SWM - Mark Moore

Schweitzer-Mauduit and its competitors group pensions and other post retirementbenefits together in their balance sheets. The table above compares Schweitzer-Mauduit to itscompetitors in expensing the liability of pensions and post retirement benefits. It shows howSchweitzer-Mauduit expenses more than Alliance One but less than Universal Corp, puttingthem in the middle of the pack. Based on each of the company’s balance sheets and incomestatements, Schweitzer-Mauduit expenses a greater percentage to pensions and other postretirement benefits relative to its competitors because they are a smaller company with lessrevenues and assets.Research and DevelopmentResearch and development is crucial to a company’s operations in the tobacco relatedpaper and specialty paper product industry. “The specialized nature of these tobacco-relatedpapers requires unique research and development capability and special papermakingequipment and skills to meet exacting customer specifications” (Schweitzer-Mauduit 10K –competition). Companies in the tobacco industry expense high amounts of cash into researchand development in order to have the highest quality of paper for their cigarettes. Out of itscompetitors, Schweitzer-Mauduit is the only company that denotes any cash to research anddevelopment. Alliance One and Universal Corp do not expense any cash into research anddevelopment. In both of their 10-k’s, it says no material amounts were expensed towardsresearch and development for any of the past five years.Research and development is treated as an expense on the income statement, it isexpensed out of gross profit and is expensed when incurred. “Some companies do not record aseparate line item for research and development expenses. To the extent that they do incursuch expenses they are probably lumped into selling, general, and administrative expenses butwould be disclosed in a footnote. Companies that are more reliant on research will generallyreport it separately” (www.financial-education.com – research and development expense). SWMis reliant on research and development because R&D is such a crucial part in having the mostefficient top of the line paper product to supply. For this reason, R&D is crucial and SWM doesreport research expense on a separate line item.59