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, 2001

[ ] 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, 2001, 14,811,033 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,
-------------------------
2001 2000
------- -------

Net Sales .................................................. $ 124.1 $ 118.0
Cost of products sold ................................. 104.6 96.0
------- -------
Gross Profit ............................................... 19.5 22.0
Selling expense ....................................... 4.6 4.4
Research expense ...................................... 2.0 1.7
General expense ....................................... 5.1 4.5
------- -------
Operating Profit .......................................... 7.8 11.4
Interest expense ...................................... (1.3) (1.5)
Other income, net ..................................... 0.6 1.6
------- -------
Income Before Income Taxes and Minority Interest ........... 7.1 11.5
Provision for income taxes ............................ 2.6 3.9
------- -------
Income Before Minority Interest ............................ 4.5 7.6
Minority interest in earnings of subsidiaries ......... 0.7 0.8
------- -------
Net Income ................................................. $ 3.8 $ 6.8
======= =======

Net Income per Common Share:
Basic ................................................. $ .25 $ .44
======= =======
Diluted ............................................... $ .25 $ .44
======= =======

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

See Notes to Unaudited Consolidated Financial Statements

2
3

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

MARCH 31, DECEMBER 31,
2001 2000
- ---------------------------------------------------------------------------------------------------------------------------

ASSETS

Current Assets
Cash and cash equivalents ...................................................... $ 21.5 $ 23.6
Accounts receivable ............................................................ 77.5 77.7
Inventories .................................................................... 66.6 64.5
Current income tax refunds receivable .......................................... 3.5 2.9
Deferred income tax benefits ................................................... 4.3 4.8
Prepaid expenses ............................................................... 2.8 1.7
------- -------
Total Current Assets ....................................................... 176.2 175.2
------- -------

Gross Property ..................................................................... 463.2 462.0
Less accumulated depreciation .................................................. 209.9 212.5
------- -------
Net Property ............................................................... 253.3 249.5
------- -------

Noncurrent Deferred Income Tax Benefits ............................................. 1.0 1.0
------- -------

Deferred Charges and Other Assets ................................................... 16.3 16.0
------- -------

Total Assets ........................................................................ $ 446.8 $ 441.7
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt .............................................. $ 29.6 $ 3.6
Other short-term debt .......................................................... 2.5 2.0
Accounts payable ............................................................... 48.0 52.7
Accrued expenses ............................................................... 52.0 52.1
------- -------
Total Current Liabilities .................................................. 132.1 110.4
------- -------

Long-Term Debt ...................................................................... 67.9 97.7
------- -------
Noncurrent Deferred Income Tax Liabilities .......................................... 15.7 14.9
------- -------
Noncurrent Deferred Revenue ......................................................... 31.0 10.0
------- -------
Other Noncurrent Liabilities ........................................................ 23.8 22.4
------- -------
Minority Interest ................................................................... 6.6 6.4
------- -------
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, 2001 and December 31, 2000 ...... l.6 1.6
Additional paid-in capital ..................................................... 60.6 60.5
Common stock in treasury, at cost - 1,267,700 and 1,288,471 shares at
March 31, 2001 and December 31, 2000, respectively ......................... (20.2) (20.5)
Retained earnings .............................................................. 176.8 175.3
Unearned compensation .......................................................... (0.6) (0.3)
Accumulated other comprehensive loss ........................................... (48.5) (36.7)
------- -------
Total Stockholders' Equity ................................................. 169.7 179.9
------- -------

Total Liabilities and Stockholders' Equity .......................................... $ 446.8 $ 441.7
======= =======

See Notes to Unaudited Consolidated Financial Statements

3
4

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

COMMON STOCK ISSUED TREASURY STOCK ADDITIONAL
-------------------- --------------------- PAID-IN RETAINED UNEARNED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION
---------- ------ --------- -------- ---------- -------- ------------

BALANCE, DECEMBER 31, 1999 .................. 16,078,733 $ 1.6 441,845 $ (8.0) $ 60.7 $ 156.7

Net income for the three months
ended March 31, 2001 ................... 6.8
Adjustments to unrealized foreign
currency translation ...................

Comprehensive income ...................

Dividends declared ($0.15 per share) ........ (2.3)
Purchases of treasury stock ................. 206,400 (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)

Net income for the nine months
ended December 31, 2000 ................ 21.0
Adjustments to unrealized foreign
currency translation ...................

Comprehensive income ...................

Dividends declared ($0.45 per share) ........ (6.9)
Purchases of treasury stock ................. 676,300 (10.3)
Amortization of unearned compensation ....... 0.1
Stock issued to directors as compensation ... (3,507) 0.1
Issuance of shares for options exercised .... -- -- (600) -- -- -- --
---------- ------ --------- -------- ------ -------- ------

BALANCE, DECEMBER 31, 2000 .................. 16,078,733 1.6 1,288,471 (20.5) 60.5 175.3 (0.3)

Net income for the three months
ended March 31, 2001 ................... 3.8
Change in unrealized fair value
of derivative instruments ..............
Adjustments to unrealized foreign
currency translation ...................

Comprehensive loss .....................

Dividends declared ($0.15 per share) ........ (2.3)
Restricted stock issuances .................. (20,000) 0.3 0.1 (0.4)
Amortization of unearned compensation ....... 0.1
Stock issued to directors as compensation ... -- -- (771) -- -- -- --
---------- ------ --------- -------- ------ -------- ------

BALANCE, MARCH 31, 2001 ..................... 16,078,733 $ 1.6 1,267,700 $ (20.2) $ 60.6 $ 176.8 $ (0.6)
========== ====== ========= ======== ====== ======== ======

ACCUMULATED
OTHER
COMPREHENSIVE
LOSS TOTAL
------------- ------

BALANCE, DECEMBER 31, 1999 .................. $ (26.8) $184.2

Net income for the three months
ended March 31, 2001 ................... 6.8
Adjustments to unrealized foreign
currency translation ................... (3.8) (3.8)
------
Comprehensive income ................... 3.0

Dividends declared ($0.15 per share) ........ (2.3)
Purchases of treasury stock ................. (2.9)
Restricted stock issuances .................. --
Stock issued to directors as compensation ... -- --
-------- ------
BALANCE, MARCH 31, 2000 ..................... (30.6) 182.0

Net income for the nine months
ended December 31, 2000 ................ 21.0
Adjustments to unrealized foreign
currency translation ................... (6.1) (6.1)
------
Comprehensive income ................... 14.9

Dividends declared ($0.45 per share) ........ (6.9)
Purchases of treasury stock ................. (10.3)
Amortization of unearned compensation ....... 0.1
Stock issued to directors as compensation ... 0.1
Issuance of shares for options exercised .... -- --
-------- ------

BALANCE, DECEMBER 31, 2000 .................. (36.7) 179.9

Net income for the three months
ended March 31, 2001 ................... 3.8
Change in unrealized fair value
of derivative instruments .............. (0.4) (0.4)
Adjustments to unrealized foreign
currency translation ................... (11.4) (11.4)
------
Comprehensive loss ..................... (8.0)

Dividends declared ($0.15 per share) ........ (2.3)
Restricted stock issuances .................. --
Amortization of unearned compensation ....... 0.1
Stock issued to directors as compensation ... -- --
-------- ------

BALANCE, MARCH 31, 2001 ..................... $ (48.5) $169.7
======== ======

See Notes to Unaudited Consolidated Financial Statements

4
5

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
U.S. $ IN MILLIONS
(UNAUDITED)

FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
2001 2000
------ ------

Operations
Net income ............................................ $ 3.8 $ 6.8
Non-cash items included in net income:
Depreciation and amortization ..................... 5.4 5.7
Deferred income tax provision ..................... 1.2 2.4
Minority interest in earnings of subsidiaries ..... 0.7 0.8
Other ............................................. 0.9 0.1
Advance payments from customers ....................... 21.0 --
Changes in operating working capital .................. (8.4) (6.7)
------ ------
Cash Provided by Operations .................. 24.6 9.1
------ ------
Investing
Capital spending ...................................... (19.4) (3.3)
Capitalized software costs ............................ (0.3) (0.4)
Other ................................................. (5.3) 0.3
------ ------
Cash Used for Investing ...................... (25.0) (3.4)
------ ------
Financing
Cash dividends paid to SWM stockholders ............... (2.3) (2.3)
Purchases of treasury stock ........................... -- (2.9)
Changes in short-term debt ............................ 0.5 (6.2)
Proceeds from issuances of long-term debt ............. 0.3 0.2
Payments on long-term debt ............................ (0.2) (0.3)
------ ------
Cash Used for Financing ...................... (1.7) (11.5)
------ ------

Decrease in Cash and Cash Equivalents ...................... (2.1) (5.8)

Cash and Cash Equivalents at Beginning of Period ........... 23.6 15.1
------ ------

Cash and Cash Equivalents at End of Period ................. $ 21.5 $ 9.3
====== ======

See Notes to Unaudited Consolidated Financial Statements

5
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 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 2000 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 2000 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, 2001 and 2000 were
approximately 14,761,000 and 15,551,400, 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, 2001 and
2000 were approximately 14,956,200 and 15,587,000, respectively. Potential
common shares are those related to stock options and restricted stock
outstanding and directors' accumulated deferred stock compensation during the
respective periods.

NOTE 3. INVENTORIES

The following schedule details inventories by major class:

March 31, December 31,
2001 2000
--------- ------------

At the lower of cost on the First-In, First-Out (FIFO)
and weighted average methods or market:
Raw materials ......................................... $ 27.0 $ 28.7
Work in process ....................................... 6.8 6.1
Finished goods ........................................ 26.4 23.7
Supplies and other .................................... 12.2 12.2
------ ------
72.4 70.7
Excess of FIFO cost over Last-In, First-Out (LIFO) cost .... (5.8) (6.2)
------ ------

Total ............................................... $ 66.6 $ 64.5
====== ======

6
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, 2001 was 36.6 percent compared with 33.9 percent for the corresponding
period of 2000. The three month period ended March 31, 2000 benefited from
favorable tax treatment of a settlement related to a prior-period claim. The
effective income tax rate for the three month period of 2001 benefited from a
decrease in the French corporate income tax rate from 37.7 percent for 2000 to
36.3 percent for 2001.

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, and its exposure
to liability for environmental claims and its obligation to participate in the
remediation or monitoring of certain hazardous waste disposal sites (see
additional information in Note 12 to the Notes to Consolidated Financial
Statements included in the Company's 2000 Annual Report on Form 10-K), 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 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 $3 annually in 2001 and 2002. 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 other appropriate and necessary capital projects and are not expected to have
a material adverse effect on the Company's financial condition or results of
operations.

NOTE 6. LEGAL PROCEEDINGS

On December 27, 2000, the Company's subsidiary in Brazil,
Schweitzer-Mauduit do Brasil, S.A. ("SWM-B") received two assessments from the
tax authorities of the State of Rio de Janeiro, Brazil concerning Imposto sobre
Circulacao de Mercadorias e Servicos ("ICMS"), a form of value-added tax,
consisting of unpaid ICMS taxes from January 1995 through November 2000,
together with interest and penalties in the total amount of approximately $13.6,
based on the foreign currency exchange rate at December 31, 2000 (the
"Assessment"). The Assessment concerned the accrual and use by SWM-B of ICMS tax
credits generated from the production and sale of certain non-tobacco related
grades of paper sold domestically that are immune from the tax to offset ICMS
taxes otherwise owed on the sale of products that are not immune. A portion of
the Assessment, estimated at approximately $6.9, relates to tax periods that
predate the Company's acquisition of Companhia Industrial de Papel Pirahy
("Pirahy"), the predecessor in name to SWM-B, and is covered by an
indemnification from the sellers of Pirahy. SWM-B is vigorously contesting the
Assessment on both procedural and constitutional grounds and believes that the
Assessment will ultimately be resolved in its favor. However, the final
resolution of this matter will most likely entail both administrative and
judicial proceedings up to and including presentation of the matter to the
Supreme Court of Brazil and is not likely to be finally resolved for several
years. No liability has been

7
8

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS

recorded in the Company's financial statements for the Assessment. Pending final
resolution of this matter, beginning in December 2000, SWM-B suspended the
further accrual and application of ICMS tax credits generated on immune products
to reduce its possible exposure to future ICMS tax assessments. A reserve of
$1.1 was recorded for the entire asset balance of unused ICMS tax credits as of
December 31, 2000.

Following closure of the ICMS tax audit of SWM-B discussed above,
during February 2001, SWM-B revised its prior-period ICMS treatment related to
consignment pulp purchases. As a result, the Company decreased the asset and
corresponding reserve on its books associated with these ICMS tax credits from
$1.1 to $0.2, still fully reserving this remaining asset balance of unused ICMS
tax credits. The Company took this action to eliminate the risk of a new ICMS
tax assessment while it awaited the final outcome of its challenge to the
Assessment that was issued in December 2000.

In April 2001, SWM-B received a third ICMS tax assessment for penalty
only in the amount of approximately $0.3 related to its revised treatment of the
ICMS tax credits relating to consignment pulp. The State of Rio de Janeiro tax
authorities contend that the Company revised its position on the credits
associated with consignment pulp in response to an open tax audit and is
therefore subject to penalties. The Company believes this assessment is without
basis as the ICMS audit was closed prior to February 2001 and no ongoing inquiry
was active at the time the Company adjusted these ICMS credits. The Company
intends to vigorously challenge this assessment.

The Company is involved in certain other 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 87 to 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.

8
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 2001 2000 VS. 2000 2001 2000
- --------- --------- --------- -------- ------ ------

United States ................ $ 44.7 $ 38.1 +17.3% 36.0% 32.3%
France ....................... 65.3 64.0 +2.0 52.6 54.2
Brazil ....................... 15.0 15.9 -5.7 12.1 13.5
------ ------
Subtotal ............ 125.0 118.0
Intersegment sales by:
United States ........... -- -- -- --
France .................. (0.1) -- (0.1) --
Brazil .................. (0.8) -- (0.6) --
------ ------ ------ ------
Consolidated ........ $124.1 $118.0 +5.2% 100.0% 100.0%
====== ====== ====== ======

FOR THE THREE MONTHS ENDED
-------------------------- % OF CONSOLIDATED % RETURN ON SALES
MARCH 31, MARCH 31, % CHANGE ------------------ -------------------
OPERATING PROFIT 2001 2000 VS. 2000 2001 2000 2001 2000
- ---------------- --------- --------- -------- ------ ------ ------ ------

United States ............. $ 0.1 $ 1.7 -94.1% 1.3% 14.9% 0.2% 4.5%
France .................... 9.1 9.7 -6.2 116.6 85.1 13.9 15.2
Brazil .................... 0.1 1.3 -92.3 1.3 11.4 0.7 8.2
Unallocated expenses ...... (1.5) (1.3) (19.2) (11.4)
------ ------ ------ ------
Consolidated ..... $ 7.8 $ 11.4 -31.6% 100.0% 100.0% 6.3% 9.7%
====== ====== ====== ======

% OF CONSOLIDATED
MARCH 31, DECEMBER 31, -----------------
TOTAL ASSETS 2001 2000 2001 2000
- ------------ --------- ------------ ------ ------

United States ................ $174.7 $155.4 39.1% 35.2%
France ....................... 225.0 232.6 50.4 52.7
Brazil ....................... 47.4 53.9 10.6 12.2
Intersegment eliminations .... (0.3) (0.2) (0.1) (0.1)
------ ------ ------ ------
Consolidated ........ $446.8 $441.7 100.0% 100.0%
====== ====== ====== ======

More than 60 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 asset reductions for France and
Brazil shown above, are primarily due to a stronger U.S. dollar against the euro
and the Brazilian real at March 31, 2001 versus December 31, 2000.

NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS

Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." The statement requires
that all derivative financial instruments, whether designated in hedging
relationships or not, be recognized as either assets or liabilities on the
balance sheet at fair value. If the derivative is designated as a fair value
hedge, the changes in the fair value of the derivative and of the hedged item
attributable to the hedged risk are recognized in current period earnings. If
the derivative is designated as a cash flow hedge, the effective portions of
changes in the fair value of the derivative are recorded in other comprehensive
income (loss) and are recognized in the income statement when the hedged item
affects earnings. Changes in the fair value of derivatives not designated as
hedging instruments or that do not qualify for hedge treatment, as well as the
ineffective portion of a particular derivative instrument designated and
qualifying as a hedge, must be recognized currently in the income statement.

9
10

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS

The Company selectively hedges its interest rate and foreign currency
exposures when it is practicable and cost-effective to do so, on a
non-speculative basis. The Company also enters into contracts with certain
customers and vendors in which prices for the Company's normal sales and
purchases may be fixed for periods of time, or may have automatic price
adjustment features related to changes in costs of raw materials or other
components. Based on the terms of these contracts, which provide for sale or
purchase of items, other than a financial instrument or derivative instrument,
that will result in physical delivery of such items in quantities expected to be
sold or used by the Company over a reasonable period in the normal course of
business, such contracts are deemed to meet the normal purchases and normal
sales exception of SFAS No. 133 and, therefore, are neither considered to be nor
accounted for as derivative financial instruments.

The Company had no outstanding derivative financial instruments
designated as hedges as of January 1, 2001. The Company recorded no cumulative
effect of adopting SFAS 133. During the first quarter of 2001, the Company
entered into interest rate swap agreements to fix the variable rate component of
certain of its variable rate long-term debt. These interest rate swap contracts
were designated as cash flow hedges and qualified for short-cut method treatment
under SFAS No 133. As such, the Company assumed there was no ineffectiveness of
these hedge contracts, and accordingly, no gain or loss was recorded in the
income statement relative to the changes in fair value of these interest rate
swap contracts, but instead the changes in fair value of the contracts were
reflected in other comprehensive income (loss).

10
11

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 increased by $6.1 million in the three month period ended
March 31, 2001 compared with the corresponding period of the preceding year.
This increase was a result of an increase in sales volumes and somewhat higher
average selling prices, partially offset by unfavorable changes in currency
exchange rates. Net sales increased by $8.6 million in the quarter due to
changes in sales volumes which increased in total by two percent compared with
the same quarter of the prior year. Sales volumes for the quarter increased at
the U.S. business unit by 14 percent as a result of higher sales of
tobacco-related papers, partially offset by lower sales of commercial and
industrial papers. For the French business unit, sales volumes increased by
three percent, with higher sales of both tobacco-related papers and
reconstituted tobacco leaf products. For the Brazilian business unit, sales
volumes declined by 11 percent, with lower sales of commercial and industrial
papers more than offsetting improvements in tobacco-related papers. Sales
volumes of all three business segments had been 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. Higher
average selling prices had a positive $0.9 million impact on the net sales
comparison. Changes in currency exchange rates had an unfavorable impact of $3.4
million on the net sales comparison, as a result of a stronger U.S. dollar
versus the euro and the Brazilian real compared with the same quarter of the
prior year.

Operating Profit

Operating profit decreased by $3.6 million in the three month period
ended March 31, 2001 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 of $2.3 million each, or together by $4.6
million. Operating profit in the United States declined by $1.6 million as a
result of higher operating expenses of $2.0 million compared with the prior year
at the Spotswood, New Jersey mill, along with increased energy, wood pulp,
pension and other benefit costs and higher nonmanufacturing expenses. These
negative factors were partially offset by the benefits in the United States of
increased production and sales volumes and improved mill operations other than
at Spotswood. Operating profit in Brazil decreased by $1.2 million as higher
wood pulp and energy costs, increased local business taxes and a decline in
sales of printing and writing grades of papers more than offset the benefits of
increased tobacco-related paper sales volumes and higher average selling prices.
Operating profit for the French business unit decreased by $0.6 million as a
result of higher wood pulp and energy costs and increased nonmanufacturing
expenses, partially offset by increased sales volumes and higher average selling
prices. Nonmanufacturing expenses increased by $1.1 million during the quarter
as a result of higher general, research and selling expenses. Higher general
expenses were caused by increased pension and other benefit costs in the United
States and outside consulting expenses in France associated with cost reduction
activities. Research expenses increased in the United States and Brazil in
support of new product development activities. Increased selling expenses were
incurred in France.

11
12

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

NON-OPERATING EXPENSES

Interest expense was lower by $0.2 million for the three month period
ended March 31, 2001 compared with the corresponding period of the preceding
year. In 2001, a larger amount of interest was capitalized to capital projects
than during the comparable period of 2000. The favorable effect of lower average
interest rates in the United States during 2001 was offset by higher average
interest rates in France. Other income, net consisted primarily of interest
income, royalty income and foreign currency transaction gains and losses in each
of the periods presented, and a favorable settlement in the 2000 period related
to a prior-period claim.

INCOME TAXES

LIQUIDITY AND CAPITAL RESOURCES

Three Months Ended March 31,
----------------------------
(U.S. $ in millions)
Cash Provided by (Used for): 2001 2000
- ---------------------------- ------ ------

Changes in operating working capital ........ $ (8.4) $ (6.7)
Advance payments from customers ............. 21.0 --
Operations .................................. 24.6 9.1
Capital spending ............................ (19.4) (3.3)
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 $9.1 million to $24.6 million for the
three months ended March 31, 2000 compared with March 31, 2001, primarily due to
$21.0 million obtained in the 2001 period from advance payments from customers
for future product purchases for which the Company has recorded Noncurrent
Deferred Revenue, which will be amortized into Net Sales as earned and credited
to customers based upon a mutually agreed-upon amount per unit of future product
sales. Changes in operating working capital contributed unfavorably to cash flow
by $8.4 million and $6.7 million in the three month periods ended March 31, 2001
and 2000, respectively, due in each period primarily to a decrease in accounts
payable.

Capital spending in the three month period ended March 31, 2001
included $15.3 million toward the implementation of the banded cigarette paper
project at the Spotswood mill. During the first three months of 2000, capital
spending included $1.2 million toward two projects at the Spotswood mill for a
new high-speed slitter and for a mill effluent solids removal system.

During the quarter ended March 31, 2000, the Company repurchased a
total of 206,400 shares of its common stock for $2.9 million. During 2000, the
Company's Board of Directors authorized the repurchase of additional shares of
the Company's common stock during the period January 1, 2001 through December
31, 2002 in an amount not to exceed $20 million. During the first quarter of
2001, the Company did not repurchase any shares of its common stock. Common
stock repurchases in 2001 will be dependent upon various factors, including cash
availability, the stock price and strategic opportunities.

12
13

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

On April 26, 2001, 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 11, 2001 to stockholders of record
on May 14, 2001.

The Company's ongoing requirements for cash are expected to consist
principally of amounts required for capital expenditures, including the banded
cigarette paper project, stockholder dividends, purchases of Company stock and
working capital. Other than expenditures associated with capital projects, the
Company had no material outstanding commitments as of March 31, 2001.

The Company believes its cash flow from operations, including advance
payments from customers for future product purchases, together with borrowings
available under its revolving credit and other credit facilities, will be
sufficient to fund its ongoing cash requirements.

Outstanding term loans under the Company's current bank Credit
Agreement are payable in three equal semiannual installments beginning in
January 2002 based on existing terms. The Company has reflected the first
installment payment totaling approximately $26.2 million in Current Liabilities
rather than in Long-Term Debt on its consolidated balance sheet as of March 31,
2001. However the Company intends to refinance such loans with long-term
financing prior to the first installment payment date.

Effective January 1, 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." The adoption of these new accounting standards had no material
effect on the Company's consolidated financial position or results of
operations.

OUTLOOK

Cigarette consumption and production in the United States continue to
decline as a result of declines in domestic cigarette consumption and exports of
cigarettes manufactured in the United States, however the decline in 2000 and
thus far in 2001 is at a lower rate than in 1998 and 1999. Sales volumes of the
Company's U.S. business segment appear to have stabilized. The negative impact
of lower U.S. cigarette production is being more than offset by the Company's
increased market share within the North American market and this trend is
expected to continue. Outside the United States, trends of improvement are
expected to continue in tobacco-related paper sales in Eastern and Western
Europe and Latin America. Growth in full year French reconstituted tobacco leaf
sales volumes is anticipated for 2001 compared with 2000.

Although the Company's Brazilian business experienced improvement in
its sales of tobacco-related papers in the first quarter of 2001 compared with
the comparable period of the prior year both within Brazil and in Latin American
countries outside of Brazil, that increase was more than offset by a significant
decline in its sales of printing and writing papers as a result of both a
slowdown in the Brazilian printing and writing papers market as well as by a
decision by the Company to reduce its sales of certain grades of these papers
that are being negatively impacted by ICMS, a form of value-added business tax.
Beginning in December 2000, the Company's Brazilian business changed the
treatment of ICMS tax credits as a result of the Assessment received that month
(see Legal Proceedings in Note 6 to the Notes to Unaudited Consolidated
Financial Statements). This resulting increase in local business taxes
unfavorably impacted cost of sales for these products and necessitated
implementation of a plan to change the mix of commercial and industrial papers
sold within Brazil to minimize the ongoing negative impact of this change in
local business taxes on the financial results. This transition in the mix of
products sold in Brazil is expected to require several quarters to be completed.

13
14

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

Production downtime was taken during the first quarter of 2001 at the
Company's Brazilian business as a result of the decline in printing and writing
paper sales. Additional downtime may be necessary during the remainder of 2001
while the Company continues to change its commercial and industrial papers
product mix to transition away from those printing and writing grades affected
by the increased local business taxes.

The implementation of an export tax on some components and raw
materials used in the manufacturing of cigarettes that was enacted in Brazil
during the third quarter of 2000 has had an unfavorable impact on the financial
results of the Company's Brazilian operations, which unfavorable impact is
expected to continue.

During 2000, the Company and Philip Morris reached agreement to proceed
with the modification of paper machines and related manufacturing equipment at
the Company's Spotswood mill to produce commercial quantities of a new
proprietary banded cigarette paper for Philip Morris. Capital spending for the
implementation of the banded cigarette paper project is currently expected to
total approximately $40 million for the full year 2001. The Company does not
expect this project to impair its ability to pursue other appropriate business
opportunities. Funding for the Spotswood mill conversion and increased working
capital requirements will come from internal sources and from advance payments
by Philip Morris against future product purchases. Spotswood mill operating
expenses are expected to continue being a negative factor for the balance of
2001 due to the unfavorable impact of the capital project on mill operations,
although improvement is anticipated in subsequent quarters.

The Company experienced higher energy and pulp costs in the first
quarter of 2001 compared with the comparable period of the prior year. Higher
energy costs may persist throughout 2001. However, the per ton cost of wood pulp
declined during the first quarter of 2001 compared with the last half of 2000
and should provide a positive quarter-to-quarter comparison in the second
quarter of 2001.

Worldwide demand for tobacco-related papers remains below worldwide
capacity for such papers despite actions by suppliers to shut-down less
efficient machines. The combination of this continuing excess worldwide capacity
for tobacco-related papers and the strong U.S. dollar versus European and other
foreign currencies is making it difficult to increase selling prices to offset
the Company's negative cost pressures.

Cost reduction continues to be a priority in each of the Company's
business segments. Future periods are expected to benefit from various cost
savings programs and certain past and future capital projects.

The French corporate income tax rate declined from 37.7 percent for
2000 to 36.3 percent for 2001. The Company expects its consolidated effective
income tax rate to be approximately 35 to 36 percent for the balance of 2001.

Excluding capital spending associated with the banded cigarette paper
project, the Company expects to control its capital spending to approximately
$20 to $25 million for 2001, approximately the level of depreciation.

14
15

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

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report, particularly in the foregoing
discussion regarding the "Outlook" of the Company, constitute forward-looking
statements, generally identified by phrases such as "the Company expects" or
"the Company anticipates", as well as by use of words of similar effect, such as
"appears", "could", "should", "may" and "typically." This report contains many
such forward-looking statements, including statements regarding management's
expectations of future selling prices for the Company's products, future market
prices for wood pulp used by the Company, expected sales volumes trends, new
product introductions, anticipated cost savings, anticipated financial and
operational results, anticipated capital spending, anticipated tax and other
governmental actions, contingencies, anticipated common stock share repurchases
and other expected transactions of the Company. 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.
Certain factors 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 2001
and beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. In addition to those mentioned
above, 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 2000 Annual Report on Form 10-K, Part II, Item 7,
under the heading "Factors That May Affect Future Results."

15
16

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

15. Independent Accountants' Report, dated April 18, 2001 from
Deloitte & Touche LLP to Schweitzer-Mauduit International,
Inc.

23. Independent Accountants' Consent.

(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.

16
17

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 8, 2001 May 8, 2001

17
18

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

INDEX TO EXHIBITS

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

15. --- Independent Accountants' Report, dated April 18, 2001 from
Deloitte & Touche LLP to Schweitzer-Mauduit International, Inc.

23. --- Independent Accountants' Consent.