1
FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from.............to.....................

Commission file number 1-13948

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 62-1612879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

100 NORTH POINT CENTER EAST
SUITE 600
ALPHARETTA, GEORGIA
30022-8246
(Address of principal executive offices)
(Zip Code)

1-800-514-0186
(Registrant's telephone number, including area code)

NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [ ]

As of March 31, 2000, 15,462,455 shares of the Corporation's common stock, par
value $.10 per share, together with preferred stock purchase rights associated
therewith, were outstanding.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)

FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
---- ----

Net Sales .................................................. $ 118.0 $ 128.6
Cost of products sold ................................. 96.0 99.2
------- -------
Gross Profit ............................................... 22.0 29.4
Selling expense ....................................... 4.4 4.7
Research expense ...................................... 1.7 1.8
General expense ....................................... 4.5 4.9
------- -------
Operating Profit .......................................... 11.4 18.0
Interest expense ...................................... (1.5) (1.5)
Other income, net ..................................... 1.6 1.0
------- -------
Income Before Income Taxes and Minority Interest ........... 11.5 17.5
Provision for income taxes ............................ 3.9 6.8
------- -------
Income Before Minority Interest ............................ 7.6 10.7
Minority interest in earnings of subsidiaries ......... 0.8 1.6
------- -------
Net Income ................................................. $ 6.8 $ 9.1
======= =======

Net Income per Common Share:
Basic ................................................. $ .44 $ .57
======= =======
Diluted ............................................... $ .44 $ .57
======= =======

Cash Dividends Declared per Common Share ................... $ .15 $ .15
======= =======

See Notes to Unaudited Consolidated Financial Statements

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3

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)

MARCH 31, DECEMBER 31,
2000 1999
- ----------------------------------------------------------------------------------------------------------------------------

ASSETS
Current Assets
Cash and cash equivalents ........................................................... $ 9.3 $ 15.1
Accounts receivable ................................................................. 69.9 72.1
Inventories ......................................................................... 64.2 62.9
Current income tax refunds receivable ............................................... 3.3 2.2
Deferred income tax benefits ........................................................ 4.2 4.1
Prepaid expenses .................................................................... 3.4 2.8
------ ------
Total Current Assets ............................................................ 154.3 159.2
------ ------

Gross Property .......................................................................... 443.7 451.9
Less accumulated depreciation ....................................................... 200.1 199.8
------ ------
Net Property .................................................................... 243.6 252.1
------ ------

Noncurrent Deferred Income Tax Benefits .................................................. 4.5 6.9
------ ------

Deferred Charges and Other Assets ........................................................ 17.8 18.4
------ ------

Total Assets ............................................................................. $420.2 $436.6
====== ======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt ................................................... $ 3.0 $ 3.2
Other short-term debt ............................................................... 2.6 8.8
Accounts payable .................................................................... 39.0 46.3
Accrued expenses .................................................................... 50.5 49.1
------ ------
Total Current Liabilities ....................................................... 95.1 107.4
------ ------

Long-Term Debt ........................................................................... 98.0 100.9
------ ------
Deferred Income Taxes .................................................................... 13.7 13.1
------ ------
Other Noncurrent Liabilities ............................................................. 23.9 23.9
------ ------
Minority Interest ........................................................................ 7.5 7.1
------ ------
Contingencies (See Notes 5 and 6)
Stockholders' Equity
Preferred Stock -$.10 par value - 10,000,000 shares authorized, none issued ......... -- --
Common Stock -$.10 par value - 100,000,000 shares authorized,
16,078,733 shares issued at both March 31, 2000 and December 31, 1999 ........... l.6 1.6
Additional paid-in capital .......................................................... 60.5 60.7
Common stock in treasury, at cost - 616,278 and 441,845 shares at March 31, 2000
and December 31, 1999, respectively ............................................. (10.3) (8.0)
Retained earnings ................................................................... 161.2 156.7
Unearned compensation ............................................................... (0.4) --
Accumulated other comprehensive income (loss) -
Unrealized foreign currency translation adjustments ............................... (30.6) (26.8)
------ ------
Total Stockholders' Equity ...................................................... 182.0 184.2
------ ------

Total Liabilities and Stockholders' Equity ............................................... $420.2 $436.6
====== ======

See Notes to Unaudited Consolidated Financial Statements

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SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
U.S. $ IN MILLIONS
(UNAUDITED)

ACCUMULATED
COMMON STOCK ISSUED TREASURY STOCK ADDITIONAL OTHER
------------------- --------------- PAID-IN RETAINED UNEARNED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION INCOME (LOSS) TOTAL
------ ------ ------ ------ ------- -------- ------------ ------------- -----

BALANCE, DECEMBER 31, 1998........... 16,078,733 $1.6 154,668 $ (3.8) $ 60.7 $ 134.8 $ 3.7 $197.0

Net income for the three months
ended March 31, 1999............... 9.1 9.1
Adjustments to unrealized foreign
currency translation............... (23.2) (23.2)
------
Comprehensive loss................... (14.1)

Dividends declared ($0.15 per share) (2.4) (2.4)
Stock issued to directors as
compensation....................... -- -- (1,476) -- -- -- -- --
---------- ----- ------- ------ ------ ------- ----- ------ ------
BALANCE, MARCH 31, 1999.............. 16,078,733 1.6 153,192 (3.8) 60.7 141.5 (19.5) 180.5

Net income for the nine months
ended December 31, 1999............ 22.3 22.3
Adjustments to unrealized foreign
currency translation............... (7.3) (7.3)
------
Comprehensive income................. 15.0

Dividends declared ($0.45 per share) (7.1) (7.1)
Purchases of treasury stock.......... 294,350 (4.3) (4.3)
Stock issued to directors as
compensation....................... -- -- (5,697) 0.1 -- -- -- 0.1
---------- ----- ------- ------ ------ ------- ----- ------ ------
BALANCE, DECEMBER 31, 1999........... 16,078,733 1.6 441,845 (8.0) 60.7 156.7 (26.8) 184.2

Net income for the three months
ended March 31, 2000............... 6.8 6.8
Adjustments to unrealized foreign
currency translation.............. (3.8) (3.8)
------
Comprehensive income................. 3.0

Dividends declared ($0.15 per share) (2.3) (2.3)
Purchases of treasury stock.......... 206,400 (2.9) (2.9)
Restricted stock issuances........... (30,000) 0.6 (0.2) $(0.4) --
Stock issued to directors as
compensation....................... -- -- (1,967) -- -- -- -- -- --
---------- ----- ------- ------ ------ ------- ----- ------ ------
BALANCE, MARCH 31, 2000.............. 16,078,733 $ 1.6 616,278 $(10.3) $ 60.5 $ 161.2 $(0.4) $(30.6) $182.0
========== ===== ======= ====== ====== ======= ===== ====== ======

See Notes to Unaudited Consolidated Financial Statements.

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5

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
U.S. $ in millions
(Unaudited)

FOR THE THREE MONTHS
ENDED MARCH 31,
---------------
2000 1999
---- ----

Operations
Net income ............................................ $ 6.8 $ 9.1
Depreciation and amortization ......................... 5.7 5.6
Deferred income tax provision ......................... 2.4 1.7
Minority interest in earnings of subsidiaries ......... 0.8 1.6
Other ................................................. 0.1 0.7
Changes in operating working capital .................. (6.7) (15.4)
----- ------
Cash Provided by Operations .................. 9.1 3.3
----- ------
Investing
Capital spending ...................................... (3.3) (5.3)
Capitalized software costs ............................ (0.4) (1.0)
Other ................................................. 0.3 (0.3)
----- ------
Cash Used for Investing ...................... (3.4) (6.6)
----- ------
Financing
Cash dividends paid to SWM stockholders ............... (2.3) (2.4)
Purchases of treasury stock ........................... (2.9) --
Changes in short-term debt ............................ (6.2) 5.2
Proceeds from issuances of long-term debt ............. 0.2 0.7
Payments on long-term debt ............................ (0.3) (0.3)
----- ------
Cash Provided by (Used for) Financing ........ (11.5) 3.2
----- ------
Decrease in Cash and Cash Equivalents ...................... (5.8) (0.1)

Cash and Cash Equivalents at Beginning of Period ........... 15.1 6.7
----- ------
Cash and Cash Equivalents at End of Period ................. $ 9.3 $ 6.6
===== ======

See Notes to Unaudited Consolidated Financial Statements

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6

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
U.S. $ in millions, except per share amounts

NOTE 1. NATURE OF THE BUSINESS

Schweitzer-Mauduit International, Inc., including its subsidiaries, ("SWM"
or the "Company") is a diversified producer of premium specialty papers and the
world's largest supplier of fine papers to the tobacco industry. The Company was
formed as a spin-off from Kimberly-Clark Corporation ("Kimberly-Clark") at the
close of business on November 30, 1995.

NOTE 2. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of SWM and all
of its majority-owned subsidiaries. All material intercompany and
interdivisional amounts and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission and on the same basis as the audited financial
statements included in the Company's 1999 Annual Report on Form 10-K. All
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim periods have been made
and are generally of a normal recurring nature. Operating results for any
quarter are not necessarily indicative of the results for any other quarter or
for the full year. These financial statements should be read in connection with
the financial statements and notes thereto included in the Company's 1999 Annual
Report on Form 10-K.

Basic net income per common share is computed based on net income divided
by the weighted average number of common shares outstanding. The average numbers
of common shares used in the calculations of basic net income per common share
for the three month periods ended March 31, 2000 and 1999 were approximately
15,551,400 and 15,925,500, respectively. Diluted net income per common share is
computed based on net income divided by the weighted average number of common
and potential common shares outstanding. The average numbers of common and
potential common shares used in the calculations of diluted net income per
common share for the three month periods ended March 31, 2000 and 1999 were
approximately 15,587,000 and 15,925,500, respectively. Potential common shares
are those related to stock options and restricted stock outstanding during the
respective periods.

NOTE 3. INVENTORIES

The following schedule details inventories by major class:

March 31, December 31,
2000 1999
--------- ------------

At the lower of cost on the First-In, First-Out (FIFO)
and weighted average methods or market:
Raw materials ......................................... $27.1 $29.0
Work in process ....................................... 6.5 5.6
Finished goods ........................................ 23.1 21.1
Supplies and other .................................... 12.3 12.0
----- -----
69.0 67.7
Excess of FIFO cost over Last-In, First-Out (LIFO) cost .... (4.8) (4.8)
----- -----
Total ............................................... $64.2 $62.9
===== =====

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7

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
U.S. $ in millions, except per share amounts

NOTE 4. INCOME TAXES

The effective income tax rate for the three month period ended March 31,
2000 was 33.9 percent compared with 38.9 percent for the corresponding period of
1999. The lower effective income tax rate for the three month period of 2000 was
in part due to a decrease in the French corporate income tax rate from 40.0
percent for 1999 to 37.7 percent for 2000 and favorable tax treatment of a
settlement related to a prior period claim.

NOTE 5. ENVIRONMENTAL MATTERS

The Company's operations are subject to federal, state and local laws,
regulations and ordinances relating to various environmental matters. The nature
of the Company's operations expose it to the risk of claims with respect to
environmental matters and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims. Based on the
Company's experience to date, the Company believes that its future cost of
compliance with environmental laws, regulations and ordinances, its exposure to
liability for environmental claims and its obligation to participate in the
remediation of certain hazardous waste disposal sites will not have a material
adverse effect on the Company's financial condition or results of operations.
However, future events, such as changes in existing laws and regulations, or
unknown contamination of sites owned, operated or used for waste disposal by the
Company (including contamination caused by prior owners and operators of such
sites or other waste generators) may give rise to additional costs which could
have a material adverse effect on the Company's financial condition or results
of operations.

The Company has continuing responsibility to administer a consent order
between Kimberly-Clark and the Massachusetts Department of Environmental
Protection ("MDEP") governing the post-closure care of the Willow Hill Landfill
in Lee, Massachusetts. Results of tests conducted in February 2000 showed that
the Company had achieved compliance with the consent order and reduced the
concentration of landfill gases to the levels specified in the consent order at
30 feet below ground level in all of the gas monitoring wells. However, more
recent tests again showed gas levels in a few of the monitoring wells were above
the consent order limits. The Company is undertaking additional steps to address
this issue and will continue its remediation activities on a reduced monitoring
schedule approved by MDEP for this landfill, the remaining cost of which was
previously accrued and is not material.

The Company does not believe that these proceedings will result in the
imposition of monetary sanctions or will have a material adverse effect on the
Company's business or financial condition.

The Company incurs spending necessary to meet legal requirements and
otherwise relating to the protection of the environment at the Company's
facilities in the United States, France, Brazil and Canada. For these purposes,
the Company anticipates that it will incur capital expenditures of approximately
$2 to $4 annually in 2000 and 2001. The major projects included in these
estimates include upgrading wastewater treatment facilities at various locations
and installation of ink solvent treatment equipment in France. The foregoing
capital expenditures are not expected to reduce the Company's ability to invest
in capacity expansion, quality improvements, capital replacements, productivity
improvements or cost containment projects, and are not expected to have a
material adverse effect on the Company's financial condition or results of
operations.

7
8

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
U.S. $ in millions, except per share amounts

NOTE 6. LEGAL PROCEEDINGS

The Company is involved in certain legal actions and claims arising in the
ordinary course of business. Management believes that such litigation and claims
will be resolved without a material adverse effect on the Company's consolidated
financial statements.

NOTE 7. BUSINESS SEGMENT REPORTING

The Company is operated and managed based on the geographical location of
its manufacturing operations: the United States, France and Brazil. These
business segments manufacture and sell cigarette, plug wrap and tipping papers
used to wrap various parts of a cigarette, reconstituted tobacco products and
paper products used in cigarette packaging. While the products are comparable in
each segment, they vary based on the technological capabilities of each of the
manufacturing operations and the respective markets and customers served. Sales
by a segment into markets primarily served by a different segment occur where
specific product needs cannot be cost-effectively met by the manufacturing
operations domiciled in that segment.

Tobacco industry products comprised approximately 90 percent of the
Company's consolidated net sales in the periods presented. The Company's
non-tobacco industry products are a diverse mix of products, certain of which
represent commodity paper grades produced to maximize machine operations.

For purposes of the segment disclosure in the following tables, the term
"United States" includes operations in the United States and Canada. The
Canadian operations only produce flax fiber used as raw material in the U.S.
operations.

Intercompany sales of products between segments are made at market prices
and are referred to as intersegment sales. Expense amounts not associated with
segments are referred to as unallocated expenses. Assets reported by segment
represent assets which are directly used and an allocated portion of jointly
used assets. These assets include receivables from other segments and are
included in eliminations.

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9

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
U.S. $ in millions, except per share amounts

FOR THE THREE MONTHS ENDED
-------------------------- % OF CONSOLIDATED
MARCH 31, MARCH 31, % CHANGE -----------------
NET SALES 2000 1999 VS. 1999 2000 1999
- --------- ---- ---- -------- ---- ----

United States ...................... $ 38.1 $ 45.5 -16.3% 32.3% 35.4%
France.............................. 64.0 71.5 -10.5 54.2 55.6
Brazil.............................. 15.9 11.7 +35.9 13.5 9.1
------- --------
Subtotal................... 118.0 128.7
Intersegment sales by:
United States.................. -- -- -- --
France......................... -- (0.1) -- (0.1)
Brazil......................... -- -- -- --
------- -------- ----- ----- -----
Consolidated .............. $ 118.0 $ 128.6 - 8.2% 100.0% 100.0%
======= ======== ===== ===== =====

FOR THE THREE MONTHS ENDED
-------------------------- % OF CONSOLIDATED % RETURN ON SALES
MARCH 31, MARCH 31, % CHANGE ----------------- -----------------
OPERATING PROFIT 2000 1999 vs. 1999 2000 1999 2000 1999
- ---------------- ---- ---- -------- ---- ---- ---- ----

United States.............. $ 1.7 $ 4.1 - 58.5% 14.9% 22.8% 4.5% 9.0%
France..................... 9.7 13.6 - 28.7 85.1 75.6 15.2 19.0
Brazil..................... 1.3 2.0 - 35.0 11.4 11.1 8.2 17.1
Unallocated expenses....... (1.3) (1.7) (11.4) (9.5)
------- ------ ----- ----- ----
Consolidated...... $ 11.4 $ 18.0 - 36.7% 100.0% 100.0% 9.7% 14.0%
======= ====== ===== ===== ====

% OF CONSOLIDATED
MARCH 31, DECEMBER 31, -----------------
TOTAL ASSETS 2000 1999 2000 1999
- ------------ ---- ---- ---- ----

United States......................... $ 147.4 $ 147.6 35.1% 33.8%
France................................ 220.3 237.7 52.4 54.4
Brazil................................ 53.7 53.0 12.8 12.1
Intersegment eliminations............. (1.2) (1.7) (0.3) (0.3)
-------- -------- ----- -----
Consolidated................. $ 420.2 $ 436.6 100.0% 100.0%
======== ======== ===== =====

Approximately 65 percent of the Company's assets and liabilities are
outside of the United States, substantially all of which are in France or
Brazil. The balance sheets of the Company's foreign subsidiaries are translated
at period-end currency exchange rates, and the differences from historical
exchange rates are reflected in accumulated other comprehensive income (loss) as
unrealized foreign currency translation adjustments. Negative unrealized foreign
currency translation adjustments, as well as the total asset reductions shown
above, for the three month period ended March 31, 2000 are primarily due to a
stronger U.S. dollar against the French franc at March 31, 2000 versus December
31, 1999.

NOTE 8. NEW ACCOUNTING STANDARD

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which will require that all
derivative financial instruments be recognized as either assets or liabilities
on the balance sheet. In July 1999, the FASB issued SFAS No. 137, which delays
the effective date for the new requirements of SFAS No. 133 by one year. As a
result, SFAS No. 133 will be effective no later than for the Company's first
quarter of 2001. The Company is evaluating the effects of this new statement.

9
10

ITEM 2. SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Management believes that the following commentary and the tables presented
in Note 7 to the Notes to Unaudited Consolidated Financial Statements
appropriately discuss and analyze the comparative results of operations and the
financial condition of the Company for the periods covered.

RESULTS OF OPERATIONS

Net Sales

Net sales decreased by $10.6 million in the three month period ended March
31, 2000 compared with the corresponding period of the preceding year. This
decrease was a result of unfavorable currency exchange rates, lower average
selling prices and a decline in sales volumes. Changes in currency exchange
rates had an unfavorable impact of $6.9 million on the net sales comparison,
primarily as a result of a weaker French franc versus the U.S. dollar compared
with the same quarter of the prior year. Lower average selling prices reduced
net sales by $2.3 million as a result of an unfavorable mix of products sold and
the effects of certain price reductions that occurred in the first half of 1999.
Net sales decreased by $1.4 million in the quarter due to changes in sales
volumes which declined in total by two percent compared with the same quarter of
the prior year. Sales volumes for the quarter decreased at the U.S. business
unit by 18 percent primarily due to lower domestic cigarette shipments and a
decline in the export of cigarettes by U.S. cigarette manufacturers. In France,
sales volumes declined by three percent with a decline in reconstituted tobacco
leaf sales volumes largely offset by increased sales volumes of tobacco-related
papers. The decline in French reconstituted tobacco leaf products was caused by
the timing of certain customers' purchases and inventory adjustments taken by
certain customers. In Brazil, sales volumes improved by 21 percent, with
improvements in non-tobacco related papers and sales of tobacco-related papers
to Latin American countries other than Brazil more than offsetting weakness in
tobacco-related paper sales within the Brazilian market. Sales volumes of all
three business segments were unfavorably impacted in the first quarter of 2000
by a shift of sales volumes related to Year 2000 concerns of certain customers
which increased their year-end 1999 inventories.

Operating Profit

Operating profit decreased by $6.6 million in the three month period ended
March 31, 2000 compared with the corresponding period of the preceding year,
with declines in each of the three business segments. Operating profit was
unfavorably impacted in all three business segments by higher per ton wood pulp
costs and increased energy prices, as well as by lower sales and production
volumes in the United States and for French reconstituted tobacco leaf products.
Changes in per ton wood pulp costs and increased energy prices compared with the
same period of the prior year unfavorably impacted operating expenses by $4.7
million and $1.8 million, respectively. The Year 2000 sales volume shift
unfavorably impacted first quarter 2000 operating profit by approximately $1.8
million. Operating profit for the French business unit decreased by $3.9 million
as a result of the changes in sales and production volumes, unfavorable sales
mix, lower average selling prices and higher wood pulp and energy prices,
partially offset by improved mill operations and reduced manufacturing costs.
Operating profit in the U.S. declined by $2.4 million, with the benefits of cost
savings programs and improved mill operations partially offsetting the effect of
lower production and sales volumes and higher wood pulp and energy prices.
Operating profit in Brazil decreased by $0.7 million, with the benefits of
increased sales volumes, improved mill operations and cost reduction programs
more than offset by higher wood pulp and energy prices. Non-manufacturing
expenses decreased by $0.8 million during the quarter as a result of lower
selling, research and general expenses, in part due to cost reduction efforts
and changes in currency exchange rates.

10
11

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

NON-OPERATING EXPENSES

Interest expense was the same for the three month period ended March 31,
2000 compared with the corresponding period of the preceding year. The
unfavorable effect of higher average interest rates in 2000 was offset by lower
average debt outstanding and the effects of currency exchange rates. Other
income, net consisted primarily of interest income, royalty income and foreign
currency transaction gains and losses in each of the periods presented, a
favorable settlement in the 2000 period related to a prior period claim and
recovery in the 1999 period of prior period business taxes.

INCOME TAXES

LIQUIDITY AND CAPITAL RESOURCES

Three Months Ended March 31,
----------------------------
(U.S. $ in millions)
Cash Provided by (Used for): 2000 1999
- ---------------------------- ---- ----

Changes in operating working capital.............................................. $ (6.7) $ (15.4)
Operations........................................................................ 9.1 3.3
Capital spending.................................................................. (3.3) (5.3)
Capitalized software costs........................................................ (0.4) (1.0)
Purchases of treasury stock....................................................... (2.9) --

The Company's primary source of liquidity is cash flow from operations,
which is principally obtained through operating earnings. The Company's net cash
provided by operations increased from $3.3 million to $9.1 million for the three
months ended March 31, 1999 and March 31, 2000, respectively, primarily due to
less cash used for operating working capital. Changes in operating working
capital contributed unfavorably to cash flow by $6.7 million and $15.4 million
in the three month periods ended March 31, 2000 and 1999, respectively. The 2000
increase in working capital was primarily due to a decrease in accounts payable
associated with 2000 payments for capital expenditures and purchases of
inventory and maintenance services included in accounts payable at December 31,
1999. The 1999 increase in working capital was primarily due to a decrease in
accounts payable associated with 1999 payments for capital expenditures and
inventory purchases included in accounts payable at December 31, 1998.

Capital spending for the three months ended March 31, 2000 included $1.2
million toward two projects at the Spotswood, New Jersey mill, one of which is a
new high-speed slitter and the other is a project for mill effluent solids
removal. During the first three months of 1999, capital spending included $1.3
million toward the speed-up of two machines in the French mills and $1.1 million
toward the expansion of the Malaucene, France mill.

In addition to capital spending, in the three month period ended March 31,
2000, the Company incurred and deferred on the balance sheet software
development costs of $0.4 million toward additional software modules of new
integrated computer systems, primarily in France. Additional modules of the
software development project in France are scheduled to be placed in operation
during the remainder of 2000, although a large portion of the installation of
the new French systems has been completed.

11
12

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

In December 1998, the Company announced that the Board of Directors had
authorized the repurchase of shares of the Company's common stock during the
period January 1, 1999 through December 31, 2000 in an amount not to exceed $20
million. Through March 31, 2000, the Company has repurchased a total of 500,750
shares of its common stock for $7.2 million under this program, of which 206,400
shares have been purchased thus far in 2000 for $2.9 million. The Company
anticipates repurchasing additional common stock under this program during the
remainder of 2000.

On April 27, 2000, the Company announced that the Board of Directors had
declared a quarterly cash dividend of fifteen cents per share of common stock.
The dividend will be payable on June 12, 2000 to stockholders of record on May
8, 2000.

The Company's ongoing requirements for cash are expected to consist
principally of amounts required for capital expenditures, purchases of treasury
stock, stockholder dividends and working capital. Other than expenditures
associated with capital projects, the Company had no material outstanding
commitments as of March 31, 2000. The principal sources of cash are expected to
be cash flow from operations and borrowings from commercial banks.

The Company believes its cash flow from operations, together with
borrowings available under its revolving credit and overdraft facilities, will
be sufficient to fund its ongoing cash requirements.

NEW ACCOUNTING STANDARD

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which will require that all derivative
financial instruments be recognized as either assets or liabilities on the
balance sheet. In July 1999, the FASB issued SFAS No. 137, which delays the
effective date for the new requirements of SFAS No. 133 by one year. As a
result, SFAS No. 133 will be effective no later than for the Company's first
quarter of 2001. The Company is evaluating the effects of this new statement.

OUTLOOK

Cigarette production in the United States was lower in the first quarter of
2000 compared with the comparable period of the prior year as a result of
declines in domestic cigarette consumption and exports of cigarettes
manufactured in the United States. These trends are expected to continue.
Improvements in the Company's sales volumes to several key markets, including
Eastern and Western Europe, Russia and Asia, excluding China, are expected to
continue. Full year French reconstituted tobacco leaf sales volumes are expected
to exceed the 1999 level. The Company's Brazilian business also expects to
continue to increase its non-tobacco paper sales and sales to Latin American
countries outside of Brazil, offsetting weakness in the sale of tobacco-related
papers within the Brazilian market.

There continues to be excess worldwide manufacturing capacity for
tobacco-related papers, however, the amount of excess capacity is decreasing as
paper manufacturers, including the Company, are shutting down unneeded and less
efficient capacity. Selling prices appear to have stabilized in most key markets
and there may be opportunities for selling price increases as pulp prices rise.

12
13

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

Some production downtime continues to be experienced on certain machines in
the Company's U.S. and French paper operations because of reduced demand.
Additional paper production downtime is likely to be taken in 2000 in each of
the Company's three business segments but to a lesser extent than in 1999. The
Company's customers in the U.S. traditionally reduce their operating schedules
around holidays during the third and fourth quarters, which softens demand for
the Company's products and allows for additional maintenance and capital work.
Also, in Brazil, customer orders are typically lower in December due to a
January and February holiday season.

Cost savings are expected to continue from recently implemented capital
projects and from various cost savings programs, including the Company's
headcount reductions in the United States during 1999. With current market
conditions, cost reduction continues to be a priority in each of the Company's
business segments.

The per ton cost of wood pulp has steadily increased during the latter half
of 1999 and first quarter of 2000. The Company expects further increases in the
per ton cost of wood pulp during 2000. Additionally, higher energy prices were
experienced in the first quarter of 2000 in each of the Company's business
segments. The Company is experiencing a lag in its ability to offset these cost
increases with higher selling prices. Although selling price increases are
anticipated, the higher costs will not be fully offset by increased selling
prices until the per ton cost of wood pulp stabilizes.

The French corporate income tax rate declined from 40.0 percent for 1999 to
37.7 percent effective beginning January 1, 2000. The Brazilian corporate income
tax rate declined from 37.0 percent to 34.0 percent effective beginning February
1, 2000.

The company expects to control its capital spending for 2000 and 2001 to
approximately $20 to $25 million, focused primarily on product quality
improvements and cost reduction opportunities. Capitalized software costs in
2000 are expected to total approximately $2 million and diminish to less than $1
million in 2001.

During the first quarter of 2000, the Company repurchased 206,400 shares of
its common stock for $2.9 million. For full year 2000, the Company anticipates
repurchasing common stock totaling $10 to $15 million, although future purchases
will be dependent upon various factors including the stock price and cash
availability.

The Company's current expectation is that earnings per share for the full
year 2000 will exceed those of 1999.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Many factors outside the control of the Company could impact the Company's
results. The following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual results for 2000 and beyond, to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company.

13
14

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

Year 2000 Compliance

The Company did not experience any business disruptions related to the Year
2000 issue. The Company is also not aware of any such issues with respect to its
information systems, mill process controls or operating systems. Furthermore,
the Company is not aware of any such issues at its customers, vendors or service
providers.

Euro Currency Conversion

On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies ("legal
currencies") and one common currency -- the euro. The euro now trades on
currency exchanges and may be used in business transactions. Beginning in
January 2002, new euro-denominated bills and coins will be issued, and legal
currencies will be withdrawn from circulation by no later than June 2002. The
Company established a committee to identify and implement changes necessary to
address the systems and business issues raised by the euro currency conversion.
These issues include, among others, the need to adapt computer and other
business systems and equipment to accommodate euro-denominated transactions,
competitive implications of increased price transparency within European Union
countries, changes in currency exchange costs and rate exposures, continuity of
contracts that require payment in a legal currency and tax implications of the
conversion.

The Company's French subsidiaries currently utilize multi-currency software
that was capable of euro-denominated sales and purchase transactions on January
1, 1999. Consideration has also been given to other potential issues in
connection with the conversion, including those mentioned above. The Company's
French subsidiaries are in the process of implementing already-purchased
software capable of translating current and historical data into euro currency
data, which implementation will be fully completed no later than January 1,
2002, at which time the euro will become the functional currency of the French
subsidiaries. The Company does not anticipate any significant negative
consequences of these issues and does not anticipate that the euro conversion
will have a material adverse impact on its financial condition or results of
operations.

FORWARD-LOOKING STATEMENTS

Certain sections of this report, particularly the foregoing discussion
regarding the "Outlook" of the Company and "Factors That May Affect Future
Results", contain certain forward-looking statements, generally identified by
phrases such as "the Company expects" or words of similar effect.
Forward-looking statements are made based upon management's expectations and
beliefs concerning future events impacting the Company. There can be no
assurances that such events will occur or that the results of the Company will
be as estimated. Many factors outside the control of the Company also could
impact the realization of such estimates. The above-mentioned important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results for 2000
and beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. Certain factors that could
cause the Company's future results to differ materially from those expressed in
any such forward-looking statements are discussed in the Company's 1999 Annual
Report on Form 10-K, Part II, Item 7, under the heading "Factors That May Affect
Future Results".

14
15

PART II - OTHER INFORMATION

ITEM 5. OTHER INFORMATION

On February 23, 2000, the Company reached agreement with Souza Cruz S.A. to
extend by three years, to February 2, 2004, the initial terms of the supply
agreements under which Schweitzer-Mauduit do Brasil S.A. supplies
tobacco-related and coated papers to Souza Cruz in Brazil.

New labor agreements were signed in France with the hourly employees at the
Company's mills in Quimperle, Malaucene and Spay. The agreements in Quimperle
and Spay are two-year agreements expiring December 31, 2001 and February 28,
2002, respectively, while the agreement in Malaucene is for a one-year term
expiring December 31, 2000. Each of these agreements awards annual base salary
increases between 1.5 and 2 percent and total annual compensation increases
ranging from approximately 2 to 4 percent. Negotiations for a new contract are
expected to take place at the Company's other French mill in Saint-Girons in May
2000 when the current contract is due to expire.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

10.8.1 Deferred Compensation Plan, Amended and Restated as of April
21, 2000.

10.8.2 Deferred Compensation Plan for Non-Employee Directors,
effective April 1, 2000.

10.11 Executive Severance Plan, Amended and Restated as of February
24, 2000.

10.13.1 Amendment No. 1, dated February 23, 2000, to the Supply
Agreement between Schweitzer-Mauduit do Brasil, S.A. (formerly
known as Companhia Industrial de Papel Pirahy) and Souza Cruz
S.A.

10.13.2 Amendment No. 1, dated February 23, 2000, to the Art-Coated
Supply Agreement between Schweitzer-Mauduit do Brasil, S.A.
(formerly known as Companhia Industrial de Papel Pirahy) and
Souza Cruz S.A.

15. Independent Accountants' Report, dated April 19, 2000 from
Deloitte & Touche LLP to Schweitzer-Mauduit International,
Inc.

23. Independent Accountants' Consent.

27. Financial Data Schedule (for SEC use only).

(b) Reports on Form 8-K:

The registrant did not file any reports on Form 8-K during the quarter
for which this report is filed.

15
16

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Schweitzer-Mauduit International, Inc.
(Registrant)

By: /s/ PAUL C. ROBERTS By: /s/ WAYNE L. GRUNEWALD
---------------------------- ------------------------------
Paul C. Roberts Wayne L. Grunewald
Chief Financial Officer and Controller
Treasurer (principal accounting officer)
(duly authorized officer and
principal financial officer)

May 5, 2000 May 5, 2000

16
17

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 2000

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.8.1 -- Deferred Compensation Plan, Amended and Restated as of April
21, 2000.

10.8.2 -- Deferred Compensation Plan for Non-Employee Directors,
effective April 1, 2000.

10.11 -- Executive Severance Plan, Amended and Restated as of February 24,
2000.

10.13.1 -- Amendment No. 1, dated February 23, 2000, to the Supply
Agreement between Schweitzer-Mauduit do Brasil, S.A. (formerly
known as Companhia Industrial de Papel Pirahy) and Souza Cruz
S.A.

10.13.2 -- Amendment No. 1, dated February 23, 2000, to the Art-Coated
Supply Agreement between Schweitzer-Mauduit do Brasil, S.A.
(formerly known as Companhia Industrial de Papel Pirahy) and
Souza Cruz S.A.

15. -- Independent Accountants' Report, dated April 19, 2000 from
Deloitte & Touche LLP to Schweitzer-Mauduit International,
Inc.

23. -- Independent Accountants' Consent.

27. -- Financial Data Schedule (for SEC use only).