Good morning. My name is Julianne and I will be yourconference operator today. At this time, I would like to welcome everyone tothe Schweitzer-Mauduit Third Quarter Results Conference Call. All lines havebeen placed on mute to prevent any background noise. After the speaker'sremarks, there will be a question-and-answer session (Operator Instructions). Thank you. Mr. Thompson, you may begin your conference.

Thank you, Julianne. Good morning. I'm Peter Thompson, ChiefFinancial Officer of Schweitzer-Mauduit International. With me are WayneGrunewald, our Corporate Controller, and several executive officers of thecompany. Thank you for joining us for review of our third quarter 2007financial results. I will be leading our conference call today. Various comments or remarks that we may make during today'sconference call constitute forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. Actual results may differmaterially from the results suggested by these statements for a number ofreasons. Such factors are discussed in more detail in the company's Securitiesand Exchange Commission reports including the company's 2006 annual report. Certain financial measures that will be discussed duringthis call exclude restructuring expenses. Financial measures, which excludethis item, have not been determined in accordance with accounting principlesgenerally accepted in the United States and are therefore non-GAAP financialmeasures. I will now review the highlights of the quarter and provideadditional discussion of key factors in passing our results. I will not repeatthe more detailed review of our third quarter financial results included in ourearnings press release issued this morning. The company realized a net loss during the third quarter asa result of restructuring expenses associated with the actions recentlyannounced in the United States, France, and Brazil. Excluding restructuring expenses, net income increasedduring the third quarter due to improved results for reconstituted tobacco leafproducts and lower ignition propensity related cigarette papers as well asagain realizing significant savings from cost reduction activities across ourbusiness. Net sales totaled $184.2 million, 14% above the prior-yearquarter due to increased sales volumes, higher average selling prices,primarily caused by an improved mix of products sold and from favorablecurrency impacts. Restructuring expenses totaling $18.2 million were recognizedduring the third quarter. These restructuring expenses reflect our three-partrestructuring plan in the United States, France and Brazil…

(Operator Instructions) Your first question is from the lineof Ann Gurkin with Davenport. Ann Gurkin - Davenport & Company: Good morning.

Hello, Ann. Ann Gurkin - Davenport & Company: Wanted to start with the LIP in the U.S., Reynolds talkedabout voluntarily converting to the use of fire-safe paper about the end of2009. So are you including that in your '08 outlook?

No, we are only including the currently passed legislationin the various states. Ann Gurkin - Davenport & Company: Okay. But that could be a pickup in the back half of 2008?

Yes. Ann Gurkin - Davenport & Company: Correct. Okay.

Yes. Ann Gurkin - Davenport & Company: Brazil, you talked about moving tipping paper volume toBrazil and reworking a line. Have you built up tipping paper inventory to meetcustomer demand while the products getting qualified?

We started that process yes in the U.S. We will be buildinginventory. During the third quarter, we started the process fourth quarter. Andthen it'll probably top out maybe a little bit more growth in the first quarteras we prepare to shut down the leaf mill operation and begin to transferproduction. Ann Gurkin - Davenport & Company: So you've built inventory both in the U.S. and Brazil fortipping paper?

No. In Brazil it's really building in the U.S. And thenthat'll tide us over as we begin to phase in supply from Brazil next year. Ann Gurkin - Davenport & Company: Okay. You are currently negotiating for business from BAT.Can we get an update on where that stands?

We're still in the process of that negotiation. It'sreaching conclusion. It should be concluded I would guess in the next month orso. But at this point, it's still not conclusive across the board. So it wouldbe premature to talk about results. Ann Gurkin - Davenport & Company: Do you expect a final decision pre-Thanksgiving still?

I would anticipate yes, that we should be done before them. Ann Gurkin - Davenport & Company: Okay. Any update on China RTL?

No. We continue to work on that project in terms ofnegotiations and government approval. The primary task right now is withgovernment approval of a joint venture project. We still expect it to proceed but it's very difficult topredict the approval process. One of the complexity factors that we faced inChina with that is just by coincidence, the approval process in China for majorcapital projects, which we would qualify as changed. So we kind of had to startback over again in the queue to get the project approved. But we do expect approval. Upon project approval, we woulddefinitively negotiate our joint venture agreement with our partners andannounce. But at this point, we're still working on it. Ann Gurkin - Davenport & Company: Okay. And I've seen increased discussions about thepotential use of LIP paper in the EU. Can you comment on your level ofconfidence and the strength of your LIP patents in the EU environment, not theU.S. but EU?

Yes. We feel we have the same level, an adequate protectionwith patents in the EU. Our patents are international. The bigger issue wouldbe when demand in the EU will firm up, when the legislation process will be notspeculative but concrete and then how we would prepare to serve that market. But in terms of both our market position, our productofferings, etc. We feel as confident about the EU market as we do about theNorth American market for our product. Ann Gurkin - Davenport & Company: Great, thank you.

Thank you, Ann.

Your next question is from the line of Jonathan Lichter withSidoti & Company. Jonathan Lichter - Sidoti & Company: Good morning.

Hello, Jonathan. Jonathan Lichter - Sidoti & Company: In terms of RTL, what gives you the confidence that demandwill continue into the next year? Is backlog up there?

Yes. What we're seeing in terms of confidence in LTRvolumes, recon volumes is growth in emerging markets. That gives us pretty goodconfidence for further growth. And stability in our primary markets or WesternEuropean markets, where we've long sold. As you recall, the weakness that wesaw from a sales side in recon was more in the Western European side of thebusiness. And we're not seeing as much weakness there. In fact, we'rereally seeing year-over-year, some small levels of increase. But we're moreconfident with our growth that we're seeing in emerging markets especially inAsia. Jonathan Lichter - Sidoti & Company: Has anything changed in the market that has made that morestable in Western Europe?

No. I think-- well there's two things, one for sure that wecan point to. One is the Western European market declines have not been as severe.There have been declines in consumption of cigarettes but not as severe asthere was in 2005 and early 2006 following a period of fairly significant taxincreases in a number of the major countries. So we're not seeing that change in demand causingvolatility. The other thing that we're not seeing develop as quickly as we didinitially after those tax increases was the development of value for moneybrands. The premium brands are holding their own throughout, Western Europe,which is more favorable to our recon business. Jonathan Lichter - Sidoti & Company: And then I saw that there was a-- I guess machine rebuildwas put on hold for a period of time. Was that due to increased demand and whatcaused that?

Yes. As we noted the final equipment rebuilds at the PdMfacility associated with the restructuring are now pushed into early '08. It isbecause of stronger sales, not in total for our French businesses as we signalthe overall tobacco-related papers business is still soft but that particularmachine, which is our number 10 machine at PdM is specialized on certain gradesand that would be for Asian markets. And it just turned out that the order log was strong enoughthat we couldn't take the machine down in December as we planned. And so we'vemoved the machine down into January. So it's a slight shift but the-- there wasa bit of an equipment delay issue. But the primary reason was we couldn't fully build theinventories that we needed in time to take the machine down. Jonathan Lichter - Sidoti & Company: Okay. Are you seeing any other competition, particularly inEurope, for LIP?

Well, not in Europe. On the European side, it would only bein developments, which wouldn't be as visible to us. We're certainly workingclosely with our international customers on LIP requirements and specificallyfor Europe. We're not aware specifically in Europe or in general of anynew developments with LIP by our customers or by our competitors. Jonathan Lichter - Sidoti & Company: Do other-- I thought I'd seen something that Miquel Costas,I think it was had developed an LIP paper.

Yes. Miquel Costas, which is the Spanish competitor that weface, has noted or said to have had an LIP product available even for the NorthAmerican market for a number of years now. But we have not seen that product commercially at any of ouraccounts in North America and we're not aware of that product. Again there'snot commercial demand in Europe. But we're not aware of that product beingrecently improved or developed further. Jonathan Lichter - Sidoti & Company: Okay. And then just a question on taxes. What do you expectthe tax rate to be in '08?

I would say-- well we're going to still have restructuringexpenses. So as long as we have significant restructuring expenses that tendsto cause, like we saw in the third quarter where we actually booked a taxbenefit. But exempting that, we should continue to be around 25 to27% effective tax rate as a company. But the caveat to that is when we havelarge periods of restructuring expenses that take us to a near or at a taxableloss position, the effective rate kind of goes upside down and we turn into atax benefit position. So on an ongoing earnings basis, 25 to 27%. Jonathan Lichter - Sidoti & Company: Thank you.

Thank you.

(Operator Instructions) Your next question is from the lineof Thomas Russo with Gardner, Russo, Gardner. Thomas Russo - Gardner, Russo &Gardner: Hi, Pete.

Hello, Tom. Thomas Russo - Gardner, Russo &Gardner: Hi, good morning. I just wanted you to bring us up to dateon your capital structure. And in particular whether and if at some point asoperating cash continues to mount you have ability to direct share buybackactivities back to Schweitzer?

That is an accurate observation that we continue to be in abetter debt position than we thought we would. We have not raised debt thisyear as expected because we've had strong cash flow. So going forward from a cash flow management standpoint, werecognize that continually paying down debt at some point doesn't make sense. And so, we would look at share repurchases depending uponthe share price in the market for our stock and then of course any requirementsthat we project having for strategic investment. Thomas Russo - Gardner, Russo &Gardner: Yes.

And we anticipate that the additional activity will occur inChina in terms of expansion that would require cash. And then of course, ifanything would come up from an acquisition standpoint that would require cash. But absent the large cash requirement, then share repurchasewould probably be either that or leveraging up even to do share repurchaseswould be a source or use of cash. Thomas Russo - Gardner, Russo &Gardner: Thank you. Congratulations.

Thank you.

There are no further questions at this time. I apologize youdo have a follow-up question from the line of Jonathan Lichter with Sidoti& Company. Jonathan Lichter - Sidoti & Company: Quick question on -- is there any indication that the restof LTR Industries is up for sale or will it be?

Well, there's no indication of that. The obvious point to beraised about LTR is our partner at LTR is Altadis, a cigarette company, whichis currently being acquired by Imperial Tobacco Company out of the U.K. And it's been announced as a part of that process, theintent to sell non-core assets so whether or not a non-core asset is our --their share in our recon business that would be the only connection. But there's nothing definitive that we can say about that.Certainly, we would be of interest. But it depends on a lot of factors. And thekey factor would be that it become available. Jonathan Lichter - Sidoti & Company: Thanks again.

There are no further questions.

All right. Thank you all for taking the time to join ustoday. Goodbye.

This concludes today's conference call. You may nowdisconnect.