GLATFELTER P H CO - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

or

[ ] 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 MARCH 31, 2003

Commission file number 1-3560

P.H. GLATFELTER COMPANY
(Exact name of registrant as specified in its charter)

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

96 SOUTH GEORGE STREET, SUITE 500
YORK, PENNSYLVANIA 17401 (717) 225-4711
(Address of principal executive offices) (Registrant's telephone number, including area code)

N/A
(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No .

Indicate by check mark whether the filer is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No .

As of April 30, 2003, P.H. Glatfelter Company had 43,707,861 shares of
common stock outstanding.

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P.H. GLATFELTER COMPANY
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED

MARCH 31, 2003

TABLE OF CONTENTS

Page
----

PART I - FINANCIAL INFORMATION

ITEM 1 Financial Statements
Condensed Consolidated Statements of Income for the three
months ended March 31, 2003 and 2002 (unaudited) 3
Condensed Consolidated Balance Sheets as of March 31, 2003 and
December 31, 2002 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2003 and 2002 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6

Independent Accountants' Report 16

ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 17

ITEM 3 Quantitative and Qualitative Disclosures About Market Risks 26

ITEM 4 Controls and Procedures 27

PART II - OTHER INFORMATION

ITEM 6 Exhibits and Reports on Form 8-K 28

SIGNATURES 29

CERTIFICATIONS 30

EXHIBIT INDEX 32

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GLATFELTER

PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

P.H. GLATFELTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

THREE MONTHS ENDED
MARCH 31
In thousands, except per share amounts 2003 2002
- -------------------------------------- --------- ---------

Net sales $ 143,614 $ 131,998
Energy sales - net 2,277 2,166
--------- ---------
Total revenues 145,891 134,164
Cost of products sold 115,262 99,657
--------- ---------
Gross profit 30,629 34,507
Operating expenses
Selling, general and administrative expenses 15,211 14,492
Gain on sale of plant, equipment and timberlands (30,547) (568)
--------- ---------
Total operating expenses (15,336) 13,924
--------- ---------
Operating income 45,965 20,583
Other nonoperating income (expense)
Interest expense on debt (3,409) (3,744)
Interest income on investments and other - net 187 242
Other (income) expense - net (890) 22
--------- ---------
Total other income (expense) (4,112) (3,480)
--------- ---------
Income before income taxes 41,853 17,103
Income tax provision
Current 3,743 4,021
Deferred 11,333 1,958
--------- ---------
Total income tax provision 15,076 5,979
--------- ---------
Net income $ 26,777 $ 11,124
========= =========
EARNINGS PER SHARE
Basic and diluted $ 0.61 $ 0.26

CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.175 $ 0.175

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

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GLATFELTER

P.H. GLATFELTER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

MARCH 31 December 31
In thousands 2003 2002
- ------------ ----------- -----------

ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 46,250 $ 32,248
Accounts receivable - net 68,309 60,377
Inventories 73,408 70,456
Prepaid expenses and other current assets 10,449 9,473
----------- -----------
Total current assets 198,416 172,554

PLANT, EQUIPMENT AND TIMBERLANDS - NET 529,525 518,913

OTHER ASSETS 308,494 261,735
----------- -----------
Total assets $ 1,036,435 $ 953,202
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Current portion of long-term debt $ 828 $ 795
Short-term debt 4,007 1,080
Accounts payable 28,364 27,782
Dividends payable 7,648 7,638
Income taxes payable 8,652 1,918
Accrued compensation, other expenses and deferred income taxes 53,759 54,909
----------- -----------
Total current liabilities 103,258 94,122

LONG-TERM DEBT 255,486 218,709

DEFERRED INCOME TAXES 196,679 184,180

OTHER LONG-TERM LIABILITIES 86,378 82,358
----------- -----------
Total liabilities 641,801 579,369

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Common stock 544 544
Capital in excess of par value 40,648 40,798
Retained earnings 514,407 495,278
Accumulated other comprehensive loss (2,730) (3,708)
----------- -----------
552,869 532,912
Less cost of common stock in treasury (158,235) (159,079)
----------- -----------
Total shareholders' equity 394,634 373,833
----------- -----------
Total liabilities and shareholders' equity $ 1,036,435 $ 953,202
=========== ===========

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

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GLATFELTER

P.H. GLATFELTER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

THREE MONTHS ENDED
MARCH 31
In thousands 2003 2002
- ------------ -------- --------

OPERATING ACTIVITIES
Net income $ 26,777 $ 11,124
Items included in net income not using
(providing) cash
Depreciation, depletion and amortization 12,585 11,082
Pension income (5,115) (7,817)
Deferred income tax provision 11,333 1,958
Net gain on sales of plant, equipment and
timberlands (30,547) (568)
Expense related to 401(k) plans and other 220 425
Change in operating assets and liabilities
Accounts receivable (6,749) (6,065)
Inventories (1,932) (2,802)
Other assets and prepaid expenses (1,491) (5,339)
Accounts payable, accrued compensation and other expenses, deferred income
taxes and other long term liabilities (3,136) (10,194)
Income taxes payable 7,064 13,922
-------- --------
Net cash provided by operating activities 9,009 5,726

INVESTING ACTIVITIES

Purchase of plant, equipment and timberlands (25,223) (7,984)
Proceeds from disposal of fixed assets 274 580
-------- --------
Net cash used by investing activities (24,949) (7,404)

FINANCING ACTIVITIES

Net proceeds from revolving credit facilities 2,681 535
Proceeds from borrowing from SunTrust Financial 34,000 --
Payment of dividends (7,648) (7,481)
Proceeds from stock options exercised 299 6,151
-------- --------
Net cash provided (used) by financing activities 29,332 (795)

Effect of exchange rate changes on cash 610 257
-------- --------

Net change in cash and cash equivalents 14,002 (2,216)
Cash and cash equivalents at the beginning of period 32,248 88,044
-------- --------
Cash and cash equivalents at the end of period $ 46,250 $ 85,828
======== ========

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (received) for
Interest expense $ 6,209 $ 6,704
Income taxes (2,808) 265

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

-5-
GLATFELTER

P.H. GLATFELTER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. ORGANIZATION

P. H. Glatfelter Company and subsidiaries (d/b/a Glatfelter) is a
manufacturer of specialized printing papers and engineered products.
Headquartered in York, Pennsylvania, our manufacturing facilities are located in
Spring Grove, Pennsylvania; Neenah, Wisconsin; Gernsbach, Germany; Scaer, France
and the Philippines. Our products are marketed throughout the United States and
in many foreign countries, either through wholesale paper merchants, brokers and
agents or directly to customers.

2. BASIS OF PRESENTATION

These unaudited condensed consolidated interim financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the Securities and
Exchange Commission and include the accounts of Glatfelter and its wholly-owned
subsidiaries. These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto included in Glatfelter's 2002 Annual Report on Form 10-K filed
with the Securities and Exchange Commission.

These condensed unaudited interim financial statements do not include all
of the information and footnotes required for complete financial statements. In
management's opinion, these financial statements reflect all adjustments, which
are of a normal, recurring nature, necessary for a fair presentation of the
results for the interim periods presented. Results for these interim periods are
not necessarily indicative of results to be expected for the full year. Certain
prior period amounts have been reclassified, where necessary, to conform to the
current period presentation.

3. STOCK-BASED COMPENSATION

Stock-based compensation is accounted for in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations,
as permitted by Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." Compensation expense for both
restricted stock and performance stock awards is recognized ratably over the
performance period based on changes in quoted market prices of Glatfelter stock
and the likelihood of achieving the performance goals. This variable plan
accounting recognition is due to the uncertainty of achieving performance goals
and determining the resulting number of shares to ultimately be issued. No
compensation expense is recorded for stock options granted to employees.

PRO FORMA INFORMATION No compensation expense has been recognized
for non-qualified stock options granted. The weighted-average grant
date fair value of options granted during 2002, 2001 and 2000 was
$2.48, $3.84 and $2.60, respectively. No options were granted in the
first quarter of 2003. The fair value of each option on the date of
grant was estimated using the Black-Scholes option pricing using the
following assumptions:

2002 2001 2000
---- ---- ----

Risk-free interest rate 4.13% 5.57% 5.61%
Expected dividend yield 5.15 4.58 7.61
Expected volatility 27.80 29.70 42.00
Expected life 6.5 YRS 10 yrs 10 yrs
--------- --------- ---------

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GLATFELTER

Had compensation cost for non-qualified stock options been
determined consistent with SFAS No. 123, our net income and earnings
per share would have been reduced to the following pro forma
amounts:

THREE MONTHS ENDED
MARCH 31
In thousands, except per share amounts 2003 2002
- -------------------------------------- -------- --------

Net income
As reported $ 26,777 $ 11,124
Stock-based compensation expense, after tax (212) (296)
-------- --------
Pro forma $ 26,565 $ 10,828
======== ========
Earnings per share:
Reported - basic and diluted $ 0.61 $ 0.26
Pro forma - basic and diluted 0.61 0.26
-------- --------

4. RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standard ("SFAS") No. 143, "Accounting
for Asset Retirement Obligations," was issued in June 2001 and applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or the normal operation of a
long-lived asset. We adopted SFAS No. 143 on January 1, 2003, and it did not
impact our consolidated financial position or results of operations.

SFAS No. 145, "Recission of SFAS No. 4, 44 and 64, Amendment of SFAS No.
13, and Technical Corrections," was issued April 2002 and is effective for
fiscal years beginning after May 15, 2002. This statement, among other things,
rescinds the requirement to classify a gain or loss upon the extinguishment of
debt as an extraordinary item on the income statement. It also requires lessees
to account for certain modifications to lease agreements in a manner consistent
with sale-leaseback transaction accounting. We adopted SFAS No. 145 on January
1, 2003, and it did not impact our consolidated financial position or results of
operations.

SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002 and requires recognition of costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. This statement is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002, of which there were none in the first quarter of 2003.

SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure, an Amendment to SFAS No. 123," was issued in December 2002. This
statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. We have elected to continue
accounting for stock-based compensation in accordance with APB Opinion No. 25.

In November of 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of the Indebtedness of Others" ("FIN No. 45"). FIN No. 45 requires
entities to establish liabilities for certain types of guarantees, and expands
financial statement disclosures for others. The accounting requirements of FIN
No. 45 are effective for guarantees issued or modified after December 31, 2002,
and the disclosure requirements are effective for financial statements for
interim or annual periods ending after December 15, 2002. The adoption of FIN
No. 45 did not have any significant accounting implications for us as all of our
commitments and guarantees are on behalf of our subsidiaries. Effective January
1, 2003, we adopted the requirements of FIN No. 45.

SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities," was issued in April 2003, amends and clarifies accounting
for derivative instruments including derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133. This standard is
effective for contracts entered into or modified after June 30, 2003. Management
has not yet determined the impact SFAS No. 149 will have on our consolidated
financial position or results of operations.

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GLATFELTER

5. GAIN ON SALE OF TIMBERLANDS

On March 21, 2003, the Company completed its previously announced
agreement to sell approximately 25,500 acres of its timberlands in Maryland,
with a carrying amount of $6.0 million, to a subsidiary of The Conservation Fund
(the "Buyer"). As consideration for the timberlands, the Company received a
10-year note from the Buyer in the principal amount of $37.9 million (the
"Note"). The Note bears interest at 3.22% per annum with interest-only payments
due in quarterly installments. After five years the interest rate on the Note
will be adjusted to the then existing bank prime rate. The Note is secured by a
letter of credit issued by a financial institution.

The Company pledged the Note as collateral under a $34.0 million
promissory note payable to SunTrust Financial (the "Note Payable"). The Note
Payable bears a fixed rate of interest at 3.82% for five years at which time the
Company can elect to renew the obligation. The pre-tax gain recognized from this
transaction was $31.2 million.

6. EARNINGS PER SHARE

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

THREE MONTHS ENDED
MARCH 31
In thousands, except per share amounts 2003 2002
- -------------------------------------- ------- -------

Net income $26,777 $11,124
======= =======
Weighted average common shares outstanding
used in computing basic earnings per share 43,681 42,952
Common shares issuable upon exercise of
dilutive stock options, restricted stock
awards and performance awards 21 660
------- -------
Weighted average common shares outstanding
and common share equivalents used in
computing diluted earnings per share 43,702 43,612
======= =======
Basic and diluted earnings per share $ 0.61 $ 0.26
------- -------

7. INVENTORIES

Inventories, net of reserves were as follows:

MARCH 31 December 31
In thousands 2003 2002
- ------------ ------- -------

Raw materials $12,924 $12,909
In-process and finished 37,900 35,621
Supplies 22,584 21,926
------- -------
Total $73,408 $70,456
======= =======

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GLATFELTER

8. RESTRUCTURING RESERVE

The following schedule summarizes activity in our restructuring reserve during
the first quarter of 2003:

THREE MONTHS
ENDED
In thousands MARCH 31, 2003
- ------------ --------------

Beginning balance $2,572
Payments made (521)
------
Ending balance $2,051
======

9. LONG-TERM DEBT

Long-term debt is summarized as follows:

MARCH 31 December 31
In thousands 2003 2002
- ------------ --------- ---------

Revolving credit facility, due June 2006 $ 70,420 $ 67,681
6-7/8% Notes, due July 2007 150,000 150,000
Note payable - SunTrust, due March 2008 34,000 --
Other notes, various 1,894 1,823
--------- ---------
Total long-term debt 256,314 219,504
Less current portion (828) (795)
--------- ---------
Long-term debt, excluding current portion $ 255,486 $ 218,709
========= =========

On June 24, 2002, we entered into an unsecured $102.5 million
multi-currency revolving credit facility (the "Facility") with a syndicate of
three major banks. An additional $22.5 million was added to the Facility on
September 24, 2002 with a fourth major bank. The Facility, which replaced an old
facility, enables Glatfelter or its subsidiaries to borrow up to the equivalent
of $125.0 million in certain currencies. Borrowings can be made for any time
period from one day to six months and incur interest based on the domestic prime
rate or a Eurocurrency rate, at our option, plus a margin ranging from .525% to
1.05%. The margin and a facility fee on the commitment balance are based on the
higher of our debt ratings as published by Standard & Poor's and Moody's. The
Facility requires us to meet certain leverage and interest coverage ratios, with
both of which we are in compliance.

On July 22, 1997, we issued $150.0 million principal amount of 6 7/8%
Notes due July 15, 2007. Interest on the Notes is payable semiannually on
January 15 and July 15. The Notes are redeemable, in whole or in part, at our
option at any time at a calculated redemption price plus accrued and unpaid
interest to the date of redemption, and constitute unsecured and unsubordinated
indebtedness. The net proceeds from the sale of the Notes were used primarily to
repay certain short-term unsecured debt and related interest.

On March 21, 2003, we sold approximately 25,500 acres of timberlands and
received as consideration a $37.9 million 10-year interest bearing note
receivable from the buyer (See Note 5). We pledged the Note as collateral under
a $34.0 million promissory note payable to SunTrust Financial (the "Note
Payable"). The Note Payable bears a fixed rate of interest at 3.82% for five
years at which time the Company can elect to renew the obligation.

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

At March 31, 2003 and December 31, 2002, we had $3.0 million of letters of
credit issued to us by a financial institution. The letters of credit are for
the benefit of certain state workers compensation insurance agencies in
conjunction with our self-insurance program. No amounts were outstanding under
the letters of credit. We bear the credit risk on this amount to the extent that
we do not comply with the provisions of certain agreements. The letters of
credit do not reduce the amount available under our lines of credit.

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GLATFELTER

10. FINANCIAL DERIVATIVES

In conjunction with our 2002 refinancing, we entered into a cross-currency
swap transaction effective June 24, 2002. Under this transaction, we swapped
$70.0 million for approximately E73.0 million and will pay interest on the Euro
portion of the swap at a floating Eurocurrency Rate, plus applicable margins and
will receive interest on the dollar portion of the swap at a floating U.S.
Dollar LIBOR, plus applicable margins. The contract matures on June 24, 2006.
The cross-currency swap is designed to provide protection from the impact that
changes in currency rates have on certain U.S. Dollar-denominated debt
obligations recorded at our subsidiary in Gernsbach, Germany. The cross currency
swap is recorded at fair value of $(9.6) million in the Consolidated Balance
Sheets and changes in fair value are recognized in earnings as "Other income
(expense)" in the Consolidated Statements of Income. The mark-to-market
adjustment was completely offset by a gain on the related remeasurement of the
U.S. Dollar denominated debt obligations.

The credit risks associated with our financial derivatives are controlled
through the evaluation and monitoring of creditworthiness of the counterparties.
Although we may be exposed to losses in the event of nonperformance by
counterparties, we do not expect such losses, if any, to be significant.

11. COMPREHENSIVE INCOME

The following table sets forth comprehensive income and its components:

THREE MONTHS ENDED
MARCH 31
In thousands 2003 2002
- ------------ -------- --------

Net income $ 26,777 $ 11,124
Foreign currency translation adjustment 978 (317)
-------- --------
Comprehensive income $ 27,755 $ 10,807
======== ========

12. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

ECUSTA DIVISION

In connection with the Ecusta Division sale in August 2001, the buyers
assumed certain liabilities related to the operation of the Ecusta Division. In
July 2002, we received notice from the buyers' legal counsel asserting claims
for indemnification, without estimates of value, pursuant to the sale agreement.
We are currently investigating these claims and have not yet determined the
validity or value of these claims. As such, we cannot ascertain at this time
what effect, if any, these claims may have on our consolidated financial
position and/or results of operations.

During August 2002, the buyers of the Ecusta Division shut down the paper
manufacturing operation of the paper mill in Pisgah Forest, North Carolina,
which was the most significant operation of the Ecusta Division. On October 23,
2002, two of the four related buyers of the Ecusta Division filed for bankruptcy
under Chapter 11 of the U.S. Bankruptcy Code. We do not expect to receive any
proceeds from the bankruptcy proceedings. As of March 31, 2003, we had recorded
liabilities totaling $2.6 million related to post-retirement benefits, workers
compensation and vendor payables. These liabilities were assumed by the buyers
and they have agreed to indemnify and hold us harmless. We also recorded a
corresponding receivable of $2.6 million for amounts due from the buyers.

In addition to the workers compensation benefits included in the accrual
discussed above, we received notice from State of North Carolina indicating we
may be liable for $1.6 million in additional workers compensation benefits.
While we disagree with this position, if we are held liable, we are entitled to
indemnification by the buyers under terms of the sales agreement. The
accompanying financial statements do not include an accrual for such amounts.

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GLATFELTER

In addition to these amounts, as of March 31, 2003, our trade accounts
receivable include $2.2 million for products sold by our S&H subsidiary pursuant
to a supply agreement with a party related to one of the buyers who has not
filed for bankruptcy. Such accounts receivable balances totaled $1.6 million
at April 30, 2003, reflecting additional sales partially offset by cash
collections of $1.8 million.

Since April 2003, we have had discussions with governmental authorities
and private parties regarding the future of the Ecusta mill. While the future
use and ownership of the mill remain unclear, it is possible the current owner
of the mill will cease the operation of certain environmental-related systems
and abandon the property. Should this occur, the governmental authorities have
stated they will turn to us for the interim operation of the environmental-
related systems and possibly for certain on-site work. At this time, we cannot
predict whether this will occur. It is our understanding that the governmental
authorities are continuing to investigate the environmental conditions at the
mill, but that they believe that a three-month period of assured funding for the
operation of environmental-related systems is necessary pending the results of
their investigation.

We are uncertain as to what additional Ecusta-related claims including
environmental matters, if any, may be asserted against us for other liabilities
that were assumed, or with respect to which we are indemnified by the buyers,
or related to our former operation of the paper mill. At this time, no reserves
have been recorded related to the receivables due from the buyers. We cannot
ascertain at this time what effect, if any, these matters will have on our
consolidated financial position and/or results of operations.

-11-
GLATFELTER

ENVIRONMENTAL MATTERS

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 our mills. 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. Because environmental
regulations are not consistent worldwide, our ability to compete in the world
marketplace may be adversely affected by capital and operating expenditures
required for environmental compliance.

SPRING GROVE, PENNSYLVANIA We are subject to the "Cluster Rule," a 1998
federal regulation in which the United States Environmental Protection Agency
("EPA") aims to regulate air and water emissions from certain pulp and paper
mills, including kraft pulp mills, such as our Spring Grove facility. Issued
under both the Clean Air Act and the Clean Water Act, the Cluster Rule
establishes baseline emissions limits for toxic and conventional pollutant
releases to both water and air.

Subject to permit approvals, we have undertaken an initiative at our
Spring Grove facility under the Voluntary Advanced Technical Incentive Program
set forth by the EPA in the Cluster Rule. This initiative, the "New Century
Project," will require capital expenditures currently estimated to be
approximately $37.0 million to be incurred before April 2004. The New Century
Project includes improvements in brownstock washing, installation of an oxygen
delignification bleaching process, 100 percent chlorine dioxide substitution and
a hardwood ozone bleaching system. Through March 31, 2003, we have invested
approximately $20.4 million in this project. We presently do not anticipate
difficulties in implementing the New Century Project; however, we have not yet
received all the required governmental approvals, nor have we installed all the
necessary equipment.

We are voluntarily cooperating with an investigation by the Pennsylvania
DEP which commenced in February 2002, of our Spring Grove facility related to
certain discharges, which are alleged to be unpermitted, to the Codorus Creek.
There is no indication that these discharges had an impact on human health or
the environment. We are currently engaged in negotiations with the Pennsylvania
DEP regarding these matters.

In 1999, EPA and the Pennsylvania DEP issued us separate Notices of
Violation ("NOVs") alleging violations of air pollution control laws, primarily
for purportedly failing to obtain appropriate pre-construction air quality
permits in conjunction with certain modifications to our Spring Grove facility.

For all but one of the modifications cited by EPA, we applied for and
obtained from the Pennsylvania DEP the pre-construction permits that we
concluded were required by applicable law. EPA reviewed those applications
before the permits were issued. The Pennsylvania DEP's NOV pertained only to the
modification for which we did not receive a pre-construction permit. We
conducted an evaluation at the time of this modification and determined that the
pre-construction permit cited by EPA and the Pennsylvania DEP was not required.
We have been informed that EPA and the Pennsylvania DEP will seek substantial
emissions reductions, as well as civil penalties, to which we believe we have
meritorious defenses. Nevertheless, we are unable to predict the ultimate
outcome of these matters or the costs, if any, involved.

NEENAH, WISCONSIN We have previously reported with respect to potential
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,
downstream of our Neenah, Wisconsin facility. We acquired the Neenah facility in
1979 as part of the acquisition of the Bergstrom Paper Company. In part, this
facility uses wastepaper as a source of fiber. At no time did the Neenah
facility utilize PCBs in the pulp and paper making process, but discharges from
the facility containing PCBs from wastepaper may have occurred from 1954 to the
late 1970s. Any PCBs that the Neenah facility discharged into the Fox River
resulted from the presence of NCR(R)-brand carbonless copy paper in the
wastepaper that was received from others and recycled.

As described below, various state and federal governmental agencies have
formally notified seven potentially responsible parties ("PRPs"), including
Glatfelter, that they are potentially responsible for response costs and
"natural resource damages" ("NRDs") arising from PCB contamination in the lower
Fox River and

-12-
GLATFELTER

in the Bay of Green Bay, under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and other statutes. The six other
identified PRPs are NCR Corporation, Appleton Papers Inc., Georgia Pacific
(formerly Fort Howard Corp. and Fort James), WTM I Co. (a subsidiary of
Chesapeake Corp.), Riverside Paper Corporation, and U.S. Paper Mills Corp. (a
subsidiary of Sonoco Products Company). We believe some of these PRPs may have
corporate or contractual relationships with unidentified entities that may shift
monetary obligations arising from the lower Fox River and Bay of Green Bay.

CERCLA establishes a two-part liability structure that makes responsible
parties liable for (1) "response costs" associated with the remediation of a
release of hazardous substances and (2) NRDs related to that release. Courts
have interpreted CERCLA to impose joint and several liability on responsible
parties for response costs, subject to equitable allocation in certain
instances. Prior to a final settlement by all responsible parties and the final
cleanup of the contamination, uncertainty regarding the application of such
liability will persist.

On January 7, 2003, the Wisconsin Department of Natural Resources (the
"Wisconsin DNR") and EPA issued a Record of Decision ("ROD") for the cleanup of
reaches of the lower Fox River known as Operable Unit 1 ("OU1") (which consists
of Little Lake Butte des Morts, the portion of the river that is closest to our
Neenah facility) and Operable Unit 2 ("OU2") (which is the portion of the river
between dams at Appleton and Little Rapids). This ROD does not address the
entire lower Fox River or the Bay of Green Bay nor does it place any value on
claims for NRDs associated with this matter. The environmental agencies have
stated that the Record of Decision related to the remainder of the river and the
Bay of Green Bay is expected to be issued during mid-2003.

Subject to extenuating circumstances and alternative solutions arising
during the cleanup, the ROD requires the removal of approximately 784,000 cubic
yards of sediment from Little Lake Butte des Morts. The ROD also requires the
monitoring of the two operable units. Wisconsin DNR and EPA estimate that the
remedy for these two reaches will cost approximately $75 million but could cost
within a range from approximately $52 million to $112 million. The $75 million
estimate is approximately the same amount estimated for these sections of the
river in the Proposed Remedial Action Plan ("PRAP") issued in October, 2001
related to this matter. We are continuing to analyze the ROD to determine the
viability of the remedy set forth therein and its potential impact on us.

The total cost estimate of the PRAP, including OU1 and OU2, was $307.6
million (without a contingency factor) over a 7-18 year time period. The most
significant component of the estimated costs is attributable to large-scale
sediment removal by dredging. Based on cost estimates of large-scale dredging
response actions at other sites, we believe the PRAP's cost projections may
underestimate actual costs of the proposed remedy by approximately $450 million.

As noted above, NRD claims are theoretically distinct from costs related
to the primary remediation of a Superfund site. Calculating the value of NRD
claims is difficult, especially in the absence of a completed remedy for the
underlying contamination. The State of Wisconsin, the United States Fish and
Wildlife Service ("FWS"), the National Oceanic and Atmospheric Administration
("NOAA"), four Indian tribes and the Michigan Attorney General have asserted
that they possess NRD claims related to the lower Fox River and the Bay of Green
Bay.

In June 1994, FWS notified the seven identified PRPs that it considered
them potentially responsible for NRDs. The federal, tribal and Michigan agencies
claiming to be NRD trustees have proceeded with the preparation of an NRD
assessment. While the final assessment will be delayed until after the selection
of a remedy, the federal trustees released a plan on October 25, 2000 that
values their NRDs for injured natural resources between $176 million and $333
million. We believe that the federal NRD assessment is technically and
procedurally flawed. We also believe that the NRD claims alleged by the various
alleged trustees are legally and factually without merit.

On June 20, 2002, the United States, the State of Wisconsin and the Fort
James Operating Company ("Fort James") lodged a consent decree with the U.S.
District Court for the Eastern District of Wisconsin. If entered, that consent
decree would resolve certain outstanding claims, primarily NRD claims, against
Fort James and a related entity. Under the terms of the proposed consent decree,
Fort James would pay $6.2 million in cash to the United States and the State of
Wisconsin in settlement of various claims related to NRDs and cost

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GLATFELTER

recovery related to dredging of sediments at Deposits 56/57. Fort James
also agrees to convey 1,063 acres of land to the State and to perform delineated
NRD "restoration" projects at a cost of up to $3.9 million.

We submitted comments on the proposed consent decree to the U.S.
Department of Justice. These comments suggest that the United States, the State
of Wisconsin and certain alleged natural resource trustees not move to enter
this proposed consent decree, due to various procedural and substantive
infirmities.Nevertheless, on March 28, 2003, the federal government made such a
motion with respect to which the courts have not yet ruled. Because the
plaintiffs have yet to provide a factual or legal justification for the
settlement, we are not able to extrapolate an estimated settlement amount for
Glatfelter from the proposed consent decree.

We are actively negotiating a potential settlement with the Wisconsin
agencies and with the federal government for all of our potential liabilities
for response costs and NRDs associated with the contamination. The Wisconsin DNR
and FWS have 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 our 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 the studies themselves disclose that they
are not accurate and are based on assumptions for which there is no evidence. We
believe that our volumetric contribution is significantly lower than the
estimates. Further, we do not believe that a volumetric allocation would
constitute an equitable distribution of the potential liability for the
contamination. Other factors, such as the location of contamination, location of
discharge and a party's role in causing discharge must be considered in order
for the allocation to be equitable.

We have entered into interim cost-sharing agreements with four of the
other six PRPs, pursuant to which such PRPs have agreed to share both defense
costs and costs for scientific studies relating to PCBs discharged into the
lower Fox River. These interim cost-sharing agreements have no bearing on the
final allocation of costs related to this matter. Based upon our evaluation of
the magnitude, nature and location of the various discharges of PCBs to the
river and the relationship of those discharges to identified contamination, we
believe our share of any liability among the seven identified PRPs is much less
than one-seventh of the whole.

We also believe that additional potentially responsible parties exist
other than the seven identified PRPs. For instance, certain of the identified
PRPs discharged their wastewater through public wastewater treatment facilities,
which we believe makes the owners of such facilities potentially responsible in
this matter. We also believe that entities providing wastepaper-containing PCBs
to each of the recycling mills, including our Neenah facility, are also
potentially responsible for this matter.

We continue to believe that this matter will likely result in litigation,
but cannot predict the timing, nature, extent or magnitude of such litigation.
We currently are unable to predict our ultimate cost related to this matter.

RESERVES FOR ENVIRONMENTAL LIABILITIES The amount and timing of future
expenditures for environmental compliance, cleanup, remediation and personal
injury, NRDs and property damage liability (including, but not limited to, those
related to the lower Fox River and the Bay of Green Bay) cannot be ascertained
with any certainty due to, among other things, the unknown extent and nature of
any contamination, the extent and timing of any technological advances for
pollution abatement, the response actions that may be required, the availability
of qualified remediation contractors, equipment and landfill space and the
number and financial resources of any other PRPs. We have established reserves
relating to unasserted claims for environmental liabilities for those matters
for which it is probable that a claim will be made, that an obligation may exist
and for which the amount of the obligation is reasonably estimable. As of March
31, 2003 and December 31, 2002, we had accrued reserves for all contingent
liabilities related to environmental matters of approximately $30.3 million.
These accruals are primarily included in "other long-term liabilities" on the
Consolidated Balance Sheets. No adjustments were made to the reserve during the
first quarter of 2003 or during the first quarter of 2002.

NEENAH, WISCONSIN - RANGE OF REASONABLY POSSIBLE OUTCOMES. Based on
analysis of currently available information and experience regarding the cleanup
of hazardous substances, we believe that it is reasonably possible that our
costs associated with the lower Fox River and the Bay of Green Bay may exceed
current reserves by amounts that may prove to be insignificant or that could
range, in the aggregate, up to approximately $125 million, over a period that is
undeterminable but could range beyond 20 years. We believe that the likelihood
of an outcome in the upper end of the monetary range is significantly less than

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GLATFELTER

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. In our estimate of
the upper end of the range, we have assumed full-scale dredging as set forth in
the ROD for Operable Unit 1 and 2. We have also assumed full-scale dredging for
the remainder of the river and the Bay of Green Bay, as set forth in the PRAP,
at a significantly higher cost than estimated in the PRAP. We have also assumed
our share of the ultimate liability to be 18%, which is significantly higher
than we believe is appropriate or will occur and a level of NRD claims and
claims for reimbursement of expenses from other parties that, although
reasonably possible, is unlikely. In estimating both our current reserve for
environmental remediation and other environmental liabilities and the possible
range of additional costs, we have not assumed that we will bear the entire cost
of remediation and damages to the exclusion of other known PRPs who may be
jointly and severally liable. The ability of other PRPs to participate has been
taken into account, based generally on their financial condition and probable
contribution. Our evaluation of the other PRPs' financial condition included the
review of publicly disclosed financial information. The relative probable
contribution is based upon our knowledge that at least two PRPs manufactured the
paper that included the PCBs and as such, in our opinion, bear a higher level of
responsibility.

In addition, our assessment is based upon the magnitude, nature and
location of the various discharges of PCBs to the river and the relationship of
those discharges to identified contamination. We have also considered that over
a number of years, certain PRPs were under the ownership of large multinational
companies, which appear to retain some liability for this matter. We 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 lower
Fox River and the Bay of Green Bay.

We believe that we are insured against certain losses related to the lower
Fox River and the Bay of Green Bay, depending on the nature and amount of the
losses. Insurance coverage, which is currently being investigated under
reservations of rights by various insurance companies, is dependent upon the
identity of the plaintiff, the procedural posture of the claims asserted and how
such claims are characterized. We do not know when the insurers' investigations
as to coverage will be completed and we are uncertain as to what the ultimate
recovery will be and whether it will be significant in relation to the losses
for which we have accrued.

SUMMARY Our current assessment is that we should be able to manage these
environmental matters without a long-term, material adverse impact on us. These
matters could, however, at any particular time or for any particular year or
years, have a material adverse effect on our consolidated financial position,
liquidity and/or results of operations or could result in a default under our
loan covenants. Moreover, there can be no assurance that our reserves will be
adequate to provide for future obligations related to these matters, that our
share of costs and/or damages for these matters will not exceed our available
resources, or that such obligations will not have a long-term, material adverse
effect on our consolidated financial position, liquidity or results of
operations. With regard to the lower Fox River and the Bay of Green Bay, if we
are not successful in managing the matter and are ordered to implement the
remedies proposed in the ROD and the PRAP, such orders would have a material
adverse effect on our consolidated financial position, liquidity and results of
operations and would result in a default under our loan covenants.

We are also involved in other lawsuits that are ordinary and incidental to
our business. The ultimate outcome of these lawsuits cannot be predicted with
certainty, however, we do not expect that such lawsuits in the aggregate or
individually will have a material adverse effect on our consolidated financial
position, liquidity or results of operations.

13. SEGMENT INFORMATION

We manage our organization along separate business units: Engineered
Products, Long-Fiber & Overlay Papers, and Printing and Converting Papers, as
well as Tobacco Papers, which is being exited. In the latter part of 2002, we
completed the implementation of a new information system to provide, among other
things, more complete business unit reporting. However, we are currently unable
to provide detail business unit profitability reporting for periods prior to the
system implementation.

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 generally
accepted accounting principles; 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.

The following table sets forth net sales by business unit:

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

Management evaluates results of operations before energy sales, gains from
asset sales and the effects of non-cash pension income because it believes this
is a more meaningful representation of the operating performance of its core
papermaking businesses, the profitability of business units and the extent of
cash flow generated from core operations. This presentation is closely aligned
with the management and operating structure of our company. It is also on this
basis that management performance is evaluated internally and by the Company's
Board of Directors.

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GLATFELTER

INDEPENDENT ACCOUNTANTS' REPORT

P. H. Glatfelter Company:

We have reviewed the accompanying condensed consolidated balance sheet of P. H.
Glatfelter Company and subsidiaries as of March 31, 2003 and the related
condensed consolidated statements of income and cash flows for the three months
ended March 31, 2003 and 2002. These financial statements are the responsibility
of the Company's management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of P.
H. Glatfelter Company and subsidiaries as of December 31, 2002, and the related
consolidated statements of income, shareholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated February 28,
2003 (which includes an explanatory paragraph concerning the Company's adoption
of Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective January 1, 2002), we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2002 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP

Philadelphia, Pennsylvania
May 12, 2003

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GLATFELTER

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF INCOME

The following discussion should be read in conjunction with the information in
the unaudited condensed consolidated financial statements and notes thereto
included herein and Glatfelter's Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in its 2002 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 Quarterly 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 management's
expectations. The following discussion includes forward-looking statements
regarding expectations of, among others, net sales, cost of products sold,
pension costs, environmental costs 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 for, or pricing of, our products;

ii. changes in the cost or availability of raw materials we use, in particular
market pulp, pulp substitutes and wastepaper; abaca fiber, and changes in
energy-related costs;

iii. our ability to develop new, high value-added engineered products;

iv. 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;

v. cost and other effects of environmental compliance, cleanup, damages,
remediation or restoration, or personal injury or property damage related
thereto, such as costs associated with the NOVs issued by the EPA and the
Pennsylvania DEP, the costs of natural resource restoration or damages
related to the presence of polychlorinated biphenyls ("PCBs") in the lower
Fox River on which our Neenah mill is located; and the effect of complying
with the wastewater discharge limitations of the Spring Grove mill
permits;

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

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

viii. geopolitical events, including war and terrorism;

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

x. our ability to identify, finance and consummate future alliances or
acquisitions;

xi. adverse results in litigation;

xii. disruptions in production and/or increased costs due to labor disputes;

xiii. the effect on us, if any, associated with the financial condition of the
buyers of the Ecusta Division; and,

xiv. our ability to realize the value of our timberlands.

CRITICAL ACCOUNTING POLICIES

The following discussion and analysis of our consolidated financial
position and results of operations is based upon our condensed consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these condensed consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to sales returns, doubtful accounts, inventories, investments and
financial derivative instruments, long-lived assets and contingencies, including
environmental matters. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances; the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.

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GLATFELTER

We believe the following represent the most significant and subjective
estimates used in the preparation of our consolidated financial statements.

i. We maintain reserves for expected sales returns and allowances based
principally on our return practices and our historical experience. If
actual sales returns differ from the estimated return rates projected, we
may need to increase or decrease our reserves for sales returns and
allowances, which could affect our reported income.

ii. We maintain allowances for doubtful accounts for estimated losses
resulting from our customers' failure to make required payments. If actual
customer payments differ from our estimates, we may need to increase or
decrease our allowances for doubtful accounts, which could affect our
reported income.

iii. We evaluate the recoverability of our long-lived assets, including
property, equipment and intangible assets periodically or whenever events
or changes in circumstances indicate that the carrying amounts may not be
recoverable. Our evaluations include analyses based on the cash flows
generated by the underlying assets, profitability information, including
estimated future operating results, trends or other determinants of fair
value. If the value of an asset determined by these evaluations is less
than its carrying amount, a loss is recognized for the difference between
the fair value and the carrying value of the asset. Future adverse changes
in market conditions or poor operating results of the related business may
indicate an inability to recover the carrying value of the assets, thereby
possibly requiring an impairment charge in the future.

iv. Accounting for defined-benefit pension plans requires various assumptions,
including, but not limited to, discount rates, expected rates of return on
plan assets and future compensation growth rates. Accounting for our
retiree medical plans also requires various assumptions, which include,
but are not limited to, discount rates and annual rates of increase in the
per capita costs of health care benefits. We evaluate these assumptions at
least once each year and make changes as conditions warrant. Changes to
these assumptions will increase or decrease our reported income, which
will result in changes to the recorded benefit plan assets and
liabilities.

v. We maintain accruals for losses associated with environmental obligations
when it is probable that a liability has been incurred and the amount of
the liability can be reasonably estimated based on existing legislation
and remediation technologies. These accruals are adjusted periodically as
assessment and remediation actions continue and/or further legal or
technical information develops. Such undiscounted liabilities are
exclusive of any insurance or other claims against third parties.
Recoveries of environmental remediation costs from other parties,
including insurance carriers, are recorded as assets when their receipt is
assured beyond a reasonable doubt.

vi. We have made estimates and accrued for liabilities assumed by the buyers
of the Ecusta Division. In addition, we have recorded receivables due from
the buyers to reimburse us for such liabilities as well as for other
expenses we were to pay on the buyers' behalf. We continue to evaluate the
collectibility of the receivables due from the buyers and, at March 31,
2003, have determined that no reserves are necessary for such receivables.
However reserves may be necessary in future periods.

Reference is made to our Annual Report on Form 10-K for the year ended
December 31, 2002, Item 8 - Financial Statements and Supplementary Data - Note 2
and the Notes included in this Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2003, for a discussion of our accounting policies with
respect to these and other items.

OVERVIEW

We are one of the world's leading manufacturers of specialized papers and
engineered products. During 2002 we completed the reorganization of the way we
manage our business. We now operate three business units: Engineered Products,
Long-Fiber & Overlay Papers and Printing and Converting Papers. We also
completed our IMPACT project, which included the installation of a worldwide
enterprise resource planning ("ERP") information system.

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GLATFELTER

RESULTS OF OPERATIONS

FIRST QUARTER OF 2003 VERSUS FIRST QUARTER OF 2002

The following table sets forth summarized results of operations.

THREE MONTHS ENDED
MARCH 31
----------------
In millions 2003 2002 CHANGE
- ----------- ------ ------ ------

Net sales $143.6 $132.0 $ 11.6
Energy sales, net 2.3 2.2 0.1
------ ------ ------
Total revenue 145.9 134.2 11.7
Cost of products sold 115.3 99.7 15.6
------ ------ ------
Gross profit 30.6 34.5 (3.9)
Operating expenses
Selling, general and administrative expenses 15.2 14.5 0.7
Gain on sale of plant, equipment and
timberlands (30.6) (0.6) (30.0)
------ ------ ------
Total operating expenses (15.4) 13.9 (29.3)
------ ------ ------
Operating income 46.0 20.6 25.4
Interest expense, net (3.2) (3.5) 0.3
Other income (expense), net (0.9) 0.0 (0.9)
------ ------ ------
Income before income taxes 41.9 17.1 24.8
Income taxes 15.1 6.0 9.1
------ ------ ------
Net income $ 26.8 $ 11.1 $ 15.7
====== ====== ======

Net income and diluted earnings per share for the first quarter of 2003 of $26.8
million and $0.61, respectively, compared to $11.1 million and $0.26,
respectively, for the comparable quarter in 2002. The 2003 first quarter results
include a pre-tax gain of $31.2 million, or $20.0 million after-tax, from the
previously announced sale of approximately 25,500 acres of timberlands, as well
as a $0.7 million after-tax loss on the sale of certain paper making equipment.
Earnings for the first quarter of 2003 before these asset sales were $7.5
million, or $0.17 per diluted share. On this basis, the decline in earnings was
primarily due to higher costs of products sold and lower non-cash pension
income in the first quarter of 2003. Reported earnings in the quarter-to-
quarter comparison were also favorably impacted by the weakening of the U.S.
Dollar versus the Euro and the resulting impact on translated results of
international operations. The weaker U.S. Dollar had an estimated favorable
impact on net income of approximately $0.8 million, after tax, in the first
quarter of 2003.

NET SALES

Our consolidated net sales totaled $143.6 million for the first quarter of 2003
compared to $132.0 million for the year-earlier first quarter, an increase of
$11.6 million, or 8.8%. Sales growth was primarily attributable to increased
volumes in our Long Fiber & Overlay and Engineered Products business units. The
increase was also due to the effect of an 8.7% increase in average net selling
price, driven, in large part, by the effect of a weaker U.S. Dollar relative to
the Euro. In the quarter-to-quarter comparison, the weaker U.S. Dollar benefited
translated net sales of international operations by approximately $7.7 million.

During the first quarter of 2003, sales volume for our Engineered Products
increased by approximately 6.0% compared to the first quarter of 2002, and
average net selling prices increased moderately. Our Long-Fiber & Overlay Papers
business unit experienced increased sales volume for its products. However,
excluding the effects of a weaker U.S. Dollar relative to the Euro, this unit's
pricing remained relatively constant. In the Printing and Converting Papers
business unit, our net sales volume declined less than 1% compared to the same
period a year ago. Printing and Converting Papers, a more mature business unit,
continued to experience declining prices, reversing favorable pricing trends
that were seen during the third quarter of 2002. Tobacco Papers represent a
business unit that we are exiting pending completion of our agreement to provide
tobacco papers to an affiliate of one of the buyers of our Ecusta Division. We
expect sales from this unit to approximate $8.0 million to $10.0 million in
2003. The lower proportion of tobacco papers sales relative to our total sales
is expected to have a favorable impact on our gross margin.

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GLATFELTER

ENERGY SALES, NET

Energy sales, net totaled $2.3 million in the first quarter of 2003 compared
with $2.2 million in the comparable quarter of 2002. Energy sales represent net
revenue earned from the sale of excess power generated by our Spring Grove mill.

COST OF PRODUCTS SOLD AND GROSS PROFIT

Cost of products sold ("COS") increased $15.6 million, or 15.6%, in the
quarter-to-quarter comparison. COS is approximately $5.3 million higher in the
first quarter of 2003 than in the prior-year first quarter due to the weakening
of the U.S. Dollar compared to the Euro and the resulting impact on translated
COS of international operations. In addition, the increase in COS consisted of
approximately $2.0 million of higher market pulp and wastepaper costs, $2.0
million of energy-related costs, $0.6 million attributable to the impact of
heavy snows during 2003 and $1.9 million of lower non-cash pension income.
Approximately $1.5 million of the increase in COS was due to higher sales
volumes.

Gross profit in the first quarter of 2003 totaled $30.6 million, a decline
of $3.9 million from the year-earlier quarter, and our gross margin was 21.3%
and 26.1% in the first quarter of 2003 and 2002, respectively, reflecting the
net effect of the factors discussed above in Net Sales and COS.

Our gross margin includes net non-cash pension income resulting from the
overfunded status of our defined benefit pension plans. The following table is
presented to provide additional analysis of the changes in COS, eliminating the
benefit of net non-cash pension income.

THREE MONTHS ENDED
MARCH 31
----------------
In millions 2003 2002 CHANGE
- ----------- ------ ------ ------

Cost of products sold excluding net pension income $119.8 $106.1 $ 13.7
Benefit of pension income (4.5) (6.4) 1.9
------ ------ ------
Cost of products as reported $115.3 $ 99.7 $ 15.6
====== ====== ======

Our net non-cash pension income allocable to cost of products sold is
expected to total $18.6 million for the full year 2003 compared to $26.9 million
in 2002. Non-cash pension income is estimated each year using certain actuarial
assumptions and certain other factors, including the fair value of our pension
assets as of the first date of the calendar year. The fair value of our pension
assets has decreased significantly since January 1, 2002.

SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES

In the first quarter of 2003, SG&A expenses totaled $15.2 million compared with
$14.5 million in the year-earlier quarter. The increase was primarily due to a
$0.9 million unfavorable effect of a weaker U.S. Dollar on translated SG&A
expenses of international operations, a $0.5 million increase in depreciation
expense related to our investment in a worldwide ERP information system, and
an $0.8 million reduced amount of non-cash pension income.

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GLATFELTER

The following table is presented to provide additional analysis of SG&A
expenses eliminating the benefit of net non-cash pension income.

THREE MONTHS ENDED
MARCH 31
-----------------
In millions 2003 2002 Change
- ----------- ----- ----- ------

SG&A excluding net pension income $15.8 $15.9 $(0.1)
Benefit of pension income (0.6) (1.4) 0.8
----- ----- -----
SG&A as reported $15.2 $14.5 $ 0.7)
===== ===== =====

The fair value of our pension assets has decreased significantly since
January 1, 2002. For the full year 2003, non-cash pension income allocable to
SG&A expenses is projected to be $2.6 million compared to $5.7 million in 2002.

GAIN ON SALES OF PLANT, EQUIPMENT AND TIMBERLANDS

During the first quarter of 2003 we recognized a net gain from the sale of
plant, equipment and timberlands of $30.6 million. This primarily represents a
$31.2 million gain from the sale in March 2003 of approximately 25,500 acres of
timberlands to a subsidiary of The Conservation Fund, a non profit land
conservation fund (the "Buyer").

As consideration for the timberlands, we received a 10-year note from the
Buyer in the principal amount of $37.9 million (the "Note"). The Note bears
interest at 3.22% per annum with interest-only payments due in quarterly
installments. After five years the interest rate on the Note will be adjusted to
the then existing bank prime rate. The full amount of the Note is secured by a
letter of credit issued by a financial institution. As more fully discussed in
Liquidity and Capital Resources, we pledged the Note and letter of credit as
collateral for a $34.0 million term loan from a financial institution.

In connection with the timberland sale, we entered in a Supply Agreement
(the "Agreement") with the Buyer pursuant to which we agreed to purchase from
the Buyer a minimum of 275,400 tons of pine pulpwood at market prices over the
eight-year term of the Agreement.

INTEREST EXPENSE, NET

Interest expense, net consisted of the following:

THREE MONTHS ENDED
MARCH 31
--------------
In millions 2003 2002 CHANGE
- ----------- ----- ----- ------

Interest expense on debt $(3.4) $(3.7) $0.3
Interest income on investments and other - net 0.2 0.2 --
----- ----- ----
Interest expense, net $(3.2) $(3.5) $0.3
===== ===== ====

Interest expense decreased in the quarter-to-quarter comparison primarily
due lower debt outstanding in the current year compared to the prior-year
quarter. On average, total debt outstanding declined approximately $50.0
million. The weakening of the U.S. Dollar compared to the Euro, and the
resulting impact on translated interest expense for U.S. Dollar results
partially offset the favorable effect of lower debt balances.

OTHER INCOME (EXPENSE), NET

Other income (expense), net totaled $(0.9) million primarily due to foreign
currency transaction losses and net expense on cross-currency rate swaps.

INCOME TAXES

Income taxes increased $9.1 million to $15.1 million for the quarter ended March
31, 2003. The change in the income tax provision for the first quarter of 2003
compared to the same period of 2002 is primarily due to a $24.8 million increase
in earnings before income taxes.

-21-
GLATFELTER

BUSINESS UNITS

We manage our organization along separate business units: Engineered Products,
Long-Fiber & Overlay Papers, and Printing and Converting Papers, as well as
Tobacco Papers, which is being exited. In the latter part of 2002, we completed
the implementation of a new information system to provide, among other things,
more complete business unit reporting. However, we are currently unable to
provide detail business unit profitability reporting for periods prior to the
system implementation.

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 generally
accepted accounting principles; 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.

The following table sets forth net sales by business unit:

THREE MONTHS
ENDED MARCH 31 PERCENT OF TOTAL
--------------- ----------------
Dollars in millions 2003 2002 CHANGE 2003 2002
- ------------------- ------ ------ ------ ------ -------
BUSINESS UNIT

Engineered Products $ 32.3 $ 29.7 $ 2.6 22.5% 22.5%
Long-Fiber & Overlay Papers 35.3 26.6 8.7 24.6 20.1
Printing and Converting Papers 72.0 70.7 1.3 50.1 53.6
Tobacco Papers 4.0 5.0 (1.0) 2.8 3.8
------ ------ ------ ------ ------
Total $143.6 $132.0 $ 11.6 100.0% 100.0%
====== ====== ====== ====== ======

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

THREE MONTHS ENDED
MARCH 31, 2003
Operating Operating
Dollars in millions Profit Margin
- ------------------- ------ ------

BUSINESS UNIT
Engineered Products $ 1.9 5.9%
Long-Fiber & Overlay Papers 6.2 17.6
Printing and Converting Papers 1.2 1.7
Tobacco Papers (1.3) (32.5)
-----
Total Business Unit $ 8.0 5.4%
Energy sales, net 2.3
Pension income, net 5.1
Gain on sale of plant, equipment and timberlands, net 30.6
-----
Total consolidated operating income 46.0
Interest expense, net (3.6)
Other income (expense), net (0.5)
-----
Income before income taxes $41.9
=====

Management evaluates results of operations before energy sales, gains from
asset sales and the effects of non-cash pension income because it believes this
is a more meaningful representation of the operating performance of its core
papermaking businesses, the profitability of business units and the extent of
cash flow generated from core operations. This presentation is closely aligned
with the management and operating structure of our company. It is also on this
basis that management performance is evaluated internally and by the Company's
Board of Directors.

-22-
GLATFELTER

OUTLOOK

Thus far in 2003, demand for printing and converting papers has remained
sluggish. Recently announced increases in pulp costs indicate a possibility of
increasing selling prices for Printing and Converting Papers during the year.
Historically, pulp price increases have preceded selling price increases for
this business unit by several months. The outlook for the Engineered Products
and Long-Fiber & Overlay Papers business units is relatively stable. We
anticipate a reduction in sales volume during the remainder of 2003 for
Long-Fiber & Overlay Papers due to downtime associated with the rebuild of a
paper machine in Gernsbach.

COS is subject to variations in market prices for, among others, market
pulp, wastepaper and energy, in addition to fluctuations in the value of the
U.S. Dollar relative to the Euro on translated results of international
operations. Generally, the cost of these materials has experienced significant
increases over recent quarters. Although we are unable to predict with any
degree of certainty the extent or composition of further increases, if any, we
believe the extent or magnitude of any additional cost increases may moderate
during the balance of 2003. The cost of market pulp and wastepaper is expected
to be higher in 2003 than in 2002 based on price increases in the pulp market in
effect during the first quarter of 2003, our evaluation of market trends, and
indicators including, but not limited to, short term prices for market pulp,
chip availability, capacity and market consumption.

Market prices for natural gas significantly influence our Neenah and
Gernsbach facilities' production costs. The Neenah and Gernsbach facilities
require approximately 1.4 million decatherms and 0.9 million decatherms of heat,
respectively, annually. A portion of the Neenah facility's steam requirements is
met through a long-term supply agreement with Minergy Corporation. The cost of
steam purchased from Minergy is based on the market price for natural gas. Based
on expected production levels, a $1 per decatherm increase in the cost of gas is
expected to increase the cost of operating our Neenah facility by approximately
$1.4 million per year. In some instances, we can partially mitigate the effects
of price increases in natural gas by internally generating a portion of our
steam needs at the Neenah facility. Under a supply contract, the cost of gas
consumed by Gernsbach is based on the price of oil. Thus far during 2003,
Gernsbach has experienced much less volatility in its cost of natural gas than
that of our Neenah facility.

LIQUIDITY AND CAPITAL RESOURCES

CAPITAL RESOURCES AND LIQUIDITY

Total assets were $1.0 billion and $953.2 million and shareholders' equity
was $394.6 million and $373.8 million, at March 31, 2003 and December 31, 2002,
respectively. Our business is capital intensive and requires significant
expenditures for new or enhanced equipment and environmental compliance
matters and, to support our business strategy, research and development efforts
to develop new or enhanced products. Liquidity is provided primarily from
operating cash flow together with credit facilities. In addition, during the
first quarter of 2003, we completed the 25,500-acre sale of timberlands as
part of our ongoing initiative to realize value from all of our assets.

The following table summarizes cash flow information.

THREE MONTHS ENDED
MARCH 31
--------------
In millions 2003 2002 CHANGE
- ----------- ----- ----- ------

Cash and cash equivalents at beginning of period $32.2 $88.0 $(55.8)
Cash provided by (used for)
Operating activities 9.0 5.7 3.3
Investing activities (24.9) (7.4) (17.5)
Financing activities 29.3 (0.8) 30.1
Effect of exchange rate changes on cash 0.6 0.3 0.3
----- ----- ------
Net cash provided (used) 14.0 (2.2) 16.2
----- ----- ------
Cash and cash equivalents at end of period $46.2 $85.8 $(39.6)
===== ===== ======

-23-
GLATFELTER

An analysis of cash flows follows:

Operating Activities. Cash provided by operating activities totaled $9.0
million for the first three months of 2003 and $5.7 million in the year-earlier
first quarter. Operating cash flow increased primarily due to initiatives to
improve working capital. Although the timberland sale resulted in an after-tax
gain of $20.2 million, cash will be received from the buyer upon payment of
its 10-year note. Cash from the timberland sale was realized by pledging the
Note as collateral for a $34.0 million term loan. The resulting cash proceeds
are reflected as cash provided by financing activities.

Investing Activities. Net cash used in investing activities totaled $24.9
million in the first quarter of 2003 compared with $7.4 million in the first
quarter of 2002. Capital expenditures during 2003 primarily relate to the New
Century Project and the rebuild of a papermaking machine in Gernsbach, Germany.

Financing Activities. Net financing activities provided $29.3 million of
cash during the first quarter of 2003 compared with an $0.8 million use of cash
in the first quarter of 2002. The primary source of cash from financing
activities during the first quarter of 2003 was the $34.0 million borrowed under
a term loan secured by the pledge of the Note received in connection with the
timberland sale. Proceeds from this borrowing together with $2.7 million of
other borrowings, primarily under our revolving credit facility, were partially
offset by $7.6 million of cash dividends paid on our common stock during the
quarter. In the first quarter of 2002, $7.5 million of cash dividends paid were
substantially offset by $6.2 million of proceeds from the exercise of stock
options at a time when the market price of our common stock exceeded the
exercise price of stock options.

The following table sets forth Glatfelter's outstanding indebtedness.

MARCH 31 December 31
In thousands 2003 2002
- ------------ --------- ---------

Revolving credit facility, due June 2006 $ 70,420 $ 67,681
6-7/8% Notes, due July 2007 150,000 150,000
Note payable - SunTrust, due March 2008 34,000 --
Other notes, various 1,894 1,823
--------- ---------
Total long-term debt 256,314 219,504
Less current portion (828) (795)
--------- ---------
Long-term debt, excluding current portion $ 255,486 $ 218,709
========= =========

On June 24, 2002, we entered into an unsecured $102.5 million
multi-currency revolving credit facility (the "Facility") with a syndicate of
three major banks. An additional $22.5 million was added to the Facility on
September 24, 2002 with a fourth major bank. The Facility, which replaced an old
facility, enables us to borrow up to the equivalent of $125.0 million in certain
currencies. Borrowings incur interest based on the domestic prime rate or a
Eurocurrency rate, at our option, plus a margin ranging from .525% to 1.05%.
Borrowings can be made for any time period from one day to six months. The
margin and a facility fee on the commitment balance are based on the higher of
our debt ratings as published by Standard & Poor's and Moody's. The Facility
requires Glatfelter to meet certain leverage and interest coverage ratios, with
both of which we are in compliance.

The Facility also provides an additional source of liquidity in the form
of a $50.0 million accounts receivable securitization program. Should we elect
to do so, we have the ability to securitize certain eligible domestic accounts
receivable. Although the Facility provides this financing vehicle, we have no
plans to use it in the foreseeable future.

As the Facility matures on June 24, 2006, it has been classified on the
Balance Sheet as "Long-term debt." As of March 31, 2003, $70.4 million was
outstanding and an additional $54.6 million was available for borrowing under
the Facility.

-24-
GLATFELTER

In conjunction with our refinancing, we entered into a cross-currency swap
transaction with a major financial institution, effective June 24, 2002, with a
termination date of June 24, 2006. Under this transaction, we swapped $70.0
million for approximately E73 million and will pay interest on the Euro portion
of the swap at a floating Eurocurrency Rate, plus applicable margins and will
receive interest on the dollar portion of the swap at a floating U.S. Dollar
LIBOR rate, plus applicable margins. The cross-currency swap effectively hedges
exposure to foreign currency risk associated with certain intercompany
borrowings through 2006.

On March 21, 2003, we sold approximately 25,500 acres of timberlands and
received as consideration a $37.9 million 10-year interest-bearing note
from the buyer (See Note 5). We pledged the Note as collateral under a $34.0
million promissory note payable to SunTrust Financial (the "Note Payable").
The Note Payable bears a fixed rate of interest at 3.82% for five years at
which time the Company can elect to renew the obligation.

PNC Financial Services Group, Inc. ("PNC") beneficially owns approximately
35% of our common stock, primarily as a trustee for numerous trusts for the
benefit of Glatfelter family members. PNC Bank, National Association, a
subsidiary of PNC, is a member of a syndicate of banks under the Facility. One
member of our Board of Directors is the retired Regional Chairman of PNC Bank
National Association, Philadelphia/South Jersey markets.

In 1997, we issued $150.0 million principal amount of 6 7/8% Notes due
July 15, 2007. Interest on the 6 7/8% Notes is payable semiannually on January
15 and July 15. The 6 7/8% Notes are redeemable, in whole or in part, at our
option at any time at a calculated redemption price plus accrued and unpaid
interest to the date of redemption, and constitute unsecured and unsubordinated
indebtedness. The net proceeds from the sale of the 6 7/8% Notes were used
primarily to repay certain short-term unsecured debt and related interest.

CAPITAL SPENDING During the first quarter of 2003, capital expenditures
totaled $25.2 million compared with $8.0 million in the first quarter of 2002
and $51.2 million for the full year 2002. Capital expenditures are expected to
be $75.2 million for the full year 2003. For the near-term period beyond 2003,
capital expenditures are expected to be at or below levels of annual
depreciation.

The following table summarizes capital spending by major project, by year:

L&OP
In millions New Century Gernsbach
- ----------- ----------- ---------

Prior to 2003 $12.3 $ 5.6
During first quarter 2003 8.1 13.9
----- -----
To date 20.4 19.5
Forecast
2003 14.9 13.3
After 2003 1.5 --
----- -----
Project total $36.8 $32.8
===== =====

New Century Project - The New Century Project is an initiative underway at
our Spring Grove facility under the Voluntary Advanced Technical Incentive
Program as set forth by the EPA's "Cluster Rule". This project includes
new hardwood brownstock washing, installation of hardwood oxygen
delignification, 100% chlorine dioxide substitution on both the hardwood
and softwood fiber lines, and a hardwood ozone bleaching system. To comply
with the Cluster Rule, we will also install equipment to reduce air
emissions of air pollutants and odorous compounds.

Long-Fiber & Overlay Papers ("L&OP") Gernsbach - During 2002, we began our
project to expand long-fiber and overlay papers capacity in Gernsbach,
Germany. The rebuild of our #9 paper machine is expected to allow us to
produce new and advanced products and achieve greater cost efficiency. The
increase in the expected cost to complete the paper machine rebuild
reflects the effect of the weakening of the U.S. Dollar relative to the
Euro and the resulting impact on translated capital expenditures of our
subsidiary in Gernsbach, Germany.

-25-
GLATFELTER

DIVIDEND PAYMENTS During the first quarter of 2003 and 2002 and for the full
year 2002, cash dividends paid on common stock totaled $7.6 million, $7.5
million and $30.3 million, 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.

Environmental Matters 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 our mills. 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. Because environmental regulations are not consistent
worldwide, our ability to compete in the world marketplace may be adversely
affected by capital and operating expenditures required for environmental
compliance. (See Item 1 - Financial Statements - Note 12 for a summary of
significant environmental matters.)

We expect to meet all our near- and longer-term cash needs from a
combination of operating cash flow, cash and cash equivalents, sale of
timberlands, our existing credit facility or other bank lines of credit and
other long-term debt. However, as discussed in Item 1 - Financial Statements -
Note 12, an unfavorable outcome of various environmental matters could have a
material adverse impact on our consolidated financial position, liquidity and/or
results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Our market risk exposure primarily results from changes in interest rates and
currency exchange rates. At March 31, 2003, we had debt outstanding of
approximately $256.2 million, of which $70.4 million, or 27.5% was variable
rate.

The table below 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.

Period or Year Ended December 31 At March 31, 2003
----------------------------------------------------- -------------------
Carrying Fair
Dollars in thousands 2003 2004 2005 2006 2007 Value Value
- -------------------- -------- -------- -------- -------- -------- -------- --------
LONG-TERM DEBT

Average principal outstanding
At fixed interest rates $180,499 $184,610 $180,174 $180,000 $115,250 $185,894 $193,594
At variable interest rates 70,420 70,420 70,420 34,036 70,420 70,420
Weighted-average interest rate
On fixed interest rate debt 6.38% 6.31% 6.31% 6.31% 5.97%
On variable interest rate
debt 3.44 3.44 3.44 3.44

CROSS-CURRENCY SWAP
Pay variable - EURIBOR E72,985 E72,985 E72,985 E72,985
Variable rate paid 3.30% 3.30% 3.30% 3.30%
Receive variable - US$
LIBOR $70,000 $70,000 $70,000 $70,000
Variable rate received 1.94% 1.94% 1.94% 1.94%

Variable rate debt outstanding represents borrowing under our revolving
credit facility. Borrowings incur interest based on the domestic prime rate or a
Eurocurrency rate, at our option, plus a margin. March 31, 2003, the interest
rate paid was 3.44%. An instantaneous 100 basis point increase or decrease in
the interest rate on variable rate debt would increase or decrease annual
interest expense by $0.7 million.

-26-
GLATFELTER

At March 31, 2003, all variable-rate debt was recorded at S&H, our
wholly-owned subsidiary in Gernsbach, Germany, where the functional currency is
the Euro.

At March 31, 2003, we had a cross-currency swap agreement outstanding with
a termination date of June 24, 2006. Under this transaction, we swapped $70.0
million for approximately E73 million and will pay interest on the Euro portion
of the swap at a floating Eurocurrency Rate (EURIBOR), plus applicable margins
and will receive interest on the dollar portion of the swap at a floating U.S.
Dollar LIBOR rate, plus applicable margins. The cross-currency swap is designed
to provide protection from the impact that changes in currency rates have on
certain U.S. Dollar-denominated debt obligations recorded at our S&H subsidiary
in Gernsbach, Germany. The cross currency swaps are recorded at fair value on
the Consolidated Balance Sheet and changes in fair value are recognized in
earnings as "Other income (expense)" in the Consolidated Statements of Income.
Changes in fair value of the cross-currency swap transaction are substantially
offset by changes in the value of U.S. Dollar denominated obligations when they
are remeasured in Euros, the functional currency of S&H (See Item 1 - Financial
Statements - Note 10).

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 quarter ended March 31, 2003,
approximately 69% of our net sales were shipped from the United States, 25% from
Germany, and 6% from other international locations.

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-14(c) and 15d-14(c)), within 90
days of the filing of this Quarterly Report on Form 10-Q, have
concluded that, as of the evaluation date, our disclosure controls and
procedures were adequate and effective to ensure that material
information relating to P. H. Glatfelter Company and its consolidated
subsidiaries would be made known to them by others within those
entities.

CHANGES IN INTERNAL CONTROLS

There were no significant changes in our internal controls or in other
factors that could significantly affect our internal controls
subsequent to the date of the evaluation, nor were there any
significant deficiencies or material weaknesses in our internal
controls. As a result, no corrective actions were required or
undertaken.

-27-
GLATFELTER

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

The following exhibits are incorporated by reference or filed herewith.

10.1 Employment agreement between the Registrant and John C. van
Roden, Jr., Chief Financial Officer.

10.2 Severance agreement between the Registrant and Robert C.
Newcomer, President and Chief Operating Officer (exhibits
ommitted).

10.3 Term Loan Agreement, dated as of March 21, 2003, among GPW
Timberlands, LLC, (a wholly owned subsidiary of the
Registrant) and Suntrust Bank, as Administrative Agent.

15 Letter in lieu of consent regarding review report of unaudited
interim financial information.

99.1 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 -
Chief Executive Officer.

99.2 Certification of John C. van Roden, Jr., 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

(b) REPORTS ON FORM 8-K

During the quarter ended March 31, 2003, the Company filed the
following Current Reports on Form 8-K.

i. Form 8-K dated as of January 13, 2003, reporting certain
environmental matter developments involving our facility in
Neenah, Wisconsin, filed pursuant to Item 5.

ii. Form 8-K dated as of January 16, 2003, reporting the
retirement, effective June 30, 2003, of Robert P. Newcomer,
President and Chief Operating Officer, filed pursuant to Item
5.

iii. Form 8-K dated as of March 21, 2003, reporting the completion
of the Company's previously announced agreement to sell
approximately 25,500 acres of land, filed pursuant to Item 5.

-28-
GLATFELTER

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date: May 13, 2003 By: /s/ John C. van Roden, Jr.
---------------------------------
John C. van Roden, Jr.
Senior Vice President and
Chief Financial Officer

-29-
GLATFELTER

CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002

I, George H. Glatfelter II, Chief Executive Officer of P. H. Glatfelter Company,
certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the Quarterly
Period Ended March 31, 2003 of P. H. Glatfelter Company;

2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this Quarterly Report;

3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Glatfelter as of, and for the periods presented in this Quarterly
Report;

4. Glatfelter's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Glatfelter and we
have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to Glatfelter, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;

(b) evaluated the effectiveness of Glatfelter's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and

(c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. Glatfelter's other certifying officer and I have disclosed, based on our
most recent evaluation, to Glatfelter's auditors and the audit committee
of the board of directors:

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect Glatfelter's ability to
record, process, summarize and report financial data and have
identified for Glatfelter's auditors any material weaknesses in
internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Glatfelter's internal
controls; and

6. Glatfelter's other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: May 13, 2003 By: /s/ George H. Glatfelter II
----------------------------------
George H. Glatfelter II
Chief Executive Officer

-30-
GLATFELTER

CERTIFICATION PURSUANT TO SECTION 302 (a) OF THE SARBANES-OXLEY ACT OF 2002

I, John C. van Roden, Jr., Senior Vice President and Chief Financial Officer of
P. H. Glatfelter Company, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the Quarterly
Period Ended March 31, 2003 of P. H. Glatfelter Company;

2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this Quarterly Report;

3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of Glatfelter as of, and for the periods presented in this Quarterly
Report;

4. Glatfelter's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for Glatfelter and we
have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to Glatfelter, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;

(b) evaluated the effectiveness of Glatfelter's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and

(c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. Glatfelter's other certifying officer and I have disclosed, based on our
most recent evaluation, to Glatfelter's auditors and the audit committee
of the board of directors:

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect Glatfelter's ability to
record, process, summarize and report financial data and have
identified for Glatfelter's auditors any material weaknesses in
internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Glatfelter's internal
controls; and

6. Glatfelter's other certifying officer and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: May 13, 2003 By: /s/ John C. van Roden, Jr.
----------------------------------
John C. van Roden, Jr.
Senior Vice President and
Chief Financial Officer

-31-
GLATFELTER

EXHIBIT INDEX

EXHIBIT NUMBER DESCRIPTION
- -------------- -----------

10.1 Employment agreement between the Registrant and John C. van Roden, Jr., Chief
Financial Officer.

10.2 Severance agreement between the Registrant and Robert C. Newcomer, President and
Chief Operating Officer (exhibits omitted).

10.3 Term Loan Agreement, dated as of March 21, 2003, among GPW Timberlands, LLC, (a
wholly owned subsidiary of the Registrant) and Suntrust Bank, as Administrative
Agent.

15 Letter in lieu of consent regarding review report of unaudited interim financial
information.

99.1 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 - Chief Executive Officer.

99.2 Certification of John C. van Roden, Jr., 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.

32