<PAGE> 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, 1999
OR
[ ] 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)
<TABLE>
<S> <C>
DELAWARE 62-1612879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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, 1999, 15,925,541 shares of the Corporation's common stock, par
value $.10 per share, together with preferred stock purchase rights associated
therewith, were outstanding.
<PAGE> 2
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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
------ ------
<S> <C> <C>
Net Sales ........................................... $128.6 $134.3
Cost of products sold .......................... 99.2 103.2
------ ------
Gross Profit ........................................ 29.4 31.1
Selling expense ................................ 4.7 4.9
Research expense ............................... 1.8 1.3
General expense ................................ 4.9 4.3
------ ------
Operating Profit .................................... 18.0 20.6
Interest expense ............................... (1.5) (1.4)
Other income, net .............................. 1.0 0.6
------ ------
Income Before Income Taxes and Minority Interest..... 17.5 19.8
Provision for income taxes ..................... 6.8 8.1
------ ------
Income Before Minority Interest ..................... 10.7 11.7
Minority interest in earnings of subsidiaries... 1.6 1.7
------ ------
Net Income .......................................... $ 9.1 $ 10.0
====== ======
Net Income per Common Share:
Basic .......................................... $ .57 $ .62
====== ======
Diluted ........................................ $ .57 $ .61
====== ======
Cash Dividends Declared per Common Share ............ $ .15 $ .15
====== ======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
2
<PAGE> 3
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------ ------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ...................................................... $ 6.6 $ 6.7
Accounts receivable ............................................................ 73.8 69.5
Inventories .................................................................... 65.6 69.4
Current income tax refunds receivable .......................................... -- 2.8
Deferred income tax benefits ................................................... 4.4 5.2
Prepaid expenses ............................................................... 4.0 2.7
------ ------
Total Current Assets ....................................................... 154.4 156.3
------ ------
Gross Property ..................................................................... 448.8 479.3
Less accumulated depreciation .................................................. 191.9 196.1
------ ------
Net Property ............................................................... 256.9 283.2
------ ------
Noncurrent Deferred Income Tax Benefits ............................................. 15.5 19.7
------ ------
Deferred Charges and Other Assets ................................................... 16.5 15.5
------ ------
Total Assets ........................................................................ $443.3 $474.7
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt .............................................. $ 3.9 $ 4.4
Other short-term debt .......................................................... 16.5 11.3
Accounts payable ............................................................... 40.2 58.1
Accrued expenses ............................................................... 52.2 50.7
------ ------
Total Current Liabilities ...................................................... 112.8 124.5
------ ------
Long-Term Debt ...................................................................... 103.6 108.4
------ ------
Deferred Income Taxes ............................................................... 12.8 12.7
------ ------
Other Noncurrent Liabilities ........................................................ 24.7 24.1
------ ------
Minority Interest ................................................................... 8.9 8.0
------ ------
Contingencies (See Notes 5 and 6)
Stockholders' Equity
Preferred Stock -$.10 par value - 10,000,000 shares authorized, none issued .... -- --
Common Stock -$.10 par value - 100,000,000 shares authorized,
16,078,733 shares issued at both March 31, 1999 and December 31, 1998 ...... l.6 1.6
Additional paid-in capital ..................................................... 60.7 60.7
Common stock in treasury, at cost - 153,192 and 154,668 shares at March 31, 1999
and December 31, 1998, respectively ........................................ (3.8) (3.8)
Retained earnings .............................................................. 141.5 134.8
Accumulated other comprehensive income (loss) -
Unrealized foreign currency translation adjustments .......................... (19.5) 3.7
------ ------
Total Stockholders' Equity ................................................. 180.5 197.0
------ ------
Total Liabilities and Stockholders' Equity .......................................... $443.3 $474.7
====== ======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE> 4
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
U.S. $ IN MILLIONS
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ISSUED TREASURY STOCK ADDITIONAL OTHER
------------------- -------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) TOTAL
------ ------ ------ ------ ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 .............. 16,065,443 $1.6 $60.3 $113.5 $ 4.1 $179.5
Net income for the three months
ended March 31, 1998 ............... 10.0 10.0
Adjustments to unrealized foreign
currency translation ............... (3.7) (3.7)
------
Comprehensive income .................... 6.3
Dividends declared ($0.15 per share) .... (2.4) (2.4)
Stock issued to directors as compensation 276 --
Stock issued for options exercised ...... 10,740 -- 0.3 -- -- 0.3
---------- ----- ----- ------ ------ ------
BALANCE, MARCH 31, 1998 ................. 16,076,459 1.6 60.6 121.1 0.4 183.7
Net income for the nine months
ended December 31, 1998 ............ 21.0 21.0
Adjustments to unrealized foreign
currency translation ............... 3.3 3.3
------
Comprehensive income .................... 24.3
Dividends declared ($0.45 per share) .... (7.2) (7.2)
Purchases of treasury stock ............. 155,700 $(3.8) (3.8)
Stock issued to directors as compensation 1,074 (1,032) --
Stock issued for options exercised ...... 1,200 --
Adjustments due to rounding ............. -- -- -- -- 0.1 (0.1) -- --
---------- ----- ------- ----- ----- ------ ------ ------
BALANCE, DECEMBER 31, 1998 .............. 16,078,733 1.6 154,668 (3.8) 60.7 134.8 3.7 197.0
Net income for the three months
ended March 31, 1999 ............... 9.1 9.1
Adjustments to unrealized foreign
currency translation ............... (23.2) (23.2)
------
Comprehensive loss ...................... (14.1)
Dividends declared ($0.15 per share) .... (2.4) (2.4)
Stock issued to directors as compensation -- -- (1,476) -- -- -- -- --
---------- ----- ------- ----- ----- ------ ------ ------
BALANCE, MARCH 31, 1999 ................. 16,078,733 $ 1.6 153,192 $(3.8) $60.7 $141.5 $(19.5) $180.5
========== ===== ======= ===== ===== ====== ====== ======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
<PAGE> 5
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
U.S. $ IN MILLIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
------ ------
<S> <C> <C>
Operations
Net income .................................... $ 9.1 $ 10.0
Depreciation and amortization ................. 5.6 5.1
Deferred income tax provision ................. 1.7 3.9
Minority interest in earnings of subsidiaries.. 1.6 1.7
Other ......................................... 0.7 0.6
Changes in operating working capital, excluding
effects of acquisitions .................. (15.4) (11.1)
------ ------
Cash Provided by Operations .......... 3.3 10.2
------ ------
Investing
Capital spending .............................. (5.3) (5.2)
Capitalized software costs .................... (1.0) (0.9)
Acquisitions, net of cash acquired ............ -- (65.4)
Other ......................................... (0.3) (2.0)
------ ------
Cash Used for Investing .............. (6.6) (73.5)
------ ------
Financing
Cash dividends paid to SWM stockholders ....... (2.4) (2.4)
Changes in short-term debt .................... 5.2 10.6
Proceeds from issuances of long-term debt ..... 0.7 20.5
Payments on long-term debt .................... (0.3) (0.2)
Proceeds from issuances of common stock ....... -- 0.3
------ ------
Cash Provided by Financing ........... 3.2 28.8
------ ------
Decrease in Cash and Cash Equivalents .............. (0.1) (34.5)
Cash and Cash Equivalents at Beginning of Period ... 6.7 37.2
------ ------
Cash and Cash Equivalents at End of Period ......... $ 6.6 $ 2.7
====== ======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
5
<PAGE> 6
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 1. NATURE OF THE BUSINESS
Schweitzer-Mauduit International, Inc., including its subsidiaries,
("SWM" or the "Company") is a diversified producer of premium specialty papers
and the world's largest supplier of fine papers to the tobacco industry. The
Company was formed as a spin-off from Kimberly-Clark Corporation
("Kimberly-Clark") at the close of business on November 30, 1995.
NOTE 2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of SWM and
all of its majority-owned subsidiaries, including the results, since the
beginning of February 1998, of two companies acquired during February 1998 (see
Note 7). All material intercompany and interdivisional amounts and transactions
have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission and on the same basis as the audited financial
statements included in the Company's 1998 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 1998 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, 1999 and 1998 were 15,925,500
and 16,068,000, 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, 1999 and 1998 were 15,925,500 and
16,325,900, 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, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
At the lower of cost on the First-In, First-Out (FIFO)
and weighted average methods or market:
Raw materials ....................................................... $24.0 $25.9
Work in process ..................................................... 9.9 9.3
Finished goods ...................................................... 24.4 26.6
Supplies and other .................................................. 13.0 13.2
----- -----
71.3 75.0
Excess of FIFO cost over Last-In, First-Out (LIFO) cost .................. (5.7) (5.6)
----- -----
Total ............................................................. $65.6 $69.4
===== =====
</TABLE>
6
<PAGE> 7
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
NOTE 4. INCOME TAXES
The effective income tax rate for the three month period ended March
31, 1999 was 38.9 percent compared with 40.9 percent for the corresponding
period of 1998. The lower 1999 effective income tax rate was primarily the
result of a decrease in the French corporate income tax rate from 41.67 percent
for 1998 to 40.00 percent for 1999.
NOTE 5. ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws,
regulations and ordinances relating to various environmental matters. The nature
of the Company's operations expose it to the risk of claims with respect to
environmental matters and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims. Based on the
Company's experience to date, the Company believes that its future cost of
compliance with environmental laws, regulations and ordinances, and its exposure
to liability for environmental claims, 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 under the provisions of the U.S. Comprehensive Environmental
Response, Compensation and Liability Act, or analogous state statutes, in
connection with two waste disposal sites utilized by the Company's Spotswood,
New Jersey 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.
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, Massachusetts. 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 Administrative Consent
Order with MDEP, as amended ("Consent Order"), the Company was required to
reduce concentrations of landfill gases at the landfill property line to
specified levels by September 15, 1998. The Company has met the specified levels
at 22 of 26 gas monitoring wells, but four monitoring wells have not yet
attained such levels at 30 feet below ground level. Since such non-compliance
does not create a safety risk, the Company has applied to MDEP to modify the
Consent Order so that gas concentration measurements are restricted to 20 feet
below ground level and monitoring frequency is reduced to twice per month. MDEP
has agreed to modify the monitoring frequency. Pending a decision on the balance
of the Company's request to modify the Consent Order, the Company must continue
to monitor gas concentrations at the property line in accordance with the
revised schedule, and as otherwise currently specified in the Consent Order.
Although the literal terms of the Consent Order could subject the Company to
penalties for failing to meet the September 15, 1998 deadline, the Company does
not expect the imposition of penalties based on the absence of a safety risk and
current progress toward full compliance. The estimated cost of the remaining
corrective action and annual operating expenses expected
7
<PAGE> 8
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
to be incurred under the Consent Order, without the modifications requested by
the Company, is $0.2, which amount has been accrued as of March 31, 1999.
On February 4, 1999, the Spotswood mill filed an amended Operating
Permit Application under Title V of the Clean Air Act Amendments of 1990 in
response to a Notice of Administrative Incompleteness received from NJDEP. The
Company and its consultants believe the amended Operating Permit Application has
addressed adequately all of the issues noted in the Notice of Administrative
Incompleteness. No material capital expenditures or operating expenses are
expected to be incurred by the Spotswood mill as a result of this permitting
process.
The Company incurs spending necessary to meet legal requirements and
otherwise relating to the protection of the environment at the Company's
facilities in the United States, France, Brazil and Canada. For these purposes,
the Company anticipates that it will incur capital expenditures of approximately
$2 to $4 annually in 1999 and 2000. The major projects included in these
estimates include upgrading wastewater treatment facilities at various locations
and installation of ink solvent treatment equipment in France. The foregoing
capital expenditures are not expected to reduce the Company's ability to invest
in capacity expansion, quality improvements, capital replacements, productivity
improvements, or cost containment projects, and are not expected to have a
material adverse effect on the Company's financial condition or results of
operations.
NOTE 6. 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 October 1998, Edward J. Sweeney, Stephen R. Micarek and Lisa A.
Figura filed, in the Court of Common Pleas of Allegheny County,
Pennsylvania, on behalf of themselves and certain residents of
Pennsylvania, a purported class action against several tobacco
companies, industry trade associations and consultants, tobacco
wholesalers and retailers and cigarette component manufacturers,
including Kimberly-Clark, seeking equitable relief and punitive damages
for the class in an unspecified amount. The class consists of those
Pennsylvania residents who, "commencing before age 18...purchased,
smoked...and continue to smoke cigarettes manufactured, marketed and
sold by defendants". The five count complaint alleges that the
defendants are liable to the plaintiffs under a number of theories,
including product liability, consumer fraud, breach of special duty,
negligence and civil conspiracy. Among other things, the complaint
alleges that nicotine is an addictive substance, that the tobacco
companies, by using reconstituted tobacco and other additives, are able
to control the precise amount and/or the bioavailability of nicotine in
their cigarettes and that LTR Industries, S.A. ("LTRI"), formerly a
subsidiary of Kimberly-Clark, specializes in the tobacco reconstitution
process and in helping tobacco companies control the nicotine in their
cigarettes. As a component supplier, the Company believes that
Kimberly-Clark has meritorious defenses to this case. However, due to
the uncertainties of litigation, the Company cannot predict the outcome
of this case and is unable to make a meaningful estimate of the amount
or range of loss which could result from an unfavorable outcome. The
case will be vigorously defended.
- - Kimberly-Clark and LTRI have been dismissed, with prejudice, from all
five cases that were pending in the West Virginia courts against
several tobacco companies and others as of December 31, 1998.
8
<PAGE> 9
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
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 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.
Subsequently, Pirahy was renamed Schweitzer-Mauduit do Brasil, S.A.
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 S.A. ("Groupe SAPAM") and Papeteries de la Moulasse
S.A., located in St. Girons, France. Subsequently, SM-Enterprises acquired all
the remaining shares of Groupe SAPAM for $0.2 in cash. SM-Enterprises and
Ingefico, S.A. were then merged into Groupe SAPAM. Papeteries de la Moulasse
S.A. was renamed Papeteries de St. Girons S.A.
The above acquisitions were accounted for under the purchase method of
accounting and, accordingly, the acquired assets and liabilities were recorded
at their estimated fair values as of the respective dates of the acquisitions.
In conjunction with the acquisitions, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 95.7
Less: Cash paid for the stock (68.3)
Direct costs incurred (2.0)
------
Liabilities assumed $ 25.4
======
</TABLE>
The operating results of the newly-acquired companies are included in
the Consolidated Statements of Income beginning February 1, 1998. Unaudited
consolidated pro forma net sales, net income and diluted earnings per share,
assuming the acquisitions had occurred at the beginning of 1998, would have been
$143.5, $10.1 and $0.62, respectively for the three month period ended March 31,
1998.
NOTE 8. BUSINESS SEGMENT REPORTING
The Company is operated and managed based on the geographical location
of its manufacturing operations: the U.S., France and Brazil. These business
segments manufacture and sell cigarette, tipping and plug wrap papers used to
wrap various parts of a cigarette, reconstituted tobacco products and paper
products used in cigarette packaging. While the products are comparable in each
segment, they vary based on the technological capabilities of each of the
manufacturing operations and the respective markets and customers served. Sales
by a segment into markets primarily served by a different segment occur where
specific product needs cannot be cost effectively met by the manufacturing
operations in that segment.
9
<PAGE> 10
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Tobacco industry products comprised greater than 90 percent of the
Company's consolidated net sales in the periods presented. The Company's
non-tobacco industry products are a diverse mix of products, certain of which
represent commodity paper grades produced to maximize machine operations.
For purposes of the segment disclosure in the following tables, the
term "United States" includes operations in the U.S. and Canada. The Canadian
operations produce flax fiber used as raw material in the U.S. operations. The
Company's Brazilian operations, acquired on February 2, 1998, and the operations
of the French business acquired on February 11, 1998 are included in the
Company's consolidated financial statements since the beginning of February
1998.
Intercompany sales of products between segments are made at market
prices and are referred to as intersegment sales. Expense amounts not associated
with segments are referred to as unallocated expenses. Assets reported by
segment represent assets which are directly used and an allocated portion of
jointly used assets. These assets include receivables from other segments, which
are referred to as intersegment eliminations.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------- % OF CONSOLIDATED
MARCH 31, MARCH 31, % CHANGE -------------------
NET SALES 1999 1998 VS. 1998 1999 1998
- --------- ---- ---- -------- ---- ----
<S> <C> <C> <C> <C> <C>
United States ...................... $ 45.5 $ 48.5 - 6.2% 35.4% 36.1%
France.............................. 71.5 79.3 - 9.8 55.6 59.1
Brazil.............................. 11.7 10.8 + 8.3 9.1 8.0
------ ------
Subtotal................... 128.7 138.6
------ ------
Intersegment sales by:
United States.................. -- (3.2) -- (2.4)
France......................... (0.1) (1.1) (0.1) (0.8)
Brazil......................... -- -- -- --
------ ------ ----- -----
Consolidated .............. $128.6 $134.3 - 4.2% 100.0% 100.0%
====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------- % OF CONSOLIDATED % RETURN ON SALES
MARCH 31, MARCH 31, % CHANGE ------------------ -----------------
OPERATING PROFIT 1999 1998 VS. 1998 1999 1998 1999 1998
- --------------------- ---- ---- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
United States ....... $ 4.1 $ 4.3 - 4.7% 22.8% 20.9% 9.0% 8.9%
France .............. 13.6 18.1 - 24.9 75.6 87.8 19.0 22.8
Brazil .............. 2.0 (0.4) N.M. 11.1 (1.9) 17.1 (3.7)
Unallocated expenses (1.7) (1.4) (9.5) (6.8)
----- ----- ----- -----
Consolidated $18.0 $20.6 - 12.6% 100.0% 100.0% 14.0% 15.3%
===== ===== ===== =====
</TABLE>
N.M. - Not meaningful.
<TABLE>
<CAPTION>
% OF CONSOLIDATED
MARCH 31, DECEMBER 31, ------------------
TOTAL ASSETS 1999 1998 1999 1998
- ------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
United States ........... $ 156.8 $ 156.3 35.4% 32.9%
France .................. 237.9 254.5 53.7 53.6
Brazil .................. 50.3 67.3 11.3 14.2
Intersegment eliminations (1.7) (3.4) (0.4) (0.7)
------- ------- ----- -----
Consolidated ... $ 443.3 $ 474.7 100.0% 100.0%
======= ======= ===== =====
</TABLE>
More than 60 percent of the Company's assets and liabilities are
outside of the United States, substantially all of which are in France or
Brazil. The balance sheets of the Company's foreign subsidiaries are translated
at period-end currency exchange rates, and the differences from historical
exchange rates are
10
<PAGE> 11
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
U.S. $ IN MILLIONS, EXCEPT PER SHARE AMOUNTS
reflected in accumulated other comprehensive income (loss) as unrealized foreign
currency translation adjustments. In January 1999, the Brazilian government
allowed the Brazilian real to float freely versus the U.S. dollar, which
resulted in an immediate and substantial devaluation of the Brazilian real
against the U.S. dollar. Negative unrealized foreign currency translation
adjustments, as well as the above-indicated total asset reductions, for the
three month period ended March 31, 1999 are substantially all due to this
devaluation of the Brazilian real and a stronger U.S. dollar against the French
franc at March 31, 1999 versus December 31, 1998.
NOTE 9. NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which will require that all
derivative financial instruments be recognized as either assets or liabilities
in the balance sheet. SFAS No. 133 will be effective no later than for the
Company's first quarter of 2000. The Company is evaluating the effects of this
new statement and when to implement the new requirements.
11
<PAGE> 12
ITEM 2. SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management believes that the following commentary and the tables
presented in Note 8 to the Notes to Unaudited Consolidated Financial Statements
appropriately discuss and analyze the comparative results of operations and the
financial condition of the Company for the periods covered.
RESULTS OF OPERATIONS
Net Sales
Net sales decreased by $5.7 million in the three month period ended
March 31, 1999, compared with the corresponding period of the preceding year.
This decrease was due to lower average selling prices in each of the business
segments and lower sales volumes in France and Brazil, excluding the additional
month of sales in the current year quarter from the two businesses acquired in
February 1998. The additional month of sales by the acquired Brazilian and
French companies contributed favorably to the net sales comparison by $7.2
million in the quarter, partially offsetting other negative factors. Excluding
the additional month of net sales for the acquired entities, net sales decreased
by $8.2 million in the quarter due to reduced sales volumes. Excluding the
additional month in the current year quarter for the acquisitions, worldwide
sales volumes declined by seven percent. Sales volumes from the French
businesses declined by 12 percent for the three month period compared with the
same period of the prior year, excluding the additional month in the current
year quarter for the French acquisition, primarily as a result of decreased
shipments to China and Eastern Europe. In Brazil, excluding the additional month
in the current year quarter, sales volumes were down by nine percent, primarily
due to lower cigarette production in Brazil and a decline in printing and
writing paper sales related to weak economic conditions in that country. Sales
volumes increased for the quarter at the U.S. business unit by six percent
compared with the same three month period of 1998, primarily due to the timing
of shipments and increased export sales. Unfavorable sales mix and lower selling
prices compared with the same quarter of the prior year resulted in a reduction
in net sales of $4.6 million. Changes in currency exchange rates had a nominal
impact on the net sales comparison, as the unfavorable effect of a currency
devaluation in Brazil on net sales in local currency was offset by a stronger
French franc versus the U.S. dollar compared with the same quarter of the prior
year.
Operating Profit
Operating profit decreased by $2.6 million in the three month period
ended March 31, 1999, compared with the corresponding period of the preceding
year. Operating profit from the French business unit declined by $4.5 million
due to the lower sales volumes and lower average selling prices, partially
offset by reduced manufacturing costs. In the U.S., the favorable effects of
higher sales volumes, the benefits of cost reduction programs and improved mill
operations and the absence of $1.2 million in computer systems start-up expenses
incurred in the first quarter of 1998 essentially offset the effect of lower
average selling prices in 1999. In Brazil, improved mill operations, benefits of
cost reduction programs and the positive impact of the Brazilian currency
devaluation resulted in an increase in operating profit of $2.4 million for the
three-month period. Brazilian margins have improved somewhat since some of its
sales are tied to U.S. dollar selling prices. Non-manufacturing expenses
increased by $0.9 million during the quarter, primarily due to an additional
month of expenses for the two acquired companies in the current year quarter and
the timing of certain research expenses. Changes in per ton wood pulp costs
compared with the same period of the prior year favorably impacted operating
profit by $1.5 million, although this benefit was offset by changes in selling
prices.
12
<PAGE> 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 $0.1 million in the three month period
ended March 31, 1999 compared with the corresponding period of the preceding
year. This increase was primarily the result of an additional month of interest
expense related to debt associated with the acquisitions in Brazil and France in
February 1998, partially offset by lower average interest rates in 1999. Other
income, net consisted primarily of interest income and foreign currency
transaction gains and losses in the 1999 and 1998 periods, recovery of prior
period business taxes in 1999 and a favorable litigation recovery in 1998.
INCOME TAXES
The effective income tax rate for the three month period ended March
31, 1999 was 38.9 percent compared with 40.9 percent for the corresponding
period of 1998. The lower 1999 effective income tax rate was primarily the
result of a decrease in the French corporate income tax rate from 41.67 percent
for 1998 to 40.00 percent for 1999.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(U.S. $ in millions)
Cash Provided by (Used for): 1999 1998
- ---------------------------- ---- ----
<S> <C> <C>
Changes in operating working capital.............................................. $(15.4) $(11.1)
Operations........................................................................ 3.3 10.2
Capital spending.................................................................. (5.3) (5.2)
Capitalized software costs........................................................ (1.0) (0.9)
</TABLE>
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 decreased from $10.2 million for the three months ended
March 31, 1998 to $3.3 million for the three months ended March 31, 1999,
primarily as a result of changes in operating working capital, excluding the
added working capital obtained with the two acquisitions in 1998. Changes in
operating working capital contributed unfavorably to cash flow in both periods,
by $15.4 million and $11.1 million in the three month periods ended March 31,
1999 and 1998, respectively. The 1999 increase in working capital was primarily
due to a decrease in accounts payable, mainly associated with 1999 payments for
capital expenditures and inventory purchases included in accounts payable at
December 31, 1998. 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.
Capital spending for the three months ended March 31, 1999 included
$1.3 million toward the speed-up of two machines in the French mills and $1.1
million toward the expansion of the Malaucene, France mill. During the first
quarter of 1998, capital spending included $0.8 million toward upgrades to a
paper machine at the Ancram, New York mill.
In addition to capital spending, in the three month period ended March
31, 1999, the Company incurred and deferred on the balance sheet additional
software development costs of $1.0 million toward new integrated computer
systems, primarily in France, with the start-up of the French systems to occur
in phases commencing in the middle of 1999.
13
<PAGE> 14
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 Groupe SAPAM for $0.2 million in cash.
In December 1998, the Company announced that the Board of Directors had
authorized the repurchase of shares of the Company's common stock for the period
January 1, 1999 through December 31, 2000 in an amount not to exceed $20
million. No repurchases of common stock were made during the first quarter of
1999. In the second quarter of 1999, the Company has begun repurchasing common
stock under this program.
On April 22, 1999, the Company announced that the Board of Directors
had declared a quarterly cash dividend of fifteen cents per share of common
stock. The dividend will be payable on June 14, 1999 to stockholders of record
on May 10, 1999.
The Company's ongoing requirements for cash are expected to consist
principally of amounts required for capital expenditures, stockholder dividends
and working capital. Other than expenditures associated with environmental
matters (see Note 5 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, 1999. 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.
NEW ACCOUNTING STANDARD
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which will require that all derivative
financial instruments be recognized as either assets or liabilities in the
balance sheet. SFAS No. 133 will be effective no later than for the Company's
first quarter of 2000. The Company is evaluating the effects of this new
statement and when to implement the new requirements.
OUTLOOK
The difficult market conditions experienced during 1998 are continuing.
Sales volumes of the U.S. business are expected to be unfavorably affected by
lower U.S. cigarette consumption, due to continuing adverse publicity and
increases in the retail selling price of cigarettes, as well as by a decline in
the export of cigarettes manufactured in the U.S. Although the Company's
shipments to China improved late in the first quarter, these shipments have not
returned to the levels experienced during the first six months of 1998.
Continued lower sales to Eastern Europe and southeast Asia are expected. Sales
volumes in Brazil are also expected to be affected by weak economic conditions
in that country. The uncertain pricing environment for the Company's paper
products is expected to continue through 1999 due to market conditions and
global pricing negotiations with multinational cigarette manufacturers.
14
<PAGE> 15
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
With weakened demand for the Company's paper products, certain machines
were shut down during 1998 and early 1999 and machine operating schedules were
adjusted in order to operate the mills efficiently. The Company's customers in
the U.S. traditionally reduce their operating schedules around holidays during
the third and fourth quarters, which softens the demand for the Company's
products and allows for additional maintenance and capital work. Also, in
Brazil, customer orders are typically lower in December due to a January and
February holiday season.
Cost savings are expected to continue from recently implemented and
currently planned capital projects and from various cost reduction programs,
including the Spotswood mill restructuring program, changes in the Brazilian
operations and a current salaried workforce reduction program in the U.S. The
per ton cost of wood pulp is expected to increase somewhat in the second quarter
of 1999 compared to the first quarter.
The Company's Brazilian business is expected to achieve positive
operating profit for the remainder of 1999 due to improved mill operations and
savings from cost reduction programs. The devaluation of the Brazilian currency
during the first quarter of 1999 is also expected to have some continuing
positive impact on the Company's Brazilian operations. However, changes in both
inflation and economic growth rates could have a future impact on the Brazilian
business.
The company expects capital spending for 1999 to be approximately $35
million in total, focused primarily on capacity expansion, product quality
improvements and cost reduction opportunities. In the second quarter of 1998,
the Company initiated an expansion of the Malaucene mill, which is expected to
increase the mill's capacity for finished tipping paper by approximately 45
percent. This project includes spending for increased printing and slitting
capabilities and should be completed in the second half of 1999. Capital
spending in 1999 will also include spending for a $9.9 million project to
increase reconstituted tobacco leaf production capacity at the Spay, France mill
by approximately 10 percent.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Many factors outside the control of the Company could impact the
Company's results. The following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual results and
could cause the Company's actual results for 1999 and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company.
Year 2000 Compliance
Many computer systems and other equipment with embedded chips or
processors utilize computer programs written using two digits to represent the
year rather than four digits. These programs may not properly recognize a year
"20XX". As a result, these programs may be unable to accurately process certain
data before, during or after the year 2000 and could result in major
governmental and business systems failures or miscalculations causing
disruptions in operations. This problem is commonly referred to as the "Year
2000" issue.
Because of the numerous information systems, mill process controls and
operating systems, and vendors and service providers that the Company uses, as
well as the Company's many customers and customer locations around the world,
the Company cannot exclude the possibility that there may be some disruption in
its business due to the Year 2000 issue. Due to the interdependent nature of the
Company and its systems with those of so many customers, vendors and service
providers, such as fuel oil suppliers and electric utilities, as well as
domestic and foreign governmental agencies, the Company and its operating
subsidiaries are exposed to many possible systems failures or processing errors.
As a result, the Company
15
<PAGE> 16
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
and its operating subsidiaries could be materially adversely affected if
utilities, private businesses and governmental agencies with which they do
business or that provide essential materials or services are not Year 2000
compliant. The Company believes that the most reasonably likely worst case
scenarios would be temporary mill closings, delays in the receipt of supplies,
delays in the delivery of its products, delays in collection of amounts due the
Company, delays in payment of amounts owed by the Company to others, and delays
in receipt of needed services. As a consequence of one or more of these
scenarios, the Company's results of operations could be materially adversely
impacted by a temporary inability to conduct its business in the ordinary course
for some period of time. However, the Company believes that its plans, including
its contingency planning discussed below, should minimize the adverse effect of
any such business disruptions if they should occur.
Each of the Company's business segments has inventoried its business
operations, assessed its susceptibility to system failures or processing errors
as a result of Year 2000 issues and developed a plan to address those issues.
The plans focus on three elements: information systems software and hardware,
mill process controls and operating systems, and vendors and service providers.
Each element has been subdivided according to risk potential of high, medium and
low. High risk is defined as being critical to uninterrupted operation of the
business. Medium risk is defined as being necessary to support the business but
temporary work-arounds can be accomplished. Low risk is defined as being minor
inconveniences that should not impact the Company's business. Those issues which
are considered most critical to continuing operations have been given the
highest priority.
On January 1, 1998, the Company's U.S. operations, including the
research and headquarters areas, began utilizing new integrated information
systems to replace the Kimberly-Clark systems formerly used in the U.S. A
benefit of the new systems is that they are expected to provide Year 2000
compliance in the area of information systems. In the U.S., mill process
controls and operating systems have been reviewed for nearly 3,000 pieces of
equipment and systems. Nine high risk equipment or systems issues were
identified. For these issues, modification requirements and a schedule for
compliance have been developed with the applicable equipment and systems
vendors. Such corrective action is expected to be completed during the third
quarter of 1999.
The Company's French businesses have inventoried and evaluated all
their information systems. Approximately one-fourth of these information systems
are believed to be Year 2000 compliant. Upon implementation in mid-1999 of
certain new integrated computer systems in France, substantially all of the
French businesses' information systems are expected to be Year 2000 compliant.
Less than three percent of the approximately 2,000 pieces of mill process
control equipment and operating systems will require modification or
replacement. Adequate progress has occurred to-date, with several modifications
and replacements already completed. Such corrective action is expected to be
completed by the end of the second quarter of 1999.
The Company's Brazilian business has inventoried and evaluated all of
its information systems. Nine of its systems required modifications to become
Year 2000 compliant. Upgrades for all nine systems have been developed and are
expected to be implemented by the end of the second quarter of 1999. Of its mill
process control equipment and operating systems, ten required modification and
upgrades for these systems have been developed. The required modifications for
nine of the ten systems have already been implemented, and the required
modifications for the remaining system are expected to be implemented by the end
of the second quarter of 1999.
16
<PAGE> 17
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Inquiries have been mailed to key vendors and service providers for the
Company's U.S., French and Brazilian operations as to the status of their Year
2000 compliance. Thus far, approximately 70 percent have responded. Follow-up
requests have been sent to those vendors and service providers that had not
responded and to those whose responses were incomplete or inadequate. Critical
vendors and suppliers are being contacted either by phone or in person to review
the status of their Year 2000 compliance plans.
Coincident with the actions described above, the Company and its
operating subsidiaries are developing and evaluating contingency plans to
further mitigate the effects of possible disruptions that may occur and are
developing and evaluating related cost estimates for such plans. All of the
Company's operations are assessing the need for alternative supply arrangements
and increased inventory levels of raw materials, supplies and finished goods, as
well as other possible measures based on the responses from vendors and service
providers. Contingency plans will be developed to try to reasonably ensure that
operations are not interrupted and unexpected costs are minimized. However,
there can be no assurances that all possible negative consequences can be
identified and avoided.
The Company currently estimates that the total cost of implementing its
Year 2000 compliance plans will be approximately $1.5 million, substantially all
to be incurred in 1999, excluding the costs of the new integrated computer
systems. Approximately two-thirds of this amount is expected to be expensed and
one-third included in capital projects. These preliminary estimates are subject
to change, since they are based on presently available information, and will be
updated as the Company continues its assessments, proceeds with implementation
of modifications and replacements necessary to become compliant, receives
further feedback from vendors and service providers and formulates reasonable
and necessary contingency plans.
Euro Currency Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies ("legal
currencies") and one common currency - the euro. The euro now trades on currency
exchanges and may be used in business transactions. Beginning in January 2002,
new euro-denominated bills and coins will be issued, and legal currencies will
be withdrawn from circulation. The Company established a committee to identify
and implement changes necessary to address the systems and business issues
raised by the euro currency conversion. These issues include, among others, the
need to adapt computer and other business systems and equipment to accommodate
euro-denominated transactions, competitive implications of increased price
transparency within European Union countries, changes in currency exchange costs
and rate exposures, continuity of contracts that require payment in a legal
currency, and tax implications of the conversion. The Company's French
subsidiaries currently utilize multi-currency software that was capable of
euro-denominated sales and purchase transactions on January 1, 1999.
Consideration has also been given to other potential issues in connection with
the conversion, including those mentioned above. The Company does not anticipate
any significant negative consequences of these issues and does not anticipate
that the euro conversion will have a material adverse impact on its financial
condition or results of operations.
17
<PAGE> 18
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
FORWARD-LOOKING STATEMENTS
Certain sections of this report, particularly the foregoing discussion
regarding the "Outlook" of the Company and "Factors That May Affect Future
Results", contain certain forward-looking statements, generally identified by
phrases such as "the Company expects" or words of similar effect.
Forward-looking statements are made based upon management's expectations and
beliefs concerning future events impacting the Company. There can be no
assurances that such events will occur or that the results of the Company will
be as estimated. Many factors outside the control of the Company also could
impact the realization of such estimates. The above-mentioned important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results for 1999
and beyond, to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. Certain factors that could
cause the Company's future results to differ materially from those expressed in
any such forward-looking statements are discussed in the Company's 1998 Annual
Report on Form 10-K, Part II, Item 7, under the heading "Factors That May Affect
Future Results".
18
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1. 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. Kimberly-Clark and LTRI have been
dismissed, with prejudice, from all five cases that were pending in the West
Virginia courts against several tobacco companies and others as of December 31,
1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
15. Independent Accountants' Report, dated April 20, 1999 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, 1999, the Company filed a Current Report on Form
8-K dated January 25, 1999, to report that an unsolicited tender
offer had been made to purchase up to two percent of the
Company's outstanding common stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Schweitzer-Mauduit International, Inc.
(Registrant)
By: /s/ PAUL C. ROBERTS By: /s/ WAYNE L. GRUNEWALD
-------------------------------- ----------------------------------
Paul C. Roberts Wayne L. Grunewald
Chief Financial Officer and Controller
Treasurer (principal accounting officer)
(duly authorized officer and
principal financial officer)
May 7, 1999 May 7, 1999
19
<PAGE> 20
SCHWEITZER-MAUDUIT INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
15. --- Independent Accountants' Report, dated April 20, 1999 from
Deloitte & Touche LLP to Schweitzer-Mauduit International,
Inc.
23. --- Independent Accountants' Consent.
27. --- Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 15
INDEPENDENT ACCOUNTANTS' REPORT
Schweitzer-Mauduit International, Inc.:
We have reviewed the accompanying consolidated balance sheet of
Schweitzer-Mauduit International, Inc. and subsidiaries as of March 31, 1999,
and the related consolidated statements of income, changes in stockholders'
equity and cash flow for the three month periods ended March 31, 1999 and 1998.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Schweitzer-Mauduit International,
Inc. as of December 31, 1998 and the related consolidated statements of income,
changes in stockholders' equity and cash flow for the year then ended (not
presented herein); and in our report dated January 22, 1999, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1998 is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.
Deloitte & Touche LLP
Atlanta, Georgia
April 20, 1999
<PAGE> 1
EXHIBIT 23
May 7, 1999
Schweitzer-Mauduit International, Inc.
100 North Point Center East, Suite 600
Alpharetta, Georgia 30022-8246
Dear Sirs:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Schweitzer-Mauduit International, Inc. and subsidiaries for the
periods ended March 31, 1999 and 1998 as indicated in our report dated April 20,
1999; because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which was included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated by reference in Registration Statements No. 33-99812, No. 33-99814,
No. 33-99816, and No. 33-99848 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Yours truly,
Deloitte & Touche LLP
Atlanta, Georgia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SCHWEITZER-MAUDUIT FOR THE THREE MONTHS ENDED MARCH 31,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,600
<SECURITIES> 0
<RECEIVABLES> 73,800
<ALLOWANCES> 0
<INVENTORY> 65,600
<CURRENT-ASSETS> 154,400
<PP&E> 448,800
<DEPRECIATION> 191,900
<TOTAL-ASSETS> 443,300
<CURRENT-LIABILITIES> 112,800
<BONDS> 103,600
0
0
<COMMON> 1,600
<OTHER-SE> 178,900
<TOTAL-LIABILITY-AND-EQUITY> 443,300
<SALES> 128,600
<TOTAL-REVENUES> 128,600
<CGS> 99,200
<TOTAL-COSTS> 99,200
<OTHER-EXPENSES> 11,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,500
<INCOME-PRETAX> 17,500
<INCOME-TAX> 6,800
<INCOME-CONTINUING> 9,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,100
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
