1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended Commission file number
December 31, 19961998 1-3560

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

Pennsylvania 23-0628360
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
228 South Main Street
Spring Grove, Pennsylvania 17362
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, (717) 225-4711
including area code --------------

Securities registered pursuant to Section 12(b) of the Act:

Common Stock AmericanNew York Stock Exchange
Inc.- --------------------- -------------------------------------------
(Title of each class) (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None
----------------
(Title of Class)

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 the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /[ ]

The aggregate market value of the Common Stock of the Registrant held by
non-affiliates at February 26, 1997March 3, 1999 was $392,022,040.$270,301,318.

Common Stock outstanding at February 26, 1997: 42,330,048March 3, 1999: 42,130,000 Shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by
reference in this Report on Form 10-K.

1. Proxy Statement dated March 14, 199719, 1999 (Part III)

PART I

Item 1. Business.

The Registrant, a paper manufacturing company, began
operations in Spring Grove, Pennsylvania in 1864 and was incorporated as a
Pennsylvania corporation in 1905. On January 30, 1979 the Registrant acquired by
merger Bergstrom Paper Company with paper mills located in Wisconsin and Ohio.
The Ohio mill was sold on September 10, 1984. On May 7, 1987 the Registrant
acquired all of the outstanding capital stock of Ecusta Corporation ("Ecusta")
with a paper mill located in Pisgah Forest, North Carolina and other operations
in North Dakota, Canada and Australia. Ecusta was merged into and became a
division of the Registrant on June 30, 1987. On January 2, 1998 the Registrant
acquired S&H Papier-Holding GmbH ("S&H") with operations in Germany, France, the
Philippines and the United States.

The Registrant'sRegistrant has three paper mills are located in the United
States: Spring Grove, Pennsylvania, Pisgah Forest, North Carolina and Neenah,
Wisconsin. ItThe Registrant also has a paper mill in Gernsbach, Germany and a 50%
controlling ownership interest in a paper mill in Odet, France. The Registrant
manufactures printingengineered papers and tobacco and other specialtyspecialized printing papers.

The Registrant sells itsRegistrant's engineered papers are used in the
manufacture of a variety of products, throughoutincluding tea bags, cigarette tipping and
plug wrap papers, metalized beverage labels, decorative laminates, food product
casings, stencil papers, photo-glossy ink jet papers, greeting cards, medical
dressings, highway signs and striping, billboard graphics, decorative shopping
bags, playing cards, postage stamps, filters, labels and surgical gowns. Sales
of these papers are generally made directly to the United States
andconverter of the paper.
Engineered papers are manufactured in a numbereach of foreign countries. Net export sales in 1996, 1995 and 1994
were $55,532,000, $54,961,000 and $44,821,000, respectively.the Registrant's mills.

Most of the Registrant's specialized printing paper products
are directed at the uncoated free-sheet portion of the industry. The
Registrant's specialized printing paper products are used principally for the
printing of case bound and quality paperback books, commercial and financial
printing and envelope converting. PrintingSpecialized printing papers are manufactured
in each of the Registrant's mills.

In 1996,1998, sales of paper for book publishing and commercial
printing generally were made through wholesale paper merchants, whereas sales of
paper to financial printers and converters generally were made directly. During
1994, one ofboth 1996 and

1997, the Registrant's wholesale paper merchants,merchant, Central National-
GottesmanNational-Gottesman Inc.
("CNGI") (which buys paper through its division, Lindenmeyr Book Publishing)
acquired substantially all of the assets of Perkins & Squier,
anotheraccounted for 12% of the Registrant's wholesale paper merchants. As a result, during 1996,
1995 and 1994, Central National-Gottesman Inc. accounted for 12%, 14% and 13%net sales. Net sales to CNGI were less
than 10% of the Registrant's net sales respectively.

The Registrant's tobacco and other specialty papers are used
for cigarette manufacturing and other specialty uses suchduring 1998 as the manufacture of
playing cards, stamps, labels and surgical gowns. Sales of these papers are
generally made directlyS&H did not sell any
products to the converter of the paper. Tobacco papers are
manufactured in the Pisgah Forest mill. Other specialty papers are manufactured
in each of the Registrant's mills.
3CNGI.

A significant portion of the Pisgah Forest mill's sales and a
modest portion of the sales from the Gernsbach and Odet mills are made to a
limited number of major tobacco companies. The current legal and regulatory
pressures on thatthe tobacco industry in the United States could have an adverse
effect on the future tobacco paper sales and profitability of the Pisgah Forest mill. Under such
conditions, thethese mills. The
Registrant wouldcontinues its efforts to remain cost competitive within this market
and will attempt to replace any lost sales and profitability with sales of
lightweight specialty printing papers and other specialty papers.cost reductions.

Set forth below is the amount (in thousands) and percentage
of net sales contributed by each of the Registrant's two classes of similar
products during each of the years ended December 31, 1996, 19951998, 1997 and 1994. Sales
of certain paper grades have been reclassified during 1996 to be consistent with
the Registrant's definition of other specialty papers. Prior year amounts have
been restated to be in conformity with the 1996 classification.
1996.

Years Ended December 31,

1998 1997 1996 1995 1994
---- ---- ----
Net SalesSales* % Net Sales % Net Sales %
--------- - --------- - --------- -

Specialized
Printing
Papers $351,171 50% $354,076 62% $355,328 63%
$421,868 68% $302,400 63%

Tobacco
and Other
SpecialtyEngineered
Papers 353,907 50% 212,996 38% 210,756 37% 201,841 32% 175,902 37%
-------- --- -------- --- --------------- ---
Total $566,084$705,078 100% $623,709$567,072 100% $478,302$566,084 100%

- ---------------

* S&H was acquired on January 2, 1998.

See Note 11 to the Registrant's 1998 consolidated financial
statements in Item 8 for certain geographic disclosure.

The competitiveness of the markets in which the Registrant sells
its products varies. The necessity for technical expertise limits the number of
competitors for the Registrant's engineered papers, excluding tobacco papers.
Competition for tobacco papers currently is keen as a result of

excess worldwide capacity along with stagnant growth in worldwide tobacco
consumption. There are numerousa number of concerns in the United States manufacturing
specialized printing papers and no one company holds a dominant position.
Capacity in the uncoated free-sheet industry, which includes uncoated
specialized printing papers, is not expected to increase significantly for the
next few years. In the
tobacco papers business, while there is only one significant domestic
competitor, there are numerous international competitors. The Registrant is a
major tobacco papers supplier to the domestic tobacco products industry. If
foreign production of tobacco products by U.S. companies increases significantly
it may have an adverse effect on the Registrant's overall competitive position.

Service, product performance and technological advances are
important competitive factors in all of the Registrant's businesses. The
Registrant believes its reputation in these areas continues to be excellent.

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4
Backlogs are generally not significant in the Registrant's
business.business, as substantially all of the Registrant's customer orders are produced
within 30 days of receipt. A backlog of unmade customer orders is monitored
primarily for purposes of scheduling production to optimize paper machine
performance. From time to time, the Registrant may determine that the backlog of
unmade orders, along with high finished goods inventory levels, may be
insufficient to warrant a full schedule of paper machine production. In these
circumstances, certain paper machines may be temporarily shut-down until backlog
and inventory levels warrant a resumption of operations.

The principal raw material used at the Spring Grove mill is
pulpwood. In 1996,1998, the Registrant acquired approximately 78%79% of its pulpwood
from saw mills and independent logging contractors and 22%21% from Company-owned
timberlands. Hardwood and softwood purchases each constituted 50%53% and 47% of the
pulpwood acquired.acquired, respectively. Hardwoods are still available within a relatively
short distance of the Registrant's Spring Grove mill, but the radius within which the
Registrant has been acquiring hardwoods continues to increase.mill. Softwood is obtained
primarily from Maryland, Delaware and Virginia. In order to protect its sources
of pulpwood, the Registrant actively promotes conservation and forest management
among suppliers and woodland owners. In addition, its subsidiary, The Glatfelter
Pulp Wood Company, has acquired, and is acquiring, woodlands, particularly
softwood growing land, with the objective of having a significant portion of itsthe
Registrant's softwood requirement available from Company-owned woodlands.

The Spring Grove pulp mill converts the pulpwood into wood pulp
for use in its papermaking operations. In addition to the pulp it produces, the
Spring Grove mill purchases market pulp from others.

During the fourth
quarter of 1994, the Registrant completed the pulp mill modernization project at
the Spring Grove mill. This project, undertaken primarily for environmental
reasons, resulted in an increase in total pulp production capacity at the mill.

The principal raw material used by the Neenah mill is high-grade
recycled wastepaper. The quality of different types of high-grade wastepaper
varies significantly depending on the amount of contamination. Wastepaper
prices, although down

slightly, were relatively stable throughout 1996.1998. It is anticipated that there
will be an adequate supply of wastepaper in the future. During December 1996,
the Neenah mill completed a project increasing its capacity to recycle lower
quality high-gradehigh grade wastepapers. Although this project did not increase the
mill's total de-inking capacity, it is expected to reduce cost.has reduced costs.

The major raw materials used at the Ecusta mill are purchased
wood pulp and processed flax straw, which is derived from linseed flax plants.
The current supply of wood pulp and flax straw is sufficient for the present and
anticipated future operations at the Ecusta mill. Ecusta receives a majority of
its processed flax straw from the Registrant's Canadian operation.

The principal raw materials used by the Gernsbach and Odet mills
are purchased pulp and abaca pulp provided by S&H's Philippine pulpmill. The
current supply of such materials is sufficient for the present and anticipated
future operations of these mills.

Wood pulp consumed which was purchased from others comprised
approximately 106,000137,000 short tons or 23%28% of the total 19961998 fiber requirements of
the Registrant. The average cost of marketpurchased pulp during 1998 decreased
significantlyslightly from 1997. Although purchased pulp prices have decreased modestly
during the first fourtwo months of 1996, then increased moderately and finally decreased slightly at

3
51999, price increases have been announced for
certain pulps effective during the endsecond quarter of the year. Pulp prices are expected to remain low with possible1999. There is no certainty
that any or all of these announced price increases in the second-half of 1997.will be realized.

The Registrant's Spring Grove mill generates all of its steam
requirements and is 100% self-sufficient in electrical energy generation. The
mill also produces excess electricity which is sold to the local power company
under a long-term co-generation contract. SuchThese net energy sales were $8,559,000$9,652,000
in 1996.1998. Principal fuel sources used by the Spring Grove mill are coal, spent
chemicals, bark and wood waste, and oil, which were used to produce
approximately 58%55%, 35%37%, 6%7% and 1%, respectively, of the total energy internally
generated at the Spring Grove mill in 1996.1998.

The Pisgah Forest mill generates all of its steam requirements
and a majority of its electricalelectric power requirements (64%(60% in 1996)1998) and purchases
the remainder of its electric power requirements. Coal was used to produce
essentially all of the mill's internally generated energy during 1996.1998.

During 1998, the Neenah mill began to purchase steam under a
twenty year contract from a facility of Minergy Corporation. The facility, which
is located adjacent to the

Neenah mill, processes paper mill sludge from the Neenah mill as well as other
mills in the Neenah area. During 1998, the Neenah mill purchased 61% of its
steam from Minergy Corporation and generated 39% of its steam requirements. The
Registrant expects to purchase approximately 80% of its steam requirements from
Minergy Corporation during 1999. The Neenah mill generates all of its steam requirements and a portion of its
electric power requirements (13% in 1996)1998) and purchases the remainder of its
electric power requirements. Gas was used to produce essentially87% of the mill's
internally generated steam during 1998 with fuel oil being used to generate the
remainder.

The Gernsbach and Odet mills both generate all of their own steam
requirements. The Gernsbach mill generated approximately 33% of its 1998
electric power requirements and purchased the balance. Gas was used to produce
almost all of the mill's internally generated energy during 1996.1998. The Odet mill
purchased all of its 1998 electric power requirements.

At December 31, 1996,1998, the Registrant had 3,0293,833 active full-time
employees.

Hourly employees at the Registrant's U.S. mills are represented
by different locals of the United Paperworkers International Union, AFL-CIO.AFL-CIO (the
"Union"). In October 1996 a five-year labor agreement covering approximately 990
employees at the Pisgah Forest mill was ratified. A five-year labor agreement
covering approximately 320 employees at the Neenah mill expireswas ratified in August
1997. Under this agreement, wages increased 3% in 1996. A five-year labor agreement covering approximately 740 employees in Spring
Grove expireswas ratified in January 1998. Under this agreement,all of these agreements, wages
increased by 3% in 19961998 and are towill increase by 3% in 1997. In October 1996 a five-yearper year for the duration of the
agreements.

Approximately 775 hourly employees at the Registrant's S&H
locations are represented by various unions. The labor agreement covering
approximately 1,035570 hourly employees at the Pisgah ForestGernsbach mill was ratified.
Under thisexpired on February 28,
1999. The terms and conditions of the expired agreement which expiresremain in October 2001, wageseffect until a
new agreement is negotiated. The Registrant is not directly involved in these
negotiations as the agreement is being negotiated by paper industry
representatives. This situation is not unusual at the Gernsbach mill and the
Registrant does not believe that the lack of an agreement will increase by 3%
each year.result in any
significant operational interruptions.

ENVIRONMENTAL MATTERS

The Registrant is subject to numerousloss contingencies resulting from
regulation by various federal, state, local and foreign laws and rules and regulations thereundergovernmental authorities
with respect to the

environmental impact of air and water emissions and noise from its mills, as
well as the disposal of solid waste generated by its operations. It has been the Registrant's experience over many
years that directivesTo comply with
respect to the abatement of pollution have
periodically been made increasingly stringent. During the past twenty years or
more,environmental laws and regulations, the Registrant has taken a number of measures and spentincurred substantial
sums
of money both for the

4
6
installation of facilitiescapital and operating expenses in order to abate air, water
and noise pollution and to alleviateexpenditures over the problem of disposal of solid waste. In
spite of the measures it has already taken, thepast several years. The Registrant
anticipates that environmental regulation of the Registrant'sits operations will continue to
become more burdensome and that compliance therewith, when and if technologically
feasible, will require additional capital expenditures and operating expenses.expenditures will
continue, and perhaps increase, in the future. In addition, the Registrant may
incur obligations to remove or mitigate any adverse effects on the environment
resulting from its operations, including the restoration of natural resources,
and liability for personal injury and damage to property, including natural
resources. For further information with respect to such compliance, reference is
made to Item 3 of this report.

Compliance with government environmental regulations is a matter
of high priority to the Registrant. In order to meet environmental requirements,
the Registrant has undertaken certain projects, the most
significant of which relates to the modernization of the Spring Grove pulpmill.
The pulpmill modernization project, which began in 1990, was completed during
the fourth quarter of 1994 for a total cost of $171,000,000 (exclusive of
capitalized interest).projects. During 1996,1998, the Registrant
expended approximately $2,000,000$4,900,000 on environmental capital projects. The
Registrant estimates that $12,000,000$11,000,000 and $8,000,000$18,000,000 will be expended for
environmental capital projects in 19971999 and 1998,2000, respectively. Since capital
expenditures for pollution abatement generally do not increase the productivity
or efficiency of the Registrant's mills, the Registrant's earnings have been and
will be adversely affected to the extent that selling prices have not been and
cannot be increased to offset additional incremental operating costs, including
depreciation, resulting from such capital expenditures and to offset additional
interest expense on the amounts expended for environmental purposes. Because other paper
companies locatedSince
environmental regulations are not consistent worldwide, the Registrant's ability
to compete in the United States are generally subject to the same
environmental regulations, the Registrant does not believe that its competitive
position in the U.S. paper industry willworld marketplace may be materially adversely affected by its
capital and
operating expenditures required for or operating costs of, pollution abatement facilities
for its present mills or the limitations which environmental compliance may
place on its operations.compliance.

The Registrant, along with six other companies which operate or
formerly operated facilities along the Fox River in Wisconsin, has been in
discussions with the Wisconsin Department of Natural Resources ("DNR") and the
United States Fish and Wildlife Service (the "USFWS") regarding the alleged discharge of polychlorinated biphenyls
("PCBs") and other hazardous substances to the Fox River below Lake Winnebago
(the "lower Fox River") and the Bay of Green Bay.

Effective as ofOn January 31,30, 1997, the Registrant and the six other companies
entered into an agreement with the State of Wisconsin establishing(the "Wisconsin
Agreement") which was intended to establish a framework for the

5
7 final resolution
of claims for natural resources damages and other relief which the State asserts
against the companies. Under the agreement, the companies willare

required to provide in the aggregate $10 million in work and funds to facilitate
natural resources damages assessment activities, including, among other things,
modellingmodeling and risk assessment, as well as field scale demonstration of sediment
dredging and the enhancement of certain environmental amenities. The actual cost
to be incurred by the companies for such activities will exceed $10 million.
Such costs are expected to be incurred over a four-year period, although the
bulk of the amount should be spent by the end of 1999. The Registrant's final
allocated portion of such costs is unknown. The State willhas agreed to act as "lead
authorized official" under federal law for purposes of any assessment of damages
to natural resources within Wisconsin, except those within the administrative
jurisdiction of a federal agency. The United States Fish and Wildlife Service
("USFWS"), together with the National Oceanic and Atmospheric Administration and
two Indian tribes, however, is conducting its own assessment despite the State's
status. In general, the parties to the Wisconsin Agreement have agreed to toll
all limitations periods and to forbear from litigation during the term of the
agreement. The parties intend to conclude a final resolution of all of the
State's claims during the course of, or after completion of, the work called for
by the agreement.

By letter dated January 31, 1997, and received by the Registrant
on February 3, 1997, the USFWS provided 60 days' notice of the intention of the
United States Departments of the Interior and Commerce to commence an action for
natural resources damages against the Registrant and the six other companies
referred to above similarly relating to the discharge of hazardous substances
into the lower Fox River. The federal trustees invited the
Registrant to resume negotiations toward a non-litigated resolution of the
federal trustees' claims; the negotiations had been suspended at the federal
trustees' request.

In addition to the State and the federal trustees, the
Menominee Indian Tribe of Wisconsin ("MITW") and the Oneida Indian Tribe of
Wisconsin ("OITW") have asserted claims for natural resources damages against
the seven companies. The MITW commenced litigation in the United States District
Court for the Western District of Wisconsin against the State to establish the
Tribe's off-reservation usufructuary rights to natural resources, including the
Fox River. Those rights form the predicate to the MITW's natural resource damage
claims. On September 16, 1996, the district court dismissed the MITW's claims
and the MITW has filed an appeal to the United States Court of Appeals for the
Seventh Circuit.

Effective as of March 1, 1997, the Registrant, the six other
companies, the federal trustees, the MITW and the OITW entered into an agreement
which provides that between March 1, 1997 and May 29, 1997 all limitation
periods shall be tolled and the parties shall forbear from litigation. In the
event that the federal trustees commence an action after expiration of the
forbearance period, the Registrant does not know the amount which the
federal trustees will claim as natural resources damages, but the Registrant
believes that it will be substantial. The agreementBeginning as of March 1, 1997, the
Registrant and six other companies entered into a series of agreements with the
StateUnited States which provided that all limitation periods were tolled and the
parties would forbear from litigation; the last tolling and forbearance period
expired on December 2, 1997.

restoring injured and potentially injured natural resources. The MOA further
states that, based on current information, removal of the federal
trusteesPCB-contaminated
sediments in the lower Fox River is expected to be the principal, but not
exclusive, action undertaken to achieve restoration and 6
8rehabilitation of
injured natural resources. The MOA anticipates funding from the rolesRegistrant and
the six other companies, all of which are identified as potentially responsible
parties.

The EPA has proposed to include the Fox River/Green Bay site on
the National Priorities List maintained pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act. The EPA rejected the
potentially responsible parties' offer to perform a remedial investigation and
feasibility study ("RI/FS") for the site and the Wisconsin DNR commenced
preparation of the StateRI/FS.

On February 26, 1999, the Wisconsin DNR released for public
comment a draft RI/FS for the lower Fox River. In the draft RI/FS, Wisconsin DNR
reviewed and summarized a number of possible remedial alternatives for the federal trustees.site
estimated to cost in the range of $0 to $721,000,000, but did not select a
preferred remedy. The partiesRegistrant does not believe that the no action ($0) remedy
will be selected. The largest components of the costs of certain of the remedial
alternatives are attributable to large-scale sediment removal and disposal.
There is no assurance that many of the cost estimates in the draft RI/FS will
not differ significantly from actual costs. Public comments on the draft RI/FS
must be submitted by April 12, 1999. The Registrant intends to submit its
comments prior to that agreementdeadline. After consideration of public comments, the
draft RI/FS may be revised to add to, delete or amend the remedial alternatives.

The Registrant did not participate in the process of developing
the draft RI/FS. Based on current information and advice from its environmental
consultants, the Registrant continues to believe that an aggressive effort, as
included in certain remedial alternatives in the draft RI/FS, to remove
PCB-contaminated sediments, many of which are buried under cleaner material or
are otherwise unlikely to move, would be environmentally detrimental and
therefore inappropriate.

The Registrant is currently unable to predict its ultimate costs
related to this matter because the Registrant cannot predict which remedy will
be selected for the site or its share of the cost of that remedy.

The Registrant continues to believe it is likely that this matter
will result in litigation. The Registrant also believes it will be able to
persuade a court that removal of a

substantial amount of PCB-contaminated sediments is not an appropriate remedy.
There can be no assurance, however, that the Registrant will be successful in
arguing that removal of PCB-contaminated sediments is inappropriate, that it
would prevail in any resulting litigation, that its share of the cost of any
remedy selected would not have inviteda material adverse effect on the federal trustees to begin negotiations towardsRegistrant's
consolidated financial condition, liquidity and results of operations or that
the Registrant's share of such a
modification.cost would not exceed its available resources.

The amount and timing of future expenditures for environmental
compliance, clean-up, remediation and personal injury natural resource damage 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 control, the remedial or restoration actions
which may be required and the number and financial resources of any other
responsible parties. The Registrant continues to evaluate its exposure and the
level of its reserves including, but not limited to, its futureshare of the agreement
reached with the State regarding the lower Fox River and the Bay of Green Bay,
its negotiations with the State and the United States concerning Fox River and
Bay of Green Baythose areas and
the unknown amount which could be claimed by the federal trustees as natural
resource damages related to the lower Fox River. The Registrant believes that it
is insured against certain losses related to the lower Fox River, depending on
the nature and amount thereof. Coverage, which is currently being investigated
under reservation 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. The Registrant does not know when the
insurers' investigation as to coverage will be completed.

The Registrant's current assessment, after consultation with
legal counsel, is that future expenditures for these matters are not likely to
have a material adverse impact on the Registrant's consolidated financial
condition or liquidity, but could have a material adverse effect on the
Registrant's consolidated results fromof operations in a given year; however, there
can be no assurances that the Registrant's reserves will be adequate or that a
material adverse effect on the Registrant's consolidated financial condition or
liquidity will not occur at some future time.

Item 2. Properties.

The Registrant's executive offices are located in Spring Grove,
Pennsylvania, 11 miles southwest of York. The Registrant's paper mills are
located in Spring Grove, Pisgah Forest, North Carolina, Neenah, Wisconsin and
Neenah,
Wisconsin.Gernsbach, Germany. The Registrant also has a 50% ownership interest in a paper
mill in Odet, France.

The Spring Grove facilities include seven uncoated paper machines
with a daily capacity ranging from 12 to 298308 tons and an aggregate annual
capacity of about 296,000302,000 tons of finished paper. The machines have been rebuilt
and modernized from time to time. An off-machineDuring 1997, the Spring Grove mill completed
its Gravure Coater ("G-Coater") capital project. Although sales from the
G-Coater were disappointing during 1998, the Registrant views the G-Coater as an
important long-term strategic project which will allow it to expand its more
profitable engineered paper product group. The G-Coater, along with Spring
Grove's off-line combi-blade coater, gives the Registrant a potential annual
production capacity for coated paper of approximately 51,00053,000 tons. Since
uncoated paper is used in producing coated paper, this does not represent an
increase in the Spring Grove mill capacity. The Spring Grove facilities also
include a pulpmill, which has a production capacity of approximately 625650 tons of
bleached pulp per day.

During the first quarter of 1998, the Registrant completed
construction of a precipitated calcium carbonate ("PCC") plant at its Spring
Grove mill. This plant reduced the cost of PCC at this mill as well as lowered
the need for higher priced raw materials used for increasing the opacity and
brightness of certain papers.

The Pisgah Forest facilities include twelve paper machines, stock
preparation equipment, a modified kraft bleached flax pulpmill with thirteen
rotary digesters, a precipitated calcium carbonatePCC plant and a small recycled pulping operation. 7
9
The annual
light weightlightweight paper capacity is approximately 99,000 tons. Nine paper machines are
essentially identical while the newer, larger three machines have design
variations specific for the products produced. Converting equipment includes
winders, calendars, slitters, perforators and printing presses. Due to current
high finished tobacco paper goods inventory levels, one of Pisgah Forest's
smaller machines ran intermittently during 1998 and is only expected to run
during some portions of 1999.

The Neenah facilities, consisting of a paper manufacturing mill,
converting plant and offices, are located at two sites. The Neenah mill includes
three paper machines, with

an aggregate annual capacity of approximately 163,000162,000 tons and a wastepaper
de-inking and bleaching plant with an annual capacity of approximately 97,000
tons. The converting plant contains a paper processing area and warehouse space.

As noted in Item 1, on January 2, 1998, the Registrant acquired
S&H, which owns and operates a paper mill in Gernsbach, Germany and has a 50%
ownership interest in a paper mill in Odet, France. S&H also has a pulpmill in
the Philippines which supplies abaca pulp to its paper mills. In addition, S&H
owns and operates facilities in Wisches, France and Summerville, South Carolina.

The Gernsbach facility includes five uncoated paper machines with
an aggregate annual lightweight capacity of about 34,000 tons. In addition, the
Gernsbach facility has the capacity to produce 7,700 tons of metalized papers
annually, using a lacquering machine and two metalizers. The base paper used to
manufacture the metalized paper is purchased. The Odet facility includes two
paper machines with an aggregate annual lightweight capacity of approximately
4,900 tons of finished paper. The Philippine pulpmill has an aggregate annual
capacity of approximately 8,200 tons of abaca pulp. Of this amount,
approximately 7,900 tons are supplied to the Gernsbach and Odet paper mills,
with the remainder being sold to outside parties. The Gernsbach and Odet paper
mills obtain approximately 97% of their abaca pulp from the Philippine pulpmill.

The Glatfelter Pulp Wood Company, a subsidiary of the Registrant,
owns and manages approximately 111,000112,000 acres of land, most of which is
timberland.

The Registrant owns substantially all of the properties used in
its papermaking operations, except for certain land leased from the City of
Neenah under leases expiring in 2050, on which wastewater treatment, storage and
other facilities and a parking lot are located. All of the Registrant's
properties, other than those which are leased, are free from any majormaterial liens
or encumbrances. In conjunction with a financing transaction between the
Registrant and one of its subsidiaries completed in February 1997, however, the
Registrant has agreed that by August 23, 1997 it will securesecured the indebtedness to the subsidiary incurred in the
transaction with mortgages on real estate assets having a value of approximately
$300 million. The Registrant considers that all of its buildings are in good
structural condition and well maintainedwell-maintained and its properties are suitable and
adequate for present operations.

Item 3. Pending Legal Proceedings.

For a discussion of potential legal procedingsproceedings involving the
lower Fox River, see "Environmental Matters" in Part I of this Report.report. The
Registrant does not believe that the other environmental matters discussed below
will have a material adverse effect on its business or consolidated financial
position.position or results of operations.

On May 16, 1989, the Pennsylvania Environmental Hearing Board
approved and entered an Amended Consent Adjudication between the Registrant and
the Pennsylvania Department of Environmental Resources, now known as the
Department of Environmental Protection ("DEP"), in connection with the
Registrant's permit to discharge effluent into the West Branch of the Codorus
Creek. The Amended Consent Adjudication establishes limitations on in-stream
color, and requires the Registrant to conduct certain studies and to submit
certain reports regarding internal and external measures to control the
discharge of color and certain other adverse byproducts of chlorine bleaching to
the West Branch of the Codorus Creek. 8
10The Pennsylvania DEP continues to review
the most recent report, and has raised concerns about whether the Registrant has
complied with all aspects of the Amended Consent Adjudication. The Registrant
and the Pennsylvania DEP presently are discussing whether to enter into an
agreement to install additional wastewater pollution controls which would be
expected to reduce levels of color discharged.

During 1990 and again in 1991, the Pennsylvania DEP proposed to
reissue the Registrant's waste waterwastewater discharge permit on terms with which the
Registrant does not agree. OnThe Pennsylvania DEP issued a new proposed permit on
March 4, 1997, which addressed to the Registrant's satisfaction several issues
raised in its earlier comments, although the Registrant submitted comments
pertaining to certain remaining concerns. The EPA formally objected to this
proposed permit, and the Pennsylvania DEP agreed to issue a revised proposed
permit which would attempt to address the EPA's objections and the other
comments the Pennsylvania DEP had received. The Pennsylvania DEP sent a revised
draft permit to the Registrant on December 24, 1997. The Pennsylvania DEP issued
a revised proposed waste water dischargedraft permit which still contains
some termson February 26, 1998, in response to which EPA withdrew
its objection. On January 16, 1999, the Pennsylvania DEP published for comment
another revised draft permit in which, among other things, the Pennsylvania DEP
proposed to establish further requirements for controlling color and dioxin
discharge levels through a separately-negotiated consent order. Discussions
between the Registrant ogjects. Theand the Pennsylvania DEP over whether to enter a consent
order and what the consent order would provide are ongoing. Otherwise, the
Registrant plansstill objects to file
appropriate comments,certain

permit terms, and intendsexpects to contest thoselitigate any terms should
they be includedwhich remain unacceptable in the
final permit. The Wisconsin DNR has reissuedIf any other party elects to appeal reissuance of the Registrant's wastewater
discharge permit, for the
Neenah mill on terms unacceptableRegistrant would expect to the Registrant.defend that appeal. The Registrant has requested an adjudicatory hearing oncontinues to
lawfully operate under its earlier permit, the termsexpiration of that
permit. The Wisconsin Paper Councilwhich is
presently engaged in joint negotiation of
some issues common to a number of permits issued at the same time to similar
mills. At the conclusion of those negotiations, the Registrant will litigate or
settle any remaining individual issues.administratively extended, while this renewal proceeding remains pending.

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

Not Applicable.

Executive Officers of the Registrant.

Executive Officers Office Age
- ------------------ ------ ---

G. H. Glatfelter II President and Chief Executive 47
Officer (a)
T. C. Norris Chairman of the Board, 58(b) 60
R. P. Newcomer Executive Vice President and Chief Executive50
Financial Officer (a)

G. H. Glatfelter II Senior(c)
E. J. Gillis Vice President (b) 45

R. P. Newcomer Senior Vice President, 48
Treasurer and Chief Financial
Officer (c)- Business 51
Development (d)
R. S. Lawrence Vice President - General 57
Manager, 59
Ecusta Paper Division
(d)L. R. Hall Vice President - General Manager, 61
Glatfelter Division (e)
R. L. Miller Vice President - Administration 50
(e)International 52
Business (f)
J. F. Myers Vice President - Manufacturing 5860
Technology (f)

E. J. Gillis(g)
C. M. Smith Vice President - Marketing, 49
Glatfelter Paper Division (g)

9
11

Executive Officers Office Age
- ------------------ ------ ---

C. M. Smith ComptrollerFinance (h) 3840
R. S. Wood Vice President - Administration 41
and Secretary and Assistant 39(i)
J. R. Anke Treasurer (i)(j) 53
T. D. D'Orazio Controller (k) 40

Officers are elected to serve at the pleasure of the Board of
Directors. Except in the case of officers elected to fill a new position or a
vacancy occurring at some other date and the restructuring of senior management
in the summer of 1998, officers are generally elected at the annual meeting of
the Board held immediately after the annual meeting of shareholders.

- --------------------

(a) Mr. NorrisGlatfelter became Chairman of the Board on April 27, 1988. Prior
thereto he was President and Chief Executive Officer.

(b) Mr. Glatfelter becameOfficer in June
1998. From September 1995 to June 1998, he was Senior Vice President in September 1995. From May
1993President.
Prior to September 1995, he was Vice President - General Manager,
Glatfelter Paper Division.

(b) Prior to May 1993, heJune 1998, Mr. Norris was General Manager,
Glatfelter Paper Division.also President and Chief Executive
Officer.

(c) Mr. Newcomer became Executive Vice President and Chief Financial Officer
in June 1998. From May 1997 to June 1998, he was Senior Vice President
and Chief Financial Officer. From September 1995 to April 1997, he was
Senior Vice President, Treasurer and Chief Financial Officer in September 1995.Officer. From
April 1995 to September 1995, he was Vice President, Treasurer and Chief
Financial Officer;Officer. Prior to April 1995, he was Vice President and
Treasurer from May 1993Treasurer.

(d) Mr. Gillis became Vice President - Business Development in August 1998,
prior to April 1995. Prior to May
1993,which he was Assistant Comptroller.

(d)Vice President - Marketing, Glatfelter Paper
Division.

(e) Mr. LawrenceHall became Vice President - General Manager, Ecusta PaperGlatfelter Division in
May 1993. PriorAugust 1998. From November 1995 to May 1993,August 1998, he was Director of
Planning,
Acquisitions and Governmental Affairs.

(e)Operations - Glatfelter Division. Prior to November 1995, he was Spring
Grove Mill Manager.

(f) Mr. Miller became Vice President - AdministrationInternational Business in August
1998. From September 1995.1995 to August 1998, he was Vice President -
Administration. From August 1994 to September 1995, he was Director of
Planning, Acquisitions and Governmental Affairs. HePrior to August 1994,
he was Director, Marketing Services from May 1993 to August 1994; prior to May 1993, he was
Director, Customer Services.

(f)(g) Dr. Myers retired on January 1, 1999.

(h) Mr. Smith became Vice President - Manufacturing Technology on April 26,
1989.

(g)Finance in August 1998. Prior to
August 1998, he was Controller.

(i) Mr. GillisWood became Vice President - Marketing, Glatfelter Paper DivisionAdministration and Secretary in August
1998. From May 1993.1997 to August 1998, he was Secretary and Treasurer.
Prior to May 1993,1997, he was Secretary and Assistant Treasurer.

(j) Mr. Anke became Treasurer in September 1998. From June 1997 to September
1998, he was Chief Financial Officer for the Senator John Heinz History
Center. From September 1996 to June 1997, he was a consultant to AMSCO
International, Inc. From April 1994 to September 1996, he was Vice
President - Sales,
Glatfelter Paper Division.

(h) Mr. Smith became Comptroller in May 1993.and Treasurer of AMSCO International, Inc., where he was
responsible for treasury, insurance, retirement plan and

international functions and supervised approximately forty
employees. Prior to May 1993,April 1994, he was a
Financial Analyst.

(i) Mr. Wood became Secretary and
Assistant Treasurer of AMSCO International, Inc.

(k) Mr. D'Orazio became Controller in September 1992.December 1998. Prior to September 1992,December 1998,
he was Assistant SecretaryCorporate Controller of Mohawk Industries, Inc., where
he was responsible for corporate accounting functions and Assistant
Treasurer.

10
12supervised
approximately twenty employees.

PART II

Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.

Common Stock Prices and Dividends Paid Information

The table below shows the high and low prices of the Registrant's common stock
on the New York Stock Exchange and the American Stock Exchange (Ticket Symbol
"GLT") and the dividends paid per share for each quarter during the past two
years. Trading of the Registrant's common stock commenced on the New York Stock
Exchange on November 12, 1998.

1996 1995
==============================================================================================================1998 1997
================================ ==============================

Quarter High Low Dividends High Low Dividends

1st $18 $15 5/3/8 $16 $.175 $18 3/8 $15$16 1/4 $.175
2nd 19 1/8 15 1/8 .175 20 15 3/8 $.175
2nd 18.175
3rd 16 5/8 11 3/16 .175 23 3/8 16 1/4 .175 20 1/4 17 1/2 .175
3rd 18 5/3/8 16 3/4 .175 23 5/8 19 3/4 .175
4th 19 5/8 13 7/16 11 3/48 .175 22 3/8 15 7/811/16 17 .175

As of December 31, 1996,1998 the Registrant had 4,2903,898 shareholders of record. A
number of the shareholders of record are nominees.

Item 6. Selected Financial Data.

Seven-Year Summary of Selected Consolidated Financial Data

Year
Ten-Year Summary of Selected Consolidated Financial Data

Years Ended December 31
(in thousands except per share amounts)

- ------------------------------------------------------------------------------------------------------------------------------1998 1997 1996 1995 1994 1993 1992 1991
1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------------------- ---------- --------- --------- --------- ------------- ------------ ---------- ----------

Net Salessales $705,078 $567,072 $566,084 $623,709 $ 478,302$478,302 $473,509 $540,057 $567,764 $625,429 $598,777$ 567,764
Income (loss)
before accounting
changes 36,133(a) 45,284 60,399 65,828 (118,251)(a) 20,409(c)(b) 20,409(d) 56,544 76,049
88,332 92,864
accounting changes

IncomeBasic earnings
(loss) per 1.41 1.49 (2.67)(a) .46(c) 1.27 1.67 1.88 1.93
common share
before accounting
changes .86(a) 1.07 1.41 1.50 (2.67)(b) .46(d) 1.28 1.68
Diluted earnings
(loss) per share
before accounting
changes .86(a) 1.07 1.41 1.49 (2.67)(b) .46(d) 1.27 1.67
Total assets 990,738 937,583 715,310 673,107 650,810(b) 842,087(d)650,810(c) 842,087(e) 648,464 630,115
598,842 550,015

Debt 356,459 348,665 150,000 150,000 174,100 150,000 10,100 __
__ 1,100

Cash dividends
declared per
common share $ .70 $ .70 $ .70 $ .70 $ .70 $ .70 $ .70 $ .60
- ------------------- ---------- --------- --------- --------- ------------- ------------ ---------- ----------

- ------------------- ---------- --------- --------- --------- ------------- ------------ ---------- ----------

1990 1989
- ------------------- --------- ---------

Net sales $625,429 $598,777
Income (loss)
before accounting
changes 88,332 92,864
Basic earnings
(loss) per share
before accounting
changes 1.90 1.94
Diluted earnings
(loss) per share
before accounting
changes 1.88 1.93
Total assets 598,842 550,105
Debt __ 1,100
Cash dividends
declared per
common share $ .575 $ .50
declared per
common share- ------------------- --------- ---------

- ------------------- --------- ---------

- --------------

(a) After impact of an after taxafter-tax charge for voluntary early retirement
enhancement program (unusual item) of $5,988,000.

(b) After impact of an after-tax charge for a writedown of impaired assets
(unusual items) of $127,981,000 or $2.89 per share.

11
13
(b)$127,981,000.

(c)(d) After impact of an after taxafter-tax charge for rightsizing and restructuring
(unusual items) of $8,430,000 or $.19 per share and the effect of an increased federal
corporate income tax rate of $3,587,000 or $.08 per
share.

(d)$3,587,000.

(e) Includes an increase of $61,062,000 resulting fromfor the adoption of Statement of
Financial Accounting Standards No. 109.

1216

1418

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
P. H. GLATFELTER COMPANY AND SUBSIDIARIESManagement's Discussion and Analysis of Financial
Condition and Results of Operations.

OVERVIEW

The Company classifies its sales into two product groups: 1) printing papers;engineered papers
(including tobacco papers); and 2) tobacco and other specialtyspecialized printing papers. The Glatfelter
Division, which includes the Spring Grove, Pennsylvania and Neenah, Wisconsin
paper mills, produceproduces both specialized printing papers and specialtyengineered papers. The
Ecusta Division is comprised of the Pisgah Forest, North Carolina paper mill
(hereinafter referred to as "Ecusta"). Schoeller & Hoesch ("S&H") includes the
"Ecusta Division" or "Ecusta")
producesGernsbach, Germany paper mill and a 50% controlling ownership interest in a
paper mill in Odet, France. Both Ecusta and S&H produce specialized printing
papers and engineered papers (including tobacco papers). S&H was acquired on
January 2, 1998.

Excluding tobacco papers, demand for most of the Company's engineered papers
remained relatively strong during 1998 and pricing for such products remained
relatively stable. However, the Company did experience some market-related
downtime at its S&H locations in the fourth quarter of 1998 related to its
engineered papers, including its long fiber papers. As a result of this
weakening of demand, average selling prices for these papers decreased slightly
during the fourth quarter. Current backlog levels are strong for the Company's
other specialtyengineered papers.

SalesDemand for the Company's tobacco papers was very weak during 1998. Increased
tobacco paper capacity in China, along with stagnant growth in worldwide tobacco
product consumption has resulted in excess tobacco paper capacity over current
levels of certaindemand. The Company incurred tobacco paper grades have been reclassifiedmarket-related downtime at
both Ecusta and S&H during 1996the year. Competition for limited tobacco paper
orders has resulted in decreases in selling prices to the Company's
multinational tobacco paper customers as well as to other regional and
governmental purchasers of tobacco papers. The outlook for tobacco papers
continues to be consistentunfavorable. Recent financial settlements agreed to by the U.S.
cigarette producers with state attorneys general have led to increased selling
prices for tobacco products in the Company's definitionUnited States and, in turn, decreased demand
for tobacco papers. The Company continues its efforts to remain cost-competitive
within this market and will attempt to offset any lost sales and profitability
with sales of other specialty papers. Prior year amounts have been
restated to be in conformity with the 1996 classification.specialized printing papers and cost reductions.

Most of the Company's specialized printing paper products are directed at the
uncoated free-sheetfree sheet portion of the industry, which experiencedindustry. Demand for these papers was fairly
weak demandduring 1998, resulting in the
beginning of 1996. It is generally believed that this situation was caused by
abnormally high customer inventory levelsmarket-related downtime at the beginningCompany's Spring
Grove and Ecusta mills. Weak demand and low order backlogs also resulted in
inefficient scheduling of the year. The
Company believes such customer inventory levels were lower atCompany's production equipment which, with the
end of 1996
than asexception of the beginning of the year. PricesNeenah mill, resulted in reduced production levels compared to
1997. Pricing for the Company's printing paper products declined duringwas unfavorably impacted
by the year. Whileweak demand as the Company competed for limited orders. On average,
pricing for the Company's printing paper products declinedwas higher in 1998 than in
1997 due to changes in product mix; however, the average selling price for such
products during 1996, the Company believes thatfourth quarter of 1998 was significantly lower than the
average selling price during the fourth quarter of 1997. The current outlook for
the demand and pricing for
papers sold to the book publishing industry, which is a significant part of the Company's printing paper business, remained stronger as compared to paper sold
to the restproducts is unclear.
Selling price increases have recently been announced in some of the commodity
printing paper market.markets in which the Company competes. The Company expects that sluggish
conditionshas announced
selling price increases for some of its papers but it is uncertain as to whether
such increases will be realized.

The paper industry entered 1999 during a continued period of market uncertainty.
The relatively weak market for pulp, the primary raw material used in the
printingproduction of paper, market will continue during the first half of
1997. The Company believes that demand will improve during the second halfcoupled with ongoing financial difficulties in Southeast
Asia and other parts of the world, provide a climate in which it continues to be
difficult to predict the future direction of the U. S. and international paper
markets.

The Company's orientation toward engineered papers should help mitigate the
potential negative impact of any further downturn in the international and U. S.
paper markets. The Company's Spring Grove mill's gravure coater ("G-Coater") had
its first full year and that some price relief may occurof operation in 1998. Sales from the G-Coater were
disappointing during 1998; however, the last six monthsCompany has reorganized its new product
development department to expedite the development of 1997.these engineered papers.
Such papers typically have higher profit margins than the Company's other
products. Demand and pricing for engineered papers have historically not
fluctuated to the same extent as commodity papers.

ACQUISITION OF SCHOELLER & HOESCH

On January 2, 1998, the Company acquired S&H which owns and operates a paper
mill in Gernsbach, Germany and has a 50% controlling ownership interest in a
paper mill in Odet, France. S&H also has a pulpmill in the Philippines which
supplies abaca pulp to S&H's paper mills. In addition, it owns and operates
other facilities in Wisches, France and Summerville, South Carolina. S&H
primarily manufactures engineered papers and has the leading position in the
world tea bag paper market. It also manufactures other engineered papers
including tobacco, metalized, stencil, filter and other specialty products were not
significantly impacted bycasing papers, as well as some
specialized printing papers.

The acquisition of S&H represents a significant step in the softer printingCompany's long-term
strategic plan, which emphasizes growth in engineered paper markets. It provides
the Company with a strong business position in the world tea bag paper market
and remained fairly
constant duringa presence in other long fiber markets, such as stencil, filter and casing
papers. It also strengthens the year. Domestic cigarette consumption was flatCompany's tobacco papers business by providing a
manufacturing presence in 1996Europe and a significant share of the European tobacco
papers market, plus the ability to manufacture and market ultraporous plug wrap,
a growing segment of the world tobacco papers market.

1998 COMPARED TO 1997

Net sales in 1998 increased $138,006,000, or 24.3%, compared to 19951997. Net sales
volume and international cigarette consumption continuedaverage selling prices decreased at the Company's Glatfelter and
Ecusta divisions. The resulting decrease in net sales at these divisions was
more than offset by the net sales of S&H.

17
19
Sales of engineered papers (including tobacco papers) increased by 65.7% in 1998
versus 1997. This increase is due to grow.the inclusion of S&H in 1998's results.
Overall, demand and pricingthe sales volume of engineered papers increased by 34.6%. The average
net selling price per ton for tobacco and other specialtythe Company's engineered papers is expected to
remain relatively stable throughout the coming year. A significant portion of
Ecusta's sales are madeincreased
significantly due to a limited numbershift in product mix. S&H produces and sells lightweight
papers and, as a result, has higher average net selling prices per ton than
those of majorthe Glatfelter and Ecusta divisions. The average net selling price per
ton of tobacco companies. The
current legal and regulatory pressures on that industry could have an adverse
effect on the futurepapers decreased in 1998 versus 1997. Overall, tobacco paper
sales and profitabilityvolume increased due to the inclusion of Ecusta. Under such
conditions, the Company would attempt to replace any lostS&H's results in 1998.

Specialized printing paper sales and
profitability with lightweight printing and other specialty papers.

1996 COMPARED TO 1995

Net saleswere down less than 1% in 1996 decreased $57,625,000, or 9.2%, compared to 1995.1998 versus 1997.
This decrease was principally causeddue to lower printing paper sales volume. Average net selling
prices per ton increased slightly. This increase was entirely due to a change in
product mix. Average selling prices per ton for non-S&H printing papers
decreased slightly in 1998 compared to 1997.

Profit from operations before the unusual item, interest income and expense and
taxes was $88,599,000 in 1998 compared to $84,492,000 in 1997. This increase was
due to the incremental operating results of S&H which more than offset decreases
in profit from operations before the unusual item, interest income and expense
and taxes at the Glatfelter and Ecusta divisions. The decreases at the
Glatfelter and Ecusta divisions were the result of a decrease in net sales,
offset somewhat by a decrease in cost of products sold and selling, general and
administrative expenses. The decrease in net sales at these two divisions in
1998 as compared to 1997 was primarily due to reduced sales volumes, exacerbated
somewhat by a decrease in average selling prices atprice per ton.

The cost of products sold for the Glatfelter and Ecusta divisions decreased due
to a decrease in sales volume and lower costs for certain raw materials in 1998
compared to 1997. Raw material costs had a slightly favorable effect on the
Company's relative performance in 1998 compared to 1997 as cost per ton for the
Company's principal raw materials, market pulp and wastepaper, decreased in 1998
versus 1997. The Company also benefited in 1998 from cost savings achieved
through the start-up of the Spring Grove mill's precipitated calcium carbonate
("PCC") plant. This plant reduced the cost of PCC at this mill as well as
lowered the need for higher priced raw materials used for increasing the opacity
and Neenah mills.brightness of certain papers.

The cost of sales volumeper unit decreased at all the Company's mills was
also down slightlyGlatfelter Division in 19961998 versus
1997 due primarily to lower raw material costs. The cost of sales per unit at
the Ecusta Division increased in 1998 as compared to 1995.

Printing paper sales decreased by $66,540,000, or 15.8%, in 1996 compared to
1995. The annual average net printing paper selling price decreased 12.2% in
1996 from 19951997. This increase was
mainly due to the amount of market-related downtime taken at the Ecusta Division
and the resulting absorption of fixed costs over fewer units produced.

Selling, general and administrative expenses increased by $14,990,000. This
increase was due to the selling, general and administrative expenses related to
S&H, offset somewhat by a decrease in demandsuch expenses at the Glatfelter and Ecusta
divisions. S&H has higher selling, general and administrative expenses as a
percentage of sales primarily as a result of higher selling costs incurred in
delivering product to its customers. Selling, general and administrative
expenses for printing papers. Demandthe Company were 7.3% and 6.5% of net sales for these papers was slow early1998 and 1997,
respectively.

Interest on investments and other - net decreased from $7,785,000 in 1997 to
$1,956,000 in 1998. This decrease is primarily a result of a decrease in
investment income in 1998 compared to 1997. In 1997, the proceeds from the
issuance of $150,000,000 of Step-Down Preferred Stock by a subsidiary, GWS
Valuch, Inc., were placed in trust and invested in interest-bearing marketable
securities, resulting in a significant increase in interest income. This
transaction is described in detail in Note 6 to the Company's 1998 consolidated
financial statements in Item 8.

Gain from property dispositions, etc. - net decreased from $3,166,000 in 1997 to
$1,019,000 in 1998. During the second quarter of 1997, the Company completed the
sale of a parcel of recreational property near its Ecusta mill resulting in a
pre-tax gain of approximately $2,200,000. No property sales of this magnitude
are included in the 1998 results.

Interest on debt was $22,007,000 in 1998 compared to $18,700,000 in 1997. The
primary reason for this increase was the Company's higher net borrowing level
during the first quarter of 1998 as compared to the first quarter of 1997, in
part due to the borrowings of approximately $150,000,000 under the Revolving
Credit Facility to finance the acquisition of S&H. The Company repaid its
$150,000,000 principal amount of its 57/8% Notes on March 1, 1998.

UNUSUAL ITEM

During 1998, the Company recognized a pre-tax charge of $9,816,000 related
primarily to the accrual of pension and medical benefits for certain salaried
and hourly employees of the Ecusta Division and certain salaried employees of
the Glatfelter Division who elected to participate in a voluntary early
retirement enhancement program. The pre-tax charge also included the cost of
termination of several Glatfelter Division salaried employees which was
necessary to achieve the Company's cost-savings goals. The total after-tax
effect of the unusual item for the year improvedwas $5,988,000, or $.14 per share.

The intent of these programs is to generate annual payroll and benefits cost
savings through a reduction in the second and third
quarters, and then slowed againsize of the Company's workforce. The
Company's restructuring resulted in the fourth quarter.elimination of approximately 160
salaried and hourly positions with associated annual pre-tax cost savings of
approximately $8,400,000. Most of the savings will begin to be realized during
the first quarter of 1999.

1997 COMPARED TO 1996

Net tobacco and other specialtysales in 1997 increased $988,000, or 0.2%, compared to 1996. Each of the
Company's operating facilities achieved increased sales volume which was offset
by lower average net selling prices.

Engineered paper sales increased $8,915,000, or 4.4%,remained relatively flat in 19961997 as compared to 1995. The Company had a slight decrease in tobacco paper sales
in 1996 compared to 1995.the prior
year, increasing by 1.1%. Tobacco paper sales volume was down 3.4% in 1996
versus 1995; however, demand was sufficient for the Company to improve its sales
mix for these papers. This resulted in a slightincreased by 1.3%, as an
increase in averageinternational tobacco paper selling pricesales volume of 19.6% more than offset a
decrease in 1996 compared to 1995. Other specialtydomestic tobacco

18
20
paper sales increased by 12.5% in 1996 compared to 1995 as sales volume increased by 7.3%of 11.1%. The average net selling prices for tobacco papers
decreased slightly as increases in the average net selling price for domestic
tobacco papers were more than offset by a decrease in the average net selling
prices of other specialty papers increasedinternational tobacco papers. International tobacco paper prices were
negatively impacted by 4.9%,the strengthening of the U. S. dollar versus most foreign
currencies. International tobacco paper prices also decreased in part due to improved product mix.the
acceptance of lower-priced, less-profitable business to fill machine capacity.
Volume increased due to productivity increases, but was offset to a large extent
by downtime taken at Ecusta for market-related reasons, as well as for
maintenance and equipment improvements. Average net selling prices for
engineered papers (excluding tobacco papers) remained virtually unchanged during
the year as compared to 1996 and volume increased marginally in 1997 over 1996.

Specialized printing paper sales also remained relatively flat in 1997 compared
to 1996. An increase in sales volume of 7.0% was offset by a decrease in average
net selling prices of 6.9%. The increase in sales volume was principally due to
an increase in demand for the Company's products. Despite the increase in demand
for the Company's specialized printing papers, pricing for such papers remained
under adverse market pressure.

Profit from operations before interest income and expense and taxes was
$84,492,000 in 1997 compared to $105,639,000 in 1996 compared to $116,501,000 in 1995.1996. This decrease was the
result of decreaseda decrease in average net selling prices, a weakening in the product
sales mix to less profitable products and sales volume. Despite these decreases,
gross margin increased from 22.7% in 1995 to 23.2% in 1996. Thean increase in grossthe Company's cost of
products sold. The cost of products sold increased due to the increased sales
volume; however, the cost of sales per unit did not change significantly. Raw
material prices did not significantly affect the Company's relative performance
in 1997 compared to 1996 as per ton costs for the Company's principal raw
materials, market pulp and wastepaper, did not change significantly. In
addition, the Company's fixed costs were spread among a greater number of tons
in 1997, lowering the cost of sales per unit. The mix of products sold weakened
in 1997 versus 1996, particularly at Ecusta. Ecusta sold a higher amount of
lower-priced, lower-margin tobacco papers to international customers as well as
specialized printing papers. Gross margin wasper ton decreased by 22.2% in 1997, a
direct result of the change in product mix and lower average net selling prices
for certain of the Company's products noted above.

Selling, general and administrative expenses increased by $1,319,000, primarily
as a result of lower costs for market pulp, pulp
substitutes and wastepaper. These cost reductions particularly benefitedincreased spending on certain legal matters as well as various
other professional fees. The Company also increased its spending on information
systems to address certain needs, including the
Ecusta and Neenah mills which rely more on purchased fiber than the Spring Grove
mill. These raw material price decreases more than offset the unfavorable impact of lower production during 1996 compared to 1995. The Company's lower production
resulted in higher fixed costs per ton as fixed costs were absorbed over fewer
tons produced."Year 2000" on its
existing computer systems and software. Selling, general and administrative
expenses were $886,000 lower in 1996 than in
1995. This decrease was primarily the result of lower profit sharing6.5% and incentive expenses, which were partially offset by increased miscellaneous
general and administrative expenses. Selling, general and administrative
expenses were 6.3% and 5.8% of net sales for 19961997 and 1995,1996, respectively.

Interest on debt in 1996 decreased $957,000increased by $9,392,000 and net income from 1995.investments and
other increased by $6,211,000. This decrease was primarily the result of reduced short-term bank borrowings. The Company had
average net short-term borrowings of $20,000 and $9,447,000 during 1996 and
1995, respectively, at an average interest rate of 6.1% and 6.2%, respectively.
The Company had no short-term borrowings at the end of 1996. Interest on debt
also decreased as a result of a lower variable interest rate onvarious financing
transactions entered into by the Company during 1997 as detailed in Note 6 to
the Company's interest rate swap agreement which has a total notional principal amount of
$50,000,000.

13
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF1998 consolidated financial statements in Item 8.

FINANCIAL CONDITION

AND RESULTS OF OPERATIONS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES

RESULTS BY MILL

The Spring Grove mill's profit from operations decreased by $27,073,000 in 1996
compared to 1995. Net sales decreased $32,738,000 in 1996 compared to 1995 due
primarily to a decrease in average selling price. Sales volume was less than 1%
lower in 1996 than 1995. Cost of sales decreased slightly, primarily due to
lower raw material costs, offsetting increases in other costs including
depreciation. Selling, general and administrative expenses also decreased,
primarily due to lower profit sharing and incentive expenses.

Despite a decrease in net sales of $24,185,000 in 1996 compared to 1995, profit
from operations at the Neenah mill increased by $2,404,000. The net sales
decrease was primarily the result of lower average selling price. Sales volume
was approximately 2% lower in 1996 than 1995. Neenah's cost of sales decreased
by $27,147,000, primarily due to significantly lower wastepaper, pulp and pulp
substitute costs. Wastepaper costs were extremely high in 1995 and the 1996
costs represented a return closer to historical levels.

Profit from operations at Ecusta increased $13,807,000 in 1996 compared to 1995.
Net sales were flat in 1996 compared to 1995. A slight increase in average
selling price due to improved product mix offset a slight reduction in sales
volume. Ecusta's cost of sales decreased significantly during the year,
primarily as a result of decreased pulp costs.LIQUIDITY

During the second half of 1996,
the Ecusta mill purchased a significant amount of pulp, much of which remains in
the Company's inventory at the end of the year.

1995 COMPARED TO 1994

Net sales in 1995 increased $145,407,000, or 30.4%, over 1994. The Company's
sales volume also increased in 1995 compared to 1994. Overall demand for the
Company's products was very strong into the third quarter of 1995. The demand
for printing papers weakened towards the end of the third quarter and incoming
orders remained below normal levels during the fourth quarter of 1995. Strong
market conditions resulted in significant price increases during the first nine
months of 1995, tempered somewhat by a marginal decline during the fourth
quarter of 1995.

Printing paper sales increased by $119,468,000, or 39.5%, in 1995 compared to
1994. The annual average net printing paper selling price increased 29.4% in
1995 from 1994 due to the significant increase in demand for printing papers as
well as the Company's ability to offset increased raw material costs,
particularly for market pulp, pulp substitutes and wastepaper. The increased
demand for printing papers resulted in a 7.8% increase in sales volume in 1995
compared to 1994. Weakening demand resulted in some marginal price decreases
during the fourth quarter of 1995. Despite these decreases, the average selling
price during the fourth quarter of 1995 was significantly higher than the
average selling price during the fourth quarter of 1994.

Net tobacco and other specialty paper sales increased $25,939,000, or 14.7%, in
1995 compared to 1994. The Company had a 14.2% increase in tobacco paper sales
volume in 1995 over 1994. An increase in worldwide demand for tobacco paper
products in general and flax based tobacco papers specifically, and a lack of
industry capacity increases allowed the Company to sell more tobacco paper
volume and improve its sales mix. These factors also resulted in a slight
increase in average tobacco paper selling price in 1995, compared to 1994. Other
specialty paper sales increased by 13.3% in 1995 compared to 1994 due to a 13.9%
increase in average selling prices.

Increased sales volumes and selling prices led to a significant increase in
operating profit in 1995 compared to 1994. Profit from operations, before
unusual items, interest income and expense and taxes was $116,501,000 compared
to $21,541,000 in 1994. The increase in average selling prices more than offset
the increase in cost of products sold resulting in an increase in gross margin
from 8.5% in 1994 to 22.7% in 1995. The cost of products sold increased
primarily as a result of higher costs for market pulp, pulp substitutes and
wastepaper. These cost increases more than offset (i) the ability of the Company
to spread its fixed manufacturing costs over more tons of products manufactured
during 1995 compared to 1994, and (ii) the favorable impact of lower
depreciation expense of approximately $10,000,000 during 1995 compared to 1994.
Increased depreciation expense at the Spring Grove mill, due primarily to the
completion of the pulpmill modernization project in the fourth quarter of 1994,
was more than offset by a reduction in depreciation at Ecusta in 1995 of
approximately $14,400,000 compared to 1994. The decrease in Ecusta's
depreciation resulted from the writedown of the net assets of Ecusta in the
fourth quarter of 1994.

Selling, general and administrative expenses were $9,157,000 higher in 1995 than
in 1994. This increase occurred primarily from higher profit sharing and
incentive related expenses during 1995 compared to 1994. Selling, general and
administrative expenses were 5.8% and 5.7% of net sales for 1995 and 1994,
respectively.

Interest on debt in 1995 increased $3,901,000 over 1994. The Company capitalized
$3,066,000 of interest expense in 1994. No interest expense was capitalized
during 1995. The increase in interest on debt was also due to a higher variable
interest rate on the Company's interest rate swap agreement which has a total
notional principal amount of

14
16
$50,000,000. Interest on short-term borrowings during 1995 was $50,000 less than
in 1994. The Company had no short-term borrowings at the end of 1995.

RESULTS BY MILL

The Spring Grove mill's profit from operations increased by $56,792,000 in 1995
compared to 1994. Net sales increased $78,426,000 in 1995 compared to 1994 due
to a significant increase in sales volume and average selling price. Cost of
sales increased primarily due to increased depreciation. Depreciation increased
due to the completion of the pulpmill modernization project during the fourth
quarter of 1994. This project, undertaken primarily for environmental reasons,
resulted in an increase in total pulp production capacity at the mill. The
corresponding reduction in volume of purchased market pulp resulted in increased
profitability at Spring Grove during 1995.

Profit from operations at the Neenah mill increased by $9,298,000 in 1995
compared to 1994. Net sales increased $42,370,000 in 1995 due to a significant
increase in sales volume and average selling price. Neenah's 1995 profit from
operations was negatively impacted by a significant increase in the cost of
wastepaper. Wastepaper costs decreased during the second half of 1995 and by the
end of 1995 had returned closer to historical levels.

Profit from operations at Ecusta increased $28,870,000 in 1995 compared to 1994.
Net sales increased $24,611,000 in 1995, primarily due to an increase in average
selling price due to improved product mix and Ecusta's ability to offset
increased raw material costs, particularly for market pulp. Ecusta's increase in
raw material costs was more than offset through a combination of price increases
and by a decrease of approximately $14,400,000 in depreciation costs, due to the
writedown of the net assets of Ecusta in the fourth quarter of 1994. Ecusta's
profitability was also significantly enhanced through comprehensive cost
reduction efforts.

1994 - UNUSUAL CHARGES

During 1994, the Company closely monitored the Ecusta Division and continued its
efforts to maximize utilization of Ecusta's assets by attempting to direct sales
volume to its more profitable grades and by controlling costs. Despite these
efforts, Ecusta experienced a 1994 operating loss before an unfavorable LIFO
inventory charge, unusual items, interest expense and taxes of $4,921,000.
Ecusta continued to be negatively impacted by the continuing trend of declining
domestic tobacco consumption, a trend which was expected to continue. Increased
competition for foreign tobacco paper sales had also negatively impacted
Ecusta's profitability.

Based on 1994 Ecusta operating results, which indicated that market conditions
were unlikely to improve significantly in the near future, the Company
determined that its efforts to return Ecusta to an acceptable level of
profitability would not be successful. As a result, the Company decided to
evaluate other strategic alternatives. As part of its consideration of such
alternatives, the Company solicited offers to buy the Ecusta Division during the
fourth quarter of 1994. In January 1995, the Company rejected all offers which
it received to buy the Ecusta Division because the offers were less than the
Company's valuation of the net assets. Nevertheless, as a result of these
offers, as well as the Company's revised valuation of the net assets of Ecusta,
the Company concluded that the fair value of the net assets was less than the
book value. Accordingly, during the fourth quarter of 1994, the net assets of
Ecusta were written down to fair value, resulting in a $198,189,000 charge to
pre-tax earnings. This writedown had no cash impact on the Company.

The Company concluded that asset impairment recognition was required as the
revised projected undiscounted future cash flows of the Ecusta Division were
less than the carrying value. In developing the revised projections, the Company
considered 1994 actual results and the Company's conclusions concerning future
market conditions and the resulting impact on prices. To determine the fair
value of the Ecusta Division net assets, the Company projected the present value
of future cash flows using a 13% discount rate. The resulting fair value, which
exceeded the offers received, was used to determine the amount of the writedown.
The writedown of Ecusta's net assets reduced depreciation expense in 1995 by
approximately $14,400,000 and will reduce depreciation in subsequent periods by
declining amounts.

During the fourth quarter of 1994, the Company also identified impaired assets
at its Spring Grove and Neenah mills, resulting in a pre-tax charge of
$10,760,000. This writedown primarily related to solid waste disposal assets,
specifically, a sludge combustor at the Neenah mill and an unused landfill at
the Spring Grove mill. During the fourth quarter of 1994, the Company identified
more economical means, acceptable to the appropriate environmental agencies, by
which to dispose of its solid waste at these locations and concluded that the
significant additional expenditures necessary to make the assets operational
were not prudent, resulting in unusable assets.

FINANCIAL CONDITION

Liquidity

During 1996,1998, the Company's cash and cash equivalents increaseddecreased by $12,938,000.$16,012,000.
This increasedecrease in cash and cash equivalents was principally due to net cash generated bypaid
for S&H of $147,491,000, which exceeded the incremental 1998 borrowings of
$101,500,000 made to complete the S&H acquisition. Other significant sources of
cash during 1998 included cash provided from operations of $96,608,000 which was largely offset by the funding of $35,644,000
for capital-related projects, the payment of

15
17
$29,977,000 for dividends$100,417,000 and the
expenditurenet sale of $19,068,000investments of $158,475,000. A majority of the proceeds from the
sale of investments was used to purchase common
stock for the treasury. During 1996, the Company's inventory increased by
$14,153,000. This increase was primarily due to the purchase at low cost of a
significant amount of market pulp for the Ecusta mill. The Company plans to
reduce Ecusta's market pulp inventory to historical levels by the end of 1997.

The Company's interest rate risk is limited to its level of variable rate
borrowings. In March 1993, the Company issuedpay in full $150,000,000 principal amount of its 5-7/the
Company's 57/8% Notes due March 1, 1998along with related interest due. Other significant uses of
cash include additions to property, plant and immediately entered into an interest rate
swap agreement having a total notional principal amountequipment of $50,000,000. Under
the agreement, the Company receives a fixed rate$40,531,000 and
dividend payments of 5-7/8% and pays a floating
rate (London Interbank Offered Rate (LIBOR) plus sixty basis points), as
determined at six month intervals. The floating rate is 6.37344% for the six
month period ending February 28, 1997. Although the Company can pay to terminate
the swap agreement at any time, the Company intends to hold the swap agreement
until its March 1, 1998 maturity. The cost to the Company to terminate the
agreement fluctuates with prevailing market interest rates. As of December 31,
1996, the cost to terminate the swap agreement was approximately $430,000.

In February 1997, the Company completed a transaction pursuant to which the
Company deposited approximately $155,500,000 into a trust to defease certain
covenants under the indenture under which the Company's $150,000,000 5-7/8%
Notes are outstanding. The amount deposited in the trust and the Company's
$150,000,000 5-7/8% Notes will continue to be reported on the Company's
Consolidated Balance Sheets.$29,436,000.

The Company expects to meet all its near-term cash needs from a combination of
internally generated funds, cash, cash equivalents marketable securities and its existing Revolving
Credit Facility or other bank lines of credit. Capital ResourcesThe Company is subject to certain
financial covenants under the Revolving Credit Facility. The Company is in
compliance with all such covenants.

INTEREST RATE RISK

The Company uses its Revolving Credit Facility and Notes to finance a
significant portion of its operations. These on-balance sheet financial
instruments, to the extent they provide for variable rates of interest, expose
the Company to interest rate risk resulting from changes in the DM LIBOR. The
Company uses off-balance sheet interest rate swap agreements to partially hedge
interest rate exposure associated with on-balance sheet financial instruments.
All of the Company's derivative financial instrument transactions are entered
into for non-trading purposes.

19
21
To the extent that the Company's financial instruments expose the Company to
interest rate risk and market risk, they are presented in the table below. The
table presents principal cash flows and related interest rates by year of
maturity for the Company's Revolving Credit Facility and Notes as of December
31, 1998. For interest rate swaps, the table presents notional amounts and the
related reference interest rates by year of maturity. Fair values included
herein have been determined based upon (1) rates currently available to the
Company for debt with similar terms and remaining maturities, and (2) estimates
obtained from dealers to settle interest rate swap agreements. The following
table should be read in conjunction with Notes 6 and 7 to the consolidated
financial statements (dollar amounts in thousands) in Item 8.

Year of Maturity Total
---------------------------------------------------------------------- Due at Fair Value at
1999 2000 2001 2002 2003 Thereafter Maturity 12/31/98
------- -------- -------- --------- ------- ---------- --------- -------------

Debt:
Fixed rate $ 2,088 $ 1,791 $ 1,791 $ 1,595 $ 1,401 $ 152,037 $ 160,703 $ 159,890
Average interest rate 6.84% 6.85% 6.85% 6.86% 6.87% 6.87%
Variable rate $ -- $ -- $ -- $ 166,766 $ -- $ -- $ 166,766 $ 166,766
Average interest rate 3.79% 3.57% 3.31% 3.31% -- --
Interest rate swap agreements:
Variable to fixed swaps $ 3,839 $ 36,253 $ 31,441 $ 59,773 $ -- $ -- $ 131,306 $ (1,549)
Average pay rate 4.39% 4.09% 3.84% 3.42% -- --
Average receive rate 3.43% 3.35% 3.25% 3.25% -- --

CAPITAL RESOURCES

During 1996,1998, the Company expended $35,644,000 for$40,531,000 on capital projects. Most of these
expenditures were for maintenance related capitalmaintenance-related projects; however, approximately $2,000,000 was expended for environmental capital projects.
Capitalthose expenditures
included spending related to the completion of the G-Coater (approximately
$2,400,000 in 1997 is expected to increase significantly as certain large
projects begun in 1996 are expected to be completed during 1997. The Company
expects to complete1998) and the installation of a gravure coater and a precipitated calcium carbonate plant (approximately
$2,700,000 in 1998), both at the Spring Grove mill duringmill. The Company also expended
funds related to the latter partrebuild of 1997.
These projects areone of S&H's paper machines, enhancing its
ability to produce engineered papers. The total cost of this project is expected
to costbe $6,200,000. Of this amount, approximately $15,000,000$3,400,000 was spent during 1998
and $9,500,000,
respectively, including some minor expenditures madeapproximately $2,800,000 is expected to be expended in 1999. The Company
estimates a total of approximately $37,400,000 will be spent on capital projects
during 1996.1999.

ENVIRONMENTAL MATTERS

The Company is subject to loss contingencies resulting from regulation by
various federal, state, local and foreign governmental authorities with respect
to the environmental impact of air and water emissions and noise from its mills,
as well as its disposal of solid waste generated by its operations. In order toTo comply
with environmental laws and regulations, the Company has incurred substantial
capital and operating expenditures over the past several years. During 1998,
1997 and 1996, the Company incurred approximately $17,700,000, $14,800,000 and
$15,200,000, respectively, in operating costs related to complying with
environmental laws and regulations. The Company anticipates that environmental
regulation of the Company's operations will continue to become more burdensome
and that capital and operating expenditures will continue, and perhaps increase,
in the future. In addition, the Company may incur obligations to remove or
mitigate any adverse effects on the environment resulting from its operations,
including the restoration of natural resources, and liability for personal
injury and damage to property, including natural resources. In particular, while the
Company continues to negotiate with the State of Wisconsin (and expects to resume negotiations withand the United States
Fish and Wildlife Service) regarding natural resources restorationdamages and damagesresponse costs related to the discharge
of polychlorinated biphenyls (PCBs)("PCBs") and other hazardous substances intoin the
lower Fox River, on which the Company's Neenah mill is located, thelocated. The cost of such
restorationdamages and damagesresponse costs is presently unknown but could be substantial.substantial and
perhaps exceed the Company's available resources as discussed in Note 10 to the
Company's consolidated financial statements. Management's current assessment,
after consultation with legal counsel, is that such expenditures are not likely
to have a material adverse effect on the Company's consolidated financial
condition or liquidity, but could have a material adverse effect on the
Company's consolidated results fromof operations in a given year; however, there can
be no assurance that the Company's reserves will be adequate or that a material
adverse effect on the Company's consolidated financial condition or liquidity
will not occur at some future time.

EFFECTS OF CHANGING PRICES20
22
YEAR 2000

The moderate levelsCompany continues to make progress and, with the exception of inflation during recent years have not had a material
effectsome isolated
systems at its Neenah mill, is on schedule in its efforts to achieve Year 2000
compliance for its critical systems by the end of the first quarter of 1999. The
Company expects to achieve Year 2000 compliance on its non-critical systems by
the end of the second quarter of 1999.

The Company has information technology systems and noninformation technology
systems. The Company's information technology systems include both internally
and externally developed business systems. Nearly all of the Company's net sales,business
systems have been developed internally. Non-information technology systems
include computer process control equipment as well as embedded technology, such
as micro-controllers, which are critical to the operation of production
equipment and facilities.

The Company's three-phase approach to achieve its internal Year 2000 compliance
includes an inventory phase, an assessment phase and a modifications and testing
phase. The Company has completed the inventory phase for all of its information
technology and non-information technology systems. The Company has also
completed a significant portion of both the assessment phase and modifications
and testing phase for all of its systems. The remaining system assessments,
modifications and related testing are expected to be completed by the end of the
first quarter of 1999 with the exception of a small number of non-critical
systems which should be completed by the end of the second quarter of 1999. In
addition, the assessment, modification and testing of some isolated critical
systems at the Neenah mill will not occur until the third quarter of 1999. This
delay is due to the desire to coincide any machine downtime required to meet
Year 2000 compliance with planned maintenance downtime to minimize disruption to
the operation of the mill.

The Company has used internal information technology personnel almost
exclusively to inventory, assess, modify and test existing systems and has
primarily incurred only normal wage, benefit and related costs for its normal
complement of information technology personnel. The Company expensed
approximately $634,000 and $125,000 during 1998 and 1997, respectively, in such
costs supporting its Year 2000 compliance efforts. The Company estimates it will
incur $700,000 for these internal costs during 1999 to complete its Year 2000
efforts.

The Company's use of its own information technology personnel to make its
systems Year 2000 compliant has and will continue to delay some other strategic
information systems development and implementation which would have otherwise
benefited the Company in various ways and to various extents. The Company does
not believe that it will be at a competitive disadvantage as a result of these
delays.

To date, the Company has made minor capital expenditures to replace certain
systems or equipment which were not Year 2000 compliant. The Company estimates
that between $500,000 and $1,000,000 in capital related costs will be incurred
by the end of the first quarter of 1999 to achieve Year 2000 compliance of its
information and non-information technology systems.

The Company relies significantly on selected key vendors of raw materials,
energy, telecommunications and other vital services. The Company also generates
significant revenues from various key customers. The Company continues its
efforts in addressing Year 2000 compliance by key third parties by making
inquiries to all such third parties and assessing the responses received.
Inquiries have been sent to all identified key third parties. To date, no
significant issues have been discovered. The Company hopes to have received and
assessed all responses by the end of the first quarter of 1999.

Should the Company's assessment of the responses or income fromnon-responses to its
inquiries of key third parties indicate that unacceptable risks exist, or should
the risk of inaccuracies of such responses be too great, the Company will
develop and implement contingency plans to minimize the impact on its
operations. AlthoughThe Company intends to have any such plans in place by the replacement costend of
assets increases during inflationary periods, earnings
and cash flowthe third quarter of 1999.

Despite such contingency plans, it is reasonably possible that, in the worst
case, some of the Company's key vendors or customers could experience
operational interruptions as a result of non-compliance of their systems. As a
result, the Company may be maintained throughforced to interrupt the operation of one or more of
its mills or be required to increase its costs or decrease its selling prices to
remain operational. In such an increase in selling prices.event, the Company's business and results of
operations could be materially adversely affected.

FORWARD-LOOKING STATEMENTS

Any statements set forth in this annual report or otherwise made in writing or
orally by the Company with regard to its expectations as to industry conditions,
anddemand for or pricing of its products, its financial results demand and pricing for its products and other aspects
of its business may constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Although the Company makes
such statements based on assumptions which it believes to be reasonable, there
can be no assurance that actual

16
18 results will not differ materially from the
Company's expectations. Accordingly, the Company hereby identifies the following
important factors, among others, which could cause its results to differ from
any results which might be projected, forecasted or estimated by the Company in
any such forward-looking statements: (i) variations in demand for its products;
(ii) changes in the cost or availability of raw materials used by the Company,
in particular market pulp, pulp substitutes and wastepaper; (iii) 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; (iv) the gain or loss of significant customers; (v) cost
and other effects of environmental compliance, cleanup, damages, remediation or
restoration, or personal injury or property damage related thereto, such as the
cost of natural resource restoration or damages related to the presence of PCBs
in the lower Fox River on which the Company's Neenah mill is located; (vi)
significant changes in cigarette consumption, both domestically and
internationally; (vii) enactment of adverse state or federal legislation or
changes in government policy or regulation; (viii) adverse results in
litigation; (ix) fluctuations in currency exchange rates; (x) failure of third
parties which are material to the Company to become Year 2000 compliant thereby
interrupting their and (ix)the Company's business operations; and (xi) disruptions
in production and/or increased costs due to labor disputes.

17Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.

See the discussion under the heading "Interest Rate Risk" in Item
7 as well as Notes 6 and 7 to the Registrant's consolidated financial
statements in Item 8.

21
1923
Item 8. Financial Statements and Supplementary Data.

CONSOLIDATED STATEMENTS OF INCOME
P. H.AND COMPREHENSIVE INCOME
P.H. GLATFELTER COMPANY AND SUBSIDIARIES
For the Years Ended DecemberFOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1995 and 1994

(in thousands except per share amounts) 1998 1997 1996
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NET SALES $566,084 $623,709 $ 478,302705,078 $ 567,072 $566,084

OTHER INCOME:

Energy sales -- net (Note 1(j)) 9,652 9,189 8,559
Interest on investments and other -- net (Note 6) 1,956 7,785 1,574 1,376 998
Energy sales -- net 8,559 9,455 5,645
Gain from property dispositions, etc. -- net 1,019 3,166 977
1,852 2,558--------- --------- --------
--------Total 717,705 587,212 577,194
--------- Total 577,194 636,392 487,503--------- -------- -------- ---------
COSTS AND EXPENSES:

Cost of products sold 575,351 458,126 434,491
482,139 437,745
Selling, general and administrative and general expenses 51,799 36,809 35,490 36,376 27,219
Interest on debt (Notes 1(h)6 and 10)7) 22,007 18,700 9,308
10,265 6,364
-------- -------- ---------
479,289 528,780 471,328
Unusual itemsitem (Note 2)3) 9,816 -- --
208,949--------- --------- -------- -------- ---------
Total costs and expenses 658,973 513,635 479,289
528,780 680,277--------- --------- --------
-------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 58,732 73,577 97,905
107,612 (192,774)--------- --------- -------- -------- ---------
INCOME TAX PROVISION (CREDIT) (Note 6)5):

Current 14,488 25,453 20,604
18,123 526
Deferred 8,111 2,840 16,902
23,661 (75,049)--------- --------- --------
--------Total 22,599 28,293 37,506
--------- Total 37,506 41,784 (74,523)--------- -------- -------- ---------
NET INCOME (LOSS)$ 36,133 $ 45,284 $ 60,399
$ 65,828 $(118,251)========= ========= ========
======== =========
INCOME (LOSS)BASIC AND DILUTED EARNINGS PER COMMON SHARE (Notes 1(b)4 and 3):8) $ .86 $ 1.07 $ 1.41

COMPREHENSIVE INCOME, NET OF TAX:
NET INCOME $ 1.4936,133 $ (2.67)45,284 $ 60,399
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (Note 1(n)) (553) (651) 179
--------- --------- --------
COMPREHENSIVE INCOME $ 35,580 $ 44,633 $ 60,578
========= ========= ========

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

18statements.

22
2024
CONSOLIDATED BALANCE SHEETS
P. H.P.H. GLATFELTER COMPANY AND SUBSIDIARIES
DecemberDECEMBER 31, 1996 and 19951998 AND 1997

(in thousands except share information) 1996 19951998 1997
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents (Note 1(c))(Notes 1(b) and 2) $ 31,80250,907 $ 18,86466,919
Marketable securities (Note 1(f)) 811 111(Notes 1(e) and 6) -- 155,174
Accounts receivable (less allowance for doubtful
accounts: 1996, $1,913; 1995, $1,979) 49,703 52,0521998, $1,532; 1997, $1,973) 70,076 50,187
Inventories (Note 1(d)1(c)) 101,231 87,078117,852 101,232
Prepaid expenses 4,522 2,318and other current assets 3,073 2,967
--------- ---------
Total current assets 188,069 160,423241,908 376,479

PLANT, EQUIPMENT AND TIMBERLANDS -- NET
(Notes 1(e), 1(h), 21(d) and 7) 455,190 451,46110) 628,156 475,189

OTHER ASSETS (Notes 1(f)1(e) and 4) 72,051 61,2239) 120,674 85,915
--------- ---------
Total assets $ 715,310990,738 $ 673,107937,583
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt (Note 6) $ 2,088 $ 150,000
Short-term debt (Note 2) 28,990 48,665
Accounts payable $ 35,249 $ 34,62334,293 37,276
Dividends payable 7,444 7,597
Federal, state and local7,365 7,390
Income taxes (Note 6) 4,305 235payable 8,189 5,106
Accrued compensation and other expenses
and deferred income taxes 39,185 41,55345,951 41,506
--------- ---------
Total current liabilities 86,183 84,008126,876 289,943

LONG-TERM DEBT (Note 10) 150,0006) 325,381 150,000
DEFERRED INCOME TAXES (Notes 1(g)1(f) and 6) 99,139 80,6825) 123,321 101,995
OTHER LONG-TERM LIABILITIES (Notes 31(k), 2, 8 and 5) 48,958 43,0119) 71,231 56,287
--------- ---------
Total liabilities 384,280 357,701646,809 598,225
--------- ---------

COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)(Note 10)
SHAREHOLDERS' EQUITY (Note 3)8):
Common stock, $.01 par value;
authorized -- 120,000,000 shares; issued
(including shares in treasury: 1996, 11,822,152; 1995, 10,926,668)1998, 12,276,744;
1997, 12,212,372) -- 54,361,980 shares 544 544
Capital in excess of par value 41,601 40,92142,612 42,623
Retained earnings 462,337 431,762484,793 478,073
Accumulated other comprehensive income (1,611) (1,058)
--------- ---------
Total 504,482 473,227526,338 520,182
Less cost of common stock in treasury (173,452) (157,821)(182,409) (180,824)
--------- ---------
Total shareholders' equity 331,030 315,406343,929 339,358
--------- ---------
Total liabilities and shareholders' equity $ 715,310990,738 $ 673,107937,583
========= =========

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

1923
2125
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
P. H.P.H. GLATFELTER COMPANY AND SUBSIDIARIES
For the Years Ended DecemberFOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1995 and 1994

Accumulated
Common Capital in Other Total
(in thousands except
Shares Common Excess of Par Retained Comprehensive Treasury Shareholders'
(in thousands except shares outstanding) Outstanding Stock Par Value Earnings Income Stock Equity
- ----------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Balance, January 1, 1994 43,987,328 $544 $39,3231996 43,435,312 $ 545,770 $(144,237)544 $ 441,400
Net loss (118,251) (118,251)
Cash dividends declared (30,884) (30,884)
Delivery of treasury shares:
Restricted stock award plan 15,012 67 209 276
Employee stock purchase plans 197,489 448 2,745 3,193
---------- ---- ------- --------- --------- ---------
Balance, December 31, 1994 44,199,829 544 39,838 396,635 (141,283) 295,734
Net income 65,828 65,828
Cash dividends declared (30,701) (30,701)
Delivery of treasury shares:
Employee stock purchase and
401(k) plans 174,929 955 2,402 3,357
Employee stock options
exercised (net) 16,754 128 138 266
Purchase of stock for treasury (956,200) (19,078) (19,078)
---------- ---- ------- --------- --------- ---------
Balance, December 31, 1995 43,435,312 544 40,921 $ 431,762 $ (586) $ (157,821) 315,406$ 314,820

Net income 60,399 60,399

Foreign currency translation
adjustments 179 179

Cash dividends declared (29,824) (29,824)

Delivery of treasury shares:

Restricted stock award planawards 72,193 223 1,054 1,277

Employee stock purchase
and 401(k) plans 151,265 447 2,207 2,654

Employee stock options
exercised (net)-- net 12,131 10 176 186

Purchase of stock for treasury (1,131,073) (19,068) (19,068)
---------- ------- ------ ------- --------- --------- ------------ -------- -------

Balance, December 31, 1996 42,539,828 544 41,601 462,337 (407) (173,452) 330,623

Net income 45,284 45,284

Foreign currency translation
adjustments (651) (651)

Cash dividends declared (29,548) (29,548)

Delivery of treasury shares:

Restricted stock awards 13,350 217 196 413

Employee stock purchase
and 401(k) plans 150,940 545 2,219 2,764

Employee stock options
exercised -- net 103,690 260 1,517 1,777

Purchase of stock for treasury (658,200) (11,304) (11,304)
---------- --- ------ ------- ------- -------- -------

Balance, December 31, 1997 42,149,608 544 42,623 478,073 (1,058) (180,824) 339,358

Net income 36,133 36,133

Foreign currency translation
adjustments (553) (553)

Cash dividends declared (29,413) (29,413)

Delivery of treasury shares:

Employee stock purchase
and 401(k) plans 182,528 (13) 2,713 2,700

Employee stock options
exercised -- net 3,100 2 46 48

Purchase of stock for treasury (250,000) (4,344) (4,344)
---------- --- ------ ------- ------- -------- -------

Balance, December 31, 1998 42,085,236 $544 $41,601 $ 462,337 $(173,452) $ 331,030$42,612 $484,793 $(1,611) $(182,409) $343,929
========== ==== ======= ======== ======= ========= ========= =================

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

2024
2226
CONSOLIDATED STATEMENTS OF CASH FLOWS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES

For the Years Ended December 31, 1996, 1995 and 1994

(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 60,399 $ 65,828 $(118,251)
Unusual item -- writedown of impaired assets -- -- 208,949
Items included in net income (loss) not using (providing) cash:
Depreciation and depletion 33,570 32,599 42,906
Expense related to employee stock purchase and 401(k) plans 1,224 975 814
Loss (gain) on disposition of fixed assets 169 (476) (345)
Changes in assets and liabilities:
Accounts receivable 2,349 (3,140) (14,572)
Inventories (14,153) (5,247) 11,459
Other assets and prepaid expenses (13,032) (9,999) (11,116)
Accounts payable, accrued compensation, other expenses,
deferred income taxes and other long-term liabilities 3,555 17,096 (950)
Federal, state and local taxes 4,070 (2,254) (2,383)
Deferred income taxes -- noncurrent 18,457 20,369 (70,196)
-------- --------- ---------
Net cash provided by operating activities 96,608 115,751 46,315
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) or maturity of investments -- net (700) 2,861 22,073
Proceeds from disposal of fixed assets 102 987 1,569
Additions to plant, equipment and timberlands (37,477) (25,777) (83,499)
Increase (decrease) in liabilities related to fixed asset acquisitions 1,833 (6,716) 1,860
-------- --------- ---------
Net cash used in investing activities (36,242) (28,645) (57,997)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (repayment) of short-term debt -- net -- (24,100) 24,100
Dividends paid (29,977) (30,839) (30,847)
Purchases of common stock (19,068) (19,078) --
Employees' contribution -- common stock issued under
employee benefit plans 1,617 2,642 2,380
-------- --------- ---------
Net cash used in financing activities (47,428) (71,375) (4,367)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents 12,938 15,731 (16,049)

CASH AND CASH EQUIVALENTS
At beginning of year 18,864 3,133 19,182
-------- --------- ---------
At end of year $ 31,802 $ 18,864 $ 3,133
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid For:
Interest (net of amount capitalized) $ 9,684 $ 10,366 $ 5,832
Income taxes 20,480 21,571 2,899

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

21
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1995

(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------

Cash flows from operating activities:

Net income $ 36,133 $ 45,284 $ 60,399

Items included in net income not using (providing) cash:

Depreciation, depletion and amortization 47,738 35,796 33,570

Loss (gain) on disposition of fixed assets 481 (2,121) 169

Expense related to employee stock purchase and 401(k) plans 1,652 1,270 1,224

Changes in assets and liabilities:

Accounts receivable 8,703 (484) 2,349

Inventories 16,437 (1) (14,153)

Other assets and prepaid expenses (2,328) (12,309) (14,885)

Accounts payable, accrued compensation and other expenses,
deferred income taxes and other long-term liabilities (8,272) 14,111 3,555

Income taxes payable (4,341) 801 4,070

Deferred income taxes -- noncurrent 4,214 2,856 18,457
-------- -------- --------

Net cash provided by operating activities 100,417 85,203 94,755
-------- -------- --------

Cash flows from investing activities:

Sale (purchase) or maturity of investments -- net 158,475 (154,363) 1,153

Proceeds from disposal of fixed assets 319 3,749 102

Additions to plant, equipment and timberlands (40,531) (60,503) (35,644)

Acquisition of S&H -- net of cash acquired (147,491) -- --
-------- -------- --------

Net cash used in investing activities (29,228) (211,117) (34,389)
-------- -------- --------

Cash flows from financing activities:

Proceeds from long-term debt issuance -- 150,000 --

Net borrowing of short-term debt 11,078 -- --

Net payment of other long-term debt (16,669) -- --

Repayment of 57/8% Notes (150,000) -- --

Acquisition-related borrowings 101,500 48,665 --

Dividends paid (29,436) (29,601) (29,977)

Purchases of common stock (4,344) (11,304) (19,068)

Proceeds from issuance of common stock under employee stock
purchase plans and key employee long-term incentive plan 1,088 3,271 1,617

-------- -------- --------

Net cash provided by (used in) financing activities (86,783) 161,031 (47,428)

-------- -------- --------

Effect of exchange rate changes on cash (418) -- --

Net increase (decrease) in cash and cash equivalents (16,012) 35,117 12,938

Cash and cash equivalents:

At beginning of year 66,919 31,802 18,864

-------- -------- --------

At end of year $ 50,907 $ 66,919 $ 31,802
-------- -------- --------

Supplemental disclosure of cash flow information:

Cash paid for:

Interest $ 22,722 $ 14,293 $ 9,684

Income taxes 19,573 24,650 20,480

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

25
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P.H. GLATFELTER COMPANY AND 1994SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of Operations and Principles of ConsolidationNATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION

P. H. Glatfelter Company and subsidiaries are principally manufacturers of printingengineered papers
and tobacco and other specialtyspecialized printing papers. Headquartered in Spring Grove, Pennsylvania,
the Company's paper mills are located in Spring Grove, Neenah, Wisconsin, Pisgah
Forest, North Carolina and Neenah, Wisconsin.Gernsbach, Germany. The Pisgah ForestCompany also has a 50%
controlling ownership interest in a paper mill is
also known as the Ecusta Division.in Odet, France. The Company's
products are marketed in most parts of the United States and in many foreign
countries, either through wholesale paper merchants, brokers and agents or
directdirectly to customers. The accounts of the Company, and those of its wholly-owned, significant
majority-owned or controlled subsidiaries, are included in the consolidated
financial statements. All inter-company transactions have been eliminated.
(b) Income (Loss) per Common Share
Income (loss) per share of common stock is computed onCertain reclassifications have been made to the basisprior years' consolidated
financial statements to conform to those classifications used in 1998.

On January 2, 1998, the Company acquired S&H Papier - Holding GmbH ("S&H"), the
specialty paper division of the weighted
average numberSchoeller and Hoesch Group. The results of sharesS&H,
a German company, are included in the consolidated financial statements for the
year ended December 31, 1998 from the date of common stock and common stock equivalents (Note 3)
outstanding during each year.

(c) Cash and Cash Equivalentsacquisition. See Note 2 for
further discussion of the acquisition, including disclosure of pro forma
information.

(b) CASH AND CASH EQUIVALENTS

The Company considers all highly liquid financial instruments with effective
maturities at date of purchase of three months or less to be cash equivalents.

(d) Inventories(c) INVENTORIES

Inventories are stated at the lower of cost or market. Raw materials and
in-process and finished inventories of the Company's domestic operations are
valued using the last-in, first-outfirst out (LIFO) method, and the supplies inventory is
valued principally using the average cost method. Certain of the Company's
inventories are valued using a method which approximates average cost.
Inventories at December 31 are summarized as follows:

1996 19951998 1997
-------- --------
(in thousands)

Raw materials $ 36,35537,559 $ 25,57735,980

In-process and finished 33,073 30,82149,901 31,724

Supplies 31,803 30,68030,392 33,528
-------- --------
Total $101,231 $ 87,078$117,852 $101,232
======== ========

As of December 31, 1998, S&H had approximately $35,800,000
of inventories. If the Company had valued all inventories using the average cost
method, inventories would have been $2,571,000$4,143,000 and $14,563,000$2,839,000 higher than
reported at December 31, 19961998 and 1995,1997, respectively. During 1994,1998, the Company
liquidated certain LIFO inventories. The effect of the liquidation did not have
a significant impact on net income.

At December 31, 19961998 and 1995,1997, the recorded value of the above inventories
exceeded inventories for income tax purposes by approximately $20,400,000$22,100,000 and
$22,800,000,$20,700,000, respectively.

(e) Plant, Equipment, and Timberlands(d) PLANT, EQUIPMENT AND TIMBERLANDS

Depreciation is computed for financial reporting onusing the straight-line method
over the estimated useful lives of the respective assets and for income taxes
principally onusing accelerated methods over lives established by statute or
Treasury Department procedures. Provision is made for deferred income taxes
applicable to this difference (Notes 1(g)difference. See Notes 1(f) and 6).5.

The range of estimated service lives used to calculate financial reporting
depreciation for principal items of property, plant and equipment are as
follows:

Buildings 10 - 45 Years
Machinery and equipment 7 - 35 Years
Other 4 - 40 Years

Depletion of the cost of timber is computed on a unit rate of usage by growing
area based on estimated quantities of recoverable material.

Maintenance and repairs are charged to income and major renewals and betterments
are capitalized. At the time property is retired or sold, the cost and related
reserve are eliminated and any resultant gain or loss is included in income.

Depletion of the cost of timber is computed on a unit rate of usage by growing
area based on estimated quantities of recoverable material.

Plant, equipment and timberlands accounts, as of December 31, are summarized as
follows:

1996 1995
---------1998 1997
----------- ---------
(in thousands)

Land and buildings $ 112,973148,079 $ 110,348116,186
Machinery and equipment 870,116 847,5351,071,469 916,063
Other 28,286 27,55736,562 29,553
Less accumulated depreciation (Note 2) (585,954) (557,075)
---------(657,581) (617,576)
----------- ---------
Total 425,421 428,365598,529 444,226
Construction in progress 12,342 6,22010,962 13,149
Timberlands, less depletion 17,427 16,876
---------18,665 17,814
----------- ---------
Plant, equipment and
timberlands -- net $ 455,190628,156 $ 451,461
=========475,189
=========== =========

(f) Investments in Debt and Equity Securities
The Company accounts for investments in debt and equity securities under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities".(e) INVESTMENTS IN DEBT AND EQUITY SECURITIES

Long-term investments, which are due ratably over an 18-yeara 16-year period and are classified as
held-to-maturity, are included in "Other assets" on the Consolidated Balance
Sheets at December 31, 19961998 and 1995.1997. The investments consist of approximately
$11,900,000$10,300,000 and $13,200,000$12,100,000 in U.S.U. S. Treasury and government obligations in 1996at
December 31, 1998 and 1995,1997, respectively. The estimated fair market value of thesuch
investments in such securities approximated the amortized cost, and therefore, there were no
significant unrealized gains or losses as of December 31, 19961998 and 1995.1997.
Investments in municipal debt and equity securities of $811,000 and $111,000 classi-

22
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES

fied$2,089,000, classified as
available-for-sale, areheld-to-maturity, were reported as "Marketable securities" on the Consolidated
Balance

Sheets26
28
Sheet at December 31, 1996 and 1995, respectively.1997. The fair market value of such investments
approximated cost. See Note 6 for such securities approximates cost.

(g) Income Tax Accountinga description of other investments reported as
"Marketable securities."

(f) INCOME TAX ACCOUNTING

The Company accountsrecognizes deferred tax assets and liabilities for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Note 6).
Deferred taxes are provided fortemporary
differences between amounts shown forthe financial reporting purposesbasis and those included withthe tax return filings that will reversebasis of the
Company's assets and liabilities. The impact on deferred taxes of changes in future periods.

(h) Capitalized Interest
The Company capitalizes interest incurredtax
rates and laws, if any, applied to the years during which temporary differences
are expected to be settled, are reflected in connection with qualified additions
to property. The Company capitalized $3,066,000the consolidated financial
statements in the period of interest in 1994. The Company
did not capitalize any interest in 1996 or 1995.

(i) Fair Market Value of Financial Instrumentsenactment.

(g) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS

The amounts reported inon the Consolidated Balance Sheets for cash and cash
equivalents, marketable securities, trade receivables,accounts receivable, other assets,
short-term debt and long-term debt approximate fair value.

(j) Long-Lived Asset Impairment
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of,"(h) VALUATION OF LONG-LIVED ASSETS

The Company evaluates long-lived assets are reviewed for impairment on an annual basis in
conjunction with the preparation of the annual budgetperiodically or when a
specific event indicates that the carrying value of an asset may not be
recoverable. Recoverability is assessed based on estimates of future cash flows
expected to result from the use and eventual disposition of the asset. If the
sum of expected undiscounted cash flows is less than the carrying value of the
asset, an impairment loss is recognized. The impairment loss is measured as the
amount by which the carrying amount of the asset exceeds its fair value.

(k) Accounting Estimates(i) ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates and
assumptions. Management believes the estimates and assumptions used in the
preparation of these consolidated financial statements are reasonable, based
upon currently available facts and known circumstances, but recognizes that
actual results may differ from those estimates and assumptionsassumptions. See Note 10.

(j) REVENUE RECOGNITION

The Company recognizes revenue on product sales upon shipment and on energy
sales when electricity is delivered to its customer. Certain costs associated
with the production of electricity, such as fuel, labor, depreciation and
maintenance are netted against the energy sales for presentation on the
Consolidated Statements of Income and Comprehensive Income. The Company's
current contract to sell electricity generated in excess of its own use expires
in the year 2010 and requires that the customer purchase all of the Company's
excess electricity up to a certain level. The price for the electricity is
determined pursuant to a formula and varies depending upon the amount sold in
any given year.

(k) ENVIRONMENTAL LIABILITIES

Accruals for losses associated with environmental obligations are recorded when
it is probable that a liability has been incurred and that 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. Accrued environmental liabilities are classified as "Other long-term
liabilities" on the Consolidated Balance Sheets. Such undiscounted liabilities
are exclusive of any insurance or other claims against third parties.

Costs related to environmental remediation are charged to expense. Environmental
costs are capitalized if the costs extend the life of the property, increase its
capacity and/or mitigate or prevent contamination from future operations.

(l) STOCK-BASED COMPENSATION

The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages, but does not require,
companies to record compensation cost for stock-based compensation plans at fair
value. The Company has elected to continue to account for stock-based
compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations, as permitted by SFAS No. 123.
Compensation expense for stock options is measured as the excess, if any, of the
average quoted market price of the Company's stock at the date of grant over the
amount an employee must pay to acquire the stock. Compensation expense for
restricted stock awards is equal to the average quoted market price of the
Company's stock at the date of grant and is recorded ratably over the period in
which forfeiture provisions lapse. Compensation expense for performance stock
awards is recognized over the performance period based on changes in quoted
market prices of the Company's stock and the likelihood of achieving the
performance goals. See Note 8.

(m) DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses interest rate swap agreements to manage its exposure to
fluctuations in interest rates. Amounts to be paid or received under interest
rate swap agreements are recognized as interest expense or interest income
during the period in which they accrue. The Company does not hold any derivative
financial instruments for trading purposes. The credit risks associated with the
Company's interest rate swap agreements are controlled through the evaluation
and monitoring of creditworthiness of the counterparties. Although the Company
may be exposed to losses in the event of nonperformance by counterparties, the
Company does not expect such losses, if any, to be significant. See Note 7.

(n) FOREIGN CURRENCY TRANSLATION

The Company's subsidiaries outside the United States use their local foreign
currency as the functional currency. Accordingly, translation gains and losses
and the effect of exchange rate changes on transactions designated as hedges of
net foreign investments are included as a separate component of shareholders'
equity. Exchange gains and losses are included in income in the period in which
they occur.

(o) NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." This statement, which establishes
standards for reporting and disclosure of comprehensive income, is effective for
interim and annual periods beginning after December 15, 1997. Reclassification
of financial information for earlier periods presented for comparative purposes
is required under SFAS No. 130. As this statement only requires

27
29
additional disclosures in the Company's consolidated financial statements, its
adoption did not have any impact on the Company's consolidated financial
position or results of operations.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the reporting of information about operating segments on an annual basis and is
effective for fiscal years beginning after December 15, 1997. Except for
geographic information (see Note 7).11), this statement did not result in any
changes to the Company's presentation of financial and nonfinancial data in
1998. The Company's operating locations have been aggregated into a single
reportable segment, as permitted under SFAS No. 131, since they have similar
economic characteristics, products, production processes, types of customers and
distribution methods.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement, which revises
certain disclosure requirements for the Company's pension assets and
obligations, is effective for fiscal periods beginning after December 15, 1997.
Restatement of prior years' information is required, where available. As this
statement only requires a change in methods of disclosure and not in accounting
methods, it did not have any impact on the Company's consolidated financial
position or results of operations. The Company adopted SFAS No. 132 in 1998.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for fiscal years beginning after June 15, 1999. The Company is
evaluating the effects that the adoption of SFAS No. 133 may have on its
consolidated financial position and results of operations.

2. WRITEDOWNACQUISITION OF IMPAIRED ASSETS (UNUSUAL ITEMS)

DuringTHE SPECIALTY PAPER DIVISION OF THE SCHOELLER AND HOESCH GROUP

Effective January 2, 1998, the Company acquired all of the outstanding common
stock of S&H Papier-Holding GmbH ("S&H"), the specialty paper division of the
Schoeller and Hoesch Group, from RQPO Beteiligungs GmbH & Co. Papier KG ("RQPO")
and EVOBESTRA Vermogensverwaltungsgesellschaft mbH, for approximately DM
268,900,000 (approximately $150,000,000) in cash. The purchase price was
finalized in the fourth quarter of 1994,1998. The principal partners in RQPO were
Deutsche Beteiligungs AG and S&H management. The Company accounted for the S&H
acquisition under the purchase method of accounting, and S&H is consolidated
with the Company beginning in January 1998.

S&H was founded in 1881 in Gernsbach, Germany, where its corporate offices and
major paper production facilities are located. S&H produces a range of paper
products, including tea bag and other long fiber products such as stencil,
filter and casing paper, as well as tobacco papers and printing papers. S&H owns
an abaca pulpmill in the Philippines and other facilities in France and the
United States. S&H also has a 50% controlling ownership interest in a paper mill
in Odet, France, with a purchase option to acquire the remaining 50% ownership
interest under a predetermined pricing formula. As of December 31, 1998, a
minority interest of $10,032,000 associated with this subsidiary is classified
as "Other long-term liabilities" on the Company's Consolidated Balance Sheet.
For the year ended December 31, 1998, the Company recognized $886,000 of
minority interest expense classified as "Gain from property dispositions, etc. -
net" on the Company's Consolidated Statement of Income and Comprehensive Income.

The purchase price of S&H, including certain transaction costs, was allocated to
the assets acquired and liabilities assumed based upon their fair values at the
date of acquisition. The fair values allocated were approximately $238,000,000
for the assets acquired and approximately $101,000,000 for the liabilities
assumed. The excess of the purchase price over the fair value of net assets
acquired of approximately $13,000,000 was recorded as goodwill and is being
amortized on a straight-line basis over 20 years.

To finance the acquisition, on December 22, 1997, the Company entered into a
$200,000,000 multi-currency revolving credit facility ("Revolving Credit
Facility") with a syndicate of major lending institutions. The Revolving Credit
Facility enables the Company to borrow up to the equivalent of $200,000,000 in
certain currencies in the form of revolving credit loans with a final maturity
date of December 22, 2002 and with interest periods determined, at the Company's
option, on a daily or one to six-month basis. Interest on the revolving credit
loans is at variable rates based, at the Company's option, on the Eurocurrency
Rate or the Base Rate (lender's prime rate), plus applicable margins. Margins
are based on the higher of the Company's debt ratings as published by Standard &
Poor's and Moody's. The Company is subject to certain financial covenants under
the Revolving Credit Facility and is in compliance with all such covenants as of
December 31, 1998. The Company must pay an annual facility fee ranging from
.065% to .13% of the total credit commitment, which is also based on the higher
of the Company's debt ratings as published by Standard & Poor's and Moody's,
under the Revolving Credit Facility. During 1998, the Company paid .10% of the
total credit commitment for this facility fee. As of December 31, 1998,
$33,234,000 of credit availability under the Revolving Credit Facility was
unused.

On December 30, 1997, the Company borrowed DM 87,500,000 (approximately
$48,665,000) under the Revolving Credit Facility at a three-day rate of 5.075%.
These proceeds were used to capitalize two German subsidiaries to facilitate the
S&H acquisition and are included in "Cash and cash equivalents" on the December
31, 1997 Consolidated Balance Sheet. The borrowings were classified as
"Short-term debt" on the Consolidated Balance Sheet as of December 31, 1997. On
January 2, 1998, the Company borrowed an additional DM 182,500,000
(approximately $101,500,000) necessary to complete the acquisition and
classified the aggregate borrowings under the Revolving Credit Facility as long
term.

28
30
The following summarized unaudited combined pro forma information for the
Company for the year ended December 31, 1997 is presented as if the S&H
acquisition had occurred on January 1, 1997. This unaudited pro forma
information is based on the historical results of operations adjusted for
acquisition costs and, in the opinion of management, is not necessarily
indicative of what the results would have been had the Company operated S&H
since January 1, 1997 (dollars in thousands, except per share data).

Unaudited Pro Forma Information
Year Ended December 31, 1997
-------------------------------

Net sales $738,547
Net income 50,452
Basic and diluted earnings per share 1.19

3. UNUSUAL ITEM

During 1998, the Company recognized a noncash, pre-tax writedowncharge of impaired assets of $208,949,000. Of this amount, $198,189,000$9,816,000 ($5,988,000
after tax) related primarily to the pre-tax writedownaccrual of pension and medical benefits for
certain salaried and hourly employees of the Company's Ecusta Division to its fair
value primarily due to writedowns related to property, plant and
equipment of
$189,441,000 and inventory of $6,406,000.

The Company concluded that asset impairment recognition was required as the
revised projected undiscounted future cash flowscertain salaried employees of the EcustaCompany's Glatfelter Division were
less thanwho elected to
participate in a voluntary early retirement enhancement program. The pre-tax
charge also includes the carrying value. In developing the revised projections, the Company
considered 1994 actual results andcost of termination of several Glatfelter Division
salaried employees which was necessary to achieve the Company's conclusions concerning future
market conditionscost-savings
goals.

The intent of this program is to generate annual payroll and benefits cost
savings through a reduction in the resulting impact on prices. To determine the fair
valuesize of the Ecusta DivisionCompany's workforce. The
Company's aggregate restructuring resulted in the elimination of approximately
160 salaried and hourly positions with associated annual pre-tax cost savings of
approximately $8,400,000.

4. EARNINGS PER SHARE ("EPS")

Basic EPS excludes the dilutive impact of common stock equivalents and is
computed by dividing net assets,income by the Company projectedweighted-average number of shares of
common stock outstanding for the present valueperiod. Diluted EPS includes the effect of
future cash flowspotential dilution from the issuance of common stock, pursuant to common stock
equivalents, using the treasury stock method. A reconciliation of the Company's
basic and diluted EPS follows with the dollar and share amounts in thousands:

1998 1997 1996
Shares Shares Shares
------- ------- -------

Basic EPS factors 42,047 42,220 42,718
Effect of potentially dilutive
employee incentive plans:
Restricted stock awards 16 31 80
Performance stock awards 126 96 69
Employee stock options 13 95 43
------- ------- -------
Diluted EPS factors 42,202 42,442 42,910
======= ======= =======
Net income $36,133 $45,284 $60,399
Basic and diluted EPS $ .86 $ 1.07 $ 1.41

The 1998 basic and diluted EPS of $.86, as presented on the Consolidated
Statement of Income and Comprehensive Income, reflects the negative impact of an
after-tax charge for a 13% discount rate. The resulting fair value was
used to determinevoluntary early retirement enhancement program (unusual
item) of $.14 per share (see Note 3).

5. INCOME TAXES

Income taxes are recognized for the amount of taxes payable or refundable for
the writedown.

Duringcurrent year and deferred tax liabilities and assets for the fourth quarterfuture tax
consequences of 1994,events that have been recognized in the Company's consolidated
financial statements or tax returns. The effects of income taxes are measured
based on effective tax law and rates.

The following are domestic and foreign components of pre-tax income for the
years ended December 31:

1998 1997 1996
------- ------- -------
(in thousands)

United States $44,602 $69,331 $94,457
Foreign 14,130 4,246 3,448
------- ------- -------
Total pre-tax income $58,732 $73,577 $97,905
======= ======= =======

The income tax provision for the years ended December 31 consists of the
following:

1998 1997 1996
-------- ------- -------
(in thousands)

Current:
Federal $ 10,789 $23,590 $17,816
State (106) 626 1,801
Foreign 3,805 1,237 987
-------- ------- -------
Total current tax
provision 14,488 25,453 20,604
-------- ------- -------
Deferred:
Federal 6,647 2,358 14,570
State 1,244 444 2,297
Foreign 220 38 35
-------- ------- -------
Total deferred tax
provision 8,111 2,840 16,902
-------- ------- -------
Total income tax provision $ 22,599 $28,293 $37,506
======== ======= =======

The Company has provided deferred income taxes of $949,000 on undistributed
earnings of foreign subsidiaries as of December 31, 1998.

29
31
The net deferred tax amounts reported on the Company's Consolidated Balance
Sheets as of December 31 are as follows:

1998 1997
----------------------------------------- --------
Federal State Foreign Total Total
------- ------- ------- -------- --------
(in thousands)

Current asset $ -- $ -- $ 1,302 $ 1,302 $ --
Current liability $ 2,238 $ 419 $ 964 $ 3,621 $ 3,140
Long-term asset $ -- $ -- $15,194 $ 15,194 $ --
Long-term liability $92,484 $17,259 $13,578 $123,321 $101,995

The following are components of the net deferred tax balances as of December 31:

1998 1997
------------------------------------------- --------
Federal State Foreign Total Total
-------- ------- -------- -------- --------
Deferred tax assets: (in thousands)

Current $ 5,019 $ 940 $ 1,344 $ 7,303 $ 5,202
Long-term 22,292 4,174 21,492 47,958 24,838
-------- ------- -------- -------- --------
$ 27,311 $ 5,114 $ 22,836 $ 55,261 $ 30,040
======== ======= ======== ======== ========

Deferred tax liabilities:
Current $ 7,257 $ 1,359 $ 1,006 $ 9,622 $ 8,342
Long-term 114,776 21,433 19,876 156,085 126,833
-------- ------- -------- -------- --------
$122,033 $22,792 $ 20,882 $165,707 $135,175
======== ======= ======== ======== ========

The tax effects of temporary differences as of December 31 are as follows:

1998 1997
-------- --------
Deferred tax assets: (in thousands)

Reserves $ 13,457 $ 10,662
Compensation 8,124 8,020
Postretirement benefits 10,514 9,816
Property 14,528 --
Pension 3,209 --
Net operating loss carryforwards 2,788 --
Other 2,641 1,542
-------- --------
$ 55,261 $ 30,040
======== ========
Deferred tax liabilities:
Property $122,422 $ 97,643
Pension 31,171 27,866
Inventories 8,954 8,115
Other 3,160 1,551
-------- --------
$165,707 $135,175
======== ========

A reconciliation between the income tax provision, computed by applying the
statutory federal income tax rate of 35%, to income before income taxes, and the
actual income tax provision for the years ended December 31 follows:

1998 1997 1996
-------- -------- --------
(in thousands)

Federal income tax provision at statutory rate $ 20,556 $ 25,752 $ 34,267
State income taxes, net of federal income tax benefit 740 696 2,663
Tax effect of exempt earnings of foreign sales corporation (1,313) (360) (281)
Other 2,616 2,205 857
-------- -------- --------
Actual income tax provision $ 22,599 $ 28,293 $ 37,506
======== ======== ========

30
32
At December 31, 1998, the Company had net operating loss carryforwards for
foreign income tax purposes of $11,285,000, which relates to its net operating
loss deferred tax asset of $2,788,000. These net operating loss carryforwards
are available to offset future taxable income, if any, and have no expiration
date.

6. BORROWINGS

Long-term debt at December 31 is summarized as follows:

1998 1997
--------- ---------
(in thousands)

Revolving Credit Facility, due
December 22, 2002 $ 166,766 $ --
57/8% Notes, due March 1, 1998,
interest payable semiannually -- 150,000
67/8% Notes, due July 15, 2007,
interest payable semiannually 150,000 150,000
Other Notes, various 10,703 --
--------- ---------
Total long-term debt 327,469 300,000
Less current portion (2,088) (150,000)
--------- ---------
Long-term debt, excluding
current portion $ 325,381 $ 150,000
========= =========

The aggregate maturities of long-term debt as of December 31, 1998 are as
follows:

1999 $ 2,088
2000 1,791
2001 1,791
2002 168,361
2003 1,401
Thereafter 152,037
--------
$327,469
========

In addition to the Revolving Credit Facility described in Note 2, the Company
has an available line of credit from a bank aggregating $25,000,000 at interest
rates approximating money market rates. The Company had no borrowings under this
line of credit as of December 31, 1998 or 1997.

In March 1993, the Company issued $150,000,000 principal amount of its 57/8%
Notes. These Notes matured and were paid on March 1, 1998. Interest on the Notes
was payable semiannually on March 1 and September 1.

On July 22, 1997, the Company issued $150,000,000 principal amount of 67/8%
Notes due July 15, 2007. Interest on the Notes is payable semiannually on
January 15 and July 15. The 67/8% Notes are redeemable, in whole or in part, at
the option of the Company at any time at a calculated redemption price plus
accrued and unpaid interest to the date of redemption, and constitute unsecured
and unsubordinated indebtedness of the Company. The net proceeds from the sale
of the 67/8% Notes were used to repay the $144,675,000 principal amount of the
short-term unsecured loan described below and approximately $501,000 of related
interest. The remaining balance of the net proceeds was applied to general
corporate purposes.

In February 1997, the Company formed GWS Valuch, Inc. ("GWS Valuch"), a
corporation organized under the laws of the State of Delaware, with the
intention that GWS Valuch would qualify as a real estate investment trust. The
Company invested approximately $122,500,000 to acquire approximately 99.9% of
the voting Class A common stock of GWS Valuch. GWS Valuch also identified impaired propertyissued shares of
step-down preferred stock ("Step-Down Preferred Stock"), having a liquidation
preference of $150,000,000 and equipment at its Spring Grove, Pennsylvania and Neenah, Wisconsin mills,an initial dividend of approximately 13.9%, to
other investors. This dividend included an amortization component of the
Step-Down Preferred Stock, resulting in an effective yield of approximately
8.1%. GWS Valuch has been consolidated in the Company's financial statements
since the date of formation.

Immediately following the establishment and capitalization of GWS Valuch, the
Company borrowed $270,000,000 from GWS Valuch under a pre-tax chargenote secured by certain
real estate assets of $10,760,000.the Company. Using the proceeds of the note and other
available cash, the Company immediately repaid, with interest, an amount
initially borrowed to purchase the Class A common stock of GWS Valuch. The
Company also deposited $154,757,000, which included amounts to pay semiannual
interest, into a trust to defease certain covenants under the Company's
indenture dated as of January 15, 1993, under which the Company's $150,000,000
principal amount of 57/8% Notes due March 1, 1998, were outstanding. As of
December 31, 1997, approximately $153,000,000 of U. S. Treasury Notes were in
the trust and reported on the Company's Consolidated Balance Sheet as a
component of "Marketable securities." This writedown primarilyamount, along with interest earned,
was held to maturity and used to pay the total amount of principal and interest
due on the 57/8% Notes on March 1, 1998.

Subsequent to the above transactions, the Internal Revenue Service announced
that it intended to issue regulations with retroactive effect on transactions
using self-amortizing investments in conduit financing entities. As a result of
this announcement, the likelihood that the Company could lose certain tax
benefits arising from GWS Valuch's Step-Down Preferred Stock financing increased
substantially. Accordingly, on July 2, 1997, using the proceeds of a short-term
unsecured loan in the principal amount of $144,675,000, the Company purchased
approximately 145,000 shares of Class A common stock of GWS Valuch. The funds
received were used by GWS Valuch to redeem all 150,000 outstanding shares of the
Step-Down Preferred Stock. "Interest on debt" on the Company's Consolidated
Statement of Income and Comprehensive Income for the year ended December 31,
1997 includes $4,235,000, representing a portion of the dividend paid relating
to the Step-Down Preferred Stock.

The Company has approximately $3,120,000 of letters of credit outstanding as of
December 31, 1998. The Company bears the credit risk on this amount to the
extent that it does not comply with the provisions of certain agreements. The
letters of credit do not reduce the amount available under the Company's lines
of credit.

7. INTEREST RATE SWAP AGREEMENTS

In March 1993, the Company entered into an interest rate swap agreement having a
total notional principal amount of $50,000,000. Under the agreement, the Company
received a fixed rate of 57/8% and paid a floating rate (London Interbank
Offered Rate (LIBOR) plus sixty basis points), as determined at six-month
intervals. The agreement converted a portion of the Company's debt obligation

31
33
from a fixed rate to a floating rate basis. Under the agreement, the Company
recognized net interest expense of $151,000, $275,000 and $174,000 in 1998, 1997
and 1996, respectively. These amounts are included in "Interest on debt" on the
Company's Consolidated Statements of Income and Comprehensive Income. The
Company held the swap agreement until its March 1, 1998 maturity.

To offset some of the variable rate characteristics of the total borrowing under
the Revolving Credit Facility, effective in January 1998, the Company entered
into two interest rate swap agreements, each having total notional principal
amounts of DM 52,600,000 (approximately $31,400,000 as of December 31, 1998).
Under the agreements, the Company pays fixed rates of 4.18% and 4.45% for
periods of two and three years, respectively, and receives a floating rate of
the six-month DM LIBOR. The six-month DM LIBOR applicable for the first and
second half of 1998 was approximately 3.8% and 3.7%, respectively. The six-month
DM LIBOR applicable for the first half of 1999 is approximately 3.3%. The
Company recognized net interest expense of $638,000 in 1998 related to solid waste disposal assets, specifically, a sludge combustor atthese
agreements. As of December 31, 1998, the Neenah
mill and an unused landfill at the Spring Grove mill. During the fourth quarter
of 1994,Company's cost to terminate these
interest rate swap agreements was approximately $1,100,000.

In January 1999, the Company identified more economical means, acceptableentered into two additional interest rate swap
agreements, each having a total notional principal amount of DM 50,000,000
(approximately $30,000,000). Under one agreement, which is effective April 6,
1999, the Company will receive a floating rate (DM LIBOR plus twenty basis
points) as determined at three-month intervals and will pay a fixed rate of
3.4075%. Under the second agreement, which is effective July 6, 1999, the
Company will receive a floating rate (DM LIBOR plus twenty basis points) and
will pay a fixed rate of 3.425%. These agreements convert a portion of the
Company's borrowings under its Revolving Credit Facility from a floating rate to
a fixed rate basis. Although the appropriate environmental agencies,Company can pay to terminate these swap
agreements at any time, the Company intends to hold both swap agreements until
their December 22, 2002 maturity.

During 1998, the Company had outstanding various interest rate swap agreements
previously entered into by which to dispose of its solid waste at
these locations and concluded thatS&H. Such agreements did not have a material impact
on the significant additional expenditures
necessary to make the assets operational were not prudent, resulting in unusable
assets.

The aggregate after tax impact of this writedown in 1994 was $127,981,000, or
$2.89 per common share.

3.Company's consolidated financial statements.

8. KEY EMPLOYEE LONG-TERM INCENTIVE PLAN, RESTRICTED COMMON STOCK AWARD PLAN AND
EMPLOYEE STOCK PURCHASE PLANS

On April 22, 1992,23, 1997, the common shareholders approvedamended the 1992 Key Employee
Long-Term Incentive Plan ("1992 Plan") which authorizesto authorize, among other things, the
issuance of up to 3,000,0005,000,000 shares of the Company's common stock to eligible
participants. The 1992 Plan provides for incentive stock options, non-qualified
stock options, restricted stock awards, performance shares and performance
units. The Company's 1988 Restricted Common Stock Award Plan ("1988 Plan") was
simultaneously amended in 1992 to provide that no further awards of common shares may be made
thereunder.

On May 1, 1995, January 1, 1996 and January 1, 1997, the Company awarded, under
the 1992 Plan, 59,620, 44,860 and 40,060 shares, respectively, subject to
certain conditions, to certain key employees to be issued in whole or in part
depending on the Company's degree of success in achieving certain financial
performance goals during defined four-year performance periods. The May 1, 1995,
January 1, 1996

23
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES

and January 1, 1997 awards are for the performance periods ending December 31,
1998, 1999 and 2000, respectively, and if earned will be distributed the
following year. Compensation expense is recognized over the performance period
and is affected by the likelihood of achieving the performance goals and the
fair value of the Company's common stock at the end of each reporting period.
The Company expensed $504,000 and $186,000 related to these awards in 1996 and
1995, respectively. The fair market value of the shares awarded during 1997,
1996 and 1995 was $17.88, $17.16 and $17.81, respectively.RESTRICTED STOCK AWARDS

During 1988 and 1991, 755,000 and 76,000 shares of common stock, respectively,
were awarded under the 1988 Plan. During December 1998, 60,465 shares of common
stock were awarded under the 1992 Plan. Awarded shares are subject to
forfeiture, in whole or in part, if the recipient ceases to be an employee
within a specified period of time. Compensation expense equalThe shares awarded under the 1992 Plan are
also subject to the fair market value of awarded
shares on the award date is recognized over the period from the award date to
the date the forfeiture provisions lapse.if defined minimum earnings levels are not met. The
Company may reduce the number of shares otherwise required to be delivered by an
amount which would have a fair market value equal to the taxes withheld by the
Company on delivery. The Company may also, at its sole discretion, elect to pay
to the recipients in cash an amount equal to the fair market value of the shares
that would otherwise be required to be delivered.

On March 1, 1994, under the 1988 Plan, in lieu of delivering 28,000 shares, the
Company elected to pay in cash an amount equal to the fair market value of such
shares. On May 2, 1994, 15,012 shares were delivered from treasury (after
reduction of 8,988 shares for taxes). On May 1, 1996, in lieu of delivering 60,303 shares, the Company elected to pay
in cash an amount equal to the fair value of such shares. Also on May 1, 1996,
72,193 shares were delivered from treasury (after reduction of 49,504 shares for
taxes). On May 1, 1997, 13,350 shares were delivered from treasury (after
reduction of 6,650 shares for taxes). On May 1, 1998, in lieu of delivering
20,000 shares, the Company elected to pay in cash an amount equal to the fair
value of such shares. The Company recognized income of $64,000 in 1998 and
expensed $166,000 and $283,000 $615,000in 1997 and $740,0001996, respectively, related to these
awards in 1996, 1995 and 1994,
respectively. Sharesrestricted stock awards. During 1999, the remaining 20,000 shares awarded under
the 1988 Plan cease to be subject to forfeiture. The shares awarded under the
1992 Plan all cease to be subject to forfeiture in 2002.

PERFORMANCE SHARES

On May 1, 1995, January 1, 1996, January 1, 1997 and January 1, 1998, the
Company awarded, under the 1992 Plan, 59,620, 44,860, 40,060 and 45,740 shares,
respectively, subject to certain conditions, to certain key employees to be
issued in whole or in part depending on the Company's degree of success in
achieving certain financial performance goals during defined four-year
performance periods. The May 1, 1995 award was for the four-year performance
period ended December 31, 1998. Based upon the financial performance levels
achieved during that period, 45,751 shares were earned for distribution. During
February 1999, in lieu of delivering 45,751 shares of common stock, the Company
elected to pay cash equal to the fair value of 34,311 shares as follows: 20,000 in each of 1997,December 31,
1998, and 1999.deliver 11,440 shares from treasury.

The January 1, 1996, January 1, 1997 and January 1, 1998 awards are for the
performance periods ending December 31, 1999, 2000 and 2001, respectively, and
if earned will be distributed the following year. The Company recognized income
of $25,000 in 1998 and expensed $722,000 and $504,000 in 1997 and 1996,
respectively, related to these awards. The fair market value of the shares
granted during 1998, 1997, 1996 and 1995 was $18.38, $17.88, $17.16 and $17.81,
respectively.

32
34
NON-QUALIFIED STOCK OPTIONS

The following summarizes the activity with respect to non-qualified options
under the 1992 Plan to purchase shares of common stock for the years ended
December 31, 1996, 19951998, 1997 and 1994:1996:

1998 1997 1996
1995 1994
-------------------------------------------------------- -------------------------- -------------------------
------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.Weighted Weighted Weighted
Average Average Average
Shares Exer.Exercise Price Shares Exer.Exercise Price Shares Exer.Exercise Price
--------- ----------- --------- ----------- --------- ----------------- -------------- ------ -------------- ------ --------------

Outstanding at beginning of year 1,621,165 $17.61 1,403,640 $17.42 1,235,910 $17.48

1,115,000 $17.42 924,000 $17.97
Options granted 1,659,115 13.19 352,750 18.25 202,030 16.91

229,660 17.81 246,000Options exercised (3,100) 15.44 (105,225) 17.20 (12,300) 15.44

Options exercised (12,300) 15.44 (39,025) 17.42 -- --
Options canceled (60,600) 18.03 (30,000) 17.41 (22,000) 17.48 (69,725) 17.61 (55,000) 17.83
--------- --------- ---------
Outstanding at end of year 3,216,580 15.32 1,621,165 17.61 1,403,640 17.42 1,235,910 17.48 1,115,000 17.42

Exercisable at end of year 1,264,973 17.54 1,001,813 17.49 816,046 $17.39 556,362 $17.17 389,000 $16.8617.39

The following table summarizes information about stock options outstanding at
December 31, 1998:

Options Outstanding Options Exercisable
----------------------------------------------------------------- ----------------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding as Remaining Average Exercisable as Average
Exercise Price of 12/31/98 Contractual Life Exercise Price of 12/31/98 Exercise Price
- ---------------- ------------------ ---------------------- ---------------- ---------------- ----------------

$12.38 - $16.00 1,605,455 9.5 years $12.71 170,850 $ 15.44

$16.01 - $18.78 1,611,125 6.4 years 17.94 1,094,123 17.87
--------- ---------
3,216,580 1,264,973
========= =========

An additional 317,991282,863 options became exercisable January 1, 19971999, at a weighted
average exercise price of $17.66.$18.03. The weighted average fair value of options
granted during 1998, 1997 and 1996 was $3.12, $4.92 and $4.24, respectively, on
the date of grant. The fair value of each option on the date of grant is
estimated using the Black-Scholes option pricing model with expected lives of
ten years and the following weighted average assumptions:

1998 1997 1996
----- ----- -----

Risk-free interest rate 4.98% 6.43% 6.12%
Expected dividend yield 4.44% 3.86% 3.99%
Expected volatility 28.6% 24.7% 24.0%

Options typically become exercisable for 25% of the shares of common stock
issuable on exercise thereof, beginning January 1 of the year following the date
of grant, assuming six months havehas passed, with options for an additional 25% of
such shares becoming exercisable on January 1 of each of the next three years.
Options not exercisable underin this scheduleformat are exercisable in full either six months
or one year from the date of grant. All options expire on the earlier of
termination or, in some instances, a defined period subsequent to termination of
employment, or ten years from the date of grant.

The exercise price represents the fairaverage quoted market valueprice of the Company's
common stock on the date of grant, or the average fairquoted market valueprices of the
Company's common stock on the first day before and after the date of grant for
which fairquoted market valueprice information was available if such information was not
available on the date of grant.

The exercise prices presented above are rounded to the
nearest cent.

On January 1, 1997, the Company granted to certain key employees non-qualified
options to purchase an aggregate of 205,750 shares of common stock. Subject to
certain conditions, these stock options are exercisable as to 25% of such shares
beginning on January 1, 1998 and an additional 25% of such shares beginning on
January 1 of each of the next three years. These stock options, which expire on
December 31, 2006, were granted at an exercise price of $17.875 per share,
representing the average fair market value of the Company's common stock on
Tuesday, December 31, 1996 and Thursday, January 2, 1997.33
35
PRO FORMA INFORMATION

The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized for the non-qualified stock options and
for which compensation cost has been recognized for stock awards, as described
above.in Note 1(l). Had compensation cost for these plans been determined consistent
with Statement of Financial Accounting StandardsSFAS No. 123,

24
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES

"Accounting for Stock-Based Compensation", the Company's net income and income
per common shareEPS for the years ended December
31, 19961998, 1997 and 19951996 would have been reduced to the following pro forma
amounts:

1998 1997 1996
1995
------- ------------------ ----------- ----------
(in thousands)thousands except
per share information)

Net income:
As reported $ 36,133 $ 45,284 $ 60,399
Pro forma 35,554 45,195 60,289

EPS:
Reported $60,399 $65,828
Pro Forma 60,289 65,793
Income per common
share: As Reported-- basic and
diluted $ .86 $ 1.07 $ 1.41
$ 1.49
Pro Formaforma -- basic .85 1.07 1.41
1.49Pro forma -- diluted .84 1.06 1.41

The exercise price for the options outstanding as of December 31, 1996 is
between $15.44 and $17.97. Such options will expire on average in 7.2 years. The
weighted average fair value of options granted during 1996 and 1995 was $4.24
and $4.46, respectively, on the date of grant.

The fair value of each option on the date of grant is estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995: risk-free interest rate of 6.12%,
expected dividend yield of 3.99%; expected lives of 10 years and expected
volatility of 24%.

UnderEMPLOYEE STOCK PURCHASE PLANS

Through 1998, under the employee stock purchase plans, eligible hourly employees
maycould acquire shares of the Company's common stock at its fair market value.
Employees maycould contribute up to 10% of their compensation, as defined. For
employee contributions up to 6% of their compensation, the Company shallwould
contribute, as specified in the plans, 15% of the employee's contribution.

4.As of January 1999, benefits offered to eligible hourly employees under such
stock purchase plans were replaced with similar benefits under a 401(k) plan.
See Note 9.

9. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS

The Company and its subsidiaries havehas trusteed noncontributory defined benefit pension plans covering
substantially all of theirits employees. The benefits are based, in the case of
certain plans, on average salary and years of service and, in the case of other
plans, on a fixed amount for each year of service. Plan provisions and funding
metmeet the requirements of the Employee Retirement Income Security Act of 1974.
Pension income of $9,246,000, $6,623,000$5,502,000, $10,063,000 and $6,082,000$9,246,000 was recognized in 1996, 19951998,
1997 and 1994,1996, respectively. The following table sets forth1998 pension income is after the statusimpact of the Company's defined benefit
pension plans at December 31, 1996 and 1995:

1996 1995
--------------------------- ---------------------------
Overfunded Underfunded Overfunded Underfunded
Plans Plans Plans Plans
---------- ----------- ---------- -----------
(in thousands)

Actuarial present value of accumulated benefit obligation:
Vested employees $(112,164) $(38,165) $(122,716) $(10,347)
Nonvested employees (5,583) (3,614) (7,352) (622)
--------- -------- --------- --------
Total $(117,747) $(41,779) $(130,068) $(10,969)
========= ======== ========= ========
Projected benefit obligation for services rendered to date $(134,657) $(42,202) $(145,766) $(11,936)
Plan assets at fair value (primarily stocks, bonds and
cash equivalents) 311,567 23,854 289,772 --
--------- -------- --------- --------
Plan assets in excess of (less than) projected benefit
obligation 176,910 (18,348) 144,006 (11,936)
Unrecognized net (gain) loss from past experience different
from that assumed (101,050) (420) (80,824) 1,302
Unrecognized prior service cost 6,910 9,142 9,978 --
Unrecognized net (asset) liability at January 1 (14,901) 2,251 (17,014) 2,639
--------- -------- --------- --------
Prepaid (accrued) pension cost $ 67,869 $ (7,375) $ 56,146 $ (7,995)
========= ======== ========= ========

Net pension income includes the following components: 1996 1995 1994
-------- --------- --------
(in thousands)

Service cost -- benefits earned during period $ (4,076) $ (3,671) $ (3,572)
Interest cost on projected benefit obligation (11,708) (10,951) (10,361)
Actual return on plan assets 51,210 68,583 2,676
Net amortization and deferral (26,180) (47,338) 17,339
-------- --------- --------
Net pension income $ 9,246 $ 6,623 $ 6,082
======== ========= ========

25
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES

The assumptions used in computing the information above were as follows:

1996 1995 1994
---- ---- ----

Discount rate --
pension expense 7.5% 8.0% 8.0%
Expected long-term rate of
return on plan assets 9.0% 8.5% 8.5%
Discount rate -- projected
benefit obligation 7.5% 7.5% 8.0%
Future compensation
growth rate 3.5% 3.5% 3.5%

During 1995, the Company established a
401(k) plan for all salaried employees.
Salaried employees may contribute up to 15%pre-tax charge of their salary to this plan,
subject to certain restrictions. The Company will contribute up to 50% of the
employee's contribution, but not more than 3% of the employee's compensation, as
defined, in the form of shares of the Company's common stock into the Company
stock fund maintained under the 401(k) plan. During 1996 and 1995, the Company
contributed shares of its common stock valued at $1,048,000 and $235,000,
respectively,$8,486,000 related to the 401(k) plan.

5. OTHER POSTRETIREMENT BENEFITSunusual item discussed in Note 3.

The Company provides certain health care benefits to eligible retired employees.
These benefits include a comprehensive medical plan for retirees prior to age 65
and fixed supplemental premium payments to retirees over age 65 to help defray
the costs of Medicare. The plan is not funded; claims are paid as incurred.

The following table sets forth the plan's status as of the Company's defined benefit
pension plans and other postretirement benefit plans at December 31, 1998 and
1997 (in thousands):

1996 1995
-------- --------Pension Benefits Other Benefits
----------------------------- ----------------------------
1998 1997 1998 1997
-------------- ----------- ------------ ---------
Accumulated postretirement
benefit obligation:
Retirees
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at
beginning of year $ 9,024191,589 $ 9,753
Fully eligible active176,859 $ 27,450 $ 27,831
Benefit obligation -- S&H 6,340 -- -- --
Service cost 4,838 4,605 728 732
Interest cost 14,355 13,008 2,005 2,036
Plan amendments 6,156 2,060 (497) (343)
Actuarial (gain) loss 8,813 3,808 2,691 (741)
Benefits paid (9,656) (8,751) (2,380) (2,065)
Unusual item (Note 3) 8,486 -- 1,294 --
--------- --------- --------- ---------
Benefit obligation
at end of year $ 230,921 $ 191,589 $ 31,291 $ 27,450
========= ========= ========= =========

CHANGE IN PLAN ASSETS:

Fair value of plan participants 5,414 4,718
Other activeassets
at beginning of year $ 413,807 $ 335,421 $ -- $ --

Actual return on plan
participants 13,392 13,860
-------- --------
Accumulated postretirement
benefit obligation 27,830 28,331assets 98,809 84,465 -- --
Employer contributions 1,225 2,672 2,380 2,065
Benefits paid (9,656) (8,751) (2,380) (2,065)
--------- --------- --------- ---------
Fair value of plan assets
at end of year $ 504,185 $ 413,807 $ -- $ --
========= ========= ========= =========

RECONCILIATION OF THE
FUNDED STATUS:

Funded status $ 273,264 $ 222,218 $ (31,291) $ (27,450)
Unrecognized net loss (4,594) (5,970)transition
asset (9,202) (10,926) -- --
Unrecognized prior
service cost 1,356 1,506
-------- --------
Accrued postretirement21,187 16,507 (1,871) (1,573)
Unrecognized
(gain) loss (212,072) (154,570) 6,217 3,673
--------- --------- --------- ---------
Net amount
recognized $ 73,177 $ 73,229 $ (26,945) $ (25,350)
========= ========= ========= =========

AMOUNTS RECOGNIZED ON THE
CONSOLIDATED BALANCE SHEETS
Consist of:

Prepaid benefit cost $ 24,59289,603 $ 23,867
======== ========82,309 $ -- $ --
Accrued benefit
liability (16,426) (9,080) (26,945) (25,350)
--------- --------- --------- ---------
Prepaid (accrued)
benefit cost $ 73,177 $ 73,229 $ (26,945) $ (25,350)
========= ========= ========= =========

34
36
The net prepaid pension cost is included in "Other assets," and accrued
postretirement benefit costs are principally included in "Other long-term
liabilities" on the Consolidated Balance Sheets at December 31, 1998 and 1997.

Net periodic postretirement benefit (income) cost includes the following components (in
thousands):

Pension Benefits Other Benefits
--------------------------------- ---------------------------------
1998 1997 1996 1995 1994
------ ------ ------1998 1997 1996
-------- -------- -------- -------- -------- --------

Service cost $ 4,838 $ 4,605 $ 4,076 $ 728 $ 732 $ 730732
Interest cost 14,355 13,008 11,708 2,005 2,036 2,003
Expected return on plan assets (29,607) (25,553) (22,728) -- -- --
Amortization of transition asset (1,724) (1,725) (1,725) -- -- --
Amortization of prior service cost 1,333 1,200 794 (175) (149) (150)
Recognized actuarial (gain) loss (3,183) (1,598) (1,371) 123 203 225
-------- -------- -------- -------- -------- --------
Net periodic benefit (income) cost (13,988) (10,063) (9,246) 2,681 2,822 2,810
Unusual item (Note 3) 8,486 -- -- 1,294 -- --
-------- -------- -------- -------- -------- --------
Total net periodic benefit (income) cost $ 585
Interest(5,502) $(10,063) $ (9,246) $ 3,975 $ 2,822 $ 2,810
======== ======== ======== ======== ======== ========

The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $21,384,000, $20,211,000 and $0, respectively, as of
December 31, 1998 and $12,944,000, $12,467,000 and $0, respectively, as of
December 31, 1997.

The assumptions used in computing the information above were as follows:

Pension Benefits Other Benefits
----------------------- ----------------------
1998 1997 & 1996 1998 1997 & 1996
---- ----------- ---- -----------

Discount rate -- benefit expense 7.5% 7.5% 7.5% 7.5%
Expected long-term rate of return on accumulatedplan assets 9.0% 9.0% -- --
Discount rate -- benefit obligation 2,003 2,171 1,740
Net amortization and
deferral 75 112 20
------ ------ ------
Net periodic
postretirement
benefit cost $2,810 $3,013 $2,345
====== ====== ======7.0% 7.5% 7.0% 7.5%
Future compensation growth rate 3.5% 3.5% -- --

The Company assumesFor measurement purposes, an 8% and 7% annual rate of increase in the per capita
cost of covered health care benefits of 8.0%was assumed for 1997 decreasing to 7.0%, 6.0% and 5.5% in 1998, 1999 and
2000,
respectively. The weighted average discount rates usedrate was assumed to decrease 1% per year to 5.5% for 2000 and
remain at that level thereafter.

A one percentage-point change in determining the
accumulated postretirement benefit obligation were 7.5% in 1996 and 1995 and
8.0% in 1994. If theassumed health care cost trend rate increased by 1.0%, the
accumulated postretirement benefit obligation as of December 31, 1996rates would have
been approximately $2,190,000 greater and the net periodic postretirement
benefit cost would have been approximately $265,000 greater.

6. INCOME TAXES

Income taxes are recognized for (a) the amount of taxes payable or refundable
for the current year, and (b) deferred tax liabilities and assets for the future
tax consequences of events that have been recognized in the Company's
consolidated financial statements or tax returns. The effects of income taxes
are measured based on effective tax law and rates.

The Company has a federal alternative minimum tax credit carryforward of
$1,168,000 which has no expiration period.

Following are the domestic and foreign components of pre-tax income (loss):following effects:

1996 1995 1994
------- -------- ---------
(in thousands)

United States $94,457 $104,989 $(194,512)
Foreign 3,448 2,623 1,738
------- -------- ---------
Total pre-tax income
(loss) $97,905 $107,612 $(192,774)
======= ======== =========

The income tax provision (credit) consists of the following:

1996 1995 1994
-------1998 1997
-------------------------------- ---------------------------
1% 1% 1% 1%
Increase Decrease Increase Decrease
-------- -------- (in thousands)

Current:
Federal $17,816 $ 15,851 $ (202)
State 1,801 1,711 --
Foreign 987 561 728
------- -------- --------
Total current tax
provision 20,604 18,123 526
------- -------- --------
Deferred:
Federal 14,570 20,234 (67,446)
State 2,297 3,823 (7,515)
Foreign 35 (396) (88)
------- -------- --------
Total deferred tax
provision (credit) 16,902 23,661 (75,049)
------- -------- --------
Total income tax
provision (credit) $37,506 $ 41,784 $(74,523)
======= ======== ========

26
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES

The net deferred tax amounts reported on the Company's Consolidated Balance
Sheets as of December 31 are as follows:

1996 1995
---------------------------------------- -------
Federal State Foreign Total Total
(in thousands)

Current liabilityEffect on post-retirement benefit obligation $ 2,6532,243,458 $(1,949,364) $ 499 $ -- $ 3,152 $ 4,708
Long-term liability $82,965 $15,587 $587 $99,139 $80,6822,130,543 $(1,872,746)
Effect on total of service and interest cost components 268,259 (227,732) 268,419 (218,316)

The following are componentsCompany maintains 401(k) plans for certain hourly and salaried employees.
Employees may contribute up to 15% of their salary to these plans, subject to
certain restrictions. The Company will match a portion of the net deferred tax balances asemployee's
contribution, subject to certain limitations, in the form of December 31:

1996 1995
---------------------------------------------------- --------
Federal State Foreign Total Total
(in thousands)

Deferred tax assets:
Current $ 4,237 $ 798 $ -- $ 5,035 $ 4,320
Long-term 20,236 3,591 -- 23,827 26,105
-------- ------- -------- -------- --------
$ 24,473 $ 4,389 $ -- $ 28,862 $ 30,425
======== ======= ======== ======== ========
Deferred tax liabilities:
Current $ 6,890 $ 1,297 $ -- $ 8,187 $ 9,028
Long-term 103,201 19,178 587 122,966 106,787
-------- ------- -------- -------- --------
$110,091 $20,475 $ 587 $131,153 $115,815
======== ======= ======== ======== ========

The tax effectsshares of temporary differences asthe
Company's common stock into the Company stock fund maintained under the 401(k)
plan. During 1998, 1997 and 1996, the Company contributed shares of December 31 are as follows:

1996 1995
-------- --------

Deferred tax assets: (in thousands)
Reserves $ 8,693 $ 6,570
Compensation 7,335 7,678
Postretirement benefits 9,558 9,308
Federal alternative minimum tax credit 1,168 5,090
Other 2,108 1,779
-------- --------
$ 28,862 $ 30,425
======== ========
Deferred tax liabilities:
Property $ 97,406 $ 85,640
Pension 23,433 18,363
Inventories 8,031 8,961
Other 2,283 2,851
-------- --------
$131,153 $115,815
======== ========

A reconciliation between the provision (credit) for income taxes, computed by
applying the statutory federal income tax rate of 35%,its common
stock valued at $1,541,000, $1,093,000 and $1,048,000, respectively, to income (loss) before
income taxes, and the actual provision (credit) for income taxes follows:

1996 1995 1994
-------- -------- --------
(in thousands)

Federal income tax provision (credit) at statutory rate $ 34,267 $ 37,664 $(67,471)
State income taxes, net of federal income tax benefit (provision) 2,663 4,201 (10,043)
Tax effect of exempt earnings of foreign sales corporation (431) (422) (19)
SFAS No. 109 impact of rate increase -- State -- -- 2,645
Other 1,007 341 365
-------- -------- --------
Actual provision (credit) for income taxes $ 37,506 $ 41,784 $(74,523)
======== ======== ========

27these
401(k) plans.

35
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY37
10. COMMITMENTS, CONTINGENCIES AND SUBSIDIARIES

7. COMMITMENTS AND CONTINGENCIESLEGAL PROCEEDINGS

The Pennsylvania Department of pollution abatement facilitiesEnvironmental Protection ("DEP") has proposed to
reissue the Company's wastewater discharge permit for its present mills or
the limitations which environmental compliance may placeSpring Grove mill on
its operations.terms unacceptable to the Company. The Company cannot determine the impact that
the new permit will have on the Company if it contains objectionable terms
because the material terms of the final form of the permit are unknown.

The Company, along with six other companies which operate or formerly operated
facilities along the Fox River in Wisconsin, has been in discussions with the
Wisconsin Department of Natural Resources ("DNR") and the United States Fish and
Wildlife Service ("USFWS")
regarding the alleged discharge of polychlorinated biphenyls ("PCBs") and other
hazardous substances to the Fox River below Lake Winnebago ("the lower(the "lower Fox
River") and the Bay of Green Bay.

On January 30, 1997, the Company and six other companies entered into an
agreement with the State of Wisconsin establishing(the "Wisconsin Agreement") which was
intended to establish a framework for the final resolution of claims for natural
resources damages and other relief which the State asserts against the
companies. Under the agreement, the companies willare required to provide in the
aggregate $10 million in work and funds to facilitate natural resources damages
assessment activities, including, among other things, modeling and risk
assessment, as well as field scale demonstration of sediment dredging and the
enhancement of certain environmental amenities. The actual cost to be incurred
by the companies for such activities will exceed $10 million. Such costs are
expected to be incurred over a four-year period, although the bulk of the amount
should be spent by the end of 1999. The Company's final allocated portion of
such costs is unknown. The State willhas agreed to act as "lead authorized official"
under federal law for purposes of any assessment of damages to natural resources
within Wisconsin, except those within the administrative jurisdiction of a
federal agency. The United States Fish and Wildlife Service ("USFWS"), together
with the National Oceanic and Atmospheric Administration and two Indian tribes,
however, is conducting its own assessment despite the State's status. In
general, the parties to the Wisconsin Agreement have agreed to toll all
limitations periods and to forbear from litigation during the term of thethis
agreement. The parties intend to conclude a final resolution of all of the
State's claims during the course of, or after completion of, the work called for
by the agreement.

By letter dated January 31, 1997, and received by the Company on February 3,
1997, the USFWS provided 60 days' notice of the intention of the United States
Departments of the Interior and Commerce to commence an action for natural
resources damages against the Company and the six other companies referred to
above similarly relating to the discharge of hazardous substances into the lower
Fox River. The federal trustees invited the Company to resume negotiations
toward a non-litigated resolution of the federal trustees' claims; the
negotiations had been suspended at the federal trustees' request. The Company does not know the amount which the federal trustees will
claim as natural resources damages, but the Company believes that it will be
substantial. The agreementBeginning as of March 1, 1997, the Company and six other companies
entered into a series of agreements with the StateUnited States which provided that
all limitation periods were tolled and the parties would forbear from
litigation; the last tolling and forbearance period expired on December 2, 1997.

On July 11, 1997, the Wisconsin DNR, the United States Department of the
Interior, the Menominee Indian Tribe of Wisconsin, specifically contemplatesthe Oneida Tribe of Indians
of Wisconsin, the National Oceanic and Atmospheric Administration and the United
States Environmental Protection Agency ("EPA") entered into a modificationMemorandum of
Agreement (the "MOA") which provides for coordination and cooperation among
those parties in addressing the release or threat of release of hazardous
substances into the lower Fox River, Green Bay and Lake Michigan environment.
The MOA sets forth a mutual goal of remediating and/or responding to address the claimshazardous
substance releases and threats of releases, and restoring injured and
potentially injured natural resources. The MOA further states that, based on
current information, removal of the federal trusteesPCB-contaminated sediments in the lower Fox
River is expected to be the principal, but not exclusive, action undertaken to
achieve restoration and rehabilitation of injured natural resources. The MOA
anticipates funding from the Company and the rolessix other companies, all of which
are identified as potentially responsible parties.

36
38

The EPA has proposed to include the Fox River/Green Bay site on the National
Priorities List maintained pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act. The EPA rejected the potentially responsible
parties' offer to perform a remedial investigation and feasibility study
("RI/FS") for the site and the Wisconsin DNR commenced preparation of the StateRI/FS.

On February 26, 1999, Wisconsin DNR released a draft RI/FS for public comment.
In the draft RI/FS, Wisconsin DNR reviewed and summarized a number of possible
remedial alternatives for the federal trustees.site estimated to cost in the range of $0 to
$721,000,000, but did not select a preferred remedy. The partiesCompany does not
believe that the no action remedy will be selected. The largest components of
the costs of certain of the remedial alternatives are attributable to
large-scale sediment removal and disposal. There is no assurance that any of the
cost estimates in the draft RI/FS will not differ significantly from actual
costs. Public comments on the draft RI/FS must be submitted by April 12, 1999.
The Company intends to submit its comments prior to that agreementdeadline. After
consideration of public comment, the draft RI/FS may be revised to add, delete
or amend the remedial alternatives.

The Company did not participate in the process of developing the draft RI/FS.
Based on current information and advice from its environmental consultants, the
Company continues to believe that an aggressive effort, as included in certain
remedial alternatives in the draft RI/FS, to remove PCB-contaminated sediments,
many of which are buried under cleaner material or are otherwise unlikely to
move, would be environmentally detrimental and therefore inappropriate.

The Company is currently unable to predict the ultimate costs to the Company
related to this matter, because the Company cannot predict which remedy will be
selected for the site or its share of the cost of that remedy.

The Company continues to believe it is likely that this matter will result in
litigation; however, the Company believes it will be able to persuade a court
that removal of a substantial amount of PCB-contaminated sediments is not an
appropriate remedy. There can be no assurance, however, that the Company will be
successful in arguing that removal of PCB-contaminated sediments is
inappropriate, that it would prevail in any resulting litigation, that its share
of the cost of any remedy selected would not have inviteda material adverse effect on
the federal trustees to begin negotiations towardsCompany's consolidated financial condition, liquidity and results of
operations or that the Company's share of such a modification.cost would not exceed its
available resources.

The amount and timing of future expenditures for environmental compliance, cleanup,clean
up, remediation and personal injury 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 control, the remedial actions which may be
required and the number and financial resources of any other responsible
parties. The Company continues to evaluate its exposure and the level of its
reserves, including, but not limited to, its share of the agreement reached with
the State regarding the lower Fox River and the Bay of Green Bay, its
future
negotiations with the State and the United States concerning thesethose areas and the
unknown amount which could be claimed by the federal trustees as natural
resource damages related to the lower Fox River. The Company believes that it is
insured against certain losses related to the lower Fox River, depending on the
nature and amount thereof. Coverage, which is currently being investigated under
reservation 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. The Company does not know when the insurers'
investigation as to coverage will be completed.

The Company's current assessment, after consultation with legal counsel, is that
future expenditures for these matters are not likely to have a material adverse
impact on the Company's consolidated financial condition or liquidity, but could
have a material adverse effect on the Company's consolidated results fromof
operations in a given year; however, there can be no assurances that the
Company's reserves will be adequate or that a material adverse effect on the
Company's consolidated financial condition or liquidity will not occur at some
future time.

During 1996,1998 and 1997, the Company expended approximately $2,000,000$4,900,000 and
$8,000,000, respectively, on environmental capital projects. The Company
estimates that $12,000,000$11,000,000 and $8,000,000$18,000,000 will be expended for environmental
capital projects in 1999 and 2000, respectively. During 1998, 1997 and 1998, respectively.

28
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES

8. LEGAL PROCEEDINGS1996, the
Company incurred approximately $17,700,000, $14,800,000 and $15,200,000,
respectively, in operating costs related to complying with environmental laws
and regulations.

The Company is also involved in various lawsuits. Although the ultimate outcome
of these lawsuits cannot be predicted with certainty, the Company's management,
after consultation with legal counsel, does not expect that such lawsuits will
have a material adverse effect on the Company's consolidated financial position, or
results of operations or liquidity.

9. SIGNIFICANT CUSTOMER37
39
11. OTHER SALES AND FOREIGN SALESGEOGRAPHIC INFORMATION

The Company sells a significant portion of its specialized printing and writing papers
through wholesale paper merchants. During 1994, two of the Company's1997 and 1996, one wholesale paper
merchants merged into one company, and as a result, during 1996, 1995 and
1994, this customermerchant accounted for 12.1%, 13.9%11.6% and 13.0%12.1% of the Company's net sales, respectively.
Net sales in dollars to foreign customers were 9.8%, 8.8%
and 9.4%for this customer was less than 10% of totalthe Company's 1998 net sales.

The Company's 1998 net sales in 1996, 1995to external customers and 1994, respectively.

10. BORROWINGS

At December 31, 1996, the Company had available lineslocation of credit from two
different banks aggregating $100,000,000 at interest rates approximating money
market rates. The Company had no short-term borrowingsnet plant,
equipment and timberlands as of December 31, 1998 are summarized below. Net
sales are attributed to countries based upon origin of shipment. Such
information is not presented for 1997 or 1996, as sales originated primarily
from the United States and net plant, equipment and timberlands assets were
primarily located therein.

Plant, Equipment and
Net Sales Timberlands -- Net
----------- --------------------

United States $535,425 $464,384
Germany 130,129 141,743
Other foreign countries 39,524 22,029
-------- --------
Total $705,078 $628,156
======== ========

Net sales information by the Company's product groups for the years ended
December 31 1995. The Company had average net short-term borrowingsfollows:

1998 1997 1996
---------------- ------------------ --------------------
(in thousands)

Specialized Printing Papers $351,171 50% $354,076 62% $355,328 63%
Engineered Papers (including tobacco papers) 353,907 50% 212,996 38% 210,756 37%
-------- --- -------- --- -------- ---
Total $705,078 100% $567,072 100% $566,084 100%
======== === ======== === ======== ===

12. SUBSEQUENT EVENT

In January of $20,000 and $9,447,000 during 1996 and 1995, respectively, at an average
interest rate1999, the Company's Board of 6.1% and 6.2%, respectively. Maximum short-term borrowings
during 1996 and 1995 were $4,000,000 and $29,400,000, respectively.

In March 1993,Directors authorized the Company issued $150,000,000 principal amountrepurchase
of its 5-7/8%
Notes. These Notes will mature on March 1, 1998 and may not be redeemed prior to
maturity. Interest on the Notes is payable semiannually on March 1 and September
1. The Notes are unsecured obligations of the Company.

In March 1993, the Company entered into an interest rate swap agreement having a
total notional principal amount of $50,000,000. Under the agreement, the Company
receives a fixed rate of 5-7/8% and pays a floating rate (London Interbank
Offered Rate (LIBOR) plus sixty basis points), as determined at six month
intervals. The floating rate is 6.37344% for the six month period ending
February 28, 1997. The agreement converts a portion1,000,000 additional shares of the Company's debt
obligation from a fixed ratecommon stock in the open market
or in privately-negotiated transactions. Any shares repurchased will be added to a floating rate basis. Under the agreement, the
Company recognized net interest expense of $174,000 and $453,000 in 1996 and
1995, respectively, and net interest income of $433,000 in 1994. These amounts
are included in "Interest on debt" on
the Company's Consolidated Statements of
Income. The Company has pledged $2,100,000 of its other assets as security under
the swap agreement. Although the Company can pay to terminate the swap agreement
at any time, the Company intends to hold the swap agreement until its March 1,
1998 maturity. The cost to the Company to terminate the agreement fluctuates
with prevailing market interest rates. As of December 31, 1996, the cost to
terminate the swap agreement was approximately $430,000.

The Company has approximately $9,226,000 of letters of credit outstanding as of
December 31, 1996. The Company bears the credit risk on this amount to the
extent that the Company does not comply with the provisions of certain
agreements. The letters of credit do not reduce the amount available under the
Company's lines of credit.

11. SUBSEQUENT EVENT

In February 1997, the Company invested approximately $122,500,000 to acquire
approximately 99.9% of the voting Class A commontreasury stock of a company that intends
to qualify as a qualified real estate investment trust (REIT). The REIT also
issued $150,000,000 of Step-Down Preferred Stock, with an initial dividend of
approximately 13.9%, to other investors. Prospectively, the REIT will be
consolidated in the Company's consolidated financial statements and a "minority
interest" will be reported. The REIT's dividend payments will include an
amortization component of the minority interest for financial reporting
purposes; the effective yield on the preferred stock is approximately 8.1%.

Also in February 1997, the Company borrowed $270,000,000 from the REIT under a
Note to be secured by certain of the Company's real estate assets with a value
of 110% of the principal amount of the Note.

Using the proceeds of the Note and other available cash, the Company immediately
repaid, with interest, the amount borrowed to purchase the common stock of the
REIT. The Company also deposited approximately $155,500,000 into a trust to
defease certain covenants under the Company's indenture dated as of January 15,
1993 under which the Company's $150,000,000 5-7/8% Notes due March 1, 1998, are
outstanding. The amount deposited will be applied solely to pay principal and
interest due on the 5-7/8% Notes. In accordance with Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", the amount deposited in
the trust and the Company's $150,000,000 5-7/8% Notes will be reported on the
Company's Consolidated Balance Sheets until March 1, 1998.

Subsequently, the Internal Revenue Service announced that it expects to issue
regulations that could cause the Company to lose certain expected benefits of
the transaction, but which would not otherwise materially adversely affect the
Company.

29holdings.

38
3140
MANAGEMENT'S RESPONSIBILITY REPORT

The management of P.H.P. H. Glatfelter Company has prepared and is responsible for
the Company's consolidated financial statements and other corroborating
information contained herein. Management bears responsibility for the integrity
of these statements which have been prepared in accordance with generally
accepted accounting principles and include management's best judgments and
estimates. All information in this annual report consistently reflects the data
contained in the consolidated financial statements.

The Company maintains a system of internal controls designed to provide
reasonable assurance that assets are safeguarded, transactions are executed and
recorded in accordance with their authorizations, and financial records are
maintained so as to permit the preparation of reliable financial statements. The
system of internal controls is enhanced by written policies and procedures, an
organizational structure providing appropriate segregation of duties, careful
selection and training of qualified people, and periodic reviews performed by
both its internal audit department and independent public auditors.

The Audit Committee of the Board of Directors, consisting exclusively of
directors who are not Company employees, provides oversight of financial
reporting. The Company's internal audit department and independent auditors meet
with the Audit Committee on a periodic basis to discuss financial reporting and
internal control issues and have completely free access to the Audit Committee.

T. C. Norris
Chairman of the Board,/s/ George H. Glatfelter II
- --------------------------
George H. Glatfelter II
President and Chief Executive Officer

R.P./s/ Robert P. Newcomer
Senior- ---------------------
Robert P. Newcomer
Executive Vice President Treasurer
and Chief Financial Officer

30
32
[DELOITTE & TOUCHE LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

P. H. Glatfelter Company,
Its Shareholders and Directors:

We have audited the accompanying consolidated balance sheets of P. H. Glatfelter
Company and subsidiaries as of December 31, 19961998 and 1995,1997, and the related
consolidated statements of income and comprehensive income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996.1998. Our audits also included the financial statement schedule listed in
the Index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of P.H. Glatfelter Company and
subsidiaries at December 31, 19961998 and 1995,1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 19961998 in conformity with generally accepted accounting principles. Also, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

/s/ DELOITTEDeloitte & TOUCHETouche LLP

Philadelphia, PennsylvaniaPennsylvanlia
February 24, 1997

3126, 1999

39
3341
SUPPLEMENTAL FINANCIAL INFORMATION
P.H. GLATFELTER COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA (UNAUDITED)

Net Sales Gross Profit Net Income Income PerBasic and Diluted
In Thousands In Thousands In Thousands CommonEarnings Per Share
1996 1995 1996 1995 1996 1995 1996 1995------------------------- ------------------------ ------------------------ ----------------------
1998 1997 1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- -------- ------- ------- -------- --------

First $140,335 $155,037$193,216 $142,185 $ 31,52140,929 $ 29,938 $13,970 $12,51430,180 $ .3215,327 $ .2812,823 $ .36 $ .30
Second 144,687 166,879 35,771 40,573 16,276 19,025 .38 .43183,707 141,935 38,280 27,100 13,791 11,222 .33 .27
Third 139,748 160,771 30,437 36,561 13,237 17,103 .31 .39167,245 139,192 24,041 21,072 3,206)(a) 7,423 .08(a) .17
Fourth 141,314 141,022 33,864 34,498 16,916 17,186 .40 .39160,910 143,760 26,477 30,594 3,809)(b) 13,816 .09(b) .33
-------- -------- -------- -------- ------- --------------- -------- ----- -----------
Total $566,084 $623,709 $131,593 $141,570 $60,399 $65,828 $1.41 $1.49$705,078 $567,072 $129,727 $108,946 $ 36,133 $ 45,284 $ .86 $1.07
======== ======== ======== ======== ======= =============== ======== ===== =====

32
34(a) After impact of an after-tax charge for voluntary early retirement
enhancement program (unusual item) of $3,402,000.

(b) After impact of an after-tax charge for voluntary early retirement
enhancement program (unusual item) of $2,586,000.

Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.

Not Applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant.

(a) Directors. The information with respect to directors required
under this item is incorporated herein by reference to pages 2, 3 and 2320 of the
Registrant's Proxy Statement, dated March 14, 1997.19, 1999.

(b) Executive Officers of the Registrant. The information with
respect to the executive officers required under this item is set forth in Part
I of this Report.report.

Item 11. Executive Compensation.

The information required under this item is incorporated herein
by reference to pages 126 through 2016 of the Registrant's Proxy Statement, dated
March 14, 1997.

3319, 1999.

3542

Item 12. Security Ownership of Certain Beneficial Owners and
Management.

The information required under this item is incorporated herein
by reference to pages 2117 through 2319 of the Registrant's Proxy Statement, dated
March 14, 1997.19, 1999.

Item 13. Certain Relationships and Related Transactions.

The information required under this item is incorporated herein
by reference to page 2017 of the Registrant's Proxy Statement, dated March 14, 1997.19,
1999.

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.

(a) 1. A. The following consolidated Financial
Statements filed as part of this report:the Registrant are included in Part II, Item 8:

Consolidated Statements of Income and
Comprehensive Income for the Years
Ended December 31, 1996, 19951998, 1997 and 19941996
Consolidated Balance Sheets, December 31, 19961998
and 19951997
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1996, 19951998, 1997 and 19941996
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 19951998, 1997 and 19941996
Notes to Consolidated Financial Statements for
the Years Ended December 31, 1998, 1997 and
1996

1995 and
1994

B. Supplementary DataSupplemental Financial Information for each
of the threetwo years in the period ended December 31, 1996.1998 is included in Part II,
Item 8.

2. Financial Statement Schedules (Consolidated): are
included in Part IV:

For Each of the Three Years in the Period Ended
December 31, 1996:1998:

II - Valuation and Qualifying Accounts

Schedules other than those listed above are
omitted because of the absence of conditions under

which they are required or because the required
information is included in the Notes to the Consolidated
Financial Statements.

34
36

Individual financial statements of the Registrant are not
presented inasmuch as the Registrant is primarily an
operating company and its consolidated subsidiaries are
essentially wholly-owned.

3. Executive Compensation Plans and
Arrangements: see Exhibits 10(a) through 10(g)10(h), described below.

(b)

Exhibits:

Number Description of Documents

(2) Stock Purchase Agreement dated as of November 14, 1997
by and among certain subsidiaries of P. H. Glatfelter
Company, the Stockholders of S&H Papier-Holding GmbH,
Deutsche Beteiligungs Aktiengesellschaft
Unternehmensbeteiligungsgesellschaft and P.H.
Glatfelter Company (incorporated by reference to
Exhibit 2.1 of Registrant's Form 8-K dated January 2,
1998).

Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994); a Statement of Reduction of Authorized Shares
dated October 15, 1984 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1984); a Statement of Reduction of Authorized Shares dated
December 24, 1985 (incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31, 1985); by
Articles of Amendment dated April 23, 1986 (incorporated by
reference to Exhibit (3) of Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1986); a Statement of
Reduction of Authorized Shares dated July 11, 1986 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form 10-K for the
year ended December 31, 1986); a Statement of Reduction of
Authorized Shares dated March 25, 1988 (incorporated by reference
to Exhibit (3)(b) of Registrant's Form 10-K for the year ended
December 31, 1987); a Statement of Reduction of Authorized Shares
dated November 9, 1988 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1988); a Statement of Reduction of Authorized Shares dated April
24, 1989 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1989);
Articles of Amendment dated November 29, 1990 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for the year
ended December 31, 1990); Articles of Amendment dated June 26,
1991 (incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1991); Articles of
Amendment dated August 7, 1992 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1992); Articles of Amendment dated July 30, 1993
(incorporated by reference to Exhibit 3(b) of Registrant's Form
10-K for the year ended December 31, 1993); and Articles of
Amendment dated January 26, 1994 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1993).

(3)(b) Articles of Incorporation, as amended through January 26, 1994
(restated for the purpose of filing on EDGAR) (incorporated by
reference to Exhibit 3(c) of Registrant's Form 10-K for the year
ended December 31, 1993).

(3)(c) By-Laws as amended through March 17, 1999.

(4)(a) Escrow Agreement, dated as of February 24, 1997 between P. H.
Glatfelter Company and the Bank of New York relating to the
5-7/8% Notes due March 1, 1998 (incorporated by reference to
Exhibit (4)(c) of Registrant's Form 10-K for the year ended
December 31, 1996).

(4)(b) Indenture, dated as of July 22, 1997, between P. H.
Glatfelter Company and The Bank of New York, relating
to the 6-7/8% Notes due 2007 (incorporated by reference
to Exhibit 4.1 to the Registrant's Form S-4
Registration Statement, Reg. No. 333-36395).

(4)(c) Registration Rights Agreement, dated as of July 22,
1997, among P. H. Glatfelter Company, Bear, Stearns &
Co. Inc. and BT Securities Corporation, relating to the
6-7/8% Notes due 2007 (incorporated by reference to
Exhibit 4.3 to the Registrant's Form S-4 Registration
Statement, Reg. No. 333-36395).

(9) P. H. Glatfelter Family Shareholders' Voting Trust
dated July 1, 1993 (incorporated by reference to
Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter
Family Shareholders' Voting Trust dated July 1, 1993).

(10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of
January 1, 1994, as amended effective December 17, 1998.

(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan,
as amended and restated June 24, 1992 (incorporated by reference
to Exhibit (10)(c) of Registrant's Form 10-K for the year ended
December 31, 1992).

(10)(c) P. H. Glatfelter Company Supplemental Executive
Retirement Plan, as amended and restated effective
April 23, 1998.

(10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May
22, 1986 (incorporated by reference to Exhibit (10)(e) of
Registrant's Form 10-K for the year ended December 31, 1987).

(10)(e) Description of Executive Salary Continuation Plan (incorporated
by reference to Exhibit (10)(g) of Registrant's Form 10-K for the
year ended December 31, 1990).

(10)(f) P. H. Glatfelter Company Supplemental Management
Pension Plan, effective as of April 23, 1998.

(10)(g) P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive
Plan, as amended April 23, 1997 (incorporated by reference to
Exhibit A of Registrant's Proxy Statement, dated March 14, 1997).

(10)(h) P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998

(10)(i) Loan Agreement, dated February 24, 1997 between P. H. Glatfelter
Company, as borrower, and GWS Valuch, Inc., as lender
(incorporated by reference to Exhibit (10)(h) of Registrant's
Form 10-K for the year ended December 31, 1996).

(10)(j) Agreement between the State of Wisconsin and Certain
Companies Concerning the Fox River, dated as of
January 31, 1997, among P. H. Glatfelter Company, Fort
Howard Corporation, NCR Corporation, Appleton Papers
Inc., Riverside Paper Corporation, U.S. Paper Mills,
Wisconsin Tissue Mills Inc. and the State of Wisconsin
(incorporated by reference to Exhibit (10)(i) of
Registrant's Form 10-K for the year ended December 31,
1996).

(10)(k) Credit Agreement, dated as of December 22, 1997 among
P. H. Glatfelter Company, various subsidiary borrowers,
Bankers Trust Company, as Agent, and various lending
institutions with Deutsche Bank AG, as Documentation
Agent, PNC Bank, National Association, as Syndication
Agent, and First National Bank of Maryland and Wachovia
Bank, N.A., as Managing Agents (incorporated by
reference to Exhibit (10)(j) of Registrant's Form 10-K
for the year ended December 31, 1997).

(21) Subsidiaries of the Registrant

(23) Consent of Independent Certified Public Auditors

(27) Financial Data Schedule

(b) The Registrant did not file any reports on Form 8-K during
the quarter ended December 31, 1998.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

P. H. GLATFELTER COMPANY
(Registrant)
March 22, 1999
By /s/ G. H. Glatfelter II
-----------------------
G. H. Glatfelter II
President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated:

Date Signature Capacity
- ---- --------- --------

March 22, 1999 /s/ G. H. Glatfelter Principal Executive
-------------------------- Officer and Director
G. H. Glatfelter II

March 22, 1999 /s/ R. P. Newcomer Principal Financial
-------------------------- Officer, Executive Vice
R. P. Newcomer President and Director

March 22, 1999 /s/ C. M. Smith Principal Accounting
-------------------------- Officer and Vice
C. M. Smith President - Finance

March 22, 1999 /s/ R. E. Chappell Director
-------------------------
R. E. Chappell

March 22, 1999 /s/ N. DeBenedictis Director
-------------------------
N. DeBenedictis
48

March 22, 1999 /s/ G. H. Glatfelter Director
-------------------------
G. H. Glatfelter

March 22, 1999 /s/ R. S. Hillas Director
-------------------------
R. S. Hillas

March 22, 1999 /s/ M. A. Johnson II Director
-------------------------
M. A. Johnson II

March 22, 1999 /s/ R. W. Kelso Director
-------------------------
R. W. Kelso

March 22, 1999 /s/ T. C. Norris Director
-------------------------
T. C. Norris

March 22, 1999 /s/ P. R. Roedel Director
-------------------------
P. R. Roedel

March 22, 1999 /s/ J. M. Sanzo Director
-------------------------
J. M. Sanzo

March 22, 1999 /s/ R. L. Smoot
-------------------------
R. L. Smoot Director
49

SCHEDULE II

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998
- ------ --------------------------------------------------------------------------------------------------------

VALUATION AND QUALIFYING ACCOUNTS
Amounts in Thousands

Allowances for
--------------------------------------------------------------------------------
Doubtful Accounts Sales Discounts & Deductions
--------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996

Balance, beginning of year $ 1,973 $ 1,913 $ 1,979 $ 542 $ 551 $ 501

Other(1) 325 -- -- 1,126 -- --

Provision 90 160 10 14,995 12,882 8,866

Write-offs, recoveries and
discounts allowed (856) (100) (76) (14,528) (12,891) (8,816)
------- ------- ------- -------- -------- -------

Balance, end of year $ 1,532 $ 1,973 $ 1,913 $ 2,135 $ 542 $ 551
======= ======= ======= ======== ======== =======

The provision for doubtful accounts is included in administrative expense and
the provision for sales discounts and deductions is deducted from sales.
The related allowances are deducted from accounts receivable.

(1) Relates primarily to the acquisition of S&H Papier-Holding GmbH.

EXHIBIT INDEX

Number

of Authorized Shares dated July 11, 1986 (incorporated by
reference to Exhibit (3)(b) of Registrant's Form 10-K for the
year ended December 31, 1986); a Statement of Reduction of
Authorized Shares dated March 25, 1988 (incorporated by reference
to Exhibit (3)(b) of

35
37 Registrant's Form 10-K for the year ended
December 31, 1987); a Statement of Reduction of Authorized Shares
dated November 9, 1988 (incorporated by reference to Exhibit
(3)(b) of Registrant's Form 10-K for the year ended December 31,
1988); a Statement of Reduction of Authorized Shares dated April
24, 1989 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1989);
Articles of Amendment dated November 29, 1990 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for the year
ended December 31, 1990); Articles of Amendment dated June 26,
1991 (incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1991); Articles of
Amendment dated August 7, 1992 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1992); Articles of Amendment dated July 30, 1993
(incorporated by reference to Exhibit 3(b) of Registrant's Form
10-K for the year ended December 31, 1993); and Articles of
Amendment dated January 26, 1994 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1993).

(3)(c) By-Laws as amended through March 14, 1996.17, 1999.

(4)(a) Indenture between P. H. Glatfelter Company and Wachovia
Bank of Georgia, N.A. as Trustee dated as of
January 15, 1993 (incorporated by reference to Exhibit
4(a) of Registrant's Form 10-K for the year ended
December 31, 1993).

(4)(b) Form of Note issued to Purchasers of 5 7/8% Notes due
March 1, 1998 (incorporated by reference to Exhibit
4(b) of Registrant's Form 10-K for the year ended
December 31, 1992).

(4)(c) Escrow Agreement, dated as of February 24, 1997 between P. H.
Glatfelter Company and the Bank of New York relating 5 7/to the
5-7/8% Notes due March 1, 1998.

(9) P. H. Glatfelter Family Shareholders' Voting Trust
dated July 1, 19931998 (incorporated by reference to
Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter
Family Shareholders' Voting Trust dated July 1, 1993).

36
38
(10)(a) P. H. Glatfelter Company Management Incentive Plan,
adopted as of January 1, 1994, as amended and restated
effective March 13, 1997 (incorporated by reference to Exhibit
B of Registrant's Proxy Statement dated
March 14, 1997).

(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock
Award Plan, as amended and restated June 24, 1992
(incorporated by reference to Exhibit (10)(4)(c) of Registrant's Form 10-K for the year ended
December 31, 1992)1996).

(10)(c) P. H. Glatfelter Company Supplemental Executive
Retirement Plan, effective January 1, 1988, as amended
and restated December 22, 1994 (incorporated by
reference to Exhibit 10(c) of Registrant's Form 10-K
for the year ended December 31, 1994).

(10)(d) Deferral Benefit Pension Plan of Ecusta Division,
effective May 22, 1986 (incorporated by reference to
Exhibit (10)(ee) of Registrant's Form 10-K for the year
ended December 31, 1987).

(10)(e) Description of Executive Salary Continuation Plan
(incorporated by reference to Exhibit (10)(g) of
Registrant's Form 10-K for the year ended December 31,
1990).

(10)(f) P. H. Glatfelter Company Plan of Supplemental
Retirement Benefits for the Management Committee, as
amended and restated effective June 28, 1989
(incorporated by reference to Exhibit (10)(h) of
Registrant's Form 10-K for the year ended December 31,
1989).

(10)(g) P.H. Glatfelter Company 1992 Key Employee Long-Term
Incentive Plan, effective April 22, 1992 (incorporated
by reference to Exhibit (10)(i) of Registrant's Form
10-K for the year ended December 31, 1992).

(10)(h) Loan Agreement, dated February 24, 1997 between P. H.
Glatfelter Company, as borrower, and GWS Valuch, Inc.,
as lender.

(10)(i) Agreement between the State of Wisconsin and Certain
Companies Concerning the Fox River,(4)(b) Indenture, dated as of January 31, 1997, among P. H. Glatfelter Company, Fort
Howard Corporation, NCR Corporation, Appleton Papers
Inc., Riverside Paper Corporation, U.S. Paper Mills,
Wisconsin Tissue Mills Inc. and the State of Wisconsin.

(11) Computation of Earnings Per Share

37
39
(21) Subsidiaries of the Registrant

(23) Consent of Independent Certified Public Auditors

(27) Financial Data Schedule

(b) The Registrant filed the following report on Form 8-K
during the quarter ended December 31, 1996:

Date of Report Item Reported
-------------- -------------
December 23, 1996 5

38
40
SIGNATURES

P. H. GLATFELTER COMPANY
(Registrant)
March 28, 1997
By /s/ T. C. Norris
----------------------------
T. C. Norris
Chairman of the Board

Date Signature Capacity
---- --------- --------

March 28, 1997 /s/ T. C. Norris Principal Executive
----------------------------
T. C. Norris Officer and Director

March 28, 1997 /s/ R. P. Newcomer Principal Financial
----------------------------
R. P. Newcomer Officer, Senior Vice
President and
Treasurer

March 28, 1997 /s/ C. M. Smith Comptroller
----------------------------
C. M. Smith

March 28, 1997 /s/ R. E. Chappell Director
----------------------------
R. E. Chappell

March 28, 1997 /s/ N. DeBenedictis Director
----------------------------
N. DeBenedictis

March 28, 1997 /s/ G. H. Glatfelter Director
----------------------------
G. H. Glatfelter

March 28, 1997 /s/ G. H. Glatfelter II Director
----------------------------
G. H. Glatfelter II

March 28, 1997 /s/ R. S. Hillas Director
----------------------------
R. S. Hillas

March 28, 1997 /s/ M. A. Johnson II Director
----------------------------
M. A. Johnson II

March 28, 1997 /s/ R. W. Kelso Director
----------------------------
R. W. Kelso
41

March 28, 1997 /s/ P. R. Roedel Director
----------------------------
P. R. Roedel

March 28, 1997 /s/ J. M. Sanzo Director
----------------------------
J. M. Sanzo

March 28, 1997 /s/ R. L. Smoot Director
----------------------------
R. L. Smoot
42

P. H. GLATFELTER COMPANY
AND SUBSIDIARIES

Financial Statement Schedule
For Each of the Three Years in the
Period Ended December 31, 1996 and
Independent Auditors' Report

Prepared for Filing As Part of
Annual Report (Form 10-K)
to the Securities and Exchange Commission
43
SCHEDULE II
P.H. GLATFELTER COMPANY AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------

VALUATION AND QUALIFYING ACCOUNTS

ALLOWANCES FOR
--------------------------------------------------------------------------------------------
Doubtful Accounts Sales Discounts
---------------------------------------------- --------------------------------------------
1996 1995 1994 1996 1995 1994

Balance, beginning of year $ 1,979,000 $ 1,850,000 $ 1,838,000 $ 501,000 $ 560,100 $ 554,300

Provision 10,000 201,000 12,000 8,866,000 7,937,700 6,619,900

Write-offs, recoveries and
discounts allowed (76,000) (72,000) (8,816,000) (7,996,800) (6,614,100)
----------- ----------- ----------- ----------- ----------- ----------

Balance, end of year $ 1,913,000 $ 1,979,000 $ 1,850,000 $ 551,000 $ 501,000 $ 560,100
=========== =========== =========== =========== =========== ==========

The provision for doubtful accounts is included in administrative expense and
the provision for sales discounts is deducted from sales. The related
allowances are deducted from accounts receivable.
44
EXHIBIT INDEX

Number

(3)(a) Articles of Amendment dated April 27, 1977, including
restated Articles of Incorporation (incorporated by
reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993) as
amended by Articles of Merger dated January 30, 1979
(incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of
Authorized Shares dated May 12, 1980 (incorporated by
reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993); a
Statement of Reduction of Authorized Shares dated
September 23, 1981 (incorporated by reference to
Exhibit 3(a) of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993); a Statement of
Reduction of Authorized Shares dated August 2, 1982
(incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of
Authorized Shares dated July 29, 1983 (incorporated by
reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993); by
Articles of Amendment dated April 25, 1984
(incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994); a Statement of Reduction of
Authorized Shares dated October 15, 1984 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form
10-K for the year ended December 31, 1984); a Statement
of Reduction of Authorized Shares dated December 24,
1985 (incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31,
1985); by Articles of Amendment dated April 23, 1986
(incorporated by reference to Exhibit (3) of
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1986); a Statement of Reduction
of Authorized Shares dated July 11, 1986 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form
10-K for the year ended December 31, 1986); a Statement
of Reduction of Authorized Shares dated March 25, 1988
(incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31,
1987); a Statement of Reduction of Authorized Shares
dated November 9, 1988 (incorporated by reference to
Exhibit (3)(b) of Registrant's Form 10-K for the year
ended December 31, 1988); a Statement of Reduction of
Authorized Shares dated April 24, 1989 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for
the year ended December 31, 1989); Articles of
45
Amendment dated November 29, 1990 (incorporated by reference
to Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1990); Articles of Amendment dated June 26, 1991
(incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1991); Articles of
Amendment dated August 7, 1992 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1992); Articles of Amendment dated July 30, 1993
(incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1993); and Articles
of Amendment dated January 26, 1994 (incorporated by reference
to Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1993).

(3)(b) Articles of Incorporation, as amended through
January 26, 1994 (restated for the purpose of filing on
EDGAR) (incorporated by reference to Exhibit 3(c) of
Registrant's Form 10-K for the year ended December 31,
1993).

(3)(c) By-Laws as amended through March 14, 1996.

(4)(b) Form of Note issued to Purchasers of 5 7/8% Notes due
March 1, 1998 (incorporated by reference to Exhibit
4(b) of Registrant's Form 10-K for the year ended
December 31, 1992).

(4)(c) Escrow Agreement, dated as of February 24,22, 1997, between P. H. Glatfelter
Company and theThe Bank of New York, relating 5 7/to the 6-7/8% Notes
due March 1, 1998.2007 (incorporated by reference to Exhibit 4.1 to the
Registrant's Form S-4 Registration Statement, Reg. No.
333-36395).

(10)(a) P. H. Glatfelter Company Management Incentive Plan, adopted as of
January 1, 1994, as amended and restated
effective March 13, 1997 (incorporated by reference to Exhibit
B of Registrant's Proxy Statement dated
March 14, 1997).December 17, 1998.

(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock Award Plan,
as amended and restated June 24, 1992 (incorporated by reference
to Exhibit (10)(c) of 46
Registrant's Form 10-K for the year ended
December 31, 1992).

(10)(c) P. H. Glatfelter Company Supplemental Executive
Retirement Plan, effective January 1, 1988, as amended and restated December 22, 1994 (incorporated by
reference to Exhibit 10(c) of Registrant's Form 10-K
for the year ended December 31, 1994).effective
April 23, 1998.

(10)(d) Deferral Benefit Pension Plan of Ecusta Division, effective May
22, 1986 (incorporated by reference to Exhibit (10)(ee)(e) of
Registrant's Form 10-K for the year ended December 31, 1987).

(10)(e) Description of Executive Salary Continuation Plan (incorporated
by reference to Exhibit (10)(g) of Registrant's Form 10-K for the
year ended December 31, 1990).

(10)(f) P. H. Glatfelter Company Supplemental Management
Pension Plan, effective as of Supplemental
Retirement Benefits for the Management Committee, as
amended and restated effective June 28, 1989
(incorporated by reference to Exhibit (10)(h) of
Registrant's Form 10-K for the year ended December 31,
1989).April 23, 1998.

(10)(g) P.H. Glatfelter Company 1992 Key Employee Long-Term Incentive
Plan, effectiveas amended April 22, 199223, 1997 (incorporated by reference to
Exhibit (10)(i)A of Registrant's Form
10-K for the year ended December 31, 1992)Proxy Statement dated March 14, 1997).

(10)(h) P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998.

(10)(i) Loan Agreement, dated February 24, 1997 between P. H. Glatfelter
Company, as borrower, and GWS Valuch, Inc., as lender.lender
(incorporated by reference to Exhibit (10)(i)(h) of Registrant's
Form 10-K for the year ended December 31, 1996).

(11) ComputationWisconsin
(incorporated by reference to Exhibit (10)(i) of
Earnings Per ShareRegistrant's Form 10-K for the year ended December 31,
1996).

(21) Subsidiaries of the Registrant

(23) Consent of Independent Certified Public Auditors

(27) Financial Data Schedule