The following is a discussion of our results of operations, current financial position and cash flows. This discussion should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this report and the audited consolidated financial statements and related notes and the selected financial data included in Item 6 of our Annual Report on Form 10-K for the year ended December 31, 2008. The discussion of our results of operations and financial position includes various forward-looking statements about our markets, the demand for our products and our future results. These statements are based on certain assumptions that we consider reasonable. For information about risks and exposures relating to our business and our company, you should read the section entitled "Factors That May Affect Future Results" included in our Annual Report on Form 10-K for the year ended December 31, 2008. Unless the context indicates otherwise, references to "we," "us," "our," or similar terms include Schweitzer-Mauduit International, Inc. and our consolidated subsidiaries.

Executive Summary
(dollars in millions, except per share amounts)

                                  Three Months Ended                                   Six Months Ended
                       June 30, 2009             June 30, 2008             June 30, 2009             June 30, 2008
Net sales           $ 183.3        100.0 %    $ 202.0        100.0 %    $ 367.4        100.0 %    $ 391.8        100.0 %
Gross profit           44.6         24.3         24.2         12.0         86.2         23.5         44.2         11.3
Restructuring &
impairment
expense                13.3          7.3          3.7          1.8         13.6          3.7          5.7          1.5
Operating profit       12.0          6.5          4.8          2.4         34.8          9.5          4.8          1.2
Interest expense        1.3          0.7          2.8          1.4          3.1          0.8          5.2          1.3
Other income
(expense), net         (0.6 )       (0.3 )        0.6          0.3         (0.4 )       (0.1 )       (1.0 )       (0.2 )
Net income          $   7.1          3.9 %    $   2.0          1.0 %       20.4          5.6 %    $   0.8          0.2 %
Diluted earnings
per share           $  0.45                   $  0.13                   $  1.32                   $  0.05
Cash provided by
operations          $  11.1                   $  20.3                   $  22.9                   $  12.3
Capital spending    $   2.0                   $   5.4                   $   4.6                   $  24.0

Second Quarter Highlights
Net sales were $183.3 million in the three month period ended June 30, 2009, a 9.3 percent decrease over the prior-year quarter. Net sales decreased $18.7 million as a result of $19.4 million from a 15 percent decrease in unit sales volumes, $17.1 million in unfavorable foreign currency exchange rate impacts from a stronger U.S. dollar compared to the euro and Brazilian real and $3.1 million due to lower sales following announcement of the closure of our finished tipping facility in Malaucène, France. These declines were partially offset by $20.9 million in higher average selling prices, primarily due to an improved mix of products sold.
Gross profit was $44.6 million in the three month period ended June 30, 2009, an increase of $20.4 million from the prior-year quarter. The gross profit margin was 24.3 percent, increasing from 12.0 percent in the prior-year quarter. Restructuring and impairment expenses were $13.3 million and $3.7 million for the three months ended June 30, 2009 and 2008, respectively. Operating profit was $12.0 million in the three months ended June 30, 2009 versus $4.8 million in the prior-year quarter. The higher gross profit and operating profit were both primarily due to $16.4 million in higher average selling prices and a favorable mix of products sold, $6.6 million in cost savings and mill operating efficiencies due to a lack of recurring machine start-up costs of $3.9 million in 2008, and $1.6 million in currency exchange benefits. These benefits were partially offset by $3.6 million in higher non-manufacturing expenses, primarily due to higher incentive compensation accruals as well as consulting expenses associated with strategic planning activities, and $2.0 million from decreased sales volumes.
In the second quarter of 2009, interest expense compared to prior-year quarter declined as a result of lower average debt levels and lower interest rates. SWM second quarter net income and diluted earnings per share improved versus the prior-year net income and diluted earnings per share by $5.1 million and $0.32 per share, respectively.

Year-to-Date Highlights
Net sales were $367.4 million during the six months ended June 30, 2009, a 6.2 percent decrease over the prior-year period. Net sales decreased $24.4 million as a result of $33.4 million in unfavorable foreign currency exchange rate impacts, $29.4 million from a 13% decrease in sales volumes and $2.1 million in lower French tipping paper sales following announcement of the closure of our finished tipping facility in Malaucène, France. These declines were partially offset by $40.5 million in higher average selling prices, primarily due to an improved mix of products sold.
Gross profit was $86.2 million in the six month period ended June 30, 2009, an increase of $42.0 million from the prior-year quarter. The gross profit margin was 23.5 percent, increasing from 11.3 percent in the prior-year period. Restructuring and impairment expenses were $13.6 million and $5.7 million for the six months ended June 30, 2009 and 2008, respectively. Operating profit was $34.8 million in the six months ended June 30, 2009 versus $4.8 million in the prior-year period. The higher gross profit and operating profit were both primarily due to $32.9 million in higher average selling prices and a favorable mix of products sold, $11.5 million in cost savings and mill operating efficiencies due to a lack of $9.2 million in machine start-up costs incurred in 2008, and $2.2 million in currency exchange benefits. These benefits were partially offset by $4.1 million in higher non-manufacturing expenses, primarily due to higher incentive compensation accruals, consulting expenses associated with strategic planning activities and severance expenses, and $3.9 million from decreased sales volumes.
Interest expense was lower by $2.1 million as a result of lower average debt levels and lower interest rates. Net income and diluted net income per share were higher than the comparable periods of the prior-year by $19.6 million and $1.27, respectively.
Capital spending was $4.6 million and $24.0 million for the six months ended June 30, 2009 and 2008, respectively. Capital spending in the 2008 period primarily consisted of $11.0 million incurred at PdM for a paper machine rebuild and improvements to the bobbin slitting process. There was no major capital project for which spending was $1.0 million or more in the 2009 period. Recent Developments
Operational Changes - France
In April 2009, we announced a decision to close our finished tipping paper facility, Papeteries de Malaucène SAS, located in France. Due to ongoing losses at the facility, the Company previously recorded a $13.5 million fixed asset impairment charge in the fourth quarter of 2008, which included the majority of the related fixed asset values. This mill closure is expected to result in severance of approximately 210 employees. We recorded $12.2 million in restructuring expense including $11.4 million in estimated cash severance payments and $0.8 million in non-cash charges in the second quarter of 2009. We expect additional expenses, net of reversals of employee-related accruals, related to this action of approximately $13 million through its planned completion in the fourth quarter of 2009. Payment of the cash severances is expected to be completed by the end of 2010, with approximately $6 million expected to be paid during 2009.
Operating losses for the Malaucène facility will likely continue given the loss of customer orders combined with continuing payroll expenses during the closure process. Incremental operating losses could negatively impact our operating profit by approximately $6 to $7 million, or $0.26 to $0.31 per share, during the remainder of 2009.
Lower Ignition Propensity Cigarettes
Based upon the states that have passed LIP regulations, demand for this product is expected to grow from the current level of approximately 49 percent of North American cigarette consumption to approximately 89 percent by early 2010. Additionally, states representing essentially all of North American consumption have either passed or proposed LIP regulations, and all major cigarette producers have announced voluntary national distribution of this technology, supporting the likelihood that LIP cigarettes will be sold nationwide by late 2009 or early 2010. As a result, we expect to realize continued growth in demand for cigarette paper used in LIP cigarettes, which would continue to significantly benefit our U.S. business unit's results.

International LIP efforts continue, especially in the European Union, or EU. Australia will implement LIP regulations effective in March 2010 and Finland will follow with implementation in April 2010. The compliance test standards for Australia and Finland are consistent with test standards in Canada and the United States. In July 2009, SWM announced that the British American Tobacco affiliate in Australia, which has an approximate 60 percent share of that market, will exclusively use SWM's Alginex® banded papers.
In June 2008, the EU's Standardization European Committee, known as CEN, mandated development of an ignition propensity standard. This standard is currently under development by working groups within the International Organization for Standardization, known as ISO, with expectations that the standard will be published by late 2010 or early 2011. Implementation of LIP regulation in the EU is expected by 2012. Additionally, other countries including South Korea, South Africa and Brazil are discussing possible LIP regulation. These actions indicate that it is increasingly likely LIP cigarette regulations outside of North America will become effective in the next 1 to 3 years thus increasing demand for SWM's banded cigarette paper technology used in these cigarettes.
Accordingly, we have begun implementing plans to establish LIP production capability in Europe with a planned commencement of operations during early 2010 and continue to work with our customers to finalize product developments and establish supply terms. We continue to study further LIP production capacity plans to meet the full extent of EU demand for cigarette paper used in LIP cigarettes and expect to select a location for a second production site in Europe. These legislative and capacity planning developments involving LIP requirements are positive for us given our leadership position in this technology with our Alginex® banded papers and ability to provide one or more commercially proven LIP solutions to cigarette manufacturers. Results of Operations
Three Months Ended June 30, 2009 Compared with the Three Months Ended June 30,

2008
Net Sales
(dollars in millions)

                                                                              Consolidated
                         Three Months Ended                                       Sales
                      June 30,        June 30,                  Percent          Volume
                        2009            2008        Change       Change          Change
     France          $    111.9      $    129.2     $ (17.3 )      (13.4 )%            (2.1 )%
     United States         63.9            57.7         6.2         10.7              (51.0 )
     Brazil                19.0            20.3        (1.3 )       (6.4 )            (28.6 )

     Subtotal             194.8           207.2       (12.4 )
     Intersegment         (11.5 )          (5.2 )      (6.3 )

     Total           $    183.3      $    202.0     $ (18.7 )       (9.3 )%           (14.7 )%

Net sales were $183.3 million in the three months ended June 30, 2009 compared with $202.0 million in the prior-year quarter. The decrease of $18.7 million, or 9.3 percent, consisted of the following (dollars in millions):

                                                      Amount      Percent
          Changes in sales volumes                    $ (19.4 )       (9.6 )%
          Changes in currency exchange rates            (17.1 )       (8.5 )
          Changes due to Malaucène closure               (3.1 )       (1.5 )
          Changes in selling prices and product mix      20.9         10.3

          Total                                       $ (18.7 )      (9.3) %

• Unit sales volumes decreased by 14.7 percent in the three months ended June 30, 2009 versus the prior-year quarter, resulting in an unfavorable effect on net sales of $19.4 million, or 9.6 percent.

• Sales volumes in the United States decreased by 51.0 percent, reflecting primarily a change to source certain products from SWM's Brazilian and French locations and to a lesser extent reduced sales of certain tobacco-related products caused by lower market demand.

• Brazil experienced decreased sales volumes of 28.6 percent as the result of our exiting the coated papers business in 2008.

• Sales volumes for the French segment decreased by 2.1 percent, primarily as a result of lower sales of certain tobacco-related products partially offset by 4.4 percent growth in RTL.

• Changes in currency exchange rates had an unfavorable impact on net sales of $17.1 million, or 8.5 percent, in the three months ended June 30, 2009 and primarily reflected the impact of a weaker euro compared with the U.S. dollar.

• Higher average selling prices had a favorable $20.9 million, or 10.3 percent, impact on the net sales comparison. The increase in average selling prices reflected an improved mix of products sold, especially in the United States, primarily due to increased sales of cigarette paper for LIP cigarettes, as well as price increases realized since early 2009.

French segment net sales of $111.9 million in the three months ended June 30, 2009 decreased by $17.3 million, or 13.4 percent, versus $129.2 million in the prior-year quarter. The decrease in net sales was primarily the result of a weaker euro relative to the U.S. dollar in the current year period as compared to the prior year period and $3.1 million in lower sales from the Malaucène finished tipping facility which is being shut down.
The U.S. segment net sales of $63.9 million in the three months ended June 30, 2009 increased by $6.2 million, or 10.7 percent, compared with $57.7 million in the prior-year quarter. The increase in net sales of the U.S. segment resulted from an improved mix of products sold and higher selling prices partially offset by lower sales volume.
The Brazil segment net sales of $19.0 million in the three months ended June 30, 2009 decreased by $1.3 million, or 6.4 percent, from $20.3 million in the prior-year quarter. The change was primarily due to currency translation impacts as lower sales volume was offset by higher average selling prices and an improved mix of products sold.

Gross Profit
(dollars in millions)

                              Three Months Ended
                           June 30,         June 30,                    Percent           Percent of Net Sales
                             2009             2008         Change        Change           2009             2008
Net Sales                 $    183.3       $    202.0      $ (18.7 )        (9.3 )%
Cost of products sold          138.7            177.8        (39.1 )       (22.0 )           75.7 %           88.0 %

Gross Profit              $     44.6       $     24.2      $  20.4          84.3 %           24.3 %           12.0 %

Gross profit was $44.6 million in the three months ended June 30, 2009, an increase of $20.4 million from $24.2 million in the prior-year quarter. The gross profit margin was 24.3 percent of net sales in the three months ended June 30, 2009, increasing from 12.0 percent in the prior-year quarter. Gross profit was favorably impacted by higher average selling prices, including a favorable mix of products sold, and improved mill operations.
Inflationary cost increases related to materials prices, labor and energy were mostly offset by lower per ton wood pulp prices for a net unfavorable impact to operating results of $0.5 million during the three months ended June 30, 2009. Changes in per ton wood pulp prices increased operating profit by $3.9 million compared with the prior-year quarter. The average per ton list price of northern bleached softwood kraft pulp in the United States was $645 per metric ton during the three month period ended June 30, 2009 compared with $880 per metric ton during the prior-year quarter.

Nonmanufacturing Expenses
(dollars in millions)

                                 Three Months Ended
                             June 30,         June 30,                     Percent           Percent of Net Sales
                               2009             2008          Change        Change           2009             2008
Selling expense              $     5.5       $      5.8      $   (0.3 )        (5.2 )%            3.0 %           2.9 %
Research expense                   2.2              2.5          (0.3 )       (12.0 )             1.2             1.2
General expense                   11.6              7.4           4.2          56.7               6.3             3.7

Nonmanufacturing expenses    $    19.3       $     15.7      $    3.6          22.9 %            10.5 %           7.8 %

Nonmanufacturing expenses increased by $3.6 million, or 22.9 percent, to $19.3 million from $15.7 million in the prior-year quarter, primarily due to higher incentive compensation accruals due to improved results as well as consulting expenses associated with strategic planning activities.
Nonmanufacturing expenses were 10.5 percent and 7.8 percent of net sales in the three month periods ended June 30, 2009 and 2008, respectively. Restructuring and Impairment Expense
Total restructuring and impairment expense of $13.3 million was recognized during the three months ended June 30, 2009, comprised of $12.5 million for severance related and other cash costs and $0.8 for other non-cash charges. Total restructuring and impairment expense of $3.7 million was recognized during the prior-year quarter, comprised of $2.5 million for asset impairments and other non-cash charges and $1.2 million for severance related and other cash costs.

Operating Profit
(dollars in millions)

                                  Three Months Ended                       Return on Net
                              June 30,         June 30,                        Sales
                                2009             2008        Change       2009       2008

       France                 $     1.2       $      6.5     $  (5.3 )      1.1 %       5.0 %
       United States               12.5              3.9         8.6       19.6         6.8
       Brazil                       2.8             (4.4 )       7.2       14.7       (21.7 )

       Subtotal                    16.5              6.0        10.5
       Unallocated expenses        (4.5 )           (1.2 )      (3.3 )

       Total                  $    12.0       $      4.8     $   7.2        6.5 %       2.4 %

N.M. Not meaningful
Operating profit was $12.0 in the three months ended June 30, 2009 compared with $4.8 million during the prior-year quarter.
The French segment's operating profit was $1.2 million in the three months ended June 30, 2009, a decrease of $5.3 million from an operating profit of $6.5 million in the prior-year quarter. The decrease was primarily due to:
• Increased restructuring expenses of $12.2 million

• Higher nonmanufacturing expenses of $1.4 million

• Inflationary cost increases of $1.2 million.

• These negative factors were partially offset by $3.9 million from higher selling prices and improved mix as well as improved mill operations and benefits of prior strategic restructuring actions, including improved operations on a rebuilt paper machine.

The U.S. segment's operating profit was $12.5 million in the three months ended June 30, 2009, an $8.6 million increase from $3.9 million in the prior-year quarter. Higher selling prices and changes in the mix of products sold increased operating profit by $10.4 million, primarily due to higher sales of cigarette paper for LIP cigarettes. The favorable mix of products sold was partially offset by volume declines of $1.8 million.
Brazil's operating profit was $2.8 million during the three months ended June 30, 2009, compared with an operating loss of $4.4 million during the prior-year quarter. The increased operating profit was primarily due to:
• The stronger Brazilian real versus the U.S. dollar, which had a $2.9 million favorable impact, including a $0.4 million benefit from foreign currency hedges

• Higher selling prices and improved mix of products sold of $2.1 million

• These positive factors were partially offset by $1.2 million unfavorable impact of volume declines

Non-Operating Expenses
Interest expense of $1.3 million in the three months ended June 30, 2009 decreased from $2.8 million in the prior-year quarter. Average debt levels decreased during the three months ended June 30, 2009 versus the prior-year quarter, and our weighted average effective interest rate was lower. The weighted average effective interest rates on our revolving debt facilities were approximately 2.0 percent and 3.9 percent for the three months ended June 30, 2009 and 2008, respectively.
Other income (expense), net was expense of $0.6 million and income of $0.6 million for the three months ended June 30, 2009 and 2008, respectively, primarily due to foreign currency transaction impacts. Income Taxes
The provision for income taxes in the three months ended June 30, 2009 reflected an effective tax rate of 18.8 percent compared with zero percent in the prior-year quarter. The difference in effective tax rates was primarily due to the improved operating results in 2009 versus 2008, together with the tax benefits of our foreign holding company structure.

Loss from Equity Affiliates
Loss from equity affiliates totaled a loss of $1.1 million and $0.6 million during the three months ended June 30, 2009 and 2008, respectively. These results reflected the operations of our joint venture in China. The joint venture operated throughout the second quarter of 2009 whereas the start-up phase was beginning during the prior year quarter. The joint venture's sales volume increased during the second quarter, causing an improvement in gross profitability, but still below the pace of improvement expected. Net Income and Net Income per Share
SWM net income for the three months ended June 30, 2009 was $7.1 million, or $0.45 per diluted share, compared with $2.0 million, or $0.13 per share, during the prior-year quarter. Net income improvement in 2009 was primarily due to an improved mix of products, higher average selling prices and benefits of strategic actions taken over the last three years to restructure the business. Six Months Ended June 30, 2009 Compared with the Six Months Ended June 30, 2008

Net Sales
(dollars in millions)

                                                                             Consolidated
                          Six Months Ended                                       Sales
                      June 30,       June 30,                  Percent          Volume
                        2009           2008        Change       Change          Change
      France          $   223.5     $    250.0     $ (26.5 )     (10.6) %             (2.9 )%
      United States       129.8          113.2        16.6         14.7              (45.3 )
      Brazil               37.1           38.2        (1.1 )       (2.9 )            (21.6 )

      Subtotal            390.4          401.4       (11.0 )
      Intersegment        (23.0 )         (9.6 )     (13.4 )

      Total           $   367.4     $    391.8     $ (24.4 )       (6.2 )%           (12.9 )%

Net sales were $367.4 million for the six months ended June 30, 2009 compared with $391.8 million for the prior-year period. The decrease of $24.4 million, or 6.2 percent, consisted of the following (dollars in millions):

                                                      Amount       Percent
          Changes in currency exchange rates          $ (33.4 )        (8.5 )%
          Changes in sales volumes                      (29.4 )        (7.5 )
          Changes due to Malaucène closure               (2.1 )        (0.5 )
          Changes in selling prices and product mix      40.5          10.3

          Total                                       $ (24.4 )        (6.2 )%

• Changes in currency exchange rates had an unfavorable impact on net sales of $33.4 million, or 8.5 percent, for the six month period ended June 30, 2009 and primarily reflected the impact of a weaker euro and Brazilian real compared with the U.S. dollar.

• Unit sales volumes decreased by 12.9 percent for the six month period ended June 30, 2009 versus the prior-year period, resulting in an unfavorable effect on net sales of $29.4 million, or 7.5 percent.

• Sales volumes for the French segment decreased by 2.9 percent, primarily due to decreased sales of tobacco-related papers sales volumes.

• Brazil sales volumes decreased by 21.6 percent as a result of our exiting the coated papers business in 2008.

• Sales volumes in the United States decreased by 45.3 percent, reflecting primarily a change to source certain products from SWM's Brazilian and French locations and to a lesser extent reduced sales of certain tobacco-related products caused by lower market demand .

• Higher average selling prices had a favorable $40.5 million impact, or 10.3 percent, on the net sales comparison. The increase in average selling prices reflected an improved mix of products, primarily due to increased sales of cigarette paper for LIP cigarettes in the United States, as well as increased customer pricing realized since early 2009.

The French segment net sales of $223.5 million for the six month period ended June 30, 2009 decreased by $26.5 million, or 10.6 percent, versus $250.0 million for the prior-year period. The decrease in net sales was primarily the result of a weaker euro and lower sales volumes partially offset by higher selling prices and improved mix.

The U.S. segment net sales of $129.8 million for the six months ended June 30, 2009 increased by $16.6 million, compared with $113.2 million for the prior-year . . .