SWM » Topics » Property, Plant and Equipment Valuation

These excerpts taken from the SWM 10-K filed Mar 6, 2009.

Property, Plant and Equipment Valuation

Paper manufacturing, which is our primary manufacturing process, is a capital intensive process. As a result, we make substantial investments in property, plant and equipment which are recorded at cost. Net property, plant and equipment comprised 56 percent of our total assets as of December 31, 2008. Property, plant and equipment is depreciated on the straight-line method over the useful lives of the assets for financial reporting purposes. Paper machines and related equipment are not subject to substantial technological changes rendering them obsolete and are generally depreciated over estimated useful lives of 20 years. In the United States, banded cigarette paper production assets at the Spotswood Mill are generally depreciated over estimated useful lives of 10 years. We periodically assess the likelihood of recovering the cost of long-lived assets based on our expectation of future profitability and undiscounted cash flow of the related operations. These factors, along with management's plans with respect to the operations, are considered in assessing the recoverability of property, plant and equipment. Changes in management's estimates and plans could significantly impact our results of operations, financial position or cash flows.

As a result of excess capacity in the tobacco-related papers industry and increased purchased material and operating costs experienced in the last several years, competitive selling prices for certain of our products are not sufficient to cover our costs with a reasonable margin. Such competitive pressures have resulted in downtime of certain paper machines and, in some cases, accelerated depreciation or impairment of certain equipment. We initiated restructuring activities during 2006 in France and the United States and during 2007 in Brazil to improve our competitiveness and profitability. Restructuring activities at the Lee Mills facility resulted in $0.5 million and $11.3 million of asset impairment charges and accelerated depreciation in 2008 and 2007, respectively, and $4.2 million of accelerated depreciation in 2006. In 2008 and 2007 in France, we incurred capital expenditures of approximately $26 million to improve the cost competitiveness in our paper operations and quality of our products manufactured at PdM. The shutdown of certain older equipment at PdM and PdMal resulted in accelerated depreciation of $1.5 million $2.1 million and $1.0 million in 2008, 2007 and 2006, respectively.

In conjunction with the preparation of the Company's financial statements for the year ended December 31, 2008, management determined the recent and projected losses at its Malaucene facility and the shut-down of a paper machine at PdM constituted events requiring tests be performed for the recoverability of these long-lived assets. Based on the analyses of the net book values and the fair market values, the Company recorded pre-tax, non-cash charges totaling $13.5 million for fixed asset impairments in the fourth quarter ended December 31, 2008.

28


Certain of our Spotswood Mill's banded cigarette paper production assets remain underutilized and likely would otherwise be shut down except that we have a contractual commitment to stand ready to produce commercial quantities of that product for our customer. Partially offsetting the net book value of these assets is $18.3 million of unamortized deferred revenue as of December 31, 2008, which is being amortized to revenue as product is being purchased by that customer through 2011. Further, certain of the infrastructure improvements and other assets installed to be able to produce commercial quantities of banded cigarette paper would still be used by a scaled down operation even if we stopped manufacture of that product. As of December 31, 2008, the net book value of Spotswood Mill property, plant and equipment was $67.4 million, of which $8.9 million related to 10-year-life banded cigarette paper specific assets and $7.0 million related to 3 paper machines capable of producing banded cigarette paper, but not currently in operation.

Management continues to evaluate how to operate our production facilities more effectively with reduced tobacco-related papers volumes. Further restructuring actions are possible that might require additional write-offs or accelerated depreciation of some equipment.

Property, Plant and Equipment Valuation



Paper manufacturing, which is our primary manufacturing process, is a capital intensive process. As a result, we make substantial investments in
property, plant and equipment which are recorded at cost. Net property, plant and equipment comprised 56 percent of our total assets as of December 31, 2008. Property, plant and
equipment is depreciated on the straight-line method over the useful lives of the assets for financial reporting purposes. Paper machines and related equipment are not subject to
substantial technological changes rendering them obsolete and are generally depreciated over estimated useful lives of 20 years. In the United States, banded cigarette paper production assets
at the Spotswood Mill are generally depreciated over estimated useful lives of 10 years. We periodically assess the likelihood of recovering the cost of long-lived assets based on
our expectation of future profitability and undiscounted cash flow of the related operations. These factors, along with management's plans with respect to the operations, are considered in assessing
the recoverability of property, plant and equipment. Changes in management's estimates and plans could significantly impact our results of operations, financial position or cash flows.



As
a result of excess capacity in the tobacco-related papers industry and increased purchased material and operating costs experienced in the last several years, competitive selling prices for certain
of our products are not sufficient to cover our costs with a reasonable margin. Such competitive pressures have resulted in downtime of certain paper machines and, in some cases, accelerated
depreciation or impairment of certain equipment. We initiated restructuring activities during 2006 in France and the United States and during 2007 in Brazil to improve our competitiveness and
profitability. Restructuring activities at the Lee Mills facility resulted in $0.5 million and $11.3 million of asset impairment charges and accelerated depreciation in 2008 and 2007,
respectively, and $4.2 million of accelerated depreciation in 2006. In 2008 and 2007 in France, we incurred capital expenditures of approximately $26 million to improve the cost
competitiveness in our paper operations and quality of our products manufactured at PdM. The shutdown of certain older equipment at PdM and PdMal resulted in accelerated depreciation of
$1.5 million $2.1 million and $1.0 million in 2008, 2007 and 2006, respectively.



In
conjunction with the preparation of the Company's financial statements for the year ended December 31, 2008, management determined the recent and projected losses at its Malaucene facility
and the shut-down of a paper machine at PdM constituted events requiring tests be performed for the recoverability of these long-lived assets. Based on the analyses of the net
book values and the fair market values, the Company recorded pre-tax, non-cash charges totaling $13.5 million for fixed asset impairments in the fourth quarter ended
December 31, 2008.



28









Certain
of our Spotswood Mill's banded cigarette paper production assets remain underutilized and likely would otherwise be shut down except that we have a contractual commitment to stand ready to
produce commercial quantities of that product for our customer. Partially offsetting the net book value of these assets is $18.3 million of unamortized deferred revenue as of
December 31, 2008, which is being amortized to revenue as product is being purchased by that customer through 2011. Further, certain of the infrastructure improvements and other assets
installed to be able to produce commercial quantities of banded cigarette paper would still be used by a scaled down operation even if we stopped manufacture of that product. As of December 31,
2008, the net book value of Spotswood Mill property, plant and equipment was $67.4 million, of which $8.9 million related to 10-year-life banded cigarette paper
specific assets and $7.0 million related to 3 paper machines capable of producing banded cigarette paper, but not currently in operation.




Management
continues to evaluate how to operate our production facilities more effectively with reduced tobacco-related papers volumes. Further restructuring actions are possible that might require
additional write-offs or accelerated depreciation of some equipment.



These excerpts taken from the SWM 10-K filed Mar 7, 2008.

Property, Plant and Equipment Valuation

Paper manufacturing, which is our primary manufacturing process, is a capital intensive process. As a result, we make substantial investments in property, plant and equipment which are recorded at cost. Net property, plant and equipment comprised 58.8 percent of our total assets as of December 31, 2007. The cost of depreciable property, plant and equipment is depreciated on the straight-line method for financial reporting purposes over the depreciable lives of the assets. Depreciable lives are based on estimates of the useful lives of the assets, which is the period over which we expect to benefit from the use of the asset. Paper machines and related equipment are not readily obsoleted and are generally depreciated over estimated useful lives of 20 years. We periodically assess the likelihood of recovering the cost of long-lived assets based on our expectation of future profitability and undiscounted cash flow of the related operations. These factors, along with management's plans with respect to the operations, are considered in assessing the recoverability of property, plant and equipment. Facts and circumstances upon which management's estimates and plans are based could change, thus the possibility exists of a material adjustment to our financial statements in the future.

As a result of excess capacity in the tobacco-related papers industry and increased purchased material and operating costs experienced in the last several years, competitive levels of selling prices for certain of our products are not sufficient to cover those costs with a margin that we consider reasonable. Such competitive pressures have resulted in downtime of certain paper machines and, in some cases, accelerated depreciation or impairment of certain equipment. We initiated restructuring activities during 2006 in France and the United States and during 2007 in Brazil which are expected to improve our competitiveness and profitability as well as an imbalance between sales demand and paper production capacity. Restructuring activities at the Lee Mills facility resulted in $11.3 million of asset impairment charges and accelerated depreciation in 2007 and $4.2 million of accelerated depreciation in 2006. In France, we are incurring capital expenditures of approximately $26 million to improve the cost competitiveness in our paper operations and quality of our products manufactured at PdM, along with the shutdown of certain older equipment at PdM and PdMal, which resulted in accelerated depreciation of $2.1 million and $1.0 million in 2007 and 2006, respectively.

Management continues to evaluate how to operate our production facilities more effectively with reduced tobacco-related papers volumes. Further restructuring actions are possible that might require additional write-offs or accelerated depreciation of some equipment.

In the United States, banded cigarette paper production assets at the Spotswood Mill are generally depreciated over estimated useful lives of 10 years. Certain of these assets remain underutilized and likely would otherwise be shut down except that we have a contractual commitment to stand ready to produce commercial quantities of that product for our customer. Partially offsetting the net book value of these assets is unamortized deferred revenue which is being amortized to revenue as product is being purchased by that customer. Further, certain of the infrastructure improvements and other assets installed to be able to produce commercial quantities of banded cigarette paper would still be used by a scaled down operation even if we stopped manufacture of that product. As of December 31, 2007, the net book value of Spotswood Mill property, plant and equipment was $72.3 million, of which $12.1 million related to 10 year life banded cigarette paper specific assets and $9.5 million related to 3 paper machines capable of producing banded cigarette paper, but not currently in operation. As of December 31, 2007, unamortized deferred revenue was $24.1 million.

31


Prior Period Restatement

For a discussion regarding our prior period restatement, see "Prior Period Restatement" within Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements.

Property, Plant and Equipment Valuation



Paper manufacturing, which is our primary manufacturing process, is a capital intensive process. As a result, we make substantial investments in property, plant and equipment
which are recorded at cost. Net property, plant and equipment comprised 58.8 percent of our total assets as of December 31, 2007. The cost of depreciable property, plant and equipment is
depreciated on the straight-line method for financial reporting purposes over the depreciable lives of the assets. Depreciable lives are based on estimates of the useful lives of the
assets, which is the period over which we expect to benefit from the use of the asset. Paper machines and related equipment are not readily obsoleted and are generally depreciated over estimated
useful lives of 20 years. We periodically assess the likelihood of recovering the cost of long-lived assets based on our expectation of future profitability and undiscounted cash
flow of the related operations. These factors, along with management's plans with respect to the operations, are considered in assessing the recoverability of property, plant and equipment. Facts and
circumstances upon which management's estimates and plans are based could change, thus the possibility exists of a material adjustment to our financial statements in the future.



As
a result of excess capacity in the tobacco-related papers industry and increased purchased material and operating costs experienced in the last several years, competitive levels of selling prices
for certain of our products are not sufficient to cover those costs with a margin that we consider reasonable. Such competitive pressures have resulted in downtime of certain paper machines and, in
some cases, accelerated depreciation or impairment of certain equipment. We initiated restructuring activities during 2006 in France and the United States and during 2007 in Brazil which are expected
to improve our competitiveness and profitability as well as an imbalance between sales demand and paper production capacity. Restructuring activities at the Lee Mills facility resulted in
$11.3 million of asset impairment charges and accelerated depreciation in 2007 and $4.2 million of accelerated depreciation in
2006. In France, we are incurring capital expenditures of approximately $26 million to improve the cost competitiveness in our paper operations and quality of our products manufactured at PdM,
along with the shutdown of certain older equipment at PdM and PdMal, which resulted in accelerated depreciation of $2.1 million and $1.0 million in 2007 and 2006, respectively.




Management
continues to evaluate how to operate our production facilities more effectively with reduced tobacco-related papers volumes. Further restructuring actions are possible that might require
additional write-offs or accelerated depreciation of some equipment.



In
the United States, banded cigarette paper production assets at the Spotswood Mill are generally depreciated over estimated useful lives of 10 years. Certain of these assets remain
underutilized and likely would otherwise be shut down except that we have a contractual commitment to stand ready to produce commercial quantities of that product for our customer. Partially
offsetting the net book value of these assets is unamortized deferred revenue which is being amortized to revenue as product is being purchased by that customer. Further, certain of the infrastructure
improvements and other assets installed to be able to produce commercial quantities of banded cigarette paper would still be used by a scaled down operation even if we stopped manufacture of that
product. As of December 31, 2007, the net book value of Spotswood Mill property, plant and equipment was $72.3 million, of which $12.1 million related to 10 year life
banded cigarette paper specific assets and $9.5 million related to 3 paper machines capable of producing banded cigarette paper, but not currently in operation. As of December 31, 2007,
unamortized deferred revenue was $24.1 million.



31









NAME="page_dm77601_1_32">










Prior Period Restatement



For a discussion regarding our prior period restatement, see "Prior Period Restatement" within Note 2, Summary of Significant Accounting Policies, of the Notes to
Consolidated Financial Statements.



This excerpt taken from the SWM 10-K filed Mar 2, 2007.

Property, Plant and Equipment Valuation

Paper manufacturing, which is our primary manufacturing process, is a capital intensive process. As a result, we make substantial investments in property, plant and equipment which are recorded at cost. Net property, plant and equipment comprised 60 percent of our total assets as of December 31, 2006. The cost of depreciable property, plant and equipment is depreciated on the straight-line method for financial reporting purposes over the depreciable lives of the assets. Depreciable lives are based on estimates of the useful lives of the assets, that is the period over which we expect to benefit from the use of the asset. Paper machines and related equipment are not readily obsoleted and are generally depreciated over estimated useful lives of 20 years. We periodically assess the likelihood of recovering the cost of long-lived assets based on our expectation of future profitability and undiscounted cash flow of the related operations. These factors, along with management’s plans with respect to the operations, are considered in assessing the recoverability of property, plant and equipment. Facts and circumstances upon which management’s estimates and plans are based could change, thus the possibility exists of a material adjustment to our financial statements in the future.

As a result of excess capacity in the tobacco-related papers industry and increased operating costs experienced in the last 2 to 3 years, particularly related to purchased energy, competitive levels of selling prices for certain of our products are not sufficient to cover those costs with a margin that we consider reasonable. Such competitive pressures have resulted in downtime of certain paper machines and, in some cases, accelerated depreciation of certain equipment. We initiated restructuring activities during 2006 which are expected to improve our competitiveness and profitability as well as an imbalance between sales demand and paper production capacity in the United States and France. At the Lee Mills facility, we initiated restructuring activities to reduce paper machine operations, which resulted in $4.2 million in accelerated depreciation in 2006. We also began restructuring activities at our PdM mill in Quimperlé, France. We plan to incur capital expenditures of approximately $23 million to improve the cost competitiveness in our paper operations and quality of our products manufactured at PdM, along with the shutdown of certain older equipment resulting in 2006 accelerated depreciation of $1.0 million.

Management continues to evaluate how to operate our production facilities more effectively with reduced tobacco-related papers volumes. Further restructuring actions are possible that might require write-offs or accelerated depreciation of some equipment, particularly in France or the United States.

In the United States, banded cigarette paper production assets at the Spotswood Mill are generally depreciated over estimated useful lives of 10 years. Certain of these assets remain underutilized and likely would otherwise be shut down except that we have a contractual commitment to stand ready to produce commercial quantities of that product for our customer. Partially offsetting the net book value of these assets is unamortized deferred revenue which is being amortized to revenue as product is being purchased by that customer. Further, certain of the infrastructure improvements and other assets installed to be able to produce commercial quantities of banded cigarette paper would still be used by a scaled down operation even if we stopped manufacture of that product. As of December 31, 2006, the net book value of Spotswood Mill property, plant and equipment was $79 million, of which $15 million related to 10 year life banded cigarette paper specific assets and $10 million related to 3 paper machines capable of producing

38




banded cigarette paper, but not currently in operation. As of December 31, 2006, unamortized deferred revenue was $30.1 million.

This excerpt taken from the SWM 10-K filed Mar 7, 2006.

Property, Plant and Equipment Valuation

Paper manufacturing, which is our primary manufacturing process, is a mature and capital intensive process. As a result, we make substantial investments in property, plant and equipment which are recorded at cost. The cost of depreciable property, plant and equipment is depreciated on the straight-line method for financial reporting purposes over the depreciable lives of the assets. Depreciable lives are based on estimates of the useful lives of the assets, that is the period over which we expect to benefit from the use of the asset. Paper machines and related equipment are not readily obsoleted and are generally depreciated over estimated useful lives of 20 years. We periodically assess the likelihood of recovering the cost of long-lived assets based on our expectation of future profitability and undiscounted cash flow of the related operations. These factors, along with management’s plans with respect to the operations, are considered in assessing the recoverability of property, plant and equipment. Facts and circumstances upon which management’s estimates and plans are based could change, thus the possibility exists of a material adjustment to our financial statements in the future.

As a result of current excess capacity in the tobacco-related papers industry and increased operating costs experienced in the last 12 to 24 months, particularly related to purchased energy, competitive levels of selling prices for certain of our products are not sufficient to cover those costs with a margin that we consider reasonable. Such competitive pressures have resulted in downtime of certain paper machines and, in some cases, accelerated depreciation of certain equipment. Management is evaluating how to operate our production facilities more effectively with reduced tobacco-related papers volumes. Changes are possible that might require write-offs or accelerated depreciation of some equipment and could possibly include charges for employee-related costs associated with possible downsizing activities, particularly in the United States or France.

In the United States, banded cigarette paper production assets at the Spotswood Mill are generally depreciated over estimated useful lives of 10 years, although that product, utilized in lower ignition propensity cigarettes, has not yet been widely commercialized. Certain of these assets remain underutilized and likely would otherwise be shut down except that we have a contractual commitment to stand ready to produce commercial quantities of that product for our customer. Partially offsetting the net book value of

40




these assets is an unamortized deferred revenue which is being amortized to revenue as product is being purchased by that customer. Further, certain of the infrastructure improvements and other assets installed to be able to produce commercial quantities of banded cigarette paper would still be used by a scaled down operation even if we stopped manufacture of that product. As of December 31, 2005, the net book value of Spotswood Mill property, plant and equipment was $87 million, of which $19 million related to 10 year life banded cigarette paper specific assets and $11 million related to 3 paper machines capable of producing banded cigarette paper, but not currently in operation. As of December 31, 2005, unamortized deferred revenue was $36 million.

With the current competitive levels of selling prices for tobacco-related and other fine papers, we are evaluating to which of these products we want to continue to commit our resources. A significant portion of the products manufactured at the Lee Mills are commercial and industrial papers. Our machines that make these papers are smaller machines than those of some of our competitors in those markets. As a result, our cost of manufacture for those products can be higher than those of competitors and thus our margins lower than we desire. Due to significant inflationary cost increases during 2004 and 2005, primarily from purchased energy, labor and employee benefit costs, the Lee Mills incurred operating losses. At the Lee Mills facility, we also operate a machine that is owned by Kimberly-Clark. Ownership of the machine was retained by Kimberly-Clark in the 1995 spin-off of the Company and is operated solely for the purpose of producing a proprietary product used as an in-process material by Kimberly-Clark. Under the contract for its continued operation, we essentially invoice Kimberly-Clark the actual costs of operating the machine, including allocations of indirect and fixed overhead costs. While the current term of the contract was scheduled to expire in December 2009, Kimberly-Clark gave notice of early termination on January 27, 2006, which under the contract began an 18 month termination period for the contract now ending in August 2007. While certain of the costs currently invoiced to Kimberly-Clark can be eliminated, we may be unable to eliminate a portion of the approximately $2 million of indirect and fixed overhead costs that are currently absorbed by that operation. Management has begun to evaluate the impact that the Kimberly-Clark contract termination in August 2007, recent changes in tobacco-related paper customer sales volume forecasts and lack of profitability for certain commercial and industrial papers may have on the operations of the Lee Mills. While we are still evaluating broader restructuring options, we decided in late February 2006 to transfer the production volume from one plug wrap paper machine, currently carried at $3 million and for which accelerated depreciation of approximately $1 million will be taken during each of the next 3 years, to another currently under-utilized Lee Mills plug wrap paper machine. Additional changes are possible at Lee Mills that might require further accelerated depreciation or write-offs of some equipment and could possibly include charges for employee-related costs associated with downsizing activities. As of December 31, 2005, the net book value of Lee Mills property, plant and equipment was $25 million.

In France, a recent downturn in demand for some of our tobacco-related products has resulted from a decrease in consumption of cigarettes in certain countries as a result of increased taxes and regulations on the cigarette industry and new tobacco-related papers capacity that began operation in Europe in 2003 and 2004. This has created a very competitive pricing environment during a time of high inflationary cost increases. This downturn in demand for our products has caused us to have excess capacity and increased machine downtime at the present time. Based on these current competitive circumstances, as well as possible future implications to our existing operations, management is evaluating how to operate our production facilities in France more effectively. Although no decisions have been made, changes are possible that might require write-offs or accelerated depreciation of some equipment and could possibly include charges for employee-related costs associated with possible downsizing activities. Three small, less efficient paper machines and supporting assets currently operating at PdM have a net book value of $3 million as of December 31, 2005.

41




Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki