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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)

☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the fiscal year ended | December 31, 2020 |

OR

☐ | 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 |  | 30022
Alpharetta, | Georgia |  |
(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

Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 x No o
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 x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
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. (Check one):

Large accelerated filer | x |  | Accelerated filer | o
Non-accelerated filer | o |  | 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. o |

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
The aggregate market value of the outstanding common stock, par value $0.10 per share (the "Common Stock"), of the registrant held by non-affiliates as of June 30, 2020 (the last business day of the registrant's most recently completed second fiscal quarter) was $1.0 billion, based on the last sale price for the Common Stock of $33.41 per share as reported on the New York Stock Exchange on said date. For purposes of the foregoing sentence only, all directors and executive officers are assumed to be affiliates.
There were 31,415,733 shares of Common Stock issued and outstanding as of March 1, 2021.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement relating to its 2021 Annual Meeting of Stockholders scheduled to be held on April 22, 2021 (the "2021 Proxy Statement") and filed pursuant to Regulation 14A are incorporated by reference into Part III of this Annual Report on Form 10-K.

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
TABLE OF CONTENTS

|  |  | Page
|  | Part I. |
Item 1. |  | Business | 1
Item 1A. |  | Risk Factors | 13
Item 1B. |  | Unresolved Staff Comments | 28
Item 2. |  | Properties | 29
Item 3. |  | Legal Proceedings | 30
Item 4. |  | Mine Safety Disclosures | 32
|  | Part II. |
Item 5. |  | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 33
Item 6. |  | Selected Financial Data | 35
Item 7. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations | 37
Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk | 56
Item 8. |  | Financial Statements and Supplementary Data | 59
Item 9. |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 110
Item 9A. |  | Controls and Procedures | 110
Item 9B. |  | Other Information | 111
|  | Part III. |
Item 10. |  | Directors, Executive Officers and Corporate Governance | 114
Item 11. |  | Executive Compensation | 114
Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 114
Item 13. |  | Certain Relationships and Related Transactions and Director Independence | 115
Item 14. |  | Principal Accountant Fees and Services | 115
|  | Part IV. |
Item 15. |  | Exhibits and Financial Statement Schedules | 116
Signatures | 121
Glossary of Terms | 123

PART I.
Item 1. Business
Disclosure Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results, performance or achievements could differ materially from those projected in the forward-looking statements as a result of a number of risks, uncertainties, and other factors. For a discussion of important factors that could cause our results, performance, or achievements to differ materially from any future results, performance, or achievements expressed or implied by our forward-looking statements, please refer to Part I, Item 1A “Risk Factors” and Part I, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.
GENERAL
Background
Schweitzer-Mauduit International, Inc. (referred to, with its consolidated subsidiaries, as "we," "us," "our," the "Company," "SWM INTL" or "SWM" unless the context indicates otherwise) is a multinational producer of performance materials, including papers, nets and films headquartered in the United States of America (the "U.S."). The Company operates under two reportable segments: Advanced Materials & Structures ("AMS"), which manufactures resin-based products used in specialty applications in the filtration, transportation, infrastructure and construction, medical and industrial end-markets, and Engineered Papers ("EP"), which produces cigarette papers and reconstituted tobacco products for cigarette and cigar manufacturers, as well as various other non-tobacco paper products.
The Company was incorporated in Delaware in 1995 as a wholly-owned subsidiary of Kimberly-Clark Corporation ("Kimberly-Clark"). On November 30, 1995, Kimberly-Clark transferred its tobacco-related paper and other paper products businesses conducted in the U.S., France and Canada to the Company and distributed all of the outstanding shares of common stock of the Company to its stockholders (the "spin-off"). As a result, the Company became an independent public company. We conduct business in over 90 countries and operate 23 production locations worldwide, with facilities in the U.S., United Kingdom, Canada, France, Luxembourg, Russia, Brazil, China, Belgium and Poland.
Our principal executive office is located at 100 North Point Center East, Suite 600, Alpharetta, Georgia 30022-8246 and our telephone number is (800) 514-0186. Our stock is traded on the New York Stock Exchange ("NYSE") under the symbol "SWM."
Strategic Overview
Through 2013, the Company operated as a tobacco-centric paper operation. In late 2012, SWM's management and Board of Directors elected to pursue a strategic transformation by increasing profit streams outside the tobacco industry through business acquisitions, while carefully managing the profitable but mature tobacco operations. Over time, this strategy was intended to counterbalance the expected long-term pressures of the tobacco industry and transform SWM into a more diversified and growth-oriented enterprise while maintaining its company-wide focus on several underlying themes: manufacturing and innovation expertise in performance materials, operational excellence, and customer intimacy. The Company selectively targeted acquisition candidates that served diversified and growing end-markets, generated profitability associated with premium differentiated products, and had leading and defensible competitive positions in their core product categories. In addition, management believed many acquisition targets would have unique synergy opportunities when combined with the assets and capabilities of SWM, such as a global infrastructure and a robust operational excellence program, and ultimately, synergies with other similar companies acquired by SWM.
1

Pursuant to this strategy, management has used free cash flow and liquidity available through our credit facility to support growth investments. From 2013 to 2020 the Company acquired four primary businesses, DelStar, Argotec, Conwed and Tekra, LLC and Trient ("Tekra"), and also made two “bolt-on” acquisitions. These businesses together now comprise the AMS segment, which generated more than $540.0 million in net sales in 2020. The combination of AMS with non-tobacco sales in our paper business, resulted in total non-tobacco sales representing 56% of the Company’s total revenue in 2020, up from approximately 6% prior to these strategic actions. While the AMS segment provides positive cash flow, the EP segment generates the majority of the Company's cash flow, supporting SWM’s acquisition strategy and dividends to shareholders.
The AMS Growth Platform
In December 2013, the Company acquired DelStar, Inc. ("DelStar"), a manufacturer of resin-based nets, films and non-wovens, focused on the filtration, medical, and industrial end-markets. DelStar established SWM's presence in new industries and added a portfolio of high-value technologies. Management also believed DelStar could benefit from SWM's global footprint, operational excellence program, and ability to fund growth investments.
In October 2015, the Company acquired Argotec Intermediate Holdings LLC ("Argotec"), a manufacturer of urethane films for applications primarily in the transportation end-market. A key growth driver was increasing demand for surface protection films used for automotive paint protection and glass lamination. This business also serves customers in the medical and industrial end-markets. From a technology standpoint, Argotec added to SWM's growing resin extrusion capabilities and added scale to the AMS growth platform.
In January 2017, SWM acquired Conwed Plastics LLC (“Conwed”), a producer of resin-based netting. Conwed’s similarities to the Company’s existing netting production assets presented a compelling opportunity to drive synergies through footprint rationalization, procurement, and organizational realignment. Although operationally similar to AMS’ existing assets, Conwed added further end-market diversification, with approximately 75% of Conwed’s sales serving the infrastructure and construction end-markets. The remaining 25% of sales were split between filtration and industrial end-markets, which also complemented the existing AMS business.
On March 13, 2020, the Company completed the acquisition of Tekra, a converter of high-performance films and substrates which added coating and converting capabilities, increased the Company’s medical business, and provided further penetration into transportation and industrial end-markets.
The acquisitions described above comprise the AMS segment. The Company believes that these businesses advance SWM's goal of diversifying its revenue stream and offer long-term growth opportunities across a broad set of attractive end-markets.
2

AVAILABLE INFORMATION
Our filings with the Securities and Exchange Commission ("SEC"), which filings include this Annual Report on Form 10-K, Proxy Statements, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all related amendments, are available, free of charge, on the SEC's website at www.sec.gov and on the Investor Relations section of our website at www.swmintl.com. Information from our website is not incorporated by reference into this Annual Report on Form 10-K. These reports are available soon after they are filed electronically with, or furnished to, the SEC. The website allows access to historical financial information, press releases and quarterly earnings conference calls, our Code of Conduct, corporate governance guidelines, Board of Directors committee charters, as well as disclosure of any amendment to or waivers of our Code of Conduct granted to any of the principal executive officer, principal financial officer or principal accounting officer. The website provides additional background information about us including information on our history, products and locations. Requests for information, requests to contact our audit committee chairman, lead non-management director or the independent directors as a group, or requests to report concerns about accounting or other issues can be made in writing and sent to the Investor Relations Department at our principal executive office address listed above.
Our quarterly earnings conference calls are typically held the morning after our quarterly earnings releases and are available through our website via a webcast. The tentative dates for our quarterly earnings conference calls related to 2021 financial results are May 6, 2021, August 5, 2021, November 4, 2021 and February 24, 2022. These dates are subject to change. Instructions on how to listen to the webcasts and updated information on times and actual dates are available through our website at www.swmintl.com.
We have provided a Glossary of Terms at the end of this Annual Report on Form 10-K.
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DESCRIPTION OF BUSINESS
Segment Financial Information. We operate and manage two reportable segments based on our product lines: AMS and EP. The AMS segment manufactures resin-based products used in specialty applications in the filtration, transportation, infrastructure and construction, medical, and industrial end-markets. This segment is comprised of the six businesses we acquired from 2013 to 2020: DelStar, the Pronamic and Smith & Nephew ("SNN") acquisitions, Argotec, Conwed and Tekra, which the Company has integrated into a more holistically aligned operating segment. Our Engineered Papers segment produces both tobacco-related papers and non-tobacco-related papers. Our tobacco-related papers, which comprise a large majority of EP's sales, include various papers used in cigarette production and reconstituted tobacco ("Recon"), a reprocessed tobacco material.
Additional information regarding "Segment Performance" is included in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. In addition, selected financial data for our segments is available in Note 21. Segment Information, of the Notes to Consolidated Financial Statements and a discussion regarding the risks associated with foreign operations is available in Part I, Item 1A, "Risk Factors".
Financial information about foreign and domestic operations, contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing in Part II, Item 7 herein and in Notes 13, 14, 17 and 21 ("Restructuring and Impairment Activities," "Debt," "Income Taxes" and "Segment Information," respectively) to the Consolidated Financial Statements contained in "Financial Statements and Supplementary Data" in Part II, Item 8 herein, is incorporated by reference in this Item 1.
Advanced Materials & Structures
Products. We manufacture and sell a variety of highly engineered resin-based nets, films, and other non-wovens. These performance materials are often used in growing applications serving the filtration, transportation, infrastructure and construction, medical, and industrial end-markets. Most of our production technologies are extrusion-based, meaning resin pellets are heated, softened, and forced through a metal die to form continuous sheets or strands. We have significant technological expertise in proprietary die construction, which our competitors often outsource, and we consider this an advantage in protecting our technology and competitive position.
Our thermoplastic nets are used in a variety of applications, the most prominent of which is their use as spacer netting in reverse osmosis water filtration (“RO filtration") devices. We have established a strong presence in this application by customizing products to meet demanding customer specifications, such as thickness/weight, flow characteristics, and heat and pressure resistance. Our nets are also used in a variety of other filtration applications such as fuel and hydraulic fluid filters, pharmaceutical filters, and food and beverage filters. Another key netting application is erosion and sediment control products for the infrastructure and construction end-markets. Our nets are the outside layers in erosion control blankets, which are used to prevent erosion on sloped terrain. We also produce sediment control “socks” that are used to set perimeters around various development sites to contain sediment and prevent contamination of water sources. Our nets can also be found in a variety of industrial applications such as carpet cushion support and retail food packaging.
We manufacture our thermoplastic polyurethane films ("TPU") to have combinations of the following attributes; UV, scratch and water resistance and ultra-clarity. The ability to demonstrate these rare combinations make them ideally suited for demanding transportation-related surface protection applications, primarily automotive paint protection and security reinforced glass. These products are also used in certain niche applications such as graphics and laminated textiles in the industrial end-market, and also in the medical end-market. Other films, including apertured film products, are used in wound care applications, such as finger bandages and wound dressings for the medical end-market and are also used in specialty liquid filters for ultra-pure semiconductor manufacturing processes. The acquisition of Tekra added coating and converting capabilities which are often used in production of films or other substrates, including medical diagnostic test strips and high-end printed graphic materials.
Our non-wovens are typically air-laid resin-based materials often used in liquid filtration and residential and commercial air filtration. In addition to rolled goods, SWM also manufactures rigid core tubing, an extruded resin
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product that also is primarily used in reverse osmosis water filtration devices, and flexible tubing used in various medical and industrial applications.
With the growth of our AMS division, our technical expertise around the production, coating, and converting of resin-based materials is increasing. We believe we have industry-leading innovation capabilities and an expanding product portfolio which we expect to support growth through collaborative product development opportunities with our customers.
Markets and Customers. The AMS segment supplies customers serving the filtration, transportation, infrastructure and construction, medical, and industrial end-markets. Generally, the applications and customers the AMS segment serves are in growing end-markets, and as a percentage of total AMS segment sales are as follows: filtration - 24%, transportation - 22%, infrastructure and construction - 23%, medical - 14%, industrial - 17%. These products are highly engineered and often customized. In some cases, we are the sole supplier of certain products to our top customers, though no customer represents more than 10% of our consolidated net sales.
Within the filtration end-market, reverse osmosis water filtration has exhibited historical long-term growth due to increasing global demand for drinkable water and we expect global infrastructure investments in this area to continue long-term. Our other filtration products are often used in the food and beverage industries and heavy equipment and machinery used in the oil and gas industries, filtering fuel and other hydraulic liquids, as well as serving other functions in the exploration, processing, and transport of oil, gas, and metals. We refer to non-RO liquid filtration products generally as process filtration. While sales of process filtration products, particularly those used in the oil, gas, and mining sectors, can be subject to cyclicality and commodity price volatility, we expect strong long-term demand across the product line. In addition to liquid filtration products, the company also produces media and support materials for air filtration devices used in commercial and residential HVAC (heating, ventilation, and air conditioning).
The majority of our TPU films are used in transportation-related surface protection applications, specifically automotive paint protection. This product is typically sold and installed in the after-market through dealerships or auto body shops. Recently, we have benefited from global adoption of paint protection films, particularly in Asia. Other surface protection applications, such as ballistic-resistant and security glass used primarily on vehicles can be impacted by government and military contracts.
Our sales to the infrastructure and construction end-market are largely comprised of erosion/sediment control products. Our netting is used in the production of erosion control blankets, which are used mostly in domestic highway development projects to cover roadside slopes during and after construction. We also offer customers a unique sediment control solution, a filled “sock”, used to seal perimeters of development sites and prevent the seepage of harmful contaminants. This product has gained adoption in the oil and gas exploration and production industry. In the construction segment, our netting products are used as support material for carpet cushion, construction materials protection, and support backing for sod production. We also produce films used in commercial architectural glass.
Our medical film products largely serve the wound care management and diagnostic test strip niches within the medical end-market and industrial applications are spread across a variety of other industries, such as packaging, apparel, food manufacturing, print graphics and energy.
Sales and Distribution. AMS products are primarily sold by the marketing, sales and customer service organizations of our AMS operations directly to manufacturers, given the customized nature of many of our products. However, in some geographic regions, we use sales agents and distributors to assist us in the sales process. As part of our integration efforts related to our recently acquired companies, we re-branded the acquired companies and transitioned our AMS sales operations toward a more unified organization. All acquired companies have been, or are in the process of being, re-branded as SWM and the AMS sales organization will operate and go to market under the SWM trade name, with sales resources deployed by end-market and focused on selling products from across the totality of AMS offerings. We typically deliver our products to customers by truck, rail and ocean-going vessels.
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Competition. Our AMS products are typically leaders in their respective categories and compete against specialty products made by competitors such as Marshall Manufacturing Company, Johns Manville, a subsidiary of Berkshire Hathaway Inc., Shaoxing Naite Plastics Co. Ltd., 3M Company, Covestro AG, Nupro Inc., Tenax Corporation, Intermas Group, and Hollingsworth and Vose Company. We believe our AMS products compete primarily on product features, innovations and customer service across the end-markets we serve, particularly in filtration and transportation. Of the end-markets we serve, infrastructure and construction is generally more price competitive due to a higher portion of commodity type products that we sell in this end-market.
Raw Materials and Energy. The primary raw material used in our AMS products is plastic resin, and we rely on a variety of commodity grade and specialty resins, including polypropylene, polyurethane, polyethylene, polyamide (nylon) and a selection of specialized high temperature engineering grade resins. Our thermoplastic nets and apertured films are produced using a blend of specialty resins and commodity grade resins like polypropylene. Resin prices can fluctuate significantly and can impact profitability. Commodity grade resin prices can sometimes correlate with crude oil prices while specialty resin prices often do not. Our TPU films are produced using specialty resins which are significantly more expensive than commodity grade resins.
We have multiple sources for most of our resin needs. However, some of our specialty resins are supplied by fewer manufacturers. We believe that our purchased raw materials are generally available from several sources and that the loss of a single supplier would not likely have a material adverse effect on our ability to procure needed raw materials from other suppliers. Our total resin purchases in 2020 and 2019 totaled $112 million and $135 million, respectively.
The majority of our energy requirements relate to electricity in the U.S. We consider this to be a relatively stable energy source.
Engineered Papers
Products. Our EP segment produces both tobacco-related and non-tobacco-related papers. Our tobacco-related papers include various papers used in cigarette production and reconstituted tobacco ("Recon"), a reprocessed tobacco material, and comprise a large majority of EP's sales.
One of our key cigarette paper products is low ignition propensity ("LIP") cigarette paper. LIP cigarettes are designed to self-extinguish when not actively being smoked, thus offering a fire-safety feature. The U.S., the European Union ("E.U."), and several other smaller jurisdictions have mandated the use of LIP papers. Our solutions pioneered this cigarette paper category, and we remain a leader in this cigarette paper sub-segment through either direct sales or through licensing agreements. The Company maintains an extensive and active intellectual property "IP") portfolio.
Recon is another key component of EP's total sales and profits and is mainly comprised of reconstituted tobacco leaf, (“RTL” or “traditional RTL”), and wrapper and binder products. Traditional RTL is used by cigarette manufacturers to blend with virgin tobacco to achieve certain attributes in cigarettes. Recently, a new generation of tobacco industry products generally referred to as Heat not Burn (“HnB”) have been introduced into the marketplace with a goal of reducing harmful effects of smoking. We have enhanced our tobacco fiber reconstitution capabilities to produce materials suited for this new application, are generating commercial sales, and continue to develop products to meet increasing demand should global consumer adoption gain further momentum and the technology gains additional support from appropriate regulatory authorities. Wrapper and binder product leverage our Recon technology for use in machine-made traditional and small cigars. These products have demonstrated growth in recent years due to positive consumer preference trends as well as favorable excise tax treatment versus cigarettes in some jurisdictions.
Our non-tobacco paper products include a mix of lightweight papers including low-volume, high-value, engineered materials such as alkaline battery separator papers, as well as commodity paper grades for printing and writing, flooring laminates, and food service packaging, which are intended to maximize machine utilization. The Company has strategically de-emphasized these commoditized non-tobacco papers given their lower profitability.
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We intend to make continued investments in our EP segment to broaden our offerings, utilize existing machine capacity, and/or further monetize our paper making and reconstitution technologies.
Our wet-laid paper making technologies can be broadly classified into two main production processes: flat-wire production and incline-wire production. Generally, our machines are flat-wire, meaning a liquid slurry of short pulp fibers and water are laid onto flat-wire conveyor belts, with the water draining through the wire as the fibers (wood, flax, tobacco, etc.) bond together to form a paper sheet. Incline-wire machines allow for increased drainage, enabling the use of longer fibers which bond into a more open web, increasing the porosity. Incline wire machines are typically associated with higher-value products given this added porosity, which is important in filtration and other specialty applications that tend to justify premium pricing.
The Company continues to focus resources on innovation through activities in our OneFiber lab where paper customers can work closely with our technologists to develop improved paper-based products and our LeafLab fiber reconstitution incubator at our facility in France. Our reconstitution technologies have potential to be utilized in products serving the cosmetics and packaging industries reprocessing botanical, vegetable, or other plant fibers. Furthermore, SWM’s Recon technologists are active in joint development with several cigarette manufacturers to drive continued innovation and product commercialization in the rapidly emerging Heat not Burn tobacco product area. The Company has also responded to customer requests for industrial hemp (fiber containing less than 0.3% THC) fiber-based materials for use as wrappers and fillers and has developed products to meet demand for innovative hemp-based products.
Markets and Customers. Our EP segment is heavily influenced by global smoking trends, particularly in the U.S., the E.U. (both LIP markets), and Brazil where we have the majority of our operations and highest share of the category's volume. Historically, mature geographic regions, such as the U.S. and the E.U. have exhibited a steady decline in smoking rates, often to the low-to-mid single digits. Overall, approximately 88% of EP segment sales are to customers in the tobacco end-market, with the majority of tobacco sales comprised of cigarette papers, and approximately 12% of EP segment sales are related to a variety of non-tobacco customers and applications.
We supply the major, and many of the smaller, cigarette and cigar manufacturers. We sell our products directly to the major tobacco companies or their designated converters in the Americas, Europe, Asia and elsewhere. Philip Morris-USA, a subsidiary of Altria Group Inc., Philip Morris International ("PMI"), Japan Tobacco Inc. ("JT"), and British American Tobacco ("BAT"), are our four largest customers and, together with their respective affiliates and designated converters, accounted for 28%, 29% and 28% of our 2020, 2019 and 2018 consolidated net sales, respectively. Although the total loss of one or more of these large customers could have a material adverse effect on our results of operations, we do not believe that such a loss is likely given our significance in the worldwide supply chain of cigarette-related papers.
Sales and Distribution. Our internal marketing, sales and customer service organizations sell most of our tobacco-related products directly to cigarette manufacturers or their designated converters. Most of our EP segment's non-tobacco related products are sold directly to manufacturers. In some geographic regions, we use sales agents. We do not sell our products directly to consumers or advertise our products in consumer media. We typically deliver our products to customers by truck, rail and ocean-going vessels.
Competition. The specialized nature of tobacco-related papers requires unique papermaking equipment, technical expertise, and research and development capabilities to meet exacting customer specifications. These factors have limited the number of competitors capable of servicing global cigarette manufacturers.
As the sole domestic producer of cigarette papers in the Americas (SWM production in Brazil), we believe that we have a significant majority of the category share in those regions. Our paper plants in France and LIP printing facility in Poland produce a large amount of the products sold in the E.U. We estimate that we have a direct share of more than 50% of cigarette paper sales in the E.U., and coupled with royalty payments from a key competitor to whom we have licensed our LIP technology, we believe we are able to monetize over 80% of the LIP-compliant E.U. cigarette market. Our principal competitors include delfortgroup AG ("delfort"), which licenses our LIP
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technology, Miquel y Costas & Miquel S.A. ("Miquel y Costas"), Julius Glatz GmbH ("Glatz") and PT Bukit Muria Jaya ("BMJ").
In December 2017, the Dusseldorf Court of Appeals affirmed the German District Court judgment of patent infringement against Glatz including an injunction against making and selling LIP cigarette paper. We believe that the basis of cigarette and our non-tobacco papers competition is price, consistent quality, security of supply, and level of technical service.
Outside of China, SWM is the only non-cigarette company that produces RTL through a paper-making process. Some cigarette companies such as Philip Morris-USA, British American Tobacco, JT and STMA (China) produce RTL primarily for their own internal use. Our customers' cigarette blending decisions, which affect our traditional RTL sales volumes, can be influenced by the general attractiveness of various competing in-house Recon products. We believe we are the only non-cigarette manufacturer with production capabilities for HnB, as well as wrapper and binder products.
Raw Materials and Energy. Wood pulp is the primary fiber used in our EP segment. Our operations consumed approximately $32 million and $43 million of wood pulp in the years ended December 31, 2020 and 2019, respectively, all of which we purchased. While EP uses other specialty fibers, such as flax, in our operations, we believe that purchased raw materials are generally available from several sources.
Paper production uses significant amounts of energy, primarily electricity, natural gas and fuel oil. We believe that energy supply is generally reliable throughout our manufacturing footprint, although prices can fluctuate significantly based on demand. We enter into agreements to procure a portion of our energy requirements for future periods in order to reduce the uncertainty of future energy costs.
Additional information regarding agreements for the supply of certain raw materials and energy is included in Note 20. Commitments and Contingencies, of the Notes to Consolidated Financial Statements.
Seasonality. Generally, sales of our paper and Recon products are subject to seasonal fluctuations due to periodic machine downtime and typically lower order volumes in the fourth quarter.
Research and Development
As of December 31, 2020 we employ approximately 100 research and development employees in research and laboratory facilities in France, Brazil, and the U.S. We are dedicated to developing product innovations and improvements to meet the needs of individual customers. We believe that our research and product development capabilities have played an important role in establishing our reputation for high quality, superior products in both our AMS and EP segments. Within AMS, we have a history of finding innovative design solutions, including developing products that improve the performance of customers' products and manufacturing operations. We believe that our commitment to research and development, coupled with our investment in new technology and equipment, has positioned us to take advantage of growth opportunities in many places around the world. Within EP, our research and development has enabled us to establish and sustain leading shares in various cigarette paper products, specifically LIP paper. We also are working with customers to meet potential future demand for reduced-harm tobacco products as well as hemp-based products.
Patents and Trademarks
As of December 31, 2020, we owned 88 patents and had 43 pending patent applications in our AMS segment. While we consider our patents, and the protection thereof, to be important, no single patent or group of patents is material to the conduct of our AMS business segment.
In our AMS segment, as described in the branding initiative discussed above, SWM made a strategic decision to transition away from certain legacy business trade names associated with our recent acquisitions in favor of a streamlined SWM enterprise branding approach. The Company will continue to market its products under the long-
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standing product-level brand names and trademarks such as "NALTEX®," "DELNET®," “ARGOGUARD®” and “ARGOTHANE®.”
As of December 31, 2020, we owned 314 patents and had 112 pending patent applications in our EP segment, covering a variety of cigarette papers, RTL, cigar wrapper and binder, hemp and other products and processes in the U.S., Western Europe and several other countries. We believe that our patents, together with our papermaking expertise and technical sales support, have been instrumental in establishing us as the leading worldwide supplier of cigarette papers. We believe that patents have contributed to our position as the world's leading independent producer of papers used for LIP cigarettes.
Management believes that in the EP segment, our "ALGINEX®" water-based technology trademark, our "GLUCIGEN TM" trademark for use in banded papers for the production of LIP cigarettes, and the "SWM" logo and trade names have been important contributors to the marketing of our products. Further, we have developed, individually or in conjunction with customers, technologies to address the demand for cigarette paper for LIP cigarettes in the U.S., Canada, Australia and the E.U. We have licensed to others the right to use certain of our LIP intellectual property, excluding ALGINEX® related intellectual properties.
Management of a large portion of SWM's research and development activities is provided from our Luxembourg City, Luxembourg operation ("SWM Luxembourg"). These activities are often performed at other SWM locations under contract by SWM Luxembourg, and funded by SWM Luxembourg. SWM Luxembourg has the authority to initiate and manage research and development projects in areas such as, but not limited to, LIP paper, Recon for HnB materials, non-tobacco paper products, netting and other extruded resin products. This operation also provides global oversight and active management for much of the Company's intellectual property rights.
Human Capital
At SWM we understand that employees are our most important asset and as of December 31, 2020, we had approximately 3,600 regular, full-time, active employees. Our guiding principles create an environment where employees are encouraged to innovate and collaborate, acting as one company to place customers at the heart of our organization. Employee wellness and safety remain critical to our success. We have implemented proactive measures at our locations to help ensure workplace safety, including updated protocols to prevent and address potential or confirmed illness among our on-site workforce, additional spending on personal protective equipment and sanitation supplies, and dedicated time to perform additional sanitization procedures between shifts. We have increased the use of virtual platforms and tools, which has allowed many of our employees to work remotely. Please see Item 1A. Risk Factors for additional information on our response to the COVID-19 pandemic.
We believe that employee relations are positive. Hourly employees at the Spotswood, New Jersey, Ancram, New York and Minneapolis, Minnesota, Pirahy, Brazil , Quimperlé, Spay, and Saint-Girons France and Gilberdyke, England plants are union represented.
Government Regulation
We are required to comply with numerous regulations that are normal and customary to businesses in the regions, industries, and markets in which we operate. These regulations include, but are not limited to, tax, employment, privacy, imports/exports, healthcare, environmental protection, antitrust, anti-corruption, marketing, fraud and abuse, product safety and efficacy, and other areas.
Governmental entities around the world have taken, or have proposed, actions that had, or are likely to have, the effect of reducing consumption of tobacco products which, in turn, reduces demand for our products. These actions, including efforts to regulate, restrict or prohibit the sale, advertisement and promotion of tobacco products and their components, to limit smoking in public places, to control or restrict additives that may be used in tobacco products and to increase taxes on such products, are intended to discourage the consumption of cigarettes and other tobacco products.
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Our facilities are subject to significant federal, state, local and foreign environmental protection laws with respect to air, water and emissions as well as the disposal of solid waste. We believe that we are operating in substantial compliance with these laws and regularly incur capital and operating expenditures in order to achieve future compliance. Although we are not aware of any environmental conditions at any of our facilities that could have a material adverse effect on our financial condition, results of operations and cash flows, we own facilities in France, the U.S. and elsewhere that have been operated over the course of many decades. Should the Company make material changes in the operations at a facility it is possible such changes could generate environmental obligations that might require remediation or other action, the nature, extent and cost of which are not presently known. We may also face higher disposal and clean-up costs to replace equipment or facilities containing materials that were compliant when installed, but are now considered contaminants. Additionally, as we sell closed or other facilities or materially alter operations at a facility, we may be required to perform additional environmental evaluations that could identify items that might require remediation or other action, the nature, extent and cost of which are not presently known. We may also incur environmental liabilities in connection with assets or businesses we may purchase in the future.
The Company is subject to laws concerning our business operations and marketing activities in foreign countries where we conduct business. For example, the Company is subject to the U.S. Foreign Corrupt Practices Act, U.S. export control and trade sanction laws, and similar anti-corruption and international trade laws in certain foreign countries, such as the U.K. Bribery Act. Aspects of the Company’s operations and businesses are also subject to privacy, data security, and data protection regulations, which impact the way we use and handle data and operate our products and services.
The Company is not aware of any regulatory compliance matters that are expected to have a material adverse effect on the Company’s business, competitive position, financial position, results of operations, capital expenditures or cash flows.
Environmental, Social and Governance
Environmental, social, and governance issues are important to SWM, our employees, stockholders, customers, and the communities in which we operate. Corporate responsibility is one of our core values and has long been part of the SWM corporate mission. Across our company, we conduct business with environmental, social, ethical, and supply chain-related concerns in mind. As such, our manufacturing facilities and corporate office have a longstanding tradition of community engagement and reducing our impact on the environment. SWM recognizes that sustainability and profitability are not mutually exclusive, and our goal is to improve the sustainability of our products and processes to create shared value for all of our stakeholders.
In 2018, the Operational Excellence and Sustainability department worked with key parties across SWM, including our Chief Executive Officer, to refresh our sustainability strategy, which was reviewed with the Board of Directors. We also updated our supplier code, the SWM Code for Responsible Procurement, and our Transparency in Supply Chains Act statement.
A few of our key sustainability practices are highlighted below:
Environmental
•Sustainable Packaging Material: We manufacture Cocoa PaperTM as packaging material. Cocoa PaperTM is made from botanical fibers and is an eco-efficient product. Cocoa PaperTM fibers are 100% carbon neutral, a first in the Engineered Papers (EP) portfolio. Sales of Cocoa PaperTM benefit the Jacundá Forestry REDD+ Project in Brazil through the purchase of carbon credits to offset the impact of projected product sales.
•Sustainable Innovation: SWM developed Revonex TM membrane backing paper which improves reverse osmosis filtration efficiency by eliminating bleed-through. In support of the circular economy, SWM has transformed manufacturing byproducts into FlaxBed TM, specialty animal bedding, and BioLoxx TM spill absorbent, to help protect the environment.
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•Partnership with Planet Water Foundation: SWM partners with Planet Water Foundation to support global efforts to improve access to clean, safe water. Currently, the partnership is focused on installing AquaTower water systems in two communities without adequate access to safe water ― Jalisco, Mexico and the Siem Reap Province, Cambodia. Each AquaTower system can produce up to 1,000 liters of clean water per hour, addressing the drinking needs of up to 1,800 people with each tower. SWM also funded the installation of two AquaSan sanitation systems, with the AquaTowers, that meet World Health Organization standards, three AquaHome solutions to provide families with solar powered electricity and drinking water at home, and two community-based education workshops focused on water-health and hygiene education.
•Ethical Sourcing: 100% of the wood pulp that SWM uses is sourced from Forest Stewardship Council (FSC) and/or Programme for the Endorsement of Forest Certification (PEFC)-certified suppliers.
•Environmental Certification and Energy Efficiency: All of our Engineered Paper (EP) locations are certified to ISO 14001 for environmental management systems. Our mills in France are certified to the ISO 50001 energy management standard.
•Biodiversity Support: SWM has a history of supporting local biodiversity initiatives, such as the installation of salmon and eel runs in the Isole River near our EP facility in Quimperlé, France, and the planting of native trees and rebuilding of natural habitat near our plant in Santanesia, Brazil.
•Recycling: Our U.S. based Advanced Minerals and Structures manufacturing sites have incorporated more than 2 million pounds of recycled plastic into new products and across SWM more than 1,000 tons of cardboard were recycled. Many other initiatives are in place involving the reuse of waste products and packaging materials.
Social
•Vera Institute of Justice: Since 2019, SWM has been a financial donor of the Vera Institute of Justice. The Vera Institute was co-founded by Louis Schweitzer, the son of the Company’s co-founder, Peter Schweitzer, and was named after Louis’ mother and Peter’s wife, Vera, who served for a time as the president of Schweitzer, Inc., one part of the company known today as SWM International, Inc. The Vera Institute works in partnership with public sector leaders across the nation to secure equal justice, end mass incarceration, and strengthen families and communities.
•Brazil Trainee Program: SWM works in partnership with the Brazilian federal government to train young professionals for the job market. Every year, trainees are given an opportunity to work at SWM or industrial companies as mechanics, electricians, or administrative assistants.
•Community Support: In various ways, our facilities participate in philanthropic activities around the world, including programs to benefit local children and seniors, and raising funds for larger organizations.
In April 2019, in recognition and celebration of the 49th Anniversary of Earth Month, 23 SWM manufacturing locations and the corporate office participated in Safety and Sustainability Week where sites engaged in activities involving safety, the environment, community engagement, and employee engagement. Activities included educating employees on a low-carbon lifestyle, recycling waste materials into art, picking up trash along roads, collecting book and canned food donations, bicycling challenges to promote a healthy lifestyle and raise funds for charities, fire extinguisher training and many others. Additionally, in 2020 we received an A- score for our CDP Climate Change response, as well as our fourth consecutive silver medal for Corporate Social Responsibility (CSR) recognition from EcoVadis, an organization that rates sustainability practices. Our sustainability initiatives are further described on our corporate website at https://www.swmintl.com/expertise/sustainability.
Governance
SWM believes good corporate governance supports long-term value creation for our stockholders. The Governance section of the Investor Relations section of our website at www.swmintl.com includes our Code of Conduct, corporate governance guidelines, Board of Directors committee charters, as well as disclosure of any amendment to or waivers of our Code of Conduct granted to any of the principal executive officer, principal financial officer or principal accounting officer. Information from our website is not incorporated by reference into this Annual Report on Form 10-K. Additional information about SWM's governance can also be found in our proxy statement.
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Working Capital
We normally maintain approximately 50 to 90 days of inventories to support our operations. Our sales terms average between 15 and 60 days for payment by our customers, dependent upon the products and market segment served. With respect to our accounts payable, we typically carry approximately 15 to 40 days outstanding, in accordance with our purchasing terms, which vary by business location. The accounts payable balance varies in relation to changes in our manufacturing operations, particularly due to changes in prices of wood pulp, resins and purchased energy and the level and timing of capital expenditures related to projects in progress.
Executive Officers of the Registrant
The names and ages of our executive officers as of March 1, 2021, together with certain biographical information, are as follows:

Name |  | Age |  | Position
Dr. Jeffrey Kramer |  | 60 |  |  | Chief Executive Officer
R. Andrew Wamser |  | 47 |  |  | Executive Vice President, Finance and Chief Financial Officer
Omar Hoek |  | 52 |  |  | Executive Vice President, Engineered Papers
Ricardo Nunez |  | 56 |  |  | General Counsel and Corporate Secretary
Michael L. Schmit |  | 48 |  |  | Corporate Controller and Chief Accounting Officer

There are no family relationships between any of the directors, or any of our executive officers. None of our officers were selected pursuant to any arrangement or understanding between the officer and any person other than the Company. Our executive officers serve at the discretion of the Board of Directors and are elected annually by the Board.
Dr. Jeffrey Kramer was appointed Chief Executive Officer in May 2017, after serving as Co-Chief Executive Officer since March 2017. Prior to joining SWM, Dr. Kramer served as Vice President, Lubricants of Brenntag AG, a distributor of chemicals, from January 2016. Dr. Kramer previously served as President and Chief Executive Officer of J.A.M. Distributing Company from January 2013 through December 2015. J.A.M. Distributing Company is a distributor of high-performance lubricants and fuels. Dr. Kramer previously held various senior positions at Air Products and Chemicals, Inc., an industrial gases company, including Vice President and Chief Technology Officer from June 2012 through December 2012 and Vice President and General Manager, Packaged Gases, from 2005 through June 2012.
R. Andrew Wamser was appointed Co-Chief Financial Officer on February 5, 2018 and, effective March 2, 2018, became the sole Executive Vice President, Finance and Chief Financial Officer and the Company's Principal Financial Officer. Prior to joining SWM, Mr. Wamser served as Vice President, Finance; Investor Relations and Treasurer of AutoNation, Inc., the largest automotive retailer by revenue in the US. Prior to that Mr. Wamser served as Managing Director, Investment Banking; Diversified Industrial Group of Barclays Capital Plc, now known as Barclays Investment Bank, the investment banking division of Barclays PLC. He also previously held other investment banking roles at Barclays Capital and UBS Investment Bank.
Omar Hoek was appointed Executive Vice President, Engineered Papers in January 2020. Mr. Hoek served as Executive Vice President in the Specialties Business Area and Group R&D of Ahlstrom-Munksjö (“Ahlstrom”), a global leader in fiber-based material from 2011 to 2019. He previously served as Vice President, Strategy in the Food and Medical Business Area and as Executive Vice President in the Specialties Business Area of Ahlstrom from 2011 until 2017. Before joining the Ahlstrom team, he worked at Newell Brands (NASDAQ: NWL) as a Business Director from 2010 to 2011 and at Avery Dennison (NYSE: AVY) from 1993 to 2010 in various capacities including Global Marketing and Strategy Director.
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Ricardo Nunez was appointed Senior Vice President, General Counsel and Corporate Secretary in September 2017, after serving as Interim General Counsel since November 2016. Prior to joining SWM, Mr. Nunez served as General Counsel for Vivex Biomedical, Inc., a Marietta, GA based biologics company from April 2015 to July 2016. Prior to that, he served as SVP, General Counsel and Corporate Secretary for HD Supply, Inc. a spinoff from The Home Depot from March 2007 to April 2015. Mr. Nunez's previous experience also includes senior legal responsibilities at The Home Depot, General Electric, and Esso Inter-America, Inc. (the Latin America affiliate of Exxon Corporation), as well as private practice.
Michael L. Schmit was appointed Corporate Controller and Chief Accounting Officer of the Company, effective as of April 22, 2019. Mr. Schmit served as Chief Accounting Officer and Corporate Controller of Chart Industries, Inc. (NYSE:GTLS), a manufacturer of cryogenic equipment used in the production, storage and distribution of liquefied gases, from 2018 to 2019. Prior to that he served as Assistant Corporate Controller and then as Corporate Controller at Chart. From 2007 through 2017, he served in various finance and accounting leadership roles at Georgia-Pacific, LLC, including Controller of Corporate Accounting, Division Controller, Gypsum and Chemicals, and Director, Internal Audit, respectively. Prior to joining Georgia-Pacific Mr. Schmit served as the Director of Financial Reporting at Arby’s Restaurant Group and also served as a manager at Ernst & Young, LLP.
Item 1A. Risk Factors
Factors That May Affect Future Results
Many risk factors both within and outside of our control could have an adverse impact on our business, financial condition, results of operations and cash flows and on the market price of our common stock. While not an exhaustive list, the following important risk factors could affect our future results, including our actual results for 2020 and thereafter and could also cause our actual results to differ materially from those expressed in any forward-looking statements we have made or may make.
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 parts of the first and second quarters 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 to the COVID-19 pandemic.
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The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as information continue to evolve. However, the occurrence of the above risks could have a material adverse effect on our financial condition, results of operations and cash flows.
We expect our business to continue to be adversely impacted by governmental actions relating to tobacco products, as well as by decreased demand for tobacco products due to declining social acceptance of smoking, new smoking technologies such as e-cigarette and vaping technologies, and litigation in the U.S. and other countries.
In 2020, approximately 44% of our net sales were from products used by the tobacco industry in making cigarettes or other tobacco products. Cigarette consumption outside of Asia has generally declined due to, among other things, the diminishing social acceptance of smoking, public reports with respect to the possible harmful effects of smoking, including effects of second-hand smoke, the use of other tobacco products, the development and use of new tobacco-related or substitute products or technologies, such as e-cigarettes, e-liquids, vapable oils and other vaping products, that do not use our products, and, particularly in the U.S., to litigation and actions on the part of private parties to restrict smoking. For instance, litigation is continuing against major U.S. manufacturers of consumer tobacco products seeking damages for health problems allegedly resulting from the use of tobacco in various forms. It is not possible to predict the outcome of such litigation or the effect adverse developments in pending and future litigation may have on the tobacco industry or its demand for our products, but in the past litigation has adversely affected demand for consumer tobacco products. These factors have led, and could lead, to certain merchants deciding not to sell tobacco products. As a result, the overall demand for conventional tobacco cigarettes outside of Asia has generally been declining in terms of volume of sales. These declines have had an adverse effect on demand for our products in these regions. We expect these trends to accelerate and thus to continue to reduce smoking levels and adversely affect demand for our products, which could have a material adverse impact on our future financial condition, results of operations and cash flows.
In recent years, governmental entities around the world, particularly in the U.S., Brazil, Russia, Australia and Western Europe, have taken, or have proposed, actions that had, or are likely to have, the effect of reducing consumption of tobacco products which, in turn, reduces demand for our products. These actions, including efforts to regulate, restrict or prohibit the sale, advertisement and promotion of tobacco products and their components, to limit smoking in public places, to control or restrict additives that may be used in tobacco products and to increase taxes on such products, are intended to discourage the consumption of cigarettes and other tobacco products. For example, in the U.S., the regulatory jurisdiction of the federal Food and Drug Administration was extended in 2009 to include tobacco products, and again in 2016 to include cigars and additional tobacco products. These products are now subject to product component disclosure regulations, new controls on ingredients and design changes, and additional restrictions relating to marketing and labeling. The federal Food and Drug Administration could promulgate additional regulations. In Brazil, regulations limit the use of additives to cigarettes. In the E.U., the Tobacco Products Directive regulates the content, effects, marketing and labeling of tobacco products, and both revisions to the Directive and the ongoing phase-in of the Registration, Evaluation, Authorization, and Restriction of Chemical Substances regulation ("REACH") may further restrict product ingredients. Additionally, the World Health Organization is actively promoting tobacco regulation, and other countries worldwide are in the process of adopting some or all of these restrictions. It is not possible to predict the additional legislation or regulations relating to tobacco products that may be instituted, or additional countries that may adopt such legislation or regulations, or the extent to which such legislation or regulations may impact the design or formulation of our customers' products. Such legislation or regulation may adversely impact the demand for traditional cigarettes and cigars, with corresponding impacts on our sales of cigarette papers, RTL and associated items, which could have a material adverse effect on our future financial condition, results of operations and cash flows.
Our joint ventures in China serve only the local market. Declines in Chinese cigarette consumption could have a material adverse effect on our future financial condition, results of operations and cash flows, including our China Tobacco Schweitzer (Yunnan) Reconstituted Tobacco Co. Ltd. (“CTS”) and China Tobacco Mauduit (Jiangmen) Paper Industry Ltd. (“CTM”) joint ventures.
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New smoking technologies such as e-cigarette and vaping technologies provide an alternative to and may decrease demand for traditional cigarettes and cigars, which could result in a decrease in demand for our products and adversely affect our consolidated results of operations, financial position and cash flows.
New smoking technologies, including e-liquids, vapable oils and other vaping products, provide an alternative to traditional cigarettes and cigars, which could result in a decrease in demand for our products, including cigarette papers, RTL and associated items. As of December 31, 2020, approximately 88% of EP segment sales are to customers in the tobacco end market, with the majority of tobacco sales comprised of cigarette papers. Future sales and any future profits from cigarette papers and reconstituted tobacco products are substantially dependent upon the continued use of traditional cigarettes and cigars. Growth in the use of, and interest in, e-liquids, vapable oils and other vaping products is likely to continue. While traditional tobacco products are well established and revenue from traditional cigarette sales represents a substantial majority of total industry revenue, new smoking technologies may become more widely adopted and the business, growth prospects and financial condition of our EP segment may be adversely affected.
Our technological advantages are unlikely to continue indefinitely.
We consider our intellectual property and patents to be a material asset. We have been at the forefront of developing new products and technology within our industries and have patented several of our innovations, particularly with regard to cigarette paper used to produce LIP cigarettes. This has enhanced our ability to sell products and to provide added functionality and other value to the products we sell allowing them to command higher margins. This advantage has also enabled us to license certain of our patents and know-how to, and earn royalty income from, third parties. Ultimately, our patents will expire (generally before 2023) and some may be held invalid in certain jurisdictions before their expiration dates. In addition to protecting certain of our technological advantages through patenting, we also protect a significant amount of our technological advantages as trade secrets, especially with regard to our AMS segment and our RTL products. As we expand our operations to more locations and countries, the risk of the loss of proprietary trade secrets will increase, and any significant loss would result in the loss of the competitive advantages provided by such trade secrets. While we cannot predict the impact or the timing of these trends and eventualities, they likely will reduce our sales and margins from the levels that we otherwise would have achieved.
Effectively policing our domestic and international intellectual property and patent rights is costly and may not be successful.
Our portfolio of granted patents varies by country, which could have an impact on any competitive advantage provided by patents in individual countries. We cannot guarantee that any U.S. or foreign patent, issued or pending, will provide us with any continued competitive advantage.
We rely on patent, trademark, and other intellectual property laws of the U.S. and other countries to protect our intellectual property rights. However, we cannot guarantee that one or more of our patents will not be challenged by third parties and/or ultimately held invalid by courts or patent agencies of competent jurisdiction, which could remove the legal barriers preventing competitors from practicing our LIP technology among others.
Further, there can be no assurances that we will be able, or that it will be economic for us, to prevent third parties from using our intellectual property or infringing our patents without our authorization, which may reduce any competitive advantage we have developed. In the event that we need to enforce certain of our patents against infringement through judicial or administrative actions, the litigation to protect these rights is often costly and time consuming and diverts management resources; moreover, there can be no assurance that our efforts to protect our intellectual property will be successful, or that a defendant will not assert counterclaims against us or challenges to other intellectual property we may own.
Some of our patents have been the subject of opposition hearings. Like the actions we undertake to enforce our IP rights, oppositions filed against us in respect of our intellectual property are expensive and divert management time and resources.
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Even when the Company is initially successful, there can be no assurance that the counterparty will not appeal, or that the appeal will not be successful. Even when successful at the appeal level, there can be no assurance that a patent will not be later successfully challenged in individual national court jurisdictions.
We do not believe that any of our products infringe the valid intellectual property rights of third parties. However, we may be unaware of intellectual property rights of others that may cover some of our products or services or a court or other governmental body may come to a different conclusion from ours. In that event, we may be subject to significant claims for damages or disruptions to our operations.
Because of the geographic diversity of our business, we are subject to a range of international risks.
Our operations are located in many countries around the world and operate, to a degree, in a decentralized manner. There are inherent control and fraud risks in such a structure. Moreover, we have manufacturing facilities in eight countries and two joint ventures in China and sell products in over 90 countries, many of which are emerging and undeveloped markets.
As a result, our manufacturing operations, sales and results, depending on their location, are subject to various international business risks, including, but not limited to, the following:
•Foreign countries can impose significant import, export, excise and income tax and other regulatory restrictions on our business, including limitations on repatriation of profits and proceeds of liquidated assets. While we attempt to manage our operations and international movements of cash from and amongst our foreign subsidiaries in a tax-efficient manner, unanticipated international movement of funds due to unexpected changes in our business or changes in tax and associated regulatory schemes could materially affect our financial position, results of operations and cash flows.
•We are exposed to global as well as regional macroeconomic and microeconomic factors, which can affect demand and pricing for our products, including unsettled political and economic conditions; expropriation; import and export tariffs; regulatory controls and restrictions; and inflationary and deflationary economies. Events occurring in countries having a large share of the global economy (such as China, Japan, or the EU) can have an impact on economies that are interdependent and thereby affect those in which the Company primarily operates. These factors together with risks inherent in international operations, including risks associated with any non-compliance with anti-corruption and anti-bribery laws, could adversely affect our financial condition, results of operations and cash flows.
•We participate in two joint ventures and have one manufacturing facility in China. The joint ventures sell our products primarily to Chinese tobacco companies. Operations in China entail a number of risks including international and domestic political risks, the need to obtain operating and other permits from the government, adverse changes in the policies or in our relations with government-owned or run customers and the uncertainty inherent in operating within an evolving legal and economic system. There are also risks inherent with 50% joint ventures, such as a lack of ability to control, and visibility with respect to operations, customer relations and compliance practice, among others.
•Changes or increases in international trade sanctions or quotas may restrict or prohibit us from transacting business with established customers or securing new ones, including as to Russia and the Ukraine, which are areas where the Company has offices and/or significant customers and as to which the applicable sanctions have changed unexpectedly on a number of occasions since 2014.
Changes in the laws and regulations described above, adverse interpretations or applications of such laws and regulations, and the outcome of various court and regulatory proceedings, including in Europe and Brazil, could adversely impact the Company's business in a variety of ways, including increasing expenses, increasing liabilities, decreasing sales, limiting its ability to repatriate funds and generally conduct business, all of which could adversely affect our financial condition, results of operations and cash flows.
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New or increased tariffs and the imposition of other trade restrictions could adversely affect our consolidated results of operations, financial position and cash flows.
There is currently significant uncertainty about the future relationship between the U.S. and various other countries with respect to trade policies, treaties, government regulations and tariffs. In 2018, the Trump Administration imposed tariffs on steel and aluminum and a broad range of other products imported into the U.S. In response to the tariffs imposed by the U.S., the European Union, Canada, Mexico and China implemented retaliatory tariffs on certain U.S. goods and services. The new tariffs, along with any additional tariffs or trade restrictions that may be implemented by the U.S. or retaliatory trade measures or tariffs implemented by other countries, could result in higher manufacturing costs and increased prices for our products, and we may not be able to pass the higher manufacturing costs and price increases on to our customers. While the results of the 2020 U.S. presidential election could lead to different approaches in U.S. foreign trade policy with China as well as other countries, there remains much uncertainty. Through our joint venture partners, we also manufacture certain EP products in China. While sales of our products manufactured in China are currently sold only in local markets, any exports of our products manufactured in China to the U.S. may also be impacted by the tariffs and other restrictions on trade between the U.S. and China. While tariffs and other retaliatory trade measures imposed by other countries on U.S. goods have not yet had a significant impact on our business or results of operations, we cannot predict further developments, and such existing or future tariffs could have a material adverse effect on our consolidated results of operations, financial position and cash flows.
We may be adversely affected by recent developments relating to the U.K.’s withdrawal from the European Union, particularly if the U.K. and the European Union are unable to reach a mutually satisfactory exit agreement.
On January 31, 2020, the United Kingdom formally withdrew from the European Union ("Brexit") and the transition period provided for in the withdrawal agreement ended on December 31, 2020. In December 2020, the U.K. and the E.U. agreed on a trade and cooperation agreement that applies provisionally after the end of the transition period until it is ratified by the parties to the agreement. On December 31, 2020, the U.K. passed legislation giving effect to the trade and cooperation agreement. Although the trade and cooperation agreement covers the general objectives and framework of the relationship between the U.K. and the E.U., continued uncertainty regarding the application of the terms of the trade and cooperation and the relationship between the U.K. and the E.U. remains. The effects of the Brexit and the perceptions as to the nature of the future relationship between the U.K. from the E.U. may adversely affect business activity and economic and market conditions in the U.K., the Eurozone, and globally and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the pound sterling and the euro. Unfavorable exchange rate changes may negatively affect our operations located in the U.K., which may impact the revenue and earnings we report. Brexit could also have an impact on tariff rates for raw materials imported into the U.K. or sourced from the U.K. and the resulting prices for such materials, the tariff rates on exports of products from our facility in Gilberdyke, and delays at the customs border between the U.K. and the E.U. that could adversely impact our operations or result in our customers imposing upon us penalties for delays in delivery. Any of these effects could have an adverse impact on the value of our assets in the U.K., as well as our business, financial condition, results of operations and cash flows.
We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws or trade control laws, as well as other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition and results of operations.
We are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, ("FCPA"), and other anti-corruption laws that apply in countries where we do business. The FCPA, the 2013 Brazilian Clean Companies Act, the U.K. Bribery Act of 2010, the 2013 Russian Law on Preventing Corruption and these other laws generally prohibit us, our employees, consultants and agents from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations, and we participate in joint ventures and relationships with third parties whose actions could potentially subject us to liability under the FCPA
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or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
We are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of Commerce’s Bureau of Industry and Security, the U.S. Department of Treasury’s Office of Foreign Asset Control, and various non-U.S. government entities, including applicable export control regulations, economic sanctions on countries and persons, customs requirements, currency exchange regulations and transfer pricing regulations, or collectively, Trade Control laws. There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with such laws or requirements, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA other anti-corruption laws or Trade Control laws by U.S. or foreign authorities could also have an adverse impact on our reputation, business, financial condition and results of operations.
Fluctuations in foreign currency exchange rates could adversely impact our financial condition, results of operations and cash flows.
A significant portion of our revenues are generated from operations outside the U.S. In addition, we maintain significant operations and acquire or manufacture many of our products outside the U.S. The functional currency of our international subsidiaries is generally the local currency in which each subsidiary operates. In particular, a large portion of our commercial business is denominated in euros and Brazilian reals. Since our consolidated financial statements are presented in U.S. dollars, we must translate revenues, expenses, assets and liabilities from functional currencies into U.S. dollars. As a result, our future revenues, costs, results of operations and earnings could be significantly affected by changes in foreign currency exchange rates, especially the euro to U.S. dollar exchange rate and the Brazilian real to U.S. dollar exchange rate.
In addition, some of our sale and purchase transactions are denominated in a currency other than the local currency of our operations. As a result, changes in exchange rates between the currencies in which the transaction is denominated versus the local currency of our operations into which the transaction is being recorded can impact the amount of local currency recorded for such transaction. This can result in more or less local currency revenue or cost related to such transaction and thus have an effect on our operating profit. Our Brazilian and Polish operations are more fully exposed to currency transaction risk, especially as a result of U.S. dollar sales in Brazil and euro denominated sales in Poland. We also hold a significant amount of our cash balances in euros, thus any weakening of the euro versus the U.S. Dollar would reduce the amount of U.S. Dollars for which such balances could be exchanged.
Changes in foreign currency exchange rates also impact the amount reported in other income (expense), net. For instance, when a non-local currency receivable or payable is not settled in the period in which it is incurred, we are required to record a gain or loss, as applicable, to reflect the impact of any change in the exchange rate as of the end of the period. We also have to reflect the translation rate impact on the carrying value of our foreign assets and liabilities as of the end of each period, which is recorded as Unrealized Translation Adjustment in Other Comprehensive Income.
We utilize a variety of practices to manage this risk, including operating and financing activities and, where considered appropriate, derivative instruments. All derivative instruments we use are either exchange traded or entered into with major financial institutions in order to reduce credit risk and risk of nonperformance by third parties. Counterparty risk cannot be eliminated and there can be no assurance that our efforts will be successful. We generally hedge foreign currency transaction risk through the use of derivative instruments, including forward
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and swap contracts and, to a lesser extent, option contracts. The use of derivative instruments is intended to mitigate or reduce transactional level volatility in the results of foreign operations but does not completely eliminate volatility. If our future revenues, costs and results of operations are significantly affected by economic conditions abroad and/or we are unable to effectively hedge these risks, they could materially adversely affect our financial condition, results of operations and cash flows.
The Company could be subject to changes in its tax rates, the adoption of new U.S., or foreign tax legislation or exposure to additional tax liabilities.
The Company is subject to taxes in the U.S. and in foreign jurisdictions where a number of the Company’s subsidiaries are organized. The Company’s future effective tax rate could be affected by changes in the mix of earnings in countries with differing statutory tax rates or future changes in tax laws or new interpretations of existing tax laws. Although none of the Company’s international tax positions are currently being challenged or threatened to be challenged, recent developments, such as the European Commission’s investigations on illegal state aid, individual European countries implementation of Anti-Tax Avoidance Directives, continued regulatory development of the Tax Cuts and Jobs Act of 2017, and the Organization for Economic Cooperation and Development projects on base erosion and profit shifting may result in changes to long-standing tax principles or new challenges to our cross-border arrangements, which could materially affect our effective tax rate or could require potential restructuring of the foreign subsidiaries. If the Company’s effective tax rates were to increase, or if any ultimate determination of the Company’s taxes owed is for an amount in excess of amounts previously accrued, the Company’s operating results, cash flows, and financial condition could be adversely affected.
We face competition from several established competitors and we have limited market transparency.
Our four largest competitors for our EP business are delfort group AG ("delfort"), Julius Glatz GmbH ("Glatz"), Miquel y Costas & Miquel S.A. ("Miquel y Costas") and PT BUKIT Muria Jaya ("BMJ"). All four primarily operate from modern and cost-effective plants in Western Europe and Asia and are capable and long-standing suppliers to the tobacco industry. Further, three such competitors, delfort, Glatz and BMJ, are privately held and the third, Miquel y Costas, is a closely held public company. Thus, their financial results and other business developments and strategies are not disclosed to the same extent as ours, which provides them some advantage in dealing with customers. Given the concentration of most of our competitors in Western Europe, which has seen declining demand for tobacco products and has labor laws that make reducing capacity expensive and slow, excess capacity exists and therefore price competition is acute. We believe that all four competitors have good relationships with the multinational cigarette companies, as does the Company. The multinational cigarette companies have been known to use these close relationships to encourage the development of enhanced competition through supporting competitive products and facilities, especially when confronted with new, high-value technologies such as porous plug wrap in the past and LIP today. We believe our Engineered Paper products compete primarily on product features, price, innovations and customer service. Due to many of the factors described above, we have a limited ability to predict trends in the industry and there may be a time lag before we become aware of developing trends in the industry.
Our AMS segment products compete to some degree against specialty products made by Marshall Manufacturing Company, Johns Manville, a subsidiary of Berkshire Hathaway Inc., Shaoxing Naite Plastics Co. Ltd., 3M Company, Covestro AG, Nupro, Tenax Corporation, Intermas Group, and Hollingsworth and Vose Company. We believe our AMS products compete primarily on product features, innovations and customer service. Some of these competitors are larger than we are and have more resources, thus the actions of these competitors could have an impact on the results of our AMS segment operations.
Currently, fine papers used to produce cigarettes are only exported on a limited basis from available capacity in China and other Asian locations to western multinational cigarette companies due to government taxes and tariffs, which limit price competitiveness, as well as due to customer preferences. Should conditions change in this regard, capacity that currently is operating in China and elsewhere in Asia would present a risk to our competitive position outside Asia and place further pressure on our legacy paper production platforms. Similarly, we are starting to see
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increased competition for some of our AMS products from companies in China, which, we believe, may have lower operating costs than us, resulting in a potential price advantage for such companies.
In the RTL end-market segment, demand is a function, among other things, of smoke delivery regulations, the cigarette manufacturer's desire for a uniform and consistent product, the taste profile sought by cigarette manufacturers, and the cost of recycling the tobacco by-product scraps and the utilization of internal capacity to produce materials that compete with our RTL products. These factors have resulted, and are likely to continue to result, in materially lower sales volumes for our RTL business, resulting in downtime of certain production machines and, in some cases, accelerated depreciation or impairment charges for certain equipment as well as employee severance expenses associated with downsizing or restructuring activities.
Further, as a result of excess capacity in the tobacco-related papers industry and increased operating costs, competitive levels of selling prices for certain of the Company's products are not sufficient to cover those costs with a margin that the Company considers reasonable. Such competitive pressures have resulted, and could result in the future, in downtime of certain paper production machines and, in some cases, accelerated depreciation or impairment charges for certain equipment as well as employee severance expenses associated with downsizing or restructuring activities.
We are dependent upon a small number of customers for a significant portion of our sales; the loss of one or more of these customers could have a material adverse effect on our business.
Four customers, together with their respective affiliates and designated converters, accounted for over 28% of our net sales in 2020. The loss of one or more of these customers, or a significant reduction in their purchases, particularly those that impact our sales of LIP papers or Recon, could have a material adverse effect on our financial condition, results of operations and cash flows.
In addition, significant consolidation has occurred among our tobacco customers and may continue to occur, thereby increasing our dependence upon a fewer number of tobacco industry customers and increasing the negotiating leverage of those customers that remain. If any of our customers were to change suppliers, in-source production of Recon or cigarette papers (including those used to produce LIP cigarettes), institute significant cost-cutting measures or experience financial difficulty, then these customers may substantially reduce their purchases from us, which could adversely impact our financial condition, results of operations and cash flows. In addition, adverse results in the negotiation of any of our significant customer contracts, the terms of which are typically negotiated every one to three years, could significantly impact our financial condition, results of operations and cash flows.
We are dependent upon the availability of credit, and changes in interest rates can impact our business.
We supplement operating cash flow with bank borrowings under a secured credit agreement with a syndicate of banks. Borrowings under this agreement will mature in September 2023 and September 2025. To date, we have been able to access credit when needed and on commercially reasonable terms. However, deterioration of credit markets, including an economic crisis in the U.S. or elsewhere, whether or not caused by the U.S. or European debt ceiling, deficits and budget issues, could have an adverse impact on our ability to negotiate new credit facilities or access or renew our existing one. Constraints on the availability of credit, or the unavailability of credit at reasonable interest rates, would negatively impact our business, including potentially impairing our ability to declare dividends, conduct share buy-backs and make acquisitions.
Our secured credit facility contains certain financial covenants. In the event of material unforeseen events that impact our financial performance, particularly during a time when we have material amounts of debt, a situation could arise where we are unable to fully draw from our existing credit facility notwithstanding that there is otherwise available capacity.
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Our credit facilities are secured by substantially all of the personal property of the Company and its domestic subsidiaries. In the event of a default on these agreements, substantially all of the assets of the Company could be subject to foreclosure or liquidation by the secured creditors.
We may utilize a combination of variable and fixed-rate debt consisting of short-term and long-term instruments. We selectively hedge our exposure to interest rate increases on our variable rate long-term debt when we believe that it is practical to do so. We have utilized various forms of interest rate hedge agreements, including interest rate swap agreements, forward rate agreements and cross currency swaps. There are inherent risks associated with interest rate hedges, including those associated with the movement of interest rates, counterparty risk and unexpected need to refinance debt, thus there can be no certainty that our hedging activities will be successful or fully protect us from interest rate exposure. As of December 31, 2020, the percentage of the Company’s fixed and floating interest rate debt was 59% and 41%, respectively. The Company has entered into a number of interest rate hedge transactions to convert floating rate debt to fixed. Including the impact of these transactions, as of December 31, 2020, the percentage of the Company’s debt subject to fixed and floating rates of interest was 83% and 17%, respectively.
Our use of interest rate hedge agreements to manage risk associated with interest rate volatility may expose us to additional risks, including the risk that a counterparty to a hedge agreement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. Termination of interest rate hedge agreements typically involves costs, such as transaction fees or breakage costs.
Changes in the method pursuant to which LIBOR rates are determined and potential phasing out of LIBOR after 2021 may adversely affect our results of operations.
Certain of our interest rate derivatives and a portion of our indebtedness bear interest at variable interest rates, primarily based on LIBOR, which may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. On July 27, 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, publicly announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. In the United States, the Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified the Secured Oversight Financing Rate (“SOFR”) as the recommended risk-free alternative rate for USD LIBOR. Because of inherent differences between LIBOR and SOFR, there is no assurance that SOFR will perform in the same way as LIBOR would have performed at any time, and there is no guarantee that it is a comparable substitute for LIBOR. SOFR may fail to gain market acceptance.
At this time, it is not possible to predict the effect any discontinuance, modification or other reforms to LIBOR, or the establishment of alternative reference rates such as SOFR, or any other reference rate, will have on the Company. However, if LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, the Company’s borrowing costs may be adversely affected. We may also incur expenses to amend and adjust our indebtedness and swaps to eliminate any differences between any alternative reference rates used by our interest rate hedges and our outstanding indebtedness. Any of these occurrences could materially and adversely affect our borrowing costs, business and results of operations.
Our internal and external expansion plans and asset dispositions entail different and additional risks relative to the rest of our business.
From time to time, we consider acquisitions either within the tobacco industry or outside the industry in connection with our diversification initiatives. This acquisition activity could involve confidential negotiations that are not publicly announced unless and until those negotiations result in a definitive agreement. It is possible that an acquisition could adversely impact our results, credit ratings or the outlook of our business, due to, among other
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things, integration and employee retention challenges, contrasting company cultures and different information technology and reporting systems. Also, acquisition opportunities are limited and present risks of failing to achieve strategic objectives, smooth integrations or anticipated synergies or returns. There can be no assurance that we will be able to acquire attractive businesses on favorable terms, that we will realize the anticipated benefits or profits through acquisitions or that acquisitions will be accretive to our earnings. Changes in our portfolio of businesses, assets and products, whether through acquisition , disposition or internal growth, present additional risks, including causing us to incur unknown or new types of liabilities, subjecting us to new regulatory frameworks and new market risks, and acquiring operations in new geographic regions with challenging labor, regulatory and tax regimes. The potential future expansion of our AMS business unit or other operations could cause these operations to face additional competition from larger and more established competitors than is currently the case.
Our ability to dispose of idled assets and the value that may be obtained relative to their book value can result in significant impairment charges. Building a new plant or other facility or relocating, rebuilding or otherwise modifying existing production machinery is a major undertaking and entails a number of risks, including the possibility that the contractors and sub-contractors who are expected to build the facility or rebuild the machine and supply the necessary equipment do not perform as expected, the possibility of cost overruns and delays, or that design defects or omissions cause the facility or machine to perform at less than projected efficiency or at less than projected capacity. In addition, commencement of production at a new site or at a rebuilt or relocated machine is time consuming and requires testing and acceptance by customers and potentially by regulators, of the facility and the products that are produced. Also, while we anticipate sufficient demand for the facility's or machine's output, there can be no assurances that the expected demand will materialize. For more information on our expansion plans, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report.
We also expect to continue to expend resources to diversify and expand our product portfolio. Research and development and product diversification have inherent risks, including technical success, market acceptance, new regulations and potential liabilities. We cannot guarantee that such efforts will succeed, that we will not incur new or different liabilities or that we will achieve a satisfactory return on such expenditures.
We may not successfully integrate acquisitions or integrate other SWM operations into AMS and we may be unable to achieve anticipated cost savings or other synergies.
The integration of the operations of acquired companies involves a number of risks and presents financial, managerial, reporting, legal and operational challenges. We may have difficulty, and may incur unanticipated expenses related to, integrating information systems, financial reporting activities, employee retention and integrating and retaining management and personnel from acquired companies. Among these risks are potential loss of consumer awareness and demand for the acquired companies’ products based on the rebranding of those products under the Company’s legacy brand names. Additionally, we may not be able to achieve anticipated cost savings or commercial or growth synergies for a number of reasons, including contractual constraints and obligations or an inability to take advantage of expected commercial opportunities, inability to achieve increased operating efficiencies or commercial expansion of key technologies. The future success of AMS depends, in part, on our ability to attract additional management, retain key employees, integrate new personnel, operating and reporting systems as well as execute AMS’ growth strategy. Failure to successfully integrate acquired companies into AMS may have an adverse effect on our business, financial condition, results of operations, and cash flows. Additionally, if we complete the pending offer to acquire Scapa Group PLC (as described in Note 25. Subsequent Event, of the Notes to Consolidated Financial Statements), we may not be able to achieve anticipated benefits or commercial or growth synergies, for a number of reasons, including contractual constraints and obligations or an inability to take advantage of expected commercial opportunities, inability to achieve increased operating efficiencies or commercial expansion of key technologies.
Our restructuring activities are time-consuming and expensive and could significantly disrupt our business.
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We have initiated significant restructuring activities in recent years, in Brazil, France, the Philippines and the U.S. that have become part of an overall effort to improve an imbalance between demand for our products and our production capacity as well as improve our profitability and the quality of our products. Restructuring of our existing operations, or as a result of acquisitions, involves issues that are complex, time-consuming and expensive and could significantly disrupt our business as well as garner review from regulatory authorities which could result in financial impacts to the Company. The challenges involved in executing the actions that are part of our ongoing and, potentially future, restructuring plans include:
•demonstrating to customers that the restructuring activities will not result in adverse changes in service standards or business focus;
•consolidating administrative infrastructure and manufacturing operations while maintaining adequate controls throughout the execution of the restructuring;
•preserving distribution, sales and other important relationships and resolving potential conflicts that may arise;
•estimating, managing and minimizing the cost of the restructuring activities;
•minimizing the diversion of management attention from ongoing business activities;
•maintaining employee morale, retaining key employees, maintaining reasonable collective bargaining agreements and avoiding strikes, work stoppages or other forms of labor unrest while implementing restructuring programs that often include reductions in the workforce;
•securing government approval of such plans, where necessary, and managing the litigation and associated liabilities that often are associated with restructuring actions;
•incurring costs associated with delays in restructuring activities caused by labor negotiations and/or governmental approvals;
•coordinating and combining operations, which may be subject to additional constraints imposed by collective bargaining agreements and local laws and regulations; and
•achieving the anticipated levels of net cost savings and efficiency as a result of the restructuring activities.
Our financial performance can be significantly impacted by the cost and availability of raw materials and energy and we may have limited ability to pass through increases in costs to our customers.
Raw materials are a significant component of the cost of the products that we manufacture. The cost of wood pulp, which is the largest component of the raw materials that we use in our EP segment, and some resins used by our AMS segment are highly cyclical and can be more volatile than general consumer or producer inflationary changes in the general economy. Also, in that same time period, the cost of polypropylene has fluctuated significantly based on a number of factors, including changes in global oil markets. As we periodically enter into agreements with customers under which we agree to supply products at fixed prices, unanticipated increases in the costs of raw materials, or the lack of availability of such raw materials (due to force majeure or other reasons), can significantly impact our financial performance. Even where we do not have fixed-price agreements, we generally cannot pass through increases in raw material costs in a timely manner and in many instances are not able to pass through the entire increase to our customers. Further, some of the resins we use in our AMS segment are only available from a single supplier, or a limited number of suppliers. Consequently, such supplier(s) can control the availability and thus the cost of the resins we use, notwithstanding any changes in the cost of oil. It can be time consuming and costly, and occasionally impractical, to find replacement resins where such suppliers limit the availability or increase the cost of resins we use.
Our manufacturing operations, in particular paper manufacturing, is energy-intensive. In the U.K., the European Union, China and in the U.S., availability of energy generally is reliable, although prices can fluctuate significantly based on demand. Western Europe is becoming significantly dependent on energy supplies from the Commonwealth of Independent States, which in the past has demonstrated a willingness to restrict or cut off supplies of energy to certain customers. The volume of oil or gas flowing through pipeline systems that ultimately connect to Western Europe also has been cut off or restricted in the past, and such actions can adversely impact the supply of energy to Western Europe and, consequently, the cost and availability of electricity to our European operations. In Brazil, because production of electricity is heavily reliant upon hydroelectric plants, availability of
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electricity can be, and has been in the past, affected by rain variations. Electricity in Brazil is also heavily taxed. Due to the competitive pricing of most of our products, we typically are unable to fully pass through higher energy costs to our customers. Periodically, when we believe it is advantageous to do so, we enter into agreements to procure a portion of our energy for future periods in order to reduce the uncertainty of future energy costs. However, in recent years this has only marginally slowed the increase in energy costs due to the volatile changes in energy prices we have experienced.
A failure of, or a security breach in, a key information technology system or process or other unusual events could compromise our information and expose us to liability, which could adversely affect our business; IT project delays and overruns are possible.
We rely extensively on information technology systems, some of which are managed by third-party service providers, to analyze, process and manage transactions and sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our employees. The secure processing and maintenance of this information is critical to our operations and business strategy and we rely heavily on the integrity of this data in managing our business. Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. In addition, social engineering and phishing are a particular concern. We are continuously working to install new, and to upgrade our existing, information technology systems and to provide employee awareness training around phishing, malware and other cyber risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches.
Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or be breached due to employee or third-party error, malfeasance or other disruptions. To date, we have not had a significant cyber breach or attack that has had a material impact on our business. However, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims, proceedings, or regulatory penalties, including penalties under EU privacy laws, and could disrupt our operations. Although we are insured against cyber risks and security breaches up to an annual aggregate limit, our liability insurance may be inadequate and may not fully cover the costs of any claim or any damages we might be required to pay, and we may not be able to obtain adequate liability insurance in the future on commercially desirable or reasonable terms or at all.
There are further risks associated with the information systems of companies we acquire, both in terms of systems compatibility, level of security and functionality. It may cost us significant money and resources to address these risks and we may fail to address them successfully, adversely impacting our financial condition, results of operations and cash flows.
From time to time, we undertake significant information technology systems projects, including enterprise resource planning updates, modifications and roll-outs. These projects are subject to cost overruns and delays. Not only could these cost overruns and delays impact our financial statements but a delay in the completion of a needed IT project could adversely impact our ability to run our business and make fully informed decisions.
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We rely on a limited number of key employees, have had significant personnel turnover and have had difficulty in attracting and hiring qualified new personnel in some areas of our business.
The loss of any of our key employees, including our CEO and his direct reports, could adversely affect our business and thus our financial condition, results of operations and cash flows. Because a large part of our business is tied to the tobacco industry, we may also experience difficulty in retaining and hiring qualified executives and other personnel in our AMS segment, at corporate and/or in EP. We not only compete for talent with consumer products and other companies that enjoy greater social acceptance but also with larger, more established companies within the tobacco industry. As we diversify through acquisitions outside our tobacco-related operations, we run the risk of turnover of key personnel within the businesses we acquire as well as difficulty in finding and attracting first class talent in industry segments that are new to us. This could slow the growth of these businesses and impede our ability to find and complete synergistic acquisitions.
Our business depends upon good relations with our employees. Work stoppages, slowdowns or legal action by our unionized employees may have a material adverse effect on our business, financial condition, results of operations and cash flows.
We employ approximately 3,600 employees, including certain manufacturing employees represented by unions. Although we believe that employee and union relations are generally positive, there is no assurance that this will continue in the future and problems or changes affecting employees in certain locations may affect relations with our employees at other locations. The risk of labor disputes, work stoppages or other disruptions in production could adversely affect us, especially in conjunction with potential restructuring activities. If we cannot successfully negotiate or renegotiate collective bargaining agreements, or if negotiations take an excessive amount of time, there may be a heightened risk of work stoppages and we may be unable to achieve planned operational efficiencies. Work stoppages may be caused by the inability of national unions and the governments of countries in which we operate from reaching agreement and are outside of our control. Any work stoppage or failure to reach agreements with our unions could have a material adverse effect on our customer relations, our productivity, the profitability of a manufacturing facility, our ability to develop new products and on our operations as a whole, resulting in an adverse impact on our business, financial condition, results of operations and cash flows.
Our business is subject to various environmental laws, regulations and related litigation that could impose substantial costs or other liabilities on us.
Our facilities are subject to significant federal, state, local and foreign environmental protection laws with respect to air, water and emissions as well as the disposal of solid waste. We believe that we are operating in substantial compliance with these laws and regularly incur capital and operating expenditures in order to achieve future compliance. However, these laws may change, which could require changes in our practices, additional capital expenditures or loss of carbon credits, and we may discover aspects of our business that are not in compliance. Violation of these laws can result in the imposition of significant fines and remediation costs. In France, we presently have sufficient authorized capacity for our emissions of carbon dioxide through 2021. However, this authorization must be renewed periodically. We cannot predict whether we will have sufficient authorized capacity to conduct our operations in France as presently conducted or to do so without having to make substantial capital expenditures in future years.
We are a member of a potentially responsible party group that entered into a settlement with the State of New Jersey in 1993 concerning the remediation of a landfill site in New Jersey. The landfill remediation has been completed. We have established a reserve of approximately $0.3 million that we believe is adequate to cover our ongoing liability, but we remain exposed to post-closure operating costs over an extended period of years that cannot be fully known or estimated at this time.
Additionally, in recent years, assessments of the potential impacts of climate change have begun to influence governmental authorities, consumer behavior patterns and the general business environment of the European Union
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and the United States. The implementation of these policies may require us to invest additional capital in our properties or it may restrict the availability of land we are able to develop. These changes, or other changes in other environmental laws or the interpretation thereof, new enforcement of laws, the identification of new facts or the failure of other parties to perform remediation at our current or former facilities could lead to new or greater liabilities that could materially adversely affect our business, results of operations, cash flows or financial condition.
Although we are not aware of any environmental conditions at any of our facilities that could have a material adverse effect on our financial condition, results of operations and cash flows, we own facilities in France, the U.S. and elsewhere that have been operated over the course of many decades. Should the Company make material changes in the operations at a facility it is possible such changes could generate environmental obligations that might require remediation or other action, the nature, extent and cost of which are not presently known. We may also face higher disposal and clean-up costs to replace equipment or facilities containing materials that were compliant when installed, but are now considered contaminants. Additionally, as we sell closed or other facilities or materially alter operations at a facility, we may be required to perform additional environmental evaluations that could identify items that might require remediation or other action, the nature, extent and cost of which are not presently known. We may also incur environmental liabilities in connection with assets or businesses we may purchase in the future.
Increases in costs of pension benefits may reduce our profitability.
Our results of operations may be negatively affected by expenses we record for our defined benefit pension plans. Generally accepted accounting principles in the U.S., require that we calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions about financial markets, longevity of our current and former employees and other economic conditions, which may change based on changes in key economic indicators and mortality tables. We are required to make an annual measurement of plan assets and liabilities, which may result in increased funding obligations or negative changes in our stockholder equity. At the end of 2020, the combined projected benefit obligation of our U.S. and French pension plans had a net underfunding of $25.7 million. For a discussion regarding our pension obligations, see Note 18. Postretirement and Other Benefits of the Notes to Consolidated Financial Statements in Part II, Item 8 and "Other Factors Affecting Liquidity and Capital Resources" in Part II, Item 7. Although expense and pension funding contributions are not directly related, key economic factors that affect expense would also likely affect the amount of cash we would contribute to pension plans as required under the Employee Retirement Income Security Act ("ERISA") for U.S. plans. Failure to achieve expected returns on plan assets driven by various factors, which could include a continued environment of low interest rates or sustained market volatility, could also result in an increase to the amount of cash we would be required to contribute to pension plans.
We are subject to various legal actions and other claims.
We regularly are involved in legal actions and other claims arising in the ordinary course of business and otherwise. We are also subject to many laws and regulations around the world. Despite our efforts, we cannot guarantee that we are in compliance with every such law or regulation. Because of the complexity of Brazilian tax laws and court systems, legal actions are a particular risk that affects our Brazilian operations. Although we believe that our positions in pending disputes about state and federal taxes are correct and will ultimately be upheld by Brazilian courts, the outcome of legal proceedings is difficult to predict. An adverse result in one or more of these tax disputes could have a material adverse impact on our financial condition, results of operations and cash flows. We are also subject to other litigation in Brazil, including labor and workplace safety claims. Although we do not believe that any of the currently pending actions or claims against us will have a material adverse impact on our financial condition, results of operations and cash flows, we cannot provide any assurances in this regard. Information concerning some of these actions that currently are pending is contained in Note 20. Commitments and Contingencies, of the Notes to Consolidated Financial Statements and in Part I, Item 3, “Legal Proceedings” of this report. We also cannot give any assurances as to any litigation that might be filed against us in the future, including any claims relating to the alleged harmful effect of tobacco use on human health.
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One portion of our business is dependent upon a single plant; further, we have limited cross redundancy across our facilities.
Sales of RTL products represent a substantial portion of our revenues and profits. We presently produce RTL at only one facility located in France and wrapper and binder products at only one facility located in Ancram, New York. In our AMS business, in order to enhance the protection of our trade secrets, critical proprietary dies used in a significant portion of our extruding operations are made with very limited personnel trained to manufacture them and very strict access to the equipment. Further, in order to achieve operational efficiencies, among other reasons, we have limited ability to shift production across our various facilities, thus the loss of production at one facility may not be able to be mitigated by increased production at another. Consequently, natural disasters, pandemics and other unusual events could cause the loss of, or interruption of operations for a significant length of time at, one or more of our facilities in six different countries, which could have a material adverse effect on our financial condition, results of operations and cash flows.
Any loss or interruption of the operations of our facilities may harm our operating performance.
Our revenues depend on the effective operation of our manufacturing facilities. The operation of our facilities involves risks, including the breakdown, failure, or substandard performance of equipment, power outages, the improper installation or operation of equipment, explosions, fires, natural disasters, failure to achieve or maintain safety or quality standards, work stoppages, supply or logistical outages, and the need to comply with environmental and other directives of governmental agencies. Moreover, natural disasters, political crises, public health crises (such as the ongoing COVID-19 pandemic and the measures put in place to reduce its spread) or other unforeseen catastrophic events in any of the countries we operate may negatively impact our facilities, our supply chain or customers. If we experience supply disruptions, we may not be able to develop alternate sourcing quickly. Any disruption of our production schedule caused by an unexpected shortage of components, raw materials or parts even for a relatively short period of time could cause us to alter production schedules or suspend production entirely, which would adversely affect our business and results of operations. The occurrence of material operational problems, including, but not limited to, the above events, could cause the loss of, or interruption of, operations for a significant length of time, which could have a material adverse effect on our financial condition, results of operations and cash flows.
In addition, many of our operations require a reliable and abundant supply of water. Production facilities for our EP segment rely on a local water body or water source for their water needs and, therefore, are particularly sensitive to drought conditions or other natural or man-made interruptions to water supplies. At various times and for differing periods, we have had to modify operations at certain of our mills due to water shortages, water clarity, or low flow conditions in its principal water supplies. Any interruption or curtailment of operations at any of our production facilities due to drought or low flow conditions at the principal water source or another cause could materially and adversely affect our operating results and financial condition.
Fluctuations in construction and infrastructure spending can impact demand for certain of our products.
Demand for certain of our products depends on spending in the construction industry, both residential and non-residential, as well as infrastructure sectors. Spending in those sectors is impacted by numerous circumstances beyond our control including, but not limited to, interest rates, availability of financing, housing inventory, capital spending, corporate investment, local, federal and state regulations, as well as availability and commitment of public funds for municipal spending, capacity utilization and general economic conditions. Decreased spending in any of these sectors could have an adverse impact on our financial condition, results of operations, and cash flows during the duration of their down cycle.
Historically, we have experienced significant cost savings and productivity benefits relating to our ongoing operational excellence program; however, these benefits may not continue indefinitely or at the same levels.
Historically, we have experienced significant cost savings and productivity benefits relating to our ongoing operational excellence program as it relates to our tobacco operations that have supported our margins during
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periods of significant attrition in the tobacco industry. We expect to continue to achieve significant savings and benefits from this program; however, in light of continued industry attrition, execution risks and other factors, we may be unable to continue in the future to obtain savings and benefits in line with historical achievements, and our profitability and financial results could be adversely affected.
Similarly, though we have initiated implementation of this program in our AMS business operations in order to achieve margin improvements, due to the different company cultures of the acquisitions that make up a significant part of AMS and our continuing integration of these acquisitions, we may not be able to achieve the desired margin improvements through our operational excellence program at AMS.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
As of December 31, 2020, we operated a total of 22 production facilities on four continents.
The following are the locations of our principal production facilities as of December 31, 2020. Except as otherwise noted, we own the facilities listed below:

Advanced Materials & Structures Segment Production Locations |  | Approximate Square Footage of Buildings |  | Engineered Papers Segment Production Locations |  | Approximate Square Footage of Buildings
Middletown Manufacturing Site |  |  |  | Spotswood Plant** |  |
Middletown, Delaware |  | 142,000 |  |  | Spotswood, New Jersey |  | 399,000 |
Tubing Operations* |  |  |  | Papeteries de Saint-Girons Plant |  |
Richland, Pennsylvania |  | 35,000 |  |  | Saint-Girons, France |  | 214,000 |
Tubing Operations* |  |  |  | PDM Industries Plant |  |
El Cajon, California |  | 22,000 |  |  | Quimperlé, France |  | 592,000 |
Suzhou Manufacturing Site* |  |  |  | Pirahy Plant |  |
Suzhou, China |  | 108,000 |  |  | Piraí, Brazil |  | 1,098,000 |
Poland Manufacturing Site* |  |  |  | Poland Plant* |  |
Strykow, Poland |  | 42,000 |  |  | Strykow, Poland |  | 125,000 |
Gilberdyke Manufacturing Site |  |  |  | Newberry Operation |  |
Gilberdyke, United Kingdom |  | 67,000 |  |  | Prosperity, South Carolina |  | 50,000 |
Wilson Manufacturing Site* |  |  |  | Fiber Operation |  |
Wilson, North Carolina |  | 108,000 |  |  | Manitoba, Canada |  | 16,000 |
Argotec Manufacturing Operations* |  |  |  | LTR Industries Plant |  |
Greenfield, Massachusetts |  | 182,000 |  |  | Spay, France |  | 736,000 |
Minneapolis Manufacturing Site* |  |  |  | Ancram Plant |  |
Minneapolis, Minnesota |  | 144,000 |  |  | Ancram, New York |  | 116,000 |
Athens Manufacturing Site |  |  |  | Tekra Plant |  |
Athens, Georgia |  | 200,000 |  |  | New Berlin, Wisconsin* |  | 90,000 |
Roanoke Manufacturing Site |  |  |  | Trient Plant |  |
Roanoke, Virginia |  | 40,000 |  |  | Woodville, Wisconsin* |  | 88,000 |
Chicago Manufacturing Site* |  |  |  |  |  |
Chicago, Illinois |  | 66,000 |  |  |  |  |
European Manufacturing Site |  |  |  |  |  |
Genk, Belgium |  | 90,000 |  |  |  |  |
* Leased properties |  |  |  |  |  |
**Operations ceased in December 2020

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We had approximately 161,000 metric tons of annual paper production capacity after we ceased operations in Spotswood facility, New Jersey, dependent upon the production mix. Capacity utilization was 86% for EP products in 2020 compared with 90% in 2019. We also operate flax fiber processing operations in Canada and printing operations in France, Poland and the U.S.
We maintain administrative and/or sales offices in Alpharetta, Georgia; Quimperlé, France; Spay, France; Shanghai, China; Piraí, Brazil; Moscow, Russia; Strykow, Poland; Middletown, Delaware; Greenfield, Massachusetts; Luxembourg City, Luxembourg; and Minneapolis, Minnesota. Our world headquarters are located in Alpharetta, Georgia. All of these offices are owned except for those located in Alpharetta, Shanghai, Moscow, Strykow, Greenfield, Minneapolis, and Luxembourg City which are leased.
We consider all of our facilities to be well-maintained, suitable for conducting our operations and business, and adequately insured.
Item 3. Legal Proceedings
General
We are involved in various legal proceedings relating to contracts, commercial disputes, taxes, environmental issues, employment and workers' compensation claims, product liability and other matters. We periodically review the status of these proceedings with both inside and outside counsel. We believe that the ultimate disposition of these matters will not have a material effect on the results of operations in a given quarter or year, but no assurances can be given in this regard. Below is a summary of major outstanding litigation.
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 two assessments from the tax authorities of the State of Rio de Janeiro (the "State") for unpaid ICMS taxes on certain raw materials from January 1995 through October 1998 and from November 1998 through November 2000 (collectively, the "Raw Materials Assessments"). The Raw Materials Assessments concerned the accrual and use by SWM-B of ICMS tax credits generated from the production and sale of certain non-tobacco related grades of paper sold domestically. SWM-B contested the Raw Materials Assessments based on Article 150, VI of the Brazilian Federal Constitution of 1988, which grants immunity from ICMS taxes to papers intended for printing books, newspapers and periodicals, on the ground that tax immunity extends to the raw material inputs used to produce such papers. In 2015, the first chamber of the Federal Supreme Court decided the first Raw Materials Assessment in favor of SWM-B. On May 24, 2019, the second chamber of the Federal Supreme Court decided the second Raw Materials Assessment against SWM-B in the amount of approximately $9.5 million based on the foreign currency exchange rate at December 31, 2020. SWM-B, with assistance of outside counsel, is evaluating the decision and exploring its options and other defenses to partially satisfy or reduce the judgment and SWM-B plans to pursue these avenues vigorously. However, because the outcome of any reductions and defenses is uncertain, SWM-B recorded a liability sufficient to satisfy this amount in the second quarter of 2019. This judgment may be settled over the course of 60 months after all possible challenges are concluded. Interest and penalties will continue to accrue until any judgment is paid.
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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 four sets of assessments against SWM-B, one for May 2006 - November 2007, a second for January 2008 - December 2010, a third for September 2011 - September 2013, which was replaced by a smaller assessment for January - June 2013, and a fourth for July 2013 - December 2017 (collectively the "Electricity Assessments"). SWM-B challenged all Electricity Assessments in administrative proceedings before the State tax council (in the first-level court Junta de Revisão Fiscal and the appellate court Conselho de Contribuintes) based on Resolution 1.610/89, which defers these taxes on electricity purchased by an "electricity-intensive consumer." In 2014, a majority of the Conselho de Contribuintes sitting en banc ruled against SWM-B in each of the first and second Electricity Assessments ($3.6 million and $6.9 million, respectively, based on the foreign currency exchange rate at December 31, 2020), and SWM-B is now pursuing challenges to these assessments in the State judicial system where SWM-B obtained preliminary injunctions against enforcement of both assessments. In March 2020, the first-level judicial court ruled in favor of SWM-B in the second Electricity Assessment, a decision that is now on appeal. The third Electricity Assessment was dismissed on technical grounds by the Conselho de Contribuintes in 2018 after the State admitted the tax did not apply as it had asserted. Instead, in August 2018, the State filed a revised third Electricity Assessment in the amount of $0.5 million for ICMS on electricity purchased during part of 2013, and a fourth Electricity Assessment in the amount of $7.7 million pertaining to ICMS and FECP on electricity purchased from July 2013 to December 2017. SWM-B filed challenges to these 2018 assessments in the first-level administrative court on the same grounds as the older cases. The Junta de Revisão Fiscal rejected SWM-B’s challenge to the revised third Electricity Assessment, but the Conselho de Contribuintes agreed with SWM-B that the 2013 claim was time-barred. Both the Junta de Revisão Fiscal and the Conselho de Contribuintes ruled against SWM-B in the fourth Electricity Assessment. Both 2019 decisions from the Conselho de Contribuintes are being appealed to the full bench of the Conselho de Contribuintes. The State issued a new regulation effective January 1, 2018 that only specific industries are “electricity-intensive consumers,” a list that excludes paper manufacturers. SWM-B contends this regulation shows that paper manufacturers were electricity-intensive consumers eligible to defer ICMS before 2018.
SWM-B cannot determine the outcome of the Electricity Assessments matters; as such so no loss has been accrued in our consolidated financial statements for them.
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. 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
Our operations are subject to various federal, state and local laws, regulations and ordinances in various nations relating to environmental matters. The nature of our operations exposes us 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 we have incurred in the past several years, and will continue to incur, capital and operating expenditures in order to comply with environmental laws and regulations, we believe that the future cost of compliance with environmental laws, regulations and ordinances, our exposure to liability for environmental claims, and our obligation to participate in the remediation and monitoring of certain hazardous waste disposal sites, will not have a material effect on our financial condition or results of operations. However, future events, such as changes in existing laws and regulations, or unknown contamination or costs of remediation of sites owned, operated or used for waste disposal by us (including contamination caused by prior owners and operators of such sites or
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other waste generators) may give rise to additional costs which could have a material effect on our financial condition or results of operations.
Indemnification Matters
In connection with our spin-off from Kimberly-Clark in 1995, we undertook to indemnify and hold Kimberly-Clark harmless from claims and liabilities related to the businesses transferred to us that were not identified as excluded liabilities in the related agreements. As of December 31, 2020, there are no material claims pending under this indemnification.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information. Since November 30, 1995, our common stock, $0.10 par value per share ("Common Stock") has been listed on the New York Stock Exchange, trading under the symbol "SWM." On February 18, 2021, our stock closed at $43.77 per share.
Performance Graph. The following graph compares the total cumulative stockholder return on our Common Stock during the period from December 31, 2015 through December 31, 2020, with the comparable cumulative total returns of the S&P SmallCap 600 Capped Materials Index and self-constructed peer group, both of which we consider to be reflective of the performance of the industries in which we operate. The peer group portfolio includes ten U.S. based materials companies including; Bery Global Group, Clearwater Paper Corp., Domtar Corp., Glatfelter Corp., Graphic Packing Holding Corp, Grief Inc., Lydall Inc., Neenah Inc., Rayonier Advanced Materials Inc and Sealed Air Corp.
The graph assumes that the value of the investments in the Common Stock and each index were $100 on December 31, 2015 and that all dividends were reinvested. The stock price performance shown on the graph below is not necessarily indicative of future price performance.
Comparison of Cumulative Five Year Return
Holders. As of March 1, 2021, there were 1,548 stockholders of record.
Dividends. We have declared and paid cash dividends on our Common Stock every fiscal quarter since the second quarter of 1996. In 2020, 2019 and 2018, we declared and paid cash dividends totaling $1.76 per share, $1.76 per share and $1.73 per share, respectively. On February 18, 2021, we announced a cash dividend of $0.44 per share payable on March 26, 2021 to stockholders of record as of the close of business on March 12, 2021. Our credit agreement covenants require that we maintain certain financial ratios, as disclosed in Note 14. Debt, of the Notes to Consolidated Financial Statements, none of which under normal business conditions materially limit our ability to
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pay such dividends. We will continue to assess our dividend policy in light of our overall strategy, cash generation, debt levels and ongoing requirements for cash to fund operations and to pursue possible strategic opportunities.
Recent Sales of Unregistered Securities. We had no unregistered sales of equity securities during the fiscal year ended December 31, 2020.
Repurchases of Equity Securities. The following table indicates the cost of and number of shares of our Common Stock we have repurchased during 2020 and the remaining amount of share repurchases currently authorized by our Board of Directors as of December 31, 2020:

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-June 30, 2020 |  | 434 |  |  | 33.23 |  |  | — |  |  | — |  |  | — |
July 1-September 30, 2020 |  | 771 |  |  | 33.05 |  |  | — |  |  | — |  |  | — |
October 1-October 31, 2020 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
November 1-November 30, 2020 |  | 531 |  |  | 33.20 |  |  | — |  |  | — |  |  | — |
December 1-December 31, 2020 |  | 769 |  |  | 34.78 |  |  | — |  |  | — |  |  | — |
Total 2020 |  | 27,779 |  |  | $ | 35.12 |  |  | — |  |  | $ | — |  |  | $ | — |

We sometimes use 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 stock price of our Common Stock, strategic opportunities, strategic outlook and cash availability. From time-to-time, certain of our officers and directors may sell shares pursuant to personal 10b5-1 plans.
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Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements and related notes within this Annual Report on Form 10-K. The results for 2020 and 2017 include results of operations of Tekra and Conwed from the date of their acquisitions of March 13, 2020 and January 20, 2017, respectively. All dollar amounts are in millions except per share amounts, statistical data and ratios.

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018 |  | 2017 (1) |  | 2016 (1)
Results of Operations |  |  |  |  |  |  |  |  |
Net sales | $ | 1,074.4 |  |  | $ | 1,022.8 |  |  | $ | 1,041.3 |  |  | $ | 982.1 |  |  | $ | 839.9 |
Cost of products sold | 766.1 |  |  | 732.8 |  |  | 762.8 |  |  | 698.7 |  |  | 582.0 |
Gross profit | 308.3 |  |  | 290.0 |  |  | 278.5 |  |  | 283.4 |  |  | 257.9 |
Nonmanufacturing expenses | 167.6 |  |  | 152.3 |  |  | 141.8 |  |  | 147.0 |  |  | 122.3 |
Restructuring & impairment expense | 11.9 |  |  | 3.7 |  |  | 1.7 |  |  | 8.1 |  |  | 25.6 |
Operating profit | 128.8 |  |  | 134.0 |  |  | 135.0 |  |  | 128.3 |  |  | 110.0 |
Income from continuing operations | 83.8 |  |  | 85.8 |  |  | 94.8 |  |  | 34.4 |  |  | 82.8 |
(Loss) income from discontinued operations | — |  |  | — |  |  | (0.3) |  |  | 0.1 |  |  | — |
Net income | $ | 83.8 |  |  | $ | 85.8 |  |  | $ | 94.5 |  |  | $ | 34.5 |  |  | $ | 82.8 |
Net income (loss) per share - basic: |  |  |  |  |  |  |  |  |
Income from continuing operations | $ | 2.68 |  |  | $ | 2.78 |  |  | $ | 3.08 |  |  | $ | 1.12 |  |  | $ | 2.71 |
Loss from discontinued operations | — |  |  | — |  |  | (0.01) |  |  | — |  |  | — |
Net income per share - basic | $ | 2.68 |  |  | $ | 2.78 |  |  | $ | 3.07 |  |  | $ | 1.12 |  |  | $ | 2.71 |
Net income (loss) per share - diluted: |  |  |  |  |  |  |  |  |
Income from continuing operations | $ | 2.66 |  |  | $ | 2.76 |  |  | $ | 3.07 |  |  | $ | 1.12 |  |  | $ | 2.70 |
(Loss) income from discontinued operations | — |  |  | — |  |  | (0.01) |  |  | — |  |  | — |
Net income per share - diluted | $ | 2.66 |  |  | $ | 2.76 |  |  | $ | 3.06 |  |  | $ | 1.12 |  |  | $ | 2.70 |
Cash dividends declared and paid per share | $ | 1.76 |  |  | $ | 1.76 |  |  | $ | 1.73 |  |  | $ | 1.69 |  |  | $ | 1.62 |
EBITDA from continuing operations(2) | $ | 202.8 |  |  | $ | 195.1 |  |  | $ | 193.9 |  |  | $ | 192.4 |  |  | $ | 157.6 |
Adjusted EBITDA from continuing operations (2) | $ | 212.9 |  |  | $ | 197.2 |  |  | $ | 196.9 |  |  | $ | 197.9 |  |  | $ | 178.4 |
Percent of Net Sales |  |  |  |  |  |  |  |  |
Gross profit | 28.7 | % |  | 28.4 | % |  | 26.7 | % |  | 28.9 | % |  | 30.7 | %
Nonmanufacturing expenses | 15.6 | % |  | 14.9 | % |  | 13.6 | % |  | 15.0 | % |  | 14.6 | %
Financial Position |  |  |  |  |  |  |  |  |
Capital spending | $ | 30.1 |  |  | $ | 28.6 |  |  | $ | 27.0 |  |  | $ | 37.2 |  |  | $ | 27.8 |
Depreciation and amortization | 72.2 |  |  | 57.7 |  |  | 61.6 |  |  | 59.5 |  |  | 44.5 |
Total assets | 1,584.9 |  |  | 1,471.7 |  |  | 1,466.5 |  |  | 1,542.5 |  |  | 1,173.7 |
Total debt | 593.3 |  |  | 542.7 |  |  | 622.1 |  |  | 684.2 |  |  | 440.4 |
Total debt to capital ratio | 47.7 | % |  | 47.6 | % |  | 52.7 | % |  | 55.6 | % |  | 46.4 | %

(1) In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The amendment requires an employer to report the service cost component in the same line item or line items as other compensation costs arising from services rendered by the pertinent employees during the
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period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal from operations. The Company adopted this ASU effective January 1, 2018, utilizing the retrospective transition approach upon adoption. The adoption of this guidance resulted in a reclassification of the components of net periodic pension cost, other than service cost, from Cost of products sold and General expense to Other income (expense), net, in the Consolidated Statements of Income. The reclassification of these costs affects only the EP segment, as there are no pension costs associated with the AMS segment. For the years ended December 31, 2017, and 2016, respectively, $3.6 million and $3.9 million in pension expense were reclassified from Operating profit to Other expense in the consolidated statement of income for the 2017 and 2016 comparative periods. The adoption of this guidance had no effect on Net income in the Consolidated Statements of Income and no effect on the other consolidated financial statements.
(2) Earnings before interest, taxes, depreciation and amortization ("EBITDA") from Continuing Operations is a non-GAAP financial measure that is calculated by adding interest expense, income tax provision and depreciation and amortization expense to income from continuing operations. Adjusted EBITDA from Continuing Operations is a non-GAAP financial measure that is calculated by adding restructuring and impairment expense, Loss (income) from equity affiliates and Other expense (income), inventory write-down expense related to plant closure, and litigation related expenses, net to EBITDA from continuing operations. We caution investors that amounts presented in accordance with our definitions of EBITDA from Continuing Operations and Adjusted EBITDA from Continuing Operations may not be comparable to similar measures disclosed by our competitors, because not all companies and analysts calculate EBITDA from Continuing Operations and Adjusted EBITDA from Continuing Operations in the same manner. We present EBITDA from Continuing Operations and Adjusted EBITDA from Continuing Operations because we consider them to be important supplemental measures of our performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Reconciliations to income from continuing operations are as follows ($ in millions):

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018 |  | 2017 |  | 2016
Income from continuing operations | $ | 83.8 |  |  | $ | 85.8 |  |  | $ | 94.8 |  |  | $ | 34.4 |  |  | $ | 82.8 |
Plus: Interest expense | 30.5 |  |  | 36.1 |  |  | 28.2 |  |  | 26.9 |  |  | 16.6 |
Plus: Income tax provision | 18.4 |  |  | 15.2 |  |  | 10.7 |  |  | 69.6 |  |  | 15.4 |
Plus: Depreciation and amortization(1) | 70.1 |  |  | 58.0 |  |  | 60.2 |  |  | 61.5 |  |  | 42.8 |
EBITDA from continuing operations | 202.8 |  |  | 195.1 |  |  | 193.9 |  |  | 192.4 |  |  | 157.6 |
Plus: Restructuring and impairment expense | 11.9 |  |  | 3.7 |  |  | 1.7 |  |  | 8.1 |  |  | 25.6 |
Plus: Loss (income) from equity affiliates | (4.9) |  |  | (4.1) |  |  | 11.3 |  |  | (2.5) |  |  | (4.8) |
Plus: Other expense (income), net | 1.0 |  |  | 1.0 |  |  | (10.0) |  |  | (0.1) |  |  | — |
Plus: Inventory write-down expense related to plant closure | 2.0 |  |  | — |  |  | — |  |  | — |  |  | — |
Plus: Litigation related expenses | — |  |  | 1.5 |  |  | — |  |  | — |  |  | — |
Adjusted EBITDA from continuing operations | $ | 212.8 |  |  | $ | 197.2 |  |  | $ | 196.9 |  |  | $ | 197.9 |  |  | $ | 178.4 |

(1) A total of $2.1 million, ($0.3) million, $1.4 million, ($2.0) million, and $1.7 million, primarily related to amortization of deferred debt issuance costs, amortization of bond discount, and amortization of gains from termination of interest rate swaps in 2020, 2019, 2018, 2017, and 2016, respectively, are excluded from the Depreciation and amortization in the table above. The deferred debt issuance costs, amortization of bond discount and amortization of gains from the termination of interest rate swaps are included in Interest expense.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of our financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K and the selected financial data included in Part II, Item 6, "Selected Financial Data" of this Annual Report on Form 10-K. The discussion of our financial condition and results of operations includes various forward-looking statements about our markets, the demand for our products and our future prospects. These statements are based on certain assumptions that we consider reasonable. For information about risks and exposures relating to us and our business, you should read the sections entitled "Factors That May Affect Future Results," in Part I, Item 1A of this Annual Report on Form 10-K and "Forward Looking Statements" at the end of this Item 7. Unless the context indicates otherwise, references to "SWM," the "Company," "we," "us," "our," or similar terms include Schweitzer-Mauduit International, Inc. and our consolidated subsidiaries.
This Management's Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of our financial statements with an understanding of our recent performance, our financial condition and our prospects. The following will be discussed and analyzed:
• SUMMARY;
• CRITICAL ACCOUNTING POLICIES AND ESTIMATES;
• RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS;
• RESULTS OF OPERATIONS;
• LIQUIDITY AND CAPITAL RESOURCES;
• OTHER FACTORS AFFECTING LIQUIDITY AND CAPITAL RESOURCES;
• OUTLOOK; and
• FORWARD-LOOKING STATEMENTS.
COVID-19 Overview
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 may continue to be, impacted. 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. This overview is intended to provide management’s view of the COVID-19 pandemic’s impact on the Company in 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 December 31, 2020. Further details about the risks and impacts discussed in the section below can be found in the forward-looking statements and Part I, Item 1A. "Risk Factors".
Health and Safety. We maintain 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. We have reviewed all work responsibilities and those employees who are able have been encouraged to work remotely. At operating sites, 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 negatively affected by decreased demand, particularly transportation. In addition, 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 future potential supply chain disruptions.
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Tobacco (EP) - The Company’s largest single end-market is the tobacco industry, which has not been materially affected by the pandemic, given the consumer staple nature of the industry. The company believes some customers have increased their inventory levels to minimize supply chain impacts of potential future COVID-19 related disruptions.
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. Air filtration products have seen accelerated demand in 2020 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 management believes can deliver steady long-term growth due to increasing global consumer adoption of these products. In 2020, however, this category faced pronounced temporary near-term negative impacts, beginning late in the first quarter through most of the third quarter, as a result of significant auto industry disruption and consumer purchasing behaviors as a result of COVID-19. However, late in the third quarter of and throughout the fourth quarter of 2020, the Company’s transportation sales began to improve significantly.
Infrastructure & Construction (AMS) - The Company’s key products service highway development, residential construction, oil and 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, some of which are considered to be sensitive to economic activity and associated impacts of COVID-19, while other applications have delivered growth in 2020.
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 initial onset of the epidemic, the Company temporarily shut down manufacturing operations and/or total operations at certain sites to implement enhanced safety and hygiene procedures or to respond to temporary government orders. Where possible, the Company continued to ship products from inventories on hand, and the financial impact of these disruptions did not have a material impact on the Company’s full year results. At present, all 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) 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 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. However early signs of additional COVID-19 demand disruption led to the Company withdrawing its 2020 financial guidance in May in an abundance of caution (please refer to first quarter 2020 earnings press release and Form 8-K filed with the SEC on May 6, 2020 for additional commentary). During the second and third quarters, the Company’s results, primarily in the AMS segment, were impacted due to softer demand in several regions as a result of decreased customer ordering beginning in March 2020 when the pandemic
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impact spread globally and cases dramatically increased. Subsequently, the Company saw strong sales growth in the fourth quarter as certain key AMS end-markets such as transportation, filtration, and infrastructure and construction showed strong growth. For the full year, the company remained profitable and generated operating cash flow slightly higher than 2019 levels.
In response to the COVID-19 pandemic, the Company conducted extensive sensitivity analyses on the potential 2020 financial impacts, particularly on cash flow and liquidity. These sensitivity tests included a range of outcomes from demand-only disruption, to multi-week shutdowns across our manufacturing footprint with all sales, production, and shipping halted. Given the recent financial results, coupled with management’s belief that a meaningful escalation of manufacturing disruptions is unlikely, the Company’s operating cash flows, cash on hand, and credit facility availability, are expected to provide ample liquidity to support the Company’s operating needs and financial obligations, including cash dividend to stockholders.
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.
Liquidity & Debt Overview. The Company had $593.3 million of total debt, $54.7 million of cash, and undrawn capacity on its revolving credit facility of $445.0 million at the end of 2020. Net leverage was 2.3x at the end of 2020, versus a maximum covenant ratio of 4.5x per the terms of the credit facility, though covenants contain an acquisition-related provision, allowing net leverage to reach 5.0x throughout 2020. The Company’s nearest debt maturity is the revolving credit facility which is due in 2023. Please refer to liquidity and capital resources section for additional detail.
SUMMARY
In 2020, SWM reported net income of $83.8 million on total net sales of $1,074.4 million. Compared to the prior year, net sales increased $51.6 million, due primarily to incremental sales from the March 2020 Tekra acquisition of $77.3 million. The acquisition growth was offset by low single-digit sales declines in EP and AMS (excluding Tekra). Within AMS (excluding Tekra), Medical sales were up double-digits, while Filtration and Industrial sales were up modestly. Transportation and Infrastructure and Construction each declined, as they were more impacted by COVID-19 related demand disruptions, though each grew during the fourth quarter, with particularly strong growth in transportation.
Net income decreased to $83.8 million in 2020 compared to $85.8 million in 2019. Outside of typical business drivers, several large one-time items affect the year-over-year comparison. In 2020, the most significant expense included $11.7 million of restructuring, impairment, and other expenses related to the shut-down of the Spotswood, New Jersey facility. In 2019, these one-time items included $6.6 million (after- tax) of expenses related to Brazil tax assessments.
Cash provided by operations was $161.6 million in 2020 up from $160.3 million in 2019. Other uses and proceeds of cash during 2020 included $169.3 million consideration to acquire Tekra, $47.4 million net in proceeds from long debt issuances and repayments, $55.0 million in cash dividends paid to SWM stockholders and $33.3 million of capital spending including capitalized software.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We disclose those accounting policies that we consider to be significant in determining the amounts to be utilized for communicating our consolidated financial position, results of operations and cash flows in the first note to our consolidated financial statements included elsewhere herein. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements. Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S., which require management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported and disclosure of contingencies. Changes in these estimates could have a material impact on our financial position, results of operations, and cash flows. We discussed with the Audit Committee of the Board of Directors the estimates and judgments made for each of the following items and our accounting for and presentation of these items in the accompanying financial statements:
Accounting for Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. The complexity of our global structure requires technical expertise in determining the allocation of income to each of these jurisdictions and consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and incorporate assumptions about the amount of future state, federal, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Accounting Standards Codification Topic No. 740, Income Taxes ("ASC 740"), states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. We (1) record unrecognized tax benefits as liabilities in accordance with ASC 740 and (2) adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
On December 22, 2017, the Tax Cut and Jobs Act (the “Tax Act”) was enacted into law effective January 1, 2018. The new legislation contains several key tax provisions that affected the Company, and include but are not limited to a one-time deemed repatriation tax on post-1986 accumulated earnings and profits of the foreign subsidiary undistributed earnings (“transition tax”), a reduction of the federal corporate income tax rate from 35% to 21%, a new deduction for Foreign-Derived Intangible Income ("FDII"), and a new provision designed to tax Global Intangible Low Taxed Income (“GILTI”) of foreign subsidiaries effective January 1, 2018. As a result of the GILTI provision, the FASB issued Staff Q&A Topic 740, No. 5 “Accounting for Global Intangible Low-Taxed Income” requiring an entity to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI as a current period expense when incurred. Management makes certain judgments in interpreting the manner in which complex key provisions of the Tax Act should be applied and in the determination of income tax expense and liabilities.
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Revenue Recognition
We have two main sources of revenue: product sales and materials conversion. We recognize product sales revenues when control of a product is transferred to the customer. For the majority of product sales, transfer of control occurs when the products are shipped from one of our manufacturing facilities to the customer. The cost of delivering finished goods to our customers is recorded as a component of cost of products sold. Those costs include the amounts paid to a third party to deliver the finished goods. Any freight costs billed to and paid by a customer are included in net sales. We also provide services to customers through the conversion of customer-owned raw materials into processed finished goods. In these transactions, we generally recognize revenue as processing is completed.
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, which generally occurs when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Generally, we consider collectability of amounts due under a contract to be probable upon inception of a sale based on an evaluation of the credit worthiness of each customer. If collectability is not considered to be probable, we defer recognition of revenue on satisfied performance obligations until the uncertainty is resolved. Any variable consideration, such as discounts or price concessions, is set forth in the terms of the contract at inception and is included in the assessment of the transaction price at the outset of the arrangement. The transaction price is allocated to the individual performance obligations due under the contract based on the relative stand-alone fair value of the performance obligations identified in the contract. We typically use an observable price to determine the stand-alone selling price for separate performance obligations.
We do not typically include extended payment terms or significant financing components in our contracts with customers. Certain product sales contracts may include cash-based incentives (volume rebates or credits), which are accounted for as variable consideration. We estimate these amounts at least quarterly based on the expected forecast quantities to be provided to customers and reduce revenues recognized accordingly. Incidental items that are immaterial in the context of the contract are recognized as expense in the period incurred. We generally expense sales commissions when incurred because the amortization period is one year or less. These costs are recorded within sales and marketing expenses. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. As a practical expedient, we treat shipping and handling activities that occur after control of the good transfers as fulfillment activities, and therefore, does not account for shipping and handling costs as a separate performance obligation.
Accounting for Contingencies
We accrue an estimated loss by taking a charge to income when the likelihood that a future event, such as a legal proceeding, will result in a loss or the incurrence of a liability is probable and the amount of loss can be reasonably estimated. We disclose material contingencies if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial condition, results of operations, and our cash flows.
For further information, please see "Litigation" in Part I, Item 3, "Legal Proceedings" and Note 20. Commitments and Contingencies, of the Notes to Consolidated Financial Statements.
Property, Plant and Equipment Valuation
Certain of our manufacturing processes are capital intensive; as a result, we make substantial investments in property, plant and equipment which are recorded at cost. Net property, plant and equipment comprised 21% of our total assets as of December 31, 2020. Property, plant and equipment is depreciated on the straight-line method over the estimated useful lives of the assets. Production machines and related equipment are not subject to substantial
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technological changes rendering them obsolete and are generally depreciated over estimated useful lives of 10 to 20 years. When indications of impairment exist, we assess the likelihood of recovering the cost of long-lived assets based on our expectation of future profitability and undiscounted cash flow of the related asset group. These factors, along with management's plans with respect to the operations, are considered in assessing the recoverability of property, plant and equipment. Changes in management's estimates and plans could significantly impact our financial condition, results of operations and cash flows.
As a result of excess capacity in the tobacco-related papers industry and increased purchased material and operating costs experienced in the last several years, competitive selling prices for certain of our products are not sufficient to cover our costs with a reasonable margin. Such competitive pressures have resulted in downtime of certain paper machines and, in some cases, accelerated depreciation or impairment of certain equipment, and employee severance. We have also incurred restructuring costs in our AMS segment in pursuit of synergies from integrating our acquisitions. In recent years, we have restructured our operations to improve our competitiveness and profitability. As a result, we incurred significant charges related to asset impairments, accelerated depreciation and employee severances.
Management continues to evaluate how to operate our production facilities more effectively. Further restructuring actions are possible that might require additional impairments or accelerated depreciation of some equipment.
Business Combinations
Accounting for business combinations requires us to recognize, separately from goodwill, the assets acquired and the liabilities assumed ("net assets") at their acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the net assets acquired at their respective fair values as of the acquisition date. The estimated fair values are based upon quoted market prices and widely accepted valuation techniques, which require significant estimates and assumptions including, but not limited to, estimating future cash flows and developing appropriate discount rates. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill, based on new information obtained about the facts and circumstances that existed as of the acquisition date. Upon the conclusion of the measurement period or final determination of the values of net assets acquired, whichever comes first, any subsequent adjustments are recorded to our consolidated financial statements. See Note 5. Business Acquisitions, of the Notes to Consolidated Financial Statements for additional information.
Investments in Equity Affiliates
Investments in companies which we do not control but over which we have the ability to exercise significant influence and that, in general, are at least 20 percent-owned by us, are stated at cost plus equity in undistributed net income. These investments are evaluated for impairment when warranted. An impairment loss would be recorded whenever a decline in value of an equity investment below its carrying amount is determined to be other than temporary. In judging "other than temporary," we consider the length of time and extent to which the fair value of the equity company investment has been less than the carrying amount, the near-term and longer-term operating and financial prospects of the equity company, and our longer-term intent of retaining the investment in the equity company. See Note 9. Joint Ventures, of the Notes to Consolidated Financial Statements for additional information.
Goodwill and Unamortized Intangible Assets
Goodwill is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill is measured as the excess of consideration transferred over the net assets acquired at their respective fair values as of the acquisition date. Goodwill is tested for impairment at the reporting unit level. Fair value of a reporting unit is typically based upon estimated future cash flows discounted at a rate commensurate with the risk involved or market-based comparables. If the carrying amount of the reporting unit’s net assets exceeds its fair value, then an analysis will be performed to
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compare the implied fair value of goodwill with the carrying amount of goodwill. An impairment loss will be recognized in an amount equal to the excess of the carrying amount over its implied fair value. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. The annual impairment tests performed on October 1, 2020 and 2019 did not indicate any impairment of goodwill.
Intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss would be indicated when estimated undiscounted future cash flows from the use of the asset are less than its carrying amount. An impairment loss would be measured as the difference between the fair value (based on discounted future cash flows) and the carrying amount of the asset. Estimated useful lives range from 10 to 23 years for customer relationships and 4 to 20 years for developed technology, patents and other intangible assets. Certain trade names are estimated to have indefinite useful lives and as such are not amortized. Intangible assets with indefinite lives are reviewed for impairment following a method similar to the impairment testing for Goodwill. Testing of these assets is performed annually and whenever events and circumstances indicate that impairment may have occurred. The annual impairment tests performed on October 1, 2020 and 2019 did not indicate any impairment of intangible assets.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
For a discussion regarding recently adopted accounting pronouncements, see "Recently adopted Accounting Pronouncements" included in Note 2. Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements.
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RESULTS OF OPERATIONS

| For the Years Ended December 31,
| 2020 (1) |  | 2019 |  | 2018
| ($ in millions, except per share amounts)
Net sales | $ | 1,074.4 |  |  | $ | 1,022.8 |  |  | $ | 1,041.3 |
Cost of products sold | 766.1 |  |  | 732.8 |  |  | 762.8 |
Gross profit | 308.3 |  |  | 290.0 |  |  | 278.5 |
Selling expense | 36.9 |  |  | 33.7 |  |  | 35.7 |
Research expense | 13.8 |  |  | 13.5 |  |  | 15.2 |
General expense | 116.9 |  |  | 105.1 |  |  | 90.9 |
Total nonmanufacturing expenses | 167.6 |  |  | 152.3 |  |  | 141.8 |
Restructuring and impairment expense | 11.9 |  |  | 3.7 |  |  | 1.7 |
Operating profit | 128.8 |  |  | 134.0 |  |  | 135.0 |
Interest expense | 30.5 |  |  | 36.1 |  |  | 28.2 |
Other (expense) income, net | (1.0) |  |  | (1.0) |  |  | 10.0 |
Income from continuing operations before income taxes and income from equity affiliates | 97.3 |  |  | 96.9 |  |  | 116.8 |
Provision for income taxes | 18.4 |  |  | 15.2 |  |  | 10.7 |
Income (loss) from equity affiliates, net of income taxes | 4.9 |  |  | 4.1 |  |  | (11.3) |
Income from continuing operations | 83.8 |  |  | 85.8 |  |  | 94.8 |
Loss from discontinued operations | — |  |  | — |  |  | (0.3) |
Net income | $ | 83.8 |  |  | $ | 85.8 |  |  | $ | 94.5 |
Net income (loss) per share - basic: |  |  |  |  |
Income per share from continuing operations | $ | 2.68 |  |  | $ | 2.78 |  |  | $ | 3.08 |
Loss per share from discontinued operations | — |  |  | — |  |  | (0.01) |
Net income per share - basic | $ | 2.68 |  |  | $ | 2.78 |  |  | $ | 3.07 |
Net income (loss) per share - diluted: |  |  |  |  |
Income per share from continuing operations | $ | 2.66 |  |  | $ | 2.76 |  |  | $ | 3.07 |
Loss per share from discontinued operations | — |  |  | — |  |  | (0.01) |
Net income per share - diluted | $ | 2.66 |  |  | $ | 2.76 |  |  | $ | 3.06 |

(1) Results during the year ended December 31, 2020 include Tekra from the March 13, 2020 acquisition date to December 31, 2020.
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Year Ended December 31, 2020 Compared with the Year Ended December 31, 2019
Net Sales
(dollars in millions)

| 2020 |  | 2019 |  | Change |  | Percent Change
Advanced Materials & Structures | $ | 543.5 |  |  | $ | 477.2 |  |  | $ | 66.3 |  |  | 13.9 | %
Engineered Papers | 530.9 |  |  | 545.6 |  |  | (14.7) |  |  | (2.7) |
Total | $ | 1,074.4 |  |  | $ | 1,022.8 |  |  | $ | 51.6 |  |  | 5.0 | %

Net sales were $1,074.4 million in 2020 compared with $1,022.8 million in 2019. The increase in net sales consisted of the following (dollars in millions):

| Amount |  | Percent
Changes in currency exchange rates | $ | (1.2) |  |  | (0.1) | %
Changes in royalties | (0.7) |  |  | (0.1) |
Changes in product mix, selling prices and sales volumes, net | 53.5 |  |  | 5.2 |
Total | $ | 51.6 |  |  | 5.0 | %

AMS segment net sales were $543.5 million for 2020 compared to $477.2 million during 2019. The increase of $66.3 million or 13.9% included the benefit from the Tekra acquisition (closed March 13, 2020), and gains in medical, filtration, and industrial end-markets. Medical sales were driven by higher demand for facemask materials and specialty hospital products. Filtration sales increased slightly with strong air filtration growth offset by mild softness in other areas. Industrial sales grew due to gains in packaging films and materials for wind turbine manufacturing. Those increases were partially offset by declines in transportation and infrastructure and construction sales driven by COVID-19 related pressures, however both end-markets rebounded in the fourth quarter, particularly transportation, moderating the full year declines. Excluding Tekra, AMS sales declined 2.3%.
The EP segment net sales were $530.9 million for 2020 compared to $545.6 million during 2019. The decrease of $14.7 million, or 2.7%, was primarily the result of the volume decline due to the continued strategic de-emphasis of non-tobacco volumes and tobacco industry attrition, which offset positive price/mix impact benefiting from a higher mix of high-value cigarette, Heat-not-Burn, and battery separator papers and a smaller proportion of lower-margin non-tobacco volumes.
Gross Profit
(dollars in millions)

|  |  |  |  | Percent Change |  | Percent of Net Sales
| 2020 |  | 2019 |  | Change |  |  | 2020 |  | 2019
Net sales | $ | 1,074.4 |  |  | $ | 1,022.8 |  |  | $ | 51.6 |  |  | 5.0 | % |  | 100.0 | % |  | 100.0 | %
Cost of products sold | 766.1 |  |  | 732.8 |  |  | 33.3 |  |  | 4.5 |  |  | 71.3 |  |  | 71.6 |
Gross profit | $ | 308.3 |  |  | $ | 290.0 |  |  | $ | 18.3 |  |  | 6.3 | % |  | 28.7 | % |  | 28.4 | %

Gross profit for the year ended December 31, 2020 increased by $18.3 million, or 6.3%, to $308.3 million from $290.0 million in the prior year. AMS gross profit increased by $9.5 million, primarily due to the incremental gross profits from the acquired Tekra business and lower input costs partially offset by declines in transportation and infrastructure and construction sales. In the EP segment, gross profit increased by $8.9 million, primarily due to positive price/mix impacts, cost reduction initiatives, lower input costs, and favorable impact of foreign currency movements, partially offset by $4.9 million of other restructuring-related charges in Cost of products, of which $2.0 million was to write down the value of certain spare parts and consignment inventories to estimated net realizable
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value and $2.9 million, resulting from the acceleration of depreciation and amortization for machinery and equipment.
The $4.9 million of other restructuring-related charges related to the decision to shut down the Spotswood, New Jersey facility and shift the production of paper made there to the Company's other facilities. See Note 13. Restructuring and Impairment Activities, of the Notes to Consolidated Financial Statements for additional information.
Nonmanufacturing Expenses
(dollars in millions)

|  |  |  |  | Percent Change |  | Percent of Net Sales
| 2020 |  | 2019 |  | Change |  |  | 2020 |  | 2019
Selling expense | $ | 36.9 |  |  | $ | 33.7 |  |  | $ | 3.2 |  |  | 9.5 | % |  | 3.4 | % |  | 3.3 | %
Research expense | 13.8 |  |  | 13.5 |  |  | 0.3 |  |  | 2.2 |  |  | 1.3 |  |  | 1.3 |
General expense | 116.9 |  |  | 105.1 |  |  | 11.8 |  |  | 11.2 |  |  | 10.9 |  |  | 10.3 |
Nonmanufacturing expenses | $ | 167.6 |  |  | $ | 152.3 |  |  | $ | 15.3 |  |  | 10.0 | % |  | 15.6 | % |  | 14.9 | %

Nonmanufacturing expenses in the year ended December 31, 2020 increased by $15.3 million, or 10.0%, to $167.6 million from $152.3 million in the prior year due primarily to incremental expenses of the acquired Tekra business and transaction expenses associated with the Tekra acquisition, as well as third-party consulting expenses.
Restructuring and Impairment Expense
(dollars in millions)

|  |  |  |  |  |  | Percent of Net Sales
| 2020 |  | 2019 |  | Change |  |  | 2020 |  | 2019
Advanced Materials & Structures | $ | 0.5 |  |  | $ | 1.1 |  |  | $ | (0.6) |  |  |  |  | 0.1 | % |  | 0.2 | %
Engineered Papers | 11.3 |  |  | 2.6 |  |  | 8.7 |  |  |  |  | 2.1 |  |  | 0.5 |
Unallocated expenses | 0.1 |  |  | — |  |  | 0.1 |  |  |  |  | — |  |  | — |
Total | $ | 11.9 |  |  | $ | 3.7 |  |  | $ | 8.2 |  |  |  |  | 1.1 | % |  | 0.4 | %

The Company incurred total restructuring and impairment expense of $11.9 million in the year ended December 31, 2020, compared to $3.7 million in the year ended December 31, 2019, an increase of $8.2 million.
In the AMS segment, restructuring and impairment expense of $0.5 million in the 2020 period related to severance accruals as a result of department realignments.
In the year ended December 31, 2020, restructuring expense included $6.7 million in the EP segment relating to severance and other accruals as a result of the decision to shut down the Spotswood, New Jersey facility.
The EP segment also recognized $4.6 million of restructuring expenses in 2020 primarily related to severance accruals at our manufacturing operations in France and Poland. These restructuring charges relate to ongoing cost optimization initiatives to remain competitive within the EP segment.
In the year ended December 31, 2019, restructuring and impairment expenses consisted of $1.1 million in impairment charges at our U.S. and Chinese manufacturing facilities related to our AMS segment, as well as $2.6 million in severance accruals for employees at our U.S., Brazilian and French manufacturing operations related to the EP segment.
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Operating Profit
(dollars in millions)

|  |  |  |  | Percent Change |  | Return on Net Sales
| 2020 |  | 2019 |  | Change |  |  | 2020 |  | 2019
Advanced Materials & Structures | $ | 64.8 |  |  | $ | 64.3 |  |  | $ | 0.5 |  |  | 0.8 | % |  | 11.9 | % |  | 13.5 | %
Engineered Papers | 116.8 |  |  | 119.2 |  |  | (2.4) |  |  | (2.0) |  |  | 22.0 |  |  | 21.8 |
Unallocated expenses | (52.8) |  |  | (49.5) |  |  | (3.3) |  |  | (6.7) |  |  |  |  |
Total | $ | 128.8 |  |  | $ | 134.0 |  |  | $ | (5.2) |  |  | (3.9) | % |  | 12.0 | % |  | 13.1 | %

Operating profit was $128.8 million in the year ended December 31, 2020 compared with $134.0 million during the prior year.
The AMS segment's operating profit in the year ended December 31, 2020 was $64.8 million compared to $64.3 million in the prior year period, up 1%, which reflected incremental operating profits from the Tekra acquisition partially offset by higher purchase accounting expenses related to the Tekra acquisition.
The EP segment's operating profit in the year ended December 31, 2020 was $116.8 million, a decrease of $2.4 million, or 2.0%, from $119.2 million in the prior year. The decrease was primarily due to $16.2 million of restructuring and impairment expenses and other restructuring related charges of which $11.7 million was related to the shut-down of the Spotswood, New Jersey facility as discussed above, partially offset by positive price/mix impacts, cost structure improvements, lower raw material costs and favorable currency movements mostly from lower local currency operating costs in Brazil.
Unallocated expenses in the year ended December 31, 2020 were $52.8 million, up $3.3 million, or 6.7%, from the $49.5 million in the prior year period. The increase was primarily due to the result of transaction expenses associated with the Tekra acquisition, and third-party consulting costs.
Non-Operating Expenses, Net
Interest expense was $30.5 million in the year ended December 31, 2020, a decrease of $5.6 million from $36.1 million in the year ended December 31, 2019. The decrease was due mainly to $7.1 million of non-recurring interest expense related to Brazil tax assessments in the year of 2019. Interest expense on debt was up $1.5 million primarily due to incremental debt related to the Tekra acquisition.
The weighted average effective interest rate on our debt facilities was approximately 4.02% and 4.42% for the years ended December 31, 2020 and 2019, respectively.
Other expense, net was $1.0 million during the year ended December 31, 2020 unchanged versus the year ended December 31, 2019.
Income Taxes
An $18.4 million and $15.2 million provision for income taxes in the years ended December 31, 2020 and 2019, respectively, resulted in an effective tax rate of 18.9% compared with 15.7% in the prior year. The Company’s effective tax rates differ from the statutory federal income tax rate of 21% due to varying tax rates in foreign jurisdictions, the relative amounts of income we earn in those jurisdictions and a year over year $4.2 million reduction due to the one-time Brazil ICMS litigation accrual in 2019.
Income (Loss) from Equity Affiliates
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Income from equity affiliates, net of income taxes, was $4.9 million in the year ended December 31, 2020 compared with income of $4.1 million during the prior year, and reflects the results of operations of CTM and CTS.
Net Income and Income per Share
Net income in the year ended December 31, 2020 was $83.8 million, or $2.66 per diluted share, compared with $85.8 million, or $2.76 per diluted share, during the prior year period.
For a comparison of the Company’s results of operations for the year ended December 31, 2018 to the year ended December 31, 2019, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S. Securities and Exchange Commission on March 2, 2020.
LIQUIDITY AND CAPITAL RESOURCES
A major factor in our liquidity and capital resource planning is our generation of cash flow from operations, which is sensitive to changes in the mix of products sold, volume and pricing of our products, as well as changes in our production volumes, costs and working capital. Our liquidity is supplemented by funds available under our revolving credit facility with a syndicate of banks that is used as either operating conditions or strategic opportunities warrant.
Cash Requirements
As of December 31, 2020, $39.4 million of our $54.7 million of cash and cash equivalents was held by foreign subsidiaries. Cash paid for income taxes (net of refunds) was $14.8 million for the year ended December 31, 2020. 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 growth strategy.
We generally fund our capital projects using cash on-hand, cash generated from operations and our existing credit facilities, including the Credit Agreement, as defined below in "Debt Instruments and Related Covenants."
Cash Provided by Operations
Net cash provided by operations was $161.6 million in the year ended December 31, 2020 compared with $160.3 million in the prior year.
Working Capital
As of December 31, 2020, we had net operating working capital of $232.3 million including cash and cash equivalents of $54.7 million, compared with net operating working capital of $271.8 million including cash and cash equivalents of $103.0 million as of December 31, 2019. These changes primarily reflect the impact of the Tekra acquisition and increases in accounts receivable, inventory, accounts payable and accrued expenses.
In 2020, net changes in operating working capital decreased cash flow by $5.7 million. In 2019, net changes in operating working capital decreased cash flow by $1.8 million. The most significant working capital related cash outflow item was related to higher accounts receivable, as a result of strong Q4 organic sales.
Cash Used for Investing
Cash used for investing activities during 2020 was $203.1 million and consisted primarily of the net $169.3 million consideration to acquire Tekra. Capital spending including capitalized software totaled $33.3 million, down $0.8 million. In response to COVID-19 related impacts to certain end-markets, management continues to monitor cash flow trends and has deferred some discretionary capital spending originally planned for 2020.
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Cash used for investing activities during 2019 was $14.8 million and consisted primarily of cash paid for capital spending partially offset by proceeds from the sale of RTL Philippines assets.
Capital Spending
Capital spending including capitalized software was $33.3 million, and $34.1 million in 2020 and 2019, respectively. During 2020 and 2019 capital spending was primarily related to support growth in filtration and transportation on AMS manufacturing facilities in China, the development of new products, the rebuild of certain paper manufacturing lines, and IT infrastructure.
We incur capital spending as necessary to meet legal requirements and otherwise in connection with the protection of the environment at our facilities in the U.S., United Kingdom, France, Belgium, Brazil, Canada, China and Poland. For these purposes, we expect to incur capital expenditures of less than $1.0 million in each of 2021 and 2022, of which no material amount is expected to be the result of environmental fines or settlements. The foregoing capital expenditures are not expected to reduce our ability to invest in other appropriate and necessary capital projects and are not expected to have a material adverse effect on our financial condition or results of operations.
Cash Used for Financing Activities
During 2020, financing activities consisted primarily of $212.7 million proceeds from borrowings under the revolving credit facility, primarily to fund the Tekra acquisition, net repayments on borrowings of $165.3 million, cash dividends of $55.0 million paid to SWM stockholders and share repurchases of $1.0 million.
During 2019, financing activities consisted primarily of net repayments on borrowings of $80.5 million, cash dividends of $54.4 million paid to SWM stockholders and share repurchases of $0.9 million.
Dividend Payments
We have declared and paid cash dividends on our common stock every fiscal quarter since the second quarter of 1996. On February 18, 2021, we announced a cash dividend of $0.44 per share payable on March 26, 2021 to stockholders of record as of the close of business on March 12, 2021. The covenants contained in our Indenture and Credit Agreement, each, as defined below in "Debt Instruments and Related Covenants," require that we maintain certain financial ratios, as disclosed in Note 14. Debt, of the Notes to Consolidated Financial Statements, none of which under normal business conditions materially limit our ability to pay such dividends. We will continue to assess our dividend policy in light of our overall strategy, cash generation, debt levels and ongoing requirements for cash to fund operations and to pursue possible strategic opportunities.
Share Repurchases
In 2020 and 2019, we repurchased 27,779 shares and 25,297 shares, respectively, of our common stock at a cost of $1.0 million and $0.9 million, respectively, for the value of employees' stock-based compensation share awards surrendered to satisfy their personal statutory income tax withholding obligations.
Debt Instruments and Related Covenants

Debt Instruments and Related Covenants ($ in millions) | For the Years Ended December 31,
2020 |  | 2019
Changes in short-term debt | $ | — |  |  | $ | (0.1) |
Proceeds from issuances of long-term debt | 212.7 |  |  | 19.1 |
Payments on long-term debt | (165.3) |  |  | (99.5) |
Net proceeds (repayments) from borrowings | $ | 47.4 |  |  | $ | (80.5) |

Net proceeds from borrowings were $47.4 million during 2020.
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On February 10, 2021 we amended our existing Credit Agreement to provide for an additional Term Loan Facility “Term Loan B” which provides for additional capacity of $350 million. See Note 25. Subsequent Event, of the Notes to Consolidated Financial Statements for additional information about the Term Loan B. Other than potential borrowings under the Term Loan B, the Company does not expect to incur any significant additional borrowings during 2021.
Credit Agreement
On September 25, 2018, the Company entered into a $700.0 million credit agreement (the “Credit Agreement”), which replaced the Company’s previous senior secured credit facilities and provides for a five-year $500.0 million revolving line of credit (the “Revolving Credit Facility”) and a seven-year $200.0 million bank term loan facility (the “Term Loan Facility”). Subject to certain conditions, including the absence of a default or event of default under the Credit Agreement, the Company may request incremental loans to be extended under the Revolving Credit Facility or the Term Loan Facility so long as the Company is in pro forma compliance with the financial covenants set forth in the Credit Agreement and the aggregate of such increases does not exceed $400.0 million. See Note 14. Debt, of the Notes to Consolidated Financial Statements, for more information.
Borrowings under the Revolving Credit Facility will initially bear interest, at the Company’s option, at either (i) 1.75% in excess of a reserve adjusted London Interbank Offered Rate (“LIBOR”) or (ii) 0.75% in excess of an alternative base rate. Borrowings under the Term Loan Facility will initially bear interest, at the Company’s option, at either (i) 2.00% in excess of a reserve adjusted LIBOR rate or (ii) 1.00% in excess of an alternative base rate. The Term Loan amortizes at the rate of 1.0% per year and will mature on September 25, 2025. Unused borrowing capacity under the Credit Agreement was $445.0 million as of December 31, 2020. We also had availability under our bank overdraft facilities and lines of credit of $6.7 million as of December 31, 2020.
The Company was in compliance with all of its covenants under the Indenture and Credit Agreement at December 31, 2020. With the current level of borrowing and forecasted results, we expect to remain in compliance with our Credit Agreement financial covenants.
Our total debt to capital ratios, as calculated under the Credit Agreement, at December 31, 2020 and December 31, 2019 were 47.7% and 47.6%, respectively.
Senior Unsecured Notes
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 are guaranteed on a senior unsecured basis by each of the Company’s existing and future wholly-owned subsidiaries that is a borrower under or that guarantees obligations under the Credit Agreement, as defined below, or that guarantees certain other indebtedness, subject to certain exceptions.
The Notes were issued pursuant to an Indenture (the “Indenture”), dated as of September 25, 2018, 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.
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For a comparison of liquidity and capital resources and the Company’s cash flow activities for the fiscal year ended December 31, 2019 and 2018, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S. Securities and Exchange Commission on March 2, 2020.
Off-Balance Sheet Arrangements
As of December 31, 2020, 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
The following table represents our future contractual cash requirements for the next five years and thereafter for our long-term debt obligations and other commitments ($ in millions):

| Payments due for the years ended
Contractual Obligations | Total |  | 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | Thereafter
Current debt (1) | $ | 4.1 |  |  | $ | 4.1 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Long-term debt (2) | 593.8 |  |  | — |  |  | 4.1 |  |  | 53.5 |  |  | 2.6 |  |  | 188.8 |  |  | 344.8 |
Debt interest (3) | 160.3 |  |  | 29.1 |  |  | 29.0 |  |  | 28.7 |  |  | 27.9 |  |  | 27.8 |  |  | 17.8 |
Restructuring obligations (4) | 7.4 |  |  | 5.8 |  |  | 0.5 |  |  | 0.4 |  |  | 0.4 |  |  | 0.3 |  |  | — |
Minimum operating lease payments (5) | 25.0 |  |  | 6.3 |  |  | 5.1 |  |  | 3.5 |  |  | 2.9 |  |  | 1.8 |  |  | 5.4 |
Purchase obligations - raw materials (6) | 35.1 |  |  | 26.9 |  |  | 6.1 |  |  | 1.6 |  |  | 0.5 |  |  | — |  |  | — |
Purchase obligations - energy (7) | 31.8 |  |  | 22.7 |  |  | 4.7 |  |  | 1.6 |  |  | 0.4 |  |  | 0.4 |  |  | 2.0 |
Tax Act transition obligation (8) | 21.0 |  |  | 2.2 |  |  | 2.2 |  |  | 4.2 |  |  | 5.5 |  |  | 6.9 |  |  | — |
Other contractual obligations (9) (10) (11) | 0.9 |  |  | 0.9 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 879.4 |  |  | $ | 98.0 |  |  | $ | 51.7 |  |  | $ | 93.5 |  |  | $ | 40.2 |  |  | $ | 226.0 |  |  | $ | 370.0 |

(1) Current debt excludes debt issuance costs of $1.3 million; see Note 14. Debt, of the Notes to Consolidated Financial Statements.
(2) Long-term debt excludes debt issuance costs of $3.3 million and $6.1 million in unamortized discount on the senior unsecured notes; see additional information regarding long-term debt in Note 14. Debt, of the Notes to Consolidated Financial Statements.
(3) The amounts reflected in debt interest are based upon the short-term and long-term scheduled principal maturities and interest rates in effect as of December 31, 2020. Where specific maturities are not stated, such as for an overdraft line-of-credit, a repayment date coinciding with the end of the year was used for purposes of these calculations. With respect to our variable-rate debt outstanding at December 31, 2020, a 100 basis point increase in interest rates would increase our debt interest obligation by $4.4 million in 2021, taking into account the effect of the interest rate hedge transactions the Company has entered into as of December 31, 2020. For more information regarding our outstanding debt and associated interest rates, as well as hedging strategies in place which serve to fix the interest rate on a large portion of our debt, see Note 14. Debt, of the Notes to Consolidated Financial Statements.
(4) Restructuring obligations are more fully discussed in Note 13. Restructuring and Impairment Activities, of the Notes to Consolidated Financial Statements.
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(5) Minimum operating lease payments relate to our future minimum obligations under non-cancelable operating leases having an initial or remaining term in excess of one year as of December 31, 2020.
(6) Purchase obligations for raw materials include our calcium carbonate purchase agreement at our plant in Quimperlé, France, in which a vendor operates an on-site calcium carbonate plant and our plant has minimum purchase quantities. See Note 20. Commitments and Contingencies, of the Notes to Consolidated Financial Statements for additional information.
(7) Purchase obligations for energy include obligations under agreements with (1) an energy co-generation supplier at our plants in Quimperlé, France and Spay, France, to supply steam for which our plants have minimum purchase commitments, (2) a natural gas supplier to supply and distribute 100% of the natural gas needs of our three French plants, (3) an electricity supplier to supply and distribute the electricity needs of our three French plants, (4) an energy supplier to supply a constant supply of electricity for our Pirahy plant in Brazil, (5) an energy supplier to supply natural gas for our Pirahy plant in Brazil and (6) an energy supplier has a contract to provide biomass at our Spay, France facility for the next two years. See Note 20. Commitments and Contingencies, of the Notes to Consolidated Financial Statements for additional information.
(8) On December 22, 2017, the United States enacted the Tax Act into law, which requires a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. Companies may elect to pay the tax over eight years based on an installment schedule outlined in the Tax Act. We have made this election and have reflected our transition tax due by year as a contractual obligation. See Note. 17. Income Taxes, of the Notes to Consolidated Financial Statements for additional information.
(9) Other contractual obligations relate to commitments for capital projects. Other contractual obligations exclude $2.0 million of unrecognized tax benefits associated with uncertain tax positions for which there is no contractual obligation. We had no other long-term liabilities as defined for purposes of this disclosure by the SEC as of December 31, 2020.
(10) Other contractual obligations do not include any amounts for our pension obligations. The pension obligations are funded by our separate pension trusts, which held $135.2 million in assets at December 31, 2020. The combined projected benefit obligation ("PBO") of our U.S. and French pension plans was underfunded by $25.7 million and $24.9 million as of December 31, 2020 and 2019, respectively. We make contributions to our pension trusts based on many factors including regulatory guidelines, investment returns of the trusts and availability of cash for pension contributions versus other priorities. We expect 2020 funding to be in compliance with the Pension Protection Act of 2006. For information regarding our long-term pension obligations and trust assets, see Note 18. Postretirement and Other Benefits, of the Notes to Consolidated Financial Statements.
(11) Other contractual obligations do not include any amounts for our postretirement healthcare and life insurance benefits. Such payments are dependent upon our retirees incurring costs and filing claims; therefore, future payments are uncerta in. Our net payments under these plans were insignificant for the years ended December 31, 2020 and 2019, respectively. Bas ed on this past experience, we currently expect our share of the net payments during 2021 to be insignificant.
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OUTLOOK
For the AMS segment, we expect our growth outlook to be driven by macro factors affecting our served end-markets, including filtration, transportation, infrastructure and construction, medical, and industrial, as well as industry demand for many of our key applications. We expect water and other specialty filtration applications, surface protection products within transportation, and our products for infrastructure and construction end-markets to deliver growth exceeding GDP, or other global growth benchmarks, over the long-term due to the relative strong demand for the specific products we provide. Generally, we believe that our sales into the industrial and medical end-markets will perform relatively in line with long-term broad economic growth in the U.S. and to some extent Europe and China. However, the Company’s medical sales demonstrated strong growth in 2020, and could continue to outpace the broader economy, due to increased demand for certain products related to COVID-19. Excluding potential impacts from raw material price movements, the Company generally projects profit growth in the AMS segment as a result of expected organic sales growth. For the EP segment, we expect our performance to be driven by macro factors, such as the expected long-term trend of reduced cigarette consumption and foreign exchange movements, and the potential regulatory changes in the tobacco industry such as approvals of various new reduced-risk tobacco products or tax-related price increases.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of 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, incurrence of additional debt, adoption of LIP standards in new regions, reverse osmosis water filtration and global drinking water demands, integration, and growth prospects (including international growth), the deductibility of goodwill associated with certain acquisitions, impact of our restructuring actions, post-retirement healthcare and life insurance payments, impact of the LIP intellectual property litigation and opposition proceedings, the amount of capital spending and/or common stock repurchases, the profitability of China-based joint ventures, 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 of our ongoing operational excellence and other cost-reduction initiatives, increasing revenues coming from our non-tobacco operations, the impact of the COVID-19 pandemic on our operations, profitability, and cash flow, and other statements generally identified by words such as "believe," "expect," "intend," "plan," "potential," "anticipate," "project," "appear," "should," "could," "may," "will," "typically" and similar words. These statements are not guarantees of future performance and involve certain risks and uncertainties that may cause actual results to differ materially from our expectations as of the date of this report. These risks include, among other things, those set forth in Part I, Item 1A. "Risk Factors" of this report as well as the following factors:
•Risks associated with 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;
•Changes in sales or production volumes, pricing and/or manufacturing costs of Recon products, cigarette paper (including for LIP cigarettes), including any change by our customers in their tobacco and tobacco-related blends for their cigarettes, their target inventory levels and/or the overall demand for their products, new technologies such as e-cigarettes, inventory adjustments and rebalancings in our EP segment. Additionally, competition and changes in AMS end-market products due to changing customer demands;
•Changes in the Chinese economy, including relating to the demand for reconstituted tobacco, premium cigarettes and netting and due to impact of tariffs;
•Risks associated with the implementation of our strategic growth initiatives, including diversification, and the Company's understanding of, and entry into, new industries and technologies;
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•Changes in the source and intensity of competition in our commercial segments. 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;
•Our ability to attract and retain key personnel, due to our prior restructuring actions, the tobacco industry in which we operate or otherwise;
•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 phasing out of LIBOR after 2021;
•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;
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•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.
All forward-looking statements made in this document are qualified by these cautionary statements. Forward-looking statements herein are made only as of the date of this document, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance unless expressed as such and should only be viewed as historical data.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk
Changes in foreign currency exchange rates may have an impact on our operating profit. Since we transact business in many countries, some of our sale and purchase transactions are denominated in a currency other than the local currency of our operations. As a result, changes in exchange rates between the currencies in which the transaction is denominated versus the local currency of our operation into which the transaction is being recorded can impact the amount of local currency recorded for such transaction. This can result in more or less local currency revenue or cost related to such transaction and thus have an effect on our operating profit. Currency transaction risk is mitigated partially in France as some of the revenue and expense transactions of our French subsidiaries are denominated in U.S. dollars, providing a degree of natural hedging. Our Brazilian and Polish operations are more fully exposed to currency transaction risk, especially as a result of U.S. dollar and euro denominated sales, respectively.
Additionally, changes in foreign currency exchange rates may have an impact on the amount reported in Other (expense) income, net. Once the above-indicated receivables and payables from the sale and purchase transactions have been recorded, to the extent currency exchange rates change prior to settlement of the balance, a gain or loss on the non-local currency denominated asset or liability balance may be experienced, in which case such gain or loss is included in Other (expense) income, net.
We utilize forward and swap contracts and, to a lesser extent, option contracts to selectively hedge our exposure to foreign currency transaction risk when it is practical and economical to do so. The use of these contracts minimizes transactional exposure to exchange rate changes because the gains or losses incurred on the derivative instrument will offset, in whole or in part, the loss or gain on the underlying foreign currency exposure. These instruments are entered into with money center banks, insurance companies or government agencies, collectively known as counterparties. We expect to continue to apply foreign currency hedging in our Brazilian and Polish operations in the foreseeable future. As of December 31, 2020, a 10% unfavorable change in the exchange rate of our functional currencies and those of our subsidiaries against the prevailing market rates of non-local currencies involving our transactional exposures would have resulted in a net pre-tax loss of approximately $6.7 million. These hypothetical gains or losses on foreign currency transactional exposures are based on the December 31, 2020 rates and the assumed rates. While we believe the above loss resulting from the hypothetical unfavorable changes in foreign currency exchange rates could be material to our results of operations, we reduce this risk by selectively hedging our exposure when it is practical and economical to do so.
Interest Rate Risk
We may utilize a combination of variable-rate and fixed-rate debt consisting of short-term and long-term instruments. We selectively hedge our exposure to interest rate increases on our variable-rate, long-term debt when it is practical and economical to do so. We have utilized various forms of interest rate hedge agreements, including interest rate swap agreements and forward rate agreements. We utilize variable-to-fixed interest rate swap agreements, typically with contractual terms no longer than 60 months, which serve to convert a portion of our outstanding variable rate debt to a fixed rate. Various outstanding interest-bearing instruments are sensitive to changes in interest rates. With respect to our variable-rate debt outstanding at December 31, 2020, a 100 basis point increase in interest rates would result in a $4.4 million decrease to our future annual pre-tax earnings, taking into account the effect of the interest rate hedge transactions the Company has entered into as of December 31, 2020. As of December 31, 2020, the percentage of the Company’s fixed and floating interest rate debt was 59% and 41%, respectively. The Company has entered into a number of interest rate hedge transactions to convert floating rate debt to fixed. On September 11, 2019, the Company entered into a pay-fixed, receive-variable interest rate swap with a maturity date of January 31, 2027. See Note 15. Derivatives, of the Notes to Consolidated Financial Statements for additional information. Including the impact of these transactions, as of December 31, 2020, the percentage of the Company’s debt subject to fixed and floating rates of interest was 83% and 17%, respectively.
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Commodity Price Risk
We are subject to commodity price risks from our purchases of raw materials, including resin and wood pulp. Resin is the largest single component of raw material cost in the AMS segment and wood pulp is our largest single component of raw material cost in our EP segment. The per pound price of resin is volatile and may impact the future results of our AMS segment. Additionally, the per ton cost of wood pulp is cyclical in nature and more volatile than general inflation. During the period from January 2015 through December 2020, the U.S. list price of northern bleached softwood kraft pulp ("NBSK") a representative pulp grade that we use, ranged between $900 to $1,400 per ton. The average list price of NBSK for the year of 2020 was $1,140 per ton. We normally maintain approximately 50 to 90 days of inventories to support our operations. As a result, there is a lag in the impact of changes in the per ton list price of resin and wood pulp on our cost of products sold.
In our AMS segment, we utilize a variety of commodity grade and specialty resins, including a selection of specialized high temperature engineering grade resins. Certain of these specialty resins are significantly more expensive than commodity grade resins. Resin prices fluctuate significantly and can impact profitability. As we periodically enter into agreements with customers under which we agree to supply products at fixed prices, unanticipated increases in the costs of raw materials, or the lack of availability of such raw materials (due to force majeure or other reasons), can significantly impact our financial performance. Even where we do not have fixed-price agreements, we generally cannot pass through increases in raw material costs in a timely manner and in many instances are not able to pass through the entire increase to our customers. Further, some of the resins we use in our AMS segment are only available from a single supplier, or a limited number of suppliers. Consequently, such supplier(s) can control the availability and thus the cost of the resins we use, notwithstanding any changes in the cost of oil. It can be time consuming and costly, and occasionally impractical, to find replacement resins where such suppliers limit the availability or increase the cost of resins we use. Commodity grade resin prices typically correlate with crude oil prices while specialty resin prices often do not. To date, we have not utilized derivative instruments to manage this risk. With respect to our commodity price risk, a hypothetical 10% change in per ton resin prices would impact our future annual pre-tax earnings by approximately $15.7 million, assuming no compensating change in our selling prices.
Selling prices of our paper products are influenced, in part, by the market price for wood pulp, which is determined by worldwide industry supply and demand. Generally, over time, we have been able to increase our selling prices in response to increases in per ton wood pulp costs and have generally reduced our selling prices when wood pulp costs have significantly declined. Increases in prices of wood pulp could adversely impact our earnings if selling prices are not increased or if such increases do not fully compensate for or trail the increases in wood pulp prices. We have not utilized derivative instruments to manage this risk. With respect to our commodity price risk, a hypothetical 10% change in per ton wood pulp prices would impact our future annual pre-tax earnings by approximately $3.5 million, assuming no compensating change in our selling prices.
We believe that, while our exposure to commodity price risk is material to our results of operations, our customers understand such risk and over time changes in the price of the commodities used in our manufacturing processes are typically reflected in selling prices.
Energy Supply and Cost Volatility
In Western Europe, Poland, China and in the U.S., availability of energy is generally reliable, although prices can fluctuate significantly based on variations in demand. In Brazil, where that country's production of electricity is heavily reliant upon hydroelectric plants, availability of electricity has been affected in the past by rain variations. Although our Brazilian business currently has a sufficient supply of energy to continue its current level of operation, there can be no assurance that we will have sufficient electricity in the future, or that costs will remain stable.
Due to the competitive pricing in the markets for most of our products, we are typically unable to fully pass through higher energy costs to our customers. With respect to our purchased energy price risk, a hypothetical 10% change in per unit prices would impact our future annual pre-tax earnings by approximately $4.3 million, assuming no compensating change in our selling prices.
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Periodically, when we believe it is appropriate to do so, we enter into agreements to procure a portion of our energy for future periods in order to reduce the uncertainty of future energy costs. However, in recent years this has only marginally slowed the increase in energy costs due to the volatile changes in energy prices we have experienced.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements

| Page
Consolidated Financial Statements |
Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018 | 60
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 | 61
Consolidated Balance Sheets as of December 31, 2020 and 2019 | 62
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2020, 2019 and 2018 | 63
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 | 64
Notes to Consolidated Financial Statements | 65
Reports of Independent Registered Public Accounting Firm | 108

Schedules have been omitted because they are either not required, not applicable or the required information is included in the consolidated financial statements or notes thereto.
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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Net sales | $ | 1,074.4 |  |  | $ | 1,022.8 |  |  | $ | 1,041.3 |
Cost of products sold | 766.1 |  |  | 732.8 |  |  | 762.8 |
Gross profit | 308.3 |  |  | 290.0 |  |  | 278.5 |
Selling expense | 36.9 |  |  | 33.7 |  |  | 35.7 |
Research expense | 13.8 |  |  | 13.5 |  |  | 15.2 |
General expense | 116.9 |  |  | 105.1 |  |  | 90.9 |
Total nonmanufacturing expenses | 167.6 |  |  | 152.3 |  |  | 141.8 |
Restructuring and impairment expense | 11.9 |  |  | 3.7 |  |  | 1.7 |
Operating profit | 128.8 |  |  | 134.0 |  |  | 135.0 |
Interest expense | 30.5 |  |  | 36.1 |  |  | 28.2 |
Other (expense) income, net | (1.0) |  |  | (1.0) |  |  | 10.0 |
Income from continuing operations before income taxes and income from equity affiliates | 97.3 |  |  | 96.9 |  |  | 116.8 |
Provision for income taxes | 18.4 |  |  | 15.2 |  |  | 10.7 |
Income (Loss) from equity affiliates, net of income taxes | 4.9 |  |  | 4.1 |  |  | (11.3) |
Income from continuing operations | 83.8 |  |  | 85.8 |  |  | 94.8 |
Loss from discontinued operations | — |  |  | — |  |  | (0.3) |
Net income | $ | 83.8 |  |  | $ | 85.8 |  |  | $ | 94.5 |
Net income (loss) per share - basic: |  |  |  |  |
Income per share from continuing operations | $ | 2.68 |  |  | $ | 2.78 |  |  | $ | 3.08 |
Loss per share from discontinued operations | — |  |  | — |  |  | (0.01) |
Net income per share – basic | $ | 2.68 |  |  | $ | 2.78 |  |  | $ | 3.07 |
Net income (loss) per share – diluted: |  |  |  |  |
Income per share from continuing operations | $ | 2.66 |  |  | $ | 2.76 |  |  | $ | 3.07 |
Loss per share from discontinued operations | — |  |  | — |  |  | (0.01) |
Net income per share – diluted | $ | 2.66 |  |  | $ | 2.76 |  |  | $ | 3.06 |
Weighted average shares outstanding: |  |  |  |  |
Basic | 30,832,700 |  |  | 30,652,200 |  |  | 30,551,300 |
Diluted | 31,104,200 |  |  | 30,838,300 |  |  | 30,692,900 |

The accompanying notes are an integral part of these consolidated financial statements.
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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Net income | $ | 83.8 |  |  | $ | 85.8 |  |  | $ | 94.5 |
Other comprehensive income (loss), net of tax: |  |  |  |  |
Foreign currency translation adjustments | 16.6 |  |  | 1.8 |  |  | (28.6) |
Less: Reclassification adjustment for realized translation adjustments | (0.1) |  |  | (0.9) |  |  | (0.8) |
Unrealized (loss) gain on derivative instruments | (11.6) |  |  | 1.6 |  |  | 2.4 |
Less: Reclassification adjustment for loss (gain) on derivative instruments included in net income | 2.0 |  |  | (4.5) |  |  | (3.7) |
Net (loss) gain from postretirement benefit plans | (0.1) |  |  | 0.6 |  |  | (3.3) |
Less: Amortization of postretirement benefit plans' costs included in net periodic benefit cost | 3.9 |  |  | 3.3 |  |  | 3.8 |
Other comprehensive income (loss) | 10.7 |  |  | 1.9 |  |  | (30.2) |
Comprehensive income | $ | 94.5 |  |  | $ | 87.7 |  |  | $ | 64.3 |

The accompanying notes are an integral part of these consolidated financial statements.
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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share amounts)

| December 31, 2020 |  | December 31, 2019
ASSETS |  |  |
Cash and cash equivalents | $ | 54.7 |  |  | $ | 103.0 |
Accounts receivable, net | 148.5 |  |  | 143.2 |
Inventories | 179.7 |  |  | 161.4 |
Income taxes receivable | 6.2 |  |  | 12.5 |
Other current assets | 7.3 |  |  | 7.4 |
Total current assets | 396.4 |  |  | 427.5 |
Property, plant and equipment, net | 339.0 |  |  | 330.3 |
Deferred income tax benefits | 2.6 |  |  | 3.7 |
Investment in equity affiliates | 59.3 |  |  | 52.4 |
Goodwill | 403.7 |  |  | 337.4 |
Intangible assets | 314.7 |  |  | 251.2 |
Other assets | 69.2 |  |  | 69.2 |
Total assets | $ | 1,584.9 |  |  | $ | 1,471.7 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |
Current debt | $ | 2.8 |  |  | $ | 1.9 |
Accounts payable | 60.5 |  |  | 66.4 |
Income taxes payable | 2.7 |  |  | 2.8 |
Accrued expenses | 100.9 |  |  | 86.5 |
Total current liabilities | 166.9 |  |  | 157.6 |
Long-term debt | 590.5 |  |  | 540.8 |
Long-term income tax payable | 17.7 |  |  | 21.4 |
Pension and other postretirement benefits | 36.5 |  |  | 31.6 |
Deferred income tax liabilities | 45.1 |  |  | 48.2 |
Other liabilities | 78.6 |  |  | 74.4 |
Total liabilities | 935.3 |  |  | 874.0 |
Stockholders' equity: |  |  |
Preferred stock, $0.10 par value per share; 10,000,000 shares authorized; None issued or outstanding | — |  |  | — |
Common stock, $0.10 par value per share; 100,000,000 shares authorized; 31,324,745 and 30,896,661 shares issued and outstanding at December 31, 2020 and 2019, respectively | 3.1 |  |  | 3.1 |
Additional paid-in-capital | 92.2 |  |  | 78.8 |
Retained earnings | 666.2 |  |  | 638.4 |
Accumulated other comprehensive loss | (111.9) |  |  | (122.6) |
Total stockholders' equity | 649.6 |  |  | 597.7 |
Total liabilities and stockholders' equity | $ | 1,584.9 |  |  | 1,471.7 |

The accompanying notes are an integral part of these consolidated financial statements.
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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in millions, except per share amounts)

| Common Stock Issued |  |  |  |  |  |  |  |  |  |
| Shares |  | Amount |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive (Loss) Income |  | Total |  |
Balance, December 31, 2017 | 30,711,299 |  |  | $ | 3.1 |  |  | $ | 66.3 |  |  | $ | 566.7 |  |  | $ | (89.4) |  |  | $ | 546.7 |  |  |
Cumulative effects of change in accounting standards | — |  |  | — |  |  | — |  |  | 3.2 |  |  | (4.9) |  |  | (1.7) |  |  |
Net income | — |  |  | — |  |  | — |  |  | 94.5 |  |  | — |  |  | 94.5 |  |  |
Other comprehensive loss, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | (30.2) |  |  | (30.2) |  |  |
Dividends declared ($1.73 per share) | — |  |  | — |  |  | — |  |  | (53.2) |  |  | — |  |  | (53.2) |  |  |
Restricted stock issuances, net | 130,617 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |
Stock-based employee compensation expense | — |  |  | — |  |  | 4.6 |  |  | — |  |  | — |  |  | 4.6 |  |  |
Stock issued to directors as compensation | 4,723 |  |  | — |  |  | 0.2 |  |  | — |  |  | — |  |  | 0.2 |  |  |
Purchases and cancellation of common stock | (75,395) |  |  | — |  |  | — |  |  | (3.0) |  |  | — |  |  | (3.0) |  |  |
Balance, December 31, 2018 | 30,771,244 |  |  | $ | 3.1 |  |  | $ | 71.1 |  |  | $ | 608.2 |  |  | $ | (124.5) |  |  | $ | 557.9 |  |  |
Cumulative effects of change in accounting standards | — |  |  | — |  |  | — |  |  | (0.3) |  |  | — |  |  | (0.3) |  |  |
Net income | — |  |  | — |  |  | — |  |  | 85.8 |  |  | — |  |  | 85.8 |  |  |
Other comprehensive income, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | 1.9 |  |  | 1.9 |  |  |
Dividends declared ($1.76 per share) | — |  |  | — |  |  | — |  |  | (54.4) |  |  | — |  |  | (54.4) |  |  |
Restricted stock issuances, net | 147,113 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |
Stock-based employee compensation expense | — |  |  | — |  |  | 7.6 |  |  | — |  |  | — |  |  | 7.6 |  |  |
Stock issued to directors as compensation | 3,601 |  |  | — |  |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |  |  |
Purchases and cancellation of common stock | (25,297) |  |  | — |  |  | — |  |  | (0.9) |  |  | — |  |  | (0.9) |  |  |
Balance, December 31, 2019 | 30,896,661 |  |  | $ | 3.1 |  |  | $ | 78.8 |  |  | $ | 638.4 |  |  | $ | (122.6) |  |  | $ | 597.7 |  |  |
Net income | — |  |  | — |  |  | — |  |  | 83.8 |  |  | — |  |  | 83.8 |  |  |
Other comprehensive income, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | 10.7 |  |  | 10.7 |  |  |
Dividends declared ($1.76 per share) | — |  |  | — |  |  | — |  |  | (55.0) |  |  | — |  |  | (55.0) |  |  |
Restricted stock issuances, net | 302,705 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |
Stock-based employee compensation expense | — |  |  | — |  |  | 8.6 |  |  | — |  |  | — |  |  | 8.6 |  |  |
Modification to director stock-based compensation | — |  |  | — |  |  | 4.0 |  |  | — |  |  | — |  |  | 4.0 |  |  |
Stock issued to directors as compensation | 3,689 |  |  | — |  |  | 0.8 |  |  | — |  |  | — |  |  | 0.8 |  |  |
Deferred compensation directors stock trust | 149,469 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |
Purchases and cancellation of common stock | (27,779) |  |  | — |  |  | — |  |  | (1.0) |  |  | — |  |  | (1.0) |  |  |
Balance, December 31, 2020 | 31,324,745 |  |  | $ | 3.1 |  |  | $ | 92.2 |  |  | $ | 666.2 |  |  | $ | (111.9) |  |  | $ | 649.6 |  |  |

The accompanying notes are an integral part of these consolidated financial statements.
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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in millions)

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Operations |  |  |  |  |
Net income | $ | 83.8 |  |  | $ | 85.8 |  |  | $ | 94.5 |
Less: Loss from discontinued operations | — |  |  | — |  |  | (0.3) |
Income from continuing operations | 83.8 |  |  | 85.8 |  |  | 94.8 |
Non-cash items included in net income: |  |  |  |  |
Depreciation and amortization | 72.2 |  |  | 57.7 |  |  | 61.6 |
Impairments | — |  |  | 1.1 |  |  | 0.2 |
Deferred income tax (benefit) provision | (5.2) |  |  | (3.4) |  |  | 7.5 |
Pension and other postretirement benefits | 3.7 |  |  | 2.6 |  |  | 2.8 |
Stock-based compensation | 8.8 |  |  | 7.7 |  |  | 4.8 |
(Income) loss from equity affiliates | (4.9) |  |  | (4.1) |  |  | 11.3 |
Brazil tax assessment accruals, net | — |  |  | 10.9 |  |  | — |
Long-term income tax payable | (0.5) |  |  | (0.6) |  |  | (12.0) |
Change in fair value of contingent consideration | — |  |  | — |  |  | (10.2) |
Cash dividends received from equity affiliates | 2.7 |  |  | 2.6 |  |  | 2.0 |
Other items | 6.7 |  |  | 1.8 |  |  | 0.4 |
Changes in operating working capital: |  |  |  |  |
Accounts receivable | (5.3) |  |  | 10.8 |  |  | (18.3) |
Inventories | (3.5) |  |  | (11.2) |  |  | (4.9) |
Prepaid expenses | 0.6 |  |  | (0.2) |  |  | (0.1) |
Accounts payable | (12.7) |  |  | (2.1) |  |  | 8.0 |
Accrued expenses | 7.4 |  |  | 3.9 |  |  | (1.0) |
Accrued income taxes | 7.8 |  |  | (3.0) |  |  | (8.0) |
Net changes in operating working capital | (5.7) |  |  | (1.8) |  |  | (24.3) |
Net cash provided by operating activities of: |  |  |  |  |
- Continuing operations | 161.6 |  |  | 160.3 |  |  | 138.9 |
- Discontinued operations | — |  |  | — |  |  | 0.2 |
Cash provided by operations | 161.6 |  |  | 160.3 |  |  | 139.1 |
Investing |  |  |  |  |
Capital spending | (30.1) |  |  | (28.6) |  |  | (27.0) |
Capitalized software costs | (3.2) |  |  | (5.5) |  |  | (2.7) |
Acquisitions, net of cash acquired | (169.3) |  |  | — |  |  | — |
Proceeds from sale of assets | 0.5 |  |  | 14.7 |  |  | — |
Other investing | (1.0) |  |  | 4.6 |  |  | 2.2 |
Cash used for investing | (203.1) |  |  | (14.8) |  |  | (27.5) |
Financing |  |  |  |  |
Cash dividends paid to SWM stockholders | (55.0) |  |  | (54.4) |  |  | (53.2) |
Changes in short-term debt, net | — |  |  | (0.1) |  |  | (1.3) |
Proceeds from issuances of long-term debt | 212.7 |  |  | 19.1 |  |  | 634.2 |
Payments on long-term debt | (165.3) |  |  | (99.5) |  |  | (694.0) |
Payments for debt issuance costs | — |  |  | — |  |  | (3.6) |
Purchases of common stock | (1.0) |  |  | (0.9) |  |  | (3.0) |
Cash used in financing | (8.6) |  |  | (135.8) |  |  | (120.9) |
Effect of exchange rate changes on cash and cash equivalents | 1.8 |  |  | (0.5) |  |  | (3.8) |
(Decrease) increase in cash and cash equivalents | (48.3) |  |  | 9.2 |  |  | (13.1) |
Cash and cash equivalents at beginning of period | 103.0 |  |  | 93.8 |  |  | 106.9 |
Cash and cash equivalents at end of period | $ | 54.7 |  |  | $ | 103.0 |  |  | $ | 93.8 |

The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
Nature of Business
Schweitzer-Mauduit International, Inc., or SWM 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 two operating product line segments: Advanced Materials and Structures and Engineered Papers.
The Advanced Materials & Structures segment, or AMS, produces mostly resin-based rolled goods such as nets, films and meltblown materials, typically through an extrusion process or other non-woven technologies. These products are used in a variety of specialty applications across the filtration, transportation, construction and infrastructure, medical, and industrial end-markets. The acquisition of Tekra, a converter of high-performance films and substrates added coating and converting capabilities, increased the Company’s medical business, and provided further penetration into transportation and industrial end-markets.
The Engineered Papers segment, or EP, primarily serves the tobacco industry with production of various cigarette papers and reconstituted tobacco products, or "recon." Traditional reconstituted tobacco leaf, or "RTL," is used as a blend with virgin tobacco in cigarettes and used as wrappers and binders for cigars. Recon, as well as LIP (low ignition propensity) cigarette paper, a specialty product with fire-safety features, are two key profit drivers. The EP segment also produces non-tobacco papers for both premium applications, such as energy storage, and industrial commodity paper grades, which are often produced to maximize machine utilization.
We conduct business in over 90 countries and operate 23 production locations worldwide, with facilities in the U.S., Canada, United Kingdom, France, Luxembourg, Belgium, Russia, Brazil, China and Poland. We also have a 50% equity interest in two joint ventures in China. The first, China Tobacco Mauduit (Jiangmen) Paper Industry Ltd., or CTM, produces cigarette and porous plug wrap papers and the second, China Tobacco Schweitzer (Yunnan) Reconstituted Tobacco Co. Ltd., or CTS, produces RTL.
As used in this 2020 Annual Report on Form 10-K, unless the context indicates otherwise, references to "we," "us," "our," "SWM," "Schweitzer-Mauduit" or similar terms include Schweitzer-Mauduit International, Inc. and its consolidated subsidiaries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements and the notes thereto have been prepared in accordance with accounting principles generally accepted in the United States of America, "U.S. GAAP." The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. The Company believes the estimates and assumptions used in the preparation of these consolidated financial statements are reasonable, based upon currently available facts and known circumstances. Actual results may differ from those estimates and assumptions as a result of a number of factors, including those discussed elsewhere in this report and in its other public filings from time to time.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and wholly-owned, majority-owned and controlled subsidiaries. Intercompany balances and transactions have been eliminated. Certain reclassifications of prior year data were made in the Notes to Consolidated Financial Statements. The reclassifications were made to conform to the current year presentation.
The Company uses the equity method to account for its investments in two joint ventures with the China National Tobacco Corporation (see Note 9. Joint Ventures). Investment in equity affiliates represents the Company’s investment in these joint ventures. The Company’s 50% share of the net income (loss) of the joint ventures is included in the consolidated statements of income as income (loss) from equity affiliates.
Revenue Recognition
The Company has two 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. 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.
Freight Costs
The cost of delivering finished goods to the Company's customers is recorded as a component of cost of products sold. Those costs include the amounts paid to a third party to deliver the finished goods.
Royalty Income
Royalties from third-party patent licenses are recognized when earned, including monies received at an agreement's initiation attributable to past sales. The Company recognizes up-front payments upon receipt when it has no future performance requirement or ongoing obligation arising from its agreements and the payment is for a separate earnings process. Minimum annual royalties received in advance are deferred and are recognized in the period earned. The Company recognized $7.5 million, $6.8 million and $5.9 million of royalty income during 2020, 2019 and 2018 respectively, which is included in net sales in the Consolidated Statements of Income.
Foreign Currency Translation
The income statements of foreign entities are translated into U.S. dollars at average exchange rates prevailing during the periods presented. The balance sheets of these entities are translated at period-end exchange rates, and the
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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
differences from historical exchange rates are reflected in a separate component of accumulated other comprehensive loss as unrealized foreign currency translation adjustments.
Foreign currency risks arise from transactions and balances denominated in non-local currencies. Gains and losses resulting from remeasurement and settlement of such transactions and balances, net of currency hedge impacts, included in Other (expense) income, net, were losses of $0.9 million, $1.4 million and $1.5 million in 2020, 2019 and 2018, respectively.
Derivative Instruments
The Company is exposed to changes in foreign currency exchange rates, interest rates and commodity prices. The Company utilizes a variety of practices to manage these market risks, including where considered appropriate, derivative instruments. The Company uses derivative instruments only for risk management purposes and not for trading or speculation. All derivative instruments the Company uses 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 Company believes the credit risks with respect to the counterparties, and the foreign currency risks that would not be hedged if the counterparties fail to fulfill their obligations under the contracts, are not material in view of its understanding of the financial strength of the counterparties.
Gains and losses on instruments that hedge firm commitments are deferred and included in the basis of the underlying hedged items. All other hedging gains and losses are included in period income or expense based on the period-end market price of the instrument and are included in the Company's operating cash flows. See Note 15. Derivatives, for additional information.
Cash and Cash Equivalents
The Company considers all highly liquid, unrestricted investments with remaining maturities of three months or less to be cash equivalents, including money market funds with no restrictions on withdrawals. As of December 31, 2020 and 2019, included in Cash and cash equivalents on the Consolidated Balance Sheets is $0.6 million in contractually restricted cash.
Business Combinations
The Company uses the acquisition method of accounting for business combinations. At the acquisition date, the Company records assets acquired and liabilities assumed at their respective fair market values. The Company estimates fair value using the exit price approach which is the price that would be received to sell an asset or paid to transfer a liability in an orderly market. An exit price is determined from a market participant's viewpoint in the principal or most advantageous market and may result in the Company valuing assets or liabilities at a fair value that is not reflective of the Company's intended use of the assets or liabilities. Any excess consideration above the estimated fair values of the net assets acquired is recognized as goodwill on the Company's Consolidated Balance Sheets. The operating results of acquired businesses are included in the Company's results of operations beginning as of their effective acquisition dates. Acquisition costs are expensed as incurred and were $1.1 million in 2020. There were no acquisition costs incurred in 2019 and 2018.
Impairment of Long-Lived Assets, Goodwill and Intangible Assets
The Company evaluates the carrying value of long-lived assets, including property and equipment, goodwill and intangible assets when events and circumstances warrant a review. Goodwill is also tested for impairment annually during the fourth quarter. We first evaluate qualitative factors, such as macroeconomic conditions and our overall financial performance by reporting unit to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We then evaluate how significant each of the identified factors could be to the fair value or carrying amount of a reporting unit and weigh these factors in totality in forming a conclusion of whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount (the “Step 0 Test”). Goodwill is not impaired if we determine that it is not more likely than not
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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
that the fair value of a reporting unit is less than its carrying amount. Otherwise, we would proceed to the goodwill impairment test.
Alternatively, we may also bypass the Step 0 Test and proceed directly to the goodwill impairment test, where the fair value of the reporting unit is compared to the carrying value. The difference between the total fair value of the reporting unit and the carrying value is recognized as an impairment to the reporting unit's goodwill. See Note 10. Goodwill for further discussion of the Company's annual impairment test results. During the annual testing performed as of October 1, 2020, the estimated fair value of each of the Company's reporting units was in excess of its respective carrying value.
We have acquired trade names that have been determined to have indefinite lives. We evaluate a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, category share, business history, product life cycle and operating plans. Indefinite-lived intangibles are evaluated for impairment annually during the fourth quarter. Additionally, when certain events or changes in operating conditions occur, an impairment assessment is performed and indefinite-lived trade names may be adjusted to a determinable life or an impairment charge may be recorded.
The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, which approximates a straight-line basis, over the estimated periods benefited. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted. Estimated useful lives range from 10 to 23 years for customer relationships and 4 to 20 years for developed technology, patents and other intangible assets.
The carrying value of long-lived assets is reviewed to determine if events or circumstances have changed which may indicate that the assets may be impaired or the useful life may need to be changed. Upon occurrence of such a triggering event, the Company considers internal and external factors relating to each asset group, including expectation of future profitability, undiscounted cash flows and its plans with respect to the operations. If impairment is indicated, an impairment loss is measured by the amount the net carrying value of the asset exceeds its estimated fair value.
Environmental Spending
Environmental spending is capitalized if such spending qualifies as property, plant and equipment, substantially increases the economic value or extends the useful life of an asset. All other such spending is expensed as incurred, including fines and penalties incurred in connection with environmental violations. Environmental spending relating to an existing condition caused by past operations is expensed. Liabilities are accrued when environmental assessments are probable and the costs can be reasonably estimated. Generally, timing of these accruals coincides with completion of a feasibility study or commitment to a formal plan of action.
Capitalized Software Costs
The Company capitalizes certain purchases of software and software development costs in connection with major projects of software development for internal use. These costs are included in Other assets on the Consolidated Balance Sheets and are amortized using the straight-line method over the estimated useful life not to exceed seven years. Costs associated with business process redesign, end-user training, system start-up and ongoing software maintenance are expensed as incurred. Amortization of capitalized software was $2.1 million, $1.9 million and $1.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. Accumulated amortization of capitalized software costs was $40.5 million and $36.9 million at December 31, 2020 and 2019, respectively. See Note 12. Other Assets for additional information.
Business Tax Credits
Business tax credits represent value added tax credits receivable and similar assets, such as Imposto sobre Circulação de Mercadorias e Serviços, or ICMS, in Brazil. Business tax credits are generated when value-added
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
taxes, or VAT, are paid on purchases. VAT and similar taxes are collected from customers on certain sales. In some jurisdictions, export sales do not require VAT collection. See Note 12. Other Assets for additional information.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We operate and are subject to income taxes in the U.S. and numerous foreign jurisdictions. The complexity of our global structure requires technical expertise in determining the allocation of income to each of these jurisdictions and consolidated income tax expense.
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If it is determined that the Company would be able to realize the deferred tax assets in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it is determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
On December 22, 2017, the Tax Act was enacted into law effective January 1, 2018. The new legislation contains several key tax provisions that affected the Company, and include but are not limited to a one-time deemed repatriation tax on post-1986 accumulated earnings and profits of the foreign subsidiary undistributed earnings (“transition tax”), a reduction of the federal corporate income tax rate from 35% to 21%, a new deduction for Foreign-Derived Intangible Income ("FDII"), and a new provision designed to tax Global Intangible Low Taxed Income (“GILTI”) of foreign subsidiaries effective January 1, 2018. As a result of the GILTI provision, the FASB issued Staff Q&A Topic 740, No. 5 “Accounting for Global Intangible Low-Taxed Income” requiring an entity to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI as a current period expense when incurred. Management makes certain judgments in interpreting the manner in which complex key provisions of the Tax Act should be applied and in the determination of income tax expense and liabilities.
Pension and Other Postretirement Benefits Accounting
The Company recognizes the estimated compensation cost of employees' pension and other postretirement benefits over their approximate period of service. The Company's earnings are impacted by amounts of expense recorded related to these benefits, which primarily consist of U.S. and French pension benefits. Each year's recorded expenses are estimates based on actuarial calculations of the Company's accumulated and projected benefit obligations, or PBOs, for the Company's various plans.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Suspension of additional benefits for future service is considered a curtailment, and if material, necessitates a re-measurement of plan assets and PBO. As part of a re-measurement, the Company adjusts its discount rates and other actuarial assumptions, such as retirement, turnover and mortality table assumptions, as appropriate. See Note 18. Postretirement and Other Benefits for additional information.
Comprehensive Income
Comprehensive income includes net income, as well as items charged and credited directly to stockholders' equity, which are excluded from net income. The Company has presented comprehensive income in the Consolidated Statements of Comprehensive Income. Reclassification adjustments of derivative instruments are presented in Net sales and Interest expense in the Consolidated Statements of Income. See Note 15. 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 18. Postretirement and Other Benefits.
Components of Accumulated other comprehensive (loss) income were as follows ($ in millions):

| December 31,
| 2020 |  | 2019
Accumulated pension and OPEB liability adjustments, net of income tax benefit of $11.6 million and $12.8 million at December 31, 2020 and 2019, respectively | $ | (20.5) |  |  | $ | (24.3) |
Accumulated unrealized loss on derivative instruments, net of income tax benefit of $2.8 million and $1.6 million at December 31, 2020 and 2019, respectively | (13.1) |  |  | (3.5) |
Accumulated unrealized foreign currency translation adjustments, net of income tax benefit of $10.1 million and $5.0 million at December 31, 2020 and 2019, respectively | (78.3) |  |  | (94.8) |
Accumulated other comprehensive loss | $ | (111.9) |  |  | $ | (122.6) |

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

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
| Pre-tax |  | Tax |  | Net of Tax |  | Pre-tax |  | Tax |  | Net of Tax |  | Pre-tax |  | Tax |  | Net of Tax
Pension and OPEB liability adjustments | $ | 5.0 |  |  | $ | (1.2) |  |  | $ | 3.8 |  |  | $ | 2.5 |  |  | $ | 1.4 |  |  | $ | 3.9 |  |  | $ | (0.9) |  |  | $ | (2.4) |  |  | $ | (3.3) |
Derivative instrument adjustments | (10.8) |  |  | 1.2 |  |  | (9.6) |  |  | (2.9) |  |  | — |  |  | (2.9) |  |  | (2.4) |  |  | 1.4 |  |  | (1.0) |
Unrealized foreign currency translation adjustments | 11.5 |  |  | 5.0 |  |  | 16.5 |  |  | (2.5) |  |  | 3.4 |  |  | 0.9 |  |  | (28.0) |  |  | (2.8) |  |  | (30.8) |
Total | $ | 5.7 |  |  | $ | 5.0 |  |  | $ | 10.7 |  |  | $ | (2.9) |  |  | $ | 4.8 |  |  | $ | 1.9 |  |  | $ | (31.3) |  |  | $ | (3.8) |  |  | $ | (35.1) |

The change in the components of Accumulated other comprehensive loss for the year ended December 31, 2018 includes a $4.9 million cumulative-effect adjustment from Accumulated other comprehensive loss directly to Retained earnings as a result of the adoption of ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," as discussed below.
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Restricted Stock
All of the Company's restricted stock grants, including those that have been earned in the case of performance-based shares and cliff-vesting grants that are not performance based, vest upon completion of a specified period of time, typically between two and four years. The fair value of each award is equal to the share price of the Company's stock on the date of the grant. This cost is recognized over the vesting period of the respective award. The Company records forfeitures of shares related to continued service requirements as they occur. A summary of outstanding restricted stock awards as of December 31, 2020 and 2019 is included in Note 19. Stockholders' Equity.
Restricted Stock Plan Performance Based Shares
The Company's long-term incentive compensation program, or LTICP, for key employees includes an equity-based award component that is provided through the Long-term Incentive Plan, or LTIP, which the Company adopted in 2015 and which replaced its previous Restricted Stock Plan, or RSP. The objectives under the LTICP are established at the beginning of a performance cycle and are intended to focus management on longer-term strategic goals. The Compensation Committee of the Board of Directors designates participants in the LTICP and LTIP and determines the equity-based award opportunity in the form of restricted stock for each performance cycle, which is generally measured on the basis of a one year performance period (the measurement period). The restricted shares are considered issued and outstanding when the number of shares becomes fixed, after the annual performance is determined, and such awards vest at the end of the performance year or some predetermined period thereafter. The Company recognizes compensation expense with an offsetting credit to additional paid-in-capital over the performance period based on the fair value of the award at the date of grant, with compensation expense being adjusted cumulatively based on the number of shares expected to be earned according to the level of achievement of performance goals.
Fair Value Option
The Company has not elected to measure its financial instruments or certain commitments at fair value.
Recently Adopted Accounting Pronouncements
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 on the 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. The provisions of the standard were adopted effective as of January 1, 2020, there was no material impact on the consolidated financial statements.
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. 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 did not impact existing fair value measurements.
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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 on the consolidated financial statements.
Recently Issued Accounting Standards
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 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 effective for years beginning after December 15, 2020 with early adoption permitted. The Company has evaluated the impact of the pronouncement and the adoption of this guidance does not have a material impact on the consolidated financial statements.
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.
Note 3. Revenue Recognition
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. Any variable consideration, such as discounts or price concessions, is set forth in the terms of the contract at inception and is included in the assessment of the transaction price at the outset of the arrangement. 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.
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These costs are recorded within sales and marketing 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.

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
| AMS |  | EP |  | Total |  | AMS |  | EP |  | Total |  | AMS |  | EP |  | Total
Product revenues | $ | 522.4 |  |  | $ | 473.8 |  |  | $ | 996.2 |  |  | $ | 462.8 |  |  | $ | 484.2 |  |  | $ | 947.0 |  |  | $ | 455.5 |  |  | $ | 500.1 |  |  | $ | 955.6 |
Materials conversion revenues | 14.1 |  |  | 52.2 |  |  | 66.3 |  |  | 8.9 |  |  | 56.4 |  |  | 65.3 |  |  | 8.4 |  |  | 68.2 |  |  | 76.6 |
Other revenues | 7.0 |  |  | 4.9 |  |  | 11.9 |  |  | 5.5 |  |  | 5.0 |  |  | 10.5 |  |  | 4.0 |  |  | 5.1 |  |  | 9.1 |
Total revenues (1) | $ | 543.5 |  |  | $ | 530.9 |  |  | $ | 1,074.4 |  |  | $ | 477.2 |  |  | $ | 545.6 |  |  | $ | 1,022.8 |  |  | $ | 467.9 |  |  | $ | 573.4 |  |  | $ | 1,041.3 |

(1) Revenues include net hedging gains and losses for the years ended December 31, 2020, 2019 and 2018.
Net sales are attributed to the following geographic locations based on the location of the Company’s direct customers ($ in millions):

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
| AMS |  | EP |  | Total |  | AMS |  | EP |  | Total |  | AMS |  | EP |  | Total
United States | $ | 376.7 |  |  | $ | 161.9 |  |  | $ | 538.6 |  |  | $ | 331.3 |  |  | $ | 182.8 |  |  | $ | 514.1 |  |  | $ | 320.1 |  |  | $ | 193.3 |  |  | $ | 513.4 |
Europe and the former Commonwealth of Independent States | 47.5 |  |  | 182.2 |  |  | 229.7 |  |  | 45.8 |  |  | 172.6 |  |  | 218.4 |  |  | 46.2 |  |  | 214.6 |  |  | 260.8 |
Asia/Pacific (including China) | 94.6 |  |  | 110.7 |  |  | 205.3 |  |  | 77.6 |  |  | 95.0 |  |  | 172.6 |  |  | 76.6 |  |  | 82.8 |  |  | 159.4 |
Latin America | 9.3 |  |  | 43.6 |  |  | 52.9 |  |  | 7.6 |  |  | 45.6 |  |  | 53.2 |  |  | 10.0 |  |  | 43.5 |  |  | 53.5 |
Other foreign countries | 15.4 |  |  | 32.5 |  |  | 47.9 |  |  | 14.9 |  |  | 49.6 |  |  | 64.5 |  |  | 15.0 |  |  | 39.2 |  |  | 54.2 |
Total revenues (1) | $ | 543.5 |  |  | $ | 530.9 |  |  | $ | 1,074.4 |  |  | $ | 477.2 |  |  | $ | 545.6 |  |  | $ | 1,022.8 |  |  | $ | 467.9 |  |  | $ | 573.4 |  |  | $ | 1,041.3 |

(1) Revenues include net hedging gains and losses for the years ended December 31, 2020, 2019 and 2018.
Note 4. Leases
The Company adopted the guidance contained in ASC 842, Leases, on January 1, 2019 using the modified retrospective approach permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under this method, the Company applied the new leases standard at the adoption date and recognized a cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2019.
The Company leases certain office space, warehouses, manufacturing facilities, land, and equipment. The Company elected the practical expedient which allows that leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For leases without lease terms (i.e. month-to-month leases), lease expense is recognized as incurred and no asset or liability is recorded for these leases.
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The Company accounts for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from non-lease components (e.g., common-area maintenance costs). Most leases include one or more options to renew, with renewal terms that can extend the lease term. The exercise of lease renewal options is at our sole discretion. Lease assets and liabilities are determined based on the lease term including those periods for which renewal options are considered reasonably certain to be exercised. Certain leases also include options to purchase the leased property, although we are unlikely to do so in most cases. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company's leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Components of right-of-use assets and lease liabilities presented in the balance sheet are as follows ($ in million):

Assets | Classification | December 31, 2020 |  | December 31, 2019 |  |
Operating lease right-of-use assets | Other assets | $ | 19.8 |  |  | $ | 20.9 |  |  |
Finance lease right-of-use assets | Property, plant and equipment, net | 3.0 |  |  | 2.9 |  |  |
Total right of use assets |  | $ | 22.8 |  |  | $ | 23.8 |  |  |
Liabilities | Classification | December 31, 2020 |  | December 31, 2019 |  |
Current operating lease obligation | Accrued expenses | $ | 5.2 |  |  | $ | 4.9 |  |  |
Long-term operating lease obligation | Other liabilities | 15.6 |  |  | 17.2 |  |  |
Total operating lease obligation |  | $ | 20.8 |  |  | $ | 22.1 |  |  |
Current finance lease obligation | Current debt | $ | 0.5 |  |  | $ | 0.4 |  |  |
Long-term finance lease obligation | Long-term debt | 3.0 |  |  | 2.8 |  |  |
Total finance lease obligation |  | $ | 3.5 |  |  | $ | 3.2 |  |  |

| December 31, 2020 |  | December 31, 2019
Assets | Finance |  | Operating |  | Total |  | Finance |  | Operating |  | Total
Land and improvements | $ | — |  |  | $ | 0.1 |  |  | $ | 0.1 |  |  | $ | — |  |  | $ | 0.1 |  |  | $ | 0.1 |
Buildings and improvements | 3.1 |  |  | 25.9 |  |  | 29.0 |  |  | 2.9 |  |  | 21.8 |  |  | 24.7 |
Machinery and equipment | 1.1 |  |  | 4.3 |  |  | 5.4 |  |  | 0.7 |  |  | 4.5 |  |  | 5.2 |
Gross property, plant and equipment | 4.2 |  |  | 30.3 |  |  | 34.5 |  |  | 3.6 |  |  | 26.4 |  |  | 30.0 |
Less: Accumulated depreciation | (1.2) |  |  | (10.5) |  |  | (11.7) |  |  | (0.7) |  |  | (5.5) |  |  | (6.2) |
Right-of-use assets | $ | 3.0 |  |  | $ | 19.8 |  |  | $ | 22.8 |  |  | $ | 2.9 |  |  | $ | 20.9 |  |  | $ | 23.8 |

Components of lease expense incurred by the Company are as follow ($ in millions):
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Lease Cost |  |  | Year Ended December 31, 2020 |  | Year ended December 31, 2019
Finance lease cost (cost resulting from lease payments) |  |  |  |  |
Interest expense on lease liabilities |  |  | $ | 0.2 |  |  | 0.2 |
Amortization of right-of-use assets |  |  | 0.5 |  |  | 0.4 |
Operating lease cost |  |  | 6.8 |  |  | 6.2 |
Short-term lease expense |  |  | 0.4 |  |  | 0.3 |
Variable lease expense |  |  | — |  |  | — |
Sublease income |  |  | — |  |  | — |
Total Lease Cost |  |  | $ | 7.9 |  |  | $ | 7.1 |

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

Maturity of Lease Liabilities | Finance |  | Operating |  | Total
2021 | $ | 0.7 |  |  | 6.3 |  |  | $ | 7.0 |
2022 | 0.7 |  |  | 5.1 |  |  | 5.8 |
2023 | 0.6 |  |  | 3.5 |  |  | 4.1 |
2024 | 0.5 |  |  | 2.9 |  |  | 3.4 |
2025 | 0.6 |  |  | 1.8 |  |  | 2.4 |
Thereafter | 1.0 |  |  | 5.4 |  |  | 6.4 |
Total Lease Payments | $ | 4.1 |  |  | $ | 25.0 |  |  | $ | 29.1 |
Less: Interest | 0.6 |  |  | 4.2 |  |  | 4.8 |
Present Value of Lease Liabilities | $ | 3.5 |  |  | $ | 20.8 |  |  | $ | 24.3 |

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

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

Note 5. Business Acquisitions
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 two 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 as of September 30, 2020. The purchase price was funded with borrowings from our revolving credit facility.
The acquisition has been accounted for as a business combination with the assets acquired and liabilities assumed measured at their fair values as of the acquisition date, primarily using Level 3 inputs.
The estimated purchase price allocation disclosed as of March 31, 2020, was revised during the second and third quarters as new information was received and analyzed resulting in a decrease in net intangible assets of $3.4 million, and other adjustments, consisting primarily of reclassifications within working capital, leading to a net decrease in total consideration of $1.8 million.
The consideration paid for Tekra and the final fair values of the assets acquired, and liabilities assumed as of the March 13, 2020 acquisition date were as follows ($ in millions):
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| 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 |  |  |

The excess of the acquisition consideration over the fair values of the acquired assets and assumed liabilities is assigned to goodwill, of the AMS segment, and is primarily attributable to expected revenue synergies and expected to be deductible for tax purposes.
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During the twelve months ended December 31, 2020, the Company recognized $1.1 million in direct and indirect acquisition-related costs for the Tekra acquisition, respectively. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the consolidated statements of income.
The amounts of Net sales and Income from continuing operations of Tekra included in the Company's consolidated income statement from the acquisition date are as follows ($ in millions):

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

Unaudited pro forma net sales for the twelve months ended December 31, 2020 and 2019 were $1.1 billion and $1.1 billion, respectively. Preparation of pro forma income from continuing operations for the periods presented is impractical given recent changes to the ownership structure of the acquired entities prior to the transaction.
Note 6. Accounts Receivable
Accounts receivable, net are summarized as follows ($ in millions):

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

Note 7. Inventories
Inventories are valued at the lower of cost (using the First-In, First-Out and weighted average methods) or market. The Company's costs included in inventory primarily include resins, pulp, chemicals, direct labor, utilities, maintenance, depreciation, finishing supplies and an allocation of certain overhead costs. Machine start-up costs or abnormal machine shut downs are expensed in the period incurred and are not reflected in inventory. The definition of market value, with respect to all inventories, is net realizable value. The Company reviews inventories at least quarterly to determine the necessity of write-offs for excess, obsolete or unsalable inventory. The Company estimates write-offs for inventory obsolescence and shrinkage based on its judgment of future realization. These reviews require the Company to assess customer and market demand. During the year 2020, 2019 and 2018, there were no material inventory write-offs. The following schedule details inventories by major class ($ in millions):

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

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Note 8. Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Interest is capitalized as a component of the cost of construction for large projects. Expenditures for betterments are capitalized whereas normal repairs and maintenance are expensed as incurred. Property, other than land, is depreciated on a straight-line basis for financial reporting purposes. When property is sold or retired, the cost of the property and the related accumulated depreciation are removed from the balance sheet, and any gain or loss on the transaction is normally included in cost of products sold.
Property, plant and equipment (and related depreciable lives) consisted of the following ($ in millions):

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

Depreciation expense was $42.2 million, $35.8 million and $38.1 million for the years ended December 31, 2020, 2019, and 2018, respectively.
Note 9. Joint Ventures
The Company has two joint ventures with China National Tobacco Corporation, or CNTC. CNTC is the principal operating company under China’s State Tobacco Monopoly Administration. CNTC and the Company’s subsidiary, Schweitzer-Mauduit International China, Limited, or SM-China, each own 50% of each of the joint ventures. The paper joint venture China Tobacco Mauduit (Jiangmen) Paper Industry Co. LTD, or CTM, produces tobacco-related papers in China. The second joint venture China Tobacco Schweitzer (Yunnan) Reconstituted Tobacco Co. LTD, or CTS, produces reconstituted tobacco leaf products. The joint ventures pay to each the Company and CNTC sales-based royalties and management fees, of which SWM recognized $2.0 million, $2.1 million and $2.2 million in 2020, 2019 and 2018, respectively, in Other (expense) income, net in the consolidated statements of income.
The Company uses the equity method to account for its ownership interest in both joint ventures. At December 31, 2020 and 2019, the Company’s equity investment in joint ventures was $59.3 million and $52.4 million, respectively. The Company’s share of the net income (loss) was included in Income (loss) from equity affiliates, net of income taxes within the consolidated statements of income. We evaluate our equity method investments for impairment when events or changes in circumstances indicate, in our judgment, that the carrying value of such investment may have experienced an other than temporary decline in value. When evidence of loss in value has occurred, we compare the estimated fair value of the investment to the carrying value of the investment to determine whether impairment has occurred. We assess the fair value of our equity method investment using commonly accepted techniques, and may use more than one method, including, but not limited to, internally developed analysis and analysis of external data. If the estimated fair value is less than the carrying value and we consider the decline in value to be other than temporary, the excess of the carrying value over the estimated fair value is recognized in the consolidated financial statements as an impairment.
Below is summarized and combined balance sheet information of the China joint ventures as of December 31, 2020 and 2019 ($ in millions):
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| December 31,
| 2020 |  | 2019
Current assets | $ | 110.0 |  |  | $ | 99.4 |
Noncurrent assets | 166.6 |  |  | 168.0 |
Current liabilities | 67.6 |  |  | 43.1 |
Long-term liabilities | 60.2 |  |  | 88.4 |
Stockholder's equity | 148.8 |  |  | 135.9 |

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

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Net sales | $ | 101.3 |  |  | $ | 103.5 |  |  | $ | 109.7 |
Gross profit | 33.0 |  |  | 32.2 |  |  | 33.4 |
Net income | 9.7 |  |  | 8.3 |  | 7.4 |

Note 10. Goodwill
The Company evaluates goodwill for impairment at least annually during the fourth quarter. The annual tests during the fourth quarters of 2020, 2019 and 2018 resulted in no impairment. Each of the Company's two reportable segments, AMS and EP, have goodwill. There are no accumulated impairment losses in the AMS segment as of December 31, 2020. The EP segment has recorded $2.7 million in accumulated impairment losses in previous years.
The changes in the carrying amount of goodwill for each reportable segment were as follows ($ in millions):

| Advanced Materials & Structures |  | Engineered Papers |  | Total
Goodwill as of December 31, 2018 | $ | 333.1 |  |  | $ | 5.0 |  |  | $ | 338.1 |
Foreign currency translation adjustments | (0.6) |  |  | (0.1) |  |  | (0.7) |
Goodwill as of December 31, 2019 | $ | 332.5 |  |  | $ | 4.9 |  |  | $ | 337.4 |
Goodwill acquired during the period | 61.2 |  |  | — |  |  | 61.2 |
Foreign currency translation adjustments | 4.7 |  |  | 0.4 |  |  | 5.1 |
Goodwill as of December 31, 2020 | $ | 398.4 |  |  | $ | 5.3 |  |  | $ | 403.7 |

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Note 11. Intangible Assets
The gross carrying amount and accumulated amortization for intangible assets which are in our AMS segment consisted of the following ($ in millions):

| December 31, 2020
| Gross Carrying Amount |  | Accumulated Amortization |  | Accumulated Impairments |  | Accumulated Foreign Exchange |  | Net Carrying Amount
Amortized Intangible Assets |  |  |  |  |  |  |  |  |
Customer relationships | $ | 339.8 |  |  | $ | 88.5 |  |  | $ | — |  |  | $ | (2.9) |  |  | $ | 254.2 |
Developed technology | 42.1 |  |  | 14.1 |  |  | — |  |  | (0.2) |  |  | 28.2 |
Trade names | 32.7 |  |  | 1.4 |  |  | 20.7 |  |  | 0.3 |  |  | 10.3 |
Non-compete agreements | 2.9 |  |  | 2.4 |  |  | — |  |  | — |  |  | 0.5 |
Patents | 1.5 |  |  | 0.5 |  |  | — |  |  | — |  |  | 1.0 |
Total | $ | 419.0 |  |  | $ | 106.9 |  |  | $ | 20.7 |  |  | $ | (2.8) |  |  | $ | 294.2 |
Unamortized Intangible Assets
Trade names | $ | 20.0 |  |  | $ | — |  |  | $ | 0.1 |  |  | $ | (0.6) |  |  | $ | 20.5 |

| December 31, 2019
| Gross Carrying Amount |  | Accumulated Amortization |  | Accumulated Impairments |  | Accumulated Foreign Exchange |  | Net Carrying Amount
Amortized Intangible Assets |  |  |  |  |  |  |  |  |
Customer relationships | $ | 276.3 |  |  | $ | 67.7 |  |  | $ | — |  |  | $ | 1.8 |  |  | $ | 206.8 |
Developed technology | 34.0 |  |  | 10.9 |  |  | — |  |  | 0.4 |  |  | 22.7 |
Trade names | 21.8 |  |  | 0.8 |  |  | 20.7 |  |  | 0.3 |  |  | — |
Non-compete agreements | 2.9 |  |  | 2.2 |  |  | — |  |  | — |  |  | 0.7 |
Patents | 1.5 |  |  | 0.4 |  |  | — |  |  | — |  |  | 1.1 |
Total | $ | 336.5 |  |  | $ | 82.0 |  |  | $ | 20.7 |  |  | $ | 2.5 |  |  | $ | 231.3 |
Unamortized Intangible Assets
Trade names | $ | 20.0 |  |  | $ | — |  |  | $ | 0.1 |  |  | $ | — |  |  | $ | 19.9 |

Amortization expense of intangible assets w as $24.6 million, $20.3 million and $20.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. Finite-lived intangibles in the AMS segment are expensed using the straight-line amortization method.
The following table shows the estimated aggregate amortization expense for the next five years ($ in millions):
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For the year ending December 31, | Estimated Amortization Expense
2021 | $ | 25.6 |
2022 | 25.5 |
2023 | 25.2 |
2024 | 24.9 |
2025 | 24.6 |

Note 12. Other Assets
Other assets consisted of the following ($ in millions):

| December 31,
| 2020 |  | 2019
Capitalized software costs, net of accumulated amortization | $ | 12.9 |  |  | $ | 11.9 |
Grantor trust assets | 18.0 |  |  | 14.7 |
Net pension assets | 9.3 |  |  | 5.9 |
Long-term supplies inventory | 6.6 |  |  | 6.9 |
Operating lease assets | 19.8 |  |  | 20.9 |
Other assets | 2.6 |  |  | 8.9 |
Total | $ | 69.2 |  |  | $ | 69.2 |

The Company's ICMS credits in Brazil are fully reserved. These credits do not expire. The Company is exploring other actions to utilize the credits. Charges and credits associated with normal ongoing activity are included in Cost of products sold in the Consolidated Statements of Income. Future material changes as a result of new legislation or a change in our operations will be reported separately.
Grantor trust assets consist primarily of cash surrender values in Company-owned life insurance policies held by a trust to be used for the eventual payment of employee deferred compensation. These assets are restricted from Company use until all obligations are satisfied.
Note 13. Restructuring and Impairment Activities
The Company incurred restructuring and impairment expenses of $11.9 million, $3.7 million and $1.7 million in the years ended December 31, 2020, 2019 and 2018, respectively.
In the AMS segment, the Company incurred $0.5 million, $1.1 million and $1.5 million in restructuring and impairment expenses during the years ended December 31, 2020, 2019 and 2018, respectively. Restructuring and impairment expense for the year ended December 31, 2020 related to severance accruals as a result of department realignments. Restructuring and impairment expense for the year ended December 31, 2019 consisted of $1.1 million in impairment charges at our U.S. and Chinese manufacturing facilities. Restructuring and impairment expense for the year ended December 31, 2018 consisted of $1.1 million in severance accruals for employees at our U.S. manufacturing operations, as well as $0.4 million in impairment charges at our U.S. manufacturing facilities.
In the EP segment, restructuring and impairment expenses were $11.3 million, $2.6 million and $0.2 million during the years ended December 31, 2020, 2019 and 2018, respectively.
During the third quarter of 2020, we announced plans to shut down the Spotswood, New Jersey facility and shift the production of paper made there to other SWM facilities. This decision was part of our ongoing manufacturing
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optimization efforts and involved the co-development of a new paper production technology with one of the Company’s key customers. Production of paper at this facility ceased during December of 2020.
As a result of this decision, $6.7 million of restructuring and impairment expense was recognized in the year ended December 31, 2020 related to severance and other accruals. In the year ended December 31, 2020, we also recorded $4.9 million of other restructuring related charges in Cost of products sold, of which, $2.0 million was to write-down the value of certain spare parts and consignment inventories to estimated net realizable value and $2.9 million resulted from the acceleration of depreciation and amortization for machinery and equipment due to the change in the estimated lives of these assets driven by the decision to shut down the facility.
In addition to restructuring costs relating to the Spotswood facility, the EP segment recognized $4.6 million in restructuring and impairment expense in the year ended December 31, 2020, related to severance accruals for employees at our manufacturing facilities in Brazil, France, Poland and the U.S. During 2019, restructuring and impairment expenses in the EP segment consisted of $2.6 million in severance accruals for employees at our manufacturing facilities in France. These restructuring charges relate to ongoing cost optimization initiatives to remain competitive within the EP segment. The cost optimization initiative project started in 2019 and is expected to be completed in 2022. The EP segment has recognized $6.9 million of restructuring charges cumulatively through December 31, 2020 related to this project.
In 2018, restructuring and impairment expenses in the EP segment consisted of $0.2 million in severance accruals for employees at our manufacturing facilities in France.
The Company expects to recognize approximately $2.2 million in restructuring related costs for retention based severance and other costs associated with closing the Spotswood, New Jersey facility during 2021. In addition, the Company expects to record an immaterial amount of restructuring expense in the EP segment in 2021 primarily for severance related to the cost optimization initiatives.
The following table summarizes total restructuring and related charges:

| For the Years Ended December 31,
| 2020 |  | 2019 | 2018
Restructuring and impairment expense: |  |  |  |
Severance | 11.6 |  |  | 2.6 |  | 1.3 |
Other | 0.3 |  |  | 1.1 |  | 0.4 |
Total restructuring and impairment expense | $ | 11.9 |  |  | $ | 3.7 |  | $ | 1.7 |
Other restructuring related charges - Cost of products sold |  |  |  |
Accelerated depreciation and amortization | 2.9 |  | — |  | — |
Spare parts and consignment inventory write-down to estimated net realizable value | 2.0 |  | — |  | — |
Total other restructuring related charges - Cost of products sold | $ | 4.9 |  |  | $ | — |  | — |
Total restructuring costs and related charges | $ | 16.8 |  |  | $ | 3.7 |  | $ | 1.7 |

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

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

Note 14. Debt
Total debt, net of debt issuance costs, is summarized in the following table ($ in millions):

| December 31, 2020 |  | December 31, 2019
Revolving credit agreement - U.S. dollar borrowings | $ | 50.0 |  |  | $ | — |
Term loan facility | 195.5 |  |  | 197.5 |
6.875% senior unsecured notes due October 1, 2026, net of discount of $6.1 million and $6.9 million as of December 31, 2020 and 2019, respectively | 343.9 |  |  | 343.1 |
French employee profit sharing | 5.0 |  |  | 4.8 |
Finance lease obligations | 3.5 |  |  | 3.2 |
Other | — |  |  | — |
Debt issuance costs | (4.6) |  |  | (5.9) |
Total debt | 593.3 |  |  | 542.7 |
Less: Current debt | (2.8) |  |  | (1.9) |
Long-term debt | $ | 590.5 |  |  | $ | 540.8 |

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 Facility”). Subject to certain conditions, including the absence of a default or event of default under the Credit Agreement, the Company may request incremental loans to be extended under the Revolving Credit Facility or the Term Loan Facility so long as the Company is in pro forma compliance with the financial covenants set forth in the Credit Agreement and the aggregate of such increases does not exceed $400.0 million.
Borrowings under the Revolving Credit Facility will initially bear interest, at the Company’s option, at either (i) 1.75% in excess of a reserve adjusted London Interbank Offered Rate (“LIBOR”) or (ii) 0.75% in excess of an alternative base rate. Borrowings under the Term Loan Facility will initially bear interest, at the Company’s option, at either (i) 2.00% in excess of a reserve adjusted LIBOR rate or (ii) 1.00% in excess of an alternative base rate. The Term Loan amortizes at the rate of 1.0% per year and will mature on September 25, 2025.
Under the terms of the Credit Agreement, the Company will be required to maintain certain financial ratios and comply with certain financial covenants, including maintaining a net debt to EBITDA ratio, as defined in the Credit Agreement, calculated on a trailing four fiscal quarter basis, not greater than 4.50 and an interest coverage ratio, also as defined in the Credit Agreement, of not less than 3.00. In addition, borrowings and loans made under the Credit
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Agreement are secured by substantially all of the personal property of the Company and its domestic subsidiaries, while the obligations of the Luxembourg-based holding subsidiaries were secured by a pledge of certain of the equity interests held in their operating subsidiaries. The Company was in compliance with all of its covenants under the Credit Agreement at December 31, 2020.
As of December 31, 2020, the average interest rate was 1.94% on outstanding Revolving Credit Facility borrowings and 2.19% on outstanding Term Loan Facility borrowings.
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.
The Notes were issued pursuant to an Indenture (the “Indenture”), dated as of September 25, 2018, 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 December 31, 2020.
The effective interest rate on the 6.875% senior unsecured notes due 2026, taking into account all underwriter and original issue discounts, was 7.248%. The weighted average effective interest rate on our debt facilities was approximately 4.02% and 4.42% for the years ended December 31, 2020 and 2019, respectively.
French Employee Profit Sharing
At both December 31, 2020 and 2019, long-term debt other than the Amended Credit Agreement primarily consisted of obligations of the French operations related to government-mandated profit sharing. Each year, representatives of the workers at each of the French businesses can make an election for the profit sharing amounts from the most recent year ended to be invested in a financial institution or with their respective employer. To the extent that funds are invested with the Company, these amounts bear interest at 0.20% and 0.62% at December 31, 2020 and 2019, respectively, and are generally payable in the fifth year subsequent to the year in which the profit sharing is accrued.
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Bank Overdrafts
The Company also had bank overdraft facilities of $6.7 million and $6.1 million, at December 31, 2020 and 2019, respectively, of which none was outstanding at either December 31, 2020 or 2019. Interest is incurred on outstanding amounts at market rates, which were 0.26% and 0.26%, respectively, at December 31, 2020 and 2019. No commitment fees are paid on the unused portion of these facilities.
Rate Swap Agreements
From time to time, the Company enters into interest rate swap transactions to manage the Company's interest rate risk and cross-currency swaps designated as a hedge of a portion of the Company's net investment in certain Euro-denominated subsidiaries. See Note 15. Derivatives for additional information.
Principal Repayments
Under the Credit Agreement, the Company selects an "interest period" for each of its borrowings from the Revolving Credit Facility. The Company can repay such borrowings and borrow again at a subsequent date if it chooses to do so, providing it flexibility and efficient use of any excess cash. The Company currently has the intent and ability to allow its debt balances to remain outstanding and expects to continue to file notices of continuation related to its borrowings outstanding at December 31, 2020 such that those amounts are not expected to be repaid prior to the September 2023 expiration of the Revolving Credit Facility. Following are the expected maturities for the Company's debt obligations as of December 31, 2020 ($ in millions):

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

Fair Value of Debt
At December 31, 2020 and 2019, the fair market value of the Company's 6.875% senior unsecured notes was $371.0 million and $378.3 million, respectively. The fair market value for the senior unsecured notes was determined using quoted market prices, which are directly observable Level 1 inputs. The fair market value of all other debt as of December 31, 2020 and 2019 approximated the respective carrying amounts as the interest rates are variable and based on current market indices.
Debt Issuance Costs
In conjunction with the Indenture and Credit Agreement, the Company capitalized approximately $3.6 million in deferred debt issuance costs during the year ended December 31, 2018 which will be amortized over the term of the related debt instruments. Additionally, the Company wrote-off $0.5 million in deferred debt issuance costs related to the prior debt facilities. As of December 31, 2020, and 2019, the Company's total deferred debt issuance costs, net of accumulated amortization, were $4.6 million and $5.9 million, respectively.
Amortization expense of $1.3 million and $1.2 million was recorded during the years ended December 31, 2020 and 2019, respectively, and has been included as a component of Interest expense in the accompanying Consolidated Statements of Income. Following is the expected future amortization of the Company's deferred debt issuance costs as of December 31, 2020 ($ in millions):
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2021 | $ | 1.3 |
2022 | 1.3 |
2023 | 1.1 |
2024 | 0.4 |
2025 | 0.4 |
Thereafter | 0.1 |
Total | $ | 4.6 |

Note 15. Derivatives
In the normal course of business, the Company is exposed to foreign currency exchange rate risk and interest rate risk on its variable-rate debt. To manage these risks, the Company utilizes a variety of practices including, where considered appropriate, derivative instruments. The Company has no derivative instruments for trading or speculative purposes or any derivatives with credit risk-related contingent features. All derivative instruments used by the Company are either exchange traded or are entered into with major financial institutions in order to reduce credit risk and risk of nonperformance by third parties. The fair values of the Company's derivative instruments are determined using observable inputs and are considered Level 2 assets or liabilities.
The Company utilizes currency forward, swap and, to a lesser extent, option contracts to selectively hedge its exposure to foreign currency risk when it is practical and economical to do so. The use of these contracts minimizes transactional exposure to exchange rate changes. We designate certain of our foreign currency hedges as cash flow hedges. Changes in the fair value of cash flow hedges are reported as a component of Other comprehensive income (loss) and reclassified into earnings when the forecasted transaction affects earnings. For foreign exchange contracts not designated as cash flow hedges, changes in the contracts' fair value are recorded to net income each period.
The Company selectively hedges its exposure to interest rate increases on variable-rate, long-term debt when it is practical and economical to do so. Changes in the fair value of interest rate contracts considered cash flow hedges are reported as a component of Other comprehensive income (loss) and reclassified into earnings when the forecasted transaction affects earnings.
The Company also uses cross currency swap contracts to selectively hedge its exposure to foreign currency related changes in its net investments in certain foreign operations. We designate these cross currency swap contracts as net investment hedges. Changes in the fair value of these hedges are deferred within the foreign currency translation component of Accumulated other comprehensive income and reclassified into earnings when the foreign investment is sold or substantially liquidated.
On September 11, 2019, the Company entered into a pay-fixed, receive-variable interest rate swap with a maturity date of January 31, 2027. The instrument is a hedge on a portion of the Company’s debt facility through the existing credit agreement. Under the terms of the interest rate swap, SWM will pay a fixed amount of interest each period in an amount equal to 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
•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 terms of the swap mirror the terms of the underlying debt, including timing of the payments and interest rates.
On October 24, 2018, the Company also entered into a 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
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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 cross-currency swap arrangement with a major financial institution designed as a hedge having a maturity date of April 1, 2023. The terms of the cross-currency swap provide for an exchange of principal on a notional amount of $100 million swapped to €90.9 million at maturity. Under the terms of the new cross-currency swap, SWM will pay a fixed amount of Euro-denominated interest at a rate of 5.638% semiannually and receive U.S. dollar denominated payments at a rate of 6.875% semiannually on the notional amount of the swap.
The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at December 31, 2020 ($ in millions):

| Asset Derivatives |  | Liability Derivatives
| Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives Designated as Hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable |  | $ | 0.9 |  |  | Accrued expenses |  | $ | 11.0 |
Foreign exchange contracts | Other assets |  | — |  |  | Other liabilities |  | 12.3 |
Interest rate contracts | Accounts receivable |  | 0.3 |  |  | Accrued expenses |  | — |
Interest rate contracts | Other assets |  | — |  |  | Other liabilities |  | 7.8 |
Total derivatives designated as hedges |  |  | $ | 1.2 |  |  |  |  | $ | 31.1 |
Derivatives Not Designated as Hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable |  | $ | — |  |  | Accounts payable |  | $ | — |
Total derivatives not designated as hedges |  |  | — |  |  |  |  | — |
Total derivatives |  |  | $ | 1.2 |  |  |  |  | $ | 31.1 |

The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at December 31, 2019 ($ in millions):
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| Asset Derivatives |  | Liability Derivatives
| Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives Designated as Hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable |  | $ | 4.8 |  |  | Accrued expenses |  | $ | 5.6 |
Foreign exchange contracts | Other assets |  | 6.3 |  |  | Other liabilities |  | 5.5 |
Interest rate contracts | Accounts receivable |  | — |  |  | Accrued expenses |  | 0.2 |
Total derivatives designated as hedges |  |  | $ | 11.1 |  |  |  |  | $ | 11.3 |
Derivatives Not Designated as Hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable |  | $ | 0.1 |  |  | Accounts payable |  | $ | — |
Total derivatives not designated as hedges |  |  | 0.1 |  |  |  |  | — |
Total derivatives |  |  | $ | 11.2 |  |  |  |  | $ | 11.3 |

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

Derivatives Designated as Cash Flow Hedging Relationships |  | Unrealized Gain (Loss) Recognized in AOCI on Derivatives, Net of Tax for the Year Ended December 31, |  | Location of Loss (Gain) Reclassified from AOCI |  | Loss (Gain) Reclassified from AOCI, Net of Tax
|  | 2020 |  | 2019 |  | 2018 |  |  |  | 2020 |  | 2019 |  | 2018
Derivatives designated as cash flow hedge |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | $ | (5.3) |  |  | $ | (0.7) |  |  | $ | (1.7) |  |  | Net sales |  | $ | (3.4) |  |  | $ | (1.2) |  |  | $ | 0.8 |
Foreign exchange contracts |  | 1.4 |  |  | (2.3) |  |  | 0.1 |  |  | Other income, net |  | 1.4 |  |  | (1.9) |  |  | 0.1 |
Interest rate contracts |  | (7.7) |  |  | 4.6 |  |  | 4.0 |  |  | Interest expense |  | — |  |  | 7.6 |  |  | 2.8 |
Derivatives designated as investment hedge |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  | (14.2) |  |  | — |  |  | — |  |  | Other income (expense), net |  | — |  |  | — |  |  | — |
Total |  | $ | (25.8) |  |  | $ | 1.6 |  |  | $ | 2.4 |  |  |  |  | $ | (2.0) |  |  | $ | 4.5 |  |  | $ | 3.7 |

The Company's designated derivative instruments are highly effective. As such, related to the hedge ineffectiveness or amounts excluded from hedge effectiveness testing, there were no gains or losses recognized immediately in income for the years ended December 31, 2020, 2019 or 2018, other than those related to the cross-currency swap, noted below.
The Company’s cross currency swaps were designated with terms based on the spot rate of the EUR. Future changes in the components related to the spot change on the notional will be recorded in OCI and remain there until the hedged subsidiaries are substantially liquidated. All coupon payments are recorded in earnings and the initial value of excluded components currently recorded in Accumulated other comprehensive loss as an unrealized translation adjustment are amortized to interest expense over the remaining term of the swap. For the year ended December 31, 2020, 2019 and 2018, respectively, $6.5 million, $1.1 million and $1.9 million was recognized in income as derivative amoun ts excluded from effectiveness testing as Interest expense.
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The following table provides the effect derivative instruments not designated as hedging instruments had on net income ($ in millions):

Derivatives Not Designated as Cash Flow Hedging Instruments | Amount of Gain / (Loss) Recognized in Other Income / Expense
| 2020 |  | 2019 |  | 2018
Foreign exchange contracts | $ | 0.1 |  |  | $ | 1.1 |  |  | $ | (2.5) |
Total | $ | 0.1 |  |  | $ | 1.1 |  |  | $ | (2.5) |

Note 16. Accrued Expenses
Accrued expenses consisted of the following ($ in millions):

| December 31,
| 2020 |  | 2019
Accrued salaries, wages and employee benefits | $ | 48.7 |  |  | $ | 46.1 |
Other accrued expenses | 52.2 |  |  | 40.4 |
Total | $ | 100.9 |  |  | $ | 86.5 |

Note 17. Income Taxes
For financial reporting purposes, income before income taxes includes the following components ($ in millions):

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

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

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Current income taxes: |  |  |  |  |
U.S. federal | $ | 7.3 |  |  | $ | 8.1 |  |  | $ | (9.2) |
U.S. state | 1.5 |  |  | 0.8 |  |  | 0.8 |
Foreign | 14.8 |  |  | 9.7 |  |  | 11.6 |
| 23.6 |  |  | 18.6 |  |  | 3.2 |
Deferred income taxes: |  |  |  |  |
U.S. federal | (5.3) |  |  | 2.3 |  |  | 3.6 |
U.S. state | 1.0 |  |  | (1.9) |  |  | 1.4 |
Foreign | (0.9) |  |  | (3.8) |  |  | 2.5 |
| (5.2) |  |  | (3.4) |  |  | 7.5 |
Total | $ | 18.4 |  |  | $ | 15.2 |  |  | $ | 10.7 |

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

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
| Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent
Tax provision at U.S. statutory rate | $ | 20.4 |  |  | 21.0 | % |  | $ | 20.3 |  |  | 21.0 | % |  | $ | 24.5 |  |  | 21.0 | %
Foreign income tax rate differential | 2.7 |  |  | 2.7 |  |  | 0.6 |  |  | 0.5 |  |  | 2.5 |  |  | 2.2 |
Income from passthrough entities | 2.3 |  |  | 2.3 |  |  | 1.7 |  |  | 1.6 |  |  | 0.7 |  |  | 0.6 |
Global intangible low tax inclusion | 4.8 |  |  | 4.8 |  |  | (0.1) |  |  | (0.1) |  |  | 7.0 |  |  | 6.0 |
Foreign derived intangible income | (0.3) |  |  | (0.3) |  |  | (0.2) |  |  | (0.2) |  |  | (4.2) |  |  | (3.6) |
State income tax, net of federal benefit | 1.8 |  |  | 1.8 |  |  | (0.2) |  |  | (0.2) |  |  | 1.7 |  |  | 1.5 |
Adjustments to valuation allowances | (3.9) |  |  | (3.9) |  |  | (3.7) |  |  | (3.8) |  |  | (2.5) |  |  | (2.1) |
Transition tax | — |  |  | — |  |  | (0.7) |  |  | (0.6) |  |  | (11.6) |  |  | (10.0) |
Other tax credits | (0.8) |  |  | (0.8) |  |  | (2.0) |  |  | (2.1) |  |  | (2.6) |  |  | (2.3) |
Foreign tax credits | (9.9) |  |  | (10.0) |  |  | (3.5) |  |  | (3.6) |  |  | (5.1) |  |  | (4.4) |
Other foreign operational taxes | 3.5 |  |  | 3.5 |  |  | 2.9 |  |  | 3.0 |  |  | 3.1 |  |  | 2.7 |
Remeasurement of deferred taxes due to tax law | 0.4 |  |  | 0.4 |  |  | 0.9 |  |  | 1.0 |  |  | (1.8) |  |  | (1.5) |
Non-deductible compensation | 0.4 |  |  | 0.4 |  |  | 1.1 |  |  | 1.1 |  |  | 0.4 |  |  | 0.3 |
Other, net | (3.0) |  |  | (3.0) |  |  | (1.9) |  |  | (1.9) |  |  | (1.4) |  |  | (1.2) |
Provision for income taxes | $ | 18.4 |  |  | 18.9 | % |  | $ | 15.2 |  |  | 15.7 | % |  | $ | 10.7 |  |  | 9.2 | %

On December 22, 2017, the Tax Act was enacted into law effective January 1, 2018. The new legislation contains several key tax provisions that affected the Company, which include but are not limited to a one-time deemed repatriation tax on post-1986 accumulated earnings and profits of the undistributed earnings of foreign subsidiaries (“transition tax”), a reduction of the federal corporate income tax rate from 35% to 21%, and other U.S. reform items. In 2018, the Company decreased its provisional estimates of transition tax, related currency implications, state taxes and deferred tax rate change effect of the new law by $13.9 million. The reduction from the provisional 2017 amounts was primarily due to further analysis of transition tax on accumulated earnings and foreign taxes paid. As of December 31, 2018, the Company completed its accounting for the tax effects of the Tax Act.
A provision for income taxes of $18.4 million and $15.2 million in the years ended December 31, 2020 and 2019, respectively, resulted in an effective tax rate of 18.9% as compared with 15.7% in 2019. The Company’s effective tax rates differ from the statutory federal income tax rate of 21% due to varying tax rates in foreign jurisdictions, the relative amounts of income we earn in those jurisdictions and a $4.2 million year over year reduction due to the one-time Brazil ICMS litigation accrual in 2019.
Prior to the passage of the U.S. Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely reinvested and accordingly, no deferred taxes were provided. Due to the Tax Act, the Company has significant previously taxed earnings and profits from its foreign subsidiaries, as a result of transition tax, that is generally able to be repatriated free of U. S. federal tax. In addition, future earnings of foreign subsidiaries are generally expected to be able to be repatriated free of U.S. federal income tax because these earnings were taxed in the U.S. under the GILTI regime or would be eligible for a 100% dividends received deduction. As a result of the Company’s treasury policy to simplify and expediate the intercompany cash flows to SWM US, as evidenced by the implementation of the Cash Pool, and in light of the Company’s demonstrated goal of driving growth though inorganic/acquisitional means, the Company has decided to no longer assert indefinite reinvestment with respect to earnings generated by foreign subsidiaries prior to January 1, 2018. Therefore, the Company does not intend to assert indefinite reinvestment of its foreign subsidiaries to the extent of each CFC’s earnings and profits and to the extent of any foreign partnership’s U.S. tax capital accounts. As a result,
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the Company has provided for non-U.S. withholding taxes, U.S. federal tax related to currency movement on previously-taxed earnings and profits, and U.S. state taxes on unremitted earnings.
Net deferred income tax assets (liabilities) were comprised of the following ($ in millions):

| December 31,
| 2020 |  | 2019
Deferred Tax Assets |  |  |
Receivable allowances | $ | 0.5 |  |  | $ | 0.4 |
Postretirement and other employee benefits | 21.0 |  |  | 19.0 |
Derivatives | 2.5 |  |  | 0.1 |
Net operating loss and tax credit carryforwards | 104.4 |  |  | 93.7 |
Capital loss carryforward | 12.1 |  |  | 6.9 |
Accruals and other liabilities | 0.7 |  |  | — |
Intangibles | 37.6 |  |  | 45.7 |
Other | 4.4 |  |  | 3.9 |
| 183.2 |  |  | 169.7 |
Less: Valuation allowance | (166.6) |  |  | (157.4) |
Net deferred income tax assets | $ | 16.6 |  |  | $ | 12.3 |
Deferred Tax Liabilities |  |  |
Net property, plant and equipment | $ | (55.7) |  |  | $ | (52.6) |
Accruals and other liabilities | — |  |  | (0.6) |
Investment in subsidiaries | (3.2) |  |  | (3.5) |
Other | (0.3) |  |  | (0.1) |
Net deferred income tax liabilities | $ | (59.2) |  |  | $ | (56.8) |
Total net deferred income tax liabilities | $ | (42.6) |  |  | $ | (44.5) |

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

| 2020
2021-2024 | $ | 0.1 |
2025-2037 | 19.6 |
Indefinite | 79.8 |
| $ | 99.5 |

In addition, the Company has $2.9 million and $1.8 million of foreign and state tax credits that will expire between 2029 – 2030 and 2021 – 2036, respectively.
The Company's deferred tax asset valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on tax loss carryforwards for certain entities. The valuation allowance on deferred tax assets as of December 31, 2020, in Luxembourg, Spain and the Philippines total $151.8 million, $9.1 million and $0.4 million respectively, fully reserving the net deferred tax asset balances in these locations. In addition, there is a valuation allowance on ICMS tax credits of $4.1 million in Brazil and certain state tax credits of $1.2 million.
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The Company's assumptions, judgments and estimates relative to the valuation of these net deferred tax assets take into account available positive and negative evidence of realizability, including recent financial performance, the ability to realize benefits of restructuring and other recent actions, projections of the amount and category of future taxable income and tax planning strategies. Actual future operating results and the underlying amount and category of income in future periods could differ from the Company's current assumptions, judgments and estimates. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets.
The following table summarizes the activity related to the Company's unrecognized tax benefits related to income taxes ($ in millions):

| December 31,
| 2020 |  | 2019 |  | 2018
Uncertain tax position balance at beginning of year | $ | 1.7 |  |  | $ | 1.1 |  |  | $ | 1.0 |
Increases related to current year tax positions | 0.3 |  |  | 0.6 |  |  | 0.6 |
Decreases related to prior year tax positions | — |  |  | — |  |  | (0.2) |
Decreases related to expiration of statute of limitations | — |  |  | — |  |  | (0.3) |
Uncertain tax position balance at end of year | $ | 2.0 |  |  | $ | 1.7 |  |  | $ | 1.1 |

The liability for unrecognized tax benefits included $2.0 million as of December 31, 2020 that if recognized would impact the Company's effective tax rate. We do not anticipate a decrease in unrecognized tax benefits by the end of 2021 as a result of a lapse of the statute of limitations and other regulatory filings. The Company's policy with respect to penalties and interest in connection with income tax assessments or related to unrecognized tax benefits is to classify penalties as provision for income taxes and interest as interest expense in its Consolidated Statements of Income. There were no material income tax penalties or interest accrued during the years ended December 31, 2020, 2019 and 2018.
The Company files income tax returns, including returns for its subsidiaries, with federal, state, local and foreign jurisdictions. The Company finalized Belgium and France audits for tax years 2017 – 2018 and 2016 - 2017, respectively during 2020. All expected impacts have been recorded in 2020 or earlier. We are no longer subject to U.S. federal examinations by the IRS for tax years before 2016. The following tax years remain subject to examination by the respective major tax jurisdictions:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 18. Postretirement and Other Benefits
North American Pension and Postretirement Healthcare and Life Insurance Benefits
The U.S. operations have defined benefit retirement plans that cover certain full-time employees. Retirement benefits are based on either a cash balance benefit formula or a final average pay formula for certain employees who were "grandfathered" and retained retirement benefits under the terms of the plan prior to its amendment to include a cash balance benefit formula. Benefits related to the U.S. defined benefit and pension plan are frozen for all employees.
The U.S. operations also have unfunded healthcare and life insurance benefit plans, or OPEB plans, which cover certain of its retirees through age 65. Some employees who retained benefits under the terms of the Company's plans prior to certain past amendments receive retiree healthcare coverage at rates subsidized by the Company. For other eligible employees, retiree healthcare coverage access is offered at full cost to the retiree. The postretirement healthcare plans include a limit on the Company's share of costs for current and future retirees. The U.S. operations' retiree life insurance plans are noncontributory. The Company's Canadian postretirement benefits liability and U.S. OPEB liability are immaterial and therefore not included in these disclosures.
French Pension Benefits
In France, employees are covered under a government-administered program. In addition, the Company's French operations sponsor retirement indemnity plans, which pay a lump sum retirement benefit to all of its permanent employees who retire. In addition, the Company's French operations sponsor a supplemental executive pension plan. Plan assets are principally invested in the general asset portfolio of a French insurance company.
U.S. and French Pension Disclosures
The U.S. and French pension plans accounted for the majority of the Company's total plan assets and total Accumulated Benefit Obligations (ABO) at December 31, 2020 for the Company and all of its consolidated subsidiaries.
The Company uses a measurement date of December 31 for its pension plans in the United States and France. The funded status of these plans as of December 31, 2020 and 2019 was as follows ($ in millions):
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| Pension Benefits
| United States |  | France
| 2020 |  | 2019 |  | 2020 |  | 2019
Change in Projected Benefit Obligation, or PBO: |  |  |  |  |  |  |
PBO at beginning of year | $ | 119.9 |  |  | $ | 112.3 |  |  | $ | 31.9 |  |  | $ | 29.5 |
Service cost | — |  |  | — |  |  | 1.3 |  |  | 1.0 |
Interest cost | 3.7 |  |  | 4.6 |  |  | 0.2 |  |  | 0.4 |
Actuarial loss | 9.7 |  |  | 11.1 |  |  | 0.6 |  |  | 3.2 |
Participant contributions | — |  |  | — |  |  | 0.5 |  |  | 0.7 |
Gross benefits paid | (8.2) |  |  | (8.1) |  |  | (1.7) |  |  | (2.3) |
Currency translation effect | — |  |  | — |  |  | 3.0 |  |  | (0.6) |
PBO at end of year | $ | 125.1 |  |  | $ | 119.9 |  |  | $ | 35.8 |  |  | $ | 31.9 |
Change in Plan Assets: |  |  |  |  |  |  |
Fair value of plan assets at beginning of year | $ | 125.8 |  |  | $ | 113.1 |  |  | $ | 1.1 |  |  | $ | 2.1 |
Actual return on plan assets | 16.8 |  |  | 20.8 |  |  | — |  |  | 0.2 |
Employer contributions | — |  |  | — |  |  | 1.2 |  |  | 1.1 |
Participant contributions | — |  |  | — |  |  | — |  |  | — |
Gross benefits paid | (8.2) |  |  | (8.1) |  |  | (1.6) |  |  | (2.3) |
Currency translation effect | — |  |  | — |  |  | 0.1 |  |  | — |
Fair value of plan assets at end of year | $ | 134.4 |  |  | $ | 125.8 |  |  | $ | 0.8 |  |  | $ | 1.1 |
Funded status at end of year | $ | 9.3 |  |  | $ | 5.9 |  |  | $ | (35.0) |  |  | $ | (30.8) |

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

| United States |  | France
| 2020 |  | 2019 |  | 2020 |  | 2019
PBO | $ | 125.1 |  |  | $ | 119.9 |  |  | $ | 35.8 |  |  | $ | 31.9 |
ABO | 125.1 |  |  | 119.9 |  |  | 35.8 |  |  | 31.9 |
Fair value of plan assets | 134.4 |  |  | 125.8 |  |  | 0.8 |  |  | 1.1 |

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

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

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

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

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

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

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

| U.S. Pension Benefits |  | French Pension Benefits
| 2020 |  | 2019 |  | 2018 |  | 2020 |  | 2019 |  | 2018
Service cost | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1.3 |  |  | $ | 1.0 |  |  | $ | 1.1 |
Interest cost | 3.7 |  |  | 4.6 |  |  | 4.3 |  |  | 0.2 |  |  | 0.4 |  |  | 0.4 |
Expected return on plan assets | (4.9) |  |  | (5.8) |  |  | (5.8) |  |  | (0.1) |  |  | (0.1) |  |  | (0.1) |
Amortizations and other | 3.3 |  |  | 2.0 |  |  | 3.2 |  |  | 1.0 |  |  | 0.9 |  |  | 1.1 |
Net periodic benefit cost | $ | 2.1 |  |  | $ | 0.8 |  |  | $ | 1.7 |  |  | $ | 2.4 |  |  | $ | 2.2 |  |  | $ | 2.5 |

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

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

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

| United States |  | France
| 2021 Target |  | 2020 |  | 2019 |  | 2020 |  | 2019
Asset Category |  |  |  |  |  |  |  |  |
Cash and cash equivalents | —% |  | 1% |  | 1% |  | 36% |  | 41%
Equity securities* |  |  |  |  |  |  |  |  |
Domestic large cap | 2 |  | 2 |  | 5 |  | 30 |  | 31
Domestic small cap | 1 |  | 1 |  | 3 |  | — |  | —
International | 6 |  | 6 |  | 15 |  | — |  | —
Fixed income securities | 91 |  | 90 |  | 76 |  | 32 |  | 26
Alternative investments** | — |  | — |  | — |  | 2 |  | 2
Total | 100% |  | 100% |  | 100% |  | 100% |  | 100%

* None of the Company's pension plan assets are targeted for investment in SWM stock, except that it is possible that one or more mutual funds held by the plan could hold shares of SWM.
** Investments in this category under the U.S. pension plan only may include hedge funds and may include real estate under the French pension plan.
The Company's pension assets are classified according to an established fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument's level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly;
Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
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The following table sets forth by level, within the fair value hierarchy, the U.S. and French pension plans' assets at fair value as of December 31, 2020 ($ in millions):

| United States |  | France
Plan Asset Category | Total |  | Other* |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2
Cash equivalents | $ | 1.0 |  |  | $ | — |  |  | $ | 1.0 |  |  | $ | — |  |  | $ | — |  |  | $ | 0.3 |  |  | $ | 0.3 |  |  | $ | — |
Equity securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic large cap | 2.7 |  |  | 2.7 |  |  | — |  |  | — |  |  | — |  |  | 0.2 |  |  | 0.2 |  |  | — |
Domestic small cap | 1.3 |  |  | 1.3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
International | 8.2 |  |  | 8.2 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Fixed income securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
US Government securities | 13.9 |  |  | 13.9 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Corporate bonds | 99.6 |  |  | 99.6 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
International bonds | 1.2 |  |  | 1.2 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other | 6.5 |  |  | 6.5 |  |  | — |  |  | — |  |  | — |  |  | 0.3 |  |  | — |  |  | 0.3 |
Alternative investments** | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 134.4 |  |  | $ | 133.4 |  |  | $ | 1.0 |  |  | $ | — |  |  | $ | — |  |  | $ | 0.8 |  |  | $ | 0.5 |  |  | $ | 0.3 |

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

| United States |  | France
Plan Asset Category | Total |  | Other* |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2
Cash equivalents | $ | 0.9 |  |  | $ | — |  |  | $ | 0.9 |  |  | $ | — |  |  | $ | — |  |  | $ | 0.4 |  |  | $ | 0.4 |  |  | $ | — |
Equity securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic large cap | 6.8 |  |  | 6.8 |  |  | — |  |  | — |  |  | — |  |  | 0.3 |  |  | 0.3 |  |  | — |
Domestic small cap | 4.3 |  |  | 4.3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
International | 19.1 |  |  | 19.1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Fixed income securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
US Government securities | 20.9 |  |  | 20.9 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Corporate bonds | 55.8 |  |  | 5.5 |  |  | — |  |  | 50.3 |  |  | — |  |  | — |  |  | — |  |  | — |
International bonds | 0.8 |  |  | 0.8 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other | 17.2 |  |  | 17.2 |  |  | — |  |  | — |  |  | — |  |  | 0.3 |  |  | — |  |  | 0.3 |
Alternative investments** | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 0.1 |  |  | — |  |  | 0.1 |
Total | $ | 125.8 |  |  | $ | 74.6 |  |  | $ | 0.9 |  |  | $ | 50.3 |  |  | $ | — |  |  | $ | 1.1 |  |  | $ | 0.7 |  |  | $ | 0.4 |

* Investments held in Mutual Funds are measured at Net Asset Value ("NAV"), as determined by the fund manager, as a practical expedient and not are subject to hierarchy level classification disclosure.
** Alternative investments include ownership interests in shares of registered investment companies.
The Company expects the following estimated undiscounted future pension benefit payments for the United States and France, which are to be made from pension plan and employer assets, net of amounts that will be funded from retiree contributions, and which reflect expected future service, as appropriate ($ in millions):
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company is not required to contribute during 2020 to its U.S. and French pension plans; although, it may make discretionary contributions dependent on market conditions to remain aligned with its investment policy statement.
Other Foreign Pension Benefits
In Brazil, employees are covered under government-administered programs. Employees in the United Kingdom are covered by auto enrollment schemes where employee contributions are compulsory and also have the backing of government administered programs. In Canada, the employee pension benefits are not material and therefore are not included in the above disclosures.
Other Benefits
We sponsor a qualified defined contribution plan covering substantially all U.S. employees. Under the plan, the Company matches a portion of employee contributions. The Company's cost under the plan was $4.0 million, $3.9 million and $3.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company provides U.S. executives, certain other key personnel and its directors the opportunity to participate in deferred compensation plans. Participating employees can elect to defer a portion of their salaries and certain other compensation. Participating directors can elect to defer their meeting fees, as a cash deferral, as well as their quarterly retainer fees, as deferred stock unit credits. The Company's liability balance under these deferred compensation plans totaled $14.5 million and $19.7 million at December 31, 2020 and 2019, respectively, which were included in the Consolidated Balance Sheets in Other liabilities. In connection with these plans, the Company has a grantor trust into which it has contributed funds toward its future obligations under the various plans (See Note 12. Other Assets). The balance of grantor trust assets totaled $18.0 million and $14.7 million at December 31, 2020 and 2019, respectively, which were included in Other assets in the Consolidated Balance Sheets. These assets are restricted from Company use until all obligations are satisfied.
In accordance with French law, certain salaried employees in France may accumulate unused regular vacation and supplemental hours of paid leave that can be credited to an individual's Compte Epargne Temps, or CET. The CET account may grow over an individual's career and the hours accumulated may be withdrawn upon retirement or under other special circumstances at the individual's then current rate of pay. The balance of the Company's liability for this program reflected in the accompanying Consolidated Balance Sheets in Other liabilities was $7.0 million and $6.3 million at December 31, 2020 and 2019, respectively.
Note 19. Stockholders' Equity
Restricted Stock Plan
In April 2015, the Company adopted a new 2015 Long-term Incentive Plan, or LTIP, which replaced its existing Restricted Stock Plan ("RSP"). The LTIP is intended to promote the Company's long-term financial success by attracting and retaining outstanding executive personnel and to motivate such personnel by means of equity grants.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Compensation Committee of the Company's Board of Directors selects participants and establishes the terms of any grant of restricted stock. The Company's LTIP provides that issuance of restricted stock immediately transfers ownership rights in shares of its Common Stock to the recipient of the grant, including the right to vote the shares and to receive dividends thereon. Other types of stock awards are available under the LTIP, but not currently used. The recipient's continued ownership of and right to freely transfer the restricted stock is subject to such conditions on transferability and to such risks of forfeiture as are established by the Compensation Committee at the time of the grant, which may include continued employment with the Company for a defined period, achievement of specified management performance objectives or other conditions established by the Compensation Committee. The number of shares which may be issued under the LTIP is limited to 5,000,000. Restricted shares outstanding under the RSP have all vested in accordance with the terms of each grant. No further grants of shares will be issued under the RSP. No single participant may be awarded, in the aggregate, more than 750,000 shares during any fiscal year.
As of December 31, 2020, 988,180 restricted shares had been issued under the Company's restricted LTIP plans, of which 405,299 shares of issued restricted stock were not yet vested and for which $2.1 million in unrecognized compensation expense is expected to be recognized over a weighted average period of 1.8 years. The following table presents restricted stock activity for the years 2020, 2019 and 2018:

| 2020 |  | 2019 |  | 2018
| # of Shares |  | Weighted Average Fair Value at Date of Grant |  | # of Shares |  | Weighted Average Fair Value at Date of Grant |  | # of Shares |  | Weighted Average Fair Value at Date of Grant
Nonvested restricted shares outstanding at January 1 | 221,622 |  |  | $ | 37.08 |  |  | 184,190 |  |  | $ | 40.33 |  |  | 283,338 |  |  | $ | 37.26 |
Granted | 339,454 |  |  | 34.27 |  |  | 155,982 |  |  | 35.62 |  |  | 142,475 |  |  | 39.58 |
Forfeited | (36,749) |  |  | 33.98 |  |  | (8,869) |  |  | 41.34 |  |  | (12,858) |  |  | 40.06 |
Vested | (119,028) |  |  | 37.15 |  |  | (109,681) |  |  | 40.12 |  |  | (228,765) |  |  | 35.86 |
Nonvested restricted shares outstanding at December 31 | 405,299 |  |  | $ | 34.96 |  |  | 221,622 |  |  | $ | 37.08 |  |  | 184,190 |  |  | $ | 40.33 |

Restricted Stock Plan Performance Based Shares
During 2020, the Company recognized $3.9 million for 266,221 shares earned under the 2020-2021 award opportunity and $4.2 million of compensation expense earned under the 2019-2020 award opportunity. During 2019, the Company recognized $5.6 million for 331,150 shares earned under the 2019-2020 award opportunity and $2.2 million of compensation expense earned under the 2018-2019 award opportunity. During 2018, the Company recognized $2.0 million of compensation expense for 91,396 shares earned under the 2018-2019 award opportunity and $2.2 million of compensation expense earned under the 2017-2018 award opportunity.
Basic and Diluted Shares Reconciliation
The Company uses the two-class method to calculate earnings per share. The Company has granted restricted stock that contains non-forfeitable rights to dividends on unvested shares. Since these unvested shares are considered participating securities under the two-class method, the Company allocates earnings per share to common stock and participating securities according to dividends declared and participation rights in undistributed earnings.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Diluted net income per common share is computed based on net income divided by the weighted average number of common and potential common shares outstanding. Potential common shares during the respective periods are those related to dilutive stock-based compensation, including long-term share-based incentive compensation, and directors' accumulated deferred stock compensation which may be received by the directors in the form of stock or cash. A reconciliation of the average number of common and potential common shares outstanding used in the calculations of basic and diluted net income per share follows ($ in millions, shares in thousands):

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Numerator (basic and diluted): |  |  |  |  |
Net income | $ | 83.8 |  |  | $ | 85.8 |  |  | $ | 94.5 |
Less: Dividends paid to participating securities | (0.7) |  |  | (0.4) |  |  | (0.3) |
Less: Undistributed earnings available to participating securities | (0.4) |  |  | (0.2) |  |  | (0.3) |
Undistributed and distributed earnings available to common stockholders | $ | 82.7 |  |  | $ | 85.2 |  |  | $ | 93.9 |
Denominator: |  |  |  |  |
Average number of common shares outstanding | 30,832.7 |  |  | 30,652.2 |  |  | 30,551.3 |
Effect of dilutive stock-based compensation | 271.5 |  |  | 186.1 |  |  | 141.6 |
Average number of common and potential common shares outstanding | 31,104.2 |  |  | 30,838.3 |  |  | 30,692.9 |

Note 20. Commitments and Contingencies
Other Commitments
The EP segment's PDM Industries plant has a minimum annual commitment of approximately $1.3 million per year for calcium carbonate purchases, a raw material used in the manufacturing of some paper products, which totals approximately $5.1 million through 2024. Future purchases are expected to be at levels that exceed such minimum levels under these contracts.
The Company enters into certain other immaterial contracts from time to time for the purchase of certain raw materials. The Company also enters into certain contracts for the purchase of equipment and related costs in connection with its ongoing capital projects.
The Company has agreements with an energy co-generation supplier in France whereby the supplier constructed and operates a co-generation facility at certain plants and supplies steam that is used in the operation of these plants. The Company is committed to purchasing minimum annual amounts of steam generated by these facilities under the agreements through 2030. These minimum annual commitments total approximately $4.2 million. The Company's current and expected requirements for steam at these facilities are at levels that exceed the minimum levels under the contracts.
The EP segment's Brazilian plant, SWM-B, has an agreement for the transmission and distribution of energy that covers all of the plant's consumption of electrical energy valued at approximately $3.8 million annually through 2021. Additionally, SWM-B has an agreement for natural gas purchases valued at approximately $4.3 million during 2021. The French plants have contracts for natural gas to be distributed to and consumed at PdM, LTRI and St. Girons. The total value of the natural gas and distribution to be provided under these contracts is estimated at approximately $10.6 million through 2023. Additionally, the French plants have contracts for electricity to be distributed to and consumed at PdM, LTRI and St. Girons. The value of the electricity and distribution to be provided under these contracts is estimated at approximately $7.5 million in 2021. The Spay, France plant has a contract to consume biomass at approximately $0.6 million annually through 2022.
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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has certain other letters of credit, guarantees and surety bonds outstanding at December 31, 2020, which are not material either individually or in the aggregate.
Litigation
Brazil
Imposto sobre Circulação de Mercadorias e Serviços ("ICMS"), a form of value-added tax in Brazil, was assessed to SWM-B in December of 2000. SWM-B received two assessments from the tax authorities of the State of Rio de Janeiro (the "State") for unpaid ICMS taxes on certain raw materials from January 1995 through October 1998 and from November 1998 through November 2000 (collectively, the "Raw Materials Assessments"). The Raw Materials Assessments concerned the accrual and use by SWM-B of ICMS tax credits generated from the production and sale of certain non-tobacco related grades of paper sold domestically. SWM-B contested the Raw Materials Assessments based on Article 150, VI of the Brazilian Federal Constitution of 1988, which grants immunity from ICMS taxes to papers intended for printing books, newspapers and periodicals, on the ground that tax immunity extends to the raw material inputs used to produce such papers. In 2015, the first chamber of the Federal Supreme Court decided the first Raw Materials Assessment in favor of SWM-B. On May 24, 2019, the second chamber of the Federal Supreme Court decided the second Raw Materials Assessment against SWM-B in the amount of approximately $9.5 million based on the foreign currency exchange rate at December 31, 2020. SWM-B, with assistance of outside counsel, is evaluating the decision and exploring its options and other defenses to partially satisfy or reduce the judgment and SWM-B plans to pursue these avenues vigorously. However, because the outcome of any reductions and defenses is uncertain, SWM-B recorded a liability sufficient to satisfy this amount in the second quarter of 2019. This judgment may be settled over the course of 60 months after all possible challenges are concluded. Interest and penalties will continue to accrue until the judgment is paid.
SWM-B received assessments from the tax authorities of the State for unpaid ICMS and Fundo Estadual de Combate à Pobreza ("FECP," a value-added tax similar to ICMS) taxes on interstate purchases of electricity. The State issued four sets of assessments against SWM-B, one for May 2006 - November 2007, a second for January 2008 - December 2010, a third for September 2011 - September 2013, which was replaced by a smaller assessment for January - June 2013, and a fourth for July 2013 - December 2017 (collectively the "Electricity Assessments"). SWM-B challenged all Electricity Assessments in administrative proceedings before the State tax council (in the first-level court Junta de Revisão Fiscal and the appellate court Conselho de Contribuintes) based on Resolution 1.610/89, which defers these taxes on electricity purchased by an "electricity-intensive consumer." In 2014, a majority of the Conselho de Contribuintes sitting en banc ruled against SWM-B in each of the first and second Electricity Assessments ($3.6 million and $6.9 million, respectively, based on the foreign currency exchange rate at December 31, 2020), and SWM-B is now pursuing challenges to these assessments in the State judicial system where SWM-B obtained preliminary injunctions against enforcement of both assessments. In March 2020, the first-level judicial court ruled in favor of SWM-B in the second Electricity Assessment, a decision that is now on appeal. The third Electricity Assessment was dismissed on technical grounds by the Conselho de Contribuintes in 2018 after the State admitted the tax did not apply as it had asserted. Instead, in August 2018, the State filed a revised third Electricity Assessment in the amount of $0.5 million for ICMS on electricity purchased during part of 2013, and a fourth Electricity Assessment in the amount of $7.7 million pertaining to ICMS and FECP on electricity purchased from July 2013 to December 2017. SWM-B filed challenges to these 2018 assessments in the first-level administrative court on the same grounds as the older cases. The Junta de Revisão Fiscal rejected SWM-B’s challenge to the revised third Electricity Assessment, but the Conselho de Contribuintes agreed with SWM-B that the 2013 claim was time-barred. Both the Junta de Revisão Fiscal and the Conselho de Contribuintes ruled against SWM-B in the fourth Electricity Assessment. Both 2019 decisions from the Conselho de Contribuintes are being appealed to the full bench of the Conselho de Contribuintes. The State issued a new regulation effective January 1, 2018 that only specific industries are “electricity-intensive consumers,” a list that excludes paper manufacturers. SWM-B contends this regulation shows that paper manufacturers were electricity-intensive consumers eligible to defer ICMS before 2018.
SWM-B cannot determine the outcome of the Electricity Assessments matters; as such so no loss has been accrued in our consolidated financial statements for them.
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NOTES TO 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. 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. However, future events, such as changes in existing laws and regulations, or unknown contamination or costs of remediation of sites owned, operated or used for waste disposal by the Company (including contamination caused by prior owners and operators of such sites or other waste generators) may give rise to additional costs which could have a material effect on its financial condition or results of operations.
Indemnification Matters
In connection with its spin-off from Kimberly-Clark in 1995, the Company undertook to indemnify and hold Kimberly-Clark harmless from claims and liabilities related to the businesses transferred to it that were not identified as excluded liabilities in the related agreements. As of December 31, 2020, there are no claims pending under this indemnification that the Company deems to be material.
General Matters
In the ordinary course of conducting business activities, the Company and its subsidiaries become involved in certain other judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include insured and uninsured regulatory, employment, intellectual property, general and commercial liability, environmental and other matters. At this time, the Company does not expect any of these proceedings to have a material effect on its reputation, business, financial condition, results of operations or cash flows. However, the Company can give no assurance that the results of any such proceedings will not materially affect its reputation, business, financial condition, results of operations or cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 21. Segment Information
The Company's two operating product line segments are also the Company's reportable segments: Advanced Materials and Structures and Engineered Papers. The AMS segment primarily produces engineered resin-based rolled goods such as nets, films, and other non-wovens for use in high-performance applications in the filtration, transportation, infrastructure and construction, medical, and industrial end-markets. The EP segment primarily produces cigarette papers including LIP papers, plug wrap papers and base tipping papers used to wrap various parts of a cigarette for sale to cigarette manufacturers and reconstituted tobacco leaf, or RTL, and wrapper and binder products for sale to cigarette and cigar manufacturers. The EP segment also includes commercial and industrial products such as lightweight printing and writing papers, battery separator paper, drinking straw wrap, filter paper and other specialized papers.
Information about Net Sales and Operating Profit
The Company primarily evaluates segment performance and allocates resources based on operating profit. Expense amounts not associated with segments are referred to as unallocated expenses.

($ in millions) | Net Sales
| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Advanced Materials & Structures | $ | 543.5 |  |  | 50.6 | % |  | $ | 477.2 |  |  | 46.7 | % |  | $ | 467.9 |  |  | 44.9 | %
Engineered Papers | 530.9 |  |  | 49.4 |  |  | 545.6 |  |  | 53.3 |  |  | 573.4 |  |  | 55.1 |
Consolidated | $ | 1,074.4 |  |  | 100.0 | % |  | $ | 1,022.8 |  |  | 100.0 | % |  | $ | 1,041.3 |  |  | 100.0 | %

($ in millions) | Operating Profit
| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Advanced Materials & Structures | $ | 64.8 |  |  | 50.3 | % |  | $ | 64.3 |  |  | 48.0 | % |  | $ | 49.5 |  |  | 36.7 | %
Engineered Papers | 116.8 |  |  | 90.7 |  |  | 119.2 |  |  | 89.0 |  |  | 121.8 |  |  | 90.2 |
Unallocated | (52.8) |  |  | (41.0) |  |  | (49.5) |  |  | (37.0) |  |  | (36.3) |  |  | (26.9) |
Consolidated | $ | 128.8 |  |  | 100.0 | % |  | $ | 134.0 |  |  | 100.0 | % |  | $ | 135.0 |  |  | 100.0 | %

($ in millions) | Capital Spending | Depreciation
| 2020 |  | 2019 |  | 2018 |  | 2020 |  | 2019 |  | 2018
Advanced Materials & Structures | $ | 14.5 |  |  | $ | 16.1 |  |  | $ | 15.0 |  |  | $ | 14.5 |  |  | $ | 12.8 |  |  | $ | 14.1 |
Engineered Papers | 15.5 |  |  | 12.0 |  |  | 11.7 |  |  | 27.5 |  |  | 22.8 |  |  | 23.9 |
Unallocated | 0.1 |  |  | 0.5 |  |  | 0.3 |  |  | 0.2 |  |  | 0.2 |  |  | 0.1 |
Consolidated | $ | 30.1 |  |  | $ | 28.6 |  |  | $ | 27.0 |  |  | $ | 42.2 |  |  | $ | 35.8 |  |  | $ | 38.1 |

Assets are managed on a total company basis and are therefore not disclosed at the segment level.
Information about Geographic Areas
Long-lived assets by geographic area as of year-end were as follows ($ in millions):
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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

| Long-Lived Assets
| 2020 |  | 2019 |  | 2018
United States | $ | 122.1 |  |  | $ | 118.5 |  |  | $ | 115.8 |
France | 169.3 |  |  | 158.8 |  |  | 167.4 |
Brazil | 15.2 |  |  | 19.5 |  |  | 20.8 |
Poland | 12.9 |  |  | 14.7 |  |  | 16.8 |
Other foreign countries | 32.4 |  |  | 30.7 |  |  | 27.7 |
Consolidated | $ | 351.9 |  |  | $ | 342.2 |  |  | $ | 348.5 |

Note 22. Major Customers
There were no individual customers in the AMS segment which made up 10% or more of the Company's 2020, 2019 or 2018 consolidated net sales. In our EP segment, there were no individual customers which made up 10% or more of the Company's consolidated net sales for the years ended December 31, 2020 or 2019. For the year ended December 31, 2018, one customer, together with its respective affiliates and designated converters, accounted for 10% of the Company's consolidated net sales. The loss of one or more such customers, or a significant reduction in one or more of these customers' purchases, could have a material adverse effect on the Company's results of operations.
There were no individual customers in the AMS segment which made up 10% or more of the Company's consolidated accounts receivable at December 31, 2020 or 2019. In the EP segment, there were no individual customers which made up 10% or more of the Company's consolidated accounts receivable at December 31, 2020. At December 31, 2019, one customer, together with its respective affiliates and designated converters, accounted for 11% or more of the Company's consolidated accounts receivable.
Note 23. Supplemental Disclosures
Analysis of Allowances for Doubtful Accounts:
($ in millions)

| For the Years Ended December 31, |  |  |
| 2020 |  | 2019 |  | 2018 |  |  |
Allowance for Doubtful Accounts |  |  |  |  |  |  |  |
Beginning balance | $ | 1.5 |  |  | $ | 1.7 |  |  | $ | 1.0 |  |  |  |
Bad debt expense | 1.0 |  |  | 0.4 |  |  | 1.2 |  |  |  |
Recoveries | — |  |  | (0.3) |  |  | (0.2) |  |  |  |
Write-offs and discounts | (1.4) |  |  | (0.3) |  |  | (0.3) |  |  |  |
Ending balance | $ | 1.1 |  |  | $ | 1.5 |  |  | $ | 1.7 |  |  |  |

Supplemental Cash Flow Information
($ in millions)

| For the Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Interest paid | $ | 31.4 |  |  | $ | 29.1 |  |  | $ | 24.0 |
Income taxes paid | 14.8 |  |  | 20.8 |  |  | 23.2 |
Capital spending in accounts payable and accrued liabilities | 5.2 |  |  | 5.9 |  |  | 5.0 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 24. Quarterly Financial Information (Unaudited)
The following tables summarize the Company's unaudited quarterly financial data for the years ended December 31, 2020 and 2019 ($ in millions, except per share amounts):

| 2020
| First Quarter |  | Second Quarter |  | Third Quarter |  | Fourth Quarter |  | Year
Net sales | $ | 261.5 |  |  | $ | 254.2 |  |  | $ | 279.3 |  |  | $ | 279.4 |  |  | $ | 1,074.4 |
Gross profit | 74.3 |  |  | 74.3 |  |  | 80.2 |  |  | 79.5 |  |  | 308.3 |
Restructuring and impairment expense | 0.1 |  |  | 1.6 |  |  | 6.0 |  |  | 4.2 |  |  | 11.9 |
Operating profit | 34.1 |  |  | 34.4 |  |  | 37.0 |  |  | 23.3 |  |  | 128.8 |
Income from continuing operations | 22.5 |  |  | 21.5 |  |  | 24.5 |  |  | 15.3 |  |  | 83.8 |
Net income | $ | 22.5 |  |  | $ | 21.5 |  |  | $ | 24.5 |  |  | $ | 15.3 |  |  | $ | 83.8 |
Net income per share: |  |  |  |  |  |  |  |  |
Income per share from continuing operations - basic | $ | 0.72 |  |  | $ | 0.69 |  |  | $ | 0.78 |  |  | $ | 0.49 |  |  | $ | 2.68 |
Net income per share - basic | $ | 0.72 |  |  | $ | 0.69 |  |  | $ | 0.78 |  |  | $ | 0.49 |  |  | $ | 2.68 |
Income per share from continuing operations - diluted | $ | 0.72 |  |  | $ | 0.68 |  |  | $ | 0.78 |  |  | $ | 0.48 |  |  | $ | 2.66 |
Net income per share - diluted | $ | 0.72 |  |  | $ | 0.68 |  |  | $ | 0.78 |  |  | $ | 0.48 |  |  | $ | 2.66 |

| 2019
| First Quarter |  | Second Quarter |  | Third Quarter |  | Fourth Quarter |  | Year
Net sales | $ | 258.0 |  |  | $ | 269.9 |  |  | $ | 256.4 |  |  | $ | 238.5 |  |  | $ | 1,022.8 |
Gross profit | 67.9 |  |  | 79.0 |  |  | 72.2 |  |  | 70.9 |  |  | 290.0 |
Restructuring and impairment expense | — |  |  | 0.4 |  |  | 1.6 |  |  | 1.7 |  |  | 3.7 |
Operating profit | 30.4 |  |  | 44.2 |  |  | 34.6 |  |  | 24.8 |  |  | 134.0 |
Income from continuing operations | 17.4 |  |  | 20.5 |  |  | 27.7 |  |  | 20.2 |  |  | 85.8 |
(Loss) income from discontinued operations | — |  |  | — |  |  | — |  |  | — |  |  | — |
Net income | $ | 17.4 |  |  | $ | 20.5 |  |  | $ | 27.7 |  |  | $ | 20.2 |  |  | $ | 85.8 |
Net income per share: |  |  |  |  |  |  |  |  |
Income per share from continuing operations - basic | $ | 0.57 |  |  | $ | 0.66 |  |  | $ | 0.90 |  |  | $ | 0.65 |  |  | $ | 2.78 |
Loss per share from discontinued operations - basic | — |  |  | — |  |  | — |  |  | — |  |  | — |
Net income per share - basic | $ | 0.57 |  |  | $ | 0.66 |  |  | $ | 0.90 |  |  | $ | 0.65 |  |  | $ | 2.78 |
Income per share from continuing operations - diluted | $ | 0.56 |  |  | $ | 0.66 |  |  | $ | 0.90 |  |  | $ | 0.64 |  |  | $ | 2.76 |
Loss per share from discontinued operations - diluted | — |  |  | — |  |  | — |  |  | — |  |  | — |
Net income per share - diluted | $ | 0.56 |  |  | $ | 0.66 |  |  | $ | 0.90 |  |  | $ | 0.64 |  |  | $ | 2.76 |

106

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 25. Subsequent Event
On January 27, 2021, we issued an announcement (the “Rule 2.7 Announcement”) pursuant to Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers (the “Code”) disclosing the terms of a recommended cash offer to acquire the entire issued and to be issued ordinary share capital of Scapa Group plc, a company incorporated in England and Wales (“Scapa”) and listed on the AIM market of the London Stock Exchange (the “Offer”).
Under the terms of the Offer, Scapa shareholders will receive £2.10 in cash for each ordinary share of Scapa (together, the “Scapa Shares”), which values the entire issued and to be issued ordinary share capital of Scapa at approximately £402.9 million (or approximately $551.9 based on an exchange rate of US$1.37:£1). The Offer is intended to be effected by means of a scheme of arrangement (the “Scheme”) under Part 26 of the United Kingdom Companies Act 2006, as amended (the “Companies Act”). SWM Bidco reserves the right to elect (with the consent of the U.K. Panel on Takeovers and Mergers (the “Panel”) and subject to the terms of the Co-operation Agreement described below) to implement the Offer by way of a Takeover Offer (as such term is defined in Part 28 of the Companies Act) as an alternative to the Scheme.
The Offer will be subject to conditions and certain further terms, including, among others, (i) the Scheme becoming effective no later than 11:59 p.m. (London time) on July 27, 2021 or such later date as agreed by the parties (the “Long Stop Date”), (ii) the approval of the Scheme by a majority in number of Scapa shareholders present and voting (and entitled to vote), either in person or by proxy, at a general meeting of Scapa shareholders (including any adjournment, postponement or reconvention thereof) (the “General Meeting”) representing at least 75% in value of the Scapa Shares voted by such shareholders; (iii) the passing of the special resolution or resolutions to be proposed by Scapa at the General Meeting in connection with, among other things, the amendment of the articles of association of Scapa and such other matters as may be necessary to implement the Scheme; (iv) the sanction of the Scheme by the High Court of Justice in England and Wales; and (v) the receipt of certain merger control and regulatory approvals or the lapse of relevant periods or notifications thereunder. The conditions to the Offer are set out in full in the Rule 2.7 Announcement. Subject to the satisfaction or waiver of all relevant conditions, it is expected that the Scheme will become effective during the second quarter of 2021.
On January 26, 2021, in anticipation of our announcement of our offer to acquire Scapa Group we entered into a currency forward contract with a major financial institution. The terms of the contract provide for an exchange of a notional amount of GBP 439 million for USD, calculated using the contract rate as applicable at the settlement date, which will be on or before the “Long Stop Date” as it relates to the scheme. The currency forward contract will be recognized at fair value in our consolidated financial statements with subsequent changes in the fair value of the instrument recognized in earnings.
On February 10, 2021 we amended our existing Credit Agreement to provide for, among other things an additional Term Loan Facility “Term Loan B” in the amount of $350 million and a temporary increase in our Maximum Net Debt/EBITDA ratio to 5.5x. This ratio will decrease over the course of 24 months, returning to 4.50x effective as of June 30, 2023.
107

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Schweitzer-Mauduit International, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Schweitzer-Mauduit International, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted FASB Accounting Standards Update 2016-02, Leases, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Income Taxes - Refer to Notes 2 and 17 to the consolidated financial statements
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Critical Audit Matter Description
The Company operates and is subject to income taxes in the U.S. and numerous foreign jurisdictions with complex tax laws and regulations which resulted in provision for income taxes of $18.4 million for the year ended December 31, 2020. The complexity of the Company’s global structure requires technical expertise in determining the allocation of income to each of these jurisdictions and the consolidated provision for income taxes. In addition, there have been recent significant changes in tax laws in various jurisdictions, including the Tax Cut and Jobs Act (the “Tax Act”) in the United States, which require specialized knowledge, skills and judgment in the accounting and reporting of the Company’s provision for income taxes. The Tax Act contains several key tax features that affect the Company, including (i) a provision designed to tax Global Intangible Low Taxed Income (“GILTI”) of foreign subsidiaries and (ii) a deduction for Foreign-Derived Intangible Income (“FDII”).
We identified the accounting for income taxes as a critical audit matter because the complexity of the Company’s global structure and recent changes in tax laws that required complex auditor judgment and an increased extent of effort, including the need to involve our U.S. and international income tax specialists, to evaluate the Company’s interpretation and application of tax laws in relevant jurisdictions, the allocation of income to each of these jurisdictions, and the income tax impact of the legal entity ownership structure.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the provision for income taxes included the following, among others:
•Tested the effectiveness of controls over management’s application of income tax laws to its global corporate structure, including controls over the identification and assessment of changes to tax laws in the various jurisdictions in which it operates, including the Tax Act, and controls related to the allocation of income to the Company’s various tax jurisdictions.
•Obtained an understanding of the Company’s overall legal entity structure by reading and evaluating the Company’s organizational charts and associated documentation, including legal documents.
•We read minutes of the meetings of the board of directors and inquired of Company personnel, including legal, to evaluate whether there were any significant changes in the legal entity structure that were relevant to the provision for income taxes.
•With the assistance of our U.S. and international income tax specialists, we evaluated management’s application of relevant tax laws to its legal entity structure and the effect on the Company’s income tax provision, including the Company’s calculations of current period income tax expense and deductions associated with GILTI and FDII, by reviewing and evaluating management’s income tax calculations and assessing the Company’s compliance with tax laws.
•With the assistance of our U.S. and international income tax specialists, we evaluated management’s income reporting to the various tax jurisdictions in which the Company operates based on its global corporate structure.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 1, 2021
We have served as the Company's auditor since 1995.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time frames specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, 2020, was made under the supervision and with the participation of our management including our principal executive officer and principal financial officer. Based upon this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective.
Our management, including our Chief Executive Officer and our Chief Financial Officer and Principal Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, is designed to provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on the Company's evaluation under the framework in Internal Control - Integrated Framework, our management has concluded that, as of December 31, 2020, our internal control over financial reporting is effective based on these criteria. As of December 31, 2020, we had no material weaknesses based on our tests using the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on its assessment of our internal control over financial reporting, which is included herein.
The SEC's general guidance permits the exclusion of an assessment of the effectiveness of a registrant's controls and procedures as they relate to its internal control over financial reporting for an acquired business during the first year following such acquisition if, among other circumstances and factors, there is not an adequate amount of time between the acquisition date and the date of assessment. In March 2020, we acquired Tekra LLC and Trient LLC, "Tekra" which was treated as a business combination in accordance with guidance provided by ASC 805. In accordance with the SEC guidance, the scope of our evaluation of internal controls over financial reporting as of December 31, 2020 did not include the internal control over financial reporting of these acquired operations. Assets acquired in these transactions represente d 6.0% of our total consolidated assets at December 31, 2020 and net sales generated by the acquired operations represented 7.2% of our consolidated net sales for the year ended December 31, 2020. From the acquisition date to December 31, 2020, the processes and systems of the acquired operations did not significantly impact our internal control over financial reporting.
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Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
111

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Schweitzer-Mauduit International, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Schweitzer-Mauduit International, Inc. and Subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 1, 2021, expressed an unqualified opinion on those financial statements.
As described in Management's Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Tekra, LLC and Trient, LLC, which were acquired on March 13, 2020, and whose financial statements constitute 6% of total assets and 7% of net sales of the consolidated financial statement amounts as of and for the year ended December 31, 2020. Accordingly, our audit did not include the internal control over financial reporting at Tekra, LLC and Trient, LLC.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
112

inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 1, 2021
113

PART III.
Item 10. Directors, Executive Officers and Corporate Governance
We have posted a copy of our Code of Conduct on our website at www.swmintl.com/about-us/governance/codes-of conduct. Our Code of Conduct applies to all employees, officers and directors of the Company and its subsidiaries worldwide.
All other information called for by this Item is hereby incorporated by reference to the sections of our proxy statement relating to our 2021 Annual Meeting of Stockholders (the "2021 Proxy Statement") captioned "Proposal One - Election of Directors," "Corporate Governance" and "Section 16(a) Beneficial Ownership Reporting Compliance." Information with respect to our executive officers is set forth in Part I, Item 1 of this Form 10-K under the caption, "Executive Officers of the Registrant."
Item 11. Executive Compensation
The information in the section of the 2021 Proxy Statement captioned "Executive Compensation," including the item captioned "Compensation Discussion and Analysis," is incorporated in this Item 11 by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance under Equity Compensation Plans
The information in the section of the 2021 Proxy Statement entitled "Stock Ownership" is incorporated in this Item 12 by reference. The following table provides information, as of December 31, 2020, with respect to the shares of our Common Stock that may be issued under our existing equity compensation plans:

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

(1) The Outside Directors Stock Plan consists of shares registered for the purpose of issuance to our outside directors for payment of their retainer fees quarterly in advance. Director's stock retainer fees in 2020 consisted of $23,750 quarterly which are payable in our Common Stock. The number of shares issued each quarter is determined based on the then fair market value of the shares, which is determined in accordance with the plan at the closing price on the date one day prior to the date of distribution. Certain directors have elected to defer receipt of quarterly retainer fees under the terms of our Deferred Compensation Plan No. 2 for Non-Employee Directors, resulting in an accumulation of stock unit credits. Upon retirement or earlier termination from the Board, these stock unit credits will be distributed in the form of cash or shares of SWM Common Stock. While held in the deferred compensation plan account, these stock unit credits carry no voting rights and cannot be traded as Common Stock, although declared dividends create additional stock unit credits. As of December 31, 2020, deferred retainer fees have resulted in 146,072 accumulated stock unit credits, excluding credited dividends (198,758 accumulated stock unit credits including credited dividends).
(2) The Long-Term Incentive Plan and former Restricted Stock Plan are described in Note 19. Stockholders' Equity, of the Notes to Consolidated Financial Statements in Part II, Item 8 herein. Shares awarded under the
114

terms of these plans are subject to forfeiture and cannot be sold or otherwise transferred until fully vested or such restrictions are otherwise lifted. Such shares are deemed by us to be issued and outstanding and are subject to all other financial interests, including our declared dividends. As of December 31, 2020, 405,299 shares issued under these plans remained restricted.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information in the sections of the 2021 Proxy Statement captioned "Corporate Governance," including the items captioned "Transactions with Related Persons" and "Board of Directors and Standing Committees" is incorporated in this Item 13 by reference.
Item 14. Principal Accountant Fees and Services
The information in the section of the 2021 Proxy Statement captioned "Proposal Two - Ratification of the Selection of the Independent Registered Public Accounting Firm" is incorporated in this Item 14 by reference.
115

PART IV.
Item 15. Exhibits and Financial Statement Schedules
(a) The consolidated financial statements and financial statement schedules filed as part of this report are listed in the Index to the Consolidated Financial Statements set forth in Part II, Item 8.
(b) The exhibits filed as part of this report are listed below:
116

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

117

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

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

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* Filed herewith.
** Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K
*** Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule to the SEC upon request.
‡ These Section 906 certifications are not being incorporated by reference into the Form 10-K filing or otherwise deemed to be filed with the SEC.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Name |  | Position |  | Date
/s/ Dr. Jeffrey Kramer |  | Chief Executive Officer and Director |  | March 1, 2021
Dr. Jeffrey Kramer |  | (principal executive officer) |  |
/s/ Andrew Wamser |  | Executive Vice President and Chief Financial Officer |  | March 1, 2021
Andrew Wamser |  | (principal financial officer) |  |
/s/ Michael Schmit |  | Corporate Controller and Chief Accounting Officer |  | March 1, 2021
Michael Schmit |  | (principal accounting officer) |  |
* |  | Director |  | March 1, 2021
Deborah Borg |  |  |  |
* |  | Director |  | March 1, 2021
Mark Bye |  |  |  |
* |  | Director |  | March 1, 2021
Jeffrey Keenan |  |  |  |
* |  | Director |  | March 1, 2021
Marco Levi |  |  |  |
* |  | Director |  | March 1, 2021
Kimberly Ritrievi |  |  |  |
* |  | Director |  | March 1, 2021
John D. Rogers |  |  |  |
* |  | Director |  | March 1, 2021
Anderson D. Warlick |  |  |  |
*By: |  |  |  |
/s/ Ricardo Nunez |  |  |  | March 1, 2021
Ricardo Nunez |  |  |  |
Attorney-In-Fact |  |  |  |

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GLOSSARY OF TERMS
The following are definitions of certain terms used in this Form 10-K filing:
•"Flax" is a cellulose fiber from a flax plant used as a raw material in the production of certain cigarette papers.
•"Net debt to EBITDA ratio" is a financial measurement used in bank covenants where "Net Debt" is defined as consolidated total debt minus unrestricted domestic cash and cash equivalents and 65% of non-domestic unrestricted domestic cash and cash equivalents, in excess of $15 million, and "EBITDA" is defined as net income plus the sum of interest expense, income tax expense, depreciation and amortization, non-cash restructuring and impairment charges less amortization of deferred revenue and interest in the earnings of equity affiliates to the extent such earnings are not distributed to the Company.
•"Total debt to capital ratio" is total debt divided by the sum of total debt and total stockholders' equity.
•"Net operating working capital" is accounts receivable, inventory, income taxes receivable and prepaid expense, less accounts payable, accrued expenses and income taxes payable.
•"Polyurethane" is a polymer composed of organic units joined by carbamate (urethane) links.
•"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.
•"Thermoplastics" are a plastic material, polymer, that becomes pliable or moldable above a specific temperature and solidifies upon cooling.
•"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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