Schweitzer-Mauduit International, Inc.

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Schweitzer-Mauduit International, Inc.

100 North Point Center East, Suite 600
Alpharetta, Georgia 30022
U.S.A.
Telephone: (770) 569-4200
Toll Free: (800) 514-0186
Fax: (770) 569-4209
Web site: http://www.schweitzer-mauduit.com

Public Company Incorporated: 1995
Employees: 3,359
Sales: $499.50 million (2001)
Stock Exchanges: New York
Ticker Symbol: SWM
NAIC: 322121 Paper (Except Newsprint) Mills; 339944 Carbon Paper and Inked Ribbon Manufacturing

Schweitzer-Mauduit International, Inc. is the world’s largest producer of the various types of paper used in the manufacture of cigarettes. Roughly 10 percent of Schweitzer-Mauduit’s business is derived from the manufacture of specialty paper products, including lightweight printing and writing papers, coated papers for packaging and labeling applications, and paper used for a variety of applications, ranging from business forms to drinking straw wrap. The company operates eight mills located in the United States, France, and Brazil. Sales and administrative offices are maintained in the United States, France, Hong Kong, Brazil, and Spain. Schweitzer-Mauduit’s cigarette, plug wrap, and tipping paper is used in approximately 25 percent of all the cigarettes produced in the world. The company serves roughly 200 customers in more than 90 countries.

Origins As a Family Business

Schweitzer-Mauduit began not as a manufacturer but as an importer. The Georgia-based company, which ranked as the preeminent cigarette paper producer at the end of the 20th century, was founded at the beginning of the century in New Jersey. In 1908, a family-run business named Peter J. Schweitzer first started importing cigarette paper from France to the United States, marking the firm’s entry into an industry it would later dominate. The Schweitzer family business did not assume the role of manufacturer until 14 years after its founding, but once it did the company slipped into its role as a specialty paper producer with the precision required for the demands of the job.

As the company aggrandized its manufacturing operations through acquisitions and plant expansions, it focused its efforts on creating superior grades of cigarette paper. There were three principal types of paper used in cigarettes—plug wrap paper, cigarette paper, and tipping paper—each serving a distinct purpose in the function of a cigarette. Plug wrap formed the outer layer of the cigarette filter, functioning as a restrainer that held the filter materials in a cylindrical form. Cigarette paper constituted the body of the cigarette, wrapping the column of tobacco in the cigarette. The manufacture of cigarette paper represented an engineering feat, requiring highly specific tolerances be met in regard to a host of factors, including weight, porosity (a measure of air flow permeability), opacity, tensile strength, texture, and burn rate. Tipping paper joined the filter to the tobacco column, its careful production critical to the distinctive finished appearance of a cigarette. To engender a proper finished appearance, tipping paper had to be printable and glueable at high speeds.

Schweitzer-Mauduit’s development during the 20th century was fueled through acquisitions. The company’s manufacturing activities commenced in 1922, when the Schweitzer family acquired a French manufacturer named Papeteries de Malaucene. The acquisition gave the company what would become its major source of tipping paper and cigarette paper. Located near Avignon, Papeteries de Malaucene began manufacturing paper in the mid-16th century, adding considerable experience to the 14-year-old Schweitzer family business. Next, the Schweitzers developed a manufacturing presence in the United States, acquiring a mill in New Jersey in 1940. Located in Spots wood, the mill became a chief source of cigarette paper for Schweitzer-Mauduit.

Post-World War II Expansion

A decade after the Spotswood acquisition, the Schweitzer family completed a series of acquisitions in what would be its last years of ownership. In 1950, the company acquired three mills in western Massachusetts. The following year, the Schweitzers acquired half its namesake, purchasing Papeteries de Mauduit. Located in Quimperle, in western France, the manufacturing facility eventually became the largest cigarette paper mill in the world. In 1955, the company acquired a piece of American history when it purchased the Ancram mill in northern New York. Originally an iron works established in 1743, the facility was used to make a chain-link blockade of the Hudson River during the Revolutionary War. The site, later in Schweitzer-Mauduit’s development, became the center of the company’s reconstituted tobacco wrapper and binder business.

Reconstituted tobacco represented Schweitzer-Mauduit’s other facet of tobacco-related business. By the end of the 20th century, the company manufactured reconstituted tobacco in two forms: leaf, and wrapper and binder. Reconstituted leaf was used by cigarette manufacturers as a filler to blend with virgin tobacco to achieve particular taste characteristics and other attributes. Wrapper and binder were used in the manufacture of machine-made cigars. Binder, like cigarette paper, functioned as a restrainer, holding the tobacco leaves in a cylindrical shape during the production process. Wrapper was used to cover the outside of the cigar, giving it a uniform, finished appearance. Schweitzer-Mauduit conducted its reconstituted wrapper and binder production in the United States and its reconstituted leaf production in France.

After a half-century of control, the Schweitzer family relinquished ownership of its business in the late 1950s. The specialty paper-making assets built up over decades had become attractive enough to draw the interest of a much larger suitor, Kimberly-Clark Corporation, the giant paper products company that marketed Kleenex. The Irving, Texas-based corporation acquired the Schweitzers’ business in 1957. Under the control of Kimberly-Clark, expansion continued, resuming in 1963 when the company established Le Tabac Reconstitue, later to become LTR Industries. Located in Spay, in north-central France, LTR Industries became Schweitzer-Mauduit’s chief source of reconstituted leaf products, eventually developing into the world’s largest independent producer of such products. Three years after establishing LTR Industries, Kimberly-Clark strengthened its tipping paper capabilities by constructing the Greylock Mill, located in Lee, Massachusetts, near the three mills acquired in 1950.

1995 Spinoff

Independence returned to Schweitzer-Mauduit after a nearly 40-year absence. For strategic reasons, Kimberly-Clark’s management decided to divest Kimberly-Clark Specialty Products, its U.S., Canadian, and French assets that manufactured tobacco-related papers and other specialty paper products. The decision led to the August 1995 incorporation of Schweitzer-Mauduit as a wholly owned subsidiary of Kimberly-Clark. Wayne H. Deitrich, a Kimberly-Clark senior executive for seven years, was appointed the subsidiary’s chief executive officer. At the end of November, Kimberly-Clark distributed to its stockholders all of the common stock of the Schweitzer-Mauduit subsidiary. The distribution of stock constituted the Schweitzer-Mauduit spinoff as an independent, publicly traded company. Immediately after the spinoff, Deitrich was elected chairman of Schweitzer-Mauduit.

Deitrich and his fellow executives embraced independence. From their perspective, Schweitzer-Mauduit, as a separate entity, could react more nimbly to customer demands than it could have when the company was part of a much larger concern with many nontobacco interests. What Schweitzer-Mauduit’s management took charge of in the last weeks of 1995 was a $463 million concern with its U.S. and corporate headquarters based in Alpharetta, Georgia. Physically, the company controlled the manufacturing facilities acquired during the Schweitzer family’s ownership. Schweitzer-Mauduit operated three manufacturing centers in the United States, including facilities in Lee, Massachusetts; Ancram, New York; and Spotswood, New Jersey. The company also owned a Canadian subsidiary in Winkler, Manitoba. Schweitzer-Mauduit’s French properties included Papeteries de Mauduit, Papeteries de Malaucene, and LTR Industries. With these properties as its foundation, the company prepared for growth, promising to complete acquisitions. A company executive, in a March 1996 interview with World Tobacco, explained: “We plan to use our strong cash flow to make new investments and develop our existing capabilities, both in terms of product development and service enhancements, and in the area of increasing our capacity.”

The company delivered on its promise of aggressive expansion. During its first two years of independence, Schweitzer-Mauduit invested $87.3 million in production capacity and quality improvements, including a new long-fiber-paper machine that began operating in March 1997 and the replacement of Kimberly-Clark’s computer systems with its own state-of-the-art integrated computer system. By the end of 1997, the company controlled 21 percent of the global market for cigarette paper, possessing the capability of producing one-quarter million metric tons of cigarette paper, plug wrap paper, tipping paper, and reconstituted tobacco annually.

Company Perspectives:

Schweitzer-Mauduit International, Inc. is a diversified producer of premium specialty papers and the world’s largest supplier of fine papers to the tobacco industry. Schweitzer-Mauduit conducts business in over 90 countries and employs approximately 3,500 people worldwide, with operations in the United States, France, Brazil and Canada.

Schweitzer-Mauduit celebrated its 100th anniversary by completing two important acquisitions, one of which marked the company’s entrance into a new, massive market. In February 1998, the company completed the $62 million acquisition of Companhia Industrial de Papel Pirahy (Pirahy), the only cigarette paper producer in Brazil. With revenues of $75 million in 1997, Pirahy controlled roughly half of the South American market for cigarette paper, boasting an annual paper capacity of 63,000 metric tons. Deitrich planned to use Pirahy as a manufacturing springboard to facilitate Schweitzer-Mauduit’s expansion throughout South America and into Latin America. During the year, the company also bolstered its manufacturing operations in France by purchasing Ingefico, S.A., including its pulp and specialty paper subsidiaries Groupe SAPAM and Papeteries de la Moulasse. Ingefico’s mills in Saint Girons had been active in the tobacco-related papers industry since 1900, marketing its products under the Job Cigarette Paper brand. Ingefico, which was organized as a Schweitzer-Mauduit subsidiary named Papeteries de Saint-Girons, possessed an annual production capacity of 14,000 metric tons of paper and 6,000 metric tons of pulp. Together, the two acquisitions appreciably affected Schweitzer-Mauduit’s global stature. By the time the acquisitions were completed, the company controlled an estimated 27 percent of the world cigarette paper market, compared with its 21 percent share prior to the French and Brazilian acquisitions.

Before and immediately after the acquisitions, Schweitzer-Mauduit suffered financially, a prelude to more serious problems that would surface at the decade’s end. Slower sales, higher taxes in France, and the costly process of installing its own integrated computer system contributed to lackluster financial performance. Between November 1997 and July 1998, the company’s stock value depreciated by more than 40 percent, falling to its lowest point since the spinoff from Kimberly-Clark.

By the beginning of the 21st century, the problems had become more serious, as Schweitzer-Mauduit found itself combating a global oversupply of tobacco-related papers. Supply exceeded demand, inhibiting the company’s ability to offset rising production costs by raising its prices. Aside from battling with a glutted global market, Schweitzer-Mauduit also faced localized problems. Brazil’s economy was in ruins during the early years of the 21st century, forcing a response from Schweitzer-Mauduit’s management. In mid-2001, the company announced a plan to restructure its Brazilian operations primarily because of energy problems. After the Brazilian government ordered a 25 percent reduction in electricity consumption by the paper industry, Schweitzer-Mauduit announced that it was ceasing production of uncoated printing and writing papers in Brazil. The business, which generated $25 million in sales in 2000, represented Schweitzer-Mauduit’s least profitable product line in Brazil. The manufacture of the specialty papers also used the largest amount of electricity.

As Schweitzer-Mauduit prepared for the future, some comfort could be taken from indications that market conditions were improving. By the end of 2001, the company’s quarter-to-quarter profitability began to show signs of vitality, returning to a pattern of consecutive increases. Entering 2002, the company’s management was confident enough to announce plans for expansion. Deitrich and his team announced in April 2002 that they were adding a third reconstituted tobacco leaf production line at LTR Industries. The $59.2 million project, scheduled to be completed in early 2004, was expected to add additional annual capacity of 33,000 metric tons to its operations in Spay, France, giving it a total annual capacity of 80,000 metric tons. While construction progressed with the expansion project, Deitrich pressed ahead, confident that Schweitzer-Mauduit would remain the dominant player in the industry for years to come.

Principal Subsidiaries

Schweitzer-Mauduit Canada, Inc.; Schweitzer-Mauduit Spain, S.L.; Schweitzer-Mauduit France S.A.RX.; LTR Industries S.A. (France; 72%); Papeteries de Mauduit S.A.S. (France); Papeteries de Malaucene S.A.S. (France); Papeteries de Saint-Girons S.A.S. (France); Schweitzer-Mauduit do Brasil S.A. (99%).

Principal Competitors

Wattens; Miquel y Costas; Julius Glatz GmbH; Cartieira Del Maglio S.p.A.

Key Dates:

1908:: Cigarette paper importer Peter J. Schweitzer is founded in New Jersey.
1922:: Papeteries de Malaucene is acquired.
1940:: Spotswood, New Jersey, mill is acquired.
1950:: Several mills in western Massachusetts are acquired.
1957:: Schweitzer family business is acquired by Kimberly-Clark Corp.
1963:: LTR Industries is established.
1995:: Kimberly-Clark spins off its tobacco-related specialty papers business, creating Schweitzer-Mauduit International Inc.
1998:: Brazilian manufacturer Companhia Industrial de Papel Pirahy is acquired.
2002:: Expansion project at LTR Industries begins.