SWM - Mark Moore

SWM 2008 2007 2006 2005 2004R & D 8.3 8 7.3 9 9.3OperatingIncome16.9 17.9 5.3 39.3 57.7R & D % relative toOperating Income49% 45% 138% 23% 16%(In millions)The chart above shows how much money was expensed by Schweitzer-Mauduit over thelast five years into research and development. It shows research and development expensesrelative to operating income for restatement purposes for Schweitzer-Mauduit. The chart alsoshows how research and development exceeds 20 percent of operating income, which means itmust be restated in the financial statements. As you can see SWM expenses a significantamount into research and development relative to its operating income. SWM commitment toresearch and development has enabled them to produce high-performance papers, producepapers to exacting specifications with very high consistency, produce cigarette paper withextremely low basis weights, and develop cigarette paper for LIP cigarettes. Due to R&D, SWMis at the forefront of the industry and has immense competitive lead way over its competitors.Accounting FlexibilityManagement of a firms accounting flexibility is determined by their accounting policiesand the accounting standards set by GAAP. The amount of flexibility differs between firms andindustries due to the accounting policies for the certain key success factors. Some managers donot have the ability to choose their policies because there are rules that GAAP must enforce oncritical valuations for firms financial statements. Firms have no accounting discretion on howthey report their research and development costs. However, how a firm estimates futurebenefits is very flexible because different companies have different rates they use depending on60