)	%
Incremental net sales from Scapa						Incremental net sales from Scapa	$	95.0	37.4	%
Changes in volume, product mix and selling prices (excluding Scapa)						Changes in volume, product mix and selling prices (excluding Scapa)	20.3		7.9
Changes due to net foreign currency impacts	Changes due to net foreign currency impacts	(2.9)		(1.1)		Changes due to net foreign currency impacts	8.9		3.5
Changes due to royalties	Changes due to royalties	0.2		0.1		Changes due to royalties	(0.6)		(0.2)
Total	Total	$	(15.7)	(5.8)	%	Total	$	123.6	48.6	%

AMS segment net sales were~~$132.8~~ $252.0 million for the three months ended June 30, ~~2020~~2021 compared to ~~$126.7~~$132.8 million during the prior-year period. The increase of ~~$6.1~~$119.2 million or ~~4.8%~~89.8% included the benefit from the ~~Tekra~~Scapa acquisition ~~(closed March 13, 2020)~~(completed April 15, 2021). ~~Excluding~~Scapa net sales were $95.0 million for the ~~acquisition benefit from Tekra, AMS~~three months ended June 30, 2021. The increase in organic sales decreased 14.9% primarily due to a decline in sales of the Company's transportation films, which were significantly impacted by the global COVID-19 pandemic and associated stay-at home orders that disrupted the auto industry. Infrastructure and construction and filtration sales also declined due to macro-economic pressures attributable to COVID-19. Salesreflected rapid growth in ~~medical~~transportation sales as they continued to rebound sharply from negative COVID-19 impacts that began early in 2020. Filtration sales were up over 25%, with strong gains across water, process, and ~~industrial end markets, driven by higher~~air filtration product lines, as were construction sales, with broad strength across building materials and infrastructure products. Healthcare sales (excluding Scapa) declined as certain products that saw short-term COVID-related demand ~~for~~spikes, such as facemask materials, ~~specialty hospital products, and packaging films, partially offset those declines.~~started to normalize. Industrial sales declined during the quarter though mostly in lower-margin products.

EP segment net sales during the three months ended June 30, ~~2020~~2021 of ~~$121.4~~$125.8 million ~~decreased~~increased by ~~$21.8~~$4.4 million, or ~~15.2%~~3.6%, versus net sales of ~~$143.2~~$121.4 million in the prior-year quarter. ~~Compared to the prior-year period, the decrease~~The increase in net sales was primarily the result of ~~industry attrition, inventory destocking related~~3% volume increase and unfavorable price/mix of 4%, which were partially offset by a 6% currency benefit (related to the Euro). The negative price/mix effect was primarily a function of lower LIP volumes, as certain customers ~~temporary site closures related to government orders and implementations of increased safety protocols in response to COVID-19, and negative impacts of foreign currency movements.~~resumed more normalized order patterns versus 2020 when they built inventories.

Gross Profit

($ in millions)


		Three Months Ended								Percent Change			Percent of Net Sales									Three Months Ended									Percent Change			Percent of Net Sales
		June 30, 2020		June 30, 2019		Change						2020			2019			June 30, 2021			June 30, 2020			Change			Percent Change			2021			2020
Net sales	Net sales	$	254.2	$	269.9	$	(15.7)	(5.8)	%	100.0	%		100.0	%	Net sales	$	377.8		$	254.2		$	123.6		48.6	%		100.0	%		100.0	%
Cost of products sold	Cost of products sold	179.9		190.9		(11.0)		(5.8)		70.8			70.7		Cost of products sold	289.7			179.9			109.8			61.0			76.7			70.8
Gross profit	Gross profit	$	74.3	$	79.0	$	(4.7)	(5.9)	%	29.2	%		29.3	%	Gross profit	$	88.1		$	74.3		$	13.8		18.6	%		23.3	%		29.2	%

Gross profit ~~decreased~~increased by ~~$4.7~~$13.8 million during the three months ended June 30, ~~2020~~2021 to ~~$74.3~~$88.1 million versus the prior-year period of ~~$79.0~~$74.3 million.

AMS gross profit ~~decreased~~increased by ~~$4.1~~$19.9 million, primarily due to the ~~decline in transportation~~incremental benefit of the acquired Scapa business and ~~infrastructure and construction~~strong organic sales growth, partially offset by ~~incremental gross profits from the acquired Tekra business and lower raw material costs.~~ higher input costs, primarily of polypropylene resin.

In the EP segment, gross profit decreased ~~slightly~~ by ~~$0.6~~

$6.0 million, primarily due to unfavorable price/mix impacts from lower ~~sales volume largely offset by lower~~LIP volumes, higher wood pulp input costs, ~~cost reduction efforts,~~ and inefficiencies related to the transition of certain volumes from the recently closed Spotswood, NJ facility to other sites. These negative factors were partially offset by $4.0 million of favorable foreign currency ~~movements from lower local currency operating costs in Brazil~~.exchange.

Nonmanufacturing Expenses

($ in millions)


		Three Months Ended								Percent Change			Percent of Net Sales									Three Months Ended									Percent Change			Percent of Net Sales
		June 30, 2020		June 30, 2019		Change						2020			2019			June 30, 2021			June 30, 2020			Change			Percent Change			2021			2020
Selling expense	Selling expense	$	8.8	$	8.6	$	0.2	2.3	%	3.5	%		3.2	%	Selling expense	$	11.9		$	8.8		$	3.1		35.2	%		3.1	%		3.5	%
Research expense	Research expense	3.6		3.7		(0.1)		(2.7)		1.4			1.4		Research expense	5.4			3.6			1.8			50.0			1.4			1.4
General expense	General expense	25.9		22.1		3.8		17.2		10.2			8.1		General expense	52.6			25.9			26.7			103.1			14.0			10.2
Nonmanufacturing expenses	Nonmanufacturing expenses	$	38.3	$	34.4	$	3.9	11.3	%	15.1	%		12.7	%	Nonmanufacturing expenses	$	69.9		$	38.3		$	31.6		82.5	%		18.5	%		15.1	%

Nonmanufacturing expenses in the three months ended June 30, ~~2020~~2021 increased by ~~$3.9~~$31.6 million to ~~$38.3~~$69.9 million from ~~$34.4~~$38.3 million in the prior-year ~~period, primarily due to~~period. The increase included $12.1 million of transaction and integration costs associated with the ~~addition of the acquired Tekra business.~~Scapa acquisition, other SG&A costs from Scapa operations, and higher deferred compensation expenses and third-party consulting expenses.

Restructuring and Impairment Expense

($ in millions)


		Three Months Ended							Percent Change			Percent of Net Sales									Three Months Ended							Percent of Net Sales
		June 30, 2020		June 30, 2019		Change					2020			2019			June 30, 2021			June 30, 2020			Change	2021		2020
Advanced Materials & Structures	Advanced Materials & Structures	$	0.5	$	—	$	0.5	N/A	0.4	%		—	%	Advanced Materials & Structures	$	—		$	0.5		$	(0.5)		—	%	0.4	%
Engineered Papers	Engineered Papers	1.1		0.4		0.7		N/A	0.9			0.3		Engineered Papers	2.3			1.1			1.2			1.8		0.9
Unallocated expenses	Unallocated expenses	—		—		—		N/A						Unallocated expenses	—			—			—			—		—
Total	Total	$	1.6	$	0.4	$	1.2	N/A	0.6	%		0.1	%	Total	$	2.3		$	1.6		$	0.7		0.6	%	0.6	%

The Company incurred total restructuring and impairment expense of ~~$1.6~~$2.3 million and ~~$0.4~~$1.6 million in the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. In the 2021 period, restructuring expense in the EP segment included $0.9 million related to the 2020 decision to shut down the Spotswood, New Jersey facility and included costs associated with closing the facility, maintaining the property and preparing it for sale.

In the 2021 period the EP segment also recognized $1.4 million of restructuring expenses related to severance accruals for employees at other manufacturing facilities.

In the comparable 2020 period, restructuring expense primarily related to severance accruals for employees at our manufacturing operations in the U.S., Brazil, France and Poland.

Operating Profit

($ in millions)


	Three Months Ended						Percent Change		Return on Net Sales
	June 30, 2021		June 30, 2020		Change				2021		2020
Advanced Materials & Structures	$	18.9	$	13.1	$	5.8	44.3	%	7.5	%	9.9	%
Engineered Papers	24.2		31.7		(7.5)		(23.7)		19.2		26.1
Unallocated expenses	(27.2)		(10.4)		(16.8)		161.5
Total	$	15.9	$	34.4	$	(18.5)	(53.8)	%	4.2	%	13.5	%

Operating profit was $15.9 million in the three months ended June 30, 2021 compared with $34.4 million during the prior-year period.

The AMS segment's operating profit in the three months ended June 30, 2021 was $18.9 million compared to $13.1 million in the prior-year period. The increase of $5.8 million, or 44.3%, was driven by strong organic sales growth and the incremental benefit of the acquired Scapa business, partially offset by $7.1 million higher purchase accounting expenses associated with Scapa acquisition. The profit margin percentage decline was primarily attributable to higher raw material costs as the magnitude and speed of the inflationary pressure was not fully offset by pricing actions during the quarter.

The EP segment's operating profit in the three months ended June 30, 2021 was $24.2 million, a decrease of $7.5 million, or 23.7%, from $31.7 million in the prior-year period. The decrease was primarily driven by lower sales in high-margin LIP products, significant wood pulp cost increases, and the inefficiencies related to the Spotswood closure and transition. Currency movements resulted in a $3.1 million benefit to operating profit, mainly from the Euro and Brazilian Real.

Unallocated expenses in the three months ended June 30, 2021 were $27.2 million compared to $10.4 million in the prior-year period, an increase of $16.8 million, or 161.5%, primarily due to Scapa acquisition and integration related costs of $12.1 million, largely comprised of third-party advisory and diligence costs, transaction fees, and integration expenses. The increase also included $1.5 million of costs incurred within Scapa as shared services for corporate functions such as finance, HR, and IT, which were reported in the Company's segment financials as unallocated expenses. The remainder of the increase was driven by higher certain administrative costs, third-party consulting fees for HR and finance, as well as higher IT expenses to support the growth of the business.

Non-Operating Expenses

Interest expense was $13.1 million in the three months ended June 30, 2021, an increase from $8.1 million in the prior-year period. The increase was primarily due to higher average debt balances as a result of the Scapa acquisition which closed in April 2021.

Other expense, net, was $0.3 million during the three months ended June 30, 2021 unchanged from prior year quarter.

Income Taxes

A $3.5 million provision for income taxes in the three months ended June 30, 2021 resulted in an effective tax rate of 140.0% compares with 20.8% in the prior-year quarter. The increase was materially due to unfavorable discrete items and mix of earnings by jurisdiction.

Income from Equity Affiliates

Income from equity affiliates, which reflects the results of operations of CTM and CTS, was $2.8 million in the three months ended June 30, 2021 compared with income of $0.9 million during the prior-year period, and reflects the results of operations of CTM and CTS.

Net Income and Income per Share

Net income in the three months ended June 30, 2021 was $1.8 million, or $0.06 per diluted share, compared with $21.5 million, or $0.68 per diluted share, during the prior-year period.

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

Net Sales

($ in millions)


	Six Months Ended
	June 30, 2021		June 30, 2020		Change		Percent Change
Advanced Materials & Structures	$	415.0	$	255.7	$	159.3	62.3	%
Engineered Papers	251.0		260.0		(9.0)		(3.5)
Total	$	666.0	$	515.7	$	150.3	29.1	%

Net sales were $666.0 million in the six months ended June 30, 2021 compared with $515.7 million in the prior-year period. The increase in net sales consisted of the following ($ in millions):


	Amount		Percent

Incremental net sales from Scapa	$	95.0	18.4	%
Changes in volume, product mix and selling prices (excluding Scapa)	39.4		7.6
Changes due to net foreign currency impacts	16.1		3.1	%

Changes due to royalties	(0.2)		—
Total	$	150.3	29.1	%

AMS segment net sales were $415.0 million for the six months ended June 30, 2021 compared to $255.7 million during the prior-year period. The increase of $159.3 million, or 62.3%, included the benefit from the Scapa acquisition of $95.0 million (completed April 15, 2021) and Tekra acquisition (completed March 13, 2020). The increase in organic sales was driven by strong double digit gains in filtration, transportation, and construction end-markets. Transportation sales continued to rebound sharply from COVID-19 related pressures that began early in 2020. Filtration and construction end-markets also delivered strong sales increase, with gains across water, process, and air filtration product lines, as well as building materials and infrastructure products. Healthcare sales declined due to certain products that benefited from COVID-19 related demand in the prior year. Industrial sales declined mostly in lower-margin product lines.

EP segment net sales during the six months ended June 30, 2021 of $251.0 million decreased by $9.0 million versus net sales of $260.0 million in the prior-year period. The decrease in net sales was primarily the result of the volume decline in LIP sales, and unfavorable price/mix impacts of 6%, partially offset by a 5% currency benefits mainly related to the Euro.

Gross Profit

($ in millions)


	Six Months Ended						Percent Change		Percent of Net Sales
	June 30, 2021		June 30, 2020		Change				2021		2020
Net sales	$	666.0	$	515.7	$	150.3	29.1	%	100.0	%	100.0	%

Cost of products sold	497.1		367.1		130.0		35.4		74.6		71.2
Gross profit	$	168.9	$	148.6	$	20.3	13.7	%	25.4	%	28.8	%

Gross profit increased by $20.3 million during the six months ended June 30, 2021 to $168.9 million versus the prior-year period of $148.6 million. AMS gross profit increased by $29.1 million primarily due to the incremental benefit of the acquired Scapa and Tekra business and strong organic sales growth in transportation, filtration, and construction end-markets, partially offset by higher input costs, primarily of polypropylene resin. In the EP segment, gross profit decreased by $8.8 million, primarily due to negative price/mix impacts, significantly higher wood pulp costs, and inefficiencies related to the Spotswood transition, partially offset by favorable impact of foreign currency movements.

Nonmanufacturing Expenses

($ in millions)


	Six Months Ended						Percent Change		Percent of Net Sales
	June 30, 2021		June 30, 2020		Change				2021		2020
Selling expense	$	21.0	$	18.3	$	2.7	14.8	%	3.2	%	3.5	%
Research expense	9.2		6.8		2.4		35.3		1.4		1.3
General expense	85.3		53.3		32.0		60.0		12.8		10.3
Nonmanufacturing expenses	$	115.5	$	78.4	$	37.1	47.3	%	17.4	%	15.1	%

Nonmanufacturing expenses in the six months ended June 30, 2021 increased by $37.1 million to $115.5 million from $78.4 million in the prior-year period. The increase included $15.7 million of transaction and integration costs associated with the Scapa acquisition, other SG&A costs from Scapa operations, and higher deferred compensation expenses and third party consulting expenses.

Restructuring and Impairment Expense

($ in millions)


	Six Months Ended							Percent of Net Sales
	June 30, 2021		June 30, 2020		Change		2021			2020
Advanced Materials & Structures	$	—	$	0.5	$	(0.5)		—	%		0.2	%
Engineered Papers	4.0		1.2		2.8			1.6			0.5
Unallocated expenses	—		—		—			—			—
Total	$	4.0	$	1.7	$	2.3		0.6	%		0.3	%

The Company incurred total restructuring and impairment expense of $4.0 million in the six months ended June 30, 2021 compared with $1.7 million in the six months ended June 30, 2020. In the 2021 period, restructuring expense included $2.4 million in the EP segment relating to severance and other accruals as a result of the decision to shut down the Spotswood, New Jersey facility.

In the 2021 period the EP segment also recognized $1.6 million of restructuring expenses primarily related to severance accruals at our manufacturing operations in France. In the comparable 2020 period, the restructuring expense primarily related to severance accruals for employees at our manufacturing operations in the U.S., Brazil, France and Poland.

In the ~~comparable 2019~~AMS segment, the Company recognized no restructuring and impairment expense in the 2021 period versus $0.5 million in the ~~restructuring expense primarily~~2020 period related to ~~$0.4 million in~~ severance accruals ~~for employees at our manufacturing operations in the U.S., Brazil and France.~~

as a result of department realignments.

Operating Profit

($ in millions)


		Three Months Ended								Percent Change			Return on Net Sales									Six Months Ended									Percent Change			Return on Net Sales
		June 30, 2020		June 30, 2019		Change						2020			2019			June 30, 2021			June 30, 2020			Change			Percent Change			2021			2020
Advanced Materials & Structures	Advanced Materials & Structures	$	13.1	$	20.4	$	(7.3)	(35.8)	%	9.9	%		16.1	%	Advanced Materials & Structures	$	40.2		$	26.8		$	13.4		50.0	%		9.7	%		10.5	%
Engineered Papers	Engineered Papers	31.7		32.5		(0.8)		(2.5)		26.1			22.7		Engineered Papers	54.1			65.1			(11.0)			(16.9)			21.6			25.0
Unallocated expenses	Unallocated expenses	(10.4)		(8.7)		(1.7)		(19.5)							Unallocated expenses	(44.9)			(23.4)			(21.5)			(91.9)
Total	Total	$	34.4	$	44.2	$	(9.8)	(22.2)	%	13.5	%		16.4	%	Total	$	49.4		$	68.5		$	(19.1)		(27.9)	%		7.4	%		13.3	%

Operating profit was ~~$34.4 million in the three months ended June 30, 2020 compared with $44.2 million during the prior-year period.~~

The AMS segment's operating profit in the three months ended June 30, 2020 was $13.1 million compared to $20.4 million in the prior-year period. The decrease of $7.3 million, or 35.8%, was primarily due to lower transportation and infrastructure and construction sales, partially offset by lower raw material costs and on-going cost reduction initiatives. Operating profit was also negatively impacted by increased non-cash intangible asset amortization expenses related to the Tekra acquisition.

The EP segment's operating profit in the three months ended June 30, 2020 was $31.7 million, an decrease of $0.8 million, or 2.5%, from $32.5 million in the prior-year period. The decrease was primarily due to a combination of lower volumes and inefficiencies from temporary plant shut-downs related to COVID-19 safety measures, partially offset by cost reduction activities and lower input costs. Currency movements resulted in a $2.6 million benefit to operating profit due mainly to lower local currency operating costs in Brazil.

Unallocated expenses in the three months ended June 30, 2020 were $10.4 million compared to $8.7 million in the prior-year period, an increase of $1.7 million, or 19.5%. The increase was driven by timing of certain administrative expenses and higher IT costs.

~~Non-Operating Expenses~~

Interest expense was $8.1 million in the three months ended June 30, 2020, a decrease from $15.1 million in the prior-year period due to $7.8 million of non-recurring interest expense in the second quarter of 2019 related to Brazil tax assessments. Excluding the non-recurring interest accrual for the Brazil tax assessments in 2019, interest expense increased by $0.8 million due to higher average debt balances as a result of the Tekra acquisition.

Other expense, net, was $0.3 million during the three months ended June 30, 2020 compared to $2.7 million during the three months ended June 30, 2019. Prior year Other expense, net included $2.1 million Brazilian ICMS tax assessment accrual.

~~Income Taxes~~

A $5.4 million provision for income taxes in the three months ended June 30, 2020 resulted in an effective tax rate of 20.8% compares with 19.7% in the prior-year quarter. The increase was due to an unfavorable change in discrete items and mix of earnings by jurisdiction offset by a net favorable impact of U.S. tax credits.

~~Income (Loss) from Equity Affiliates~~

Income from equity affiliates, which reflects the results of operations of CTM and CTS, was $0.9 million in the three months ended June 30, 2020 compared with loss of $0.7 million during the prior-year period, due to higher volumes.

~~Net Income and Income per Share~~

Net income in the three months ended June 30, 2020 was $21.5 million, or $0.68 per diluted share, compared with $20.5 million, or $0.66 per diluted share, during the prior-year period. Lower operating profits in AMS and EP were partially offset by the favorable interest expense and other expense comparisons to prior year (which both reflected non-recurring expenses related to Brazil tax assessments), as well as favorable performance of CTM and CTS (equity affiliates) versus prior year.

~~Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019~~

~~Net Sales~~

~~($ in millions)~~

Six Months Ended
June 30, 2020 June 30, 2019 Change Percent Change
Advanced Materials & Structures $ 255.7 $ 247.2 $ 8.5 3.4 %
Engineered Papers 260.0 280.7 (20.7) (7.4)
Total $ 515.7 $ 527.9 $ (12.2) (2.3) %

~~Net sales were $515.7~~$49.4 million in the six months ended June 30, ~~2020~~2021 compared with ~~$527.9 million in the prior-year period. The decrease in net sales consisted of the following ($ in millions):~~

Amount Percent
Changes in volume, product mix and selling prices $ (5.5) (1.0) %
Changes due to net foreign currency impacts (6.3) (1.2) %
Changes due to royalties (0.4) (0.1)
Total $ (12.2) (2.3) %

~~AMS segment net sales were$255.7 million for the six months ended June 30, 2020 compared to $247.2~~$68.5 million during the prior-year period. The increase of $8.5 million, or 3.4%, included the benefit from the Tekra acquisition (closed March 13, 2020). Excluding the acquisition benefit from Tekra, sales decreased 8.9% primarily due to decline in sales of transportation films, which were significantly impacted by the global COVID-19 pandemic and associated stay-at-home orders that disrupted the auto industry. Filtration and infrastructure and construction sales also decreased primarily due to macro-economic pressures related to COVID-19. These declines were partially offset by gains in medical and industrial end-markets driven by higher demand for facemask materials, specialty hospital products, and packaging films.

EP segment net sales during the six months ended June 30, 2020 of $260.0 million decreased by $20.7 million versus net sales of $280.7 million in the prior-year period. The decrease in net sales was primarily the result of the volume decline during the second quarter of 2020 due to customer inventory destocking and COVID-19 related site shutdowns, and unfavorable currency movements as discussed above.

~~Gross Profit~~

~~($ in millions)~~

Six Months Ended Percent Change Percent of Net Sales
June 30, 2020 June 30, 2019 Change 2020 2019
Net sales $ 515.7 $ 527.9 $ (12.2) (2.3) % 100.0 % 100.0 %
Cost of products sold 367.1 381.0 (13.9) (3.6) 71.2 72.2
Gross profit $ 148.6 $ 146.9 $ 1.7 1.2 % 28.8 % 27.8 %

Gross profit increased by $1.7 million during the six months ended June 30, 2020 to $148.6 million versus the prior-year period of $146.9 million. AMS gross profit decreased by $3.7 million, primarily due to the decline in transportation and infrastructure and construction sales, partially offset by lower input costs and incremental gross profits from the Tekra acquisition. In the EP segment, gross profit increased by $5.4 million, primarily due to lower input costs and the favorable impact of foreign currency effects, partially offset by lower sales.

~~Nonmanufacturing Expenses~~

~~($ in millions)~~

Six Months Ended Percent Change Percent of Net Sales
June 30, 2020 June 30, 2019 Change 2020 2019
Selling expense $ 18.3 $ 17.2 $ 1.1 6.4 % 3.5 % 3.3 %
Research expense 6.8 7.0 (0.2) (2.9) 1.3 1.3
General expense 53.3 47.7 5.6 11.7 10.3 9.0
Nonmanufacturing expenses $ 78.4 $ 71.9 $ 6.5 9.0 % 15.1 % 13.6 %

Nonmanufacturing expenses in the six months ended June 30, 2020 increased by $6.5 million to $78.4 million from $71.9 million in the prior-year period, primarily due to incremental expenses of the acquired Tekra business, transaction expenses associated with the Tekra acquisition, partially offset by lower deferred compensation expenses.

~~Restructuring and Impairment Expense~~

~~($ in millions)~~

Six Months Ended Percent Change Percent of Net Sales
June 30, 2020 June 30, 2019 Change 2020 2019
Advanced Materials & Structures $ 0.5 $ — $ 0.5 N/A 0.2 % — %
Engineered Papers 1.2 0.4 0.8 N/A 0.5 0.1
Unallocated expenses — — — N/A
Total $ 1.7 $ 0.4 $ 1.3 N/A 0.3 % 0.1 %

The Company incurred total restructuring and impairment expense of $1.7 million in the six months ended June 30, 2020 compared with $0.4 million in the six months ended June 30, 2019. In the 2020 period, the restructuring expense primarily related to severance accruals for employees at our manufacturing operations in the U.S., Brazil, France and Poland.

~~In the comparable 2019 period, the restructuring expense primarily related to $0.4 million in severance accruals for employees at our manufacturing operations in the U.S., Brazil and France.~~

~~Operating Profit~~

~~($ in millions)~~

Six Months Ended Percent Change Return on Net Sales
June 30, 2020 June 30, 2019 Change 2020 2019
Advanced Materials & Structures $ 26.8 $ 35.3 $ (8.5) (24.1) % 10.5 % 14.3 %
Engineered Papers 65.1 61.2 3.9 6.4 25.0 21.8
Unallocated expenses (23.4) (21.9) (1.5) (6.8)
Total $ 68.5 $ 74.6 $ (6.1) (8.2) % 13.3 % 14.1 %

~~Operating profit was $68.5 million in the six months ended June 30, 2020 compared with $74.6 million during the prior-year period.~~

The AMS segment's operating profit in the six months ended June 30, ~~2020~~2021 was ~~$26.8~~$40.2 million compared to ~~$35.3~~$26.8 million in the prior-year period. The ~~decrease~~increase of ~~$8.5~~$13.4 million, or ~~24.1%~~50.0%, ~~was~~ primarily ~~due~~reflected strong organic sales growth and the incremental benefit of the acquired Scapa business, partially offset by higher raw material costs as well as $8.0 million higher purchase accounting expenses associated with Scapa acquisition. The negative net impact from higher input costs, which accelerated throughout the period and had not yet been offset by selling price increases the Company has begun implementing, resulted in a lower operating profit margin of 9.7% in the six months ended June 30, 2021 compared to ~~lower gross profits, as discussed above, and higher non-cash intangible asset amortization expenses related to~~10.5% in the ~~Tekra acquisition.~~prior-year period.

The EP segment's operating profit in the six months ended June 30, ~~2020~~2021 was ~~$65.1~~$54.1 million, ~~an increase~~a decrease of ~~$3.9~~$11.0 million, or ~~6.4%~~16.9%, from ~~$61.2~~$65.1 million in the prior-year period. The ~~increase~~decrease was primarily due to lower gross profit as a result of a significant increase in wood pulp prices which had not yet been offset by selling price increases, which will be effective in the second half of the year. Operating profit in the first half of 2021 was also negatively impacted by higher ~~gross profits~~restructuring expenses and Spotswood transition inefficiencies as discussed above. Currency movements resulted in a $6.1 million benefit to operating profit, due mostly to lower local currency operating costs in Brazil Real and strength of the Euro.

Unallocated expenses in the six months ended June 30, ~~2020~~2021 were ~~$23.4~~$44.9 million compared to ~~$21.9~~$23.4 million in the prior-year period, an increase of $21.5 million, or 91.9%, primarily due to $15.7 million transaction and integration costs related to the Scapa acquisition, and $1.5 million ~~or 6.8%, primarily~~of costs incurred within Scapa as shared services for corporate functions such as finance, HR, and IT, which were reported in the ~~result~~Company's segment financials as unallocated expenses. The remainder of ~~transaction expenses associated with~~ the ~~Tekra acquisition,~~increase related to higher administrative and ~~higher IT expense, partially offset by lower deferred compensation expenses.~~third party consulting costs to support growth of the business.

Non-Operating Expenses

Interest expense was ~~$15.0~~$16.0 million in the six months ended June 30, ~~2020, a decrease~~2021, an increase from ~~$22.9~~$15.0 million in the prior-year ~~period due~~period. Excluding a benefit of $4.5 million prior year expense reversal related to ~~$7.8 million~~the favorable settlement of ~~non-recurring~~Brazil tax assessments as discussed in Note 12. Contingencies of the notes to the unaudited condensed consolidated financial statements, the interest expense increased $5.5 million due mainly to higher average debt balances as a result of the Scapa acquisition which closed in ~~the second quarter of 2019 related to Brazil tax assessments.~~April 2021.

Other ~~income,~~expense, net, was $2.9 million during the six months ended June 30, 2021, compared to Other income of $0.3 million during the six months ended June 30, ~~2020, compared~~2020. The 2021 period included $6.9 million realized foreign currency loss related to ~~Other~~timing of the Scapa acquisition cash settlement. This expense ~~net, of $3.3~~was partially offset by $1.6 million ~~during the six months ended June 30, 2019. Prior year Other expense, net included $2.1 million Brazilian ICMS~~favorable Brazil tax assessment ~~accrual.~~settlement and $2.0 million sale of carbon dioxide credits in France.

Income Taxes

A ~~$10.7~~$10.9 million provision for income taxes in the six months ended June 30, ~~2020~~2021 resulted in an effective tax rate of ~~19.9%~~35.7% compared with ~~19.8%~~19.9% in the prior-year period. The increase was materially due to an unfavorable ~~change in~~ discrete items and mix of earnings by ~~jurisdiction offset by a net favorable impact of U.S. tax credits.~~jurisdiction.

Income ~~(loss)~~ from Equity Affiliates

Income from equity affiliates was ~~$0.9~~$3.8 million in the six months ended June 30, ~~2020~~2021 compared with ~~a loss~~income of $0.9 million during the prior-year period, due to increased volumes.

Net Income and Income per Share

Net income in the six months ended June 30, ~~2020~~2021 was $23.4 million, or $0.74 per diluted share, compared with $44.0 million, or $1.40 per diluted share, ~~compared with $37.9 million, or $1.22 per diluted share,~~ during the prior-year period. ~~The increase in net income was primarily due to higher operating profit in the EP segment, lower interest expense and other expenses, partially offset by lower operating profit in the AMS segment.~~

3938

LIQUIDITY AND CAPITAL RESOURCES

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

Cash Requirements

As of June 30, ~~2020, $44.7~~2021, $54.7 million of the Company's ~~$63.9~~$65.9 million of cash and cash equivalents was held by foreign subsidiaries. We believe that our sources of liquidity and capital, including cash on-hand, cash generated from operations and our existing credit facilities, will be sufficient to finance our continued ~~operations and~~operations. We believe the proceeds from our Term Loan B Facility (as defined below) along with our existing credit facilities will be sufficient to fund our current growth ~~strategy.~~plan.

Cash Provided by Operations

Net cash provided by operations was ~~$49.3~~$19.8 million in the six months ended June 30, ~~2020~~2021 compared with ~~$55.0~~$49.3 million in the prior-year period. The decrease was primarily related to unfavorable year-over-year movements in working capital related cash ~~flows.~~flows as well as cash costs related to advisory fees, transaction expenses, and integration costs all relating to the Scapa acquisition.

Working Capital

As of June 30, ~~2020,~~2021, the Company had net working capital of ~~$267.7~~$352.6 million, including cash and cash equivalents of ~~$63.9~~$65.9 million, compared with net working capital of ~~$269.9~~$232.3 million, including cash and cash equivalents of ~~$103.0~~$54.7 million as of December 31, ~~2019.~~2020. These changes primarily reflect the ~~impact~~timing of ~~the Tekra acquisition, an increase in accounts receivable~~payments and ~~a decrease in accounts payable.~~collections as well as increased raw material prices and timing of shipments.

In the six months ended June 30, ~~2020,~~2021, net changes in operating working capital used cash of ~~$30.2~~$51.0 million, ~~compared to $27.6~~up from $30.2 million in the prior year ~~period. The most significant working capital related cash outflow item was related to accounts payable and driven by the timing of orders and vendor payments.~~period, reflecting strong sales growth, particularly in AMS.

Cash Used for Investing

Cash used for investing activities during the six months ended June 30, ~~2020~~2021 was ~~$183.8~~$649.0 million, compared to ~~$17.2~~$183.8 million in the ~~prior-year period. This increase is largely due to~~prior-year. The change primarily reflects the net $630.5 million consideration to acquire Scapa versus $169.3 million ~~consideration transferred to acquire~~ Tekra in prior year. Capital spending and ~~is comprised of the originally announced $155.0~~capitalized software totaled $17.6 million, ~~purchase price and~~ ~~$14.3 million of closing adjustments, which related primarily to tax benefits expected to be realized by the Company.~~up $1.0 million.

Cash Provided by ~~(Used in)~~ Financing Activities

During the six months ended June 30, ~~2020,~~2021, financing activities consisted of ~~$212.0~~$703.7 million proceeds from borrowings under the revolving credit facility primarily to fund the ~~Tekra~~Scapa acquisition ~~$87.1~~including $350 million under the Term Loan B Facility and $313 million incremental borrowings of revolver loans, $27.6 million in cash paid for dividends declared to SWM stockholders, $17.8 million payments on long-term debt, $14.5 million payment for debt issuance costs associated with the amendment of our Credit Agreement as discussed in Note 10. Debt of the notes to the unaudited condensed consolidated financial statements, and share repurchases of $3.1 million.

In the prior-year period, financing activities consisted of $212.0 million net proceeds from borrowings under the Revolving Credit Facility primarily to fund the Tekra acquisition, $27.4 million in cash paid for dividends declared to SWM stockholders, ~~and share repurchases of $0.9 million. In the prior-year period, financing activities consisted of $27.2~~$87.1 million ~~in cash paid for dividends declared to SWM stockholders in the first six months of 2019, $15.3 million in net repayments~~payments on ~~short-term and~~ long-term debt, and share repurchases of ~~$1.0~~$0.9 million.

The Company presently believes that the sources of liquidity discussed above are sufficient to meet its anticipated funding needs for the foreseeable future.

Dividend Payments

We have declared and paid cash dividends on our common stock every fiscal quarter since the second quarter of 1996. On August ~~5, 2020,~~4, 2021, we announced a cash dividend of $0.44 per share payable on September ~~18, 2020~~24, 2021 to

stockholders of record as of August ~~21, 2020.~~20, 2021. The covenants contained in our Indenture and Credit Agreement ~~(as defined below)~~ require that we maintain certain financial ratios as disclosed in Note 10. Debt of the notes to the unaudited condensed consolidated financial statements, none of which under normal business conditions we would expect to materially limit our ability to pay such dividends. We plan to continue to assess our dividend policy in light of our capital allocation strategy, cash generation, debt levels and ongoing requirements for cash to fund operations and to pursue possible strategic opportunities.

~~Share Repurchases~~

In the six months ended June 30, 2020, we repurchased and retired 25,708 shares of our common stock at a cost of $0.9 million for the value of employees' stock-based compensation share awards surrendered to satisfy their personal statutory income tax withholding obligations. See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

In the six months ended June 30, 2019, we repurchased and retired 25,145 shares of our common stock for $1.0 million for the value of employees' stock-based compensation share awards surrendered to satisfy their personal statutory income tax withholding obligations.

Debt Instruments and Related Covenants


Debt Instruments ($ in millions)	Debt Instruments ($ in millions)	Six Months Ended										Debt Instruments ($ in millions)	Six Months Ended
				June 30, 2020			June 30, 2019			Debt Instruments ($ in millions)	June 30, 2021					June 30, 2020
Changes in short-term debt		$	—		$	(0.1)

Proceeds from issuances of long-term debt	Proceeds from issuances of long-term debt	212.0			0.1			Proceeds from issuances of long-term debt	$		703.7				$	212.0
Payments on long-term debt	Payments on long-term debt	(87.1)			(15.3)			Payments on long-term debt	(17.8)				(87.1)
Net proceeds from (repayments on) borrowings		$	124.9		$	(15.3)
Net proceeds from borrowings								Net proceeds from borrowings	$	685.9			$	124.9

Net proceeds from borrowings were ~~$124.9~~$685.9 million during the six months ended June 30, ~~2020.~~ 2021.

On February 10, 2021 we amended our Credit Agreement to, among other things, add a new seven year Term Loan B facility, which provides for additional capacity of $350 million (the "Term Loan B Facility"). See Note 10. Debt of the notes to unaudited condensed consolidated financial statements for additional information about the Term Loan B Facility. Other than potential borrowings under the Term Loan B Facility, the Company does not expect to incur any significant additional borrowings during 2021.

Unused borrowing capacity under the Credit Agreement was ~~$368.5~~$107.1 million as of June 30, ~~2020.~~2021. We also had availability under our bank overdraft facilities of ~~$6.1~~$6.3 million as of June 30, ~~2020.~~2021.

The Company was in compliance with all of its covenants under the Indenture and Credit Agreement at June 30, ~~2020.~~2021. With the current level of borrowing and forecasted results, we expect to remain in compliance with ~~our credit agreement~~ financial ~~covenants.~~covenants under the Credit Agreement.

Our total debt to capital ratios, as calculated under the Credit Agreement, at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were ~~52.4%~~66.2% and ~~47.6%~~47.7%, respectively.

Off-Balance Sheet Arrangements

As of ~~June 30, 2020,~~March 31, 2021, we did not have any significant off-balance sheet arrangements, as defined in Item

303(a)(4)(ii) of SEC Regulation S-K.

~~OTHER FACTORS AFFECTING LIQUIDITY AND CAPITAL RESOURCES~~

Our pension obligations are funded by our separate pension trusts, which held $127.0 million in assets at December 31, 2019. The combined projected benefit obligation of our U.S. and French pension plans was underfunded by $24.9 million as of December 31, 2019. We make contributions to our pension trusts based on many factors, including regulatory guidelines, investment returns of the trusts and availability of cash for pension contributions compared to other priorities. 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.

The EP segment's PdM Industries plant has a minimum annual commitment of approximately $1.2 million per year for calcium carbonate purchases, a raw material used in the manufacturing of some paper products, which totals approximately $7.0 million through 2024. Future purchases are expected to be at levels that exceed such minimum levels under these contracts.

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 $6.0 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 $2.4 million annually through 2021. Additionally, SWM-B has an agreement for natural gas valued at approximately $6.9 million annually through 2021. The French plants have contracts for natural gas to be distributed to and consumed at PdM, LTRI and St. Girons. The value of the natural gas and distribution to be provided under these contracts is estimated at approximately $2.8 million annually through 2022. 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 $6.1 million in 2020. The Spay, France plant has a contract to consume biomass at approximately $0.6 million annually through 2022.

FORWARD-LOOKING STATEMENTS

This ~~report~~Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to the safe harbor created by that Act and other legal protections. Forward-looking statements include, without limitation, those regarding ~~2020 outlook and future performance, mergers and acquisitions, future market trends, future RTL sales and volume trends, smoking attrition rates, synergies or growth from acquisitions,~~the incurrence of additional debt ~~adoption~~and expected maturities of ~~LIP standards in new regions, reverse osmosis water filtration~~the Company’s debt obligations, the adequacy of our sources of liquidity and ~~global drinking water demands,~~capital, integration, and growth prospects (including international growth), the ~~deductibility of goodwill associated with certain acquisitions, impact~~cost and timing of our restructuring actions, ~~post-retirement healthcare and life insurance payments,~~the impact of ~~the LIP intellectual property~~ongoing litigation matters and ~~opposition proceedings,~~environmental claims, the amount of capital spending and/or common stock repurchases, ~~the profitability of CTS, pricing pressures (including related to LIP),~~ future cash flows, ~~benefits associated with our global asset realignment (including possible non-recurrence of one-time tax benefits, lower or higher effective tax rates),~~ purchase accounting impacts, impacts and timing of our ongoing operational excellence and other cost-reduction and cost-optimization initiatives, ~~increasing revenues coming from our non-tobacco operations,~~ the impact of the COVID-19 pandemic on our

operations, profitability, and cash flow, the expected benefits and accretion of the Scapa acquisition and integration and other statements generally identified by words such as "believe," "expect," "intend," "guidance," "plan," "forecast," "potential," "anticipate," "confident," "project," "appear," "future," "should," "likely," "could," "may," "will," "typically" and similar words. These forward-looking statements are prospective in nature and not based on historical facts, but rather on current expectations and on numerous assumptions regarding the business strategies and the environment in which the Company’s business shall operate in the future and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that may cause actual results to differ materially from our expectations as of the date of this report. These risks include, among other things, those set forth in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2019, and in Part II, Item 1A. Risk Factors herein,~~2020, as well as the following factors:

•Risks associated with pandemics and other public health emergencies, including the continued ~~spread and~~ impact of, and the governmental and third party response to, the COVID-19 ~~pandemic;~~

•The impact of mandatory business closures, limits on non-essential travel, “social or physical distancing” guidelines, “shelter-in-place” mandates and similar governmental and private measures taken to combat the spread of COVID-19;pandemic (including its variant strains);

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

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

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

•Changes in the source and intensity of competition in our commercial segments. We operate in highly competitive markets in which alternative supplies and technologies may attract our customers away from our products. In addition, our customers may, in some cases, produce for themselves the components that the Company sells to them for incorporation into their products, thus reducing or eliminating their purchases from us;segments;

•Our ability to attract and retain key ~~personnel, due to our prior restructuring actions, the tobacco industry in which we operate or otherwise;~~personnel;

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

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

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

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

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

•Employee retention and labor shortages;

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

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

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

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

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

•Changes in general economic, financial and credit conditions in the U.S., Europe, China and elsewhere, including the impact thereof on currency exchange rates (including any weakening of the Euro and Real) and on interest rates and the effects of the ongoing discussions between the U.K. and European Union to determine the terms of the U.K.'s withdrawal from the European Union;

•Changes in the method pursuant to which LIBOR rates are determined and the ~~potential~~ phasing out of USD LIBOR after ~~2021;~~2023;

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

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

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

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

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

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

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

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

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

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

•The outcome and cost of LIP-related intellectual property infringement and validity litigation in Europe and the Glatz's German Patent Court invalidation proceedings;

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

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

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

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

•Increased taxation on tobacco-related products;

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

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

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

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

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

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

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

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risk exposure at June 30, ~~2020~~2021 is consistent with, and not materially different than, the market risk and discussion of exposure presented under the caption “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We currently have in place systems relating to disclosure controls and procedures designed to ensure the timely recording, processing, summarizing and reporting of information required to be disclosed in periodic reports under the Securities Exchange Act of 1934, as amended. These disclosure controls and procedures include those designed to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions about required disclosure. Upon completing our review and evaluation of the effectiveness of our disclosure controls and procedures as of June 30, ~~2020,~~2021, our Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures were effective as of June 30, ~~2020.~~2021.

Changes in Internal Control Over Financial Reporting

No changes in our internal control over financial reporting were identified as having occurred in the fiscal quarter ended June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During the second quarter of 2021, the Company completed the acquisition of Scapa. As permitted by SEC staff interpretive guidance that an assessment of a recently acquired business may be omitted from the scope of evaluation in the year of acquisition, management excluded Scapa from its interim evaluation of internal control over financial reporting.

4543

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal proceedings and disputes. See Note 20. Commitments and Contingencies of the notes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and Note 12. Commitments and Contingencies of the notes to the unaudited condensed consolidated financial statements included in this report. Except as may have been referenced elsewhere in this report, there have been no material developments with regard to these matters.

Item 1A. Risk Factors

~~Except as noted below, as~~As of June 30, ~~2020,~~2021, there were no material changes in the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

~~We face various risks related to~~ ~~the~~ ~~COVID-19 pandemic and similar health-related outbreaks, which have had, and may continue to have material adverse effects on our business, financial condition, results of operations and cash flows.~~

The COVID-19 pandemic and the measures put in place to reduce its spread have negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets. We face various risks related to the COVID-19 pandemic and similar health-related outbreaks. Such risks include:

•Decreased demand and volatility in sales due to operational disruptions faced by some of our customers, and the threat of a sustained economic downturn driven by the global reaction to the COVID-19 pandemic.

•Disruptions to our manufacturing sites and operations due to temporary closures of our facilities to comply with government-imposed restrictions and to address other health-related factors. For example, production at four of our sites was shut down temporarily during the first quarter of 2020 in response to local government mandates and/or to implement proactive safety measures to protect employees. Our operations at other production sites were also scaled back.

•Disruptions to our suppliers, and our inability to secure alternate sourcing quickly, which could adversely impact our production and cause us to alter production schedules or suspend production entirely.

•The inability of our employees to work in our offices or our facilities due to personal health concerns and/or government-imposed restrictions in response to the pandemic, such as mandatory business closures, limits on non-essential travel, “social or physical distancing” guidelines and “shelter-in-place” mandates.

See Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information on how we have been impacted and the steps we have taken in response. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as information is rapidly evolving. However, the occurrence of the above risks could have a material adverse effect on our financial condition, results of operations and cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities By the Issuer and Affiliated Purchasers

The following table indicates the cost of and number of shares of the Company's common stock it repurchased during ~~2020:~~2021:

Issuer Purchases of Equity Securities
Period Total
Number of
Shares
Purchased Average
Price
Paid per
Share Total Number of Shares
Purchased as Part of
Publicly Announced
Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs
(# shares) ($ in millions) ($ in millions)
January 1 - March 31, 2020 25,274 $ 35.27
April 1-30, 2020 — — — — —
May 1-31, 2020 —
June 1-30, 2020 434 33.23 — — —
Total Year-to-Date 2020 25,708 $ 35.24 — $ — $ —


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs			Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs
				(# shares)	($ in millions)		($ in millions)
January 1 - March 31, 2021	66,729	$	45.83	—	—		—
April 1 -30, 2021	1,057	46.40		—	—		—
May 1-31, 2021	—	—		—	—		—
June 1-30. 2021	—	—		—	—		—
Total Year-to-Date 2021	67,786	$	45.84	—	$	—	—

From time to time, the Company uses corporate 10b5-1 plans to allow for share repurchases to be made at predetermined stock price levels, without restricting such repurchases to specific windows of time. Any future common stock repurchases will be dependent upon various factors, including the Company's stock price, strategic opportunities and cash availability.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits


Exhibit Number						Exhibit
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).
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 the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101						The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2020,~~2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the condensed consolidated statements of income, (ii) the condensed consolidated statements of comprehensive income (loss), (iii) the condensed consolidated balance sheets, (iv) the condensed consolidated statements of changes in stockholders' equity, (v) the condensed consolidated statements of cash flow, and (vi) notes to condensed consolidated financial statements.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit101).

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SIGNATURES

Pursuant to the requirements 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.

(Registrant)

By:

/s/ Andrew Wamser

Andrew Wamser
Executive Vice President and
Chief Financial Officer
(duly authorized officer and principal financial officer)

August ~~5, 2020~~4, 2021

By:

/s/ Michael Schmit

Michael Schmit
Corporate Controller and
Chief Accounting Officer
(principal accounting officer)

August ~~5, 2020~~4, 2021

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GLOSSARY OF TERMS

The following are definitions of certain terms that may be used in this Quarterly Report on Form 10-Q filing:

•"Total debt to capital ratio" is total debt divided by the sum of total debt and total stockholders' equity.

•"Reconstituted tobacco" is produced in two forms: leaf, or reconstituted tobacco leaf, and wrapper and binder products. Reconstituted tobacco leaf is blended with virgin tobacco as a design aid to achieve certain attributes of finished cigarettes. Wrapper and binder are reconstituted tobacco products used by manufacturers of cigars.

•"Reverse osmosis" is a water purification technology that uses a semipermeable membrane to remove larger particles from drinking water.

•"Tobacco paper" includes cigarette paper which wraps the column of tobacco within a cigarette and has varying properties such as basis weight, porosity, opacity, tensile strength, texture and burn rate, as well as plug wrap paper which wraps the outer layer of a cigarette filter and is used to hold the filter materials in a cylindrical form, and tipping paper which joins the filter element to the tobacco-filled column of the cigarette and is both printable and glueable at high speeds.

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	June 30, 2020		Adjustments		Previously disclosed March 31, 2020
Cash and cash equivalents	$	1.6	$	(0.5)	$	2.1
Accounts receivable	8.6		(0.2)		8.8
Inventory	14.2		0.1		14.1
Other current assets	0.2		—		0.2
Property, plant and equipment	7.3		—		7.3
Identifiable intangible assets	81.8		(3.4)		85.2
Other noncurrent assets	3.7		0.4		3.3
Total assets	$	117.4	$	(3.6)	$	121.0

Accounts payable	$	3.0	$	0.6	$	2.4
Other current liabilities	2.0		(1.6)		3.6
Other noncurrent liabilities	2.7		—		2.7

Net assets acquired	$	109.7	$	(2.6)	$	112.3

Goodwill	61.2		0.8		60.4

Total consideration	$	170.9	$	(1.8)	$	172.7


	Six Months Ended		Year Ended
	June 30, 2020		December 31, 2019

Balance at beginning of year	$	0.5	$	1.4
Accruals for announced programs	1.7		3.7
Cash payments	(0.8)		(4.2)
Other	—		(0.4)

Balance at end of period	$	1.4	$	0.5


($ in millions)	Segment Assets
	June 30, 2020		December 31, 2019
Advanced Materials & Structures	$	961.2	$	781.2
Engineered Papers	469.0		512.4
Unallocated	147.9		178.1
Total Consolidated	$	1,578.1	$	1,471.7