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

                                                         Three Months Ended
                                               March 31, 2009          March 31, 2008
     Net sales                               $ 184.1       100.0 %   $ 189.8       100.0 %
     Gross profit                               41.6        22.6        20.0        10.5
     Restructuring and impairment expense        0.3         0.2         2.0         1.1
     Operating profit                           22.8        12.4           -           -
     SWM Net income (loss)                   $  13.3         7.2 %   $  (1.2 )      (0.6 )%
     Diluted earnings (loss) per share       $  0.87                 $ (0.08 )
     Cash provided by (used in) operations   $  11.8                 $  (8.0 )
     Capital spending                        $   2.6                 $  18.6

First Quarter Highlights
Net sales were $184.1 million in the three month period ended March 31, 2009, a 3.0 percent decrease over the prior-year quarter. Net sales decreased $5.7 million as a result of $16.1 million in unfavorable foreign currency exchange rate impacts from a stronger U.S. dollar compared to the euro and Brazilian real and $10.5 million from an 11 percent decrease in unit sales volumes. These declines were largely offset by $20.9 million in higher average selling prices, primarily due to an improved mix of products sold. Gross profit was $41.6 million in the three month period ended March 31, 2009, an increase of $21.6 million from the prior-year quarter. The gross profit margin was 22.6 percent, increasing from 10.5 percent in the prior-year quarter. Restructuring and impairment expenses were $0.3 million and $2.0 million for the three month periods ended March 31, 2009 and 2008, respectively. Operating profit was $22.8 million in the three month period ended March 31, 2009 versus zero in the prior-year quarter. The higher gross profit and operating profit were both primarily due to $17.6 million in higher average selling prices and a favorable mix of products sold, $4.5 million in cost savings, $2.4 million in favorable inflationary impacts and $0.6 million in currency exchange benefits. These benefits were partially offset by $0.5 million in higher non-manufacturing expenses, primarily due to higher incentive compensation accruals, and $1.9 million from decreased sales volumes.
In the first quarter of 2009, interest expense compared to prior-year quarter declined as a result of lower average debt levels and lower interest rates. SWM net income and diluted net income per share improved versus the prior-year net loss and net loss per share by $14.5 million and $0.95 per share, respectively. Capital spending was $2.6 million and $18.6 million during the three month periods ended March 31, 2009 and 2008, respectively. The decrease in capital spending was primarily due to spending of $7.2 million in the 2008 period for the rebuild of a paper machine and improvements to the bobbin slitting process at PdM, $1.2 million for steam network improvements at Papeteries de Saint-Girons S.A.S. and $1.2 million for a new slitting machine in the Philippines. 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 $13.4 million fixed asset impairment charge in the fourth quarter of 2008, which represented the majority of the related fixed asset values. This mill closure is expected to result in severance of 210 employees. Meetings with the unions and the Work's Council are ongoing; however, we expect to record $22 million in restructuring expense including $20 million in estimated cash severance payments and $2 million in non-cash charges beginning in the second quarter of 2009 through the planned completion of the actions in the fourth quarter of 2009. Payment of the cash severances is expected to be completed by the end of 2010.
Operating losses for the Malaucène facility will likely increase from current levels given the anticipated loss of customer orders during the divestiture process. Incremental operating losses could negatively impact our operating profit by approximately $7 million, or approximately $0.30 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 45 percent of North American cigarette consumption to approximately 88 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 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 cigarette paper 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 expected 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.

Three Months Ended March 31, 2009 Compared with the Three Months Ended March 31,

2008
Net Sales
(dollars in millions)

                                                                               Consolidated
                        Three Months Ended                                         Sales
                    March 31,        March 31,                   Percent          Volume
                       2009            2008         Change       Change           Change

    France          $    111.6      $     120.8     $  (9.2 )        (7.6 )%            (4.1 )%
    United States         65.9             55.5        10.4          18.7              (38.0 )
    Brazil                18.1             17.9         0.2           1.1              (13.4 )

    Subtotal             195.6            194.2         1.4           0.7
    Intersegment         (11.5 )           (4.4 )      (7.1 )

    Total           $    184.1      $     189.8     $  (5.7 )        (3.0 )%           (11.1 )%

N.M. Not meaningful
Net sales were $184.1 million in the three month period ended March 31, 2009 compared with $189.8 million in the prior-year quarter. The decrease of $5.7 million, or 3.0 percent, consisted of the following (dollars in millions):

                                                      Amount       Percent
          Changes in currency exchange rates          $ (16.1 )        (8.5 )%
          Changes in sales volumes                      (10.5 )        (5.5 )
          Changes in selling prices and product mix      20.9          11.0

          Total                                       $  (5.7 )        (3.0 )%

• Changes in currency exchange rates had an unfavorable impact on net sales of $16.1 million, or 8.5 percent, in the three month period ended March 31, 2009 and primarily reflected the impact of a weaker euro compared with the U.S. dollar.

• Unit sales volumes decreased by 11.1 percent in the three month period ended March 31, 2009 versus the prior-year quarter, resulting in an unfavorable effect on net sales of $10.5 million, or 5.5 percent.

• Sales volumes in the United States decreased by 38.0 percent, reflecting reduced sales of certain tobacco-related products.

• Brazil experienced decreased sales volumes of 13.4 percent as the result of our exiting the coated papers business in 2008.

• Sales volumes for the French segment decreased by 4.1 percent, primarily as a result of lower sales of certain tobacco-related products.

• Higher selling prices had a favorable $20.9 million, or 11.0 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.

French segment net sales of $111.6 million in the three month period ended March 31, 2009 decreased by $9.2 million, or 7.6 percent, versus $120.8 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.
The U.S. segment net sales of $65.9 million in the three month period ended March 31, 2009 increased by $10.4 million, or 18.7 percent, compared with $55.5 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.
The Brazil segment net sales of $18.1 million in the three month period ended March 31, 2009 increased by $0.2 million, or 1.1 percent, from $17.9 million in the prior-year quarter. The change was primarily due to higher selling prices and an improved mix of products sold, mostly offset by currency translation impacts.

Gross Profit
(dollars in millions)

                               Three Months Ended
                          March 31,         March 31,                    Percent           Percent of Net Sales
                             2009             2008          Change        Change           2009             2008
Net Sales                 $    184.1       $     189.8      $  (5.7 )        (3.0 )%
Cost of products sold          142.5             169.8        (27.3 )       (16.1 )           77.4 %           89.5 %

Gross Profit              $     41.6       $      20.0      $  21.6          N.M. %           22.6 %           10.5 %

Gross profit was $41.6 million in the three month period ended March 31, 2009, an increase of $21.6 million from $20.0 million in the prior-year quarter. The gross profit margin was 22.6 percent of net sales in the three month period ended March 31, 2009, increasing from 10.5 percent in the prior-year quarter. Gross profit was favorably impacted by higher average selling prices and a favorable mix of products sold, inflationary cost decreases and improved mill operations.
Inflationary cost decreases, primarily related to lower per ton wood pulp prices, favorably impacted operating results by $2.4 million during the three month period ended March 31, 2009. Changes in per ton wood pulp prices increased operating profit by $2.3 million compared with the prior-year quarter. The average per ton list price of northern bleached softwood kraft pulp in the United States was $680 per metric ton during the three month period ended March 31, 2009 compared with $880 per metric ton during the prior-year quarter.

Nonmanufacturing Expenses
(dollars in millions)

                                 Three Months Ended
                             March 31,        March 31,                     Percent          Percent of Net Sales
                                2009             2008          Change        Change          2009             2008
Selling expense              $      5.2       $      6.4      $   (1.2 )        18.8 %            2.8 %           3.4 %
Research expense                    1.8              2.0          (0.2 )       (10.0 )            1.0             1.1
General expense                    11.5              9.6           1.9          19.8              6.2             5.0

Nonmanufacturing expenses    $     18.5       $     18.0      $    0.5           2.8 %           10.0 %           9.5 %

Nonmanufacturing expenses increased by $0.5 million, or 2.8 percent, to $18.5 million from $18.0 million in the prior-year quarter, primarily due to higher incentive compensation accruals due to improved results. Nonmanufacturing expenses were 10.0 percent and 9.5 percent of net sales in the three month periods ended March 31, 2009 and 2008, respectively. Restructuring and Impairment Expense
Total restructuring and impairment expense of $0.3 million was recognized during the three month period ended March 31, 2009, for other non-cash charges. Total restructuring and impairment expense of $2.0 million was recognized during the prior-year quarter, comprised of $1.5 million for severance related costs and $0.5 million for accelerated depreciation.

Operating Profit
(dollars in millions)

                              Three Months Ended
                          March 31,        March 31,                    Return on Net Sales
                             2009             2008        Change         2009           2008

   France                 $     13.0       $     (0.9 )   $  13.9           11.6 %        (0.7 )%
   United States                13.0              5.4         7.6           19.7           9.7
   Brazil                        2.6             (1.7 )       4.3           14.4          (9.5 )

   Subtotal                     28.6              2.8        25.8
   Unallocated expenses         (5.8 )           (2.8 )      (3.0 )

   Total                  $     22.8       $        -     $  22.8           12.4 %           - %

N.M. Not meaningful
Operating profit was $22.8 in the three month period ended March 31, 2009 compared with zero during the prior-year quarter. Operating results were higher in every segment.
The French segment's operating profit was $13.0 million in the three month period ended March 31, 2009, an increase of $13.9 million from an operating loss of $0.9 million in the prior-year quarter. The increase was primarily due to:
• Higher selling prices and improved mix of $6.6 million.

• Improved mill operations and benefits of prior strategic restructuring actions.

• Decreased restructuring and impairment expenses in 2009 of $1.3 million.

• Inflationary cost decreases of $1.2 million primarily due to lower wood pulp prices.

• Lack of start-up costs of $5.3 million incurred in the 2008 period due to a paper machine rebuild.

• These positive factors were partially offset by $1.2 million of currency translation impact due to the weaker euro against the dollar.

The U.S. segment's operating profit was $13.0 million in the three month period ended March 31, 2009, a $7.6 million increase from operating profit of $5.4 million in the prior-year quarter. Higher selling prices and changes in the mix of products sold increased operating profit by $8.8 million, primarily due to higher sales of cigarette paper for LIP cigarettes. The favorable mix of products sold was partially offset by unfavorable fixed cost absorption of $1.8 million as a result of lower machine utilization.
Brazil's operating profit was $2.6 million during the three month period ended March 31, 2009, compared with an operating loss of $1.7 million during the prior-year quarter. The increased operating profit was primarily due to:
• Higher selling prices and improved mix of $2.2 million.

• The stronger Brazilian real versus the U.S. dollar, which had a $1.8 million favorable impact.

• Inflationary cost decreases of $1.0 million, mainly due to lower per ton wood pulp costs.

Non-Operating Expenses
Interest expense of $1.8 million in the three month period ended March 31, 2009 decreased from $2.4 million in the prior-year quarter. Average debt levels decreased during the three month period ended March 31, 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 2.5 percent and 4.4 percent for the three month periods ended March 31, 2009 and 2008, respectively.
Other income (expense), net was income of $0.2 million versus expense of $1.6 million for the three month periods ended March 31, 2009 and 2008, respectively, primarily due to foreign currency transaction impacts. Income Taxes
The provision for income taxes in the three month period ended March 31, 2009 reflected an effective tax rate of 31 percent compared with 65 percent in the prior-year quarter. The difference in effective tax rates was primarily due to the income in 2009 versus a loss in 2008, together with the tax benefits of our foreign holding company structure.
Loss from Equity Affiliates
Income (loss) from equity affiliates totaled a loss of $1.3 million compared with income of $0.4 million during the three month periods ended March 31, 2009 and 2008, respectively. These results reflected the operations of our joint venture in China. The joint venture operated throughout the first quarter of 2009 whereas start-up of operations had not yet commenced during the prior year quarter. The joint venture's sales volume increased during the first quarter, but below the pace expected.
Net Income (Loss) and Income (Loss) per Share SWM net income (loss) for the three month period ended March 31, 2009 was income of $13.3 million, or $0.87 per diluted share, compared with a net loss of $1.2 million, or $0.08 per share, during the prior-year quarter. Net income 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.
Liquidity and Capital Resources
A major factor in our liquidity and capital resource planning is our generation of cash flow from operations, which is sensitive to changes in the sales mix, volume and pricing of our products, as well as changes in our production volumes, costs and working capital. Our liquidity is supplemented by funds available under our revolving credit facility with a syndicate of banks that is used as either operating conditions or strategic opportunities warrant. We have been engaged in substantial restructuring activities over the past 3 years in the United States, Brazil and France. Each of these activities is expected to contribute to improved earnings and a more competitive production base over the longer-term. However, in order to implement these initiatives, we incurred higher levels of debt than we historically have carried while at the same time we experienced less favorable earnings from operations undergoing restructuring activities.