e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o		TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD

from ___to ___

For the quarterly period ended June 30, 2008

Commission file number 1-3560

P. H. Glatfelter Company

(Exact name of registrant as specified in its charter)


Pennsylvania		23-0628360
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)

96 South George Street, Suite 500
York, Pennsylvania 17401		(717) 225-4711
(Address of principal executive offices)		(Registrant’s telephone number, including area code)

N/A
(Former name or former address, 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 at least the past 90 days. Yes ü No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	ü Accelerated filer	Non-accelerated filer	Smaller reporting company
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes No ü .

As of July 31, 2008, P. H. Glatfelter Company had 45,271,073 shares of common stock outstanding.

PART I

Item 1 — Financial Statements

P. H. GLATFELTER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three Months Ended						Six Months Ended
	June 30						June 30
In thousands, except per share	2008			2007			2008			2007


Net sales	$	320,224		$	288,091		$	625,723		$	569,080
Energy sales — net		2,743			2,424			4,727			4,638

Total revenues		322,967			290,515			630,450			573,718
Costs of products sold		290,569			261,715			553,794			508,209

Gross profit		32,398			28,800			76,656			65,509

Selling, general and administrative expenses		25,377			23,776			49,512			52,503
Shutdown and restructuring charges		(856	)		(63	)		(856	)		162
(Gains) losses on dispositions of plant, equipment and timberlands, net		16			(5,693	)		(14,502	)		(8,887	)

Operating income		7,861			10,780			42,502			21,731
Non-operating income (expense)
Interest expense		(5,827	)		(7,424	)		(11,972	)		(14,761	)
Interest income		1,357			848			2,961			1,589
Other — net		103			(364	)		171			267

Total other income (expense)		(4,367	)		(6,940	)		(8,840	)		(12,905	)

Income before income taxes		3,494			3,840			33,662			8,826
Income tax provision		338			1,842			10,831			3,575

Net income	$	3,156		$	1,998		$	22,831		$	5,251


Earnings per share
Basic	$	0.07			0.04			0.51		$	0.12
Diluted		0.07			0.04			0.50			0.12

Cash dividends declared per common share	$	0.09		$	0.09		$	0.18		$	0.18

Weighted average shares outstanding
Basic		45,227			45,040			45,192			44,964
Diluted		45,666			45,373			45,594			45,308

The accompanying notes are an integral part of these condensed consolidated financial statements.

GLATFELTER

- 2 -

P. H. GLATFELTER COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	June 30			December 31
In thousands	2008			2007


Assets

Current assets
Cash and cash equivalents	$	18,611		$	29,833
Accounts receivable — net		147,549			122,980
Inventories		196,455			193,042
Prepaid expenses and other current assets		39,706			27,557

Total current assets		402,321			373,412

Plant, equipment and timberlands — net		530,533			519,866

Other assets		400,745			393,789

Total assets	$	1,333,599		$	1,287,067


Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt	$	12,383		$	11,008
Short-term debt		3,389			1,136
Accounts payable		70,826			73,195
Dividends payable		4,073			4,063
Environmental liabilities		6,835			7,038
Other current liabilities		93,790			101,116

Total current liabilities		191,296			197,556

Long-term debt		306,268			301,041

Deferred income taxes		195,138			189,156

Other long-term liabilities		131,369			123,246

Total liabilities		824,071			810,999

Commitments and contingencies		—			—

Shareholders’ equity
Common stock		544			544
Capital in excess of par value		46,200			44,697
Retained earnings		578,272			563,608
Accumulated other comprehensive loss		19,806			4,061

		644,822			612,910

Less cost of common stock in treasury		(135,294	)		(136,842	)

Total shareholders’ equity		509,528			476,068

Total liabilities and shareholders’ equity	$	1,333,599		$	1,287,067

The accompanying notes are an integral part of these condensed consolidated financial statements.

GLATFELTER

- 3 -

P. H. GLATFELTER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended June 30
In thousands	2008			2007

Operating activities
Net income	$	22,831		$	5,251
Adjustments to reconcile to net cash provided (used) by operations:
Depreciation, depletion and amortization		30,666			27,865
Pension income		(7,965	)		(6,421	)
(Reversal of) shutdown and restructuring charges		(856	)		162
Deferred income tax provision		5,994			(66	)
Gains on dispositions of plant, equipment and timberlands, net		(14,502	)		(8,887	)
Stock-based compensation		2,367			2,108
(Cash used) reserve for environmental matters		(9,481	)		5,348
Change in operating assets and liabilities
Accounts receivable		(20,682	)		(6,292	)
Inventories		(1,208	)		5,053
Other assets and prepaid expenses		1,956			(1,825	)
Accounts payable		(2,898	)		(9,962	)
Accruals and other current liabilities		(8,983	)		1,382
Other		(286	)		3,920

Net cash (used) provided by operating activities		(3,047	)		17,636

Investing activities
Expenditures for purchases of plant, equipment and timberlands		(25,407	)		(14,221	)
Proceeds from disposals of plant, equipment and timberlands, net		14,997			9,448

Net cash used by investing activities		(10,410	)		(4,773	)

Financing activities
Net (repayments of) proceeds from revolving credit facility and other		(25,000	)		1,303
Net proceeds from (repayment of) other short term debt		3,295			(519	)
Proceeds from borrowing from Sun Trust Financial		36,695			—
Principal repayments — 2011 Term Loan		(6,000	)		(16,400	)
Payment of dividends		(8,220	)		(8,159	)
Proceeds from stock options exercised and other		642			1,171

Net cash provided (used) by financing activities		1,412			(22,604	)

Effect of exchange rate changes on cash		823			752

Net decrease in cash and cash equivalents		(11,222	)		(8,989	)
Cash and cash equivalents at the beginning of period		29,833			21,985

Cash and cash equivalents at the end of period	$	18,611		$	12,996


Supplemental cash flow information
Cash paid (received) for
Interest	$	11,309		$	14,549
Income taxes		16,110			(1,637	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

GLATFELTER

- 4 -

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

unaudited

1. ORGANIZATION

P. H. Glatfelter Company and subsidiaries (“Glatfelter”) is a manufacturer of specialty papers and engineered products. Headquartered in York, Pennsylvania, our manufacturing facilities are located in Spring Grove, Pennsylvania; Chillicothe and Freemont, Ohio; Gloucestershire (Lydney), England; Caerphilly, Wales; Gernsbach, Germany; Scaër; France; and the Philippines. Our products are marketed throughout the United States and in over 85 other countries, either through wholesale paper merchants, brokers and agents or directly to customers.

2. ACCOUNTING POLICIES

Principles of Consolidation The consolidated financial statements include the accounts of Glatfelter and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Management believes the estimates and assumptions used in the preparation of these consolidated financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes that actual results may differ from those estimates and assumptions.

3. RECENT PRONOUNCEMENTS

Effective January 1, 2008, we adopted the provisions of Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). This standard defines the term “fair value”, establishes a framework for measurement and requires expanded disclosures about the fair value measurements. The adoption of SFAS No. 157, did not have an impact on our consolidated financial position or results of operations.

In December 2007, SFAS No. 141(R), “Business Combinations” was issued. This statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. In addition, under SFAS No. 141(R), changes in an acquired entity’s deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. With respect to us, SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. However, after adoption of SFAS No. 141(R), changes in estimates of deferred tax assets and liabilities, and final settlements of all income tax uncertainties that related to a business combination which are made after the measurement period will impact income tax expense. We expect SFAS No. 141(R) will have an impact on accounting for business combinations once adopted but the effect is dependent upon acquisitions at that time.

In June 2008, the FASB issued Staff Position (“FSP”) No. EITF No. 03-6-1 “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” This FSP affects entities that accrue cash dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the award. The FSP requires that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders and are considered participating securities. The provisions of FSP No. EITF No. 03-6-1 are effective for fiscal years beginning after December 15, 2008. We are currently evaluating the requirements of FSP No. EITF 03-6-1, to determine the impact, if any, on our consolidated financial statements.

4. ACQUISITIONS

Metallised Products Limited On November 30, 2007, through Glatfelter-UK Limited, a wholly-owned subsidiary, we completed our acquisition of Metallised Products Limited (“MPL”), a privately owned company that manufactures a variety of metallized paper products for consumer and industrial applications. MPL is based in Caerphilly, Wales.

Under terms of the agreement, we purchased the stock of MPL for $6.8 million cash and assumed $5.8 million of debt in addition to $1.5 million of transaction costs. The amounts set forth above reflect a $0.4 million reduction in the original purchase based on final adjusted working capital as of the closing date. The acquisition, which was financed from our existing cash balance, employed about 165 people and had 2007 revenues of approximately $53.4 million.

GLATFELTER

- 5 -

The following table summarizes the preliminary allocation of the purchase price to assets acquired and liabilities assumed:


In thousands

Assets acquired:
Cash	$	730
Accounts receivable		7,718
Inventory		4,747
Property and equipment		10,178
Other assets		922
Goodwill		1,885

		26,180
Less acquisition related liabilities including accounts payable and accrued expenses		11,978
Long term debt		5,830

		17,808

Total	$	8,372

5. GAIN ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS

During the first six months of 2008 and 2007, we completed sales of timberlands which are summarized by the following table:


Dollars in thousands	Acres		Proceeds		Gain

2008
Timberlands		3,595	$	14,997	$	14,603
Other		n/a		—		(101	)

			$	14,997	$	14,502

2007
Timberlands		3,588	$	9,435	$	9,066

In accordance with terms of our credit facility, we are required to use the proceeds from timberland sales to reduce amounts outstanding under our term loan.

6. EARNINGS PER SHARE

The following table sets forth the details of basic and diluted earnings per share (EPS):


	Three Months Ended
	June 30
In thousands, except per share	2008		2007

Net income	$	3,156	$	1,998

Weighted average common shares outstanding used in basic EPS		45,227		45,040
Common shares issuable upon exercise of dilutive stock options, restricted stock awards and performance awards		439		333

Weighted average common shares outstanding and common share equivalents used in diluted EPS		45,666		45,373


Earnings per share
Basic and diluted	$	0.07	$	0.04


	Six Months Ended
	June 30
In thousands, except per share	2008		2007

Net income	$	22,831	$	5,251

Weighted average common shares outstanding used in basic EPS		45,192		44,964
Common shares issuable upon exercise of dilutive stock options, restricted stock awards and performance awards		402		344

Weighted average common shares outstanding and common share equivalents used in diluted EPS		45,594		45,308


Earnings per share
Basic	$	0.51	$	0.12
Diluted	$	0.50		0.12

Approximately 688,500 and 691,500 of potential common shares have been excluded from the computation of diluted earnings per share for the three month and six month periods ended June 30, 2008, respectively, due to their anti-dilutive nature. Approximately 525,150 and 522,150 of potential common shares were excluded from the computation of diluted earnings per share for the three month and six month periods ended June 30, 2007, respectively.

7. INCOME TAXES

Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates.

As of June 30, 2008 and December 31, 2007, we had $27.7 million and $26.1 million of gross unrecognized tax benefits respectively. As of June 30, 2008, if such benefits were to be recognized, approximately $22.0 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate.

GLATFELTER

- 6 -

We, or one of our subsidiaries, file income tax returns with the United States Internal Revenue Service, as well as various state and foreign authorities. The following table summarizes tax years that remain subject to examination by major jurisdiction:


	Open Tax Year
	Examination in		Not under
Jurisdiction	progress		examination


United States
Federal		2004 — 2006		2007
State		2004		2003 — 2007
Germany (1)		2003 — 2006		2007
France		N/A		2006 — 2007
United Kingdom		N/A		2006 — 2007
Philippines		2005 — 2006		2007


(1)		— includes provincial or similar local jurisdictions, as applicable

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state, and foreign examinations, and the expiration of various statutes of limitations, it is reasonably possible our gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $0.8 million.

We recognize interest and penalties related to uncertain tax positions as income tax expense. Interest expense recognized in the second quarter of 2008 totaled $0.04 million and $0.1 million in the second quarter of 2007. Such amounts were $0.3 million in both the first half of 2008 and 2007. Accrued interest was $2.0 million and $1.8 million as of June 30, 2008 and December 31, 2007, respectively. We did not record any penalties associated with uncertain tax positions during 2008 or 2007.

8. STOCK-BASED COMPENSATION

During the first six months of 2008, we issued 274,240 Stock Only Stock Appreciation Rights (“SOSAR”) to members of executive management a grant date strike price of $13.44 per share. Under terms of the SOSAR, the recipients received the right to receive a payment in the form of shares of common stock equal to the difference if any, in the fair market value of one share of common stock at the time of exercising the SOSAR and the strike price. The SOSARs, which vest ratably over a three year period, had a grant date fair value, estimated using the Black-Scholes valuation model, of $3.72 per right, and an aggregate value of $1.0 million. In addition, 136,100 Restricted Stock Units (“RSU”) were issued in the first six months of 2008 with a weighted-average grant date fair value of $14.48 per unit and an aggregate value of $2.0 million. The RSUs vest over a period ranging from three years to five years.

During the first six months of 2008 and 2007, we recognized stock-based compensation expense totaling $2.4 million and $2.1 million, respectively.

GLATFELTER

- 7 -

9. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

The following table provides information with respect to the net periodic costs of our pension and post retirement medical benefit plans.


	Three Months Ended
	June 30
In thousands	2008			2007

Pension Benefits
Service cost	$	1,991		$	2,331
Interest cost		6,158			5,627
Expected return on plan assets		(13,037	)		(11,699	)
Amortization of prior service cost		597			589
Amortization of unrecognized loss		95			244

Net periodic benefit income	$	(4,196	)	$	(2,908	)


Other Benefits
Service cost	$	503		$	538
Interest cost		825			743
Expected return on plan assets		(216	)		(223	)
Amortization of prior service cost		(337	)		(275	)
Amortization of unrecognized loss		359			262

Net periodic benefit cost	$	1,134		$	1,045


	Six Months Ended
	June 30
In thousands	2008			2007
\| \|
Pension Benefits
Service cost	$	4,528		$	4,787
Interest cost		11,749			10,918
Expected return on plan assets		(25,632	)		(23,731	)
Amortization of prior service cost		1,197			1,199
Amortization of unrecognized loss		193			406

Net periodic benefit income	$	(7,965	)	$	(6,421	)


Other Benefits
Service cost	$	1,061		$	1,013
Interest cost		1,576			1,517
Expected return on plan assets		(417	)		(446	)
Amortization of prior service cost		(596	)		(517	)
Amortization of unrecognized loss		622			523

Net periodic benefit cost	$	2,246		$	2,090

10. COMPREHENSIVE INCOME

The following table sets forth comprehensive income and its components:


	Three Months Ended
	June 30
In thousands	2008			2007

Net income	$	3,156		$	1,998
Foreign currency translation adjustment		(1,203	)		4,569
Additional pension liability amortization, net of tax		450			533

Comprehensive income	$	2,403		$	7,100


	Six Months Ended
	June 30
In thousands	2008			2007

Net income	$	22,831		$	5,251
Foreign currency translation adjustment		14,841			6,359
Additional pension liability amortization, net of tax		904			1,047

Comprehensive income	$	38,576		$	12,657

11. INVENTORIES

Inventories, net of reserves, were as follows:


	June 30,		December 31,
In thousands	2008		2007

Raw materials	$	45,839	$	41,119
In-process and finished		99,779		102,219
Supplies		50,837		49,704

Total	$	196,455	$	193,042

12. LONG-TERM DEBT

Long-term debt is summarized as follows:


	June 30,			December 31,
In thousands	2008			2007

Revolving credit facility, due April 2011	$	10,956		$	35,049
Term Loan, due April 2011		37,000			43,000
7¹/₈% Notes, due May 2016		200,000			200,000
Term Loan, due January 2013		36,695			—
Note payable, due March 2013		34,000			34,000

Total long-term debt		318,651			312,049
Less current portion		(12,383	)		(11,008	)

Long-term debt, excluding current portion	$	306,268		$	301,041

Our revolving credit facility provides for up to $200 million of aggregate borrowings on an unsecured basis. The term loan due in April 2011 requires quarterly repayments of principal outstanding that began on March 31, 2007 with the final principal payment due on April 2, 2011. In addition, if certain prepayment events occur, such as a sale of assets, the incurrence of additional indebtedness in excess of $40.0 million in the aggregate, or issuance of additional equity; we must repay a

GLATFELTER

- 8 -

specified portion of the term loan within five days of the prepayment event.

Borrowings under the credit agreement bear interest, at our option, at either (a) the bank’s base rate described in the credit agreement as the greater of the prime rate or the federal funds rate plus 50 basis points, or (b) the EURO rate based generally on the London Interbank Offer Rate, plus an applicable margin that varies from 67.5 basis points to 137.5 basis points according to our corporate credit rating determined by S&P and Moody’s.

The credit agreement, as amended, contains a number of customary covenants for financings of this type that, among other things, restrict our ability to: i) dispose of or create liens on assets; ii) transfer assets between borrowing or guaranteeing subsidiaries and non guaranteeing subsidiaries; iii) incur additional indebtedness; iv) repay other indebtedness; or v) make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios, including a consolidated minimum net worth test, a maximum debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio and a minimum interest coverage ratio. A breach of these requirements, of which we were not aware of any at June 30, 2008, would give rise to certain remedies under the credit agreement as amended, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility.

The 7¹/₈% Senior Note agreement contains a “cross-default” clause that provides if there were to be an event of default under the credit agreement discussed earlier, we would also be in default under the 7¹/₈% Senior Notes.

In November 2007, we sold timberlands and as consideration received a $43.2 million, 20-year interest bearing note receivable from the timberland buyer. In January 2008, we pledged this note as collateral under a $36.7 million term loan (the “2008 Term Loan”) with SunTrust Financial. The 2008 Term Loan matures in five years, and bears interest at a six-month reserve adjusted LIBOR plus a margin rate of 1.20% per annum.

On March 21, 2003, we sold timberlands and received as consideration a $37.9 million 10-year interest bearing note receivable from the timberland buyer. We pledged this note as collateral under a $34.0 million promissory note payable to SunTrust Financial (the “Note Payable”). The Note Payable was scheduled to mature in March 2008. In February 2008, we amended the Note Payable to extend its maturity until March 26, 2013. Beginning on March 26, 2008, the Note Payable bears a fixed rate of interest of 3.10%.

The notes receivable, discussed in the preceding paragraphs, aggregating $81.1 million, are recorded in the accompanying consolidated balance sheets under the caption “Other assets.”

P. H. Glatfelter Company guarantees debt obligations of all its subsidiaries. All such obligations are recorded in these consolidated financial statements.

As of June 30, 2008 and December 31, 2007, we had $7.1 million and $14.1 million of letters of credit issued to us by certain financial institutions. Such letters of credit, which reduce amounts available under our revolving credit facility, provide i) financial assurances for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program, and ii) assurance related to the purchase of certain utilities for our manufacturing facilities. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. No amounts are outstanding under the letters of credit.

13. ASSET RETIREMENT OBLIGATION

During the second quarter of 2008, we recorded $7.2 million of asset retirement obligations related to the legal requirement to close 19 lagoons at the Spring Grove, PA facility. The lagoons are currently being used to dispose of residual waste material. Closure of the lagoons, which is expected to occur over the next several years, not to exceed ten years, will be accomplished by disposing in the lagoons certain non-hazardous sludge, ash and other residual material currently produced by the mill. This will be followed by the placement of a cover comprised primarily of purchased clay and top soil to construct the required cap over the lagoons. The ultimate time period over which the lagoons are closed is dependent upon the plan to be agreed and approved by the Pennsylvania Department of Environmental Protection. The amounts referred to above were accrued with a corresponding increase in the carrying value of the property, equipment and timberlands caption on the consolidated balance sheet. The amount capitalized will be amortized as a charge to operations on a systematic basis in relation to the expected closure period.

14. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

Fox River — Neenah, Wisconsin

Background We have significant uncertainties associated with environmental claims arising out of the presence of polychlorinated biphenyls (“PCBs”) in sediments in the lower Fox River and in the Bay of Green Bay Wisconsin (“Site”). As part of the 1979 acquisition of the Bergstrom Paper Company we acquired a facility

GLATFELTER

- 9 -

located at the Site (the “Neenah Facility”). In part, the Neenah Facility used wastepaper as a source of fiber. At no time did the Neenah Facility utilize PCBs in the pulp and paper making process, but discharges to the lower Fox River from the Neenah Facility which may have contained PCBs from wastepaper may have occurred from 1954 to the late 1970s. Any PCBs that our Neenah Facility discharged into the lower Fox River resulted from the presence of PCBs in NCR^®-brand carbonless copy paper in the wastepaper that was recycled at the Neenah Facility. We closed the Neenah Facility in June 2006.

The United States, the State of Wisconsin and various state and federal governmental agencies (collectively, the “Governments”), as well as private parties, have found PCBs in sediments on the bed of the Fox River, apparently from a number of sources at municipal and industrial facilities along the upstream and downstream portions of the Site. The Governments have identified manufacturing and recycling of NCR^®-brand carbonless copy paper as the principal source of that contamination.

The United States Environmental Protection Agency (“EPA”) has divided the lower Fox River and the Bay of Green Bay site into five “operable units” numbered from the most upstream (“OU1”) to the most downstream (“OU5”). OU1 is the reach from primarily Lake Winnebago to the dam at Appleton, and is comprised of Little Lake Butte des Morts. Our Neenah Facility discharged its wastewater into OU1. OU2 extends from the dam at Appleton to the dam at Little Rapids, OU3 from the dam at Little Rapids to the dam at De Pere, OU4 from the dam at De Pere to the mouth of the river, and OU5 from the mouth into the lower portion of Green Bay. The river extends 39 miles from the upstream end of OU1 to the downstream end of OU4.

Our liabilities, if any, for this contamination primarily arise under the federal Comprehensive Environmental, Response, Compensation and Liability Act (“CERCLA” or “Superfund”). The Governments have sought to recover “response actions” or “response costs,” which are the costs of studying and cleaning up contamination, from various “responsible parties.” In addition, various natural resource trustee agencies of the United States, the States of Wisconsin and Michigan, and several Indian Tribes have sought to recover natural resource damages (“NRDs”), including natural resource damage assessment costs. Parties that have incurred response costs or NRDs either voluntarily or in response to the governments’ and trustees’ demands may have an opportunity to seek contribution or other recovery of some or all of those costs from other parties who are jointly and severally responsible under Superfund for those costs. Therefore, as we incur costs, we also acquire a claim against other parties who may not have paid their equitable share of those costs. As others incur costs, they

acquire a claim against us to the extent that they claim that we have not paid our equitable share of the total. Any party that resolves its liability to the United States or a state in a judicially or administratively approved settlement agreement obtains protection from contribution claims for matters addressed in the settlement.

For these reasons, all of the parties who are potentially responsible (“PRPs”) under CERCLA for response costs or NRDs have exposure to liability for: (a) the cost of past response actions taken by anyone else, (b) the cost of past NRD payments or restoration projects incurred by anyone else, (c) the cost of response actions to be taken in the future, and (d) NRDs. All of this exposure is subject to substantial defenses, including, for example, that the PRP is not liable or not jointly and severally liable for any particular cost or damage, that the cost or damage is not recoverable under CERCLA or any other law, or that the recovery is barred by the passage of time. In addition, a party that has incurred or committed to incur costs or has paid NRDs may be able to claim credit for that cost or payment in any equitable allocation of response costs or NRDs in any action for reallocation of costs.

Cleanup Decisions. Our liability exposure depends importantly on the decisions made by EPA and the Wisconsin Department of Natural Resources (“WDNR”) as to how the Site will be cleaned up, and consequently the costs and timing of those response actions. The nature of the response actions has been highly controversial. EPA issued a record of decision (“ROD”) selecting response actions for OU1 and OU2 in December 2002. EPA issued a separate ROD selecting response actions for OU3, OU4, and OU5 in March 2004.

As the result of continuing discussions with parties other than us, as well as our experience in OU1 (discussed below), EPA amended the ROD for OU2-5 in June 2007 to rely less on dredging and more on capping and covering of sediments containing PCBs. The governments project that these methods will allow certain costs to be lower for this portion of the cleanup. In June 2008, EPA amended the ROD for OU1.

NRD Assessment. The natural resources trustees have engaged in work to assess NRDs at and arising from the Site. However, they have not completed a required NRD Assessment under the pertinent regulations. The trustees’ estimate of NRDs ranges from $176 million to $333 million, some of which has already been satisfied. With specific respect to NRD claims, we contended that the trustees’ claims are barred by the applicable 3 year statute of limitations.

Work Under Agreements, Orders, and Decrees. As we mention above, our exposure to liability depends

GLATFELTER

-10-

on the amount of work done, costs incurred, and damages paid both by us and by others. The procedural context of the work done, costs incurred, and damages paid also matters.

Since 1991, the Governments and various groups of potentially responsible parties, including us, have entered into a series of agreements, orders, and decrees under which we and others have performed work, incurred costs, or paid damages in connection with the Site. As a result, some parties have contributed or performed substantial work at the Site and at least one party, Fort Howard Corporation (whose successor is either the Fort James Operating Company or Georgia Pacific Corporation) has resolved its NRD liability at the Site.

Notably, in April 2004, the United States District Court for the Eastern District of Wisconsin entered a consent decree (“OU1 Consent Decree”) in United States v. P.H. Glatfelter Co., No. 2:03-cv-949, under which we and WTM I Corp. have been implementing the remedy in OU1, dividing costs evenly in addition to a $7 million contribution from Menasha Corp. and a $10 million contribution that the United States contributed from a separate settlement in United States v. Appleton Papers Inc., No. 2:01-cv-816, obligating NCR and Appleton Papers to contribute to certain NRD projects. In June 2008, the parties entered into an amendment to the OU1 Consent Decree. The amendment allows for implementation of the amended remedy for OU1. It also commits us and WTM I to implement that remedy without a cost limitation on that commitment. The amended OU1 Consent Decree has been lodged with the court, but has not yet been entered by the court. The amended OU1 Consent Decree, by its terms, binds the parties unless the United States withdraws its consent or the court denies a motion to enter the consent decree.

Further, in November 2007, EPA issued an administrative order for remedial action (“UAO”) to Appleton Papers Inc., CBC Coating, Inc. (formerly known as Riverside Paper Corporation), Georgia-Pacific Consumer Products, L.P. (formerly known as Fort James Operating Company), Menasha Corporation, NCR Corporation, us, U.S. Paper Mills Corp., and WTM I Company directing those respondents to implement the amended remedy in OU2-5. We have no obligation to assist in that effort until August 2008. We understand that others have commenced designing that remedy and procuring certain equipment and real estate necessary to its implementation.

Cost estimates. Estimates of the Site remediation change over time as we, or others, gain additional experience. In addition, disagreement exists over the likely costs for some of this work. The Governments estimate that the total cost of implementing the amended

remedy in OU1 will be approximately $102 million. Because we have completed a significant amount of work in this portion of the river, we believe the costs of completing the remedial actions specified in the amended ROD can be completed for this amount. However, it is reasonably possible costs could exceed this amount by up to $10 million. The cost of implementing the remedy set forth in the amended ROD for OU2-5 (the downstream portions of the Site) is estimated by the Governments to total between $270 million and $499 million, reflecting a contingency factor of plus or minus 30%. However, based on independent estimates commissioned by various potentially responsible parties, we believe the actual costs to be incurred to implement the remedy of OU2 — 5 will exceed the Government’s estimate by a significant amount.

NRDs. The trustees claim that we are jointly and severally responsible for NRDs with a value between $176 million and $333 million. We deny (a) liability for most of these NRDs, (b) that if anyone is liable, that we are jointly and severally liable for the full amount, and (c) that the trustees can pursue this claim at this late date as the limitations period for NRD claims is three years from discovery.

Allocation. Since 1991, various potentially responsible parties have, without success, attempted to agree on a binding, final, allocation of costs and damages among themselves. All costs that they have incurred to date have been incurred individually, or under interim, nonbinding allocations. However, the consent decree in United States v. P.H. Glatfelter Co. affords us and WTM I contribution protection for claims seeking to reallocate costs of implementing the OU1 remedy, and Fort James Operating Co. (now Georgia-Pacific) has certain rights under its consent decree. Otherwise, the parties have not litigated their internal allocation with us.

NCR and Appleton Papers Inc. have commenced litigation in the United States District Court for the Eastern District of Wisconsin captioned Appleton Papers Inc. v. George A. Whiting Paper Co., No. 2:08-cv-16, seeking to reallocate costs and damages allegedly incurred or paid or to be incurred or paid by NCR or Appleton Papers. They have to date joined 22 defendants: us, George A. Whiting Paper Co., Menasha Corporation, Green Bay Packaging Inc., International Paper Company, Leicht Transfer & Storage Company, Neenah Foundry Company, Newpage Wisconsin System Inc., The Procter & Gamble Paper Products Company, Wisconsin Public Service Corp. the Cities of Appleton, De Pere, Green Bay, and Kaukauna, Brown County, Green Bay Metropolitan Sewerage District, Heart of the Valley Metropolitan Sewerage District, Neenah-Menasha Sewerage Commission, the Villages of Kimberly and Wrightstown, WTM I Company, and U.S. Paper Mills Corporation. That litigation may be expected to result in an allocation of responsibility, at least as between these parties.

We contend that we are not jointly and severally liable for costs or damages arising from the presence of PCBs downstream of OU1. In addition, we contend that

GLATFELTER

-11-

NCR or other sources of NCR^® - brand carbonless copy paper that our Neenah Mill recycled bear most of the responsibility for costs and damages arising from the presence of PCBs in OU1. Other parties disagree.

To date we have spent or have committed to spend approximately $50 million implementing the remedy in OU1, and under the various agreements, orders, and decrees under which we and others have performed work, incurred costs, or paid damages in connection with the Site.

Reserves for the Fox River Site In 2007 we recorded additional charges of $6 million in the first quarter and $20 million in the third quarter, to satisfy both our obligations at OU1 and all pending, threatened or asserted and unasserted claims against us for the Fox River including our claimed liability for the remediation of OU3-5 as a result of the developments concerning the Fox River including our revised cost estimates for OU1. These additional charges represent our current assessment of the ultimate costs to be incurred by us associated with the revised final plan for OU1 and any settlement of liability for NRDs and for remediation of OU 2-5. As of June 30, 2008, our reserve for the Fox River environmental liability totaled $26.3 million. Of the total reserve, $6.8 million is recorded in the accompanying consolidated balance sheets under the caption “Environmental liabilities” and the remaining $19.5 million is recorded under the caption “Other long term liabilities.” Our reserve includes amounts originally established prior to 2002 and adjustments in the first and third quarter of 2007 increasing the liability by $26.0 million offset by expenditures related to remediation activities.

We and WTM I have been funding the OU1 remedy by depositing funds in an OU1 Escrow Account and then paying for work out of that account. At June 30, 2008, the remaining OU1 Escrow Account balance totaled $13.7 million. During the first six months of 2008, Menasha contributed $7 million to the OU1 Escrow Account. In addition, WTM I and we committed to contribute an additional $9.5 million each, and contributions, or security for later contributions, have been posted according to the agreed schedule. Of the total commitment, we funded $3.5 million on July 15, 2008 and obtained a letter of credit guaranteeing payment of the balance.

We believe that we have strong defenses to liability for remediation of OU2-5 including the existence of ample data that indicates that PCBs did not leave OU1 in concentrations that could have caused or contributed to the need for cleanup in OU2-5. Others, including the EPA and other PRPs, disagree with us and, as a result, the EPA has issued a UAO to us and to others to perform the OU2-5 work. NCR and Appleton Papers have recently commenced the Whiting Litigation and have joined us and others. Additional litigation associated with the remediation of the Site is likely. As illustrated by the Whiting Litigation, we also

note that there exist additional potentially responsible parties other than the PRPs who were named in the UAO or who have been joined in the Whiting Litigation, including the owners of public wastewater treatment facilities who discharged PCB-contaminated wastewater to the Fox River and entities providing PCB-containing wastepaper to each of the recycling mills.

Even if we are not successful in establishing that we are not liable for the remediation of OU2-5, we do not believe that we would be allocated a significant percentage share of liability in any equitable allocation of the remediation costs and other potential damages associated with OU2-5. The accompanying consolidated financial statements do not include reserves for any future litigation or defense costs for the Fox River, and because litigation has commenced, the costs to do so could be significant.

In setting our reserve for the Fox River, we have assessed our defenses to liability, including matters raised in the Whiting Litigation, and assumed that we will not bear the entire cost of remediation and damages to the exclusion of other known PRPs at the Site who are also potentially jointly and severally liable. The existence and ability of other PRPs to participate has also been taken into account in setting our reserve, and is generally based on our evaluation of recent publicly available financial information on each PRP, and any known insurance, indemnity or cost sharing agreements between PRPs and third parties. In addition, our assessment is based upon the magnitude, nature, location and circumstances associated with the various discharges of PCBs to the river and the relationship of those discharges to identified contamination. We will continue to evaluate our exposure and the level of our reserves, including, but not limited to, our potential share of the costs and NRDs, if any, associated with the Fox River site.

Other than with respect to the OU1 Consent Decree, the amount and timing of future expenditures for environmental compliance, cleanup, remediation and personal injury, NRDs and property damage liabilities cannot be ascertained with any certainty due to, among other things, the unknown extent and nature of any contamination, the response actions that may ultimately be required, the availability of remediation equipment, and landfill space, and the number and financial resources of any other PRPs.

Other Information The Wisconsin DNR and FWS have each published studies, the latter in draft form, estimating the amount of PCBs discharged by each identified PRP to the lower Fox River and the Bay of Green Bay. These reports estimate the Neenah Facility’s share of the volumetric discharge to be as high as 27%. We do not believe the volumetric estimates used in these

GLATFELTER

-12-

studies are accurate because (a) the studies themselves disclose that they are not accurate and (b) the volumetric estimates contained in the studies are based on assumptions that are unsupported by existing data on the Site. We believe that our volumetric contribution is significantly lower than the estimates set forth in these studies. Further, we do not believe that a volumetric allocation would constitute an equitable allocation of the potential liability for the contamination. Other factors, such as the location of contamination, the location of discharge, and a party’s role in causing discharge, must be considered in order for the allocation to be equitable.

We previously entered into interim cost-sharing agreements with four of the other PRPs, which provided for those PRPs to share certain costs relating to scientific studies of PCBs discharged at the Site (“Interim Cost Sharing Agreements”). These interim cost-sharing agreements do not establish the final allocation of remediation costs incurred at the Site. Based upon our evaluation of the volume, nature and location of the various discharges of PCBs at the Site and the relationship of those discharges to identified contamination, we believe our allocable share of liability at the Site is less than our share of costs under the Interim Cost Sharing Agreements.

While the OU1 Consent Decree, as amended, provides a negotiated framework for resolving both our and WTM I’s liability for the remediation of OU1, it does not resolve our exposure at the Site. The OU1 Consent Decree does not address response costs necessary to remediate the remainder of the Site and only addresses NRDs and claims for reimbursement of government expenses to a limited extent. Because CERCLA imposes strict joint and several liability, uncertainty persists regarding our exposure with respect to the remainder of the Fox River site. In addition, as mentioned previously, EPA has issued a UAO to us and others calling for further work in OU2-5, and Appleton Papers and NCR have commenced the Whiting Litigation that may become more complicated and involve additional parties. We cannot predict the outcome of the Whiting Litigation or any other litigation or regulatory actions related to this matter.

Range of Reasonably Possible Outcomes Our analysis of the range of reasonably possible outcomes is derived from all available information, including but not limited to official documents such as RODs, discussions with the United States and other PRPs, as well as legal counsel and engineering consultants. Based on our analysis of the current RODs and cost estimates for work to be performed at the Site, we believe that it is

reasonably possible that our costs associated with the Fox River matter may exceed our reserve for the Fox River matter by amounts that are insignificant or that could range up to $195 million, over a period that is currently undeterminable but that could range beyond 15 years. We believe that the likelihood of an outcome in the upper end of the monetary range is significantly less than other possible outcomes within the range and that the possibility of an outcome in excess of the upper end of the monetary range is remote.

Based on currently available information, we believe that the remaining work to complete the remediation of OU1 can be completed with the amounts in the OU1 Escrow Account, and the amounts committed to be contributed by us and WTM I. Our assessment assumes that: 1) the court ultimately enters the amended OU1 Consent Decree; 2) we and WTM I successfully negotiate acceptable contracts covering the work provided for in the amended OU1 ROD; and 3) the remedial measures provided in the amended OU1 ROD are successfully implemented. However, if we are unsuccessful in managing our costs to implement the amended OU1 ROD, additional charges may be necessary and such amounts could be material.

Summary Our current assessment is that we will be able to manage these environmental matters without a long-term, material adverse impact on the Company. These matters could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial position, liquidity and/or results of operations or could result in a default under our loan covenants. Moreover, there can be no assurance that our reserves will be adequate to provide for future obligations related to these matters, that our share of costs and/or damages for these matters will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations. With regard to the Fox River site, if we are not successful in managing the completion of the remaining remedial work at OU1 and/or should the United States seek to enforce the UAO for OU2-5 against us which requires us to either perform directly or contribute significant amounts towards the performance of that work, such developments could have a material adverse effect on our consolidated financial position, liquidity and results of operations and may result in a default under our loan covenants.

GLATFELTER

-13-

15. SEGMENT AND GEOGRAPHIC INFORMATION

The following table sets forth financial and other information by business unit for the periods indicated:


Business Unit Performance	For The Three Months Ended June 30,
In thousands	Specialty Papers						Composite Fibers				Other and Unallocated						Total
	2008			2007			2008		2007		2008			2007			2008			2007

Net sales	$	207,296		$	202,606		$	112,928	$	85,486	$	—		$	(1	)	$	320,224		$	288,091
Energy sales, net		2,743			2,424			—		—		—			—			2,743			2,424

Total revenue		210,039			205,030			112,928	$	85,486		—			(1	)		322,967			290,515
Cost of products sold		196,948			192,817			96,462		70,522		(2,841	)		(1,624	)		290,569			261,715

Gross profit (loss)		13,091			12,213			16,466		14,964		2,841			1,623			32,398			28,800
SG&A		13,772			14,521			9,689		8,182		1,916			1,073			25,377			23,776
Shutdown and restructuring charges		—			—			—		—		(856	)		(63	)		(856	)		(63	)
Gains on dispositions of plant, equipment and timberlands		—			—			—		—		16			(5,693	)		16			(5,693	)

Total operating income (loss)		(681	)		(2,308	)		6,777		6,782		1,765			6,306			7,861			10,780
Nonoperating income (expense)		—			—			—		—		(4,367	)		(6,940	)		(4,367	)		(6,940	)

Income (loss) before income taxes	$	(681	)	$	(2,308	)	$	6,777	$	6,782	$	(2,602	)	$	(634	)	$	3,494		$	3,840


Supplementary Data
Net tons sold		182,700			183,344			22,356		18,118		—			—			205,056			201,462
Depreciation, depletion and amortization expense	$	8,980		$	8,881		$	6,968	$	5,250		—			—		$	15,948		$	14,131


Business Unit Performance	For The Six Months Ended June 30,
In thousands	Specialty Papers				Composite Fibers				Other and Unallocated						Total
	2008		2007		2008		2007		2008			2007			2008			2007

Net sales	$	408,242	$	399,510	$	217,480	$	169,570	$	1		$	—		$	625,723		$	569,080
Energy sales, net		4,727		4,638		—		—		—			—			4,727			4,638

Total revenue		412,969		404,148		217,480		169,570		1			—			630,450			573,718
Cost of products sold		374,224		370,737		184,858		141,312		(5,288	)		(3,840	)		553,794			508,209

Gross profit (loss)		38,745		33,411		32,622		28,258		5,289			3,840			76,656			65,509
SG&A		27,979		29,048		19,709		16,494		1,824			6,961			49,512			52,503
Shutdown and restructuring charges		—		—		—		—		(856	)		162			(856	)		162
Gains on dispositions of plant, equipment and timberlands		—		—		—		—		(14,502	)		(8,887	)		(14,502	)		(8,887	)

Total operating income (loss)		10,766		4,363		12,913		11,764		18,823			5,604			42,502			21,731
Nonoperating income (expense)		—		—				—		(8,840	)		(12,905	)		(8,840	)		(12,905	)

Income (loss) before income taxes	$	10,766	$	4,363	$	12,913	$	11,764	$	9,983		$	(7,301	)	$	33,662		$	8,826


Supplementary Data
Net tons sold		364,911		358,464		43,695		36,475		—			—			408,606			394,939
Depreciation depletion and amortization expense	$	17,612	$	17,532	$	13,054	$	10,333		—			—		$	30,666		$	27,865

Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are primarily allocated based on an estimated utilization of support area services or are included in “Other and Unallocated” in the table above.

Management evaluates results of operations of the business units before non-cash pension income, any charges related to the Fox River environmental reserves, restructuring related charges, unusual items, effects of asset dispositions and insurance recoveries because it believes this is a more meaningful representation of the operating performance of its core papermaking businesses, the profitability of business units and the extent of cash flow generated from core operations. This presentation is closely aligned with the management and operating structure of our company. It is also on this basis that the Company’s performance is evaluated internally and by the Company’s Board of Directors. Such amounts are presented above under the caption “Other and Unallocated.”

GLATFELTER

-14-

16. GUARANTOR FINANCIAL STATEMENTS

Our 7¹/₈% Senior Notes have been fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., The Glatfelter Pulp Wood Company, GLT International Finance, LLC, Glatfelter Holdings, LLC and Glatfelter Holdings II, LLC.

The following presents our condensed consolidating statements of income and cash flow for the three months ended June 30, 2008 and 2007 and our condensed consolidating balance sheets as of June 30, 2008 and December 31, 2007. These financial statements reflect P. H. Glatfelter Company (the parent), the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and elimination entries necessary to combine such entities on a consolidated basis.

During 2007, we completed a reorganization pursuant to which, Glenn Wolfe was merged into the parent company. Accordingly the 2007 financial information set forth below reflects such reorganization. All prior period financial information has been restated.

Condensed Consolidating Statement of Income for the
three months ended June 30, 2008


	Parent						Non			Adjustments/
In thousand	Company			Guarantors			Guarantors			Eliminations			Consolidated


Net sales	$	207,296		$	10,566		$	112,928		$	(10,566	)	$	320,224
Energy sales — net		2,743			—			—			—			2,743

Total revenues		210,039			10,566			112,928			(10,566	)		322,967
Costs of products sold		194,143			10,637			96,577			(10,788	)		290,569

Gross profit		15,896			(71	)		16,351			222			32,398
Selling, general and administrative expenses		14,853			554			9,970			—			25,377
Shutdown and restructuring charges		(856	)		—			—			—			(856	)
Gains on dispositions of plant, equipment and timberlands, net		2			14			—			—			16

Operating income		1,897			(639	)		6,381			222			7,861
Non-operating income (expense)
Interest expense		(4,983	)		—			(844	)		—			(5,827	)
Interest income (expense)		(1,239	)		3,143			(547	)		—			1,357
Other income (expense) — net		5,989			181			(208	)		(5,859	)		103

Total other income (expense)		(233	)		3,324			(1,599	)		(5,859	)		(4,367	)

Income (loss) before income taxes		1,664			2,685			4,782			(5,637	)		3,494
Income tax provision (benefit)		(1,492	)		998			740			92			338

Net income (loss)	$	3,156		$	1,687		$	4,042		$	(5,729	)	$	3,156

Condensed Consolidating Statement of Income for the
three months ended June 30, 2007


	Parent						Non			Adjustments/
In thousand	Company			Guarantors			Guarantors			Eliminations			Consolidated


Net sales	$	202,606		$	10,576		$	85,485		$	(10,576	)	$	288,091
Energy sales — net		2,424			—			—			—			2,424

Total revenues		205,030			10,576			85,485			(10,576	)		290,515
Costs of products sold		192,055			9,574			70,693			(10,607	)		261,715

Gross profit		12,975			1,002			14,792			31			28,800
Selling, general and administrative expenses		14,387			643			8,746			—			23,776
Shutdown and restructuring charges		63			—			(126	)		—			(63	)
Gains on dispositions of plant, equipment and timberlands, net		179			(5,872	)		—			—			(5,693	)

Operating income		(1,654	)		6,231			6,172			31			10,780
Non-operating income (expense)
Interest expense		(6,842	)		—			(582	)		—			(7,424	)
Interest income (expense)		162			3,590			(1,204	)		(1,700	)		848
Other income (expense) — net		7,715			330			(274	)		(8,135	)		(364	)

Total other income (expense)		1,035			3,920			(2,060	)		(9,835	)		(6,940	)

Income (loss) before income taxes		(619	)		10,151			4,112			(9,804	)		3,840
Income tax provision (benefit)		(2,617	)		4,039			1,021			(601	)		1,842

Net income (loss)	$	1,998		$	6,112		$	3,091		$	(9,203	)	$	1,998

GLATFELTER

-15-

Condensed Consolidating Statement of Income for the
six months ended June 30, 2008


	Parent						Non			Adjustments/
In thousand	Company			Guarantors			Guarantors			Eliminations			Consolidated


Net sales	$	408,243		$	21,993		$	217,480		$	(21,993	)	$	625,723
Energy sales — net		4,727			—			—			—			4,727

Total revenues		412,970			21,993			217,480			(21,993	)		630,450
Costs of products sold		369,727			21,214			185,683			(22,830	)		553,794

Gross profit		43,243			779			31,797			837			76,656
Selling, general and administrative expenses		27,893			1,017			20,602			—			49,512
Shutdown and restructuring charges		(856	)		—			—			—			(856	)
Gains on dispositions of plant, equipment and timberlands, net		127			(14,604	)		(25	)		—			(14,502	)

Operating income		16,079			14,366			11,220			837			42,502
Non-operating income (expense)
Interest expense		(10,289	)		(11	)		(1,672	)		—			(11,972	)
Interest income		19,346			6,293			(1,078	)		(21,600	)		2,961
Other income (expense) — net		6,359			559			(395	)		(6,352	)		171

Total other income (expense)		15,416			6,841			(3,145	)		(27,952	)		(8,840	)

Income (loss) before income taxes		31,495			21,207			8,075			(27,115	)		33,662
Income tax provision (benefit)		8,664			8,353			1,844			(8,030	)		10,831

Net income (loss)	$	22,831		$	12,854		$	6,231		$	(19,085	)	$	22,831

Condensed Consolidating Statement of Income for the
six months ended June 30, 2007


	Parent						Non			Adjustments/
In thousand	Company			Guarantors			Guarantors			Eliminations			Consolidated


Net sales	$	399,510		$	21,603		$	169,570		$	(21,603	)	$	569,080
Energy sales — net		4,638			—			—			—			4,638

Total revenues		404,148			21,603			169,570			(21,603	)		573,718
Costs of products sold		368,673			19,452			141,535			(21,451	)		508,209

Gross profit		35,475			2,151			28,035			(152	)		65,509
Selling, general and administrative expenses		33,776			1,107			17,620			—			52,503
Shutdown and restructuring charges		262			—			(100	)		—			162
Gains on dispositions of plant, equipment and timberlands, net		179			(9,066	)		—			—			(8,887	)

Operating income		1,258			10,110			10,515			(152	)		21,731
Non-operating income (expense)
Interest expense		(13,601	)		—			(1,160	)		—			(14,761	)
Interest income		441			6,995			(2,397	)		(3,450	)		1,589
Other income (expense) — net		13,140			575			(192	)		(13,256	)		267

Total other income (expense)		(20	)		7,570			(3,749	)		(16,706	)		(12,905	)

Income (loss) before income taxes		1,238			17,680			6,766			(16,858	)		8,826
Income tax provision (benefit)		(4,013	)		7,008			1,874			(1,294	)		3,575

Net income (loss)	$	5,251		$	10,672		$	4,892		$	(15,564	)	$	5,251

GLATFELTER

-16-

Condensed Consolidating Balance Sheet as of June 30, 2008


	Parent							Adjustments/
In thousands	Company		Guarantors		Non Guarantors			Eliminations			Consolidated


Assets
Current assets
Cash and cash equivalents	$	6,682	$	438	$	11,491		$	—		$	18,611
Other current assets		300,110		334,727		75,057			(326,184	)		383,710
Plant, equipment and timberlands — net		279,267		7,882		243,384			—			530,533
Other assets		773,537		193,572		(43,390	)		(522,974	)		400,745

Total assets	$	1,359,596	$	536,619	$	286,542		$	(849,158	)	$	1,333,599


Liabilities and Shareholders’ Equity
Current liabilities	$	378,082	$	70,036	$	68,435		$	(325,257	)	$	191,296
Long-term debt		235,573		—		70,695			—			306,268
Deferred income taxes		138,733		35,456		32,155			(11,206	)		195,138
Other long-term liabilities		97,680		13,677		11,127			8,885			131,369

Total liabilities		850,068		119,169		182,412			(327,578	)		824,071
Shareholders’ equity		509,528		417,450		104,130			(521,580	)		509,528

Total liabilities and shareholders’ equity	$	1,359,596	$	536,619	$	286,542		$	(849,158	)	$	1,333,599

Condensed Consolidating Balance Sheet as of December 31, 2007


	Parent				Non			Adjustments/
In thousands	Company		Guarantors		Guarantors			Eliminations			Consolidated


Assets
Current assets
Cash and cash equivalents	$	6,693	$	162	$	22,978		$	—		$	29,833
Other current assets		257,804		277,958		37,008			(229,191	)		343,579
Plant, equipment and timberlands — net		279,511		7,591		232,764			—			519,866
Other assets		749,913		212,513		(78,513	)		(490,124	)		393,789

Total assets	$	1,293,921	$	498,224	$	214,237		$	(719,315	)	$	1,287,067


Liabilities and Shareholders’ Equity
Current liabilities	$	319,516	$	39,285	$	64,423		$	(225,668	)	$	197,556
Long-term debt		267,041		—		34,000			—			301,041
Deferred income taxes		138,615		33,557		32,236			(15,252	)		189,156
Other long-term liabilities		92,681		14,310		8,489			7,766			123,246

Total liabilities		817,853		87,152		139,148			(233,154	)		810,999
Shareholders’ equity		476,068		411,072		75,089			(486,161	)		476,068

Total liabilities and shareholders’ equity	$	1,293,921	$	498,224	$	214,237		$	(719,315	)	$	1,287,067

GLATFELTER

-17-

Condensed Consolidating Statement of Cash Flows for the
six months ended June 30, 2008


	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated


Net cash provided (used) by
Operating activities	$	14,431		$	2,200		$	1,922		$	(21,600	)	$	(3,047	)
Investing activities
Purchase of plant, equipment and timberlands		(9,308	)		(1,139	)		(14,960	)		—			(25,407	)
Proceeds from disposal plant, equipment and timberlands		1			14,996			—			—			14,997
Repayments from (advances of) intercompany loans, net		4,000			(16,778	)		(9,158	)		21,936			—
Return (contributions) of intercompany capital, net					26,597						(26,597	)		—

Total investing activities		(5,307	)		23,676			(24,118	)		(4,661	)		(10,410	)
Financing activities
Net (repayments of) proceeds from indebtedness		(30,001	)		—			38,991			—			8,990
Payment of dividends to shareholders		(8,220	)		—			—			—			(8,220	)
(Repayments) borrowings of intercompany loans, net		28,536			(4,000	)		(2,600	)		(21,936	)		—
Return of intercompany capital, net		—						(26,597	)		26,597			—
Payment of intercompany dividends		—			(21,600	)					21,600			—
Proceeds from stock options exercised		642			—			—			—			642

Total financing activities		(9,043	)		(25,600	)		9,794			26,261			1,412
Effect of exchange rate on cash		(92	)		—			915			—			823

Net increase (decrease) in cash		(11	)		276			(11,487	)		—			(11,222	)
Cash at the beginning of period		6,693			162			22,978			—			29,833

Cash at the end of period	$	6,682		$	438		$	11,491		$	—		$	18,611

Condensed Consolidating Statement of Cash Flows for the
six months ended June 30, 2008


	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations		Consolidated


Net cash provided (used) by
Operating activities	$	25,073		$	(9,305	)	$	1,868		$	—	$	17,636
Investing activities
Purchase of plant, equipment and timberlands		(10,428	)		(381	)		(3,412	)		—		(14,221	)
Proceeds from disposal plant, equipment and timberlands		13			9,435			—			—		9,448

Total investing activities		(10,415	)		9,054			(3,412	)		—		(4,773	)
Financing activities

Net (repayments of) proceeds from indebtedness		(15,075	)		—			(541	)		—		(15,616	)
Payment of dividends		(8,159	)		—			—			—		(8,159	)
Proceeds from stock options exercised		1,171			—			—			—		1,171

Total financing activities		(22,063	)		—			(541	)		—		(22,604	)
Effect of exchange rate on cash		—			—			752			—		752

Net increase (decrease) in cash		(7,405	)		(251	)		(1,333	)		—		(8,989	)
Cash at the beginning of period		10,227			546			11,212			—		21,985

Cash at the end of period	$	2,822		$	295		$	9,879		$	—	$	12,996

GLATFELTER

-18-

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and Glatfelter’s Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its our Annual Report on Form 10-K..

Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-Q are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among others, net sales, costs of products sold, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

i.		changes in the cost or availability of raw materials we use, in particular pulpwood, market pulp, pulp substitutes, and abaca fiber;

ii.		changes in energy-related costs and commodity raw materials with an energy component;

iii.		variations in demand for, or pricing of, our products;

iv.		our ability to develop new, high value-added Specialty Papers and Composite Fibers products;

v.		the impact of competition, changes in industry paper production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases;

vi.		the gain or loss of significant customers and/or on-going viability of such customers;

vii.		cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls (“PCBs”) in the lower Fox River on which our former Neenah mill was located;

viii.		risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;

ix.		geopolitical events, including war and terrorism;

x.		enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation;

xi.		adverse results in litigation;

xii.		our ability to successfully execute our timberland strategy to realize the value of our timberlands; and

xiii.		our ability to finance, consummate and integrate future acquisitions.

Introduction We manufacture, both domestically and internationally, a wide array of specialty papers and engineered products. Substantially all of our revenue is earned from the sale of our products to customers in numerous markets, including book publishing, envelope & converting, carbonless papers and forms, food and beverage, decorative laminates for furniture and flooring, metalized papers and other highly technical niche markets.

Overview Our results of operations for the first half of 2008 when compared with the same period of 2007 reflect stable demand trends and improved pricing conditions in each of our business units. However, each of our business units’ results in the first half of 2008 were adversely impacted by significantly higher input costs.

Specialty Papers’ results in 2008 compared to 2007 benefited from initiatives implemented in the second half of 2007 to improve the operational effectiveness and overall profitability of the Chillicothe facility.

Composite Fibers’ results in the first half of 2008 were adversely impacted by operational matters related to lost production associated with the upgrades of paper machines at two of its facilities, and lower production output due to the tight supply of abaca fiber. In addition, the inclusion of the November 2007 acquisition of the Caerphilly facility was slightly dilutive to this business unit’s results.

GLATFELTER

-19-

Results of operations for the first half of 2008 include $8.7 million of after-tax gains from the sale of timberlands as well a $2.0 million recovery in a litigation matter related to our former Ecusta mill, offset by legal fees for matters at that site.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2008 versus the
Six Months Ended June 30, 2007

The following table sets forth summarized results of operations:


	Six Months Ended June 30
In thousands, except per share	2008		2007

Net sales	$	625,723	$	569,080
Gross profit		76,656		65,509
Operating income		42,502		21,731
Net income		22,831		5,251
Earnings per share		0.50		0.12

The consolidated results of operations for the six months ended June 30, 2008 includes the following significant items:


	After-tax			Diluted EPS
In thousands, except per share	Gain (loss)

2008
Timberland sales	$	8,656		$	0.19
Reversal of shutdown and restructuring charges		532			0.01
Acquisition integration related costs		(588	)		(0.01	)

2007
Timberland sales		5,400			0.12
Environmental remediation		(3,693	)		(0.08	)
Acquisition integration related costs		(1,150	)		(0.03	)

The above items increased earnings by $8.6 million, or $0.19 per diluted share in the first six months of 2008. In the comparable period a year ago, the above items increased earnings by $0.6 million, or $0.01 per diluted share.

Business Units


Business Unit Performance	For the Six Months Ended June 30,
In thousands	Specialty Papers				Composite Fibers				Other and Unallocated						Total
	2008		2007		2008		2007		2008			2007			2008			2007

Net sales	$	408,242	$	399,510	$	217,480	$	169,570	$	1		$	—		$	625,723		$	569,080
Energy sales, net		4,727		4,638		—		—		—			—			4,727			4,638

Total revenue		412,969		404,148		217,480		169,570		1			—			630,450			573,718
Cost of products sold		374,224		370,737		184,858		141,312		(5,288	)		(3,840	)		553,794			508,209

Gross profit		38,745		33,411		32,622		28,258		5,289			3,840			76,656			65,509
SG&A		27,979		29,048		19,709		16,494		1,824			6,961			49,512			52,503
Shutdown and restructuring charges		—		—		—		—		(856	)		162			(856	)		162
Gains on dispositions of plant, equipment and timberlands		—		—		—		—		(14,502	)		(8,887	)		(14,502	)		(8,887	)

Total operating income (loss)		10,766		4,363		12,913		11,764		18,823			5,604			42,502			21,731
Nonoperating income (expense)		—		—		—		—		(8,840	)		(12,905	)		(8,840	)		(12,905	)

Income (loss) before income taxes	$	10,766	$	4,363	$	12,913	$	11,764	$	9,983		$	(7,301	)	$	33,662		$	8,826


Supplementary Data
Net tons sold		364,911		358,464		43,695		36,475		—			—			408,606			394,939
Depreciation, depletion and amortization expense	$	17,612	$	17,532	$	13,054	$	10,333		—			—		$	30,666		$	27,865

GLATFELTER

-20-

Business Units Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services or are included in “Other and Unallocated” in the table above.

Management evaluates results of operations of the business units before non-cash pension income, charges related to the Fox River environmental reserves, restructuring related charges, unusual items, certain corporate level costs, effects of asset dispositions and insurance recoveries because it believes this is a more meaningful representation of the operating performance of its core papermaking businesses, the profitability of business units and the extent of cash flow generated from core operations. Such amounts are presented under the caption “Other and Unallocated.” This presentation is closely aligned with the management and operating structure of our company. It is also on this basis that the Company’s performance is evaluated internally and by the Company’s Board of Directors.

Sales and Costs of Products Sold


	Six Months Ended
	June 30
In thousands	2008			2007			Change

Net sales	$	625,723		$	569,080		$	56,643
Energy sales – net		4,727			4,638			89

Total revenues		630,450			573,718			56,732
Costs of products sold		553,794			508,209			45,585

Gross profit	$	76,656		$	65,509		$	11,147

Gross profit as a percent of Net sales		12.3	%		11.5	%

The following table sets forth the contribution to consolidated net sales by each business unit:


	Percent of Total
	2008			2007

Business Unit
Specialty Papers		65.2	%		70.2	%
Composite Fibers		34.8			29.8

Total		100.0	%		100.0	%

Net sales totaled $625.7 million for the first six months of 2008, an increase of $56.6 million, or10.0%, compared to the same period a year ago.

In the Specialty Papers business unit, net sales for the first six months of 2008 increased $8.7 million to $408.2 million and operating income totaled $10.8 million, an increase of $6.4 million over the previous year. Higher average selling prices contributed $15.0 million of the increase in net sales and volumes shipped increased 1.8%. These price and volume increases were partially offset by expected mix changes between carbonless papers and uncoated papers, as well as lower sales of scrap paper. The benefits of higher average selling prices were offset by $20.7 million of higher costs, largely driven by fiber and energy. Unplanned operating downtime at the Spring Grove and Chillicothe facilities also reduced operating results by $1.7 million early in the first half of the current year. In addition to the net effect of the factors discussed above, the higher operating income for the first half of 2008 reflects progress achieved in the last half of 2007 in executing Chillicothe’s profit improvement initiatives.

In Composite Fibers, net sales were $217.5 million for the first six months of 2008, an increase of $47.9 million from the same period a year ago and operating income totaled $12.9 million, an increase of $1.1 million in the comparison. The completion of the November 30, 2007 Caerphilly acquisition accounted for approximately $23.5 million of the increase in net sales and the translation of foreign currencies benefited net sales by $18.1 million. Volumes increased approximately 19.8% with increases realized across all product lines. On a constant currency basis, average selling prices benefited net sales by $3.8 million which partially offset the impact of higher input costs. Energy and raw material costs in this business unit were $5.8 million higher than the same period a year ago. During the fourth quarter of 2007, we completed a machine upgrade at Composite Fibers’ Lydney facility, with startup extending into the first quarter of 2008, lowering production volumes and operating income by approximately $1.7 million.

GLATFELTER

-21-

Non-Cash Pension Income Non-cash pension income results from the over-funded status of our pension plans. The amount of pension income recognized each year is determined using various actuarial assumptions and certain other factors, including the fair value of our pension assets as of the beginning of the year. The following summarizes non-cash pension income for the first half of 2008 compared to the same period of 2007:


	Six Months Ended
	June 30
In thousands	2008		2007		Change

Recorded as:
Costs of products sold	$	5,465	$	4,694	$	771
SG&A expense		2,500		1,727		773

Total	$	7,965	$	6,421	$	1,544

Selling, general and administrative (“SG&A”) expenses decreased $3.0 million in the period-to-period comparison and totaled $49.5 million in the first half of 2008. SG&A decreased in the comparison due to the inclusion in the 2007 period of a $6 million charge for environmental matters in addition to the benefit in the comparison of a $2.0 million recovery in 2008 from the settlement of a litigation matter related to our former Ecusta division, offset by legal fees for matters at that site. The amounts for 2008 also were adversely impacted by foreign currency translation and the inclusion of the Caerphilly acquisition.

Gain on Sales of Plant, Equipment and Timberlands During the first six months of 2008, we completed sales of timberlands which are summarized by the following table:


Dollars in thousands	Acres		Proceeds		Gain

2008
Timberlands		3,595	$	14,997	$	14,603
Other		n/a		—		(101	)

			$	14,997	$	14,502


2007
Timberlands		3,588	$	9,435	$	9,066

Income taxes Our results of operations for the first six months of 2008 reflect an effective tax rate of 32.2% compared to 40.5% in the same period a year ago. The decrease in the effective tax rate is primarily due to tax benefits recorded upon the filing of an international subsidiary’s tax return and the reversal of a tax reserve in a foreign jurisdiction where the statute expired.

Foreign Currency We own and operate paper and pulp mills in Germany, France, the United Kingdom and the Philippines. The local currency in Germany and France is the Euro, in the UK it is the British Pound Sterling, and in the Philippines the currency is the Peso. During the first six months of 2008, Euro functional currency operations generated approximately 21.5% of our sales and 20.1% of operating expenses and British Pound Sterling operations represented 10.6% of net sales and 11.2% of operating expenses. The translation of the results from these international operations into U.S. dollars is subject to changes in foreign currency exchange rates.

The table below summarizes the effect from foreign currency translation on first half 2008 reported results compared to first half 2007:


	Six Months
In thousands	Ended June 30
	Favorable
	(unfavorable)
Net sales	$	18,073
Costs of products sold		(14,925	)
SG&A expenses		(1,515	)
Income taxes and other		(309	)

Net income	$	1,324

The above table only presents the financial reporting impact of foreign currency translations. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

GLATFELTER

-22-

Three Months Ended June 30, 2008 versus the
Three Months Ended June 30, 2007

The following table sets forth summarized results of operations:


	Three Months Ended
	June 30
In thousands, except per share	2008		2007

Net sales	$	320,224	$	288,091
Gross profit		32,398		28,800
Operating income		7,861		10,780
Net income (loss)		3,156		1,998
Earnings (loss) per share		0.07		0.04

The consolidated results of operations for the three months ended June 30 includes the following significant items:


	After-tax			Diluted EPS
In thousands, except per share	Gain (loss)
2008
Reversal of shutdown and restructuring charges	$	532		$	0.01
Acquisition integration related costs		(177	)		0.00

2007
Timberland sales		3,486			0.08
Acquisition integration related costs		(744	)		(0.02	)

Business Units The following table sets forth profitability information by business unit and the composition of consolidated income before income taxes:


Business Unit Performance							For the Three Months Ended June 30,
In thousands, except net tons sold	Specialty Papers						Composite Fibers				Other and Unallocated						Total
	2008			2007			2008		2007		2008			2007			2008			2007

Net sales	$	207,296		$	202,606		$	112,928	$	85,486	$	—		$	(1	)	$	320,224		$	288,091
Energy sales, net		2,743			2,424			—		—		—			—			2,743			2,424

Total revenue		210,039			205,030			112,928	$	85,486		—			(1	)		322,967			290,515
Cost of products sold		196,948			192,817			96,462		70,522		(2,841	)		(1,624	)		290,569			261,715

Gross profit (loss)		13,091			12,213			16,466		14,964		2,841			1,623			32,398			28,800
SG&A		13,772			14,521			9,689		8,182		1,916			1,073			25,377			23,776
Shutdown and restructuring charges		—			—			—		—		(856	)		(63	)		(856	)		(63	)
Gains on dispositions of plant, equipment and timberlands		—			—			—		—		16			(5,693	)		16			(5,693	)

Total operating income (loss)		(681	)		(2,308	)		6,777		6,782		1,765			6,306			7,861			10,780
Non-operating income (expense)												(4,367	)		(6,940	)		(4,367	)		(6,940	)

Income (loss) before income taxes	$	(681	)	$	(2,308	)	$	6,777	$	6,782	$	(2,602	)	$	(634	)	$	3,494		$	3,840


Supplementary Data
Net tons sold		182,700			183,344			22,356		18,118		—			—			205,056			201,462
Depreciation, depletion and amortization expense	$	8,980		$	8,881		$	6,968	$	5,250		—			—		$	15,948		$	14,131

GLATFELTER

-23-

The following table summarizes sales and costs of products sold for the three months ended June 30, 2008 and 2007.

Sales and Costs of Products Sold


	Three Months Ended
	June 30
In thousands	2008			2007			Change

Net sales	$	320,224		$	288,091		$	32,133
Energy sales – net		2,743			2,424			319

Total revenues		322,967			290,515			32,452
Costs of products sold		290,569			261,715			28,854

Gross profit	$	32,398		$	28,800		$	3,598

Gross profit as a percent of Net sales		10.1	%		10.0	%

The following table sets forth the contribution to consolidated net sales by each business unit:


	Percent of Total
	2008			2007

Business Unit
Specialty Papers		64.7	%		70.3	%
Composite Fibers		35.3			29.7

Total		100.0	%		100.0	%

Net sales totaled $320.2 million for the second quarter of 2008, an increase of $32.1 million, or approximately 11.1%, compared to the same period a year ago.

In the Specialty Papers business unit, net sales for the second quarter of 2008 increased $4.7 million to $207.3 million and the unit had an operating loss of $0.7 million, an improvement of $1.6 million over the previous year. Higher average selling prices contributed $9.0 million of the increase in net sales and volumes shipped were essentially unchanged, although the mix of products was slightly unfavorable primarily due to the expected and continued decline in carbonless and forms markets. Operating income was adversely impacted by higher production costs primarily due to higher raw material prices that increased by $11.6 million largely driven by pulp and energy. During the second quarters of 2008 and 2007, we completed the annually scheduled maintenance outages at its Spring Grove, PA and Chillicothe, OH facilities. These required outages result in increased maintenance spending and reduced production leading to unfavorable manufacturing costs and lower product sales negatively affecting our second quarter results when compared to other quarters. The maintenance outages adversely impacted gross profit by approximately $15.6 million in the second quarter of 2008, compared to $15.3 million in the same quarter a year ago. During the second quarter, we also incurred $0.4 million in severance costs as we continued to reduce the cost structure at our Chillicothe facility.

Net sales in the Composite Fibers business unit increased $27.4 million, or 32.1% to $112.9 million for the 2008 second quarter, largely due to the November 2007 Caerphilly acquisition and the impact of foreign currency translation. Despite the loss of production and sales volume associated with the rebuild of a paper machine in Gernsbach Germany, operating income was in line with the second quarter of 2007 at $6.8 million. On a constant currency basis, higher average selling prices contributed $3.0 million to operating income and volumes increased approximately 23.4%. The higher volumes were primarily due to shipments of metalized paper from Caerphilly (acquired in November 2007), and, to a lesser extent, greater shipments of composite laminates and food and beverage products. The cost of raw materials, primarily pulps and energy, was $4.9 million higher than a year ago. As expected, Caerphilly was slightly dilutive to second quarter 2008 earnings and as previously announced, the Company continues to expect Caerphilly to be neutral to earnings for 2008 and slightly accretive in 2009. During the second quarter of 2008, the Company completed the previously announced upgrade of a paper machine at the Gernsbach facility. Lost production time during the upgrade period adversely impacted operating income by approximately $0.3 million. In addition, cost of goods sold in the second quarter of 2008 includes $0.7 million of accelerated depreciation to write-off the book value of the paper machine components that were replaced during the upgraded.


	Three Months Ended
	June 30
In thousands	2008		2007		Change

Recorded as:
Costs of products sold	$	2,925	$	2,190	$	735
SG&A expense		1,271		718		553

Total	$	4,196	$	2,908	$	1,288

Selling, general and administrative (“SG&A”) expenses increased by $1.6 million in the quarter-to-quarter comparison and totaled $25.4 million in the second quarter of 2008. The increase was due to higher performance-based incentive compensation expenses, the effect of foreign currency translation adjustments and the inclusion of Caerphilly’s results in 2008.

GLATFELTER

-24-

Income taxes During the second quarter of 2008, our effective tax rate was 9.7% compared to 48.0% in the same period of 2007. The decrease was primarily due to the significant amount of land sales in the second quarter of 2007 which are subject to higher tax rates, tax benefits recorded upon the filing of an international subsidiary’s tax return, and the reversal of a tax reserve in a foreign jurisdiction where the statute expired.

Foreign Currency During the second quarter of 2008, Euro functional currency operations generated approximately 21.8 % of our sales and 20.1 % of operating expenses and British Pound Sterling operations represented 10.9 % of net sales and 10.9 % of operating expenses. The translation of the results from these international operations into U.S. dollars is subject to changes in foreign currency exchange rates.

The table below summarizes the effect from foreign currency translation on second quarter 2008 reported results compared to second quarter 2007:


In thousands	Three Months Ended
	Favorable
	(unfavorable)
Net sales	$	9,789
Costs of products sold		(7,713	)
SG&A expenses		(714	)
Income taxes and other		(166	)

Net income	$	1,196

LIQUIDITY AND CAPITAL RESOURCES

Our business is capital intensive and requires expenditures for new or enhanced equipment, for environmental compliance matters and to support our business strategy and research and development efforts. The following table summarizes cash flow information for each of the periods presented.


	Six Months Ended
	June 30
In thousands	2008			2007

Cash and cash equivalents at beginning of period	$	29,833		$	21,985
Cash provided by (used for)
Operating activities		(3,047	)		17,636
Investing activities		(10,410	)		(4,773	)
Financing activities		1,412			(22,604	)
Effect of exchange rate changes on cash		823			752

Net cash used		(11,222	)		(8,989	)

Cash and cash equivalents at end of period	$	18,611		$	12,996

Cash used in operating activities increased $20.7 million in the comparison as the benefits of improved results of operations were more than offset by increased accounts receivables, the use of $9.4 million of cash to fund environmental matters and the payment of to $16.1 million of taxes in 2008 compared with a $1.6 million of tax refund in the same period of 2007.

The net change in investing cash flows primarily reflects $11.2 million increase in capital expenditures during the period partially offset by a $5.5 million increase in proceeds from timberland sales. For all of 2008, capital expenditures are expected to total $52 million to $57 million including a $10 million investment to upgrade the capabilities of one of our inclined-wire paper machines in Germany during the second quarter of 2008.

We recently announced our intentions to invest $38 million in state-of-the-art inclined wire and through air drying technology to upgrade another paper machine at our Gernsbach, Germany facility. This investment is expected to be made in the second half of 2009 and will likely be funded from existing cash balances and available borrowing capacity under our current credit facility.

During the first six months of 2008 and 2007, cash dividends paid on common stock totaled approximately $8.2 million in each period. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments.

Changes in cash flows from financing activity in the comparison resulted primarily from net debt repayments in first six months of 2007 totaling $15.6 million, compared to net borrowings in the current year totaling $9.0 million. During the first half of 2008, we completed a $36.7 million borrowing collateralized with a promissory note received in connection with the fourth quarter of 2007 installment timberland sale.

GLATFELTER

-25-

The following table sets forth our outstanding long-term indebtedness:


	June 30,			December
In thousands	2008			31, 2007

Revolving credit facility, due April 2011	$	10,956		$	35,049
Term Loan, due April 2011		37,000			43,000
7¹/₈% Notes, due May 2016		200,000			200,000
Term Loan, due January 2013		36,695			–
Note payable, due March 2013		34,000			34,000

Total long-term debt		318,651			312,049
Less current portion		(12,383	)		(11,008	)

Long-term debt, excluding current portion	$	306,268		$	301,041

The significant terms of the debt obligations are set forth in Item 1–Financial Statements and Supplementary Data, Note 12.

We are subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of mills we operate, or have operated. To comply with environmental laws and regulations, we have incurred substantial capital and operating expenditures in past years. We anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment resulting from our operations, including the restoration of natural resources and liability for personal injury and for damages to property and natural resources. See Item 1 – Financial Statements – Note 14 for a summary of significant environmental matters.

We expect to meet all of our near- and longer-term cash needs from a combination of operating cash flow, cash and cash equivalents, sales of timberland, our existing credit facility or other bank lines of credit and other long-term debt. However, as discussed in Item 1 – Financial Statements– Note 14, an unfavorable outcome of various environmental matters could have a material adverse impact on our consolidated financial position, liquidity and/or results of operations.

Our credit agreement, as amended, contains a number of customary compliance covenants. In addition, the 7¹/₈% Notes contain a cross default provision that in the event of a default under the credit agreement, the 7¹/₈% Notes would become currently due. As of June 30, 2008, we met all of the requirements of our debt covenants.

Off-Balance-Sheet Arrangements As of June 30, 2008 and December 31, 2007, we had not entered into any off-balance-sheet arrangements. Financial derivative instruments to which we are a party and guarantees of indebtedness, which solely consist of obligations of subsidiaries and a partnership, are reflected in the condensed consolidated balance sheets included herein in Item 1 – Financial Statements.

Outlook For the second half of 2008, we expect average selling prices to increase across all product lines in the Specialty Papers business unit. However, the rate of increase in this unit’s input costs is expected to outpace the benefits from higher selling prices. Further, we expect cost reduction initiatives to mitigate the adverse effects of the rate of increases in input costs compared to increases in selling prices. Volumes shipped in the Specialty Papers business unit during the second half of 2008 are expected to be in line with the same period of 2007.

In the Composite Fibers business unit, higher average selling prices coupled with continuous improvement initiatives are expected to more than offset rising input costs. Volumes shipped in this unit during the second half of 2008 are expected to be higher than the same period of 2007 reflecting additional volumes attributable to the Caerphilly acquisition.

In connection with the previously announced $38 million investment to install state-of-the-art inclined wire technology and through air drying on a paper machine, we expect to record accelerated depreciation expense, of $0.7 million per quarter through the third quarter of 2009, associated with the upgraded machine components.

We also expect to record, in the second half of 2008, charges estimated to total $0.5 million to $1.0 million associated with new or additional profit improvement initiatives at the Chillicothe facility.

GLATFELTER

-26-

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS


	Year Ended December 31															At June 30, 2008
Dollars in thousands	2008			2009			2010			2011			2012			Carrying Value		Fair Value

Long-term debt
Average principal outstanding
At fixed interest rates — Bond	$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000	$	185,175
At fixed interest rate – SunTrust Note		34,000			34,000			34,000			34,000			34,000			34,000		33,621
At variable interest rates		81,900			72,268			58,509			42,055			36,695			84,651		84,651

																$	318,651	$	303,447

Weighted-average interest rate
On fixed rate debt – Bond		7.13	%		7.13	%		7.13	%		7.13	%		7.13	%
On fixed rate debt – Note payable		3.10			3.10			3.10			3.10			3.10
On variable rate debt		4.47			4.62			4.92			5.20			5.31

Our market risk exposure primarily results from changes in interest rates and currency exchange rates. At June 30, 2008, we had long-term debt outstanding of $318.7 million, of which $84.7 million or 26.6 % was at variable interest rates.

The table above presents average principal outstanding and related interest rates for the next five years. Fair values included herein have been determined based upon rates currently available to us for debt with similar terms and remaining maturities.

Variable-rate debt outstanding represents borrowings under (i) credit facility that incur interest based on the domestic prime rate or a Eurocurrency rate, at our option, plus a margin; (ii) the term loan that matures in April 2011, under which we are required to make quarterly repayments and (iii) the 2008 Term Loan that bears interest at a six-month reserve adjusted LIBOR plus a margin rate of 1.2%per annum. At June 30, 2008, the weighted average interest rate paid on variable rate debt was 4.47%. A hypothetical 100 basis point increase or decrease in the interest rate on variable rate debt would increase or decrease annual interest expense by $0.9 million.

We are subject to certain risks associated with changes in foreign currency exchange rates to the extent our operations are conducted in currencies other than the U.S. Dollar. During the first six months of 2008, Euro functional currency operations generated approximately 21.5 % of our sales and 20.1 % of operating expenses and British Pound Sterling operations represented 10.6 % of net sales and 11.2 % of operating expenses.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures Our chief executive officer and our principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2008, have concluded that, as of the evaluation date, our disclosure controls and procedures are effective.

Changes in Internal Controls There were no changes in our internal control over financial reporting during the three months ended June 30, 2008, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

GLATFELTER

-27-

PART II

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of holders of Glatfelter common stock was held on May 1, 2008. At this meeting, shareholders voted on the following matters (with the indicated tabulated results).

The election of two members of the Board of Directors to serve for full three-year terms expiring in 2011.


Director	For		Withheld

Nicholas DeBenedictis		24,426,131		16,736,576
J. Robert Hall		37,745,500		3,417,207

ii.

the amendment of the Company’s By-laws to phase out the company’s classified Board structure.


For	Against	Abstained

40,807,843	300,680	54,182

iii.

the ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2008.


For	Against	Abstained
38,594,819	2,533,458	34,430

ITEM 5. OTHER INFORMATION

On May 8, 2008, in conjunction with the Company’s ongoing strategic initiative to monetize the value of its timberlands, the Company, through a wholly-owned subsidiary, entered into an agreement to sell 246 acres of timberland for $3.25 million in cash to George H. Glatfelter, its Chairman and Chief Executive Officer, and his wife Beverly G. Glatfelter (the “Glatfelters”), subject to closing conditions customary with transactions of this nature. The 246 acres of timberland which was subject to the agreement with the Glatfelters, had been independently appraised and marketed for public sale by the Company. Based on those appraisals and the marketing process that was pursued, the Company and its Board of Directors believe that the sale price agreed to with the Glatfelters constitutes fair market value for the timberland. The sale of this timberland closed on August 8, 2008.

In accordance with the Company’s Corporate Governance standards, the proposed sale transaction with the Glatfelters was reviewed and pre-approved by the Nominating and Corporate Governance Committee of the Company’s Board of Directors as a related party transaction.

A copy of the land sale agreement is filed with this Quarterly Report on Form 10-Q as Exhibit 10.2.

GLATFELTER

-28-

ITEM 6. EXHIBITS

The following exhibits are filed herewith or incorporated by reference as indicated.


10.1		Amended Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox River and Green Bay Site by and among the United States of America and the State of Wisconsin v. P. H. Glatfelter and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.), certain Appendices have been intentionally omitted, copies of which can be obtained free of charge from the Registrant), incorporated by reference to the Company’s Current Report on Form 8-K, dated June 30, 2008.
10.2		Contract for Sale for Sale of Real Estate between Glatfelter Pulp Wood Company, a wholly owned subsidiary of the Company, and George H. Glatfelter II and Beverly G. Glatfelter, dated May 8, 2008, filed herewith.
31.1		Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
32.2		Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.


	P. H. GLATFELTER COMPANY
	(Registrant)

August 11, 2008

	By	/s/ David C. Elder

		David C. Elder
		Corporate Controller

GLATFELTER

-29-


		EXHIBIT INDEX


Exhibit Number		Description
10.1		Amended Consent Decree for Remedial Design and Remedial Action at Operable Unit 1 of the Lower Fox River and Green Bay Site by and among the United States of America and the State of Wisconsin v. P. H. Glatfelter and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.) -(certain Appendices have been intentionally omitted, copies of which can be obtained free of charge from the Registrant), incorporated by reference to the Company’s Current Report on Form 8-K, dated June 30, 2008.
10.2		Contract for Sale for Sale of Real Estate between Glatfelter Pulp Wood Company, a wholly owned subsidiary of the Company, and George H. Glatfelter II and Beverly G. Glatfelter, dated May 8, 2008, filed herewith.
31.1		Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 – Chief Executive Officer, filed herewith.
31.2		Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer, filed herewith.
32.1		Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer, filed herewith.
32.2		Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 – Chief Financial Officer, filed herewith.

GLATFELTER

-30-


		Page
PART I — FINANCIAL INFORMATION

Item 1	Financial Statements

	Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2008 and 2007 (unaudited)	2

	Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (unaudited)	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3	Quantitative and Qualitative Disclosures About Market Risks	27

Item 4	Controls and Procedures	27

PART II — OTHER INFORMATION

Item 4	Submission of Matters to a Vote of Security Holders	28

Item 5	Other Information	28

Item 6	Exhibits	29

SIGNATURES		29