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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period endedMarch 31, 2022
  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) 
Delaware62-1612879
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
100 North Point Center East,Suite 600
Alpharetta,Georgia30022
(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 classTrading SymbolName of each exchange on which registered
Common stock, $0.10 par valueSWMNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes        No  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer," “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

The Company had 31,876,737 shares of common stock issued and outstanding as of May 4, 2022.



SCHWEITZER-MAUDUIT INTERNATIONAL, INC.

TABLE OF CONTENTS




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(Unaudited)
 Three Months Ended
 March 31, 2022March 31, 2021
Net sales$406.8 $288.2 
Cost of products sold314.2 207.4 
Gross profit92.6 80.8 
Selling expense14.3 9.1 
Research and development expense5.2 3.8 
General expense49.3 32.7 
Total nonmanufacturing expenses68.8 45.6 
Restructuring and impairment expense13.2 1.7 
Operating profit10.6 33.5 
Interest expense14.5 2.9 
Other income (expense), net5.5 (2.6)
Income before income taxes and income from equity affiliates1.6 28.0 
Provision for income taxes2.1 7.4 
Income from equity affiliates, net of
  income taxes
2.1 1.0 
Net income$1.6 $21.6 
Net income per share - basic:  
Net income per share – basic$0.05 $0.69 
Net income per share – diluted:  
Net income per share – diluted$0.05 $0.68 
Weighted average shares outstanding:  
Basic31,158,000 30,974,200 
Diluted31,413,700 31,340,500 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1


SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(dollars in millions)
(Unaudited) 
 Three Months Ended
 March 31, 2022March 31, 2021
Net income$1.6 $21.6 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments8.7 (9.9)
Unrealized gains on derivative instruments21.6 4.4 
Less: Reclassification adjustment for gain on derivative instruments included in net income1.1  
Net loss from postretirement benefit plans 0.1 
Amortization of postretirement benefit plans' costs included in net periodic cost(0.7)1.6 
Other comprehensive income (loss)30.7 (3.8)
Comprehensive income$32.3 $17.8 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share amounts)
(Unaudited)
March 31,
2022
December 31,
2021
ASSETS  
Current assets  
Cash and cash equivalents$56.1 $74.7 
Accounts receivable, net278.5 238.0 
Inventories272.4 259.5 
Income taxes receivable3.7 10.0 
Assets held for sale6.7  
Other current assets20.6 12.4 
Total current assets638.0 594.6 
Property, plant and equipment, net450.4 463.9 
Deferred income tax benefits36.6 33.9 
Investment in equity affiliates66.8 64.6 
Goodwill646.8 648.3 
Intangible assets496.7 513.9 
Other assets106.6 101.1 
Total assets$2,441.9 $2,420.3 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities  
Current debt$2.9 $3.2 
Accounts payable122.8 116.0 
Income taxes payable1.4 2.6 
Accrued expenses and other current liabilities116.3 109.3 
Total current liabilities243.4 231.1 
Long-term debt1,273.5 1,267.1 
Long-term income tax payable16.6 16.6 
Pension and other postretirement benefits37.7 39.0 
Deferred income tax liabilities92.5 95.1 
Other liabilities76.8 89.2 
Total liabilities1,740.5 1,738.1 
Stockholders’ equity:  
Preferred stock, $0.10 par value; 10,000,000 shares authorized; none issued or outstanding
  
Common stock, $0.10 par value; 100,000,000 shares authorized; 31,705,664 and 31,449,563 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
3.1 3.1 
Additional paid-in-capital105.4 101.7 
Retained earnings681.2 696.4 
Accumulated other comprehensive loss, net of tax(88.3)(119.0)
Total stockholders’ equity701.4 682.2 
Total liabilities and stockholders’ equity$2,441.9 $2,420.3 
    
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3


SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in millions, except per share amounts)
(Unaudited)
 Common Stock Issued    
 SharesAmountAdditional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Total
Balance, December 31, 202031,324,745 $3.1 $92.2 $666.2 $(111.9)$649.6 
Net income— — — 21.6 — 21.6 
Other comprehensive loss, net of tax— — — — (3.8)(3.8)
Dividends declared ($0.44 per share)
— — — (13.8)— (13.8)
Restricted stock issuances, net148,530 — — — —  
Stock-based employee compensation expense— — 2.1 — — 2.1 
Stock issued to directors as compensation590 — 0.3 — — 0.3 
Purchases and retirement of common stock(66,729)— — (3.1)— (3.1)
Balance, March 31, 202131,407,136 $3.1 $94.6 $670.9 $(115.7)$652.9 
Balance, December 31, 202131,449,563 $3.1 $101.7 $696.4 $(119.0)$682.2 
Net income— — — 1.6 — 1.6 
Other comprehensive income, net of tax— — — — 30.7 30.7 
Dividends declared ($0.44 per share)
— — — (13.9)— (13.9)
Restricted stock issuances, net350,154  — — —  
Stock-based employee compensation expense— — 3.4 — — 3.4 
Stock issued to directors as compensation794 — 0.3 — — 0.3 
Purchases and retirement of common stock(94,847)— — (2.9)— (2.9)
Balance, March 31, 202231,705,664 $3.1 $105.4 $681.2 $(88.3)$701.4 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in millions)
(Unaudited) 
 Three Months Ended
 March 31,
2022
March 31,
2021
Operating  
Net income$1.6 $21.6 
Non-cash items included in net income:  
Depreciation and amortization25.1 16.9 
Restructuring-related impairment12.9  
Deferred income tax(6.4)3.0 
Pension and other postretirement benefits(1.9)1.1 
Stock-based compensation3.4 2.1 
Income from equity affiliates(2.1)(1.0)
Brazil tax assessment accruals, net (6.1)
Other items(5.8)5.6 
Cash received from settlement of interest swap agreements23.6 
Changes in operating working capital, net of assets acquired:
Accounts receivable(42.8)(27.7)
Inventories(16.8)1.8 
Prepaid expenses(6.8)(4.8)
Accounts payable and other current liabilities16.1 (2.2)
Accrued income taxes4.9 2.4 
Net changes in operating working capital(45.4)(30.5)
Net cash provided by operations5.0 12.7 
Investing  
Capital spending(8.7)(7.1)
Capitalized software costs(0.9)(0.5)
Other investing 0.3 
Net cash used in investing(9.6)(7.3)
5


SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(dollars in millions)
(Unaudited) 
 Three Months Ended
 March 31,
2022
March 31,
2021
Financing  
Cash dividends paid to SWM stockholders(13.9)(13.8)
Proceeds from issuances of long-term debt20.0 25.0 
Payments on long-term debt(14.4)(0.6)
Payments on financing lease obligations(0.2) 
Purchases of common stock(2.9)(3.1)
Payments for debt issuance costs(2.2)(3.0)
Net cash (used in) provided by financing(13.6)4.5 
Effect of exchange rate changes on cash and cash equivalents(0.4)(0.9)
(Decrease) increase in cash and cash equivalents(18.6)9.0 
Cash and cash equivalents at beginning of period74.7 54.7 
Cash and cash equivalents at end of period$56.1 $63.7 
Supplemental Cash Flow Disclosures
Cash paid for interest, net$7.6 $1.4 
Cash paid for taxes, net$3.4 $2.0 
Change in capital spending in accounts payable and accrued liabilities$5.3 $4.9 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Note 1. General

Nature of Business
 
Schweitzer-Mauduit International, Inc. ("SWM," "we," or the "Company"), headquartered in the United States of America, is a leading global performance materials company, focused on bringing best-in-class innovation, design, and manufacturing solutions to our customers. Our highly engineered films, adhesive tapes, foams, nets, nonwovens, and papers are designed and manufactured using resins, polymers, and natural fibers for a variety of industries and specialty applications. The Company maintains two operating product line segments: Advanced Materials & Structures ("AMS") and Engineered Papers ("EP").

The AMS segment offers design and manufacturing solutions for the healthcare, construction, industrial, transportation and filtration end-markets. We manufacture resin-based rolled goods such as nets, films and meltblown materials, bonding products and adhesive components, along with providing adhesives and other coating solutions and converting services for our customers.

The EP segment primarily serves the tobacco industry with production of various cigarette papers and reconstituted tobacco products ("Recon"). The EP segment also produces non-tobacco papers for premium applications, such as energy storage and industrial commodity paper grades.

We conduct business in over 90 countries and operate 37 production locations worldwide, with offices and facilities in the U.S., Canada, United Kingdom, France, Luxembourg, Belgium, Brazil, China, Italy, Malaysia, India and Poland.


6

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements and the notes thereto have been prepared in accordance with the instructions of Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission ("SEC") and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). However, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods.
 
The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements and these notes thereto included herein should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 1, 2022.
 
Principles of Consolidation
 
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned, majority-owned and controlled subsidiaries. The Company’s share of the net income of its 50%-owned joint ventures in China is included in the condensed consolidated statements of income as Income from equity affiliates, net of income taxes. Intercompany balances and transactions have been eliminated.

Use of Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, inventory valuation, useful lives of tangible and intangible assets, fair values, sales returns and rebates, receivables valuation, pension, postretirement and other benefits, restructuring and impairment, taxes and contingencies. Furthermore, the Company considered the continuing impact from the global economic and social disruption caused by the novel coronavirus (“COVID-19”) in estimates used in the Company’s financial statements as of and for the period ended March 31, 2022. The Company determined changes to these estimates did not have a material impact on our assessment of recoverability of our assets, including Accounts receivable, net, Goodwill, Intangible assets or long-lived assets. There may also be long-term undetermined effects on some of our customers and suppliers, and as a result of these uncertainties, actual results could differ materially from these estimates and assumptions.

Recently Issued Accounting Standards

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

7

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. 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. 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. Any freight costs billed to and paid by a customer are included in net sales. The Company also provides services to customers through the conversion of customer-owned raw materials into processed finished goods. In these transactions, the Company generally recognizes revenue as processing is completed.

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

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

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

Net sales are attributed to the following geographic locations based on the location of the Company’s direct customers ($ in millions):
Three Months Ended
March 31, 2022March 31, 2021
AMSEPTotalAMSEPTotal
United States$152.0 $38.6 $190.6 $105.7 $37.4 $143.1 
Europe and the former Commonwealth of Independent States64.1 51.0 115.1 17.8 49.4 67.2 
Asia/Pacific (including China)35.4 24.9 60.3 32.4 22.2 54.6 
Americas (excluding US)14.2 12.7 26.9 2.4 8.8 11.2 
Other foreign countries7.2 6.7 13.9 4.7 7.4 12.1 
Total revenues (1)
$272.9 $133.9 $406.8 $163.0 $125.2 $288.2 
    (1) Revenues include net hedging gains and losses for the three months ended March 31, 2022 and 2021.
8

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The AMS segment supplies customers serving generally high-growth end-markets, as follows.

Healthcare - Sales to the medical market include products used in woundcare, diagnostic test strips, consumer wellness, and hospital-setting products.

Construction - Sales to the construction end-market are comprised mostly of netting products for a range of erosion control and building applications.

Transportation - The Company’s primary products are aftermarket automotive paint protection films, in addition to ballistic resistant and security glass used in various transportation modes.

Filtration - The Company serves liquid and other filtration markets, producing reverse osmosis and other water filtration products along with media and support materials for air filtration devices.

Industrial - Sales to the industrial end-market include products for high-end coated digital printing, packaging, undersea cable wraps, consumer-oriented specialty tapes and wind-turbine production.

Net sales for the AMS business are disaggregated by end market as the percentage of the net sales as follows.
Three Months Ended
March 31, 2022March 31, 2021
Healthcare23 %13 %
Construction19 %21 %
Industrial24 %15 %
Transportation17 %25 %
Filtration17 %26 %
Total revenues 100 %100 %

Note 3. Other Comprehensive Income (Loss)

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

Components of Accumulated other comprehensive loss, net of tax, were as follows ($ in millions):
9

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2022December 31, 2021
Accumulated pension and OPEB liability adjustments, net of income tax benefit of $6.9 million and $8.9 million at March 31, 2022 and December 31, 2021, respectively
$(15.1)$(14.4)
Accumulated unrealized gain (loss) on derivative instruments, net of income tax benefit of $2.4 million and $2.1 million at March 31, 2022 and December 31, 2021, respectively
20.8 (1.9)
Accumulated unrealized foreign currency translation adjustments, net of income tax benefit of $12.1 million and $9.5 million at March 31, 2022 and December 31, 2021, respectively
(94.0)(102.7)
Accumulated other comprehensive loss$(88.3)$(119.0)

Changes in the components of Accumulated other comprehensive (loss) income were as follows ($ in millions):
Three Months Ended
March 31, 2022March 31, 2021
Pre-taxTaxNet of
Tax
Pre-taxTaxNet of
Tax
Net gain (loss) on pension and OPEB liability adjustments$1.3 $(2.0)$(0.7)$1.1 $0.6 $1.7 
Unrealized gain (loss) on derivative instruments22.4 0.3 22.7 4.5 (0.1)4.4 
Unrealized gain (loss) on foreign currency translation6.1 2.6 8.7 (6.5)(3.4)(9.9)
Total$29.8 $0.9 $30.7 $(0.9)$(2.9)$(3.8)


Note 4. Business Acquisitions

Neenah Merger

On March 28, 2022, SWM and Neenah Inc. ("Neenah") announced that the parties entered into an agreement and plan of merger to combine, in an all-stock merger of equals (the “merger agreement”). Under the terms of the merger agreement, which was unanimously approved by the boards of directors of both companies, Neenah will merge with and into a merger subsidiary directly owned by SWM (the “merger”), with Neenah surviving the merger, such that following the merger, Neenah will become a direct, wholly-owned subsidiary of SWM. Pursuant to the merger agreement, stockholders of Neenah will receive 1.358 shares of SWM common stock for each share of Neenah common stock owned. The merger is expected to close in the second half of 2022, subject to receipt of requisite Neenah and SWM stockholder approval, receipt of requisite regulatory approvals and satisfaction of other customary closing conditions. Upon completion of the merger, Neenah will no longer be a separate publicly traded corporation. SWM will continue to trade on the New York Stock Exchange. See "Note 10—Debt" for further information about debt financing related to the merger.

Scapa

On April 15, 2021, SWM completed its previously announced acquisition of Scapa Group plc (“Scapa”), a UK- based innovation, design, and manufacturing solutions provider for healthcare and industrial markets for aggregate cash consideration of $630.6 million, net of $22.7 million of Cash and cash equivalents acquired and including $568.9 million for the purchase of all Scapa ordinary shares, $75.9 million for the repayment of Scapa debt and $8.5 million for the repayment of acquisition costs incurred by Scapa. The acquisition adds to SWM’s portfolio of precision engineered performance materials, expands the Company’s innovation, design, and formulation capabilities, and brings a variety of new coating and converting technologies to SWM. Scapa, part of the AMS segment operates globally with manufacturing and sales operations in the Americas, Asia and Europe.
10

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

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

The acquisition consideration allocation below is preliminary, pending completion of the fair value analyses of acquired assets and liabilities, including deferred taxes. The excess of the acquisition consideration over the estimated fair values of the acquired assets and assumed liabilities is assigned to goodwill. The goodwill which is assigned to the AMS reportable segment, is primarily attributable to expected revenue synergies and is not expected to be deductible for tax purposes. The estimated purchase price allocation disclosed as of June 30, 2021 was revised during the measurement period as new information was received and analyzed resulting in a decrease in Deferred tax liabilities of $14.4 million, an increase in Property, plant and equipment of $7.7 million, an increase in Other liabilities, primarily due to changes in certain tax positions of $8 million, a $3.0 million decrease in Other assets, and other insignificant changes, as presented in the table below. As additional information related to income taxes becomes available, we may further revise the preliminary acquisition consideration allocation during the remainder of the measurement period, which will not exceed twelve months from the closing of the acquisition. Such revisions or changes may be material.

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

Preliminary Fair Value as of March 31, 2022AdjustmentsPreliminary Fair Value as of April 15, 2021
Cash and cash equivalents$22.7 $ $22.7 
Accounts receivable67.7  67.7 
Inventory60.0 (0.9)60.9 
Other current assets9.7 (0.1)9.8 
Property, plant and equipment159.8 7.7 152.1 
Identifiable intangible assets246.2  246.2 
Other noncurrent assets23.3 (3.0)26.3 
Total assets$589.4 $3.7 $585.7 
Current debt$15.0 $ $15.0 
Accounts payable and other current liabilities85.7 (0.2)85.9 
Deferred income tax liabilities47.1 (14.4)61.5 
Other noncurrent liabilities41.1 8.0 33.1 
Net assets acquired$400.5 $10.3 $390.2 
Goodwill252.8 (10.3)263.1 
Total consideration$653.3 $ $653.3 

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

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

11

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Property, plant and equipment is comprised of buildings and leasehold improvements, machinery and equipment, furniture and fixtures, computer equipment, and construction in progress. The preliminary estimated fair value was determined using a reproduction/replacement cost approach which measures the value of an asset by estimating the cost to acquire or construct comparable assets adjusted for age and condition of the asset.

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

Fair Value Weighted-Average Amortization Period (Years)
Amortizable intangible assets:
Customer relationships$205.4 15
Tradenames and other7.7 10
Developed technology33.1 7
Total amortizable intangible assets$246.2 

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

During the three months ended March 31, 2022 and March 31, 2021 the Company recognized direct and indirect acquisition-related costs for the Scapa acquisition of $0.0 million and $3.6 million, respectively. Direct and indirect acquisition-related costs were expensed as incurred and are included in the General expense line item in the condensed consolidated statements of income.

Pro Forma Financial Information

The supplemental pro forma financial information presents the combined results of operations for the periods presented, as if the Scapa acquisition had occurred on January 1, 2020. The supplemental pro forma financial information includes the following adjustments related to the Scapa acquisition: amortization of intangible assets and fair value adjustments to inventory, interest expense for the additional indebtedness incurred to complete the acquisition, transaction and severance costs, and applicable tax adjustments based on statutory rates in the jurisdictions where the adjustments occurred. For the three months ended March 31, 2021, pro forma adjustments caused net income to increase by $10.3 million.

The supplemental pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the Scapa acquisitions occurred as of January 1, 2020.

Three Months Ended
March 31, 2021
Net sales$409.8 
Net income$31.9 

Note 5. Net Income Per Share

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

12

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Diluted net income per common share is computed based on Net income divided by the weighted average number of common and potential common shares outstanding. Potential common shares during the respective periods are those related to dilutive stock-based compensation, including long-term stock-based incentive compensation and directors’ accumulated deferred stock compensation, which may be received by the directors in the form of stock or cash. A reconciliation of the average number of common and potential common shares outstanding used in the calculations of basic and diluted net income per share follows ($ in millions, shares in thousands):
Three Months Ended
March 31,
2022
March 31,
2021
Numerator (basic and diluted):  
Net income$1.6 $21.6 
Less: Dividends paid to participating securities(0.2)(0.1)
Less: Undistributed earnings available to participating securities (0.1)
Undistributed and distributed earnings available to common stockholders$1.4 $21.4 
Denominator:  
Average number of common shares outstanding31,158.0 30,974.2 
Effect of dilutive stock-based compensation255.7 366.3 
Average number of common and potential common shares outstanding31,413.7 31,340.5 

Note 6. Inventories
 
Inventories are valued at the lower of cost (using the first-in, first-out and weighted average methods) or net realizable value. The Company's costs included in inventory primarily include resins, pulp, chemicals, direct labor, utilities, maintenance, depreciation, finishing supplies and an allocation of certain overhead costs. Machine start-up costs or abnormal machine shutdowns are expensed in the period incurred and are not reflected in inventory. The Company reviews inventories at least quarterly to determine the necessity of write-offs for excess, obsolete or unsalable inventory. The Company estimates write-offs for inventory obsolescence and shrinkage. These reviews require the Company to assess customer and market demand. The following schedule details inventories by major class ($ in millions):
March 31,
2022
December 31,
2021
Raw materials$119.5 $113.4 
Work in process44.6 41.9 
Finished goods99.0 95.7 
Supplies and other9.3 8.5 
Total$272.4 $259.5 
 

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SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Goodwill

The changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2022 were as follows ($ in millions):
 AMSEPTotal
Goodwill as of December 31, 2021
$643.4 $4.9 $648.3 
Goodwill acquired during the period(1)
2.1  2.1 
Foreign currency translation and other(2)
(3.5)(0.1)(3.6)
Goodwill as of March 31, 2022
$642.0 $4.8 $646.8 
(1) Related to measurement period adjustments for the Scapa acquisition.
(2) Goodwill with a carrying amount of $2.1 million was allocated to the disposal group classified as held for sale as of March 31, 2022 and subsequently impaired. Goodwill was allocated to the disposal group on the basis of relative fair value, primarily utilizing Level 3 inputs which included forecasted future cash flows. We considered the planned divestiture of this business as a potential indicator that the fair value of the AMS reporting unit may be below its carrying amount and performed a qualitative impairment assessment. As a result of this assessment, we concluded that as of March 31, 2022 the fair value of the reporting unit was in excess of its carrying value and therefore no impairment was identified or recognized.

Note 8. Intangible Assets

The gross carrying amount and accumulated amortization for intangible assets which are in our AMS segment consisted of the following ($ in millions):
 March 31, 2022
 Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortized Intangible Assets
Customer relationships$539.8 $127.5 $412.3 
Developed technology(1)
72.0 20.7 51.3 
Trade names18.8 3.0 15.8 
Non-compete agreements2.9 2.6 0.3 
Patents1.9 0.6 1.3 
Total$635.4 $154.4 $481.0 
Unamortized Intangible Assets
Trade names(1)
$15.7 $— $15.7 

(1) Intangible assets with a net carrying amount of $4.7 million are included as part of the disposal group classified as held for sale at March 31, 2022.

14

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 December 31, 2021
 Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortized Intangible Assets
Customer relationships
$541.7 $119.2 $422.5 
Developed technology74.6 20.7 53.9 
Trade names18.9 2.7 16.2 
Non-compete agreements2.9 2.5 0.4 
Patents1.5 0.6 0.9 
Total$639.6 $145.7 $493.9 
Unamortized Intangible Assets
Trade names
$20.0 $— $20.0 

Amortization expense of intangible assets was $11.1 million and $6.5 million for the three months ended March 31, 2022 and 2021, respectively. Finite-lived intangibles in the AMS segment are expensed using the straight-line amortization method. The estimated average aggregate amortization expense is $43.6 million in each of the next five years.
Note 9. Restructuring and Impairment Activities
 
The Company incurred restructuring and impairment expenses of $13.2 million, and $1.7 million in the three months ended March 31, 2022 and 2021, respectively.

In the EP segment, restructuring and impairment expenses were $0.3 million and $1.7 million in the three months ended March 31, 2022 and 2021, respectively. Restructuring and impairment expense for the three months ended March 31, 2022 includes $0.3 million related to pension benefits for the Winkler, Manitoba facility, which was closed in 2021. Restructuring and impairment expense for the three months ended March 31, 2021 included
$1.4 million related to the Spotswood site, which was sold in 2021, and $0.3 million related to severance accruals at other manufacturing facilities as part of an ongoing cost optimization project. The Spotswood site was sold on December 9, 2021, for total proceeds of $34.4 million.

The Company expects to record additional restructuring and impairment and restructuring related costs in the EP segment during 2022 of approximately $1.0 million relating the closing of the Winkler, Manitoba facility for the settlement of post-retirement benefit obligations and retention.

In the AMS segment, restructuring and impairment expenses were $12.9 million for the three months ended March 31, 2022, primarily related to the write-down of certain assets in conjunction with the planned divestiture of a portion of the segment serving the construction end-market. After considering the impact of impairments, assets held for sale consist primarily of accounts receivable and inventories. There were no restructuring and impairment expenses for the three months ended March 31, 2021.

The following table summarizes total restructuring and related charges for the three months ended March 31, 2022 and 2021:

15

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended
March 31, 2022March 31, 2021
Restructuring and impairment expense:
Severance$0.2 $0.3 
Other0.1 1.4 
Asset impairment$12.9 $ 
Total restructuring and impairment expense$13.2 $1.7 
Total other restructuring related charges - Cost of products sold$ $ 
Total restructuring costs and related charges$13.2 $1.7 

The following table summarizes changes in restructuring liabilities during the periods ended March 31, 2022 and 2021. ($ in millions):
Three Months Ended
March 31, 2022March 31, 2021
Balance at beginning of year$6.2 $7.4 
Accruals for announced programs 0.3 
Cash payments(1.4)(2.2)
Foreign exchange impact(0.1)(0.1)
Balance at end of period$4.7 $5.4 

Restructuring liabilities were classified within Accrued expenses and other current liabilities and Other liabilities in each of the condensed consolidated balance sheets.

Note 10. Debt
 
The components of total debt are summarized in the following table ($ in millions):

March 31,
2022
December 31,
2021
Revolving credit facility - U.S. dollar borrowings$400.0 $393.0 
Term loan A facility193.0 193.5 
Term loan B facility347.4 348.2 
6.875% senior unsecured notes due October 1, 2026, net of discount of $4.9 million and $5.2 million at March 31, 2022 and December 31, 2021, respectively
345.1 344.8 
French employee profit sharing4.0 4.1 
Finance lease obligations2.6 2.8 
Debt issuance costs and discounts(15.7)(16.1)
Total debt1,276.4 1,270.3 
Less: Current debt(2.9)(3.2)
Long-term debt$1,273.5 $1,267.1 
 

16

SCHWEITZER-MAUDUIT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Credit Facility

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

On February 10, 2021 we amended our Credit Agreement to, among other things, add a new seven year $350 million Term Loan B Facility (the “Term Loan B Facility”) and to decrease the incremental loans that may be extended at the Company’s request to $250 million. The Credit Agreement was further amended effective February 22, 2022 to adjust the step-down schedule for the maximum net debt to EBITDA ratio. The balance under the Term Loan B Facility was $347.4 million as of March 31, 2022.

Borrowings under the Revolving Credit Facility currently bear interest, at the Company’s option, at either (i) 2.25% in excess of LIBOR or (ii) 1.25% in excess of an alternative base rate. Borrowings under the Term Loan A Facility currently bear interest, at the Company’s option, at either (i) 2.50% in excess of LIBOR or (ii) 1.50% in excess of an alternative base rate. The Term Loan amortizes at the rate of 1.0% per year and will mature on September 25, 2025. Any borrowings under the Term Loan B Facility will bear interest, at the Company's option, at either (i) 3.75% in excess of a reserve adjusted LIBOR rate (subject to a minimum floor of 0.75%) or (ii) 2.75% in excess of an alternative base rate.

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

The Company was in compliance with all of its covenants under the Credit Agreement at March 31, 2022.

Debt Commitment Letter

In connection with the proposed merger with Neenah, SWM has obtained financing commitments for (i) a $648.0 million senior 364-day unsecured bridge facility (the “Bridge Facility”) and (ii) a $500.0 million senior secured revolving credit facility pursuant to a commitment letter (the “Debt Commitment Letter”) dated as of March 28, 2022.

The documentation governing the Bridge Facility and the Revolving Facility and actual financing terms have not been finalized, and accordingly, the actual terms may differ from the description of such terms in the Debt Commitment Letter.

Indenture for 6.875% Senior Unsecured Notes Due 2026