Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to Schweitzer-Mauduit Fourth Quarter 2007 Results Conference Call. (Operator Instructions) Thank you Mr. Thompson, you may begin your conference.

Thank you, Nicole. Good morning, I am Peter Thompson, Chief Financial Officer of Schweitzer- Mauduit International. With me, are Wayne Grunewald, our Corporate Controller, and several executive officers of the company. Thank you for joining us for review of our full year and fourth quarter 2007 financial results. I will be leading our conference call today. Various comments or remarks that we may make during today’s conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the results suggested by these comments for a number of reasons. Such factors are discussed in more detail in the company’s Securities and Exchange Commission report, including the company’s 2006 annual report. Certain financial measures that will be discussed during this call exclude restructuring expenses. Financial measures which exclude this item have not been determined in accordance with accounting principles generally accepted in the United States, and are therefore non-GAAP financial measures. I will now review the highlights of the full year and fourth quarter of 2007, and provide additional discussion of key factors impacting our results. I will not repeat the more detailed review of our fourth quarter financial results included in our earnings press release issued this morning. Earnings per share, excluding restructuring expenses, totaled $1.20 for the full year and $0.16 for the fourth quarter of 2007. These amounts compared to $0.83 for the full year of 2006 and a loss of $0.08 for the fourth quarter of 2006. Full year 2007 earnings per share increased 45%. The primary causes of both full year and fourth quarter earnings growth included improved results for reconstituted tobacco products and lower ignition propensity cigarette papers, as well as significant savings from cost reduction activities across our business. Our 2007 earnings per…

Your first question comes from the line of Jonathan Lichter - Sidoti & Company LLC. Jonathan Lichter - Sidoti & Company LLC: So the guidance does include LTR? It did not include LTR in Q3, or did it?

No, the exceeding $1.50 per share did not include LTR after the third quarter. Now with LTR acquisition certain, we haven’t updated the exceeding $1.50, but obviously we’d acknowledge that it certainly makes it much more probable we’ll exceed $1.50. Our range for LTR is $0.28 to $0.34 EPS, that will be a full year basis; the reason we didn’t make that additive is we did see a shift in the completion of the rebuild of the paper machine at PdM into the first quarter of this year. That was not in our previous guidance. We had planned to complete that in December. So all things considered, at this point, we have more certainty of exceeding $1.50, but we’re not prepared to add the LTR gain on top of the $1.50. I think the best way to state this in practical terms is the first quarter will be our most challenging quarter because of the downtime, and once that’s through, we will have a better feel for how does the full year shape up. So we’re more optimistic to exceed the $1.50, but by how much, we are not prepared to say at this point. Jonathan Lichter - Sidoti & Company LLC: So included in the current guidance then is, as you mentioned, the downtime, and also does it also include the cost of the LTR purchase accounting there? In the first quarter?

Yes. In the cost of the LTR purchase accounting, what that is is basically we are buying shares above book value so we have to assign it to the balance sheet that premium, and there is probably going to be a write up of inventories and maybe a couple of tax adjustments, but the full effect of the purchase accounting probably will be less than $0.05 a share. So it’s not going to be hugely dramatic, but it will be an initial negative. Jonathan Lichter - Sidoti & Company LLC: Are you still assuming an excise tax increase during 2008, at this point?

No, we are not. Jonathan Lichter - Sidoti & Company LLC: Also you mentioned in the release something about Chinese costs expected during the 2008. How high do you think those will go?

That’s very hard to say, because we are starting up a Greenfield mill in a very remote part of China where we’re literally educating people to operate paper machines that previously have not. So the execution of the start-up will really dictate how much one-time expense we have in getting the operation going. The second aspect that’s more certain to predict is the availability of volume to sell out on the machine. We expect that we will be able to gain cigarette paper sales quite readily and have revenue and be able to get into operations. Porous plug wrap will probably develop more slowly. So at this point, it’s going to be negative. It’s within our exceeding $1.50 estimate in an estimate for how negative the start-up will go, but in terms of the actual impact on ‘08 from the China start-up, it depends on how well the operation runs and how quickly the sales volume ramps up. And we made projections for that, but how accurate those are, again, it’s really hard to say. We think we are covered. We think we have got a fair estimate of what the start-up aspects will be. Jonathan Lichter - Sidoti & Company LLC: And also there is still about 220 employees to be let go. Can you give some a time line as to...?

Really it’s down to the Lee Mills shutdown, which will occur, right now, we are saying beginning of May. So by mid-year to third quarter we should I would say have most of the employees out. And then, the other big wave would be at our French finished tipping facility in Malaucene, which won’t be until late this year. So it will come in two waves essentially. Some very small amount here in the first quarter with PdM, but a big wave mid-year and a second wave at the end of the year. So we probably won’t see the full reduction until we look at January ‘09 head count. Jonathan Lichter - Sidoti & Company LLC: And the tax rate? What are you looking for in ‘08?

I would say probably the best would be low 30s. Jonathan Lichter - Sidoti & Company LLC: And just one last question about, there was a restructuring gain in France? What was that related to?

We had over accrued for severance expense up through the third quarter, so we reversed that in the fourth quarter because our final amount of severance cost for both the PdM facility and our expected severance cost based on now settling with the Malaucene union is less. And it’s less because we have a different mix of people, a slightly different total number of people, and we ended up negotiating a final rate that was less expensive. So we trued up our accruals, and it all came through as a credit.

Your next question comes from the line of Ann Gurkin - Davenport & Company LLC. Ann Gurkin - Davenport & Company LLC: I wanted to start with this $1.50 guidance in China. I thought China had to put some of these neutral to earnings this year and then additive in ‘09, and so now you’re looking for dilution from China this year, can it still be additive in ‘09. Is that right?

First full year of profitable results we would expect to occur in 2009. In terms of the negative this year, it’s really going to come down again to how the start-up goes, but just like we’ve been saying through the construction phase of the China mill, it will not be positive to earnings. In terms of how big of an effect on earnings that the China operation will have in 2008, how big of a negative effect, its not going to be the key driver for our business either way, but the magnitude of the impact again comes down to how well we execute on the start-up. So we have been more conservative now in our outlook for the start-up success as we get closer to it. So we have increased the amount of negative impact in ‘08 that we expect from the CTM operation in China. Ann Gurkin - Davenport & Company LLC: You’ve increased the negative impact in ‘08?

Yes. Ann Gurkin - Davenport & Company LLC: Because it has taken longer to start-up than expected?

No. We are just hedging our best on how well the start-up will mechanically go. Ann Gurkin - Davenport & Company LLC: And is that going to occur in the second quarter now?

Right now, the cigarette paper machine is expected to start up in the month of April or May, and then the porous plug wrap machine would begin operations. The current estimate is June or July. And mechanically, all is proceeding. It’s really now in terms of the start-up activities. It will come down to having all of the various infrastructure systems set up, utilities, power, steam, having the employees trained. We are already receiving orders so we will be turning the machine over, aligning it out, making quality product that’s commercially acceptable to ship, having customer acceptance. So we are down to the operational aspects. The actual construction aspects are nearing conclusion. Ann Gurkin - Davenport & Company LLC: Switching to the downtime in France, is that going to be comparable to what we saw in the fourth quarter?

I would say so. We have been down all of the month of January on one machine. The difference in December, and therefore the fourth quarter, was we were down for the holidays across all the machines in a number of our mills, which is typical. So, it’s more downtime on one machine, but it still has a negative effect. So, I would say that it should be a little bit better than the fourth quarter but along the same lines. Ann Gurkin - Davenport & Company LLC: And the BAT contract with that added business, can you tell us what you project your capacity utilization will be in France, and also adjusting for the restructuring in France?

On percentage basis, I wouldn’t say the number, but we expect that capacity utilization across our French paper mills will be higher in 2008 than it was on average in 2007, because we’ve moved both sides of the equation. We are shutting down capacity in ‘08, certainly, especially with what’s left to happen at PdM and Malaucene, and we have gained volume. So our capacity utilization will be improved, a good bet versus what it was in 2007. Ann Gurkin - Davenport & Company LLC: And LTR acquisition $0.28 to $0.34. What’s the potential for upside to that range?

Pretty good. Not double or triple or anything remarkable like that, but a pretty good chance that certainly we could be above the $0.28. Being above the $0.34 would be pretty good, probably not that much. It depends on two aspects. One will be final purchase accounting and getting through all of those pieces, but the bigger impact is what’s happening with the base business. And obviously based on our volume outlook that we have stated for recon for 2008, we are pretty bullish on the business. And therefore, if we do as well as we did in servicing that volume and running efficiently, we saw just a tremendous improvement in LTR profitability in ‘07 over ‘06. If we see a commensurate improvement with the additional volume we are getting, we have an upside to those numbers, especially because we keep all of the earnings down. Ann Gurkin - Davenport & Company LLC: And then last, what’s the likelihood of additional restructuring activity either in the U.S. or France, beyond what you’ve already pre-announced.

There is obviously a risk of that or a potential for the need for that. Right now, I would say that we are not planning any, and I don’t think we will foresee any further, announced restructuring activities beyond what we’ve already got going in 2008. We are very focused on completing those restructuring activities and then seeing where we settle out. So, there is the potential. Volume is still declining. I am sure you’ve seen the statistics that are coming out now on where the U.S. ended up in terms of cigarette production and consumption. So, there still is the risk in the U.S., primarily at our spots with New Jersey mill, but also there is risk in France, but there most likely won’t be additional plans that would be announced beyond what we’ve already had or have going in 2008.

Your next question comes from the line of Don Noon.

Could you tell me a little bit about the BAT supply agreement, whether it’s set off similar to the Philip Morris agreement in that prices are relatively fixed, but input costs are allowed to float. I think it’s fair to say that the nature of that agreement with Philip Morris did not turn out well for the company. Can you assure shareholders that the agreement with BAT is not similar economics?

The way that the pricing works with the BAT agreement is it is set pricing for a product and therefore across a range of products. That pricing is eligible for adjustment during the term of the agreement based on several input factors: currency, wood pulp pricing, other inflationary matters. But there is no guarantee in the pricing that the amount of our input cost increases will be covered by selling price increases from our customer. So we still are at risk in an inflationary environment where selling prices will not automatically cover increases in inflationary cost.

I think it’s fair to say the inflationary cost inputs have been hurting you since the first quarter of 2005, so this is 10 quarters now where inflationary cost increases have been hurting you, and you have very little room to maneuver on the price side. Given that experience and given that investors have been berating you over 12 quarters, why do you insist on either a) negotiating these agreements in the first place, but given that the marketplace tells you this is the best you can negotiate, why do you not hedge your energy input cost? You know your risk is on the input cost side, and yet you have done nothing, and it just keeps going against you quarter-after-quarter.

Three responses on your question. First of all, on input cost directly, we wouldn’t hedge as that would be quite speculative in terms of buying what would be clearly derivative products say based on energy price futures or natural gas futures trying to hedge underlying consumption levels. Instead, what we would do that would be closer to hedging would be forward buying contracts where we lock in rates through purchase agreements, and that can be done on a number of our input costs, energy is one. Effectively, we do that with labor contracts. We can do it with wood pulp pricing, because of wood pulp purchase agreements from vendors, other direct material inputs. But in terms of outright financial instrument hedging of input cost, we would not do that. It’s too risky, both ways. In terms of pricing with our customers, I think the practical answer is that we have a very narrow number of customers who have significant leverage over us as a supplier, and we can’t not do business with them. And therefore they are successful in dictating the terms of the form of an agreement; multi-year versus single year, purchase order versus contract, fixed pricing versus pricing that changes order-by-order. We either play by those rules or you are not in business. So the greater risk would be you can’t walk away from Philip Morris, BAT, and Japan Tobacco or we wouldn’t have a franchise. So the pricing leverage issue is very difficult for us to say, these are the terms by which we’ll do business.

So I would encourage this discussion to go on at the highest level, the Board level. Your decision that use of more sophisticated hedging strategies is too speculative is fine; however, essentially what you are doing in certain circumstances is donating shareholder capital to the Philip Morris Company or the British American Tobacco Company. When you expose the company’s capital to depletion because you can’t hedge away your energy cost, you are giving away our money to Philip Morris. So I understand your hesitancy to engage in something that you deem as speculative, but you are simply eroding capital to the benefit of tobacco companies or cigarette manufacturers. And I am not sure that shareholders would make that trade-off to avoid a speculative activity over just handing off capital. That’s not necessarily a discussion that I think has been really had and debated at the Board level and I’d be interested to know to what extent the Board has explored that and when they are willing to have this discussion.

Yes. First, I’ll complete the answer to your first question and then I’ll come back to your second question you just posed. The third answer to your first question regarding management of inflationary cost input, the key tool we’ve been using is cost reduction activities and we’ve been successful in both 2007 and in 2006 through very aggressive cost reduction activities, which is our internal tool to offset inflationary cost increases, but the earnings impact have been neutral to positive in both years. In terms of your final question on Board review of hedging input cost, we have had that discussion. As we’ve mentioned here today, we have changed our position on hedging currency in Brazil, which is an example of where we are willing to use more exotic financial instruments to address input cost like currency, our input factors. But in terms of a broad-based strategy to hedge all underlying inflationary aspects, it’s simply isn’t feasible to do that with any certainty. To not enter into multi-year agreements with our customers for pricing is something of course at a Board level. They are quite aware of the nature of the business that we have. And again it’s theoretically perhaps interesting as an intellectual exercise to talk about, but practically the majority of our revenues is with a few number of customers to say “we won’t play with you unless it’s on our terms” is not realistic. I hope that answers your question.

No, it does and I appreciate that. I think at some point you are going to hit a wall. You are exposing shareholder capital to loss, based on the energy markets and the wood pulp markets, and if these things keep going the wrong way, shareholders are just going to say I don’t need to take it on the chin because of energy markets and that’s what my investment in Schweitzer-Mauduit is basically exposing me to is depletion of capital based on the movements in the energy markets. People don’t want that. Shareholders want to be in the tobacco paper business. They don’t want to be, like I said, exposed to loss in the energy markets. If that is a recurring theme, and it’s been going on like I said for 12 quarters now, the shareholder base will erode. I don’t think that that’s a positive for the long-term viability of the company. So, it’s something the Board really ought to consider. You’re placing this tremendous risk upon your shareholder base based on the energy markets and not really doing anything about it. And it’s probably one of the reasons that stock is gone essentially nowhere in years now. So, I am not going to belabor the point anymore, but it’s a big issue and I think it’s a big picture issue that needs to be dealt into a lot further. Thank you for your explanations though.

Sure.

You have a follow-up question from Jonathan Lichter - Sidoti & Company LLC Jonathan Lichter - Sidoti & Company LLC: On the RTL. Did you have the backlog? I know you typically give the backlog at the end of the year.

The backlog right now, I don’t have off hand, but from an order standpoint, we know enough about what our order patterns are expected to be and what the requirements are from the key customers to have obviously the confidence to state the growth that we have in terms of LTR unifying sales. But in terms of the particular backlog right now, I don’t know that.

And there are no further questions at this time.

Thank you for taking the time to join us today. Good-bye.