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, 1998

[ ] 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, 1998, 16,076,459 shares of the Corporation's common stock, par
value $.10 per share, together with preferred stock purchase rights associated
therewith, were outstanding.
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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,
---------------------
1998 1997
---- ----

Net Sales ............................................ $ 134.3 $ 113.0
Cost of products sold ........................... 103.2 82.2
------- -------
Gross Profit ......................................... 31.1 30.8
Selling expense ................................. 4.9 4.2
Research expense ................................ 1.3 1.5
General expense ................................. 4.3 4.1
------- -------
Operating Profit .................................... 20.6 21.0
Interest expense ................................ (1.4) (1.0)
Other income (expense), net ..................... 0.6 0.1
------- -------
Income Before Income Taxes and Minority Interest ..... 19.8 20.1
Provision for income taxes ...................... 8.1 7.5
------- -------
Income Before Minority Interest ...................... 11.7 12.6
Minority interest in earnings of subsidiaries ... 1.7 1.3
------- -------
Net Income ........................................... $ 10.0 $ 11.3
======= =======

Net Income per Common Share
Basic ........................................... $ .62 $ .70
======= =======
Diluted ......................................... $ .61 $ .69
======= =======

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

See Notes to Unaudited Consolidated Financial Statements

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

MARCH 31, DECEMBER 31,
1998 1997
- - -----------------------------------------------------------------------------------------------------------------------

ASSETS
Current Assets
Cash and cash equivalents ............................................................ $ 2.7 $ 37.2
Accounts receivable .................................................................. 72.1 57.0
Inventories .......................................................................... 69.1 56.3
Deferred income tax benefits ......................................................... 3.3 3.3
Prepaid expenses ..................................................................... 4.8 3.8
------ ------
Total Current Assets ............................................................. 152.0 157.6
------ ------

Gross Property ........................................................................... 432.7 370.0
Less accumulated depreciation ........................................................ 170.8 168.9
------ ------
Net Property ..................................................................... 261.9 201.1
------ ------

Noncurrent Deferred Income Tax Benefits ................................................... 21.1 18.4
------ ------

Deferred Charges and Other Assets ......................................................... 13.7 13.9
------ ------

Total Assets .............................................................................. $448.7 $391.0
====== ======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt .................................................... $ 3.6 $ 2.5
Other short-term debt ................................................................ 13.5 0.5
Accounts payable ..................................................................... 47.1 43.4
Accrued expenses ..................................................................... 49.5 43.0
Income taxes payable ................................................................. 4.6 1.1
------ ------
Total Current Liabilities ........................................................ 118.3 90.5
------ ------

Long-Term Debt ............................................................................ 102.9 80.8
------ ------
Deferred Income Taxes ..................................................................... 12.8 11.2
------ ------
Other Noncurrent Liabilities .............................................................. 22.4 21.9
------ ------
Minority Interest ......................................................................... 8.6 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,
16,076,459 and 16,065,443 shares issued and outstanding at March 31, 1998
and December 31, 1997, respectively .............................................. l.6 1.6
Additional paid-in capital ........................................................... 60.6 60.3
Retained earnings .................................................................... 121.1 113.5
Accumulated other comprehensive income -
Unrealized foreign currency translation adjustments ................................ 0.4 4.1
------ ------
Total Stockholders' Equity ....................................................... 183.7 179.5
------ ------

Total Liabilities and Stockholders' Equity ................................................ $448.7 $391.0
====== ======

See Notes to Unaudited Consolidated Financial Statements

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

FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
---- ----

Operations
Net income ............................................. $10.0 $11.3
Depreciation and amortization .......................... 5.1 3.3
Deferred income tax provision .......................... 3.9 2.2
Minority interest in earnings of subsidiaries .......... 1.7 1.3
Other .................................................. 0.6 0.8
Changes in operating working capital ................... (11.1) (19.1)
----- -----
Cash Provided by (Used in) Operations ......... 10.2 (0.2)
----- -----
Investing
Capital spending ....................................... (5.2) (5.7)
Capitalized software costs ............................. (0.9) (1.6)
Acquisitions, net of cash acquired ..................... (65.4) --
Other .................................................. (2.0) (2.0)
----- -----
Cash Used for Investing ....................... (73.5) (9.3)
----- -----
Financing
Cash dividends paid to SWM stockholders ................ (2.4) (2.4)
Changes in short-term debt ............................. 10.6 (0.7)
Proceeds from issuances of long-term debt ............. 20.5 0.2
Payments on long-term debt ............................. (0.2) (0.2)
Proceeds from issuances of common stock ................ 0.3 0.1
----- -----
Cash Provided by (Used for) Financing ......... 28.8 (3.0)
----- -----

Decrease in Cash and Cash Equivalents ....................... (34.5) (12.5)

Cash and Cash Equivalents at beginning of period ............ 37.2 30.9
----- -----

Cash and Cash Equivalents at end of period .................. $ 2.7 $18.4
===== =====

See Notes to Unaudited Consolidated Financial Statements

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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 its majority-owned subsidiaries, including two newly-acquired companies
since the beginning of February 1998 (see Note 7). All material intercompany and
interdivision 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 1997 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 1997 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, 1998 and 1997 were 16,068,000
and 16,054,300, 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, 1998 and 1997 were 16,329,700 and
16,289,300, respectively. The only potential common shares are those related to
stock options outstanding during the respective periods.

NOTE 3. INVENTORIES

The following schedule details inventories by major class as of March
31, 1998 and December 31, 1997:

March 31, December 31,
1998 1997
--------- ------------

At the lower of cost on the First-In, First-Out (FIFO)
and weighted average methods or market:
Raw materials ............................................... $ 21.3 $ 20.1
Work in process ............................................. 15.3 11.3
Finished goods .............................................. 26.2 21.4
Supplies and other .......................................... 12.4 9.7
------ ------
75.2 62.5
Excess of FIFO cost over Last-In, First-Out (LIFO) cost .......... (6.1) (6.2)
------ ------

Total ..................................................... $ 69.1 $ 56.3
====== ======

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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, 1998 was 40.9 percent compared with 37.3 percent for the corresponding
period of 1997. The provision for income taxes increased primarily as a result
of an increase in the corporate income tax rate enacted in France in November
1997 from 36.67 percent to 41.67 percent for 1997 and 1998, retroactive to
January 1, 1997, and to 40.00 percent for 1999. This higher French income tax
rate increased the provision for income taxes by approximately $0.7 for the
three month period ended March 31, 1998. The increase applicable to the 1997
period was recorded in the fourth quarter of 1997 when the income tax rate
change was enacted.

NOTE 5. LEGAL PROCEEDINGS

Under the terms of the spin-off, the Company assumed liability for and
agreed to indemnify Kimberly-Clark from litigation arising out of the operation
of the Company's predecessor businesses, including the following cases:

- - - In January 1997, James E. McCune on behalf of himself and other
"nicotine dependent" West Virginia cigarette smokers filed, in the
Circuit Court of Kanawha County, West Virginia, a purported class
action against several tobacco companies, industry trade associations
and consultants, tobacco wholesalers and cigarette component
manufacturers, including Kimberly-Clark, seeking equitable relief and
compensatory and punitive damages in an unspecified amount for mental
suffering and physical injuries allegedly sustained as a result of
having smoked cigarettes. The nine-count complaint sets forth several
theories of liability, including intentional and negligent
misrepresentation, negligence, product liability, breach of warranty
and conspiracy. Among other things, the complaint alleges that nicotine
is an addictive substance, that the tobacco companies, by using
reconstituted tobacco, are able to control the precise amount of
nicotine in their cigarettes and that LTR Industries, S.A. ("LTRI"), a
French subsidiary of the Company, specializes in the reconstitution
process to help the tobacco companies control nicotine levels.

- - - On February 13, 1998, Cleo Huffman, on behalf of herself and her
deceased husband, filed a complaint in the Circuit Court of Kanawha
County, West Virginia, against several tobacco companies, industry
trade associations and consultants, tobacco wholesalers,
Kimberly-Clark, LTRI and others, seeking equitable relief, $2.0 in
compensatory damages and $3.0 in punitive damages allegedly sustained
as a result of the death of her husband which plaintiff contends was
caused by his "addiction" to smoking Camel cigarettes. The
fourteen-count complaint sets forth several theories of liability,
including intentional and negligent misrepresentation, breach of
express and implied warranties, intentional infliction of emotional
distress, product liability, sale of an unreasonably dangerous product
and conspiracy.

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

be liable on essentially the same theories of liability and,
additionally, fraudulent concealment, misrepresentations about the
addictive nature of nicotine, unjust enrichment, and intentional
infliction of emotional distress. The complaint further alleges that
the "asbestos" and "tobacco" defendants encouraged and assisted each
other in their wrongful conduct and that the inhalation of asbestos
fibers and tobacco smoke create a greater risk of lung cancer than
inhaling asbestos fibers or cigarette smoke alone.

- - - On March 13, 1998, Linda Morris, representative of the estate of
Clifford Morris, filed a complaint in the Circuit Court of Kanawha
County, West Virginia, against several tobacco companies, industry
trade associations and consultants, Kimberly-Clark and LTRI seeking $2
in compensatory and $3 in punitive damages allegedly sustained as a
result of the death of her husband, which plaintiff contends was caused
by his addiction to cigarettes. The fourteen count complaint alleges
several theories of liability including intentional and negligent
misrepresentation, breach of warranty, intentional infliction of
emotional distress, product liability, sale of an unreasonably
dangerous product and conspiracy.

As a component supplier, the Company believes that Kimberly-Clark and
LTRI have meritorious defenses to each of these cases, but due to the
uncertainties of litigation, the Company cannot predict their outcome. The
Company is unable to make a meaningful estimate of the amount or range of loss
which could result from an unfavorable outcome of these actions. These cases
will be vigorously defended.

Also, 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 effect on the
Company's consolidated financial statements.

NOTE 6. 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, 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.

Prior to the spin-off, Kimberly-Clark was named a potentially
responsible party ("PRP") under the provisions of the U.S. Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), or analogous
state statutes, in connection with two waste disposal sites utilized by the
Company's Spotswood, New Jersey mill and one site used by the Company's former
Mt. Holly Springs, Pennsylvania mill. Prior to the spin-off, the Spotswood mill
also responded to an information request by the New Jersey Department of
Environmental Protection ("NJDEP") with respect to another landfill site
allegedly used by the Spotswood mill. The Company has assumed Kimberly-Clark's
liabilities at each of these sites but does not believe that any of these
proceedings will result in the imposition of monetary sanctions or have a
material adverse effect on the Company's business or financial condition.

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

In December 1997, the Company received notification from the
Environmental Protection Agency ("EPA") that, pursuant to CERCLA, it may be
named as a PRP in connection with a 1986 shipment of transformer oil containing
polychlorinated biphenyl ("PCB's") which the Company's Lee, Massachusetts mills
had contracted to have transported to a disposal site by a transporter. The
transporter has agreed to indemnify the Company for any liability connected with
such shipment.

The Company assumed 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. The Company is obligated to maintain the integrity of the cover and to
sample groundwater by means of monitoring wells, in addition to other long-term
maintenance responsibilities for this former non-hazardous waste disposal
facility. Under the terms of a January 24, 1997 consent order with MDEP, as
amended, resulting from a Comprehensive Site Assessment and a Corrective Action
Alternative Assessment submitted by the Company to MDEP, the Company is also
required to correct a gas migration problem at the landfill property line. Under
the terms of the amended order, the deadline for reducing gas concentrations to
specified levels at the landfill property line has been extended to September
15, 1998. The estimated total cost of such corrective action, including annual
operating expenses, is $0.5, which amount has been accrued as of March 31, 1998.

The Company recently entered into an agreement with NJDEP to monitor
chloroform emissions at its Spotswood mill. Depending on the results of current
monitoring, it may be necessary to install chloroform emissions controls at the
mill in order to comply with air emissions limits under the New Jersey Air
Pollution Control Act. The need for such controls and their cost, if any, is
presently undetermined.

All of the Company's U.S. facilities may be affected by revised air
emissions and wastewater discharge standards under rules commonly known as the
"Cluster Rules". Although the EPA originally indicated that the proposed rules
would be finalized in 1996, the first set of rules was not published until April
1998. The EPA is currently engaged in further rule making. Based on a
preliminary analysis, the first phase of the Cluster Rules governing wastewater
discharges do not appear to affect the Company's three U.S. mills, as had
previously been anticipated. However, the later phases of the Cluster Rules
(and/or Title V of the Clean Air Act Amendments of 1990) and National Pollutant
Discharge Elimination System permit renewals may require the Company to install
air and water pollution controls at its U.S. facilities sometime after the year
2000. Due to uncertainty concerning applicable requirements under the
above-mentioned and other possible regulations, potential capital expenditures
which may become necessary for compliance cannot be estimated until after such
requirements, if any, are known.

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, including the aforementioned matters.
For these purposes, the Company anticipates that it will incur capital
expenditures of approximately $3 annually in 1998 and 1999. The major projects
included in these estimates include upgrading wastewater treatment facilities at
various locations and installation of equipment to treat volatile organic
compound emissions 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.

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9
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS

NOTE 7. ACQUISITIONS

On February 2, 1998, the Company's wholly-owned subsidiary,
Schweitzer-Mauduit Spain, S.L. ("SM-Spain"), paid approximately $62.0 in cash
for 99.97 percent ownership interest in Companhia Industrial de Papel Pirahy
("Pirahy"), a specialty paper manufacturer located near Rio de Janeiro, Brazil.
In connection with the acquisition of Pirahy, the Company modified its existing
credit agreement to provide a $20.0 term loan to SM-Spain. SM-Spain borrowed the
remaining funds for the transaction from Schweitzer-Mauduit France, S.A.R.L.
("SM-France"), a French subsidiary of the Company, which in turn utilized its
existing cash balances and borrowings from its revolving credit facilities.

Additionally, on February 11, 1998, the Company's second tier
subsidiary, Schweitzer-Mauduit Enterprises ("SM-Enterprises") paid 37.2 million
French francs (approximately $6.1) in cash and assumed approximately $5.8 in
existing net debt for all of the outstanding shares of Ingefico, S.A. and 97.1
percent of the outstanding shares of its pulp and specialty paper manufacturing
subsidiaries, Groupe SAPAM and Papeteries de la Moulasse, located in St. Girons,
France. Subsequently, SM-Enterprises acquired all the remaining shares of the
minority interest for $0.2 in cash.

The above acquisitions have been accounted for under the purchase
method of accounting and, accordingly, the acquired assets and liabilities have
been recorded at their estimated fair values as of the respective dates of the
acquisitions. In conjunction with the acquisitions, liabilities were assumed as
follows:

Fair value of assets acquired $ 95.7
Less: Cash paid for the stock (68.3)
Direct costs incurred (2.0)
------
Liabilities assumed $ 25.4
======

The operating results of the newly-acquired companies are included in
the Consolidated Statement of Income beginning February 1, 1998. The following
summarizes unaudited consolidated pro forma results of operations, assuming the
acquisitions had occurred at the beginning of each of the following periods:

Three Months Ended Three Months Ended Full Year Ended
March 31, 1998 March 31, 1997 December 31, 1997
-------------- -------------- -----------------

Pro Forma Net Sales........................... $ 143.5 $140.4 $570.4
Pro Forma Net Income.......................... $ 10.1 $ 11.1 $ 44.2
Pro Forma Diluted Earnings Per Share.......... $ .62 $ .68 $ 2.71

NOTE 8. SUBSEQUENT EVENT

On April 15, 1998, the Company announced that it has reached an
agreement with the labor union at its Spotswood mill to modify work rules and
eliminate 67 hourly positions. The cost of a related voluntary retirement
program is expected to be approximately $2 and is anticipated to be expensed in
the upcoming second quarter. Cost savings should begin to be realized during the
same quarter. On an ongoing basis, this program is expected to provide annual
net cost savings of approximately $5.

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10
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS

NOTE 9. NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting of
Comprehensive Income" which became effective in the current quarter. Currently,
the only item of comprehensive income not included in the Company's
determination of net income is the change in unrealized foreign currency
translation adjustments, as shown below for the three month periods ended March
31, 1998 and 1997:

1998 1997
------ ------

Net Income........................................................ $ 10.0 $ 11.3
Other comprehensive income, net of taxes:
Unrealized foreign currency translation adjustments...... (3.7) (7.3)
------ ------
Comprehensive Income.............................................. $ 6.3 $ 4.0
====== ======

More than 60 percent of the Company's assets and liabilities are
outside the United States, substantially all in France and 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 as unrealized foreign
currency translation adjustments. Unrealized foreign currency translation
adjustments for the three month periods ended March 31, 1998 and 1997 are
substantially all due to the strengthening of the U.S. dollar against the French
franc during the first three months of 1998 and 1997 and the strengthening of
the U.S. dollar against the Brazilian real from the date of the acquisition of
the Brazilian subsidiary through the end of the first quarter of 1998.

Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which will be effective no
later than for the Company's 1998 Annual Report on Form 10-K. This new statement
may affect the Company's financial statement disclosures. The Company is
evaluating how to implement the new disclosure requirements.

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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 tables
appropriately discuss and analyze the comparative results of operations and the
financial condition of the Company for the periods covered.

OVERVIEW

The Company operates principally in one industry segment, which
consists of cigarette paper, tipping paper and plug wrap paper used to wrap
various parts of a cigarette and reconstituted tobacco products. The Company's
non-tobacco industry products represented approximately six percent of the
Company's net sales in 1997. Due to the non-tobacco related net sales of the
newly-acquired companies, the Company's non-tobacco industry products increased
to approximately ten percent of the Company's net sales during the first quarter
of 1998. The 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 geographic disclosure in the following tables, the
term "United States" includes operations in the U.S. and Canada. The Canadian
operations exist primarily to produce flax fiber used as raw material in the
U.S. operations and have no material effect on such geographic disclosure. The
Company's Brazilian operations were acquired on February 2, 1998. Accordingly,
the results of its operations are included in SWM's consolidated financial
statements since the beginning of February 1998.

Adjustments to net sales set forth in the following tables consist of
eliminations of intercompany sales of products between geographic areas.
Adjustments to operating profit consist of unallocated overhead expenses not
associated with geographic areas and eliminations of intercompany transactions.
Assets reported by geographic area represent assets which are directly used and
an allocated portion of jointly used assets. These assets include receivables
from other geographic areas and are referred to as intergeographic items.

RESULTS OF OPERATIONS

By Geography for the three months ended March 31, 1998 and 1997
(U.S. $ in millions)

% of Consolidated
% Change -----------------
Net Sales 1998 1997 vs. 1997 1998 1997
- - --------- ---- ---- -------- ---- ----

United States ...................... $ 48.5 $ 49.7 - 2.4% 36.1% 44.0%
France.............................. 79.3 63.7 +24.5 59.1 56.4
Brazil.............................. 10.8 N.A. 8.0
Eliminations........................ (4.3) (0.4) (3.2) (0.4)
------ ------ ----- -----
Consolidated .................... $134.3 $113.0 +18.8% 100.0% 100.0%
====== ====== ===== =====

% of Consolidated % Return on Sales
% Change ----------------- -----------------
Operating Profit 1998 1997 vs. 1997 1998 1997 1998 1997
- - ---------------- ---- ---- -------- ---- ---- ---- ----

United States.............. $ 4.3 $ 7.7 -44.2% 20.9% 36.7% 8.9% 15.5%
France..................... 18.1 14.7 +23.1 87.8 70.0 22.8 23.1
Brazil..................... (0.4) N.A. (1.9) (3.7)
Unallocated/Eliminations... (1.4) (1.4) (6.8) (6.7)
----- ----- ----- -----
Consolidated............ $20.6 $21.0 - 1.9% 100.0% 100.0% 15.3% 18.6%
===== ===== ===== =====

N.A. - Not applicable

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

Primarily as a result of the recent acquisitions, total assets by
geographical area have changed as follows:

% of Consolidated
March 31, December 31, -----------------
Total Assets 1998 1997 1998 1997
------------ ---- ---- ---- ----

United States.................. $159.8 $155.4 35.6% 39.7%
France......................... 222.7 237.6 49.6 60.8
Brazil......................... 70.0 N.A. 15.6
Intergeographic items.......... (3.8) (2.0) (0.8) (0.5)
------ ------ ----- -----
Consolidated................ $448.7 $391.0 100.0% 100.0%
====== ====== ===== =====

N.A. - Not applicable

Net Sales

Net sales increased by $21.3 million in the three month period ended
March 31, 1998, compared with the corresponding period of the preceding year.
This increase was primarily attributable to sales at the two newly-acquired
companies, whose results are included in the Company's consolidated results
beginning in February 1998, and stronger sales volumes in France. Net sales of
the newly-acquired Brazilian and French companies totaled $18.2 million in the
quarter. Excluding the acquisitions, worldwide sales volumes increased by nine
percent, favorably effecting net sales by $8.2 million. Sales volumes from the
French businesses grew by 24 percent for the three month period, excluding the
French acquisition, primarily due to gains in porous plug wrap, tipping paper
and reconstituted tobacco leaf products. Sales volumes declined at the U.S.
business unit by 11 percent for the three month period apparently due to reduced
domestic cigarette production by the Company's customers. Sales volumes in the
U.S. declined in all major product lines. Compared with the same three month
period of the preceding year, changes in selling prices and sales mix had a
favorable effect of $0.8 million. The net sales comparison was unfavorably
effected $5.9 million by changes in currency exchange rates, primarily related
to a strengthened U.S. dollar versus the French franc.

Operating Profit

Operating profit decreased by $0.4 million in the three month period
ended March 31, 1998, compared with the corresponding period of the preceding
year. The decrease was primarily the result of new computer systems expenses in
the U.S., lower U.S. business unit sales volumes, one-time costs in the
Brazilian business unit and changes in currency exchange rates, which more than
offset the benefit of higher French sales volumes. Amortization of capitalized
software costs related to the new integrated computer systems in the U.S. and
associated incremental operating expenses began in January 1998. Additionally,
start-up costs were incurred in the first quarter related to the new U.S.
computer systems. These U.S. computer systems costs totaled approximately $2.1
million, of which approximately $1.2 million represented start-up costs which
will not be continuing. In Brazil, one-time costs associated with purchase
accounting for inventories unfavorably effected operating profit by $0.6
million. Non-manufacturing expenses increased by $0.7 million during the
quarter. This increase was solely caused by expenses at the two newly-acquired
companies. Excluding expenses of the newly-acquired companies, non-manufacturing
expenses were four percent lower than in the corresponding period of the prior
year. Per ton wood pulp cost decreases compared with the prior year favorably
impacted operating profit by $0.5 million in the three month period, although
this benefit was offset in part by changes in selling prices. Changes in
currency exchange rates had an unfavorable impact of approximately $1.0 million
on the operating profit change in the three month period.

12
13
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

NON-OPERATING EXPENSES

Interest expense increased by $0.4 million in the three month period
ended March 31, 1998, compared with the corresponding period of the preceding
year. The increase was primarily a result of increased debt related to
acquisitions in Brazil and France and higher interest rates in France, partially
offset by changes in currency exchange rates. Other income (expense) consists
primarily of interest income and foreign currency transaction gains and losses
in the 1998 and 1997 periods and a one-time favorable litigation recovery in
France in the first quarter, 1998.

INCOME TAXES

The effective income tax rate for the three month period ended March
31, 1998 was 40.9 percent compared with 37.3 percent for the corresponding
period of 1997. The provision for income taxes increased primarily as a result
of an increase in the corporate income tax rate enacted in France in November
1997 from 36.67 percent to 41.67 percent for 1997 and 1998, retroactive to
January 1, 1997, and to 40.00 percent for 1999. This higher French income tax
rate increased the provision for income taxes by approximately $0.7 million for
the three month period ended March 31, 1998. The increase applicable to the 1997
period was recorded in the fourth quarter of 1997 when the income tax rate
change was enacted.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operations, the amount attributable to changes in
operating working capital, and the amount of cash used for capital expenditures
and capitalized software costs for the three months ended March 31, 1998 and
1997 were as follows:

Three Months Ended March 31,
----------------------------
(U.S. $ in millions)
1998 1997
---- ----

Net cash provided by (used in) operations.................. $ 10.2 $ (0.2)
Increase in operating working capital...................... (11.1) (19.1)

Capital expenditures........................................ 5.2 5.7
Capitalized software costs.................................. 0.9 1.6

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 $(0.2) million for the three months ended
March 31, 1997 to $10.2 million for the three months ended March 31, 1998,
primarily as a result of changes in operating working capital, excluding the
added working capital obtained with the two recent acquisitions. Changes in
operating working capital contributed unfavorably to cash flow in both periods,
by $11.1 million and $19.1 million in the three month periods ended March 31,
1998 and 1997, respectively. Excluding working capital of the two acquisitions,
the 1998 increase in working capital was primarily due to a decrease in accounts
payable, mainly associated with 1998 payments for capital expenditures included
in accounts payable at December 31, 1997. The 1997 increase in working capital
was primarily due to a decrease in accounts payable, mainly associated with 1997
payments for capital expenditures and capitalized software costs included in
accounts payable at December 31, 1996, and an increase in accounts receivable
mainly due to higher March 1997 sales compared with sales in December 1996 and
the timing of collections from certain customers.

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14
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

Cash provided by operations exceeded the level of capital spending
during the first three months of 1998. Capital spending for the three months
ended March 31, 1998 included $1.8 million toward upgrades to a paper machine at
the Ancram mill.

In addition to capital spending, the Company incurred, and deferred on
the balance sheet, additional software development costs of $0.9 million in the
three month period ended March 31, 1998, toward new company-wide integrated
computer systems. Most of this spending occurred in France. These computer
systems are replacing the previously used Kimberly-Clark systems and ensure the
Company's computer systems are able to handle the change to the year 2000.

In February 1998, two acquisitions were completed. On February 2, 1998,
SM-Spain paid approximately $62.0 million in cash for 99.97 percent ownership
interest in Pirahy. In connection with the acquisition of Pirahy, the Company
modified its existing credit agreement to provide a $20.0 million term loan to
SM-Spain. SM-Spain borrowed the remaining funds for the transaction from
SM-France, which in turn utilized its existing cash balances and borrowings from
its revolving credit facilities. Additionally, on February 11, 1998,
SM-Enterprises paid 37.2 million French francs (approximately $6.1 million) in
cash and assumed approximately $5.8 million in existing net debt for all of the
outstanding shares of Ingefico, S.A. and 97.1 percent of the outstanding shares
of its pulp and specialty paper manufacturing subsidiaries, Groupe SAPAM and
Papeteries de la Moulasse. Subsequently, SM-Enterprises acquired all the
remaining shares of the minority interest for $0.2 million in cash.

During the first quarter of 1998, the Ancram mill successfully
completed a rebuild of the wet end of a long fiber paper machine. During March
1997, the Quimperle, France mill successfully started up its new long fiber
paper machine. This machine continues to operate well. During the first quarter
of 1998, the Quimperle mill initiated a speed-up program for this machine. By
late 1998, this speed-up program and the completed Ancram project will,
together, increase the Company's annual long fiber production capacity by 10 to
12 percent.

On April 24, 1997, the Board of Directors authorized a program to
permit the repurchase of the Company's common stock through December 31, 1998 in
an aggregate amount not to exceed $20 million. This was to provide the Company
flexibility in the event other timely strategic investments were not available.
No repurchases of common stock had been made as of March 31, 1998.

On April 23, 1998, the Board of Directors declared a quarterly cash
dividend of fifteen cents per share of common stock. The dividend will be
payable on June 8, 1998 to stockholders of record on May 11, 1998.

The Company's ongoing requirements for cash consist principally of
amounts required for capital expenditures, the new company-wide integrated
computer systems, stockholder dividends and working capital. Other than
expenditures associated with environmental matters (see Note 6 of the Notes to
Unaudited Consolidated Financial Statements) and other capital projects
mentioned in the Outlook section below, the Company had no material outstanding
commitments as of March 31, 1998. 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 facilities, will be sufficient
to fund its ongoing cash requirements.

14
15
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)

NEW ACCOUNTING STANDARD

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which will be effective no later than
for the Company's 1998 Annual Report on Form 10-K. This new statement may affect
the Company's financial statement disclosures. The Company is evaluating how to
implement the new disclosure requirements.

OUTLOOK

During the remainder of 1998, the Company expects to benefit from
continued growth in sales volumes outside the United States, reflecting
increased demand for the Company's products and sales from recently acquired
companies in Brazil and France. Cost savings are expected to continue from
recently implemented capital projects. The higher corporate income tax rate in
France is expected to negatively impact full year 1998 earnings by $.15 to $.20
per share compared with 1997. Amortization of capitalized software costs related
to the new integrated computer systems in the U.S. began in January and is
expected to reduce full year 1998 earnings by approximately $.05 per share
compared with 1997. Additionally, operating expenses for the new computer
network in the U.S. over and above the amount previously paid to Kimberly-Clark
for utilization of its systems are expected to have an unfavorable full year
effect of approximately $.08 per share in 1998 compared with 1997. The per ton
cost of wood pulp declined somewhat in the first quarter, although a small
increase in per ton wood pulp costs is expected later this year.

The Company has begun to integrate the Brazilian and French
acquisitions, which occurred in February 1998, but does not expect them to begin
contributing positively to earnings until later in 1998. The Company's customers
in the U.S. traditionally reduce their operating schedules around holidays
during the third and fourth quarters, which could soften the demand for the
Company's products and allow for additional maintenance and capital work. Also,
the direction of the U.S. cigarette market remains unclear at this time, given
the potential tobacco settlement legislation, the effect of lower exports of
cigarettes by the Company's customers in the U.S. and the continuing adverse
publicity for the tobacco industry.

The Company expects capital spending for 1998 to be approximately $35
to $40 million in total, focused primarily on internal capacity expansion,
product quality improvements and cost reduction opportunities. In addition to
capital spending, the Company expects to incur approximately $4 to $5 million of
additional capitalized software costs in 1998, primarily in France. Start-up of
the new systems in France is expected to begin in mid-1999.

Certain comments contained herein concerning the business outlook and
anticipated financial results of the Company constitute forward-looking
statements and are 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 Company's results will be as estimated. Many factors
outside the control of the Company also could impact the realization of such
estimates. Certain such 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 Annual Report on Form 10-K, Part I, Item 7, under
the heading "Factors That May Affect Future Results".

15
16
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

- - - On February 27, 1998, Denny L. Parsons, personal representative of the
estate of Audrey E. Parsons, on behalf of his wife and other persons
having claims for "personal injury arising from the exposure to
respirable asbestos fibers and cigarette smoke", filed a purported
class action in the Circuit Court of Kanawha County, West Virginia,
against 75 defendants including 42 asbestos defendants and 33 tobacco
defendants including Kimberly-Clark and LTRI. The plaintiff seeks to
recover $3 in compensatory and $3 in punitive damages on behalf of
himself and his wife's estate and the same kind of damages for the
purported class in an unspecified amount. The "asbestos defendants" are
alleged to be liable on several grounds including strict liability,
negligence, failure to warn, breach of warranty, conspiracy to conceal
the carcinogenic effects of asbestos, fraudulent misrepresentation, and
creation of false medical literature about the dangers of asbestos
exposure. The "tobacco defendants" are alleged to be liable on
essentially the same theories of liability and, additionally,
fraudulent concealment, misrepresentations about the addictive nature
of nicotine, unjust enrichment, and intentional infliction of emotional
distress. The complaint further alleges that the "asbestos" and
"tobacco" defendants encouraged and assisted each other in their
wrongful conduct and that the inhalation of asbestos fibers and tobacco
smoke create a greater risk of lung cancer than inhaling asbestos
fibers or cigarette smoke alone.

16
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

10. Amended and Restated Credit Agreement dated as of January 30,
1998, between Schweitzer-Mauduit International, Inc., as Borrower
and Guarantor, Schweitzer-Mauduit France, S.A.R.L., as Borrower,
PDM Industries S.N.C., as Borrower, and Schweitzer-Mauduit Spain,
S.L., as Borrower, the Banks named therein and Societe Generale,
as Agent.

15. Independent Accountants' Report, dated April 28, 1998 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:

(1) On January 26, 1998, the Company filed a Current Report on Form
8-K dated January 13, 1998, which reported the Company's
announcement that an agreement had been reached to acquire
Ingefico, S.A. and its pulp and specialty paper manufacturing
subsidiaries located in St. Girons in the southwestern part of
France.
(2) On February 19, 1998, the Company filed a Current Report on Form
8-K dated February 2, 1998, which reported that the Company closed
on two previously announced acquisitions. The closing occurred on
February 2, 1998 to acquire Companhia Industrial de Papel Pirahy,
a specialty paper manufacturer located near Rio de Janeiro,
Brazil. The closing occurred on February 11, 1998 to acquire
Ingefico, S.A. and its pulp and specialty paper manufacturing
subsidiaries.
(3) On April 6, 1998, the Company filed a Current Report on Form 8-K
dated March 30, 1998, which reported: (a) the Company's
announcement on March 30, 1998 that first quarter diluted earnings
per share were expected to be $.55 to $.60, (b) the Company's
announcement on March 31, 1998 of a 45 day extension to the Supply
Agreement with Philip Morris, and (c) the Company's announcement
on April 1, 1998 that Jean-Pierre Le Hetet was elected to the
newly created position of Chief Operating Officer.

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18
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
-----------------------------------------
Paul C. Roberts
Chief Financial Officer and
Treasurer
(duly authorized officer and
principal financial officer)

By: /s/ WAYNE L. GRUNEWALD
-----------------------------------------
Wayne L. Grunewald
Controller
(principal accounting officer)

May 14, 1998

18
19
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

INDEX TO EXHIBITS

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------- ------------------- ------------

10. --- Amended and Restated Credit Agreement dated as of January
30, 1998, between Schweitzer-Mauduit International, Inc., as
Borrower and Guarantor, Schweitzer-Mauduit France, S.A.R.L.,
as Borrower, PDM Industries S.N.C., as Borrower, and
Schweitzer-Mauduit Spain, S.L., as Borrower, the Banks named
therein and Societe Generale, as Agent.

15. --- Independent Accountants' Report, dated April 28, 1998 from
Deloitte & Touche LLP to Schweitzer-Mauduit International,
Inc.

23. --- Independent Accountants' Consent.

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