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

or

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, 2009

Commission file number 1-3560

P. H. Glatfelter Company

(Exact name of registrant as specified in its charter)

Pennsylvania (State or other jurisdiction of incorporation or organization)	23-0628360 (IRS Employer Identification No.)
96 South George Street, Suite 500 York, Pennsylvania 17401 (Address of principal executive offices)	(717) 225-4711 (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 þ  No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No þ.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

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

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

As of July 31, 2009, P. H. Glatfelter Company had 45,563,580 shares of common stock outstanding.

P. H. GLATFELTER COMPANY
REPORT ON FORM 10-Q
for the QUARTERLY PERIOD ENDED

JUNE 30, 2009

Table of Contents

			Page
PART I — FINANCIAL INFORMATION
	Item 1	Financial Statements
		Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2009 and 2008 (unaudited)		2
		Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008 (unaudited)		3
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited)		4
		Notes to Condensed Consolidated Financial Statements (unaudited)		5
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	Item 3	Quantitative and Qualitative Disclosures About Market Risks		31
	Item 4	Controls and Procedures		31
PART II — OTHER INFORMATION
	Item 4	Submission of Matters to a Vote of Security Holders		32
	Item 6	Exhibits		32
SIGNATURES				33
EX-3.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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	2009			2008			2009			2008
Net sales	$	278,979		$	320,224		$	570,531		$	625,723
Energy sales — net		2,131			2,743			4,062			4,727
Total revenues		281,110			322,967			574,593			630,450
Costs of products sold		222,109			290,569			472,278			553,794
Gross profit		59,001			32,398			102,315			76,656
Selling, general and administrative expenses		26,548			25,377			51,061			49,512
Reversal of shutdown and restructuring charges		—			(856	)		—			(856	)
(Gains) losses on dispositions of plant, equipment and timberlands, net		27			16			(672	)		(14,502	)
Operating income		32,426			7,861			51,926			42,502
Non-operating income (expense)
Interest expense		(5,144	)		(5,827	)		(10,270	)		(11,972	)
Interest income		557			1,357			1,265			2,961
Other — net		(135	)		103			(118	)		171
Total other income (expense)		(4,722	)		(4,367	)		(9,123	)		(8,840	)
Income before income taxes		27,704			3,494			42,803			33,662
Income tax provision		7,834			338			11,395			10,831
Net income	$	19,870		$	3,156		$	31,408		$	22,831
Earnings per share
Basic	$	0.44		$	0.07		$	0.69			0.51
Diluted		0.43			0.07			0.69			0.50
Cash dividends declared per common share	$	0.09		$	0.09		$	0.18		$	0.18
Weighted average shares outstanding
Basic		45,658			45,227			45,624			45,192
Diluted		45,698			45,666			45,654			45,594

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

GLATFELTER

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P. H. GLATFELTER COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

	June 30			December 31
In thousands	2009			2008
Assets
Current assets
Cash and cash equivalents	$	78,204		$	32,234
Accounts receivable — net		128,558			132,635
Inventories		177,857			193,354
Prepaid expenses and other current assets		37,403			33,596
Total current assets		422,022			391,819
Plant, equipment and timberlands — net		484,354			493,564
Other assets		133,460			171,926
Total assets	$	1,039,836		$	1,057,309
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt	$	13,759		$	13,759
Short-term debt		3,559			5,866
Accounts payable		58,598			59,750
Dividends payable		4,161			4,089
Environmental liabilities		3,224			5,734
Other current liabilities		94,091			100,904
Total current liabilities		177,392			190,102
Long-term debt		258,270			293,660
Deferred income taxes		82,904			90,158
Other long-term liabilities		140,531			140,682
Total liabilities		659,097			714,602
Commitments and contingencies		—			—
Shareholders’ equity
Common stock		544			544
Capital in excess of par value		46,325			45,806
Retained earnings		628,118			605,001
Accumulated other comprehensive loss		(163,468	)		(176,133	)
		511,519			475,218
Less cost of common stock in treasury		(130,780	)		(132,511	)
Total shareholders’ equity		380,739			342,707
Total liabilities and shareholders’ equity	$	1,039,836		$	1,057,309

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

GLATFELTER

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P. H. GLATFELTER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

	Six months ended
	June 30
In thousands	2009			2008
Operating activities
Net income	$	31,408		$	22,831
Adjustments to reconcile to net cash provided (used) by operations:
Depreciation, depletion and amortization		29,050			30,666
Pension expense (income)		3,359			(7,965	)
Reversal of shutdown and restructuring charges		—			(856	)
Deferred income tax provision		(11,393	)		5,994
Gains on dispositions of plant, equipment and timberlands, net		(672	)		(14,502	)
Stock-based compensation		2,294			2,367
Cash used for environmental matters		(7,217	)		(9,481	)
Change in operating assets and liabilities
Accounts receivable		7,007			(20,682	)
Inventories		18,391			(1,208	)
Prepaid and other current assets		33			1,956
Accounts payable		(2,230	)		(2,898	)
Accruals and other current liabilities		(6,769	)		(8,983	)
Other		1,606			(286	)
Net cash provided (used) by operating activities		64,867			(3,047	)
Investing activities
Expenditures for purchases of plant, equipment and timberlands		(11,475	)		(25,407	)
Proceeds from disposals of plant, equipment and timberlands, net		728			14,997
Proceeds from timberland installment sale note receivable		37,850			—
Net cash provided (used) by investing activities		27,103			(10,410	)
Financing activities
Net borrowings (repayments) of revolving credit facility		4,606			(25,000	)
Net borrowings (repayments) of short term debt		(2,191	)		3,295
Repayment of Note payable, due March 2013		(34,000	)		—
Proceeds from Term Loan, due January 2013		—			36,695
Principal repayments — 2011 Term Loan		(8,000	)		(6,000	)
Payment of dividends		(8,272	)		(8,220	)
Proceeds from stock options exercised and other		—			642
Net cash (used) provided by financing activities		(47,857	)		1,412
Effect of exchange rate changes on cash		1,857			823
Net increase (decrease) in cash and cash equivalents		45,970			(11,222	)
Cash and cash equivalents at the beginning of period		32,234			29,833
Cash and cash equivalents at the end of period	$	78,204		$	18,611
Supplemental cash flow information
Cash paid for
Interest	$	9,266		$	11,309
Income taxes		13,046			16,110

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

GLATFELTER

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P. H. GLATFELTER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
unaudited

1. ORGANIZATION

     P. H. Glatfelter Company and subsidiaries (“Glatfelter”, “our”, “us”, or “we”) 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

     Basis of Presentation The consolidated financial statements include the accounts of Glatfelter and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. We have evaluated all subsequent events through August 7, 2009, the date the financial statements were issued.

     We prepared these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”). In our opinion, the unaudited interim consolidated financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these unaudited interim consolidated financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2008 Annual Report on Form 10-K (“2008 Form 10-K”).

     Accounting Estimates The preparation of financial statements in conformity with GAAP 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

     On December 30, 2008, the FASB issued FSP FAS 132(R)-1 “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”). This standard, which will be effective for us beginning December 31, 2009, will require more detailed disclosures about pension plan assets, our investment strategies, major categories of plan assets, concentrations of risk within the plan, and valuation techniques used to measure fair value. The adoption of FSP FAS 132(R)-1 is not expected to have a material impact on our consolidated financial position or results of operation.

4. ALTERNATIVE FUEL MIXTURE CREDITS

     The U.S. Internal Revenue Code provides a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. We began mixing black liquor and diesel fuel in late February 2009 and filed an application to be registered as an alternative fuel mixer with the Internal Revenue Service in March 2009. On May 11, 2009, we were notified by the Internal Revenue Service that our application to be registered as an alternative fuel mixer was approved. We subsequently filed an excise tax refund claim for the alternative fuel mixture consumed at our Spring Grove, PA and Chillicothe, OH facilities during the period February 20, 2009 through May 17, 2009 (the “First Refund Claim”). The Company received a payment from the Internal Revenue Service (“IRS”) on June 30, 2009 in the amount of $29.7 million related to the First Refund Claim.

     In addition, for the period May 18, 2009 through June 30, 2009, we earned an additional $12.8 million of alternative fuel mixture credits for which a claim has yet to be submitted to the IRS. We intend to claim this amount as a non-taxable income tax credit in connection with the filing of our 2009 federal corporate income tax return.

     The accompanying consolidated statement of income for the three months and six months ended June 30, 2009 includes a credit of $40.8 million in cost of products sold representing eligible alternative fuel mixture credits earned through June 30, 2009, net of associated expenses. On an after-tax basis, we recognized $30.7 million of alternative fuel mixture credits during the second quarter of 2009.

GLATFELTER

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     According to the Internal Revenue Code, the tax credit is scheduled to expire on December 31, 2009. However, there can be no assurances that the incentive program for alternative fuel mixtures will continue in effect or that its provisions, including taxes applicable to the credits, will not be changed, or that we will be successful in receiving future credits under the program.

5. GAIN ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS

     During the first six months of 2009 and 2008, we completed sales of timberlands as summarized by the following table:

Dollars in thousands	Acres		Proceeds		Gain
2009
Timberlands		189	$	728	$	699
Other		n/a		—		(27	)
			$	728	$	672
2008
Timberlands		3,595	$	14,997	$	14,603
Other		n/a		—		(101	)
			$	14,997	$	14,502

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	2009		2008
Net income	$	19,870	$	3,156
Weighted average common shares outstanding used in basic EPS		45,658		45,227
Common shares issuable upon exercise of dilutive stock options, restricted stock awards and performance awards		40		439
Weighted average common shares outstanding and common share equivalents used in diluted EPS		45,698		45,666
Earnings per share
Basic	$	0.44	$	0.07
Diluted		0.43		0.07

	Six months ended June 30
In thousands, except per share	2009		2008
Net income	$	31,408	$	22,831
Weighted average common shares outstanding used in basic EPS		45,624		45,192
Common shares issuable upon exercise of dilutive stock options, restricted stock awards and performance awards		30		402
Weighted average common shares outstanding and common share equivalents used in diluted EPS		45,654		45,594
Earnings per share
Basic	$	0.69	$	0.51
Diluted		0.69		0.50

     Approximately 2,287,620 and 688,500 of potential common shares have been excluded from the computation of diluted earnings per share for the three month period ended June 30, 2009 and 2008, respectively, due to their anti-dilutive nature. The amounts excluded for the six month period ended June 30, 2009 and 2008, were 2,287,620 and 691,500, 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, 2009 and December 31, 2008, we had $29.4 million and $29.2 million, respectively, of gross unrecognized tax benefits. As of June 30, 2009, if such benefits were to be recognized, approximately $25.8 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate.

GLATFELTER

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     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		N/A	2007 and 2008
State		2004		2003 — 2008
International
Germany (1)		2003 — 2006	2007 and 2008
France		N/A		2006 — 2008
United Kingdom		N/A		2006 — 2008
Philippines		2005 — 2007		2008

(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 limitation, it is reasonably possible our gross unrecognized tax benefits balance may change within the next twelve months by a range of $0.8 million to $8.5 million. Substantially all of this range relates to tax positions taken in the U.S. and in Germany.

     On July 14, 2009, we received notification that the IRS’ examination of our federal returns for the tax years 2004 through 2006 was completed. Accordingly, we expect to recognize in the third quarter of 2009 approximately $0.6 million, net, of previously unrecognized tax benefits related to uncertain tax positions for these periods.

     We recognize interest and penalties related to uncertain tax positions as income tax expense. Interest expense recognized in the second quarter of 2009 totaled $0.3 million. Accrued interest was $3.3 million and $2.6 million as of June 30, 2009 and December 31, 2008, respectively. We did not record any penalties associated with uncertain tax positions during the second quarters of 2009 or 2008.

8. STOCK-BASED COMPENSATION

     On April 29, 2009, shareholders approved the P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the “LTIP”) to authorize, among other things, the issuance of up to 5,500,000 shares of Glatfelter common stock to eligible participants. The LTIP provides for the issuance of restricted stock units, restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units.

     Restricted Stock Units (“RSU”) Awards of RSU are made under our LTIP. The RSUs vest based solely on the passage of time on a graded scale over a three, four, and five-year period. The following table summarizes RSU activity during the first six months of 2009:

Units	2009
Beginning balance		486,988
Granted		205,360
Forfeited		(4,800	)
Restriction lapsed/shares delivered		(5,747	)
Ending balance		681,801
Dollars in thousands
Compensation expense	$	727

GLATFELTER

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     Stock Only Stock Appreciation Rights (SOSARs) Under terms of the SOSAR, the recipients receive the right to 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 vest ratably over a three year period and have a term of ten years. The following table sets forth information related to outstanding SOSARS.

	2009
				Wtd Avg
				Exercise
SOSARS	Shares			Price
Outstanding at Jan. 1,		718,810		$	14.63
Granted		1,043,210			9.91
Exercised		—
Canceled		—
Outstanding at June 30,		1,762,020		$	11.84
Dollars in thousands
Compensation expense	$	697
2009 SOSAR Grants
Weighted average grant date fair value per share	$	2.83
Aggregate grant date fair value (in thousands)	$	2,957
Black-Scholes Assumptions
Dividend yield		3.63	%
Risk free rate of return		2.26	%
Volatility		40.59	%
Expected life		6 yrs

9. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

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

	Three months ended
	June 30
In thousands	2009			2008
Pension Benefits
Service cost	$	2,067		$	1,991
Interest cost		5,973			6,158
Expected return on plan assets		(9,936	)		(13,037	)
Amortization of prior service cost		537			597
Amortization of unrecognized loss		3,382			95
Net periodic benefit cost (income)	$	2,023		$	(4,196	)
Other Benefits
Service cost	$	653		$	503
Interest cost		882			825
Expected return on plan assets		(122	)		(216	)
Amortization of prior service cost		(309	)		(337	)
Amortization of unrecognized loss		509			359
Net periodic benefit cost	$	1,613		$	1,134
	Six months ended
	June 30
In thousands	2009			2008
Pension Benefits
Service cost	$	4,317		$	4,528
Interest cost		11,721			11,749
Expected return on plan assets		(19,780	)		(25,632	)
Amortization of prior service cost		1,074			1,197
Amortization of unrecognized loss		6,373			193
Net periodic benefit cost (income)	$	3,705		$	(7,965	)
Other Benefits
Service cost	$	1,309		$	1,061
Interest cost		1,756			1,576
Expected return on plan assets		(244	)		(417	)
Amortization of prior service cost		(617	)		(596	)
Amortization of unrecognized loss		1,037			622
Net periodic benefit cost	$	3,241		$	2,246

GLATFELTER

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	June 30,		Dec. 31,
In millions	2009		2008
Pension Plan Assets
Fair value at end of period	$	416.9	$	400.6

     The fair value of the plans’ assets declined approximately 29% during 2008. As a result, during 2009 we expect to recognize net pension expense totaling approximately $7.3 million, on a pre-tax basis. As of December 31, 2008, approximately 63% of the pension plan assets were invested in publicly-traded equity securities and the balance was comprised of cash and fixed rate debt instruments.

     As of December 31, 2008, our pension plans were overfunded by $14.3 million. We do not expect to be required to make contributions to our qualified pension plans during 2009.

10. COMPREHENSIVE INCOME

     The following table sets forth comprehensive income and its components:

	Three months ended
	June 30
In thousands	2009			2008
Net income	$	19,870		$	3,156
Foreign currency translation adjustments		19,522			(1,203	)
Amortization of unrecognized pension liability, net of tax		2,320			450
Comprehensive income	$	41,712		$	2,403
	Six months ended
	June 30
In thousands	2009			2008
Net income	$	31,408		$	22,831
Foreign currency translation adjustment		8,053			14,841
Amortization of unrecognized pension liability, net of tax		4,612			904
Comprehensive income	$	44,073		$	38,576
11.  INVENTORIES
Inventories, net of reserves, were as follows:
	June 30,			Dec. 31,
In thousands	2009		2008
Raw materials	$	52,332		$	49,083
In-process and finished		78,564			97,390
Supplies		46,961			46,881
Total	$	177,857		$	193,354

12. LONG-TERM DEBT

     Long-term debt is summarized as follows:

	June 30,			Dec. 31,
In thousands	2009			2008
Revolving credit facility, due April 2011	$	13,334		$	6,724
Term Loan, due April 2011		22,000			30,000
Term Loan, due January 2013		36,695			36,695
Note payable, due March 2013		—			34,000
71/8% Notes, due May 2016		200,000			200,000
Total long-term debt		272,029			307,419
Less current portion		(13,759	)		(13,759	)
Long-term debt, net of current portion	$	258,270		$	293,660

     On April 3, 2006, we, along with certain of our subsidiaries as borrowers and certain of our subsidiaries as guarantors, entered into a credit agreement with certain financial institutions. Pursuant to the credit agreement, we may borrow, repay and reborrow revolving credit loans in an aggregate principal amount not to exceed $200 million outstanding at any time. All borrowings under our credit facility are unsecured. The revolving credit commitment expires on April 2, 2011.

     In addition, on April 3, 2006, pursuant to the credit agreement, we received a term loan in the principal amount of $100 million. Quarterly repayments of principal outstanding under the term loan began on March 31, 2007 with the final principal payment due on April 2, 2011. In addition, if certain prepayment events occur, such as the incurrence of additional indebtedness in excess of $30.0 million in the aggregate, or the issuance of additional equity; we must repay a specified portion of the term loan within five days of the prepayment event.

     We have the right to prepay the term loan and revolving credit borrowings in whole or in part without premium or penalty, subject to timing conditions related to the interest rate option chosen.

     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 contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, create liens on assets, make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and

GLATFELTER

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ratios, each as defined in the credit agreement, including a consolidated minimum net worth test and a maximum debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio. A breach of these requirements, of which we were not aware of any at June 30, 2009, 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.

     On April 28, 2006, we completed an offering of $200.0 million aggregate principal amount of our 7¹/₈% Senior Notes due 2016. Net proceeds from this offering totaled approximately $196.4 million, after deducting the commissions and other fees and expenses relating to the offering. The proceeds were primarily used to redeem $150.0 million aggregate principal amount of our then outstanding 6⁷/₈% notes due July 2007, plus the payment of applicable redemption premium and accrued interest.

     Interest on these Senior Notes accrues at the rate of 7¹/₈% per annum and is payable semiannually in arrears on May 1 and November 1.

     Prior to May 1, 2011, we may redeem all, but not less than all, of the notes at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, plus a ‘‘make-whole’’ premium. On or after May 1, 2011, we may redeem some or all of the notes at specified redemption prices.

     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 (the “Glawson Note”). In January 2008, we monetized the Glawson Note. In this transaction, we entered into a new $36.7 million term loan agreement (the “2008 Term Loan”) with a financial institution. The 2008 Term Loan matures in January 2013 and bears interest at a six-month reserve adjusted LIBOR plus a margin rate of 1.20% per annum. This is secured by, among other assets, the Glawson Note together with a letter of credit issued in our favor by Royal Bank of Scotland, plc. backing the collectability of the Glawson Note.

     The Glawson Note is recorded in the accompanying consolidated balance sheets under the caption “Other long-term assets.”

     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 Sustainable Conservation, Inc. (the “Sustainable Note”). We pledged this note as collateral under a $34.0 million promissory note payable to a financial institution (the “Note Payable”). The Note Payable, as amended was scheduled to mature in March 2013 and was secured by a letter of credit issued in our favor by SunTrust Bank backing the collectability of the Sustainable Note.

     Under terms of each of the above transactions, minimum credit ratings must be maintained by the respective financial institution issuing the letters of credit. If, after 60 days from the date such credit rating falls below the specified minimum, an “event of default” is deemed to have occurred under the respective debt instrument owed by us to the financial institution unless actions are taken to cure such default. Potential remedial actions include: (i) amending the terms of the applicable debt instrument; (ii) a replacement of the letter of credit with an appropriately rated institution; or (iii) repaying the Note Payable.

     On April 23, 2009, the credit rating of the financial institution that issued the letter of credit behind the Sustainable Note fell below the required minimum level. To avoid the occurrence of an event of default associated with the credit downgrade of SunTrust, on June 10, 2009, we, Sustainable Conservation and SunTrust agreed to collapse the transaction, the effect of which was: i) the acceleration of the maturity date of the Sustainable Note to June 10, 2009; (ii) satisfaction in full of the $37.9 million Sustainable Note owed to us; and iii) the satisfaction in full of the $34 million indebtedness owed by us to SunTrust under the Term Loan Agreement. As a result, we received net proceeds of approximately $3.5 million, after transaction costs.

     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, 2009 and December 31, 2008, we had $5.8 million and $12.1 million, respectively, of letters of credit issued to us by certain financial institutions. The letters of credit outstanding as of June 30, 2009, provide financial assurances primarily for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program. 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.

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13. ASSET RETIREMENT OBLIGATION

     During 2008, we recorded $11.5 million, net present value, of asset retirement obligations related to the legal requirement to close several lagoons at our Spring Grove, PA facility. Historically, the lagoons were used to dispose of residual waste material. Closure of the lagoons, which is expected to occur over the next eight years, will be accomplished by filling the lagoons and installing a non-permeable liner which will be covered with soil to construct the required cap over the lagoons. The amount referred to above was accrued with a corresponding increase in the carrying value of the property, equipment and timberlands caption on the consolidated balance sheet. The amount capitalized is being depreciated as a charge to operations on the straight-line basis in relation to the expected closure period. The amount accrued represented the discounted present value of the expected cash flows to be incurred during the closure period. The present value of the discounted cash flows is being accreted as a charge to earnings on the effective interest method. Following is a summary of activity recorded during the first six months of 2009:

In thousands	Liability
Balance at December 31, 2008	$	11,606
Accretion		322
Payments		(851	)
Balance at June 30, 2009	$	11,077

     Of the total liability at June 30, 2009, $1.6 million is recorded in the accompanying consolidated balance sheet, under the caption “Other current liabilities” and $9.5 million is recorded under the caption “Other long-term liabilities.”

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The amounts reported on the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, other assets, and short-term debt approximate fair value. The following table sets forth carrying value and fair value of long-term debt:

	June 30, 2009				December 31, 2008
	Carrying		Fair		Carrying		Fair
In thousands	Value		Value		Value		Value
Fixed-rate Bonds	$	200,000	$	163,404	$	200,000	$	167,727
Fixed rate note payable		—		—		34,000		36,164
Variable rate debt		72,029		76,300		73,419		75,202
Total	$	272,029	$	239,704	$	307,419	$	279,093

     We have $200.0 million of 7¹/₈% fixed rate debt that is publicly registered, but is thinly traded, and therefore, market prices are not readily available. Accordingly, the values set forth above were derived from independent pricing service’s algorithm based on debt instruments with similar characteristics. The fair value of the

remaining debt instruments was estimated using discounted cash flow models based on interest rates obtained from readily available, independent sources.

15. 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 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

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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 (the “Natural Resources Trustees” or “Trustees”) 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.

     Past Costs Demand. By letter dated January 15, 2009, EPA demanded that we and six other parties reimburse EPA for approximately $17.6 million in costs that EPA claims it incurred as necessary costs of response not subject to any other agreement in this matter. The supporting documentation provided by EPA has not yet allowed us fully to evaluate this demand, and, accordingly we are unable to reasonably estimate our potential liability.

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

     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.

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     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 (“Amended 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 court entered the Amended OU1 Consent Decree in August 2008.

     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. Shortly following issuance of the UAO, Appleton Papers Inc. and NCR Corp. commenced litigation against us and others, as described below. Accordingly, we have no vehicle for complying with the UAO’s overall requirements other than answering a judgment in the litigation, and we have so informed EPA. However, in February 2009, the EPA sent a demand to each of the respondents on the UAO other than WTM I demanding payment of the government’s oversight costs under the UAO for the period from November 2007 through August 2008. In February 2009, we notified the EPA that we believed that its demand could prove distracting to litigation commenced by Appleton Papers and NCR against the other UAO respondents. In order to remove this distraction, and in the spirit of cooperation, we would satisfy the EPA’s demand, an amount which was insignificant, in full. We have paid this amount.

     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. 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 (the “Whiting Litigation”). They have to date joined a number of defendants, dismissed some of those, filed a parallel action, and consolidated the two cases. At present, the case involves allocation claims among the two plaintiffs and 28 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, and Green Bay, Brown County, Green Bay Metropolitan Sewerage District, Heart of the Valley Metropolitan Sewerage District, Neenah-Menasha Sewerage Commission, WTM I Company, U.S. Paper Mills Corporation, Georgia-Pacific Consumer Products LP, Georgia-Pacific LLC, Fort James Operating Company, CBC Coating Company, Inc., Fort James Corporation, Kimberly-Clark Corporation, LaFarge North America Inc., Union Pacific Railroad Company, and the United States Army Corps of

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Engineers. As the result of certain third-party claims, federal agencies other than the Corps of Engineers are also involved in this allocation. That litigation may be expected to result in an allocation of responsibility, at least as among these parties.

     On July 16, 2009, the United States lodged a proposed de minimis party consent decree (‘Consent Decree”) with the court asking that the Court approve a settlement with eleven defendants to resolve their liability for this site. The eleven settling defendants are: George A. Whiting Paper Co.; Green Bay Metropolitan Sewerage District; Green Bay Packaging, Inc.; Heart of the Valley Metropolitan Sewerage District; International Paper Co.; LaFarge North America Inc.; Leicht Transfer and Storage Co.; Neenah Foundry Co.; Procter & Gamble Paper Products Co.; Union Pacific Railroad Co.; and Wisconsin Public Service Corp. (collectively, the Settling Defendants”). The Consent Decree reflects the conclusion of the United States and the State of Wisconsin that each of the Settling Defendants qualifies for treatment as a de minimis party under CERCLA. The Consent Decree requires the Settling Defendants to make a collective payment of $1,875,000. If approved by the Court, the Consent Decree would remove these parties from the litigation.

     The court has entered a case management order segmenting the Whiting Litigation for discovery and trial. The first phase of the Whiting Litigation, addressing a single set of issues, is currently scheduled for trial beginning in December 2009. Resolution of those issues could adjudicate the entire case or it may resolve those issues sufficiently that the parties can then settle their remaining disputes. However, there can be no assurance that the first phase of the Whiting Litigation will result, directly or indirectly, in a judgment or settlement disposing of all claims among the 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 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 nearly $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. As of June 30, 2009, our reserve for our claimed liability at the Fox River, including our remediation obligations at OU1, our claimed liability for the remediation of OU2-5, our claimed liability for NRDs associated with PCB contamination at the Site and all pending, threatened or asserted and unasserted claims against us relating to PCB contamination at the Site totaled $18.4 million. No additional amounts were accrued during the first half of 2009 and 2008. Of our total reserve for the Fox River, $3.2 million is recorded in the accompanying consolidated balance sheets under the caption “Environmental liabilities” and the remaining $15.2 million is recorded under the caption “Other long term liabilities.”

     Under the OU1 Consent Decree which was signed in 2004, we contributed $27.0 million to past and future costs and NRDs. We later contributed $6.0 million under an agreed supplement to the OU1 Consent Decree and have since contributed an additional $9.5 million under the Amended Consent Decree. This amount includes $6.5 million contributed in January 2009. WTM I has contributed parallel amounts. These funds are placed into an escrow account from which we and WTM I pay for work on the project. As required by the Amended Consent Decree, in a quarterly report submitted to EPA in November 2008, we and WTM I concluded that the amounts in the escrow account would be sufficient to pay for the estimated cost of the work at OU1, including operation, maintenance, and other post-construction expenses. However, there can be no assurance that these amounts will in fact suffice. WTM I has filed a bankruptcy petition in the Bankruptcy Court in Richmond. There can be no assurance should additional amounts be required to complete the project that WTM I will be able to fulfill its obligation to pay half the additional cost.

     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 as defendants. Additional litigation associated with the remediation of the Site is likely. As illustrated by the Whiting Litigation, we believe that there are 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.

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     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 defense costs for the Whiting Litigation or any future defense costs related to our involvement at the Fox River which could be significant.

     In setting our reserve for the Fox River, we have assessed our legal defenses, including our defenses to the allegations made 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 Amended 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 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 Amended OU1 Consent Decree 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.

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     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 cost estimates and the aggregate amounts accrued for the Fox River matter by amounts that are insignificant or that could range up to $265 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.

     All remedial work in OU-1 has been completed and we and WTMI are in the process of decommissioning and performing the restoration of the staging area from which the remediation activity occurred, and completing all required reports for the project. We believe that these activities can be completed with the funds that remain in the OU1 Escrow Account.

     Summary Our current assessment is that we will be able to manage this environmental matter without a long-term, material adverse impact on the Company. This matter 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 this matter, that our share of costs and/or damages 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. 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 either to perform directly or to contribute significant amounts towards the performance of that work, those developments could have a material adverse effect on our consolidated financial position, liquidity and results of operations and might result in a default under our loan covenants.

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16. SEGMENT 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
Dollars in thousands	Specialty Papers						Composite Fibers				Other and Unallocated						Total
	2009			2008			2009		2008		2009			2008			2009			2008
Net sales	$	184,364		$	207,296		$	94,615	$	112,928	$	—		$	—		$	278,979		$	320,224
Energy sales, net		2,131			2,743			—		—		—			—			2,131			2,743
Total revenue		186,495			210,039			94,615		112,928		—			—			281,110			322,967
Cost of products sold		178,817			196,948			82,730		96,462		(39,438	)		(2,841	)		222,109			290,569
Gross profit		7,678			13,091			11,885		16,466		39,438			2,841			59,001			32,398
SG&A		14,085			13,772			8,299		9,689		4,164			1,916			26,548			25,377
Reversal of shutdown and restructuring charges		—			—			—		—		—			(856	)		—			(856	)
Losses on dispositions of plant, equipment and timberlands		—			—			—		—		27			16			27			16
Total operating income (loss)		(6,407	)		(681	)		3,586		6,777		35,247			1,765			32,426			7,861
Nonoperating income (expense)		—			—			—		—		(4,722	)		(4,367	)		(4,722	)		(4,367	)
Income (loss) before income taxes	$	(6,407	)	$	(681	)	$	3,586	$	6,777	$	30,525		$	(2,602	)		27,704		$	3,494
Supplementary Data
Net tons sold		171,293			182,700			20,073		22,356		—			—			191,366			205,056
Depreciation, depletion and amortization	$	8,882		$	8,980		$	5,740	$	6,968	$	—		$	—		$	14,622		$	15,948
Capital expenditures		3,436			7,751			2,705		8,399		100			—			6,241			16,150

Business Unit Performance	For the six months ended June 30
Dollars in thousands	Specialty Papers				Composite Fibers				Other and Unallocated						Total
	2009		2008		2009		2008		2009			2008			2009			2008
Net sales	$	383,971	$	408,242	$	186,560	$	217,480		—		$	1		$	570,531		$	625,723
Energy sales, net		4,062		4,727		—		—		—			—			4,062			4,727
Total revenue		388,033		412,969		186,560		217,480		—			1			574,593			630,450
Cost of products sold		350,147		374,224		160,376		184,858		(38,245	)		(5,288	)		472,278			553,794
Gross profit		37,886		38,745		26,184		32,622		38,245			5,289			102,315			76,656
SG&A		25,925		27,979		17,122		19,709		8,014			1,824			51,061			49,512
Reversal of shutdown and restructuring charges		—		—		—		—		—			(856	)		—			(856	)
Gains on dispositions of plant, equipment and timberlands		—		—		—		—		(672	)		(14,502	)		(672	)		(14,502	)
Total operating income		11,961		10,766		9,062		12,913		30,903			18,823			51,926			42,502
Nonoperating income (expense)		—		—		—		—		(9,123	)		(8,840	)		(9,123	)		(8,840	)
Income (loss) before income taxes	$	11,961	$	10,766	$	9,062	$	12,913	$	21,780		$	9,983		$	42,803		$	33,662
Supplementary Data
Net tons sold		356,354		364,911		39,264		43,695		—			—			395,618			408,606
Depreciation, depletion and amortization	$	17,749	$	17,612	$	11,301	$	13,054	$	—		$	—		$	29,050		$	30,666
Capital expenditures		7,018		10,446		4,357		14,961		100			—			11,475			25,407

     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 pension income or expense, alternative fuel mixture credits, charges related to the Fox River environmental reserves, restructuring related charges, unusual items, certain corporate level costs, and the effects of asset dispositions. Management believes that 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 these core operations. Such amounts are presented under the caption “Other and Unallocated.” This presentation is 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.

GLATFELTER

-17-

17. GUARANTOR FINANCIAL STATEMENTS

     Our 7¹/₈% 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, and our condensed consolidating balance sheets. 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.

Condensed Consolidating Statement of Income for the
three months ended June 30, 2009

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	184,364		$	10,766		$	94,615		$	(10,766	)	$	278,979
Energy sales — net		2,131			—			—			—			2,131
Total revenues		186,495			10,766			94,615			(10,766	)		281,110
Costs of products sold		140,350			9,733			82,789			(10,763	)		222,109
Gross profit		46,145			1,033			11,826			(3	)		59,001
Selling, general and administrative expenses		17,495			529			8,524			—			26,548
Losses on dispositions of plant, equipment and timberlands, net		27			—			—			—			27
Operating income		28,623			504			3,302			(3	)		32,426
Non-operating income (expense)
Interest expense		(4,384	)		—			(760	)		—			(5,144	)
Interest income		(263	)		1,298			(28	)		(450	)		557
Other income (expense) — net		(1,852	)		1,403			(234	)		548			(135	)
Total other income (expense)		(6,499	)		2,701			(1,022	)		98			(4,722	)
Income (loss) before income taxes		22,124			3,205			2,280			95			27,704
Income tax provision (benefit)		2,254			1,215			4,535			(170	)		7,834
Net income (loss)	$	19,870		$	1,990		$	(2,255	)	$	265		$	19,870
Condensed Consolidating Statement of Income for the three months ended June 30, 2008
	Parent						Non			Adjustments/
In thousands	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
Reversal of shutdown and restructuring charges		(856	)		—			—			—			(856	)
Losses 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		(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

GLATFELTER

-18-

Condensed Consolidating Statement of Income for the six
months ended June 30, 2009

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	383,971		$	22,489		$	186,560		$	(22,489	)	$	570,531
Energy sales — net		4,062			—			—			—			4,062
Total revenues		388,033			22,489			186,560			(22,489	)		574,593
Costs of products sold		313,984			20,448			160,493			(22,647	)		472,278
Gross profit		74,049			2,041			26,067			158			102,315
Selling, general and administrative expenses		32,324			1,073			17,664			—			51,061
(Gains) Losses on dispositions of plant, equipment and timberlands, net		28			(700	)		—			—			(672	)
Operating income		41,697			1,668			8,403			158			51,926
Non-operating income (expense)
Interest expense		(8,719	)		(6	)		(1,545	)		—			(10,270	)
Interest income		(485	)		2,908			(108	)		(1,050	)		1,265
Other income (expense) — net		7,125			1,230			(179	)		(8,294	)		(118	)
Total other income (expense)		(2,079	)		4,132			(1,832	)		(9,344	)		(9,123	)
Income (loss) before income taxes		39,618			5,800			6,571			(9,186	)		42,803
Income tax provision (benefit)		8,210			2,239			1,279			(333	)		11,395
Net income (loss)	$	31,408		$	3,561		$	5,292		$	(8,853	)	$	31,408

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

	Parent						Non			Adjustments/
In thousands	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
Reversal of shutdown and restructuring charges		(856	)		—			—			—			(856	)
(Gains) Losses 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

GLATFELTER

-19-

Condensed Consolidating Balance Sheet as of June 30, 2009

	Parent							Adjustments/
In thousands	Company		Guarantors		Non Guarantors			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	43,364	$	285	$	34,555		$	—		$	78,204
Other current assets		284,180		287,547		222,732			(450,641	)		343,818
Plant, equipment and timberlands — net		266,932		7,046		210,376			—			484,354
Other assets		515,187		176,006		73,426			(631,159	)		133,460
Total assets	$	1,109,663	$	470,884	$	541,089		$	(1,081,800	)	$	1,039,836
Liabilities and Shareholders’ Equity
Current liabilities	$	353,610	$	45,985	$	217,687		$	(439,890	)	$	177,392
Long-term debt		214,946		—		43,324			—			258,270
Deferred income taxes		53,975		15,717		27,013			(13,801	)		82,904
Other long-term liabilities		106,393		13,928		9,225			10,985			140,531
Total liabilities		728,924		75,630		297,249			(442,706	)		659,097
Shareholders’ equity		380,739		395,254		243,840			(639,094	)		380,739
Total liabilities and shareholders’ equity	$	1,109,663	$	470,884	$	541,089		$	(1,081,800	)	$	1,039,836
Condensed Consolidating Balance Sheet as of December 31, 2008
	Parent				Non			Adjustments/
In thousands	Company		Guarantors		Guarantors			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	8,860	$	756	$	22,618		$	—		$	32,234
Other current assets		266,899		256,834		88,288			(252,436	)		359,585
Plant, equipment and timberlands — net		277,215		7,470		208,879			—			493,564
Other assets		510,144		175,927		(29,767	)		(484,378	)		171,926
Total assets	$	1,063,118	$	440,987	$	290,018		$	(736,814	)	$	1,057,309
Liabilities and Shareholders’ Equity
Current liabilities	$	336,182	$	17,072	$	85,668		$	(248,820	)	$	190,102
Long-term debt		222,965		—		70,695			—			293,660
Deferred income taxes		53,976		24,615		26,272			(14,705	)		90,158
Other long-term liabilities		107,288		13,838		8,941			10,615			140,682
Total liabilities		720,411		55,525		191,576			(252,910	)		714,602
Shareholders’ equity		342,707		385,462		98,442			(483,904	)		342,707
Total liabilities and shareholders’ equity	$	1,063,118	$	440,987	$	290,018		$	(736,814	)	$	1,057,309

GLATFELTER

-20-

Condensed Consolidating Statement of Cash Flows for
the six months ended June 30, 2009

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated
Net cash provided (used) by
Operating activities	$	57,559		$	3,131		$	5,227		$	(1,050	)	$	64,867
Investing activities
Purchase of plant, equipment and timberlands		(7,063	)		(55	)		(4,357	)		—			(11,475	)
Proceeds from disposal plant, equipment and timberlands		—			728			—			—			728
Proceeds from installment note receivable		—			—			37,850			—			37,850
Repayments from (advances of) intercompany loans, net		1,109			1,000			—			(2,109	)		—
Total investing activities		(5,954	)		1,673			33,493			(2,109	)		27,103
Financing activities
Net (repayments of) proceeds from indebtedness		(8,829	)		—			(30,756	)		—			(39,585	)
Payment of dividends to shareholders		(8,272	)		—			—			—			(8,272	)
(Repayments) borrowings of intercompany loans, net		—			(4,225	)		2,116			—			—
Payment of intercompany dividends		—			(1,050	)		—			1,050			—
Total financing activities		(17,101	)		(5,275	)		(28,640	)		3,159			(47,857	)
Effect of exchange rate on cash		—			—			1,857			—			1,857
Net increase (decrease) in cash		34,504			(471	)		11,937			—			45,970
Cash at the beginning of period		8,860			736			22,618			—			32,234
Cash at the end of period	$	43,364		$	285		$	34,555		$	—		$	78,204

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

GLATFELTER

-21-

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 our 2008 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.	variations in demand, including the impact of any unplanned market-related downtime, for, or the pricing of, our products;
ii.	changes in the cost or availability of raw materials we use, in particular pulpwood, market pulp, pulp substitutes, caustic soda and abaca fiber;
iii.	changes in energy-related costs and commodity raw materials with an energy component;

iv.	our ability to develop new, high value-added Specialty Papers and Composite Fibers products;
v.	our ability to renew our electricity sales agreement at acceptable margins in relation to our current coal supply contract;
vi.	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;
vii.	the impairment of financial institutions as a result of the current credit market conditions and any resulting impact on us, our customers or our vendors;
viii.	the gain or loss of significant customers and/or on-going viability of such customers;
ix.	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;
x.	risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;
xi.	geopolitical events, including war and terrorism;
xii.	enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation;
xiii.	adverse results in litigation; and
xiv.	our ability to finance, consummate and integrate future acquisitions.

GLATFELTER

-22-

     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 & beverage filter papers, decorative laminates for furniture and flooring, metallized papers and other highly technical niche markets.

     Overview Our results of operations for the first six months of 2009 when compared with the same period of 2008 were significantly and adversely impacted by the weak global economic conditions. Overall volumes shipped by Specialty Papers declined 2.3% and Composite Fibers declined 10.1% in the period-to-period comparison. As a result of the soft demand for most of our products and our efforts to reduce inventory, we incurred significant market-related downtime at many of our facilities which adversely affected results of operations. However, we generated $64.9 million of cash from operations, including alternative fuel mixture credits, by reducing inventories, controlling costs and deferring discretionary capital spending. During the first half of 2009, we registered two of our facilities with the U.S. Internal Revenue Service as alternative fuel mixers based on their use of black liquor as an alternative fuel source. Our results of operations in the first half of 2009 included, on a pre-tax basis, $40.8 million of alternative fuel mixture credits, of which $29.7 million was received in cash. We intend to realize remaining credits in the form of non-taxable income tax credits.

     Specialty Papers’ operating income totaled $12.0 million and $10.8 million for the first half of 2009 and 2008, respectively. The weak economic environment adversely affected demand in all markets served by Specialty Papers. As a result of weak demand and our efforts to reduce inventory, during the second quarter of 2009, this unit incurred market related downtime totaling 14,400 tons of paper, or 8% of its total quarterly capacity. We reduced Specialty Papers’ inventories by 14.4% during the second quarter of 2009.

     Our Composite Fibers business unit’s operating income declined to $9.1 million from $12.9 million in the first half of 2008. Volumes shipped during the first half of 2009 declined 10.1% compared to 2008 as a result of the weak economic environment and our customers’ actions to reduce their inventory levels. Demand for tea and coffee filter papers, this unit’s largest product line, declined by 1.4% primarily due to weak order patterns and customers’ inventory destocking primarily in Russia, Eastern Europe and

other related regions. As a result of weak demand and our inventory reduction efforts, during the second quarter we incurred unscheduled downtime totaling 3,380 tons of paper, or 22% of the unit’s total quarterly capacity. We reduced inventory in this business unit by 12.2% during the second quarter of 2009.

     In addition, our after-tax consolidated results of operations were adversely affected by $13.8 million of lower gains in 2009 from the sale of timberlands. We also recorded $3.7 million of pension expense in the first six months of 2009 compared with pension income of $8.0 million in the year-earlier quarter.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2009 versus the
Six Months Ended June 30, 2008

     The following table sets forth summarized results of operations:

	Six months ended June 30
In thousands, except per share	2009		2008
Net sales	$	570,531	$	625,723
Gross profit		102,315		76,656
Operating income		51,926		42,502
Net income		31,408		22,831
Diluted earnings per share		0.69		0.50

     The consolidated results of operations for the six months ended June 30, 2009 include the following significant items:

	After-tax			Diluted EPS
In thousands, except per share	Gain (loss)
2009
Alternative fuel mixing credit	$	30,418		$	0.67
2008
Timberland sales	$	8,656		$	0.19
Reversal of shutdown and restructuring charges		532			0.01
Acquisition integration related costs		(588	)		(0.01	)

     The above items increased earnings by $30.4 million, or $0.67 per diluted share, in the first six months of 2009. In the comparable period a year ago, the above items increased earnings by $8.6 million, or $0.19 per diluted share.

GLATFELTER

-23-

	For the six months ended June 30
Dollars In thousands	Specialty Papers				Composite Fibers				Other and Unallocated						Total
	2009		2008		2009		2008		2009			2008			2009			2008
Net sales	$	383,971	$	408,242	$	186,560	$	217,480		—		$	1		$	570,531		$	625,723
Energy sales, net		4,062		4,727		—		—		—			—			4,062			4,727
Total revenue		388,033		412,969		186,560		217,480		—			1			574,593			630,450
Cost of products sold		350,147		374,224		160,376		184,858		(38,245	)		(5,288	)		472,278			553,794
Gross profit		37,886		38,745		26,184		32,622		38,245			5,289			102,315			76,656
SG&A		25,925		27,979		17,122		19,709		8,014			1,824			51,061			49,512
Shutdown and restructuring charges		—		—		—		—		—			(856	)		—			(856	)
Gains on dispositions of plant, equipment and timberlands		—		—		—		—		(672	)		(14,502	)		(672	)		(14,502	)
Total operating income		11,961		10,766		9,062		12,913		30,903			18,823			51,926			42,502
Nonoperating income (expense)		—		—		—				(9,123	)		(8,840	)		(9,123	)		(8,840	)
Income (loss) before income taxes	$	11,961	$	10,766	$	9,062	$	12,913	$	21,780		$	9,983		$	42,803		$	33,662
Supplementary Data
Net tons sold		356,354		364,911		39,264		43,695		—			—			395,618			408,606
Depreciation, depletion and amortization	$	17,749	$	17,612	$	11,301	$	13,054	$	—		$	—		$	29,050		$	30,666
Capital expenditures		7,018		10,446		4,357		14,961		100			—			11,475			25,407

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 pension income or expense, alternative fuel mixture credits, charges related to the Fox River environmental reserves, restructuring related charges, unusual items, certain corporate level costs, and the effects of asset dispositions. Management believes that 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 these core operations. Such amounts are presented under the caption “Other and Unallocated.” This presentation is 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	2009			2008			Change
Net sales	$	570,531		$	625,723		$	(55,192	)
Energy sales — net		4,062			4,727			(665	)
Total revenues		574,593			630,450			(55,857	)
Costs of products sold		472,278	(1)		553,794			(81,516	)
Gross profit	$	102,315		$	76,656		$	25,659
Gross profit as a percent of Net sales		17.9	%		12.3	%

(1) Includes $40.8 million of alternative fuel mixture credits, net of related expenses.

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

	Percent of Total
	2009			2008
Business Unit
Specialty Papers		67.3	%		65.2	%
Composite Fibers		32.7			34.8
Total		100.0	%		100.0	%

     Net sales totaled $570.5 million for the first six months of 2009, a decrease of $55.2 million, or 8.8%, compared to the same period a year ago.

     In the Specialty Papers business unit, net sales for the first six months of 2009 decreased $24.3 million to $384.0 million. Operating income totaled $12.0 million, an increase of $1.2 million, or 11.1%, over the same period a year ago. The improved operating income is primarily due to increases in average selling prices outpacing increases in input costs and improved operating efficiencies. Higher average selling prices contributed $7.6 million of the increase in operating profit. These price increases were

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partially offset by lower volumes and expected mix changes between carbonless papers and uncoated papers. In addition, this business unit’s results were adversely impacted by $2.0 million of higher input costs, largely driven by caustic soda and coal. Unplanned downtime at the Spring Grove and Chillicothe facilities further reduced operating results by approximately $8.5 million in the first six months of 2009 compared to the same period of 2008.

     In Composite Fibers, net sales were $186.6 million for the first six months of 2009, a decline of $30.9 million from the year-earlier period. Operating income declined by $3.9 million in the comparison to $9.1 million. Total volumes shipped by this business unit declined 10.1% led by lower shipments of composite laminates and metallized products, which declined 26.3% and 9.3%, respectively, and, to a lesser extent, a 1.4% decline in food & beverage paper product shipments. The translation of foreign currencies adversely impacted net sales by $26.6 million; however, higher average selling prices contributed $6.8 million.

     Energy and raw material costs in the Composite Fibers business unit were $8.2 million higher in the first six months of 2009 than in the same period a year ago. Market-related downtime adversely impacted operating results by $5.3 million in the first half of 2009 compared to the first half of 2008.

     Alternative Fuel Mixture Credits The U.S. Internal Revenue Code provides a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, is refundable to the taxpayer. The accompanying consolidated statement of income for the six months ended June 30, 2009 includes a credit of $40.8 million recorded in cost of products sold representing alternative fuel mixture credits earned through June 30, 2009, net of associated expenses.

     We began mixing black liquor and diesel fuel in late February 2009 and filed an application to be registered as an alternative fuel mixer with the Internal Revenue Service in March 2009. On May 11, 2009, the Company was notified by the Internal Revenue Service that its application to be registered as an alternative fuel mixer was approved. We subsequently filed an excise tax refund claim for the alternative fuel mixture consumed at its Spring Grove, PA and Chillicothe, OH facilities during the period February 20, 2009 through May 17, 2009 (the “First Refund Claim”). We received a payment from the Internal Revenue Service (“IRS”) on June 30, 2009 in the amount of $29.7 million related to the First Refund Claim. In addition, for the period May 18, 2009 through June 30, 2009, we earned an additional $12.8 million of alternative fuel mixture credits for which a claim has yet to be submitted to the IRS. We intend to realize the balance of

the credits in the form of a non-taxable income tax credit in connection with the filing of our 2009 federal corporate income tax return.

     According to the Internal Revenue Code, the tax credit is scheduled to expire on December 31, 2009. However, there can be no assurances that the incentive program for alternative fuel mixtures will continue in effect or that its provisions, including taxes applicable to the credits, will not be changed, or that we will be successful in receiving future credits under the program.

     Pension Expense/Income Pension expense or income results from the over-funded status of our pension plans. The following summarizes the amounts of pension expense or income recognized for the first six months of 2009 compared to the same period of 2008:

	Six months ended
	June 30
In thousands	2009		2008			Change
Recorded as:
Costs of products sold	$	2,502	$	(5,465	)	$	7,967
SG&A expense		1,203		(2,500	)		3,703
Total	$	3,705	$	(7,965	)	$	11,670

     The amount of pension expense or 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. As discussed in Item 1 — Financial Statements — Note 9, the fair value of the plans’ assets declined approximately 29% during 2008. As a result, during 2009 we expect to recognize net pension expense totaling approximately $7.3 million, on a pre-tax basis. However, we do not expect to be required to make cash contributions to our qualified defined benefit pension plans in 2009.

     Selling, general and administrative (“SG&A”) expenses increased $1.5 million in the period-to-period comparison and totaled $51.1 million for the first six months of 2009. Benefits from our cost control initiatives were more than offset by $1.2 million of pension expense recorded in the first six months of 2009 compared with $2.5 million of pension income in the same period of 2008. In addition, SG&A expenses for the first six months of 2008 included a $1.5 million non-recurring benefit from a recovery in a litigation matter, net of legal fees.

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     Gain on Sales of Plant, Equipment and Timberlands During the first six months of 2009 and 2008, we completed sales of timberlands which are summarized by the following table:

Dollars in thousands	Acres		Proceeds		Gain
2009
Timberlands		189	$	728	$	699
Other		n/a		—		(27	)
			$	728	$	672
2008
Timberlands		3,595	$	14,997	$	14,603
Other		n/a		—		(101	)
			$	14,997	$	14,502

     Income taxes Our results of operations for the first six months of 2009 reflect an effective tax rate of 26.6% compared to 32.2% in the same period a year ago. The decline in the effective tax rate is primarily due to a lower proportion of timberland gains, which are taxed at a higher effective tax rate, and by $40.8 million of alternative fuel mixture credits taxed at a lower effective tax rate. In addition, approximately $12.8 million of the alternative fuel mixture credits included in pre-tax income are treated as non-taxable.

     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 2009, Euro functional currency operations generated approximately 19.8% of our sales and 18.8% of operating expenses and British Pound Sterling operations represented 10.2% of net sales and 10.1% of operating expenses. The translation of results from these international operations into U.S. dollars is impacted by changes in foreign currency exchange rates.

     The table below summarizes the effect from foreign currency translation on first half 2009 reported results compared to the first half 2008:

	Six months
In thousands	ended June 30
	Favorable
	(unfavorable)
Net sales	$	(26,617	)
Costs of products sold		25,710
SG&A expenses		3,267
Income taxes and other		(57	)
Net income	$	2,303

     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.

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Three Months Ended June 30, 2009 versus the
Three Months Ended June 30, 2008

     The following table sets forth summarized results of operations:

	Three months ended
	June 30
In thousands, except per share	2009		2008
Net sales	$	278,979	$	320,224
Gross profit		59,001		32,398
Operating income		32,426		7,861
Net income		19,870		3,156
Diluted earnings per share		0.43		0.07

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

	After-tax			Diluted EPS
In thousands, except per share	Gain (loss)
2009
Alternative fuel mixing credit	$	30,418		$	0.67
Timberland sales and related transaction costs		(441	)		(0.01	)
2008
Reversal of shutdown and restructuring charges	$	532		$	0.01

     The above items increased earnings by $30.0 million, or $0.66 per diluted share, and $0.5 million, or $0.01 per diluted share, in the second quarters of 2009 and 2008, respectively.

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
Dollars in thousands	Specialty Papers						Composite Fibers				Other and Unallocated						Total
	2009			2008			2009		2008		2009			2008			2009			2008
Net sales	$	184,364		$	207,296		$	94,615	$	112,928	$	—		$	—		$	278,979		$	320,224
Energy sales, net		2,131			2,743			—		—		—			—			2,131			2,743
Total revenue		186,495			210,039			94,615		112,928		—			—			281,110			322,967
Cost of products sold		178,817			196,948			82,730		96,462		(39,438	)		(2,841	)		222,109			290,569
Gross profit		7,678			13,091			11,885		16,466		39,438			2,841			59,001			32,398
SG&A		14,085			13,772			8,299		9,689		4,164			1,916			26,548			25,377
Shutdown and restructuring charges		—			—			—		—		—			(856	)		—			(856	)
Losses on dispositions of plant, equipment and timberlands		—			—			—		—		27			16			27			16
Total operating income (loss)		(6,407	)		(681	)		3,586		6,777		35,247			1,765			32,426			7,861
Nonoperating income (expense)		—			—			—		—		(4,722	)		(4,367	)		(4,722	)		(4,367	)
Income (loss) before income taxes	$	(6,407	)	$	(681	)	$	3,586	$	6,777	$	30,525		$	(2,602	)		27,704		$	3,494
Supplementary Data
Net tons sold		171,293			182,700			20,073		22,356		—			—			191,366			205,056
Depreciation, depletion and amortization	$	8,882		$	8,980		$	5,740	$	6,968	$	—		$	—		$	14,622		$	15,948
Capital expenditures		3,436			7,751			2,705		8,399		100			—			6,241			16,150

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     The following table summarizes sales and costs of products sold for the three months ended June 30, 2009 and 2008.

     Sales and Costs of Products Sold

	Three months ended
	June 30
In thousands	2009			2008			Change
Net sales	$	278,979		$	320,224		$	(41,245	)
Energy sales — net		2,131			2,743			(612	)
Total revenues		281,110			322,967			(41,857	)
Costs of products sold		222,109	(1)		290,569			(68,460	)
Gross profit	$	59,001		$	32,398		$	26,603
Gross profit as a percent of Net sales		21.1	%		10.1	%

(1) Includes $40.8 million of alternative fuel mixture credits, net of related expenses.

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

	Percent of Total
	2009			2008
Business Unit
Specialty Papers		66.1	%		64.7	%
Composite Fibers		33.9			35.3
Total		100.0	%		100.0	%

     Net sales totaled $279.0 million for the second quarter of 2009, a decrease of $41.2 million, or 12.9%, compared to the same period a year ago.

     In the Specialty Papers business unit, net sales for the three months ended June 30, 2009 totaled $184.4 million, a decrease of $22.9 million when compared with the same period of 2008. Operating loss totaled $6.4 million compared with a loss of $0.7 million in the second quarter of 2008. Average selling prices were essentially unchanged in the second quarter of 2009 compared with the same quarter of 2008 however the mix of products sold was unfavorable. The weak economic environment adversely affected demand in all markets served by Specialty Papers as volumes shipped during the second quarter declined 6.2% compared with the same period in 2008. We successfully reduced Specialty Papers’ inventories by 14.4% during the second quarter of 2009 in line with our strategies to maximize cash generated from operations by controlling inventories and other working capital uses. As a result, this unit incurred unscheduled downtime totaling 14,400 tons of paper, or 8% of its total quarterly capacity, which adversely impacted results by $7.0 million, pre-tax.

     Lower input costs, primarily related to purchased pulps, energy and wood partially offset by higher costs for caustic soda and starch, benefitted operating results by $1.3 million in the comparison.

     In Composite Fibers, net sales were $94.6 million for the second quarter of 2009, a decline of $18.3 million from the year-earlier quarter. Operating income declined by $3.2 million in the comparison to $3.6 million. Volumes shipped during the quarter declined 10.2% compared with 2008 as a direct result of the weak economic environment and our customers’ actions to reduce their inventory levels. Demand for tea and coffee filter papers, this unit’s largest product line, declined by 7.3% primarily due to weak order patterns in developing markets such as Russia and other Eastern European countries. In addition, demand was off from prior year levels by 21.9% in composite laminate papers and 17.5% in technical specialty products. As a result of weak demand, we incurred unscheduled downtime totaling 3,380 tons of paper, or 22% of the unit’s total quarterly capacity, adversely impacting results by $3.8 million. On a constant currency basis, higher average selling prices contributed approximately $2.6 million to net sales; however, the translation of foreign currencies unfavorably affected net sales by approximately $12.3 million.

     The Composite Fibers business unit was adversely impacted by higher energy and raw material costs totaling approximately $3.6 million.

     Alternative Fuel Mixture Credits The accompanying consolidated statement of income for the three months ended June 30, 2009 includes a credit of $40.8 million recorded in cost of products sold representing alternative fuel mixture credits earned through June 30, 2009, net of associated expenses.

     Pension Expense/Income Pension expense or income results from the over-funded status of our pension plans. The following summarizes the amounts of pension expense or income recognized for the second quarter of 2009 compared to the same period of 2008:

	Three months ended
	June 30
In thousands	2009		2008			Change
Recorded as:
Costs of products sold	$	1,314	$	(2,925	)	$	4,239
SG&A expense		709		(1,271	)		1,980
Total	$	2,023	$	(4,196	)	$	6,219

     The amount of pension expense or 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.

     Selling, general and administrative (“SG&A”) expenses increased by $1.2 million in the quarter-to-quarter comparison and totaled $26.5 million in the second quarter of 2009. The increase was primarily due to recording pension expense in 2009 compared with pension

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income in 2008 together with legal and professional fees associated with the alternative fuel mixture credits and with the unwinding of the 2003 timberland installment sale.

     Income taxes For the second quarter of 2009, results of operations reflect an effective tax rate of 28.3% on pretax income of $27.7 million compared with 9.7% and $3.5 million, respectively, in the same period a year ago. The effective rate in the second quarter of 2009 benefited from approximately $12.8 million of the alternative fuel mixture credits included in pre-tax income that are treated as non-taxable. The effective tax rate in the second quarter of 2008 benefited from 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 second quarter of 2009, Euro functional currency operations generated approximately 19.9% of our sales and 18.3% of operating expenses and British Pound Sterling operations represented 11.3% of net sales and 10.7% 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 the second quarter of 2009 reported results compared to the second quarter of 2008:

	Three months
In thousands	ended
	Favorable
	(unfavorable)
Net sales	$	(12,340	)
Costs of products sold		12,077
SG&A expenses		1,414
Income taxes and other		66
Net income	$	1,217

     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.

LIQUIDITY AND CAPITAL RESOURCES

     Our business is capital intensive and requires significant expenditures for our business strategy, new or enhanced equipment, environmental compliance matters, and to support our research and development efforts. In addition we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the periods presented:

	Six months ended
	June 30
In thousands	2009			2008
Cash and cash equivalents at beginning of period	$	32,234		$	29,833
Cash provided by (used for)
Operating activities		64,867			(3,047	)
Investing activities		27,103			(10,410	)
Financing activities		(47,857	)		1,412
Effect of exchange rate changes on cash		1,857			823
Net cash (used) provided		45,970			(11,222	)
Cash and cash equivalents at end of period	$	78,204		$	18,611

     At the end of the 2009 second quarter, we had $78.2 million in cash and $181 million available under its revolving credit agreement which matures in April 2011. Operating cash flow improved by $67.9 million primarily due to significant reduction in inventories and accounts receivable compared to increases in the prior periods together with $29.7 million of cash from alternative fuel mixture credits.

     Net cash provided from investing activities totaled $27.3 million in the first six months of 2009 compared with a net use of $10.4 million in the first half of 2008. The improvement reflects the collection of a $37.9 million note receivable in connection with the unwinding of the 2003 timberland installment sale; and reduced capital expenditures totaling $13.9 million in connection with the deferral of discretionary capital expenditures.

     During the first six months of 2009 and 2008, cash dividends paid on common stock totaled $8.3 million and $8.2 respectively. 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.

     During the first six months of 2009, net debt, defined as total debt less cash balances and term notes secured by letters of credit decreased by $49.7 million to $160.7 million.

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

	June 30,			Dec. 31,
In thousands	2009			2008
Revolving credit facility, due April 2011	$	13,334		$	6,724
Term Loan, due April 2011		22,000			30,000
Term Loan, due January 2013		36,695			36,695
Note payable, due March 2013		—			34,000
71/8% Notes, due May 2016		200,000			200,000
Total long-term debt		272,029			307,419
Less current portion		(13,759	)		(13,759	)
Long-term debt, net of current portion	$	258,270		$	293,660

     The significant terms of the debt obligations are set forth in Item 1 — Financial Statements — Note 12. As of June 30, 2009, we had $181 million of borrowing capacity available under our revolving credit agreement. Although we do not have immediate intentions to make additional use of the facility, we believe this agreement, and the banks that are party to it, provides us with ready access to liquidity should we need it.

     Alternative Fuel Mixture Credits We filed an excise tax refund claim for the alternative fuel mixture consumed at our Spring Grove, PA and Chillicothe, OH facilities during the period February 20, 2009 through May 17, 2009 (the “First Refund Claim”). We received a payment from the Internal Revenue Service (“IRS”) on June 30, 2009 in the amount of $29.7 million related to the First Refund Claim.

     In addition, for the period May 18, 2009 through June 30, 2009, we earned an additional $12.8 million of alternative fuel mixture credits for which a claim has yet to be submitted. We intend to claim this amount as a non-taxable income tax credit in connection with the filing of our 2009 federal corporate income tax return.

     As a result of the collapse of the installment sale transaction, approximately $11.0 million of long-term deferred tax liability that was recorded in connection with the March 2003 sale of timberlands became currently payable on or prior to September 15, 2009. However, we intend to satisfy this tax liability with the income tax credits discussed above.

     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 15 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, our existing credit facility or other bank lines of credit and other long-term debt. However, as discussed in Item 1 — Financial Statements — Note 15, 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. A breach of these requirements, of which we were not aware of any at June 30, 2009, 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. 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 payable immediately.

     Off-Balance-Sheet Arrangements As of June 30, 2009 and December 31, 2008, we had not entered into any off-balance-sheet arrangements.

     Outlook For Specialty Papers, we expect volumes in the third quarter of 2009 to be higher than the second quarter by approximately 10% and that selling prices for most products will be relatively in line with the second quarter of 2009. Further, we expect downtime to be significantly reduced as a result of our current inventory position and increased order rates.

     In the Composite Fibers business unit, we anticipate shipping volumes to be approximately 5% higher than the second quarter due primarily to seasonality. Selling prices and input costs are expected to be in line with the second quarter. Paper machine downtime in this business unit is expected to be reduced by approximately 50% compared to the second quarter due to the current inventory position and the seasonal increase in shipments.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

	Year Ended December 31															At June 30, 2009
Dollars in thousands	2009			2010			2011			2012			2013			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	$	163,404
At variable interest rates		68,590			58,270			41,478			36,695			1,407			72,029		76,300
																$	272,029	$	239,704
Weighted-average interest rate
On fixed rate debt – Bond		7.13	%		7.13	%		7.13	%		7.13	%		7.13	%
On variable rate debt		2.57			2.77			3.29			3.52			3.52

     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. Our market risk exposure primarily results from changes in interest rates and currency exchange rates. At June 30, 2009, we had long-term debt outstanding of $272.0 million, of which $72.0 million or 26.5% was at variable interest rates.

     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, 2009, the weighted average interest rate paid on variable rate debt was 2.57%. A hypothetical 100 basis point increase or decrease in the interest rate on variable rate debt would increase or decrease annual interest expense by $0.8 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 2009, Euro functional currency operations generated approximately 19.8% of our sales and 18.8% of operating expenses and British Pound Sterling operations represented 10.2% of net sales and 10.1% 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, 2009, 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, 2009, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

GLATFELTER

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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 April 30, 2009 at which shareholders voted on the following matters (with the indicated tabulated results).

i. The election of three members of the Board of Directors to serve for a term of one year expiring on the date of the 2010 Annual Meeting of Shareholders.

Director Nominee	For	Withheld
George H. Glatfelter II	38,127,310	2,434,352
Ronald J. Naples	37,608,966	2,952,696
Richard L. Smoot	34,571,938	5,989,724

ii. A proposal to approve an increase in the number of shares of the Company’s common stock that are available to be awarded under the Company’s Amended and Restated Long-Term Incentive Plan and to approve the Amended and Restated Long-Term Incentive Plan for purposes of complying with Section 162(m) of the Internal Revenue Code.

For	Against	Abstained
37,639,373	2,867,995	54,294

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, 2009.

For	Against	Abstained	Broker Non Votes
29,610,305	6,486,515	650,603	3,814,239

ITEM 6. EXHIBITS

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

3.1	Amended and Restated by-laws, as amended through February 18, 2009.
31.1	Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 302(a) 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(a) 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.

GLATFELTER

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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 7, 2009	By	/s/ David C. Elder
		David C. Elder
		Vice President and Corporate Controller

GLATFELTER

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EXHIBIT INDEX

Exhibit
Number	Description
3.1	Amended and Restated by-laws as amended through February 18, 2009.
31.1	Certification of George H. Glatfelter II, Chairman and Chief Executive Officer of Glatfelter, pursuant to Section 302(a) 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(a) 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

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