SWM - Mark Moore

Qualitative DisclosureOne of the most important steps when valuing a firm’s performance is to assess theirlevel of disclosure. The amount of disclosure a firm contains depends on what they wantanalysts and investors to see. Considering how GAAP requires a minimum level of disclosure,management has large leeway when deciding on what to reveal. A firm having low disclosureraises questions on how clear their financial statements are and makes it difficult for investorsto value their company performance. Investors will feel more at ease when comparingcompanies if there is adequate and relevant information available. The level of disclosure alsodepends on management’s utilization of their accounting flexibility. Firms that exercise moreflexibility tend to have low disclosure because of the freedom they possess regarding theirestimations. The following paragraphs evaluate Schweitzer-Mauduit’s level of disclosure, whichwill give a broader view of the truthfulness to their financials, as well as how transparent thecompany is.GoodwillAfter observing Schweitzer-Mauduit’s 10-k’s for the past five years, it shows that theyhave a very good level of disclosure. They describe how they must test for impairment ingoodwill, which is done in the fourth quarter annually. An impairment loss is determined as theexcess of book value of goodwill over the implied fair value of goodwill. For the years 2004-2008, no impairment loss was recorded for the goodwill. In SWM’s case, in all of their 10-k’sthey discuss their acquisitions and what part of it is property, plant and equipment, inventory,and then states the goodwill. They also include goodwill as Other Assets for each acquisition ontheir consolidated balance sheets.Another element to observe is the percentage of goodwill to property, plant andequipment. If goodwill is greater than 20% of PP&E, it is impaired and must be restated. Thehigher the percentage of goodwill to PP&E leads to the conclusion that the firm may have toomany assets on their balance sheet that are not very useful.72