SWM - Mark Moore

all the assets and liabilities other than goodwill is the implied fair value of that goodwill” (SWM10-k).SWM did no impairments of goodwill during 2004-2008. In fact, their goodwill was 2.8million from 2004 to 2007. Universal Corp. (UVV) and Alliance One International, Inc (AOI) hasonly impaired goodwill once in the last 5 years which was $1.7 million and $256.9 million,respectively. It is reasonable for Schweitzer-Mauduit to not impair goodwill because manycompanies do not impair unless it is more than 20% of their property, plant and equipment.There is also little segmentation in regard to goodwill, giving that these firms are allmultinational.After reviewing the balance sheet of not only SWM’s competitors, but also otherindustries, most firms do not have a consistent goodwill rate. This could be a major concern ifgoodwill was more than 20% of PP&E and staying at a consistent rate because it could meanthat Schweitzer-Mauduit is playing with the numbers too aggressively and trying to boostearnings. Although this is not the case for Schweitzer-Mauduit, the industry still applies anaggressive accounting policy because there has been little to no impairment of goodwill, whichagain, could lead to higher earnings. Ultimately, this could be considered a potential red flag.Foreign CurrencySchweitzer-Mauduit is a company that operates globally, meaning they deal with foreigncurrencies and are at risk of losses from fluctuations in foreign currency exchange rates. Lately,currency risk has increased substantially as economic stability globally has decreased. Becauseof this uncertainty, the transaction risk increases (risk on future contracts already entered in) onlong-term contracts. To alleviate some of this risk, Schweitzer-Mauduit denominates their salesin U.S. dollars; however, in some countries they must use the non-local currency. Theyalso use what is called hedging tactics, which is discussed later. This allows them tolower their foreign currency transaction risk, however, there will still be currencytranslation risk. “A weakening of the U.S. dollar versus the local currency of the foreignsubsidiary will have favorable currency translation impact when positive financial resultsof that foreign subsidiary are translated to U.S dollars” (SWM 10-k). They denominate66