Joint Ventures

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

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 $2.1 million, $2.2 million and $2.1 million in 2019, 2018 and 2017, 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, 2019 and 2018, the Company’s equity investment in joint ventures was $52.4 million and $51.9 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.

As a result of declining sales, negative developments during the fourth quarter of 2018, and the current and forecasted production volumes compared to normal capacity, the Company performed an impairment analysis at December 31, 2018 and recorded a $15.0 million impairment charge within Income (loss) from equity affiliates, net of income taxes, in the consolidated statements of income. The fair value of the CTS joint venture was estimated using Level 3 inputs under the fair value hierarchy using a discounted cash flow method based on management’s best estimates of future operating results. These estimates and judgments are based, in part, on the Company’s current and future evaluation of economic conditions in general, as well as CTS’ current and future plans. These fair value calculations are highly subjective because they require management to make assumptions and apply judgments to estimates regarding the timing and amount of future cash flows, probabilities related to various cash flow scenarios, and appropriate discount rates based on the perceived risks, among others. In evaluating whether the impairment is other than temporary, the Company considered all available information, including the length of time and extent of the impairment, the financial condition and near-term prospects of the CTS joint venture, the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, and projected industry and economic trends, among others. Changes in these and other assumptions could affect the projected operational results and fair value of the CTS joint venture, and accordingly, may require future valuation adjustments to the Company’s investment that may materially impact the Company’s financial condition or its future operating results.

Below is summarized balance sheet information of the China joint ventures as of December 31, 2019 and 2018 ($ in millions):



	December 31,
	2019		2018
Current assets	$	99.4	$	116.7
Noncurrent assets	168.0		183.6
Current liabilities	43.1		65.3
Long-term liabilities	88.4		100.9
Stockholder's equity	135.9		134.1

Below is summarized statement of operations information of the China joint ventures for the years ended December 31, 2019, 2018 and 2017 ($ in millions):



	For the Years Ended December 31,
	2019		2018		2017
Net sales	$	103.5	$	109.7	$	105.0
Gross profit	32.2		33.4		29.1
Net income	8.3		7.4		4.9