1.

ORGANIZATION

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

2.

ACCOUNTING POLICIES

     Basis of Presentation The unaudited condensed consolidated financial statements (“financial statements”) include the accounts of Glatfelter and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

     We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”). In our opinion, the financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2009 Annual Report on Form 10-K (“2009 Form 10-K”).

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

3.

ACQUISITION

     On February 12, 2010, we completed the acquisition of all the issued and outstanding stock of Concert Industries Corp. (“Concert”), a manufacturer of highly absorbent cellulose based airlaid non-woven materials, for cash totaling $231.9 million based on the currency exchange rates on the closing date, and net of a post-closing working capital adjustment. Concert, with approximately 590 employees, has operations located in Gatineau, Quebec, Canada and Falkenhagen, Brandenburg, Germany. Annual revenues totaled $203.0 million in 2009.

     Concert manufactures highly absorbent cellulose based airlaid non-woven materials used in products such as feminine hygiene and adult incontinence products, pre-moistened cleaning wipes, food pads, napkins and tablecloths, and baby wipes. The acquisition of Concert affords us the opportunity to grow with the industry leaders in feminine hygiene and adult incontinence products. We believe that our acquisition of Concert provides us with an industry-leading global business that sells highly specialized, engineered fiber-based products to niche markets with substantial barriers to entry.

     The share purchase agreement provides for, among other terms, i) an adjustment to the purchase price based on final working capital as of the closing balance sheet, which has yet to be fully agreed to; and ii) indemnification provisions for claims that may arise, including among others, uncertain tax positions and other third party claims.

     During the second quarter of 2010, we and the sellers reached agreement on certain working capital related adjustments that reduced the purchase price by $3.9 million. In addition, as a result of further evaluation of asset appraisals, contingencies and other factors, in accordance with FASB ASC 805, Business Combinations, we have determined that certain retrospective adjustments to the February 12, 2010 provisional allocation of the purchase price to assets acquired and liabilities assumed were required.

     The following summarizes the impact of the adjustments recorded in the second and third quarters of 2010 and retrospectively reflected in the financial statements. This provisional purchase price allocation is based on information currently available to management:

		As originally
In thousands		presented				Adjustment				Adjusted
Assets
Cash		$	2,792			$	—			$	2,792
Accounts receivable			24,703				—				24,703
Inventory			28,034				—				28,034
Prepaid and other current assets			5,941				(1,327	)			4,614
Plant, equipment and timberlands			177,253				8,068				185,321
Intangible assets			3,138				1,902				5,040
Deferred tax assets and other assets			20,738				(6,572	)			14,166
Total			262,599				2,071				264,670
Liabilities
Accounts payable and accrued expenses			25,322				591				25,913
Deferred tax liabilities			1,267				2,166				3,433
Other long term liabilities			212				3,240				3,452
Total			26,801				5,997				32,798
Total purchase price		$	235,798			$	(3,926	)		$	231,872

     The adjustments set forth above did not materially impact previously reported results of operations, earnings per share, or cash flows.

     We are in the process of finalizing potential additional working capital adjustments and final valuations of assets acquired, including plant and equipment and intangible assets, certain contingencies and the impact on taxes of any final adjustments to such valuations, all necessary to account for the Concert transaction in accordance with the acquisition method of accounting set forth in FASB ASC 805. Accordingly, the provisional purchase price allocation set forth above is based on all information available to us at the present time and is subject to change, and such changes could be material.

     For purposes of allocating the total purchase price, assets acquired and liabilities assumed are recorded at their estimated fair market value. The allocation set forth above is based on management’s estimate of the fair value using valuation techniques such as discounted cash flow models, appraisals and similar methodologies. The amount allocated to intangible assets represents the estimated value of technology and customer sales contracts and relationships. Deferred tax assets reflect the estimated value of future tax deductions acquired in the transaction.

     Acquired property plant and equipment are being depreciated on a straight-line basis with estimated remaining lives ranging from 5 years to 40 years. Intangible assets are being amortized on a straight-line basis over an estimated remaining life of 11 to 20 years reflecting the expected future value.

     During the first nine months of 2010, we incurred legal, professional and advisory costs directly related to the Concert acquisition totaling $7.2 million. All such costs are presented under the caption “Selling, general and administrative expenses” in the accompanying condensed consolidated statements of income. Deferred financing fees incurred in connection with issuing debt related to the acquisition totaled $3.1 million through September 30, 2010. The unamortized fees are recorded in the accompanying consolidated balance sheet under the caption “Other assets”.

     In addition, in connection with the Concert acquisition, we entered into a series of forward foreign currency contracts to hedge the acquisition’s Canadian dollar purchase price. All contracts were settled for cash during the first quarter of 2010 and resulted in a $3.4 million loss, net of realized currency translation gains, which is presented under the caption “Other-net” in the accompanying condensed consolidated statements of income for the nine months ended September 30, 2010.

     Our results of operations for the first nine months of 2010 include the results of Concert prospectively since the acquisition was completed on February 12, 2010. All such results are reported herein as the Advanced Airlaid Materials business unit, a new reportable segment. Net sales and operating income of Concert included in our consolidated results of operations totaled $58.0 million and $1.2 million, respectively, for the third quarter of 2010. Net sales and operating income were $138.1 million and $3.4 million, respectively, for the first nine months of 2010.

     The table below summarizes pro forma financial information as if the acquisition and related financing transaction occurred as of January 1, 2009:

		Three months ended
		September 30
In thousands, except per share		2010					2009
Pro forma
Net sales		$	379,097				$	368,035
Net income			39,844					52,477
Diluted earnings per share			0.86					1.14

		Nine months ended
		September 30
In thousands, except per share		2010					2009
Pro forma
Net sales		$	1,104,802				$	1,035,210
Net income			51,036					85,951
Diluted earnings per share			1.10					1.88

     For purposes of presenting the above pro forma financial information, non-recurring legal, professional and transaction costs directly related to the acquisition have been eliminated. This unaudited pro forma financial information above is not necessarily indicative of what the operating results would have been had the acquisition been completed at the beginning of the respective period nor is it indicative of future results.

4.

GAINS ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS

     Sales of timberlands and other assets in the first nine months of 2010 and 2009 are summarized in the following table:

Dollars in thousands		Acres				Proceeds				Gain (loss)
2010
Timberlands			71			$	182			$	168
Other			n/a				151				150
						$	333			$	318
2009
Timberlands			189			$	728			$	699
Other			n/a				—				(18	)
						$	728			$	681

5.

ALTERNATIVE FUEL MIXTURE CREDITS

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

     For the period May 18, 2009 through September 30, 2009, we earned an additional $45.8 million of alternative fuel mixture credits. Of this amount, $10.9 million was used to reduce estimated interim tax payments. We claimed the balance of this amount as a non-taxable income tax credit in connection with the filing of our 2009 federal corporate income tax return.

     The accompanying condensed consolidated statement of income for the three months and nine months ended September 30, 2009 includes $33.0 million and $73.8 million, respectively, recorded as a credit to cost of products sold representing alternative fuel mixture credits earned through September 30, 2009, net of associated expenses. On an after-tax basis, we recognized $32.9 million of alternative fuel mixture credits during the third quarter of 2009 and $63.3 million in the nine months ended September 30, 2009.

6.

EARNINGS PER SHARE

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

		Three months ended
		September 30
In thousands, except per share		2010				2009
Net income		$	39,437			$	45,994
Weighted average common shares outstanding used in basic EPS			45,950				45,699
Common shares issuable upon exercise of dilutive stock options and restricted stock awards			336				166
Weighted average common shares outstanding and common share equivalents used in diluted EPS			46,286				45,865
Earnings per share
Basic		$	0.86			$	1.01
Diluted			0.85				1.00
		Nine months ended
		September 30
In thousands, except per share		2010				2009
Net income		$	39,166			$	77,402
Weighted average common shares outstanding used in basic EPS			45,898				45,649
Common shares issuable upon exercise of dilutive stock options and restricted stock awards			432				63
Weighted average common shares outstanding and common share equivalents used in diluted EPS			46,330				45,712
Earnings per share
Basic		$	0.85			$	1.70
Diluted			0.85				1.69

     The following table sets forth the number of potential common shares that have been excluded from the computation of diluted earnings per share for the indicated period due to their anti-dilutive nature.

		2010				2009
Three months ended September 30			1,531,675				1,244,410
Nine months ended September 30			1,519,175				2,287,620

7.

INCOME TAXES

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

     As of September 30, 2010 and December 31, 2009, we had $44.5 million, including acquisition accounting adjustments, and $40.1 million, respectively, of gross unrecognized tax benefits. As of September 30, 2010, if such benefits were to be recognized, approximately $40.6 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate.

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

						Examination in
Jurisdiction		Open tax year				progress
United States
Federal			2007 — 2009				N/A
State			2005 — 2009				2004 & 2006 — 2008
Canada (1)			2005 — 2007				2008 — 2009
Germany (1)			2007 — 2009				2003 — 2009
France			2006 — 2009				N/A
United Kingdom			2006 — 2009				N/A
Philippines			N/A				2007 — 2009

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

     The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state, and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may be reduced within the next twelve months by as much as $16.2 million. Substantially all of this relates to tax positions taken in Germany and the United Kingdom.

     We recognize interest and penalties related to uncertain tax positions as income tax expense. Interest expense recognized in the third quarter of 2010 totaled $0.2 million and $0.1 million in the third quarter of 2009. The comparable amounts for the first nine months of 2010 and 2009 were $0.7 million and $0.7 million, respectively. As of September 30, 2010, accrued interest payable was $4.9 million, including acquisition accounting adjustments, and as of December 31, 2009, accrued interest payable was $3.8 million. We did not record any penalties associated with uncertain tax positions during the first nine months of 2010 or 2009.

     Cellulosic Biofuel Production Credit In March 2010, our application to be registered as a cellulosic biofuel producer was approved by the Internal Revenue Service. The U.S. Internal Revenue Code provides a non refundable tax credit equal to $1.01 per gallon for taxpayers that produce cellulosic biofuel. In a memorandum dated June 28, 2010, the Internal Revenue Service issued guidance concluding that black liquor sold or used before January 1, 2010, qualifies for the cellulosic biofuel producer credit (“CBPC”) and no further certification of eligibility was needed.

     In connection with the filing of our 2009 income tax return, we claimed $23.1 million, net of taxes, of CBPC, and as a result we expect to receive $14.8 million of a cash tax refund during the fourth quarter. The CBPC claimed is attributable to black liquor produced and burned from January 1, 2009 through February 20, 2009, the date we began mixing black liquor and diesel fuel to qualify for alternative fuel mixture credits.

8.

STOCK-BASED COMPENSATION

     The P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the “LTIP”) provides for the issuance of up to 5,500,000 shares of Glatfelter common stock to eligible participants in the form of restricted stock units, restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units.

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

Units		2010				2009
Beginning balance			564,037				486,988
Granted			202,589				205,360
Forfeited			(19,953	)			(6,000	)
Restriction lapsed/shares delivered			(31,323	)			(5,747	)
Ending balance			715,350				680,601

     The following table sets forth RSU compensation expense for the periods indicated:

		September 30
In thousands		2010				2009
Three months ended		$	436			$	448
Nine months ended			1,274				1,175

     Stock Only Stock Appreciation Rights (SOSARs) Under terms of the SOSAR, the recipients receive the right to a payment in the form of shares of common stock equal to the difference, if any, in the fair market value of one share of common stock at the time of exercising the SOSAR and the strike price. The SOSARs vest ratably over a three year period and have a term of ten years.

     The following table sets forth information related to outstanding SOSARS.

		2010								2009
						Wtd Avg								Wtd Avg
						Exercise								Exercise
SOSARS		Shares				Price				Shares				Price
Outstanding at Jan. 1,			1,762,020			$	11.84				718,810			$	14.63
Granted			455,050				13.81				1,043,210				9.91
Exercised			—				—				—				—
Canceled/forfeited			(64,420	)			11.71				—				—
Outstanding at Sept 30,			2,152,650			$	13.04				1,762,020			$	11.84
SOSAR Grants
Weighted average grant date fair value per share		$	4.67							$	2.83
Aggregate grant date fair value (in thousands)		$	2,117							$	2,957
Black-Scholes Assumptions
Dividend yield			2.60	%							3.63	%
Risk free rate of return			2.51								2.26
Volatility			42.32								40.59
Expected life		6 yrs								6 yrs

     The following table sets forth SOSAR compensation expense for the periods indicated:

		September 30
In thousands		2010				2009
Three months ended		$	486			$	596
Nine months ended			1,671				1,293

9.

RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

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

		Three months ended
		September 30
In thousands		2010				2009
Pension Benefits
Service cost		$	2,415			$	2,158
Interest cost			5,897				5,861
Expected return on plan assets			(10,046	)			(9,884	)
Amortization of prior service cost			614				537
Amortization of unrecognized loss			3,314				3,186
Net periodic benefit cost		$	2,194			$	1,858
Other Benefits
Service cost		$	730			$	654
Interest cost			843				878
Expected return on plan assets			(134	)			(122	)
Amortization of prior service cost			(305	)			(308	)
Amortization of unrecognized loss			385				519
Net periodic benefit cost		$	1,519			$	1,621

		Nine months ended
		September 30
In thousands		2010				2009
Pension Benefits
Service cost		$	7,108			$	6,475
Interest cost			17,950				17,582
Expected return on plan assets			(30,190	)			(29,663	)
Amortization of prior service cost			1,845				1,610
Amortization of unrecognized loss			10,218				9,559
Net periodic benefit cost		$	6,931			$	5,563
Other Benefits
Service cost		$	2,189			$	1,963
Interest cost			2,528				2,634
Expected return on plan assets			(403	)			(365	)
Amortization of prior service cost			(917	)			(925	)
Amortization of unrecognized loss			1,154				1,556
Net periodic benefit cost		$	4,551			$	4,863

		September 30,				Dec. 31,
In millions		2010				2009
Pension Plan Assets
Fair value of plan assets at end of period		$	499.1			$	485.7

10.

COMPREHENSIVE INCOME

     The following table sets forth comprehensive income and its components:

		Three months ended
		September 30
In thousands		2010				2009
Net income		$	39,437			$	45,994
Foreign currency translation adjustments			22,887				7,892
Amortization of unrecognized retirement obligations, net of tax			2,409				2,465
Comprehensive income		$	64,733			$	56,351
		Nine months ended
		September 30
In thousands		2010				2009
Net income		$	39,166			$	77,402
Foreign currency translation adjustments			(11,922	)			15,945
Amortization of unrecognized retirement obligations, net of tax			7,496				7,077
Comprehensive income		$	34,740			$	100,424

11.

INVENTORIES

     Inventories, net of reserves, were as follows:

		Sept. 30,				Dec. 31,
In thousands		2010				2009
Raw materials		$	54,417			$	44,150
In-process and finished			86,460				78,340
Supplies			52,931				45,880
Total		$	193,808			$	168,370

12.

LONG-TERM DEBT

     Long-term debt is summarized as follows:

		Sept. 30,				Dec. 31,
In thousands		2010				2009
Revolving credit facility, due April 2011			n/a			$	—
Revolving credit facility, due May 2014		$	—				—
Term Loan, due April 2011			—				14,000
7⅛% Notes, due May 2016			200,000				200,000
7⅛% Notes, due May 2016 - net of original issue discount			95,363				—
Term Loan, due January 2013			36,695				36,695
Total long-term debt			332,058				250,695
Less current portion			—				(13,759	)
Long-term debt, net of current portion		$	332,058			$	236,936

     On April 29, 2010, we entered into a new four-year, $225 million, multi-currency, revolving credit agreement with a consortium of banks. The new agreement replaced and terminated our revolving credit agreement due April 2011 and matures May 31, 2014.

     For all US dollar denominated borrowings under the new agreement, the interest rate is either, at our option, (a) the bank’s base rate plus an applicable margin (the base rate is the greater of the bank’s prime rate, the

federal funds rate plus 50 basis points, or the daily LIBOR rate plus 100 basis points); or (b) daily LIBOR rate plus an applicable margin ranging from 175 basis points to 275 basis points according to our corporate credit rating determined by S&P and Moody’s. For non-US dollar denominated borrowings, interest is based on (b) above.

     The credit agreement contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, limits certain intercompany financing arrangements, make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios, each as defined in the credit agreement, including: i) maximum net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio; and ii) a consolidated EBITDA to interest expense ratio. A breach of these requirements would give rise to certain remedies under the credit agreement, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility.

     On April 28, 2006 we completed an offering of $200.0 million aggregate principal amount of our 7⅛% Senior Notes due 2016 (“7⅛% Notes”). Net proceeds from this offering totaled approximately $196.4 million, after deducting the commissions and other fees and expenses relating to the offering. The proceeds were primarily used to redeem $150.0 million aggregate principal amount of our then outstanding 6⁷/₈% notes due July 2007, plus the payment of applicable redemption premium and accrued interest.

     On February 5, 2010, we issued an additional $100 million in aggregate principal amount of 7⅛% Notes due 2016 (together with the April 28, 2006 offering, the “Senior Notes”). The notes were issued at 95.0% of the principal amount. Net proceeds from this offering after deducting offering fees and expenses, were used to fund, in part, the Concert acquisition. The original issue discount is being accreted as a charge to income on the effective interest method.

     Interest on the Senior Notes accrues at the rate of 7⅛% per annum and is payable semiannually in arrears on May 1 and November 1.

     The Senior Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the credit agreement at maturity or a default under the credit agreement that accelerates the debt outstanding

thereunder. As of September 30, 2010, we were not aware of any violations of our debt covenants.

     In November 2007, we sold approximately 26,000 acres of timberland. In connection with that transaction, we formed GPW Virginia Timberlands LLC (“GPW Virginia”) as an indirect, wholly owned and bankruptcy-remote subsidiary of ours. GPW Virginia received as consideration for the timberland sold in that transaction a $43.2 million, interest-bearing note that matures in 2027 from the buyer, Glawson Investments Corp. (“Glawson”), a Georgia corporation, and GIC Investments LLC, a Delaware limited liability company owned by Glawson. The Glawson note receivable is fully secured by a letter of credit issued by The Royal Bank of Scotland plc. In January 2008, GPW Virginia monetized the Glawson note receivable by entering into a $36.7 million term loan agreement (the “2008 Term Loan”) with a financial institution. The 2008 Term Loan is secured by all of the assets of GPW Virginia, including the Glawson note receivable, the related letter of credit and additional notes with an aggregate principal amount of $9.2 million that we issued in favor of GPW Virginia (the “Company Note”). The 2008 Term Loan bears interest at a six month reserve adjusted LIBOR rate plus a margin rate of 1.20% per annum. Interest on the 2008 Term Loan is payable semiannually. The principal amount of the 2008 Term Loan is due on January 15, 2013, but GPW Virginia may prepay the 2008 Term Loan at any time, in whole or in part, without premium or penalty. During the first nine months of 2010, GPW Virginia received aggregate interest income of $0.8 million under the Glawson note receivable and the Company Note and, in turn, interest expense of $0.5 million under the 2008 Term Loan.

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

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

     As of September 30, 2010 and December 31, 2009, we had $6.7 million and $5.7 million, respectively, of letters of credit issued to us by certain financial institutions. Such letters of credit reduce amounts available under our revolving credit facility. The letters of credit outstanding as of September 30, 2010, primarily

provide financial assurances for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. No amounts are outstanding under the letters of credit.

13.

ASSET RETIREMENT OBLIGATION

     During 2008, we recorded $11.5 million, net present value, of asset retirement obligations related to the legal requirement to close several lagoons at the Spring Grove, PA facility. Historically, lagoons were used to dispose of residual waste material. Closure of the lagoons will be accomplished by filling the lagoons, installing a non-permeable liner which will be covered with soil to construct the required cap over the lagoons. The amount referred to above, in addition to an upward revision in the fourth quarter of 2009, was accrued with a corresponding increase in the carrying value of the property, equipment and timberlands caption on the consolidated balance sheet. The amount capitalized is being depreciated as a charge to operations on the straight-line basis in relation to the expected closure period. Following is a summary of activity recorded during the first nine months of 2010 and 2009:

In thousands		2010				2009
Balance at January 1,		$	11,292			$	11,606
Accretion			457				472
Payments			(1,008	)			(1,697	)
Balance at September 30,		$	10,741			$	10,381

     Of the total liability at September 30, 2010, $1.5 million is recorded in the accompanying consolidated balance sheet, under the caption “Other current liabilities” and $9.2 million is recorded under the caption “Other long-term liabilities.”

14.

FAIR VALUE OF FINANCIAL INSTRUMENTS AND FINANCIAL DERIVATIVES

     The amounts reported on the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and short-term debt approximate fair value. The following table sets forth carrying value and fair value of long-term debt:

		September 30, 2010									December 31, 2009
		Carrying				Fair					Carrying				Fair
In thousands		Value				Value					Value				Value
Fixed-rate bonds		$	295,363			$	300,250				$	200,000			$	196,750
Variable rate debt			36,695				38,525					50,695				51,209
Total		$	332,058			$	338,775				$	250,695			$	247,959

     As of September 30, 2010, we had $300.0 million of 7⅛% fixed rate debt, $100.0 million of which is recorded

net of unamortized original issue discount. This fixed rate debt is publicly registered, but is thinly traded, and therefore, market prices are not readily available. Accordingly, the values set forth above are based on debt instruments with similar characteristics, or Level 2. The fair value of the remaining debt instruments was estimated using discounted cash flow models based on interest rates obtained from readily available, independent sources, or Level 3.

     As part of our overall risk management practices, we enter into foreign exchange forward contracts primarily designed to mitigate the impact changes in currency exchange rates have on intercompany financing transactions. All such contracts are not designated as hedges for financial accounting purposes and, accordingly, changes in value of the foreign exchange forward contract and the offsetting underlying intercompany transactions are reflected in the accompanying statement of operations under the caption “Other – net.” The fair values of the foreign exchange forward contracts are considered to be Level 2 and are recorded in the accompanying consolidated balance sheet under the caption “Prepaid and other current assets” and “Other current liabilities.”

     As of September 30, 2010, we had the following outstanding foreign exchange forward contracts, all of which have original maturities of one month and mature on October 29, 2010:

In millions		Notional
Sell euro for US dollar		€	62.0
Buy euro for US dollar		€	1.1
Buy euro for Bristish pound		€	4.5
Sell GBP for US dollar		£	2.3
Sell Canadian dollar for US dollar		C$	6.0
Sell Philippine peso for US dollar		PHP	247.0

     The net fair value of the contracts set forth above was a liability of $0.9 million at September 30, 2010.

15.

COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

     Fox River — Neenah, Wisconsin

     Background We have significant uncertainties associated with environmental claims arising out of the presence of polychlorinated biphenyls (“PCBs”) in sediments in the lower Fox River and in the Bay of Green Bay Wisconsin (“Site”). As part of the 1979 acquisition of the Bergstrom Paper Company we acquired a facility located at the Site (the “Neenah Facility”). In part, the Neenah Facility used wastepaper as a source of fiber. At no time did the Neenah Facility utilize PCBs in the pulp and paper making process, but discharges to the lower

Fox River from the Neenah Facility which may have contained PCBs from wastepaper may have occurred from 1954 to the late 1970s. Any PCBs that our Neenah Facility discharged into the lower Fox River resulted from the presence of PCBs in NCR^®-brand carbonless copy paper in the wastepaper that was recycled at the Neenah Facility. We closed the Neenah Facility in June 2006.

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

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

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

state in a judicially or administratively approved settlement agreement obtains protection from contribution claims for matters addressed in the settlement.

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

     As is discussed more fully below in this Note 15, the current state of our exposure to liability for contamination at the Site is as follows:

     (a) EPA has ordered us and other parties, including Appleton Papers Inc. (“API”) and NCR Corporation (“NCR”) to implement the remedy in OU2-5;

     (b) a federal district court has ruled that neither API nor NCR may recover in contribution from either us or any other of the paper recyclers ordered by EPA to clean up the Site any costs of response or any NRDs that either of them incur or pay in connection with the Site; NCR and API have stated their intention to appeal this ruling;

     (c) we have completed the remedy in OU1 in conjunction with WTM I Company (“WTM I”) and with some financial contribution from Menasha Corporation (“Menasha”) and API/NCR; we have also made payments toward NRDs and other costs of response at the site;

     (d) the same federal district court is currently considering whether we and WTM I have a right to recover those response costs and payments of NRDs described in subsection (c) above from NCR and API; and

     (e) the United States and the State of Wisconsin have commenced a lawsuit against us and eleven other parties in federal district court seeking to recover from each of the defendants, jointly and severally, all of the governments’ past costs of response, a declaration as to liability for all of the governments’ future costs of response, and compensation for natural resource damages, as well as injunctive relief to require remedial action with respect to Operable Units 2-5 as called for by the order referred to in subsection (a) above.

     Cleanup Decisions. Our liability exposure depends importantly on the decisions made by EPA and the

Wisconsin Department of Natural Resources (“WDNR”) as to how the Site will be cleaned up and consequently the costs and timing of those response actions. The nature of the response actions has been highly controversial. EPA issued a record of decision (“ROD”) selecting response actions for OU1 and OU2 in December 2002. EPA issued a separate ROD selecting response actions for OU3, OU4, and OU5 in March 2004 and in June 2007.

     EPA amended the RODs for OUs 2-5 in June 2007 to require less dredging and more capping and covering of sediments containing PCBs. The governments have concluded that these methods will result in a reduction in the costs for this portion of the cleanup. Others disagree. Likewise, in June 2008, EPA also amended the ROD for OU1.

     The governments’ lawsuit may allow for litigation over the selection of the remedy. If that issue were to be litigated, and if we were to be successful in modifying the remedy, our exposure could be reduced materially.

     NRD Assessment. The Natural Resources Trustees have engaged in work to assess NRDs at and arising from the Site. The United States and the State of Wisconsin allege in their lawsuit that various documents prepared by the Trustees taken together constitute a required NRD Assessment under the regulations. We disagree. The Trustees’ 2009 estimate of NRDs and associated costs ranges from $287 million to $423 million, some of which has already been satisfied. With specific respect to NRD claims, we and others contended that the Trustees’ claims are barred or otherwise defendable on a number of legal bases including that the applicable three year statute of limitations has expired.

     Past Costs Demand. By letter dated January 15, 2009, EPA demanded that we and six other parties reimburse EPA for approximately $17.6 million in costs that EPA claims it incurred as necessary costs of response not subject to any other agreement in this matter. In response, we and the other parties which were contacted notified the EPA that the supporting documentation provided by EPA did not allow us fully to evaluate this demand and we requested that the EPA provide additional supporting information for the claimed costs. EPA has not yet responded to this request. The governments allege in their lawsuit that the United States has incurred more than $16.5 million in unreimbursed response costs for the Site and that the State of Wisconsin has incurred certain other, unspecified, unreimbursed responses costs. Accordingly we are unable to estimate reasonably our potential liability for these costs.

     Work Under Agreements, Orders, and Decrees. As we mention above, our exposure to liability depends on the amount of work done, costs incurred, and damages

paid both by us and by others. The procedural context of any work done, costs incurred, and damages paid also impact our ultimate exposure.

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

     Notably, in April 2004, the United States District Court for the Eastern District of Wisconsin entered a consent decree (“OU1 Consent Decree”) in United States v. P.H. Glatfelter Co., No. 2:03-cv-949, under which we and WTM I Corp. have been implementing the remedy in OU1. We have divided costs evenly, but have received a $7 million contribution from Menasha Corp. and a $10 million contribution that the United States taken from a separate settlement in United States v. Appleton Papers Inc., No. 2:01-cv-816, that obligated NCR and Appleton Papers to contribute to certain NRD projects. In June 2008, the parties entered into an amendment to the OU1 Consent Decree (“Amended OU1 Consent Decree”). This amendment allowed for implementation of the amended remedy for OU1 and committed us and WTM I to implement that remedy without a cost limitation on that commitment. We and WTM I have substantially completed the amended remedy for OU1 other than monitoring and maintenance.

     Further, in November 2007, EPA issued an administrative order for remedial action (“UAO”) to Appleton Papers Inc., CBC Coating, Inc. (formerly known as Riverside Paper Corporation), Georgia-Pacific Consumer Products, L.P. (formerly known as Fort James Operating Company), Menasha Corporation, NCR Corporation, us, U.S. Paper Mills Corp., and WTM I Company directing those respondents to implement the amended remedy in OU2-5. Shortly following issuance of the UAO, Appleton Papers Inc. and NCR Corp. commenced litigation against us and others, as described below. Accordingly, we have no vehicle for complying with the UAO’s overall requirements other than answering a judgment in the litigation, and we have so informed EPA. However, in February 2009, the EPA sent a demand to each of the respondents on the UAO other than WTM I seeking payment of the government’s oversight costs under the UAO for the period from November 2007 through August 2008. In February 2009, we notified the EPA that we believed that its demand could prove distracting to litigation commenced by Appleton Papers and NCR against the other UAO

respondents. In order to remove this distraction, and in the spirit of cooperation, we stated that we would satisfy the EPA’s demand, an amount which was insignificant, in full. We paid this amount. Others have satisfied subsequent, insignificant demands by EPA for oversight costs.

     Cost estimates. Estimates of the Site remediation change over time as we, or others, gain additional data and experience at the Site. In addition, disagreement exists over the likely costs for some of this work. On February 26, 2010, EPA issued an “explanation of Significant Differences”—a document explaining changes to a remedy (“ESD”), including changes in cost, that are significant but which do not require the issuance of a new Record of Decision. In that ESD, EPA estimated the cost for the OU 2-5 remedy to be $701 million. EPA estimates costs as a range, in this case from $491 million to $1.05 billion. This estimate is slightly different than, but not inconsistent with, an estimate of the total cost for remediation of the Site that the Governments prepared for purposes of justifying a recent “de minimis” settlement with certain parties whose liability at the Site the United States and the Governments believe to be insignificant. That settlement was approved by the federal court in Green Bay on December 16, 2009. In their brief in support of that settlement, the Governments estimated the total past costs incurred at the Site – including the OU1 project — to be $200 million. In addition, they estimated the cost of implementing the remedy set forth in the amended ROD for OU2-5 (the downstream portions of the Site) to total between $600 million and $700 million exclusive of amounts already spent. For purposes of the settlement, the Governments took the high end of that range and applied a 50% contingency to arrive at a cost estimate for future cleanup work of $1.05 billion. Based upon independent estimates commissioned by various potentially responsible parties, we have no reason to disagree with the Governments’ assertion that future costs to implement the amended remedy for OU2-5 are likely to fall between $700 million and $1.05 billion.

     NRDs. The Trustees have claimed that we are jointly and severally responsible for NRDs with a value between $176 million and $333 million. In their recently filed brief, they further claim that this range should be inflated to 2009 dollars and then certain unreimbursed past assessment costs should be added, so that the range of their claim would be $287 million to $423 million. We deny (a) liability for most of these NRDs, (b) that if anyone is liable, that we are jointly and severally liable for the full amount; and (c) that the Trustees can pursue this claim at this late date as the limitations period for NRD claims is three years from discovery.

     Allocation. Since 1991, various potentially responsible parties have, without success, attempted to

agree on a binding, final, allocation of costs and damages among themselves. All costs that they have incurred to date have been incurred individually, or under interim, nonbinding allocations. However, the consent decree in United States v. P. H. Glatfelter Co. affords us and WTM I contribution protection for claims seeking to reallocate costs of implementing the OU1 remedy, and Fort James Operating Co. (now Georgia-Pacific) has certain rights under its consent decree. Otherwise, the parties have not litigated their internal allocation with us except as described below.

     NCR and Appleton Papers Inc. commenced litigation in the United States District Court for the Eastern District of Wisconsin captioned Appleton Papers Inc. v. George A. Whiting Paper Co., No. 2:08-cv-16, seeking to reallocate costs and damages allegedly incurred or paid or to be incurred or paid by NCR or Appleton Papers (the “Whiting Litigation”). They have to date joined a number of defendants, dismissed some of those, filed a parallel action, and consolidated the two cases. At present, the case involves allocation claims among the two plaintiffs and 28 defendants: us, George A. Whiting Paper Co., Menasha Corporation, Green Bay Packaging Inc., International Paper Company, Leicht Transfer & Storage Company, Neenah Foundry Company, Newpage Wisconsin System Inc., The Procter & Gamble Paper Products Company, Wisconsin Public Service Corp., the Cities of Appleton, De Pere, and Green Bay, Brown County, Green Bay Metropolitan Sewerage District, Heart of the Valley Metropolitan Sewerage District, Neenah-Menasha Sewerage Commission, WTM I Company, U.S. Paper Mills Corporation, Georgia-Pacific Consumer Products LP, Georgia-Pacific LLC, Fort James Operating Company, CBC Coating Company, Inc., Fort James Corporation, Kimberly-Clark Corporation, LaFarge North America Inc., Union Pacific Railroad Company, and the United States Army Corps of Engineers. As the result of certain third-party claims, federal agencies other than the Corps of Engineers are also involved in this allocation.

     On December 16, 2009, the Court granted motions for summary judgment in our favor on the contribution claims brought by NCR and Appleton Papers Inc. in the Whiting litigation. The Court held that neither NCR nor Appleton Papers may seek contribution from us or other recyclers under CERCLA. The Court made no ruling as to any other allocation, the liability of NCR or Appleton Papers to us for costs we have incurred, or our liability to the governments or Trustees. NCR and Appleton Papers have stated their intention to appeal but an appeal is not yet timely because the Court has not entered a final judgment.

     As described above, we have counterclaims against NCR and Appleton Papers Inc. to recover the costs we have incurred and may later incur and the damages we

have paid and may later pay in connection with the Fox River site. Other defendants have similar claims. On January 20, 2010, the Court issued an order inviting submissions from the parties as to whether the counterclaims of the defendants, as well as certain additional claims, could be resolved without a trial within approximately six months. On April 3, 2010, we and others, including NCR and Appleton Papers Inc., filed separate motions for summary judgment on the counterclaims of the defendants. In the aggregate, the defendants’ motions seek a declaration that NCR and Appleton Papers, Inc. are liable to them for any future costs defendants may come to pay and seek recovery of just less than $210 million in past costs, plus interest on some of the recovery. Our summary judgment motion sought recovery of $58.6 million in past costs and the declaration. The Court has not yet ruled on any of the separate motions for summary judgment on the counterclaims of the defendants.

     As noted above, on December 16, 2009, the Court approved a de minimis party consent decree (“Consent Decree”) settlement among the United States, the State of Wisconsin, and eleven defendants resolving those defendants’ liability for this site. The eleven settling defendants are: George A. Whiting Paper Co.; Green Bay Metropolitan Sewerage District; Green Bay Packaging, Inc.; Heart of the Valley Metropolitan Sewerage District; International Paper Co.; LaFarge North America Inc.; Leicht Transfer and Storage Co.; Neenah Foundry Co.; Procter & Gamble Paper Products Co.; Union Pacific Railroad Co.; and Wisconsin Public Service Corp. (collectively, the “Eleven Settling Defendants”). The Consent Decree reflects the conclusion by the United States and the State of Wisconsin that each of the Eleven Settling Defendants qualifies for treatment as a de minimis party under CERCLA. The Consent Decree requires the Settling Defendants to make a collective payment of $1,875,000. Those Eleven Settling Defendants have moved for judgment in the Whiting Litigation based upon the protections in the Consent Decree. In addition, the Governments on September 25, 2009, lodged a separate consent decree in the same case that would, if entered, resolve the liabilities of the City of De Pere. Under that consent decree, the City of De Pere would pay $210,000 to resolve its liability at the Site. That Consent Decree has since been approved and entered. API and NCR have appealed those two Consent Decrees to the Court of Appeals for the Seventh Circuit at Docket No. 10-2480.

     We contend that we are not jointly and severally liable for costs or damages arising from the presence of PCBs downstream of OU1. In addition, we contend that NCR or other sources of NCR^®-brand carbonless copy paper that our Neenah Mill recycled bear most of the

responsibility for costs and damages arising from the presence of PCBs in OU1.

     Other Litigation. On October 14, 2010, the United States and the State of Wisconsin filed an action in the United States District Court for the Eastern District of Wisconsin captioned United States v. NCR Corp., No. 1:10-cv-910-WCG (the “Government Action”), against twelve parties, including us. The Government Action seeks to recover from each of the defendants, jointly and severally, all of the governments’ past costs of response, a declaration as to liability for all of the governments’ future costs of response, and compensation for natural resource damages, as well as injunctive relief to require remedial action with respect to Operable Units 2-5. Although we have not filed our answer to the Government Action and are in the process of reviewing the Government Action, we continue to believe that we have substantial defenses to the claims included in the Government Action, as well as claims for contribution and counterclaims against other parties including the United States.

     Simultaneously with their filing of the Government Action, the United States and Wisconsin provided notice of a proposed settlement of their claims against one of the defendants, Georgia-Pacific Consumer Products LP. The terms of this proposed settlement were set forth in a proposed consent decree. The United States will not move for entry of the consent decree until it has published the proposed consent decree and received public comments on the proposed consent decree. If the United States were to move for entry of the consent decree and were the court to enter the decree as a judgment, that settlement would limit the Company’s ability, or any other party’s ability, to seek contribution from Georgia-Pacific in this matter. The proposed consent decree calls for payment of $6 million plus interest to the Wisconsin Department of Natural Resources and $1 million plus interest to the EPA’s Hazardous Substance Response Superfund. Payments made by Georgia-Pacific under that consent decree should offset the governments’ recoveries against any other party dollar-for-dollar.

     Reserves for the Fox River Site. As of September 30, 2010, our reserve for our claimed liability at the Fox River, including our remediation and ongoing monitoring obligations at OU1, our claimed liability for the remediation of OU2-5, our claimed liability for NRDs associated with PCB contamination at the Site and all pending, threatened or asserted and unasserted claims against us relating to PCB contamination at the Site totaled $17.0 million. No additional amounts were accrued during 2010 or 2009. Of our total reserve for the Fox River, $0.6 million is recorded in the accompanying consolidated balance sheets under the caption “Environmental liabilities” and the remaining is recorded under the caption “Other long term liabilities.”

     Under the OU1 Consent Decree which was signed in 2004, we contributed $27.0 million to past and future costs and NRDs. Since the initial funding, we contributed an additional total of $15.5 million pursuant to various supplements or amendments to the OU1 Consent Decree. No payments were required to be made since January 2009. WTM I has contributed parallel amounts. These funds were placed into an escrow account from which we and WTM I pay for work on the project. As required by the Amended Consent Decree, in a quarterly report submitted to EPA in November 2009, we and WTM I concluded that the amounts in the escrow account would be sufficient to pay for the estimated cost of the work at OU1, including operation, maintenance, and other post-construction expenses. However, there can be no assurance that these amounts will in fact suffice. WTM I has filed a bankruptcy petition in the Bankruptcy Court in Richmond. There can be no assurance should additional amounts be required to complete the project that WTM I will be able to fulfill its obligation to pay half the additional cost.

     We believe that we have strong defenses to liability for remediation of OU2-5 including the existence of ample data that indicate that PCBs did not leave OU1 in concentrations that could have caused or contributed to the need for cleanup in OU2-5. Others, including the EPA and other PRPs, disagree with us and, as a result, the EPA has issued a UAO to us and to others to perform the OU2-5 work, and filed the Government Action seeking, in part, the same relief. NCR and Appleton Papers commenced the Whiting Litigation and joined us and others as defendants, but did not prevail. Additional claims are likely to be filed in the litigation associated with the remediation of the Site.

     Even if we are not successful in establishing that we are not liable for the remediation of OU2-5, we do not believe that we would be allocated a significant percentage share of liability in any equitable allocation of the remediation costs and other potential damages associated with OU2–5. The accompanying consolidated financial statements do not include reserves for defense costs for the Whiting Litigation, the Government Action, or any future defense costs related to our involvement at the Fox River which could be significant.

     In setting our reserve for the Fox River, we have assessed our legal defenses, including our successful defenses to the allegations made in the Whiting Litigation, and assumed that we will not bear the entire cost of remediation and damages to the exclusion of other known PRPs at the Site who are also potentially jointly and severally liable. The existence and ability of other PRPs to participate has also been taken into account in setting our reserve, and is generally based on our evaluation of recent publicly available financial information on each PRP and

any known insurance, indemnity or cost sharing agreements between PRPs and third parties. In addition, our assessment is based upon the magnitude, nature, location and circumstances associated with the various discharges of PCBs to the river and the relationship of those discharges to identified contamination. We will continue to evaluate our exposure and the level of our reserves, including, but not limited to, our potential share of the costs and NRDs, if any, associated with the Fox River site.

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

     Other Information. Based in part upon the Court’s December 16, 2009 ruling and the Court’s January 10, 2010 order in the Whiting Litigation, we continue to believe that a volumetric allocation would not constitute an equitable allocation of the potential liability for the contamination at the Fox River. We contend that other factors, such as the location of contamination, the location of discharge, and a party’s role in causing discharge, must be considered in order for the allocation to be equitable.

     The Wisconsin DNR and FWS have each published studies, the latter in draft form, estimating the amount of PCBs discharged by each identified PRP’s facility to the lower Fox River and the Bay of Green Bay. These reports estimate the Neenah Facility’s share of the volumetric discharge to be as high as 27%. We do not believe the volumetric estimates used in these studies are accurate because (a) the studies themselves disclose that they are not accurate and (b) the volumetric estimates contained in the studies are based on assumptions that are unsupported by existing data on the Site. We believe that the Neenah Facility’s volumetric contribution is significantly lower than the estimates set forth in these studies.

     We previously entered into interim cost-sharing agreements with four of the other PRPs, which provided for those PRPs to share certain costs relating to scientific studies of PCBs discharged at the Site (“Interim Cost Sharing Agreements”). These Interim Cost Sharing Agreements do not establish the final allocation of remediation costs incurred at the Site. Based upon our evaluation of the Court’s December 16, 2009 ruling in the Whiting Litigation as well as the volume, nature and location of the various discharges of PCBs at the Site and the relationship of those discharges to identified

contamination, we believe our allocable share of liability at the Site is less than our share of costs under the Interim Cost Sharing Agreements.

     Range of Reasonably Possible Outcomes. Our analysis of the range of reasonably possible outcomes is derived from all available information, including but not limited to official documents such as RODs, discussions with the United States and other PRPs, as well as legal counsel and engineering consultants. Based on our analysis of the current RODs and cost estimates for work to be performed at the Site, we believe that it is reasonably possible that our costs associated with the Fox River matter may exceed our cost estimates and the aggregate amounts accrued for the Fox River matter by amounts that are insignificant or that could range up to $265 million over a period that is currently undeterminable but that could range beyond 15 years. We believe that the likelihood of an outcome in the upper end of the monetary range is significantly less than other possible outcomes within the range and that the possibility of an outcome in excess of the upper end of the monetary range is remote. The summary judgment in our favor in the Whiting Litigation, if sustained on appeal, suggests that outcomes in the upper end of the monetary range have become somewhat less probable, while increases in cost estimates for some of the work may militate in the opposite direction.

     Summary. Our current assessment is that we will be able to manage this environmental matter without a long-term, material adverse impact on the Company. This matter could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial position, liquidity and/or results of operations or could result in a default under our loan covenants. Moreover, there can be no assurance that our reserves will be adequate to provide for future obligations related to this matter, that our share of costs and/or damages will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations. If we are not successful in obtaining acknowledgment that the remedial work at OU1 has been substantially completed and/or should a court grant the United States relief which requires us either to perform directly or to contribute significant amounts towards remedial action at Operable Units 2-5 or to natural resource damages, those developments could have a material adverse effect on our consolidated financial position, liquidity and results of operations and might result in a default under our loan covenants.

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

     Management evaluates results of operations of the business units before non-cash net pension income or expense, acquisition and integration related charges, unusual items, certain corporate level costs, and the effects of asset dispositions. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of business units and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” This presentation is aligned with the management and operating structure of our company. It is also on this basis that our performance is evaluated internally and by our Board of Directors.