UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington,
D.C. 20549  
 FORM 10-Q x
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR
  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the
quarterly period ended September 27, 2003 o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR
  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For
the transition period
from                     to Commission
file number: 1-14330  
 POLYMER GROUP, INC. (Exact name of registrant
as specified in its charter) Delaware(State or other jurisdiction of
  incorporation or organization)
  57-1003983(I.R.S. Employer Identification No.)4055 Faber Place Drive, Suite 201
  North Charleston, South Carolina(Address of principal executive offices)
  29405(Zip Code)  Registrants telephone
number, including area code: (843) 329-5151  
 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 periods that the registrant was required to
file such reports), and (2) has been subject to the filing requirements
for the past 90 days. Yes x      No o Indicate by check mark
whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act) Yeso      No x Indicate by check mark
whether the registrant has filed all documents and reports required to be filed
by Securities 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yesx  
   No o Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date. On November 7,
2003 there were 8,204,667 shares of Class A common stock,
399,978 shares of Class B common stock and 48,649 shares of Class C
common stock outstanding. No shares of Class D or Class E were
outstanding as of such date. The par value for each class of common shares is
$.01 per share.


---

POLYMER
GROUP, INC. INDEX
TO FORM 10-Q PagePart I.
  Financial Information
  3Item 1.
  Financial
  Statements
  3Item 2.
  Managements
  Discussion and Analysis of Financial Condition and Results of Operations
  30Item 3.
  Quantitative
  and Qualitative Disclosures About Market Risk
  42Part II.
  Other Information
  44Signatures
  45Exhibit Index
  46  2


---

ITEM 1.   FINANCIAL
STATEMENTS POLYMER
GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data) Successor
  
  PredecessorSeptember 27,
  2003
  
  December 28,
  2002(Unaudited)ASSETSCurrent assets:Cash and equivalents
  
  
  $
  29,622
  
  
  
  $
  45,901Short-term investments
  
  
  
  
  
  
  12,246Accounts receivable, net
  
  
  118,288
  
  
  
  117,420Inventories
  
  
  89,439
  
  
  
  115,696Other
  
  
  34,466
  
  
  
  45,236Total current assets
  
  
  271,815
  
  
  
  336,499Property, plant and
  equipment
  
  
  375,777
  
  
  
  429,528Intangibles and loan
  acquisition costs, net
  
  
  32,061
  
  
  
  33,357Other
  
  
  11,975
  
  
  
  11,935Total assets
  
  
  $
  691,628
  
  
  
  $
  811,319LIABILITIES
  AND SHAREHOLDERS EQUITY (DEFICIT)Liabilities Not Subject to Compromise:Current liabilities:Accounts payable
  
  
  $
  40,092
  
  
  
  $
  46,068Accrued liabilities and
  other
  
  
  61,962
  
  
  
  45,376Short-term borrowings
  
  
  9,481
  
  
  
  534Current portion of
  long-term debt
  
  
  21,488
  
  
  
  24,616Total current liabilities
  
  
  133,023
  
  
  
  116,594Long-term debt, less
  current portion
  
  
  453,981
  
  
  
  478,224Other non-current
  liabilities
  
  
  50,344
  
  
  
  45,309Total liabilities not
  subject to compromise
  
  
  637,348
  
  
  
  640,127Liabilities Subject to
  Compromise
  
  
  
  
  
  
  637,106Total liabilities
  
  
  637,348
  
  
  
  1,277,233Shareholders equity (deficit):Successor Class A
  common stock$.01 par value, 39,200,000 shares authorized, 8,162,729 shares
  issued and outstanding at September 27, 2003
  
  
  81
  
  
  
  Successor Class B
  common stock$.01 par value, 800,000 shares authorized, 399,978 shares issued
  and outstanding at September 27, 2003
  
  
  4
  
  
  
  Successor Class C
  common stock$.01 par value, 118,453 shares authorized, 90,587 shares issued
  and outstanding at September 27, 2003
  
  
  1
  
  
  
  Successor Class D
  common stock$.01 par value, 498,688 shares authorized, 0 shares issued
  and outstanding at September 27, 2003
  
  
  
  
  
  
  Successor Class E
  common stock$.01 par value, 523,557 shares authorized, 0 shares issued
  and outstanding at September 27, 2003
  
  
  
  
  
  
  Successor preferred
  stock$.01 par value, 173,000 shares authorized, 0 shares issued and
  outstanding at September 27, 2003
  
  
  
  
  
  
  Predecessor series
  preferred stock$.01 par value, 10,000,000 shares authorized, 0 shares issued
  and outstanding at December 28, 2002
  
  
  
  
  
  
  Predecessor common
  stock$.01 par value, 100,000,000 shares authorized, 32,004,200 shares issued
  and outstanding at December 28, 2002
  
  
  
  
  
  
  320Predecessor non-voting
  convertible common stock$.01 par value, 3,000,000 shares authorized, 0
  shares issued and outstanding at December 28, 2002
  
  
  
  
  
  
  Additional paid in
  capital
  
  
  73,304
  
  
  
  243,722(Deficit)
  
  
  (20,835
  )
  
  
  (661,572
  )Accumulated other
  comprehensive income (loss)
  
  
  1,725
  
  
  
  (48,384
  )54,280
  
  
  
  (465,914
  )Total liabilities and shareholders equity (deficit)
  
  
  $
  691,628
  
  
  
  $
  811,319  See Accompanying Notes. 3


---

POLYMER
GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September 27, 2003 and September 28, 2002
(In Thousands, Except Per Share Data) Successor
  
  PredecessorThree Months
  Ended
  September 27, 2003
  
  Three Months
  Ended
  September 28, 2002Net sales
  
  
  $
  185,063
  
  
  
  $
  184,048Cost of goods
  sold
  
  
  151,485
  
  
  
  153,842Gross profit
  
  
  33,578
  
  
  
  30,206Selling, general and administrative expenses
  
  
  21,641
  
  
  
  24,712Special charges
  
  
  1,605
  
  
  
  Plant realignment
  
  
  1,429
  
  
  
  356Operating income
  
  
  8,903
  
  
  
  5,138Other (income)
  expense:Interest expense, net (contractual interest of
  $27,835 for the three months ended September 28, 2002)
  
  
  14,409
  
  
  
  13,511Foreign currency and other
  
  
  3,037
  
  
  
  6,43317,446
  
  
  
  19,944Loss before
  reorganization items and income taxes
  
  
  (8,543
  )
  
  
  (14,806
  )Reorganization
  items:Chapter 11 reorganization expenses
  
  
  
  
  
  
  6,124
  
  
  
  6,124Loss before income taxes
  
  
  (8,543
  )
  
  
  (20,930
  )Income tax (benefit) expense
  
  
  (824
  )
  
  
  1,668Net loss
  
  
  $
  (7,719
  )
  
  
  $
  (22,598
  )Net loss per
  common sharebasic and dilutedAverage shares outstanding
  
  
  8,653
  
  
  
  32,004Net loss
  
  
  $
  (0.89
  )
  
  
  $
  (0.71
  )  See Accompanying Notes. 4


---

POLYMER
GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Seven Months Ended September 27, 2003,Two Months Ended March 1, 2003 and
Nine Months Ended September 28, 2002
(In Thousands, Except Per Share Data) Successor
  
  PredecessorSeven Months
  Ended
  September 27, 2003
  
  Two MonthsEnded
  March 1, 2003
  
  (Restated)*
  Nine Months
  Ended
  September 29, 2002Net sales
  
  
  $
  447,887
  
  
  
  $
  132,909
  
  
  
  $
  576,009Cost of goods sold
  
  
  368,773
  
  
  
  111,075
  
  
  
  480,453Gross profit
  
  
  79,114
  
  
  
  21,834
  
  
  
  95,556Selling, general
  and administrative expenses
  
  
  54,788
  
  
  
  16,218
  
  
  
  78,245Special charges
  
  
  1,605
  
  
  
  
  
  
  
  3,634Plant realignment
  
  
  4,596
  
  
  
  4
  
  
  
  913Operating income
  
  
  18,125
  
  
  
  5,612
  
  
  
  12,764Other (income)
  expense:Interest expense, net (contractual interest of
  $20,306 for the two months ended March 1, 2003 and $81,417 for the nine
  months ended September 28, 2002)
  
  
  33,131
  
  
  
  10,665
  
  
  
  57,198Investment (gain) loss, net
  
  
  (3
  )
  
  
  (291
  )
  
  
  (264
  )Foreign currency and other
  
  
  2,930
  
  
  
  1,875
  
  
  
  14,67136,058
  
  
  
  12,249
  
  
  
  71,605Loss before
  reorganization items, income taxes and cumulative effect of change in
  accounting principle
  
  
  (17,933
  )
  
  
  (6,637
  )
  
  
  (58,841
  )Reorganization items:Gain on cancellation of prepetition indebtedness
  
  
  
  
  
  
  (619,913
  )
  
  
  Fresh start adjustments
  
  
  
  
  
  
  47,460
  
  
  
  Chapter 11 reorganization expenses
  
  
  
  
  
  
  10,448
  
  
  
  7,009Other
  
  
  
  
  
  
  19,395
  
  
  
  
  
  
  
  (542,610
  )
  
  
  7,009(Loss) income
  before income taxes and cumulative effect of change in accounting principle
  
  
  (17,933
  )
  
  
  535,973
  
  
  
  (65,850
  )Income taxes
  
  
  2,902
  
  
  
  1,692
  
  
  
  4,090(Loss) income
  before cumulative effect of change in accounting principle
  
  
  (20,835
  )
  
  
  534,281
  
  
  
  (69,940
  )Cumulative effect
  of change in accounting principle
  
  
  
  
  
  
  
  
  
  
  (12,774
  )Net (loss) income
  
  
  $
  (20,835
  )
  
  
  $
  534,281
  
  
  
  $
  (82,714
  )Net (loss) income per
  common sharebasic and dilutedAverage shares outstanding
  
  
  8,649
  
  
  
  32,004
  
  
  
  32,004(Loss) income
  before cumulative effect of change in accounting principle
  
  
  $
  (2.41
  )
  
  
  $
  16.69
  
  
  
  $
  (2.18
  )Cumulative effect
  of change in accounting principle
  
  
  
  
  
  
  
  
  
  
  (0.40
  )Net (loss) income
  
  
  $
  (2.41
  )
  
  
  $
  16.69
  
  
  
  $
  (2.58
  )  
 *As part of the Companys adoption of
SFAS No. 142, the Company completed a transitional impairment test in
the fourth quarter of 2002, as permitted by the standard. The Companys
transitional impairment test resulted in a charge of $12.8 million which
was reported as a cumulative effect of a change in accounting principle in the
Companys annual results for fiscal 2002 and has been allocated to the first
fiscal quarter of 2002 for reporting purposes. See Accompanying Notes. 5


---

POLYMER
GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (Unaudited)
For the Two Months Ended March 1, 2003 and Seven Months Ended September 27,
2003
(In Thousands, Except Share Data) AccumulatedOtherAdditional
  
  Retained
  
  ComprehensiveCommon
  
  Paid-in
  
  Earnings/
  
  Income/
  
  
  
  
  ComprehensiveStock
  
  Capital
  
  (Deficit)
  
  (Loss)
  
  Total
  
  
  Income/(Loss)Predecessor:BalanceDecember 28, 2002
  
  
  $
  320
  
  
  $
  243,722
  
  $
  (661,572
  )
  
  $
  (48,384
  )
  
  $
  (465,914
  )Comprehensive (loss) for the year ended
  December 28, 2002
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  $
  (417,052
  )Net loss excluding effects of plan of reorganization
  and fresh start adjustments
  
  
  
  
  
  
  
  (8,329
  )
  
  
  
  
  (8,329
  )
  
  
  $
  (8,329
  )Currency translation adjustment
  
  
  
  
  
  
  
  
  
  
  6,784
  
  
  6,784
  
  
  
  6,784Marketable securities valuation
  
  
  
  
  
  
  
  
  
  
  (655
  )
  
  (655
  )
  
  
  (655
  )Minimum pension liability
  
  
  
  
  
  
  
  
  
  
  (460
  )
  
  (460
  )
  
  
  (460
  )Effect of plan of
  reorganization and fresh start adjustments:Cancellation of old common stock
  
  
  (320
  )
  
  (243,722
  )
  
  
  
  
  
  
  (244,042
  )
  
  
  Issuance of new common stock
  
  
  86
  
  
  73,304
  
  
  
  
  
  
  
  73,390
  
  
  
  Other fresh start adjustments
  
  
  
  
  
  
  
  669,901
  
  
  42,715
  
  
  712,616
  
  
  
  Comprehensive
  (loss) for the two months ended March 1, 2003
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  $
  (2,660
  )Successor:BalanceMarch 1, 2003
  
  
  86
  
  
  73,304
  
  
  
  
  
  
  
  73,390Net loss
  
  
  
  
  
  
  
  (20,835
  )
  
  
  
  
  (20,835
  )
  
  
  $
  (20,835
  )Currency translation adjustment
  
  
  
  
  
  
  
  
  
  
  1,725
  
  
  1,725
  
  
  
  1,725BalanceSeptember 27, 2003
  
  
  $
  86
  
  
  $
  73,304
  
  $
  (20,835
  )
  
  $
  1,725
  
  
  $
  54,280Comprehensive
  income (loss) for the seven months ended September 27, 2003
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  $
  (19,110
  )  See Accompanying Notes. 6


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POLYMER
GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(In Thousands) Successor
  
  PredecessorSeven Months
  Ended
  September 27, 2003
  
  Two Months
  Ended
  March 1, 2003
  
  (Restated)
  Nine Months
  Ended
  September 28, 2002Operating ActivitiesNet income (loss)
  
  
  $
  (20,835
  )
  
  
  $
  534,281
  
  
  
  $
  (82,714
  )Adjustments to
  reconcile net income (loss) to net cash provided by (used in) operating
  activities:Cumulative effect of change in accounting principle
  
  
  
  
  
  
  
  
  
  
  12,774Gain on cancellation of prepetition indebtedness
  
  
  
  
  
  
  (619,913
  )
  
  
  Fresh start adjustments
  
  
  
  
  
  
  50,579
  
  
  
  Asset impairment
  
  
  1,605
  
  
  
  
  
  
  
  Depreciation and amortization
  
  
  27,789
  
  
  
  7,398
  
  
  
  47,686Foreign currency and other
  
  
  1,263
  
  
  
  1,875
  
  
  
  14,407Changes in
  operating assets and liabilities, net of effects of fresh start adjustments:Accounts receivable
  
  
  7,994
  
  
  
  (8,377
  )
  
  
  4,304Inventories
  
  
  20,670
  
  
  
  (1,052
  )
  
  
  9,681Accounts payable and accrued expenses
  
  
  (16,196
  )
  
  
  10,019
  
  
  
  29,429Other, net
  
  
  (417
  )
  
  
  12,289
  
  
  
  667Net cash provided by (used in) operating activities
  
  
  21,873
  
  
  
  (12,901
  )
  
  
  36,234Investing
  ActivitiesPurchases of property, plant and equipment
  
  
  (22,209
  )
  
  
  (3,062
  )
  
  
  (5,924
  )Proceeds from sale of marketable securities
  classified as available for sale
  
  
  
  
  
  
  11,867
  
  
  
  4,762Other
  
  
  2,766
  
  
  
  15
  
  
  
  (34
  )Net cash (used in) provided by investing activities
  
  
  (19,443
  )
  
  
  8,820
  
  
  
  (1,196
  )Financing
  ActivitiesProceeds from debt
  
  
  9,718
  
  
  
  535,310
  
  
  
  660Payments of debt
  
  
  (15,739
  )
  
  
  (549,031
  )
  
  
  (7,001
  )Additional debt in lieu of interest payments
  
  
  1,368
  
  
  
  
  
  
  
  Loan acquisition costs
  
  
  (821
  )
  
  
  (948
  )
  
  
  (7,736
  )Net cash (used in) financing activities
  
  
  (5,474
  )
  
  
  (14,669
  )
  
  
  (14,077
  )Effect of exchange rate change on cash
  
  
  883
  
  
  
  4,632
  
  
  
  10,370Net (decrease) increase in cash and equivalents
  
  
  (2,161
  )
  
  
  (14,118
  )
  
  
  31,331Cash and equivalents at beginning of period
  
  
  31,783
  
  
  
  45,901
  
  
  
  28,231Cash and
  equivalents at end of period
  
  
  $
  29,622
  
  
  
  $
  31,783
  
  
  
  $
  59,562  See Accompanying Notes. 7


---

Polymer Group, Inc. Notes to Consolidated Financial Statements Note 1.   Nature
of Operations Polymer Group, Inc. (the Company or Polymer
Group), a global manufacturer and marketer of nonwoven and oriented polyolefin
products, currently operates in two market segments that include consumer and
industrial & specialty. The Company undertook a comprehensive
financial and business restructuring beginning in fiscal 2001 that continued
into 2002. After extensive reorganization efforts, the Company and each of its
domestic subsidiaries filed voluntary petitions for Chapter 11 reorganization
under the United States Bankruptcy Code in the South Carolina Bankruptcy Court
on May 11, 2002 (April 25, 2002 as to Bonlam (S.C.), Inc.). In
its efforts to emerge from Chapter 11, the Company filed a Modified Plan (as
defined) on November 27, 2002 that was approved by the Bankruptcy Court on
January 16, 2003 and accordingly the Company emerged from Chapter 11
effective March 5, 2003 (the Effective Date). For accounting purposes
the Company recognized the emergence on March 1, 2003, which was the end
of the February accounting period. The Company adopted fresh-start
accounting as of March 1, 2003, and the Companys emergence from
Chapter 11 resulted in a new reporting entity. The reorganization value of
the Company has been allocated to the underlying assets based on their
respective fair values at the date of emergence. The initial allocation was
based on preliminary estimates and has been revised as more recent information
was received. The revisions are reflected in the amounts included herein. The
allocation will be further revised as additional information becomes available.
References to Predecessor refer to the old Polymer Group and its subsidiaries
on and prior to March 1, 2003 and references to Successor refer to
Polymer Group and its subsidiaries from March 2, 2003 through September 27,
2003, after giving effect to the implementation of fresh start reporting. The Modified Plan
generally resulted in the: (i) restructuring of the Companys bank debt by
entering into the Restructured Credit Facility (as defined): (ii) retirement
of in excess of $591.5 million of the Companys obligations under the
senior subordinated notes; (iii) payment in full of virtually all critical
business relations claims (as defined in the Modified Plan); and (iv) cancellation
of the Companys old common stock and issuance of new common stock and
warrants. The Company entered into Amendment No. 1 to the Restructured
Credit Facility (Amendment No. 1), effective as of March 29, 2003,
to provide the Company with additional flexibility in meeting the financial
covenants under terms of the Restructured Credit Facility. Note 2.   Significant
Accounting Policies Basis of
Presentation and Use of Estimates The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and include the accounts
of the Company and its subsidiaries. The preparation of such financial
statements assumes continuity of operations and realization of assets and
satisfaction of liabilities in the ordinary course of business. In accordance with
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
under the Bankruptcy Code, (SOP 90-7), all liabilities subject to compromise
have been segregated in the consolidated balance sheets and classified as
Liabilities Subject to Compromise, at the estimated amount of allowable claims.
Liabilities Not Subject to Compromise are separately classified as current and
non-current. Revenues, expenses, realized gains and losses, and provisions for
costs resulting from the reorganization are reported separately as
reorganization items in the consolidated statements of operations. 8 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 2.   Significant
Accounting Policies (Continued) The unaudited consolidated
financial statements of the Company do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The Condensed Consolidated Balance Sheets as of September 27,
2003 and December 28, 2002 contain summarized information; as a result,
such data does not include the same detail provided in the Companys Annual
Report on Form 10-K for the year ended December 28, 2002. In the
opinion of management, these unaudited consolidated financial statements
contain all adjustments of a normal recurring nature necessary for a fair
presentation. Operating results for the two months ended March 1, 2003 and
seven months ended September 27, 2003 are not necessarily indicative of
the results that may be expected for fiscal 2003. Because of the application of
fresh start accounting the results for the seven months ended September 27,
2003 are not comparable to the results for the two months ended March 1,
2003. All material intercompany
accounts are eliminated in consolidation. Certain amounts previously presented
in the consolidated financial statements for prior periods have been
reclassified to conform to current classification. The preparation of financial
statements in conformity with generally accepted accounting principles in the
United States requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual
amounts could differ from those estimates. Investments in 20% to 50% owned
affiliates are accounted for on the equity method. Revenue Recognition Revenue from product sales
is recognized at the time ownership of goods transfers to the customer and the
earnings process is complete in accordance with Staff Accounting Bulletin No. 101
(SAB 101). Accounts Receivable
and Concentration of Credit Risks The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information. The Company
identifies delinquent accounts based on specific customer terms and typically
does not accrue interest charges on customer balances. The recorded values are
separately maintained, even those balances that are fully reserved. Once
management determines that the receivables are not recoverable, the amounts are
removed from the financial records along with the corresponding reserve
balance. The allowance for doubtful accounts was approximately
$15.2 million and $12.9 million at September 27, 2003 and December 28,
2002, respectively, which management believes is adequate to provide for credit
loss in the normal course of business, as well as losses for customers who have
filed for protection under the bankruptcy law. 9 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 2.   Significant
Accounting Policies (Continued) Inventories Inventories
are stated at the lower of cost or market using the first-in, first-out method
of accounting and, as of September 27, 2003 and December 28, 2002 consist
of the following (in thousands): Successor
  September 27, 2003
  
  Predecessor
  December 28, 2002(Unaudited)Finished goods
  
  
  $
  39,097
  
  
  
  $
  56,126Work in process
  
  
  18,800
  
  
  
  17,515Raw materials
  
  
  31,542
  
  
  
  42,055$
  89,439
  
  
  
  $
  115,696  Long-Lived Assets The Company reviews the recoverability of the carrying
value of long-lived assets in accordance with Statement of Financial Accounting
Standard No.144 Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS No. 144) and Statement of Financial Accounting Standard No. 142
Goodwill and Other Intangible Assets (SFAS No. 142). As more
fully discussed in Note 6. Business Restructuring and Impairment, the
Company recorded a non-cash asset impairment charge in fiscal 2002 of
approximately $317.9 million related to the write-down of goodwill and
other intangibles and property, plant and equipment in accordance with
SFAS Nos. 142 and 144. As part of the Companys adoption of SFAS No. 142
the Company completed a transitional impairment test in the fourth quarter of
2002, as permitted by the standard. The Companys transitional impairment test
resulted in a charge of $12.8 million which was reported as a cumulative
effect of a change in accounting principle in the Companys annual results for
fiscal 2002 and has been allocated to the first fiscal quarter of 2002 for
reporting purposes. The following table reconciles reported results to
restated results for the nine months ended September 28, 2002 (in
thousands, except per share data): As Reported
  
  RestatedNet sales
  
  $
  576,009
  
  $
  576,009Gross profit
  
  95,556
  
  95,556Loss before
  cumulative effect of change in accounting principle
  
  (69,940
  )
  (69,940
  )Cumulative effect
  of change in accounting principle
  
  
  
  (12,774
  )Net loss
  
  $
  (69,940
  )
  $
  (82,714
  )Per share-basic and
  diluted:Loss before cumulative effect of change in
  accounting principle
  
  $
  (2.18
  )
  $
  (2.18
  )Cumulative effect of change in accounting principle
  
  
  
  (0.40
  )Net loss
  
  $
  (2.18
  )
  $
  (2.58
  )(Deficit)
  
  $
  (311,875
  )
  $
  (324,649
  )  10 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 2.  Significant Accounting Policies (Continued) Under
the provisions of SFAS No. 142, goodwill and indefinite lived intangible
assets are no longer amortized, but will be tested for impairment on at least
an annual basis. Amortization expense is presented in the following table (in
thousands): Three Months Ended
  
  Successor
  
  PredecessorSuccessor
  September 27,
  2003
  
  Predecessor
  September 28,
  2002
  
  Seven Months
  Ended
  September 27, 2003
  
  Two Months
  Ended
  March 1, 2003
  
  Nine Months
  Ended
  September 28, 2002Amortization of:Goodwill
  
  
  $
  
  
  
  
  $
  
  
  
  
  $
  
  
  
  
  $
  
  
  
  
  $
  Intangibles with
  finite lives
  
  
  1,640
  
  
  
  769
  
  
  
  3,424
  
  
  
  220
  
  
  
  2,319Amortization
  included in selling, general and administrative expense
  
  
  1,640
  
  
  
  769
  
  
  
  3,424
  
  
  
  220
  
  
  
  2,319Loan acquisition
  costs included in interest expense, net
  
  
  504
  
  
  
  2,043
  
  
  
  1,134
  
  
  
  1,426
  
  
  
  5,542Total amortization
  expense
  
  
  $
  2,144
  
  
  
  $
  2,812
  
  
  
  $
  4,558
  
  
  
  $
  1,646
  
  
  
  $
  7,861  Income Taxes Deferred tax liabilities
and assets are determined based upon temporary differences between the basis of
certain assets and liabilities for income tax and financial reporting purposes.
A valuation allowance is recognized if it is likely that some portion of a
deferred tax asset will not be realized in the future. Implementation of the
Modified Plan resulted in the Company recognizing cancellation of indebtedness
income (CODI). All of the CODI is excluded from taxable income. However, the
Company is required to reduce certain of its tax attributes, including net
operating loss carryforwards (NOLs) in the U.S., by an amount not to exceed
the CODI it realized. In general, tax attributes will be reduced at the close
of the 2003 tax year in the following order: (i) net operating loss
carryforwards; (ii) tax credits and capital loss carryforwards; and (iii) tax
basis in assets. The Company is currently in the process of determining the
amount of the corresponding reduction of its tax attributes and/or asset basis.
It is anticipated that the Companys net operating loss carryforwards will be
entirely eliminated in 2003 as a result of the reorganization under the
Modified Plan. Foreign Currency
Translation All assets and liabilities
in the balance sheets of foreign subsidiaries whose functional currency is
other than the U.S. dollar are translated at quarter-end exchange rates.
Translation gains and losses are not included in determining net income but are
accumulated as a separate component of shareholders equity. However,
subsidiaries considered to be operating in highly inflationary countries use
the U.S. dollar as the functional currency and translation gains and losses are
included in determining net income. In addition, foreign currency transaction
gains and losses are included in determining net income. Net Income (Loss)
Per Share Basic earnings per share exclude any dilutive effects
of options, warrants and convertible securities and are computed using the
number of common shares outstanding for the period. Diluted earnings per share
reflect the potential dilution that could occur if stock options were exercised
and is based upon the 11 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 2.   Significant
Accounting Policies (Continued) weighted average number of
common and common equivalent shares outstanding for the period. Shares under
option represent common equivalent shares. All stock options were cancelled
under the Modified Plan. The numerator for both basic and diluted earnings per
share is net income (loss) applicable to common stock. A separate table
illustrating the calculation of earnings per share has not been presented as
such amount can be derived from information contained in the statement of
operations. There were no reconciling items between basic loss per share and diluted
loss per share for the periods presented in this Quarterly Report on Form 10-Q. New Accounting
Standards On April 30, 2002, the FASB issued SFAS No. 145,
Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds
Statement No. 4, which required all gains and losses from extinguishments
of debt to be aggregated and, if material, classified as an extraordinary item,
net of related income tax effect. Upon adoption of SFAS No. 145, companies
are required to apply the criteria in Accounting Principle Board Opinion No. 30,
Reporting the Results of OperationsReporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions in determining the classification of gains and losses
resulting from the extinguishments of debt. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002. The provisions of SFAS No.145
have been adopted by the Company in 2003. The gain recognized by the Company on
the cancellation of indebtedness pursuant to the emergence from bankruptcy has
been classified as a reorganization item in the consolidated statements of
operations. On July 30, 2002, the FASB issued SFAS No 146, Accounting
for Costs Associated with Exit or Disposal Activities. SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. The provisions of SFAS No. 146 are effective for
exit or disposal activities that are initiated after December 31, 2002.
The Company has incurred, and will continue to, incur costs pursuant to
SFAS No. 146 during 2003 related to its continued business restructuring
efforts. Such costs are accounted for in accordance with the standard. Refer to
Note 6. Business Restructuring and Impairment. On December 31, 2002, the FASB issued SFAS No
148, Accounting for Stock-Based CompensationTransition and Disclosure. SFAS No. 148
amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for an entity that changes to the fair value
method of accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure provisions of SFAS No. 123
to require expanded and more prominent disclosure of the effects of an entitys
accounting policy with respect to stock-based employee compensation. SFAS No. 148
is effective for fiscal year 2003. SFAS No. 148 did not have an
impact on the Companys results of operations as a result of the cancellation
of all stock options under the 1996 Plan and 2001 Plan pursuant to the Modified
Plan. In January 2003, the FASB issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46).
This interpretation provides guidance on how to identify variable interest
entities and how an enterprise should assess its interest in a variable
interest entity in order to determine whether the entity should be consolidated.
This interpretation requires existing unconsolidated variable interest entities
to be consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among 12 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 2.   Significant
Accounting Policies (Continued) parties involved. Variable
interest entities that effectively disperse risks will not be consolidated
unless a single party holds an interest or combination of interest that
effectively recombines risks that were previously dispersed. This
interpretation applies immediately to variable interest entities created after January 31,
2003 or to variable interest entities in which an enterprise obtains an
interest after that date. For variable interest entities in which an enterprise
holds a variable interest that it acquired before February 1, 2003,
FIN 46 applies in the first fiscal year or interim period beginning after December 15,
2003. The Company is in the process of evaluating existing relationships that
may be deemed variable interest entities under the provisions of FIN 46.
The Company currently does not anticipate that the adoption of FIN 46 will
have a material effect on the Companys financial position or results of
operations. Note 3.   Chapter
11 Proceedings Description of
Chapter 11 Proceedings On May 11, 2002 (the Filing Date or Petition
Date), the Company and each of its domestic subsidiaries (together with the
Company, the Debtors) filed voluntary petitions for a pre-negotiated
reorganization (the Chapter 11 Filings or the Filings) under the Bankruptcy
Code in the South Carolina Bankruptcy Court. The Chapter 11 Filings were
jointly administered for procedural purposes only. The Companys direct and
indirect foreign subsidiaries and foreign joint venture entities did not file
petitions under Chapter 11 and were not the subject of any bankruptcy
proceedings. To facilitate stabilizing operations during the Chapter 11
Filings, the Debtors secured a $125 million commitment (the Commitment)
for debtor-in-possession financing (the DIP Facility) from a group of
financial institutions, some of which were Senior Secured Lenders (the DIP
Lenders) in order to provide the Debtors sufficient liquidity, if needed, to
operate during the Chapter 11 Filings. JPMorgan Chase Bank was the Agent for
the DIP Lenders under the DIP Facility. Pursuant to the DIP Facility, the
Debtors paid certain fees to the DIP Lenders, including a structuring fee of
0.85% of the Commitment, an underwriting fee of 1.65% of the Commitment as well
as certain other fees. At a hearing, which took
place on August 15, 2002, and concluded on August 20, 2002, the South
Carolina Bankruptcy Court approved the Companys Disclosure Statement relating
to the Plan of Reorganization, as amended and filed on August 21, 2002. Because
the committee of unsecured creditors objected to the Plan, the Plan as then
filed was not confirmed and thus the Company filed the Modified Plan as more
fully discussed in Note 4. Recapitalization. Chapter 11 Costs
and Financial Restructuring Expenses Prior to the Petition Date, the Company classified
expenses related to its financial restructuring efforts as Special charges in
the consolidated statement of operations. Such charges consisted of
professional and other related services that were expensed as incurred. After
the Petition Date, costs related to the Companys reorganization activities
were expensed as incurred and have been classified as Chapter 11
reorganization expenses in accordance with SOP 90-7. The cumulative amount of
costs and expenses related to the Companys financial restructuring efforts,
including bank financing fees, have been approximately $50.8 million. 13


---

Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 4.   Recapitalization On November 27, 2002, the Company filed the Joint
Amended Modified Plan of Reorganization (the Modified Plan). The Modified
Plan consisted of: (i) the restructuring of the Prepetition Credit
Facility, including a payment (the Secured Lender Payment) of
$50.0 million on the Effective Date to the agent for the benefit of the
Senior Secured Lenders under the Prepetition Credit Facility, which Secured
Lender Payment was exclusive of the proceeds (the Chicopee Sale Proceeds) of
the sale of the South Brunswick facility owned by Chicopee, Inc., (ii) payment
of 100% of the Chicopee Sale Proceeds to the agent for the benefit of the
Senior Secured Lenders, (iii) a minimum $5.0 million additional
prepayment out of existing cash-on-hand, (iv) the retirement of in excess
of $591.5 million of the Debtors obligations under the Senior
Subordinated Notes, wherein each Holder of the Senior Subordinated Notes and
other general unsecured creditors (other than claims of certain vendors who
supplied goods and services to the Debtors during the bankruptcy and with whom
the Debtors intended to do business after emerging from bankruptcy (Critical
Vendor Claims) and claims held by non-debtor subsidiaries of the Company (Intercompany
Claims) (together constituting the Class 4 Claims) had the right to
receive on, or as soon as practicable after the Effective Date, (x) its
pro rata share of Class A Common Stock in exchange for each $1,000 of its
allowed claim or (y) at the election of each holder who was a Qualified
Institutional Buyer (as defined in the Modified Plan and the 1933 Securities
Act), its pro rata share of Class C Common Stock, (v) the Critical
Vendor Claims and Intercompany Claims were not impaired, (vi) each holder
of an allowed Class 4 Claim that elected to receive Class A Common
Stock was given the option to take part in the new investment in the
Convertible Notes (the New Investment) by choosing to exercise its
subscription rights (the Subscription Rights) thereto, which New Investment
of $50 million was made in exchange for 10% subordinated convertible notes
due 2006 (the Convertible Notes), (vii) MatlinPatterson Global
Opportunities Partners L.P. (GOF) issued, or caused to be issued,
letters of credit in the aggregated amount of $25 million (the Exit
Letters of Credit) in favor of the agent under the Restructured Credit
Facilities pursuant to a bank term sheet, for which GOF would be entitled to
10% senior subordinated notes due 2007 (the New Senior Subordinated Notes)
equal to the amount (if any) drawn against the Exit Letters of Credit (plus any
advances made by GOF solely in lieu of drawings under the Exit Letters of
Credit), (viii) holders of the Companys existing common stock (Old
Polymer Common Stock) received 100% of the Class B Common Stock (which
will not be diluted by any conversions of the Convertible Notes) in exchange
for their Old Polymer Common Stock interests; such Holders also received their
pro rata amount of the new Series A and Series B Warrants (as discussed
below). Under the Modified Plan,
all common stock of the reorganized Company (the New Polymer Common Stock)
was the same class (the Class A Common Stock), with the exception of (i) separate
classes (the Class D Common Stock and Class E Common Stock) to be
issued upon exercise of the Series A and Series B Warrants (as
defined below), (ii) the 4% of New Polymer Common Stock designated as Class B
Common Stock issued to the holders of Old Polymer Common Stock, and (iii) a
small percentage (the Class C Common Stock) issued to holders of Class 4
Claims, who contributed such stock to the Special Purpose Entity (SPE). The Class C
Common Stock shall pay a dividend payable equal to the lesser of (i) 1%
per annum of the principal amount of the promissory notes issued by the SPE or (ii) $1.0 million
per annum. Shares of New Polymer Common Stock (other than Class A Common
Stock) are convertible into shares of Class A Common Stock on a
one-for-one basis. 14 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 4.   Recapitalization
(Continued) The holders of Old Polymer Common Stock received two
series of warrants, the Series A Warrants and Series B Warrants,
which have (i) customary adjustments for stock splits, stock dividends,
and consolidations, (ii) specified anti-dilution protection for sales of
securities by the reorganized Company (New Polymer) at a price below the fair
market value of such securities if offered to all New Polymer common stock
holders and (iii) specified anti-dilution protection for sales of
securities by New Polymer at a discount that exceeds 25% of the fair market
value of such securities and which will not terminate upon a transaction with
GOF or an affiliate of GOF. Except as set forth in the preceding sentence, the Series A
and Series B Warrants do not have anti-dilution provisions. In addition,
the cash dividend payment by New Polymer described above in connection with the
Class C Common Stock is excluded from the calculation of cumulative
distributions for all purposes relating to the Series A Warrants, the Series B
Warrants, the Class D Common Stock and the Class E Common Stock. The
New Polymer Common Stock received by the holders of Class 4 Claims and the
Holders of Old Polymer Common Stock and which will be issued upon conversion of
the Convertible Notes is subject to dilution upon the exercise of the Series A
Warrants and Series B Warrants. The Modified Plan also provided that, on the Effective
Date, in consideration of GOF acting as the standby purchaser for the New
Investment, and in consideration of GOFs role in facilitating a consensual
resolution of the disputes among the parties involved in the negotiation of the
Modified Plan, New Polymer paid GOF a Standby Purchaser fee of
$2.0 million and an arrangement and plan facilitation fee of
$2.0 million. In order to facilitate the issuance of a new senior
subordinated note (New Senior Subordinated Note) in the amount of any drawing
under the Exit Letter of Credit, MatlinPatterson Global Partners LLC, (Matlin
Global Partners) a limited liability company organized under the laws of
Delaware, the Company and its domestic subsidiaries, as guarantors, entered
into a Senior Subordinated Note Purchase Agreement (the Senior Subordinated
Note Purchase Agreement), dated as of March 5, 2003, and pursuant
thereto, the Company issued to Matlin Global Partners a New Senior Subordinated
Note. The Senior Subordinated Note Purchase Agreement and
Senior Subordinated Note provide that upon any drawing under the Exit Letter of
Credit, the principal amount due under the New Senior Subordinated Note will
automatically increase by the amount of such drawing. The Company is required
to pay interest on any amount outstanding under the New Senior Subordinated
Note semi-annually in arrears on January 1 and July 1 of each year,
commencing on July 1, 2003, at a rate of 10% per annum, and default
interest in an amount of 2% per annum will be payable on the principal amount
in addition to the existing 10% rate. The Company shall, to the extent lawful,
pay interest at a rate of 12% per annum on overdue interest. The Companys obligations under the Senior
Subordinated Note Purchase Agreement and Senior Subordinated Note are
guaranteed by the Companys domestic subsidiaries. Both the Companys
obligations under the Senior Subordinated Note and the guarantees thereof are
subordinate to the indebtedness outstanding under the Companys Restructured
Credit Facility. The Senior Subordinated
Note Purchase Agreement contains customary representations and warranties and
standard default terms. Additionally, the Senior Subordinated Note Purchase
Agreement contains affirmative and negative covenants of the Company with
respect to (a) delivery of information, (b) proceeds of asset sales, (c) limitation
on restricted payments, (d) corporate existence, (e) limitation on liens,
(f) future domestic subsidiary guarantors, (g) designation of
unrestricted subsidiaries, and 15 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 4.   Recapitalization
(Continued) (h) mergers and
similar transactions involving the Company or the guarantors. See Note 7 for a
discussion of certain agreements made by Matlin Global Partners with respect to
its securities. Note 5.   Fresh Start
Accounting Fresh-start accounting requires that the
reorganization value of the Company be allocated to its assets in conformity
with SFAS No. 141. The initial allocation was based on preliminary
estimates and has been revised as more recent information was received. The
revisions are reflected in the amounts included herein. The allocation will be
further revised as additional information becomes available. The excess of the
fair value of the specific tangible or identifiable intangible net assets over
the reorganization value, or negative goodwill, was allocated to non-current
non-monetary assets on a pro-rata basis. Based on the consideration of many
factors and various valuation methods, the Company and its financial advisors
determined the reorganization value of the Company as described in the Modified
Plan. As part of the Modified Plan, the Companys common stock was divided into
five classes: Class A, Class B, Class C, Class D and Class E.
As of the Effective Date, 8,125,869 shares of Class A, 399,978 shares of Class B
and 118,449 shares of Class C common stock were outstanding. An additional
1,355,480 shares of Class A common stock has been reserved for issuance
pending the outcome of certain claims against the Company in connections with
the Modified Plan which have yet to be settled. No shares of Class D or Class E 16 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 5.   Fresh Start
Accounting (Continued) common
stock were outstanding as of such date. The following table reflects the
reorganization adjustments to old Polymer Groups consolidated balance sheet as
of March 1, 2003 (in thousands): Predecessor
  
  Modified Plan of
  Reorganization
  
  Fresh Start
  Adjustments
  
  SuccessorAssetsCurrent assets
  
  $
  308,411
  
  
  $
  
  
  
  
  $
  (7,784
  )(g)
  
  $
  300,627Property, plant
  and equipment
  
  431,384
  
  
  (36,372
  )(f)
  
  
  (20,203
  )(g)
  
  374,809Intangibles and
  loan acquisition costs, net
  
  38,315
  
  
  (26,341
  )(e)(f)
  
  
  23,572
  (h)
  
  35,546Other assets
  
  13,296
  
  
  
  
  
  
  (2,075
  )(g)
  
  11,221Total assets
  
  $
  791,406
  
  
  $
  (62,713
  )
  
  
  $
  (6,490
  )
  
  $
  722,203Liabilities and Shareholders
  Equity (Deficit)Liabilities not subject
  to compromiseAccounts payable, accrued liabilities and other
  current
  
  $
  94,466
  
  
  $
  7,069
  (a)
  
  
  $
  9,668
  (g)
  
  $
  111,203Short term borrowings
  
  223
  
  
  
  
  
  
  
  
  
  223Long term debtPrepetition Credit Facility
  
  484,877
  
  
  (484,877
  )(b)
  
  
  
  
  
  Long term debtRestructured Credit Facility and
  Other
  
  18,165
  
  
  421,434
  (c)
  
  
  
  
  
  439,599Long term debtJunior Notes
  
  
  
  
  50,000
  (d)
  
  
  
  
  
  50,000Noncurrent liabilites
  
  48,133
  
  
  
  
  
  
  (345
  )(g)
  
  47,788Total liabilites not subject to compromise
  
  645,864
  
  
  (6,374
  )
  
  
  9,323
  
  
  648,813Liabilites
  Subject to Compromise
  
  637,122
  
  
  (637,122
  )(e)
  
  
  
  
  
  Total liabilities
  
  1,282,986
  
  
  (643,496
  )
  
  
  9,323
  
  
  648,813Shareholders
  equity (deficit)
  
  (491,580
  )
  
  580,783
  (f)
  
  
  (15,813
  )(i)
  
  73,390Total liabilities and shareholders (deficit)
  
  $
  791,406
  
  
  $
  (62,713
  )
  
  
  $
  (6,490
  )
  
  $
  722,203  
 (a)To
record certain prepetition liabilities to be settled in cash. (b)To
record the elimination of the Prepetition Credit Facility. (c)To
record the Restructured Credit Facility. (d)To
record the Junior Notes. (e)To
record the elimination of pre-petition liabilites that were cancelled, which
include the old senior subordinated notes, accrued interest, and loan acquisition
costs. (f)To
record the issuance of securities, the cancellation of prepetition liabilities
and negative reorganization value. (g)To
reflect assets and liabilities at fair value. (h)To
write-off goodwill and adjust certain intangibles to fair value. (i)To write-off
Predecessors securities, accumulated deficit and accumulated other
comprehensive loss. 17 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 6.   Business Restructuring and Special
Charges During the third quarter
of fiscal 2003, the Company continued to implement its 2003 business
restructuring initiative (the 2003 Restructuring). The Company has reduced
working capital levels by improving credit and collection efforts related to
receivables and reducing raw material inventory and finished goods inventory
within certain businesses. In addition, the Company has returned to normalized
payment terms on accounts payable with most vendors. Operating cost reductions
are being realized, and are expected to continue to be realized, through: (i) reducing
headcount at both the plant and corporate levels; (ii) improving
manufacturing productivity and reducing component costs; (iii) implementing
global purchasing initiatives; and (iv) rationalizing certain assets
and/or businesses. Headcount reductions have been implemented in the first
three quarters of 2003 and will be substantially complete by the end of fiscal
2003. Approximately 158 positions have been eliminated during the nine months
ended September 27, 2003. The number of future headcount reductions and
related costs has not been finalized. Operating costs reductions are expected
to come from improved productivity, primarily in the United States, and
reductions in manufacturing, warehousing and logistics costs. Each
manufacturing plant has individual plans and initiatives to achieve this goal. In
addition, the Company is streamlining corporate overhead and evaluating all
major overhead cost categories for further cost reductions. In the second and
third quarters of 2003, the Company implemented key components of its plan to
establish a global procurement function, particularly with respect to raw
materials. The Company also continued to evaluate its businesses and
rationalize certain of its assets and operations. During the quarter, the
Company sold its investment in one joint venture (see Note 12) and began
liquidating the assets of its wet laid nonwovens business. The Companys business
restructurings in 2002 included reductions in headcount of approximately
54 employees and facility closing costs in the U.S. as business processes
were rationalized in the Oriented Polymers Division. The total plant
realignment charge in 2002 and 2001 related to the restructuring approximated
$8.5 million. Cash outlays in 2002 and 2001 associated with the Companys
business restructuring approximated $7.6 million. A
summary of the business restructuring activity during the nine months ended September 27,
2003, accounted for in accordance with SFAS No. 146, is presented in
the following table (in thousands): Employee Termination
  and Facility Closing CostsPlant realignment
  liability as of December 28, 2002
  
  
  $
  8932003 plant
  realignment charge
  
  
  4,6002003 cash
  payments and adjustments
  
  
  (3,294
  )Plant realignment
  liability as of September 27, 2003
  
  
  $
  2,199  During the fourth quarter
of 2002, based upon further reviews of the Companys long-lived assets and the
continued decline in operating profits over the course of 2002, the Company
recorded a non-cash charge of approximately $317.9 million, consisting of
the write-down of goodwill and other intangibles ($83.9 million) and
machinery, equipment and buildings ($234.0 million) related predominantly
to production assets within the U.S. and European Nonwovens business in
accordance with SFAS Nos. 142 and 144. Special charges in 2003 included
impairment charges of $1.6 million to reflect the decreased fair value of certain
operating assets. Special charges in 2002 included approximately $3.6 million
of expenses related to professional and other services provided in connection
with the Companys restructuring efforts. 18 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 7.   Debt Debt (including short-term
borrowings) as of September 27, 2003 and December 28, 2002, consists
of the following (in thousands): SuccessorSeptember 27, 2003
  
  Predecessor
  December 28, 2002(Unaudited)Indebtedness, including
  current portion:Prepetition
  Credit Facility
  
  
  $
  
  
  
  
  $
  484,478Restructured
  Credit Facility
  
  
  418,667
  
  
  
  Senior
  Subordinated Notes
  
  
  
  
  
  
  587,482Junior Notes
  
  
  51,368
  
  
  
  Other
  
  
  14,915
  
  
  
  20,405$
  484,950
  
  
  
  $
  1,092,365  Restructured Credit
Facility The Companys Restructured Credit Facility provides
for secured revolving credit borrowings with aggregate commitments of up to
$50.0 million and aggregate term loans and term letters of credit of
$435.3 million. Subject to certain terms and conditions, a portion of the
Restructured Credit Facility may be used for revolving letters of credit. All
borrowings under the Restructured Credit Facility are U.S. dollar denominated
and are guaranteed, on a joint and several basis, by each and all of the direct
and indirect domestic subsidiaries of the Company and certain non-domestic
subsidiaries of the Company. The Restructured Credit Facility and the related
guarantees are secured by (i) a lien on substantially all of the assets of
the Company, its domestic subsidiaries and certain of its non-domestic
subsidiaries, (ii) a pledge of all or a portion of the stock of the
domestic subsidiaries of the Company and of certain non-domestic subsidiaries
of the Company, and (iii) a pledge of certain secured intercompany notes
issued to the Company or one or more of its subsidiaries by non-domestic
subsidiaries. Commitment fees under the Restructured Credit Facility are equal
to 0.75% of the daily unused amount of the revolving credit commitment. The
Restructured Credit Facility contains covenants and events of default customary
for financings of this type, including leverage, senior leverage, interest
coverage and adjusted interest coverage. The Company was in compliance with
such financial covenants at September 27, 2003. The Restructured Credit
Facility terminates on December 31, 2006. The loans are subject to
mandatory prepayment out of proceeds received in connection with certain
casualty events, asset sales and debt and equity issuances and from excess cash
flow. The interest rate applicable to borrowings under the
Restructured Credit Facility is based on a specified base rate or a specified
Eurodollar base rate, at the Companys option, plus a specified margin. The
applicable margin for revolving credit loans bearing interest based on the base
rate is 2.75%, and the margin for revolving credit loans bearing interest on a
Eurodollar rate is 3.75%. The applicable margin for term loans bearing interest
based on the base rate will range from 4.00% to 8.00%, and the margin for term
loans bearing interest on a Eurodollar rate will range from 5.00% to 9.00%, in
each case based on the Companys ratio of senior consolidated indebtedness to
consolidated EBITDA calculated on a rolling four quarter basis. In addition, if
the Companys ratio of senior consolidated indebtedness to consolidated EBITDA
calculated on a rolling four quarter basis exceeds 5.00 to 1, the Company is
required to pay to the term loan lenders and the term letter of credit lenders
a fee of 1.00% on the outstanding balance under the term loans and the term
letters of credit. The total of the interest payable in respect of term loans
or term 19 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 7.   Debt (Continued) letters of credit plus the
senior leverage ratio fee is capped at 12.00%. The effective rate was 12.00% at
September 27, 2003. The Restructured Credit Facility defines EBITDA as
operating income (loss) plus depreciation, amortization and Mexican statutory
employee profit sharing and excludes unusual items, consisting of asset
impairment, plant realignment, special charges and other unusual items. There
were no outstanding borrowings at September 27, 2003 under the revolving
credit agreement. The effective rate, had there been borrowings, was 6.75% at
September 27, 2003. The Company sold its
Dayton, New Jersey (South Brunswick) facility for approximately
$10.2 million, net of expenses of $0.4 million, during December 2002
at no material gain or loss. Proceeds from the sale were maintained in an escrow
account outside of the Companys control prior to emergence from
Chapter 11 and thus were classified within Other current assets in the
consolidated balance sheet at December 28, 2002. The proceeds from the
sale of South Brunswick were used to reduce amounts outstanding under the
Restructured Credit Facility during the first quarter of 2003. The Company sold the
business carried out by Vateks (see Note 12 for additional details on the
investment) in September 2003 at no material gain or loss. Proceeds from
the sale were used to reduce amounts outstanding under the Restructured Credit
Facility during the third quarter of 2003. On April 11, 2003,
GOF entered into an agreement with the Company (the GOF Agreement) pursuant
to which GOF agreed to undertake certain actions solely for the purpose of
assisting the Company in maintaining compliance with the financial covenants
contained in the Restructured Credit Facility during the period beginning on March 6,
2003, and ending on January 4, 2004. GOF has agreed to amend the New
Senior Subordinated Note and the Junior Notes it beneficially owned or
controlled (approximately $38 million aggregate principal amount) to
provide that interest that accrues from March 6, 2003 until January 31,
2005 on the New Senior Subordinated Note and from March 6, 2003 until January 5,
2004 on the Junior Notes, may be paid by the Company issuing additional
aggregate principal amount of debt securities rather than paying such interest
in cash. In the event the Company is unable to meet the senior leverage
covenant, interest covenant or adjusted interest covenant contained in the
Restructured Credit Facility, the Company is permitted to instruct the Agent
under the Restructured Credit Agreement to make a drawing under the Exit Letter
of Credit and apply the amount of the drawing to repay indebtedness under the
Restructured Credit Facility. GOF also has agreed that, in the event the
Company is unable to comply with the leverage covenant under the Restructured
Credit Facility, GOF will convert such amount of its Junior Notes into Class A
Common Stock. Finally, in the event the Company had undertaken all the actions
described above and was unable to meet the interest covenant solely for the
12-month period ending on the last day of the Companys third fiscal quarter of
2003, GOF agreed to purchase up to $10 million aggregate principal amount
of additional senior subordinated notes (with interest payable in additional
principal amount of senior subordinated notes) or equity securities (the New
Investment) in order to allow the Company to repay indebtedness under the
Restructured Credit Facility to meet such covenant. GOFs obligation to take
any of these steps is conditioned on Amendment No. 1 remaining in full
force and effect. Since the Company was able to meet the covenants on its own,
no such action was necessary at September 27, 2003. As of March 29, 2003,
the Company and the Senior Secured Lenders under the Restructured Credit
Facility, entered into Amendment No. 1. Amendment No. 1 permitted the
Company to take the actions described in the GOF Agreement, and also provides
that in the event the Company repays indebtedness under the Restructured Credit
Facility using the proceeds from the Exit Letter of Credit or New Investment,
for purposes of the interest and adjusted interest covenants, the interest
savings to the 20 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 7.   Debt
(Continued) Company is calculated on a pro forma basis as if the
cash pay indebtedness had been repaid as of March 6, 2003. Convertible
Subordinated Notes In connection with the
emergence from Chapter 11, the Company issued $50 million of 10%
Convertible Subordinated Notes due 2007 (the Junior Notes) pursuant to an
indenture dated as of March 5, 2003 (the Junior Indenture). The Junior
Notes are unsecured subordinated indebtedness of the Company and are
subordinated in right of payment to all existing and future indebtedness of the
Company which is not, by its terms, expressly junior to, or pari passu with, the Junior Notes. Under
the terms of the Junior Notes, the holders may elect to increase the amount of
the note in lieu of receiving semi-annual interest payments in cash. Through September 27,
2003, interest payments of $1.4 million have been deferred and added to the
note balance. The Junior Notes are convertible into shares of Class A
Common Stock, at an initial conversion price equal to $7.29 per share. The
Junior Indenture contains several covenants, including limitations on: (i) indebtedness;
certain restricted payments; liens; transactions with affiliates; dividend and
other payment restrictions affecting certain subsidiaries; guarantees by
certain subsidiaries; certain transactions including merger and asset sales;
and (ii) certain restrictions regarding the disposition of proceeds of
asset sales. Subsidiary
Indebtedness The Companys China-based majority owned subsidiary (Nanhai)
has a bank facility with a financial institution in China that is scheduled to
mature in April 2004. At September 27, 2003, the approximate amount
of outstanding indebtedness under the facility was $9.5 million. The
Nanhai indebtedness is guaranteed 100% by the Company and to support this
guarantee, a letter of credit has been issued by the Companys agent bank in
the amount of $10.0 million. As a result of the Companys 80% majority
ownership of Nanhai and full guarantee of the Nanhai bank debt, all amounts
outstanding under the Nanhai bank facility are reflected in the Companys
consolidated balance sheet. At September 27, 2003, Nanhai had cash and
cash equivalents on hand of approximately $3.0 million and working capital of
approximately $1.7 million. The Companys Argentina-based majority owned
subsidiary (DNS) has two bank facilities denominated in U.S. dollars of approximately
$4.3 million at September 27, 2003 with current maturities of
approximately $3.3 million. The facilities are scheduled to mature in 2004
and 2005 respectively. The full amount of such indebtedness is reflected on the
Companys consolidated balance sheet at September 27, 2003 as a result of
the Companys 60% majority ownership of this subsidiary; however, the minority
shareholder guarantees 40% of such indebtedness. Because of the Argentine peso
devaluation against the U.S. dollar, the Company is exposed to foreign currency
remeasurement losses of the U.S. dollar denominated debt at DNS because the
functional currency of DNS is the Argentine peso. At September 27, 2003,
DNS had cash and cash equivalents on hand of approximately $4.5 million and
working capital of $7.5 million, excluding current debt. Including current
debt, DNS working capital was approximately $4.2 million at September 27,
2003. 21


---

Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 8.   Condensed
Consolidating Financial Statements Certain of the Companys
wholly-owned subsidiaries unconditionally guarantee payment of the Companys
Junior Notes, jointly and severally, on a senior subordinated basis. Management
has determined that separate complete financial statements of the guarantor
entities would not be material to users of the financial statements; therefore,
the following sets forth condensed consolidating financial statements (in
thousands): Condensed
Consolidating Selected Balance Sheet Financial Data
as of September 27, 2003
Successor Combined
  Guarantor
  Subsidiaries
  
  Combined
  Non-Guarantor
  Subsidiaries
  
  The
  Company
  
  Reclassifications
  and Eliminations
  
  ConsolidatedWorking capital
  
  $
  56,386
  
  
  $
  122,398
  
  
  $
  (31,934
  )
  
  $
  (8,058
  )
  
  
  $
  138,792Total assets
  
  2,522,143
  
  
  748,284
  
  
  1,013,473
  
  
  (3,592,272
  )
  
  
  691,628Total debt
  
  
  
  
  14,914
  
  
  470,036
  
  
  
  
  
  
  484,950Shareholders equity
  (deficit)
  
  1,453,064
  
  
  226,459
  
  
  54,280
  
  
  (1,679,523
  )
  
  
  54,280  Condensed
Consolidating Selected Balance Sheet Financial Data
as of December 28, 2002
Predecessor Combined
  Guarantor
  Subsidiaries
  
  Combined
  Non-Guarantor
  Subsidiaries
  
  The
  Company
  
  Reclassifications
  and Eliminations
  
  ConsolidatedWorking capital
  
  $
  94,832
  
  
  $
  131,989
  
  
  $
  556
  
  
  $
  (7,472
  )
  
  
  $
  219,905Total assets
  
  2,342,690
  
  
  615,516
  
  
  1,103,031
  
  
  (3,249,918
  )
  
  
  811,319Total debt
  
  3
  
  
  25,310
  
  
  478,061
  
  
  
  
  
  
  503,374Shareholders equity
  (deficit)
  
  1,045,012
  
  
  234,887
  
  
  (465,914
  )
  
  (1,279,899
  )
  
  
  (465,914
  )  Condensed
Consolidating Statement of Operations Selected Financial Data
for the Seven Months Ended September 27, 2003
Successor Combined
  Guarantor
  Subsidiaries
  
  Combined
  Non-Guarantor
  Subsidiaries
  
  The
  Company
  
  Reclassifications
  and Eliminations
  
  ConsolidatedNet sales
  
  
  $
  220,978
  
  
  
  $
  253,454
  
  
  $
  
  
  
  $
  (26,545
  )
  
  
  $
  447,887Operating income
  (loss)
  
  
  (8,063
  )
  
  
  22,564
  
  
  (226
  )
  
  3,398
  
  
  
  18,125Interest expense,
  income taxes and other expense (income), net
  
  
  2,573
  
  
  
  26,800
  
  
  (13,454
  )
  
  28,187
  
  
  
  38,960Net income (loss)
  
  
  (5,490
  )
  
  
  (4,236
  )
  
  (20,835
  )
  
  9,726
  
  
  
  (20,835
  )  22 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 8.   Condensed
Consolidating Financial Statements (Continued) Condensed
Consolidating Statement of Operations Selected Financial Data
for the Two Months Ended March 1, 2003
Predecessor Combined
  Guarantor
  Subsidiaries
  
  Combined
  Non-Guarantor
  Subsidiaries
  
  The
  Company
  
  Reclassifications
  and Eliminations
  
  ConsolidatedNet sales
  
  $
  67,515
  
  
  $
  73,917
  
  
  $
  
  
  
  $
  (8,523
  )
  
  
  $
  132,909Operating income
  (loss)
  
  (1,547
  )
  
  7,203
  
  
  (129
  )
  
  85
  
  
  
  5,612Interest expense,
  income taxes and other expense (income), net
  
  (130,717
  )
  
  7,337
  
  
  (534,410
  )
  
  129,121
  
  
  
  (528,669
  )Net income (loss)
  
  129,170
  
  
  (134
  )
  
  534,281
  
  
  (129,036
  )
  
  
  534,281  Condensed
Consolidating Statement of Operations Selected Financial DataFor the Nine Months Ended September 28,
2002
Predecessor Combined
  Guarantor
  Subsidiaries
  
  Combined
  Non-Guarantor
  Subsidiaries
  
  The
  Company
  
  Reclassifications
  and Eliminations
  
  ConsolidatedNet sales
  
  
  $
  300,814
  
  
  
  $
  304,471
  
  
  $
  
  
  
  $
  (29,276
  )
  
  
  $
  576,009Operating income
  (loss)
  
  
  (17,103
  )
  
  
  34,600
  
  
  (4,777
  )
  
  44
  
  
  
  12,764Interest expense,
  income taxes and other expense (income), net
  
  
  (22,568
  )
  
  
  29,918
  
  
  65,163
  
  
  10,191
  
  
  
  82,704Net income (loss)
  
  
  5,465
  
  
  
  4,682
  
  
  (69,940
  )
  
  (10,147
  )
  
  
  (69,940
  )  23 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 9.   Segment
Information The
Companys reportable market segments consist of Consumer and Industrial &
Specialty and beginning in fiscal 2003, the Company is required to report
operating data to its senior lenders under the Restructured Credit Facility
based upon the Companys primary operating divisions. Therefore, disclosures
for the operating divisions have been presented in the following table. Sales
to P&G account for more than 10% of the Companys sales and are reported
primarily in the Consumer segment. The loss of these sales would have a
material adverse effect on this segment. Generally, the Companys nonwoven
products can be manufactured on more than one type of production line.
Accordingly, certain costs attributed to each segment of the business were
determined on an allocation basis. The Company recorded plant realignment and
special charges during the first three fiscal quarters of 2003 and 2002 which
have not been allocated to the segment data because the Companys management
does not evaluate information that is not considered operating in nature on a
segment-by-segment basis. Segment operating performance is measured and
evaluated before unusual or special items. In addition, divisional assets have
been disclosed net of intercompany amounts, beginning in the second quarter of
2003. Financial data by market segments and operating divisions follows (in
thousands): Three Months Ended
  
  Successor
  
  PredecessorSuccessor
  September 27,
  2003
  
  Predecessor
  September 28,
  2002
  
  Seven Months
  EndedSeptember 27, 2003
  
  Two Months
  ended
  March 1, 2003
  
  Nine Months
  Ended
  September 28, 2002Market SegmentsNet salesConsumer
  
  
  $
  102,029
  
  
  
  $
  100,537
  
  
  
  $
  245,710
  
  
  
  $
  74,956
  
  
  
  $
  316,016Industrial and specialty
  
  
  83,034
  
  
  
  83,511
  
  
  
  202,177
  
  
  
  57,953
  
  
  
  259,993$
  185,063
  
  
  
  $
  184,048
  
  
  
  $
  447,887
  
  
  
  $
  132,909
  
  
  
  $
  576,009Operating income
  (loss)Consumer
  
  
  $
  4,770
  
  
  
  $
  3,545
  
  
  
  $
  10,168
  
  
  
  $
  2,891
  
  
  
  $
  20,157Industrial and specialty
  
  
  7,167
  
  
  
  1,949
  
  
  
  14,158
  
  
  
  2,725
  
  
  
  (2,846
  )11,937
  
  
  
  5,494
  
  
  
  24,326
  
  
  
  5,616
  
  
  
  17,311Plant realignment
  
  
  (1,429
  )
  
  
  (356
  )
  
  
  (4,596
  )
  
  
  (4
  )
  
  
  (913
  )Special charges
  
  
  (1,605
  )
  
  
  
  
  
  
  (1,605
  )
  
  
  
  
  
  
  (3,634
  )$
  8,903
  
  
  
  $
  5,138
  
  
  
  $
  18,125
  
  
  
  $
  5,612
  
  
  
  $
  12,764Depreciation and
  amortization expense included in operating income (loss)Consumer
  
  
  $
  6,584
  
  
  
  $
  9,321
  
  
  
  $
  15,579
  
  
  
  $
  4,386
  
  
  
  $
  27,740Industrial and specialty
  
  
  4,327
  
  
  
  6,595
  
  
  
  9,430
  
  
  
  3,012
  
  
  
  19,946$
  10,911
  
  
  
  $
  15,916
  
  
  
  $
  25,009
  
  
  
  $
  7,398
  
  
  
  $
  47,686  24 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 9.   Segment Information (Continued) Successor
  
  PredecessorSeptember 27, 2003
  
  December 28, 2002Market segment assetsConsumer
  
  
  $
  380,386
  
  
  
  $
  404,220Industrial and specialty
  
  
  308,578
  
  
  
  326,670Corporate
  
  
  2,664
  
  
  
  80,429$
  691,628
  
  
  
  $
  811,319  Three Months Ended
  
  Successor
  
  PredecessorSuccessor
  September 27,
  2003
  
  Predecessor
  September 28,
  2002
  
  Seven Months
  Ended
  September 27, 2003
  
  Two Months
  Ended
  March 1, 2003
  
  Nine Months
  Ended
  September 28, 2002Operating DivisionsNet salesNonwovens
  
  
  $
  149,697
  
  
  
  $
  149,295
  
  
  
  $
  358,091
  
  
  
  $
  108,373
  
  
  
  $
  461,539Oriented Polymers
  
  
  35,366
  
  
  
  34,753
  
  
  
  89,796
  
  
  
  24,536
  
  
  
  114,470$
  185,063
  
  
  
  $
  184,048
  
  
  
  $
  447,887
  
  
  
  $
  132,909
  
  
  
  $
  576,009Operating income
  (loss)Nonwovens
  
  
  $
  8,226
  
  
  
  $
  4,586
  
  
  
  $
  15,546
  
  
  
  $
  4,480
  
  
  
  $
  14,185Oriented Polymers
  
  
  2,758
  
  
  
  1,483
  
  
  
  6,279
  
  
  
  1,372
  
  
  
  5,627Unallocated Corporate
  
  
  (476
  )
  
  
  (575
  )
  
  
  (841
  )
  
  
  (351
  )
  
  
  (2,501
  )Eliminations
  
  
  1,429
  
  
  
  
  
  
  
  3,342
  
  
  
  115
  
  
  
  11,937
  
  
  
  5,494
  
  
  
  24,326
  
  
  
  5,616
  
  
  
  17,311Plant realignment
  
  
  (1,429
  )
  
  
  (356
  )
  
  
  (4,596
  )
  
  
  (4
  )
  
  
  (913
  )Special charges
  
  
  (1,605
  )
  
  
  
  
  
  
  (1,605
  )
  
  
  
  
  
  
  (3,634
  )$
  8,903
  
  
  
  $
  5,138
  
  
  
  $
  18,125
  
  
  
  $
  5,612
  
  
  
  $
  12,764Depreciation and
  amortization expense included in operating income (loss)Nonwovens
  
  
  $
  10,236
  
  
  
  $
  13,811
  
  
  
  $
  23,891
  
  
  
  $
  5,777
  
  
  
  $
  41,397Oriented Polymers
  
  
  2,104
  
  
  
  2,090
  
  
  
  4,847
  
  
  
  1,349
  
  
  
  6,247Unallocated Corporate
  
  
  
  
  
  
  15
  
  
  
  (272
  )
  
  
  272
  
  
  
  42Eliminations
  
  
  (1,429
  )
  
  
  
  
  
  
  (3,457
  )
  
  
  
  
  
  
  $
  10,911
  
  
  
  $
  15,916
  
  
  
  $
  25,009
  
  
  
  $
  7,398
  
  
  
  $
  47,686  Successor
  
  PredecessorSeptember 27, 2003
  
  December 28, 2002Division assetsNonwovens
  
  
  $
  577,182
  
  
  
  $
  609,317Oriented Polymers
  
  
  148,818
  
  
  
  157,750Corporate
  
  
  3,896
  
  
  
  80,363Eliminations
  
  
  (38,268
  )
  
  
  (36,111
  )$
  691,628
  
  
  
  $
  811,319  25 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 10.   Geographic
Information Geographic
data for the Companys operations are presented in the following table (in
thousands): Three Months Ended
  
  Successor
  
  PredecessorSuccessor
  September 27,
  2003
  
  Predecessor
  September 28,
  2002
  
  Seven Months
  Ended
  September 27, 2003
  
  Two Months
  Ended
  March 1, 2003
  
  Nine Months
  Ended
  September 28, 2002Net sales to unaffiliated
  customers:United States
  
  
  $
  82,557
  
  
  
  $
  82,287
  
  
  
  $
  194,434
  
  
  
  $
  58,992
  
  
  
  $
  271,538Canada
  
  
  24,242
  
  
  
  24,122
  
  
  
  60,057
  
  
  
  16,416
  
  
  
  73,555Europe
  
  
  43,685
  
  
  
  45,344
  
  
  
  112,862
  
  
  
  33,936
  
  
  
  136,784Asia
  
  
  7,770
  
  
  
  5,848
  
  
  
  17,791
  
  
  
  4,773
  
  
  
  18,635Latin America
  
  
  26,809
  
  
  
  26,447
  
  
  
  62,743
  
  
  
  18,792
  
  
  
  75,497$
  185,063
  
  
  
  $
  184,048
  
  
  
  $
  447,887
  
  
  
  $
  132,909
  
  
  
  $
  576,009Operating income (loss)United States
  
  
  $
  2,034
  
  
  
  $
  (5,675
  )
  
  
  $
  (259
  )
  
  
  $
  (1,582
  )
  
  
  $
  (17,158
  )Canada
  
  
  1,643
  
  
  
  1,077
  
  
  
  3,712
  
  
  
  1,019
  
  
  
  4,274Europe
  
  
  3,264
  
  
  
  4,515
  
  
  
  9,751
  
  
  
  2,330
  
  
  
  12,669Asia
  
  
  943
  
  
  
  810
  
  
  
  2,023
  
  
  
  848
  
  
  
  3,182Latin America
  
  
  4,053
  
  
  
  4,767
  
  
  
  9,099
  
  
  
  3,001
  
  
  
  14,34411,937
  
  
  
  5,494
  
  
  
  24,326
  
  
  
  5,616
  
  
  
  17,311Plant realignment
  
  
  (1,429
  )
  
  
  (356
  )
  
  
  (4,596
  )
  
  
  (4
  )
  
  
  (913
  )Special charges
  
  
  (1,605
  )
  
  
  
  
  
  
  (1,605
  )
  
  
  
  
  
  
  (3,634
  )$
  8,903
  
  
  
  $
  5,138
  
  
  
  $
  18,125
  
  
  
  $
  5,612
  
  
  
  $
  12,764Depreciation and
  amortization expense included in operating income (loss)United States
  
  
  $
  4,689
  
  
  
  $
  10,029
  
  
  
  $
  10,755
  
  
  
  $
  3,669
  
  
  
  $
  29,556Canada
  
  
  1,549
  
  
  
  1,356
  
  
  
  3,527
  
  
  
  950
  
  
  
  4,055Europe
  
  
  2,209
  
  
  
  2,036
  
  
  
  5,048
  
  
  
  1,166
  
  
  
  6,653Asia
  
  
  901
  
  
  
  908
  
  
  
  2,080
  
  
  
  628
  
  
  
  2,661Latin America
  
  
  1,563
  
  
  
  1,587
  
  
  
  3,599
  
  
  
  985
  
  
  
  4,761$
  10,911
  
  
  
  $
  15,916
  
  
  
  $
  25,009
  
  
  
  $
  7,398
  
  
  
  $
  47,686  Successor
  
  PredecessorSeptember 27, 2003
  
  December 28, 2002Geographic assetsUnited States
  
  
  $
  127,016
  
  
  
  $
  374,705Canada
  
  
  107,956
  
  
  
  110,181Europe
  
  
  284,109
  
  
  
  159,637Asia
  
  
  39,713
  
  
  
  39,643Latin America
  
  
  132,834
  
  
  
  127,153$
  691,628
  
  
  
  $
  811,319  26 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 11.   Foreign
Currency and Other Foreign
currency and other is presented in the following table (in thousands): Three Months Ended
  
  Successor
  
  PredecessorSuccessor
  September 27,
  2003
  
  Predecessor
  September 28,
  2002
  
  Seven Months
  Ended
  September 27, 2003
  
  Two Months
  Ended
  March 1, 2003
  
  Nine Months
  Ended
  September 28, 2002Foreign currency and
  other:Foreign currency
  (gain)loss
  
  
  $
  1,147
  
  
  
  $
  580
  
  
  
  $
  222
  
  
  
  $
  1,814
  
  
  
  $
  7,019Minority interest
  
  
  510
  
  
  
  1,548
  
  
  
  1,249
  
  
  
  441
  
  
  
  1,779Write-down of
  investment in joint venture
  
  
  
  
  
  
  4,400
  
  
  
  
  
  
  
  
  
  
  
  4,400Other, net
  
  
  1,380
  
  
  
  (95
  )
  
  
  1,459
  
  
  
  (380
  )
  
  
  1,473$
  3,037
  
  
  
  $
  6,433
  
  
  
  $
  2,930
  
  
  
  $
  1,875
  
  
  
  $
  14,671  During the third quarter
of fiscal 2002, the Company recorded a $4.4 million charge to earnings for the
write-down of its 45% minority position in a start-up nonwovens production line
in Saudi Arabia (the Saudi Line). The investment represented the Companys
funding of its pro-rata share in the construction costs of the Saudi Line. The
write-down was necessary when an agreement could not be reached between the
Company and its partner concerning ownership and operation of the Saudi Line. The
Company has settled this issue and no longer has any investment interest in the
Saudi Line. Note 12.   Purchase
Option and Subsidiary Matters During the third quarter of 2002, the Companys 40%
minority shareholder in DNS exercised an option under the Purchase and Option
Agreement dated July 1, 2000 whereby the Company or the minority
shareholder could elect to sell their respective ownership share of DNS to the
other party. The completion of the purchase of shares under the option is
subject to approval of the Companys lenders, which has not been obtained. In
addition, the Company and the minority shareholder had not agreed to an
acquisition price for such additional investment. The Company did not receive
any approval from the U.S. Bankruptcy Court to engage in such transaction. The
Company and the minority shareholder are in negotiations regarding this issue. The Company acquired an
80% majority ownership position in Vateks during fiscal 1999. The acquisition
agreement contained a purchase price adjustment based upon the achievement of
certain operating targets within an agreed-upon period after the acquisition
date. Vateks did not achieve the operating targets and thus the Company sought
to recover the short-fall as calculated pursuant to the provisions of the
acquisition agreement. The Company and former majority shareholder did not
agree on such amount and therefore, the settlement proceeded to arbitration.
The independent arbitrator concurred that the Company was entitled to receive
an adjustment of the purchase price pursuant to the agreement. Accordingly, the
Company and former shareholder agreed to a settlement of approximately
$1.8 million payable in installments between fiscal 2002 and 2004. The
Company received approximately $0.6 million during fiscal 2002
representing the first settlement installment. Such amount was accounted for as
an adjustment to the purchase price of Vateks pursuant to the provisions of APB
No. 16. Subsequent installment payments, in accordance with the settlement
agreement, were not paid to the Company by the former majority shareholder. The
Company sold the business carried out by PGI Vateks Tekstil Sanayi Ve Ticaret
A.S. (PGI Vateks), including certain assets and liabilities, to the former
majority shareholder in September 2003 at no significant gain or loss. 27 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 13.   Related
Party Transactions The Company leased office
space from an affiliate of a shareholder of the Company through August 31,
2003 at an approximate annual rental charge of $0.2 million. This facility
previously served as the Companys corporate headquarters. Shared service costs
are charged to the Company and approximated $0.2 million and $0.6 million
during the three and nine months ended September 27, 2003, respectively. The
Company also entered into a Joint Development Agreement dated as of April 17,
2002 and a Supply Agreement dated April 30, 2002, with a third party
affiliated with certain of the Companys stockholders. During the nine months
ended September 27, 2003, no payments were made under either of these
agreements. The Company is currently reviewing these agreements, including the
status of the lease and shared service costs, to determine their enforceability
and the Companys rights, including the right to terminate, under these
agreements. The Company is currently involved in litigation with the lessor to
determine the Companys obligation under this lease. Certain of the Companys
key employees provided services for an entity that is a shareholder of the
Company (InterTech). InterTech and its affiliates paid such employees
directly for these services. This relationship was terminated in the third
quarter of 2003. Note 14.   Certain
Matters On December 19, 1997, DT Acquisition Inc. (DTA),
a subsidiary of the Company, acquired substantially all of the outstanding
common and first preferred shares of Dominion Textiles Inc., a Company
organized under the laws of Canada (Dominion), and on January 29, 1998,
DTA acquired all remaining common and first preferred shares, at which time
Dominion underwent a winding-up. All assets and liabilities of Dominion were
transferred to DTA and all outstanding common shares and first preferred shares
held by DTA were redeemed. Immediately thereafter, pursuant to a purchase
agreement, dated October 27, 1997, the apparel fabrics business of
Dominion was sold, at no gain or loss, to Galey & Lord, Inc., (Galey)
and the Company acquired the nonwovens and industrial fabrics operations. The
Company and Galey finalized the acquisition cash settlement during 2000
pursuant to the Master Separation Agreement (the MSA) dated January 29,
1998. The result of such settlement was not material to the Companys financial
condition. Under the MSA, the Company and Galey are required to share in the
payment of certain on-going costs, including taxes, for historical Dominion
entities as required by the MSA. Because the Company originally acquired
Dominion, the Company generally makes the payments and is reimbursed by Galey.
On February 19, 2002, Galey and its U.S. operating subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code and began operating their businesses as debtors-in-possession.
During March 2002, Galey informed the Company of its intention to reject
the MSA as part of its bankruptcy proceedings. If approved by the Bankruptcy
Court, Galeys contemplated rejection of the MSA would result in the Company
being required to fund expenditures that should be allocated to, and paid by,
Galey, which could potentially have a material adverse effect on the Company.
Pending a final determination of this contract, Galey has ceased funding its
portion of the expenditures. On April 23, 2002,
the Company filed a demand for arbitration against Johnson & Johnson (J&J).
The primary issue in the arbitration is the Companys assertion that J&J
breached a supply agreement when J&J and certain of its affiliates failed
to purchase certain products from the Company and to allow the Company a
reasonable opportunity to compete for certain sales. The arbitration is
currently pending in the State of New York. 28 Polymer Group, Inc. Notes to Consolidated Financial Statements (Continued) Note 15.   Investment
in Partially-Owned Equity Affiliate As part of the acquisition
of Dominion and through its wholly-owned subsidiary, DTA, the Company acquired
a 50% equity interest in a Canadian-based manufacturer of home furnishing
products in December 1997. The Companys equity ownership of this entity
is a 50% shared investment with Galey pursuant to the MSA; therefore, the
Companys effective ownership approximates 25%. Thus the results of this entity
are not consolidated with those of the Company. At September 27, 2003, the
Companys investment in this entity approximated $0.3 million. The Company
received no dividends from this entity during the three and nine months ended September 27,
2003, nor has the Company guaranteed any of this entitys obligations. Note 16.   Supplemental
Financial Data The
cost of research and development, shipping and handling, and selling and
advertising is charged to expense as incurred and is included in selling,
general and administrative expense in the consolidated statement of operations.
A summary of these expenses is presented in the following table (in thousands): Three Months Ended
  
  Successor
  
  PredecessorSuccessor
  September 27,
  2003
  
  Predecessor
  September 28,
  2002
  
  Seven Months
  EndedSeptember 27, 2003
  
  Two Months
  Ended
  March 1, 2003
  
  Nine Months
  Ended
  September 28, 2002Research and
  development
  
  
  $
  3,107
  
  
  
  $
  4,615
  
  
  
  $
  6,522
  
  
  
  $
  2,483
  
  
  
  $
  12,268Shipping and
  handling
  
  
  4,409
  
  
  
  4,800
  
  
  
  11,422
  
  
  
  3,411
  
  
  
  15,109Selling and advertising
  
  
  6,897
  
  
  
  6,819
  
  
  
  16,463
  
  
  
  4,904
  
  
  
  22,860  Note 17.   Other
Developments In July 2003, the Company settled certain matters
with its former Chief Executive Officer which resulted in a gross settlement
payment in the amount of $3.7 million which was accounted for in the second
quarter of 2003 as an adjustment to the Companys reorganization value. Under
terms of the agreement certain other matters remain subject to resolution. See
Note 13 with respect to certain pending litigation related to this matter. On
October 27, 2003, Willis (Billy) C. Moore III was appointed as the
Companys Chief Financial Officer. Also, the Company is in discussion with its
former Chief Financial Officer James G. Boyd related to the termination of
his management roles with the Company and the settlement of compensation
matters. The Company currently expects to reach an agreement and make the
related payment during the fourth quarter of 2003. Since this amount would be
related to the management and change in control compensation agreements in
place prior to the Companys emergence from bankruptcy, this settlement will be
accounted for in the fourth quarter of 2003 as an adjustment to the Companys
reorganization value. 29


---

ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS The
following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Companys
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto contained in this quarterly report on Form 10-Q. In
particular, this discussion should be read in conjunction with Note 3. Chapter
11 Proceedings and Note 4. Recapitalization, which describe the filing
by the Company and its domestic subsidiaries of voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code on May 11,
2002 and the financial restructuring associated with the Companys emergence
from Chapter 11 effective March 5, 2003. In addition, a description of the
2003 Restructuring is outlined in Note 6, Business Restructuring and
Impairment. For accounting purposes the Company recognized the
emergence on March 1, 2003, which was the end of the February accounting
period. For purposes of discussion of results of operations, the seven months
ended September 27, 2003 (Successor) has been combined with two months
ended March 1, 2003 (Predecessor). Results of
Operations The
following table sets forth the percentage relationships to net sales of certain
income statement items. Three Months Ended
  
  Nine Months EndedSeptember 27,
  2003
  
  September 28,
  2002
  
  September 27,
  2003
  
  September 28,
  2002Net sales
  
  
  100.0
  %
  
  
  100.0
  %
  
  
  100.0
  %
  
  
  100.0
  %Cost of goods soldMaterials
  
  
  46.8
  
  
  
  44.8
  
  
  
  47.0
  
  
  
  44.5Labor
  
  
  10.0
  
  
  
  9.0
  
  
  
  10.1
  
  
  
  8.8Overhead
  
  
  25.1
  
  
  
  29.8
  
  
  
  25.5
  
  
  
  30.181.9
  
  
  
  83.6
  
  
  
  82.6
  
  
  
  83.4Gross profit
  
  
  18.1
  
  
  
  16.4
  
  
  
  17.4
  
  
  
  16.6Selling, general
  and administrative expense
  
  
  11.7
  
  
  
  13.4
  
  
  
  12.2
  
  
  
  13.6Plant realignment
  costs
  
  
  0.8
  
  
  
  0.2
  
  
  
  0.8
  
  
  
  0.2Special charges
  
  
  0.8
  
  
  
  
  
  
  
  0.3
  
  
  
  0.6Operating income
  (loss)
  
  
  4.8
  
  
  
  2.8
  
  
  
  4.1
  
  
  
  2.2Other expenseInterest expense, net
  
  
  7.8
  
  
  
  7.3
  
  
  
  7.5
  
  
  
  9.9Foreign currency and other
  
  
  1.6
  
  
  
  3.5
  
  
  
  0.8
  
  
  
  2.59.4
  
  
  
  10.8
  
  
  
  8.3
  
  
  
  12.4Loss before
  reorganization items, income taxes and cumulative effect of change in
  accounting principle
  
  
  (4.6
  )
  
  
  (8.0
  )
  
  
  (4.2
  )
  
  
  (10.2
  )Reorganization
  items
  
  
  
  
  
  
  3.3
  
  
  
  93.4
  
  
  
  1.2Income (loss)
  before income taxes and cumulative effect of change in accounting principle
  
  
  (4.6
  )
  
  
  (11.3
  )
  
  
  89.2
  
  
  
  (11.4
  )Income taxes
  
  
  (0.4
  )
  
  
  0.9
  
  
  
  0.8
  
  
  
  0.7Income (loss)
  before cumulative effect of change in accounting principle
  
  
  (4.2
  )
  
  
  (12.2
  )
  
  
  88.4
  
  
  
  (12.1
  )Cumulative effect
  of change in a accounting principle
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (2.2
  )Net income (loss)
  
  
  (4.2
  )%
  
  
  (12.2
  )%
  
  
  88.4
  %
  
  
  (14.3
  )%  30  Comparison of Three
Months Ended September 27, 2003 and September 28, 2002 The
following table sets forth components of the Companys net sales and operating
income (loss) by market segment and operating division for the three months
ended September 27, 2003 and the corresponding change over the comparable
period in 2002 (in thousands, except percent data). Three Months EndedSeptember 27,
  2003
  
  September 28,
  2002
  
  Change
  
  % ChangeMarket SegmentsNet SalesConsumer
  
  
  $
  102,029
  
  
  
  $
  100,537
  
  
  $
  1,492
  
  
  1.5
  %Industrial & Specialty
  
  
  83,034
  
  
  
  83,511
  
  
  (477
  )
  
  (0.6
  )$
  185,063
  
  
  
  $
  184,048
  
  
  $
  1,015
  
  
  0.6Operating income
  (loss)Consumer
  
  
  $
  4,770
  
  
  
  $
  3,545
  
  
  $
  1,225
  
  
  34.6Industrial & Specialty
  
  
  7,167
  
  
  
  1,949
  
  
  5,218
  
  
  267.711,937
  
  
  
  5,494
  
  
  6,443
  
  
  117.3Plant realignment costs
  
  
  (1,429
  )
  
  
  (356
  )
  
  (1,073
  )
  
  (301.4
  )Special charges
  
  
  (1,605
  )
  
  
  
  
  
  (1,605
  )
  
  $
  8,903
  
  
  
  $
  5,138
  
  
  $
  3,765
  
  
  73.3Operating
  DivisionNet SalesNonwovens
  
  
  $
  149,697
  
  
  
  $
  149,295
  
  
  $
  402
  
  
  0.3Oriented Polymers
  
  
  35,366
  
  
  
  34,753
  
  
  613
  
  
  1.8$
  185,063
  
  
  
  $
  184,048
  
  
  $
  1,015
  
  
  0.6Operating income
  (loss)Nonwovens
  
  
  $
  8,226
  
  
  
  $
  4,585
  
  
  $
  3,641
  
  
  79.4Oriented Polymers
  
  
  2,758
  
  
  
  1,483
  
  
  1,275
  
  
  86.0Unallocated Corporate
  
  
  (476
  )
  
  
  (574
  )
  
  98
  
  
  17.1Eliminations
  
  
  1,429
  
  
  
  
  
  
  1,429
  
  
  11,937
  
  
  
  5,494
  
  
  6,443
  
  
  117.3Plant realignment costs
  
  
  (1,429
  )
  
  
  (356
  )
  
  (1,073
  )
  
  (301.4
  )Special charges
  
  
  (1,605
  )
  
  
  
  
  
  (1,605
  )
  
  $
  8,903
  
  
  
  $
  5,138
  
  
  $
  3,765
  
  
  73.3  Net Sales A
reconciliation of the change in net sales between the three months ended September 27,
2003 and the three months ended September 28, 2002 is presented in the
following table (in thousands): Net salesthree
  months ended September 28, 2002
  
  $
  184,048Change in sales
  due to:Volume
  
  (4,716
  )Price/mix
  
  (3,299
  )Foreign currency
  
  9,030Net salesthree months
  ended September 27, 2003
  
  $
  185,063  31 Consolidated net sales were approximately
$185.1 million for the three months ended September 27, 2003, an
increase of $1.0 million or 0.6% over net sales of $184.0 million for
the same fiscal period in 2002. Net sales were favorably impacted during the
third quarter of 2003 versus the comparable period in 2002 by stronger foreign
currencies versus the U.S. dollar which were substantially offset by volume
declines and unfavorable price / mix. Excluding the favorable effects of
foreign currency translation, similar economic and business issues continued to
impact both the Consumer and Industrial and Specialty market segments during
the third quarter of 2003 as compared to the third quarter of 2002. The Companys
businesses were unfavorably impacted by general economic conditions in certain
regions of the world-wide economy and by the effects of the financial
restructuring efforts associated with the Companys emergence from Chapter 11,
including, in some instances, lost sales from existing customers. Lower sales
volume in the U.S. hygiene and wipes markets and lower sales volume within the
European hygiene market offset volume gains in certain segments of the Asian
and Latin American businesses. Price / mix was lower in the third quarter of
2003 versus the comparable period of 2002 within the U.S. and European consumer
markets, but was offset somewhat by favorable pricing within certain industrial
sectors. Foreign currencies were
stronger against the U.S. dollar during the three months ended September 27,
2003 versus the same period in 2002 in the majority of the international
regions in which the Company conducts business. The increase in net sales
between the three months ended September 27, 2003 and September 28,
2002 was due to favorable foreign currency translation in Europe, Canada and
certain regions of Latin America was approximately $9.0 million. Further
discussion of foreign currency exchange rate risk is contained in Item 3.
Quantitative and Qualitative Disclosures About Market Risk. Operating Income A
reconciliation of the change in operating income between the three months ended
September 28, 2002 and September 27, 2003 is presented in the
following table (in thousands): Operating incomethree
  months ended September 28, 2002
  
  $
  5,138Change in
  operating income due to:Plant realignment and special charges
  
  (2,678
  )Volume
  
  (853
  )Cost savings and other initiatives related to plant
  realignment and business restructuring
  
  5,706Lower depreciation and amortization
  
  5,105Price/mix
  
  (3,299
  )Raw materials
  
  (2,407
  )Foreign currency
  
  802All other
  
  1,389Operating income-three
  months ended September 27, 2003
  
  $
  8,903  Consolidated operating income was $8.9 million for the
three months ended September 27, 2003. Excluding unusual items, which
consist of plant realignment and special charges, consolidated operating income
increased $6.4 million compared to operating income before unusual items
of $5.5 million during the third quarter of fiscal 2002. During the third
quarter of 2003, operating income before unusual items was favorably impacted
by cost savings and other initiatives related to plant realignment and business
restructuring of $5.7 million, lower depreciation and amortization of
approximately $5.1 million resulting from a lower depreciable fixed asset
base produced by asset impairment charges in the fourth quarter of fiscal 2002
and favorable foreign currency translation. Offsetting these favorable impacts
were higher raw material costs of $2.4 million, predominantly in the U.S.
business, and the effects of the lower selling price/mix of $3.3 million detailed
above. 32 As part of the Companys operational restructuring
plan initiated in the second quarter of 2003, the Company undertook a broader
business restructuring aimed at operating cost reductions involving reduced
headcounts at the manufacturing plant and corporate levels, improved
manufacturing productivity and component costs reductions, implementation of a
global purchasing initiative and business and asset rationalization. This
business restructuring is expected to continue throughout the balance of 2003. Restructuring related
charges have not been allocated to the Companys reportable business segments,
for reporting purposes, because the Companys management does not evaluate such
charges on a segment-by-segment basis. Segment operating performance is
measured and evaluated before unusual or special items. Interest Expense
and Other Interest expense increased
$0.9 million from $13.5 million during the three months ended September 28,
2002 to $14.4 million during the same period in 2003. The increase is due
to the higher interest rate associated with the Restructured Credit Facility,
as compared to 2002. Refer to Note 7. Debt for further discussion of the
Restructured Credit Facility. Foreign currency and other decreased
approximately $3.4 million, from a loss of approximately $6.4 million
during the three months ended September 28, 2002 to a loss of
$3.0 million for the same period in 2003. The decrease is primarily due to
the $4.4 million write-down of a foreign investment in 2002. Refer to Note 11. Foreign
Currency and Other for additional details. Income Taxes The Company recorded an
income tax benefit of $0.8 million during the three months ended September 27,
2003. This resulted from the refund of prior periods tax refunds, partially
offset by income tax related to international jurisdictions. Implementation of
the Modified Plan resulted in the Company recognizing CODI (as defined in Note
2. Significant Accounting Policies). All of the CODI is excluded from taxable
income. However, the Company is required to reduce certain of its tax
attributes, including net operating loss carryforwards (NOLs) in the U.S., by
an amount not to exceed the CODI it realized. In general, tax attributes will
be reduced at the close of the 2003 tax year in the following order: (i) net
operating loss carryforwards; (ii) tax credits and capital loss
carryforwards; and (iii) tax basis in assets. The Company is currently in
the process of determining the amount of the corresponding reduction of its tax
attributes and/or asset basis. It is anticipated that the Companys net
operating loss carryforwards will be entirely eliminated in 2003 as a result of
the reoganization under the Modified Plan. During the three months ended September 28,
2002 the Company recognized income tax expense of approximately
$1.7 million. Net Income (Loss) The Companys net loss during the three months ended September 27,
2003 was approximately $7.7 million as a result of the factors described
above, as compared to a net loss of $22.6 million during the comparable
period in 2002. 33


---

Comparison of Nine
Months Ended September 27, 2003 and September 28, 2002 The
following table sets forth components of the Companys net sales and operating
income (loss) by market segment and operating division for the nine months
ended September 27, 2003 and the corresponding change over the comparable
period in 2002 (in thousands, except percent data). Nine Months EndedSeptember 27,
  2003
  
  September 28,
  2002
  
  Change
  
  % ChangeMarket SegmentsNet SalesConsumer
  
  
  $
  320,666
  
  
  
  $
  316,016
  
  
  $
  4,650
  
  
  1.5
  %Industrial & Specialty
  
  
  260,130
  
  
  
  259,993
  
  
  137
  
  
  0.1$
  580,796
  
  
  
  $
  576,009
  
  
  $
  4,787
  
  
  0.8Operating income (loss)Consumer
  
  
  $
  13,059
  
  
  
  $
  20,157
  
  
  $
  (7,098
  )
  
  (35.2
  )Industrial & Specialty
  
  
  16,883
  
  
  
  (2,846
  )
  
  19,729
  
  
  693.229,942
  
  
  
  17,311
  
  
  12,631
  
  
  73.0Plant realignment costs
  
  
  (4,600
  )
  
  
  (913
  )
  
  (3,687
  )
  
  (403.8
  )Special charges
  
  
  (1,605
  )
  
  
  (3,634
  )
  
  2,029
  
  
  55.8$
  23,737
  
  
  
  $
  12,764
  
  
  $
  10,973
  
  
  86.0Operating DivisionNet SalesNonwovens
  
  
  $
  466,463
  
  
  
  $
  461,539
  
  
  $
  4,924
  
  
  1.1
  %Oriented Polymers
  
  
  114,333
  
  
  
  114,470
  
  
  (137
  )
  
  (0.1
  )$
  580,796
  
  
  
  $
  576,009
  
  
  $
  4,787
  
  
  0.8Operating income (loss)Nonwovens
  
  
  $
  20,026
  
  
  
  $
  14,185
  
  
  $
  5,841
  
  
  41.2
  %Oriented Polymers
  
  
  7,651
  
  
  
  5,627
  
  
  2,024
  
  
  36.0Unallocated Corporate
  
  
  (1,192
  )
  
  
  (2,501
  )
  
  1,309
  
  
  52.3Eliminations
  
  
  3,457
  
  
  
  
  
  
  3,457
  
  
  29,942
  
  
  
  17,311
  
  
  12,631
  
  
  73.0Plant realignment costs
  
  
  (4,600
  )
  
  
  (913
  )
  
  (3,687
  )
  
  (403.8
  )Special charges
  
  
  (1,605
  )
  
  
  (3,634
  )
  
  2,029
  
  
  55.8$
  23,737
  
  
  
  $
  12,764
  
  
  $
  10,973
  
  
  86.0  Net Sales A
reconciliation of the change in net sales between the nine months ended September 27,
2003 and the nine months ended September 28, 2002 is presented in the
following table (in thousands): Net salesnine
  months ended September 28, 2002
  
  $
  576,009Change in sales
  due to:Volume
  
  (19,242
  )Price/mix
  
  (6,789
  )Foreign currency
  
  30,818Net salesnine months
  ended September 27, 2003
  
  $
  580,796  Consolidated net sales were $580.8 million for the
nine months ended September 27, 2003, an increase of $4.8 million, or
0.8%, over net sales of $576.0 million for the same fiscal period in 2002.
The increase in net sales was due primarily to favorable foreign currencies
versus the U. S. dollar offset by 34 volume
declines and unfavorable price / mix. Excluding the favorable effects of
foreign currency translation, similar economic and business issues continued to
impact both the Consumer and Industrial and Specialty market segments during
the third quarter year to date period of 2003 as compared to the third quarter
year to date period of 2002. The Companys businesses were unfavorably impacted
by general economic conditions in certain regions of the world-wide economy and
by the effects of the financial restructuring efforts associated with the
Companys emergence from Chapter 11, including, in some instances, lost sales
from existing customers. In addition, certain factors that have historically
contributed to lower than anticipated net sales continued to negatively affect
net sales during the nine months ended September 27, 2003. Lower sales
volume in the U.S. hygiene and medical markets and lower sales volume
predominantly within the European hygiene and wipes markets offset volume gains
in certain regions of the Latin American business. Price / mix was lower in the
third quarter year to date period of 2003 versus the comparable period of 2002
within the U.S. and European consumer markets, but were offset somewhat by
favorable pricing with certain industrial sectors. Foreign currencies,
predominantly in Europe and Canada, were stronger against the U.S. dollar
during the nine months ended September 27, 2003 versus the same period in
2002. The increase in net sales between the nine months ended September 27,
2003 and September 28, 2002 due to favorable foreign currency translation in
Europe and Canada was $32.8 million and was offset by the decline of the
Argentine peso of $2.0 million. Further discussion of foreign currency
exchange rate risk is contained in Item 3. Quantitative and Qualitative
Disclosures About Market Risk. Operating Income A
reconciliation of the change in operating income between the nine months ended September 28,
2003 and September 27, 2003 is presented in the following table (in
thousands): Operating incomenine
  months ended September 28, 2002
  
  $
  12,764Change in
  operating income due to:Plant realignment and special charges
  
  (1,646
  )Volume
  
  (3,998
  )Cost savings and other initiatives related to plant
  realignment and business restructuring
  
  12,047Lower depreciation and amortization
  
  15,070Price/mix
  
  (6,789
  )Raw materials
  
  (14,558
  )Foreign currency
  
  2,352Lower administrative costs associated with historic
  Dominion
  entities
  
  434All other
  
  8,061Operating incomenine
  months ended September 27, 2003
  
  $
  23,737  Consolidated operating income was $23.7 million
for the nine months ended September 27, 2003. Excluding unusual items,
which consist of plant realignment and special charges, consolidated operating
income increased $12.6 million over operating income before unusual items of
$17.3 million during the nine months ended September 28, 2002. The
increase in operating income before unusual items was due to cost savings and
other initiatives related to plant realignment and business restructuring of
$12.0 million, lower depreciation and amortization of approximately $15.1
million resulting from a lower depreciable fixed asset base produced by asset
impairment charges in the fourth quarter of fiscal 2002. Offsetting these
favorable impacts were higher raw material costs of $14.6 million,
predominantly in the Consumer U.S., European and Latin American businesses, and
lower price/mix of $6.8 million. 35 As part of the Companys operational restructuring
plan initiated in the second quarter of 2003, the Company undertook a broader
business restructuring aimed at operating cost reductions involving reduced
headcounts at the manufacturing plant and corporate levels, improved
manufacturing productivity and component costs reductions, implementation of a
global purchasing initiative and business and asset rationalization. This
business restructuring is expected to continue throughout the balance of 2003. Restructuring related
charges have not been allocated to the Companys reportable business segments,
for reporting purposes, because the Companys management does not evaluate such
charges on a segment-by-segment basis. Segment operating performance is
measured and evaluated before unusual or special items. Interest Expense
and Other As of the Petition Date
and in accordance with SOP 90-7, the Company discontinued accruing interest on
the senior subordinated notes and, as a result, interest expense decreased
$13.4 million from $57.2 million during the nine months ended September 28,
2002 to $43.8 million during the same period in 2003. Refer to Note 7.
Debt for further discussion of the Restructured Credit Facility. Foreign
currency and other losses decreased $9.9 million, from $14.7 million
during the nine months ended September 28, 2002 to $4.8 million for
the same period in 2003. The decrease is due to lower foreign currency losses
in 2003. In addition, the Company recorded a $4.4 million write-down of a
foreign investment in 2002. Refer to Note 11. Foreign Currency and Other for
additional details. Reorganization
Items Reorganization gains of
$542.6 million were recognized in the nine months ended September 27,
2003. The gains were due to the gain on cancellation of prepetition
indebtedness, offset by fresh start accounting adjustments and chapter 11
reorganization and other expenses. Income Tax Expense The Company recorded
income taxes of $4.6 million during the nine months ended September 27,
2003 predominantly from international jurisdictions.  Implementation of the Modified Plan resulted
in the Company recognizing CODI (as defined in Note 2. Significant Accounting
Policies). All of the CODI is excluded from taxable income. However, the
Company is required to reduce certain of its tax attributes, including net
operating loss carryforwards (NOLs), by an amount not to exceed the CODI it
realized. In general, tax attributes will be reduced at the close of the 2003
tax year in the following order: (i) net operating loss carryforwards; (ii) tax
credits and capital loss carryforwards; and (iii) tax basis in assets. The
Company is currently in the process of determining the amount of the
corresponding reduction of its tax attributes and/or asset basis. It is
anticipated that the Companys net operating loss carryforwards will be
entirely eliminated in 2003 as a result of the reorganization under the
Modified Plan. During the nine months ended September 28, 2002 the Company
recognized income tax expense of approximately $4.1 million. Cumulative Effect
of Change in Accounting Principle As part of the Companys
adoption of SFAS No. 142, the Company completed a transitional
impairment test in the fourth quarter of 2002, as permitted by the standard. The
Companys transitional impairment test resulted in a charge of
$12.8 million that was reported as a cumulative effect of a change in
accounting principle in the Companys annual results for fiscal 2002 and has
been allocated to the first fiscal quarter of 2002 for reporting purposes. 36 Net Income (Loss) The
Companys net income during the nine months ended September 27, 2003 was
approximately $513.4 million as a result of the factors described above,
particularly the income related to the cancellation of debt. This income
compares to a net loss of $82.7 million, as restated, during the
comparable period in 2002. Liquidity and
Capital Resouces September 27,
  2003
  
  December 28,
  2002(In Thousands)Balance sheet data:Cash and short-term investments
  
  $29,622
  
  $58,147Working capital
  
  138,792
  
  219,905Working capital, excluding current portion of
  long-term debt and liabilities subject to compromise
  
  160,280
  
  244,521Total assets
  
  691,628
  
  811,319Total debt
  
  484,950
  
  1,092,365Shareholders
  equity (deficit)
  
  54,280
  
  (465,914
  )  Nine Months EndedSeptember 27,
  2003
  
  September 28,
  2002(In Thousands)Cash flow data:Net cash provided by operating activities
  
  
  $
  8,972
  
  
  
  $
  36,234Net cash (used in) investing activities
  
  
  (10,623
  )
  
  
  (1,196
  )Net cash (used
  in) financing activities
  
  
  (20,143
  )
  
  
  (14,077
  )  Operating
Activities Net cash provided by operating activities was
$9.0 million during the nine months ended September 27, 2003 compared
to $36.2 million during the nine months ended September 28, 2002. The
Companys cash generation from operations during the first nine months of 2002
was favorably impacted by the amount of accrued interest on the previously
outstanding senior subordinated debt which was classified as subject to
compromise at September 28, 2002. During the first nine months of 2003,
the Company paid certain liabilities previously classified as subject to
compromise and has since been focused on the efficient management of working
capital. The Company had working capital of approximately $138.8 million
at September 27, 2003. Excluding the current portion of long-term debt,
working capital was $160.3 million at September 27, 2003, compared to
working capital, excluding current portion of long-term debt, at December 28,
2002 of $244.5 million. Accounts receivable on September 27, 2003
were $118.3 million as compared to $117.4 million on December 28,
2002, an increase of $0.9 million, or 0.7%. Accounts receivable
represented 58 days of sales outstanding at September 27, 2003 versus
59 days outstanding on December 28, 2002. Inventories at September 27,
2003 were $89.4 million, a decrease of $26.3 million over inventories
of $115.7 million at December 28, 2002. The Company had approximately
54 days of inventory on hand at September 27, 2003 versus 68 days of
inventory on hand at December 28, 2002.  Accounts payable at September 27, 2003
were $40.1 million, a decrease of $6.0 million, compared to accounts payable at
December 28, 2002 of $46.1 million. The decrease is due to the
payment of $12.3 million of prepetition accounts payable in 2003. Prior to the Petition Date, the Company classified
expenses related to its financial restructuring efforts as Special charges in
the consolidated statement of operations. Such charges consist of 37 professional and other
related services that were expensed as incurred. After the Petition Date, costs
related to the Companys reorganization activities were also expensed as
incurred and have been classified as Chapter 11 reorganization expenses in
accordance with SOP 90-7. The cumulative amount of costs and expenses related
to the Companys financial restructuring efforts, including bank financing
fees, have been approximately $50.8 million. As a result of the Companys financial condition,
certain suppliers have continued to request alternative payment provisions.
However, such alternative payment provisions have not currently had a
significant negative impact on the Companys liquidity. The Companys 2003
Restructuring is discussed in Note 6. Business Restructuring and
Impairment. Investing and
Financing Activities Capital expenditures during the first nine months of
2003 totaled $25.3 million, an increase of $19.4 million from capital
spending of $5.9 million during the same period in fiscal 2002. During the
fourth quarter of 2002, the Company entered into an agreement with Reifenhauser &
Co. GmbH for the purchase and installation of a Reicofil 3.1 SSXS nonwovens
production line (Line 5) at its San Luis Potosi, Mexico manufacturing site.
The total commitment for Line 5 approximates $29.0 million. Approximately
$19.9 million has been funded toward Line 5, including building expansion,
through the nine months ended September 27, 2003. The remaining portion of
the total commitment for construction of Line 5 is expected to be funded
during the balance of fiscal 2003 and fiscal 2004. A complete description of the Companys emergence from
Chapter 11 is described in Note 4. Recapitalization. The Companys Restructured Credit Facility provides
for secured revolving credit borrowings with aggregate commitments of up to
$50.0 million and aggregate term loans and term letters of credit of
$435.3 million. Subject to certain terms and conditions, a portion of the
Restructured Credit Facility may be used for revolving letters of credit. As of
September 27, 2003, the Company had availability of $50.0 million
under the revolving portion of the Restructured Credit Facility. All borrowings
under the Restructured Credit Facility are U.S. dollar denominated and are
guaranteed, on a joint and several basis, by each and all of the direct and
indirect domestic subsidiaries of the Company and certain non-domestic
subsidiaries of the Company. The Restructured Credit Facility and the related
guarantees are secured by (i) a lien on substantially all of the assets of
the Company, its domestic subsidiaries and certain of its non-domestic subsidiaries,
(ii) a pledge of all or a portion of the stock of the domestic
subsidiaries of the Company and of certain non-domestic subsidiaries of the
Company, and (iii) a pledge of certain secured intercompany notes issued
to the Company or one or more of its subsidiaries by non-domestic subsidiaries.
Commitment fees under the Restructured Credit Facility are equal to 0.75% of
the daily-unused amount of the revolving credit commitment. The Restructured
Credit Facility contains covenants and events of default customary for
financings of this type, including leverage, senior leverage, interest coverage
and adjusted interest coverage. The Restructured Credit Facility terminates on December 31,
2006. The loans are subject to mandatory prepayment out of proceeds received in
connection with certain casualty events, asset sales and debt and equity
issuances and from excess cash flow. The interest rate applicable to borrowings under the
Restructured Credit Facility is based on a specified base rate or a specified
Eurodollar base rate, at the Companys option, plus a specified margin. The
applicable margin for revolving credit loans bearing interest based on the base
rate is 2.75%, and the margin for revolving credit loans bearing interest on a
Eurodollar rate is 3.75%. The applicable margin for term loans bearing interest
based on the base rate will range from 4.00% to 8.00%, and the margin for term
loans bearing interest on a Eurodollar rate will range from 5.00% to 9.00%, in
each case based on the Companys ratio of senior consolidated indebtedness to
consolidated EBITDA calculated on a rolling four quarter basis. In addition, if
the Companys ratio of senior consolidated indebtedness to consolidated 38 EBITDA calculated on a
rolling four quarter basis exceeds 5.00 to 1, the Company is required to pay to
the term loan lenders and the term letter of credit lenders a fee of 1.00% on
the outstanding balance under the term loans and the term letters of credit. The
total of the interest payable in respect of term loans or term letters of
credit plus the senior leverage ratio fee is capped at 12.00%. On September 27,
2003, the Company was in compliance with the covenants contained in the
Restructured Credit Facility. Refer to Note 7. Debt for a more complete
discussion of the Companys debt. Refer to Note 14. Certain
Matters for a complete description of the MSA between Galey and the Company. In
addition, refer to Note 17. Other Developments for a discussion of the
settlement agreement between the Company and its former Chief Executive
Officer. Effect of Inflation
and Foreign Currency Inflation generally
affects the Company by increasing the cost of labor, equipment and raw
materials. The Companys substantial foreign operations expose it to the risk
of foreign currency exchange rate fluctuations. If foreign currency denominated
revenues are greater than costs, the translation of foreign currency
denominated costs and revenues into U.S. dollars will improve profitability
when the foreign currency strengthens against the U.S. dollar and will reduce
profitability when the foreign currency weakens. New Accounting
Standards Refer to Note 2. Significant
Accounting Policies for a complete discussion of recently issued standards and
their anticipated effect on the Companys results of operations. Critical Accounting
Policies And Other Matters The Companys analysis and
discussion of its financial condition and results of operations are based upon
its consolidated financial statements that have been prepared in accordance
with generally accepted accounting principles in the United States (U.S. GAAP).
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and the disclosure of contingent
assets and liabilities. The Company evaluates these estimates and assumptions
on an ongoing basis, including but not limited to those related to inventories,
bad debts, income taxes, intangible assets, restructuring related adjustments,
pension and other post retirement benefits and contingencies. Estimates and
assumptions are based on historical and other factors believed to be reasonable
under the circumstances. The results of these estimates may form the basis of
the carrying value of certain assets and liabilities. Actual results, under
conditions and circumstances different from those assumed, may differ from
estimates. The impact and any associated risks related to estimates,
assumptions, and accounting policies are discussed within Managements
Discussion and Analysis of Operations and Financial Condition, as well as in
the Notes to the Consolidated Financial Statements, if applicable, where such
estimates, assumptions, and accounting policies affect the Companys reported
and expected results. The Company believes the following accounting policies
are critical to its business operations and the understanding of results of
operations and affect the more significant judgments and estimates used in the
preparation of its consolidated financial statements: Revenue Recognition:Revenue
from product sales is recognized at the time ownership of goods transfers to
the customer and the earnings process is complete in accordance with Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101). SAB 101 specifies how existing rules should be applied to
transactions in the absence of authoritative literature. Based on the 39 guidelines of current
accounting rules and SAB 101, revenue should not be recognized until it is
realized or realizable and earned. Foreign Currency Translation:The Company accounts for and reports
translation of foreign currency transactions and foreign currency financial
statements in accordance with SFAS No. 52, Foreign Currency Translation.
All assets and liabilities in the balance sheets of foreign subsidiaries whose
functional currency is other than the U.S. dollar are translated at quarter-end
exchange rates. Translation gains and losses are not included in determining
net income but are accumulated as a separate component of shareholders equity.
However, subsidiaries considered to be operating in highly inflationary
countries use the U.S. dollar as the functional currency and translation gains
and losses are included in determining net income. In addition, foreign
currency transaction gains and losses are included in determining net income. Business Combinations, Goodwill and
Other Intangible Assets: In July 2001, the
Financial Accounting Standards Board issued Statements of Financial Accounting
Standards No. 141 Business Combinations (SFAS No. 141) and No. 142,
Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also
includes guidance on the initial recognition and measurement of goodwill and
intangible assets acquired in a business combination that is completed after June 30,
2001. SFAS No. 142 supersedes Accounting Principles Bulletin No. 17,
Intangible Assets.  SFAS No. 142
primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition. The most significant changes made by
SFAS No. 142 are: (1) goodwill and indefinite lived intangible
assets will no longer be amortized, (2) goodwill will be tested for
impairment at least annually, (3) intangible assets deemed to have an
indefinite life will be tested for impairment at least annually and (4) the
amortization period of intangible assets with finite lives will no longer be
limited to forty years. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company recognized a non-cash
charge of $96.7 million, of which approximately $12.8 million was
recognized as a cumulative effect of a change in accounting principle, for the
write-down of goodwill and other intangibles in accordance with SFAS No. 142
during fiscal 2002. Impairment of Long-Lived Assets:
In October 2001, the Financial Accounting Standards Board issued Statement
No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144).
SFAS No. 144 provides accounting guidance for financial accounting
and reporting for the impairment or disposal of long-lived assets. The
statement supersedes Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of (SFAS No. 121). It also supersedes the accounting and
reporting provisions of APB Opinion No. 30 Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
related to the disposal of a segment of a business. The statement is effective
for fiscal years beginning after December 15, 2001. The company recognized
a non-cash charge of $234.0 million for the write-down of property, plant
and equipment in accordance with SFAS No. 144 during fiscal 2002. Accounts Receivable and
Concentration of Credit Risks: Accounts receivable
potentially expose the Company to concentration of credit risk, as defined by
Statement of Financial Accounting Standards No. 105, Disclosure of
Information about Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentration of Credit Risk.  The Company provides credit in the normal
course of business and performs ongoing credit evaluations on certain of its
customers financial condition, but generally does not require collateral to
support such receivables. The Company also establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. Income Taxes:
The Company records an income tax valuation allowance when the realization of
certain deferred tax assets, net operating losses and capital loss
carryforwards is not likely. These deferred 40 tax items represent
expenses recognized for financial reporting purposes, which will result in tax
deductions over varying future periods. The Company has not provided U.S.
income taxes for undistributed earnings of foreign subsidiaries that are
considered to be retained indefinitely for reinvestment. Certain judgments,
assumptions and estimates may affect the carrying value of the valuation
allowance and deferred income tax expense in the Companys consolidated
financial statements. Environmental The Company is subject to
a broad range of federal, foreign, state and local laws governing regulations
relating to the pollution and protection of the environment. The Company
believes that it is currently in substantial compliance with environmental
requirements and does not currently anticipate any material adverse effect on its
operations, financial condition or competitive position as a result of its
efforts to comply with environmental requirements. Some risk of environmental
liability is inherent, however, in the nature of the Companys business, and
there can be no assurance that material environmental liabilities will not
arise. Euro Conversion On January 1, 1999, member countries of the
European Monetary Union began a three-year transition from their national
currencies to a new common currency, the euro. Permanent rates of exchange
between members national currency and the euro have been established and
monetary, capital, foreign exchange, and interbank markets have been converted
to the euro. Euro currency has been issued and, effective July 2002, the
respective national currencies were withdrawn. The Company has operations in
three of the participating countries and has successfully transitioned to using
both the euro and local currencies for commercial transactions. Costs of the
euro conversion have not had a material impact on the results of operations or
the financial condition of the Company. 41


---

ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK Foreign Currency
Exchange Rate Risk The Company manufactures, markets and distributes
certain of its products in Europe, Canada, Latin America and the Far East. As a
result, the Companys financial results could be significantly affected by
factors such as changes in foreign currency rates or weak economic conditions
in the foreign markets in which the Company maintains a manufacturing or
distribution presence. If foreign currency-denominated revenues are greater
than costs, the translation of foreign currency denominated costs and revenues
into U.S. dollars will improve profitability when the foreign currency
strengthens against the U.S. dollar and will reduce profitability when the
foreign currency weakens. For example, during 2002 certain currencies of
countries in which the Company conducts foreign currency denominated business
weakened against the U.S. dollar and had a significant impact on sales and
operating income. See Managements Discussion and Analysis of Financial
Condition and Results of Operations within the Companys Annual Report on Form 10-K
for 2002 for additional discussion of the foreign currency impact on the
Companys results of operations. For the three months and
nine months ended September 27, 2003, the result of a uniform 10%
strengthening in the value of the dollar relative to the currencies in which
the Companys sales are denominated would have decreased operating income,
before special items, by approximately $0.5 million and $1.7 million,
respectively. This calculation assumes that each exchange rate would change in
the same direction relative to the U.S. dollar. In addition to the direct
effects of changes in exchange rates, which are a changed dollar value of the
resulting sales, changes in exchange rates also affect the volume of sales or
the foreign currency sales price as competitors products become more or less
attractive. The Companys sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential change in sales
levels or local currency prices. Raw Material and
Commodity Risks The primary raw materials
used in the manufacture of most of the Companys products are polypropylene and
polyester fiber, polyethylene and polypropylene resin, and, to a lesser extent,
rayon, tissue paper and cotton. The prices of polypropylene and polyethylene
are a function of, among other things, manufacturing capacity, demand and the
price of crude oil and natural gas liquids. In the first half of 2003, several
suppliers of key raw materials, including polypropylene and polyethylene,
announced price increases to take effect beginning as early as February 2003.
In the third quarter of 2003, certain raw material prices decreased slightly. To
the extent the Company is not able to pass along all, or a portion of, such
higher prices of raw materials, the Companys cost of goods sold would increase
and its EBITDA would correspondingly decrease. By way of example, if the price
of polypropylene were to rise $.01 per pound, and the Company was not able to
pass along any of such increase to its customers, the Company would realize a
decrease of approximately $2.0 million on an annualized basis in its
reported EBITDA. There can be no assurance that the prices of polypropylene and
polyethylene will not continue to increase in the future or that the Company
will be able to pass on any increases to its customers. Material increases in
raw material prices that cannot be passed on to customers could have a material
adverse effect on the Companys results of operations and financial condition. Safe Harbor
Statement This Form 10-Q
contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. In addition, from time to time, the Company
or its representatives have made or may make forward-looking statements orally
or in writing. Such forward-looking statements may be included in, but not limited
to, various filings made by the Company with the Securities and Exchange
Commission, press 42 releases
or oral statements made with the approval of an authorized executive officer of
the Company. Actual results could differ materially from those projected or
suggested in any forward-looking statements as a result of a variety of factors
and conditions which include, but are not limited to: emergence by the Company
and its domestic subsidiaries from Chapter 11 of the United States Bankruptcy
Code, adverse economic conditions, demand for the Companys products,
competition in the Companys markets, dependence on key customers, increases in
raw material costs, the amount of capital expenditures, fluctuations in foreign
currency exchange rates, the Companys substantial leverage position, potential
defaults in the Companys outstanding indebtedness, and other risks detailed in
documents filed by the Company with the Securities and Exchange Commission. ITEM
4. CONTROLS AND PROCEDURES Evaluation of
Disclosure Controls and Procedures The Companys principal
executive officer and its principal financial officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14), have concluded that
the Companys disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those entities. Changes in Internal
Controls There were no significant changes in the Companys
internal controls or in other factors that could significantly affect the
Companys disclosure controls and procedures subsequent to the date of their
evaluation, nor were there any significant deficiencies or material weaknesses
in the Companys internal controls. As a result, no corrective actions were
required or undertaken. 43


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PART II.
OTHER INFORMATION ITEM 1. LEGAL
PROCEEDINGS Not applicable. ITEM 2. CHANGES IN
SECURITITES See Note 4. Recapitalization
for a discussion of the Modified Plan. ITEM 3. DEFAULTS
UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company filed a
Schedule 14C on July 11, 2003 to reflect the action taken by the Companys
stockholders to amend the restated Certificate of Incorporation. ITEM 5. OTHER
INFORMATION Not applicable. ITEM 6. EXHIBITS
AND REPORTS ON FORM 8-K Exhibits Exhibits required to be
filed with this report on Form 10-Q are listed in the following Exhibit Index. Reports on Form 8-K Not applicable. 44


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SIGNATURES Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized. Polymer Group, Inc.By:
  /s/James
  L. SchaefferJames L. SchaefferChief Executive Officer and  
  Acting Principal Financial OfficerNovember 12, 2003  45


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EXHIBIT
INDEX Exhibit
  Number
  
  Document Description31.1
  
  Rule 13a14(a) Certification of Chief
  Executive Officer31.2
  
  Rule 13a14(a) Certification of Chief
  Financial Officer32.1
  
  Certification by the Chief Executive Officer
  pursuant to 18 U.S.C. Section 135032.2
  
  Certification by the Acting Chief Financial Officer
  pursuant to 18 U.S.C. Section 135099.1
  
  Amended and Restated Certificate of Incorporation of
  Polymer Group, Inc.  46


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