UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 27, 2008Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                           toCommission 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.)9335 Harris Corners Parkway, Suite 300
Charlotte, North Carolina(Address of principal executive offices)

28269(Zip Code)Registrant's telephone number, including area code:(704) 697-5100Former name, former address and former fiscal year, if changed from last report:None


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

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

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


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

On October 30, 2008 there were 19,402,414 shares of Class A common stock, 100,569 shares of Class B common stock and
24,319 shares of Class C common stock outstanding. No shares of Class D or Class E common stock were outstanding as of such date. The par value for each class of common
stock is $.01 per share.



---





POLYMER GROUP, INC.

INDEX TO FORM 10-Q

PageIMPORTANT INFORMATION REGARDING THIS FORM 10-Q


2PART I. FINANCIAL INFORMATIONItem 1.

Financial Statements


3Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations


31Item 3.

Quantitative and Qualitative Disclosures About Market Risk


52Item 4.

Controls and Procedures


54PART II. OTHER INFORMATIONItem 1.

Legal Proceedings


55Item 1A.

Risk Factors


55Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


55Item 3.

Defaults Upon Senior Securities


55Item 4.

Submission of Matters to a Vote of Security Holders


55Item 5.

Other Information


55Item 6.

Exhibits


56Signatures


57


1

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IMPORTANT INFORMATION REGARDING THIS FORM 10-Q

Readers should consider the following information as they review this Form 10-Q:

The
terms "Polymer Group," "Company," "we," "us," and "our" as used in this Form 10-Q refer to Polymer Group, Inc. and its subsidiaries.

Safe Harbor-Forward-Looking Statements

From time to time, we may publish forward-looking statements relative to matters such as, including, without limitation, anticipated
financial performance, business prospects, technological developments, new product introductions, cost savings, research and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe,"
"expect," "anticipate," "intend", "target" or other words that convey the uncertainty of future events or outcomes.

Various
statements contained in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact are, or may be
deemed to be, 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.
These forward-looking statements speak only as of the date of this report. Unless required by law, we do not undertake any obligation to update these statements and caution against any undue reliance
on them. These forward-looking statements are based on current expectations and assumptions about future events. Although management considers these expectations and assumptions to be reasonable, they
are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond
our control. See Item 1A. "Risk Factors" in our Annual Report on Form 10-K and in Part II to this Quarterly Report on Form 10-Q. There can be no
assurances that these events will occur or that our results will be as estimated.

Important
factors that could cause actual results to differ materially from those discussed in such forward-looking statements include:



2

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ITEM 1.    FINANCIAL STATEMENTS

POLYMER GROUP, INC.        CONSOLIDATED BALANCE SHEETS (Unaudited)        (In Thousands, Except Share Data)

September 27,
2008

December 29,
2007ASSETSCurrent assets:Cash and cash equivalents

$
27,598

$
31,698Accounts receivable, net


158,121


139,505Inventories


144,792


139,726Deferred income taxes


3,494


2,371Other current assets


30,761


26,535Total current assets


364,766


339,835Property, plant and equipment, net


383,440


395,394Intangibles and loan acquisition costs, net


7,995


9,341Deferred income taxes


163


41Other assets


11,160


6,060Total assets

$
767,524

$
750,671LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Short-term borrowings

$
9,273

$
3,654Accounts payable and accrued liabilities


167,112


150,365Income taxes payable


2,056


2,069Current portion of long-term debt


9,994


7,790Total current liabilities


188,435


163,878Long-term debt


397,202


415,514Deferred income taxes


21,787


20,185Other noncurrent liabilities


33,259


32,817Total liabilities


640,683


632,394Minority interests


18,083


19,745Commitments and contingenciesShareholders' equity:Preferred stock0 shares issued and outstanding





Class A common stock19,401,020 and 19,274,415 shares issued and outstanding at September 27, 2008 and December 29, 2007,
respectively


194


193Class B convertible common stock101,813 and 107,805 shares issued and outstanding at September 27, 2008 and December 29, 2007,
respectively


1


1Class C convertible common stock24,319 shares issued and outstanding at September 27, 2008 and December 29, 2007





Class D convertible common stock0 shares issued and outstanding





Class E convertible common stock0 shares issued and outstanding





Additional paid-in capital


192,265


190,147Retained deficit


(129,216
)

(136,442
)Accumulated other comprehensive income


45,514


44,633Total shareholders' equity


108,758


98,532Total liabilities and shareholders' equity

$
767,524

$
750,671


See Accompanying Notes.

3

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POLYMER GROUP, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)        (In Thousands, Except Per Share Data)

Three Months
Ended
September 27,
2008

Three Months
Ended
September 29,
2007Net sales

$
301,037

$
256,186Cost of goods sold


258,011


216,515Gross profit


43,026


39,671Selling, general and administrative expenses


29,968


26,097Special charges, net


1,687


20,350Foreign currency loss, net


2,348


464Operating income (loss)


9,023


(7,240
)Other expense (income):Interest expense, net


8,002


8,666Foreign currency and other gain, net


(3,205
)

(615
)Income (loss) before income tax expense and minority interests


4,226


(15,291
)Income tax expense


2,542


5,219Minority interests, net of tax


(1,738
)

400Net income (loss)

$
3,422

$
(20,910
)Income (loss) per common share:Basic

$
0.18

$
(1.08
)Diluted

$
0.18

$
(1.08
)


See
Accompanying Notes.

4

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POLYMER GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In Thousands, Except Per Share Data)

Nine Months
Ended
September 27,
2008

Nine Months
Ended
September 29,
2007Net sales

$
865,683

$
794,238Cost of goods sold


733,864


664,241Gross profit


131,819


129,997Selling, general and administrative expenses


91,343


82,807Special charges, net


4,844


30,247Foreign currency (gain) loss, net


495


(436
)Operating income


35,137


17,379Other expense (income):Interest expense, net


24,667


24,887Foreign currency and other gain, net


(2,805
)

(2,014
)Income (loss) before income tax expense and minority interests


13,275


(5,494
)Income tax expense


7,711


12,328Minority interests, net of tax


(1,662
)

1,555Net income (loss)

$
7,226

$
(19,377
)Income (loss) per common share:Basic

$
0.37

$
(1.00
)Diluted

$
0.37

$
(1.00
)


See
Accompanying Notes.

5

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POLYMER GROUP, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)        (In Thousands)

Nine Months
Ended
September 27,
2008

Nine Months
Ended
September 29,
2007Operating activities:Net income (loss)

$
7,226

$
(19,377
)Adjustments to reconcile net income (loss) to net cash provided by operating activities:Deferred income taxes


3,156


7,784Depreciation and amortization


38,672


43,785Pension settlement loss





3,849Asset impairment charges





12,491Investment and other losses


577


Noncash compensation


2,695


2,655Changes in operating assets and liabilities:Accounts receivable, net


(18,710
)

(144
)Inventories


(5,665
)

(7,433
)Other current assets


(5,226
)

(8,865
)Accounts payable and accrued liabilities


23,990


(2,945
)Other, net


(12,328
)

(6,032
)Net cash provided by operating activities


34,387


25,768Investing activities:Purchases of property, plant and equipment


(28,414
)

(46,373
)Proceeds from sale of assets


1,497


605Acquisition of intangibles and other


(444
)

Net cash used in investing activities


(27,361
)

(45,768
)Financing activities:Proceeds from borrowings


42,624


57,743Repayment of borrowings


(53,950
)

(33,495
)Repayments of advances from equipment supplier





(2,792
)Net cash provided by (used in) financing activities


(11,326
)

21,456Effect of exchange rate changes on cash


200


1,156Net increase (decrease) in cash and cash equivalents


(4,100
)

2,612Cash and cash equivalents at beginning of period


31,698


32,104Cash and cash equivalents at end of period

$
27,598

$
34,716


See
Accompanying Notes.

6

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POLYMER GROUP, INC.        Notes to Consolidated Financial Statements

Note 1. Principles of Consolidation and Financial Statement Information

Principles of Consolidation

Polymer Group, Inc. (the "Company") is a publicly-traded, leading global innovator, manufacturer and marketer of engineered
materials, focused primarily on the production of nonwoven products. The Company has one of the largest global platforms in the industry, with 17 manufacturing and converting facilities throughout the
world, and a presence in eight countries. The Company's main sources of revenue are the sales of primary and intermediate products to the medical, hygiene, wipes and industrial markets.

The
accompanying unaudited interim consolidated financial statements include the accounts of Polymer Group, Inc. and all majority-owned subsidiaries after elimination of all
significant intercompany accounts and transactions. The accounts of all foreign subsidiaries have been included on the basis of fiscal periods ended on the same dates as the accompanying unaudited
interim consolidated financial statements. All amounts are presented in United States ("U.S.") dollars, unless otherwise noted.

The
accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements of the Company and related
notes as contained in the Annual Report on Form 10-K for the period ended December 29, 2007. In the judgment of management, these unaudited interim consolidated financial
statements include all adjustments of a normal recurring nature and accruals necessary for a fair presentation of such statements. The Consolidated Balance Sheet data included herein as of
December 29, 2007 have been derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K.

Reclassification

Certain amounts previously presented in the consolidated financial statements for prior periods have been reclassified to conform with
the current period classification.

Revenue Recognition

Revenue from product sales is recognized when title and risks of ownership pass to the customer. This is generally on the date of
shipment to the customer, or upon delivery to a place named by the customer, dependent upon contract terms and when collectability is reasonably assured and pricing is fixed or determinable. Revenue
includes amounts billed to customers for shipping and handling. Provision for rebates, promotions, product returns and discounts to customers is recorded as a reduction in determining revenue in the
same period that the revenue is recognized.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management's most significant
judgments include the valuation of allowances for accounts receivable and inventory, the assessment of recoverability of long-lived assets, the recognition of severance-related
liabilities, the recognition and measurement of current and deferred income tax assets and liabilities and the valuation and recognition of share-based compensation. Actual results could differ from
those estimates.

7

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POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Stock-Based Compensation

The Company accounts for stock-based compensation related to its employee share-based plans in accordance with the methodology defined
in Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)"), using the modified prospective transition method. The compensation costs
recognized subsequent to the adoption of SFAS No. 123(R) related to all new grants and any unvested portion of prior awards are measured based on the grant-date fair value of the
award. Consistent with the
provisions of SFAS No. 123(R), awards are considered granted when all required approvals are obtained and when the participant begins to benefit from, or be adversely affected by, subsequent
changes in the price of the underlying shares and, regarding awards containing performance conditions, when the Company and the participant reach a mutual understanding of the key terms of the
performance conditions. Additionally, accruals for compensation costs for share-based awards with performance conditions are based on the probable outcome of such performance conditions. The Company
has estimated the fair value of each stock option grant by using the Black-Scholes option-pricing model. Assumptions are evaluated and revised, as necessary, to reflect market conditions and
experience.

Special Charges

The Company records severance-related expenses once they are both probable and estimable in accordance with the provisions of SFAS
No. 112, "Employers' Accounting for Postemployment Benefits (an amendment of FASB Statements No. 5 and 43)" ("SFAS No. 112"), for severance provided under an ongoing benefit arrangement.
One-time, involuntary benefit arrangements and disposal costs, contract termination costs and other exit costs are accounted for under the provisions of SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). The Company evaluates impairment of long-lived assets under the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144").

Accumulated Other Comprehensive Income

Accumulated other comprehensive income of $45.5 million at September 27, 2008 consisted of $49.6 million of
currency translation gains (net of income taxes of $9.2 million), $0.9 million of transition net assets, gains or losses and prior service costs not recognized as components of net
periodic benefit costs (net of income taxes of $0.2 million) and $3.2 million of cash flow hedge losses. Accumulated other comprehensive income of $44.6 million at
December 29, 2007 consisted of $50.8 million of currency translation gains (net of income taxes of $10.6 million), $1.9 million of transition net assets, gains or losses
and prior service costs not recognized as components of net periodic benefit costs (net of income taxes of $1.3 million) and $4.3 million of cash flow hedge losses. Comprehensive loss
for the three months ended September 27, 2008 amounted to $7.0 million, compared to comprehensive loss of $16.7 million for the three months ended September 29, 2007.
Comprehensive income for the nine months ended September 27, 2008 amounted to $7.7 million, compared to comprehensive loss of $5.2 million for the nine months ended
September 29, 2007.

Recent Accounting Standards

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, "Fair Value Measurements" ("SFAS
No. 157"), which clarifies the definition of fair value whenever another standard requires or permits assets or liabilities to be measured at fair value. Specifically, the standard clarifies
that fair value should be based on the assumptions market participants would use when pricing the asset or liability, and establishes a fair value hierarchy that prioritizes the information

8

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POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

used
to develop those assumptions. SFAS No. 157 does not expand the use of fair value to any new circumstances, and must be applied on a prospective basis except in certain cases. The standard
also requires expanded financial statement disclosures about fair value measurements, including disclosure of the methods used and the effect on earnings.

In
February 2008, FASB Staff Position ("FSP") FAS No. 157-2, "Effective Date of FASB Statement No. 157" ("FSP No. 157-2") was issued. FSP
No. 157-2 defers the effective date of SFAS No. 157 to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, for all
nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Examples of items within the
scope of FSP No. 157-2 are nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent
periods), and long-lived assets, such as property, plant and equipment and intangible assets measured at fair value for an impairment assessment under SFAS No. 144.

The
partial adoption of SFAS No. 157 on January 1, 2008 with respect to financial assets and financial liabilities recognized or disclosed at fair value in the financial
statements on a recurring basis did not have a material impact on the Company's consolidated financial statements. See Note 11 for the fair value measurement disclosures for these assets and
liabilities. The Company is in the process of analyzing the potential impact of SFAS No. 157 relating to its planned January 4, 2009 adoption of the remainder of the standard.

On
December 30, 2007 (the first day of fiscal 2008), the Company adopted SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an
amendment of FASB Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value, which
are not otherwise currently required to be measured at fair value. Under SFAS No. 159, the decision to measure items at fair value is made at specified election dates on an
instrument-by-instrument basis and is irrevocable. Entities electing the fair value option are required to recognize changes in fair value in earnings and to expense upfront
costs and fees associated with the item for which the fair
value option is elected. The new standard did not impact the Company's consolidated financial statements as the Company did not elect the fair value option for any instruments existing as of the
adoption date. However, the Company currently plans to evaluate the fair value measurement election with respect to financial instruments the Company enters into in the future.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS No. 141(R)"). SFAS No. 141(R) changes how an entity accounts for the
acquisition of a business. While it retains the requirement to account for all business combinations using the acquisition method, the new rule will apply to a wider range of transactions or events
and requires, in general, acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed and noncontrolling ownership interests held in the acquiree, among
other items. The Company is continuing to review the provisions of SFAS No. 141(R), which applies prospectively to business combinations with an acquisition date on or after the beginning of
its 2009 fiscal year.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements: an amendment of ARB No. 51" ("SFAS No. 160"). SFAS
No. 160 replaces the term minority interests with the newly-defined term of noncontrolling interests and establishes this line item as an element of stockholders' equity, separate from the
parent's equity. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The Company is continuing to review the
provisions of SFAS No. 160, which is effective the first quarter

9

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POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

of
fiscal 2009, and expects this new accounting standard to result in changes in the presentation of minority interests in the consolidated financial statements, consistent with the new standard.

In
March 2008, the Financial Accounting Standards Board issued Statement 161, "Disclosures about Derivative Instruments and Hedging Activities: an amendment of FASB Statement
No. 133," (SFAS No. 161") to expand the disclosure framework in FASB Statement 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 161 requires companies
with derivative instruments to disclose information about how and why the company uses derivative instruments; how the company accounts for derivative instruments and related hedged items under
Statement 133; and how derivative instruments and related hedged items affect the company's financial position, financial performance, and cash flows. The expanded disclosure guidance also requires a
company to provide information about its strategies and objectives for using derivative instruments; disclose credit-risk-related contingent features in derivative agreements
and information about counterparty credit risk; and present the fair value of derivative instruments and related gains or losses in a tabular format. SFAS No. 161 is effective for fiscal years
and interim periods that begin after November 15, 2008. The Company intends to adopt SFAS No. 161 effective January 4, 2009 and apply its provisions prospectively by providing the
additional disclosures in its financial statements for the first quarter of 2009. The Company has not yet determined if it will also provide comparative information for prior periods.

In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with
generally accepted accounting principles in the U.S. The Company currently does not anticipate that this new accounting standard will have a significant impact on the consolidated financial
statements.

Note 2. Concentration of Credit Risks and Accounts Receivable Factoring Agreements

Accounts receivable potentially expose the Company to concentration of credit risk, as defined by SFAS 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 its customers' financial condition as deemed necessary, but generally does not require collateral to support such receivables. Customer balances are
considered past due based on contractual terms and the Company does not accrue interest on the past due balances. The provision for losses on uncollectible accounts is determined principally on the
basis of past collection experience applied to ongoing evaluations of receivables and the risk of repayment. The allowance for doubtful accounts was approximately $6.9 million and
$6.1 million at September 27, 2008 and December 29, 2007, 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 bankruptcy laws. Once management determines that the receivables are not recoverable, the amounts are removed from the financial records
along with the corresponding reserve balance. Sales to The Procter & Gamble Company ("P&G") accounted for approximately 11% and 12% of the Company's sales in the first nine months of fiscal
2008 and 2007, respectively.

The
Company has entered into a factoring agreement to sell, without recourse or discount, certain U.S. company-based receivables to an unrelated third-party financial institution. Under
the current terms of the factoring agreement, the maximum amount of outstanding advances at any one time is $20.0 million, which limitation was subject to change based on the level of eligible
receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. Additionally, the Company has entered into a factoring agreement to sell without
recourse or discount,

10

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POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

certain
non-U.S. company-based receivables to an unrelated third-party financial institution. Under the terms of the factoring agreement, the maximum amount of outstanding advances at any
one time is $10.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the
receivables sold.

During
the first nine months of fiscal 2008, approximately $186.4 million of receivables have been sold under the terms of the factoring agreements, compared to approximately
$144.6 million during the first nine months of fiscal 2007. The sale of these receivables accelerated the collection of the Company's cash, reduced credit exposure and lowered the Company's net
borrowing costs. Sales of accounts receivable are reflected as a reduction ofAccounts receivable, netin the Consolidated Balance Sheets as they meet
the applicable criteria of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 140"). The amount due from the
factoring companies, net of advances received from the factoring companies, was $6.5 million and $7.4 million at September 27, 2008 and December 29, 2007, respectively, and
is included inOther current assetsin the Consolidated Balance Sheets. The Company pays factoring fees associated with the sale of receivables based on
the dollar value of the receivables sold. Such fees are immaterial and are included inForeign currency and other gain, netin the Consolidated
Statements of Operations.

Note 3. Special Charges, Net

The Company's operating income includes special charges, net resulting from corporate-level decisions or Board actions, such as to
consolidate and restructure certain operations, pursue certain transaction opportunities, or relocate its corporate offices. Additionally, the Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances, including the aforementioned, indicate that the carrying amounts may not be recoverable. A summary of such charges, net is presented in the
following table (in thousands):

Three Months
Ended
September 27,
2008

Three Months
Ended
September 29,
2007

Nine Months
Ended
September 27,
2008

Nine Months
Ended
September 29,
2007Asset impairment charges

$


$
12,156

$


$
12,491Restructuring and plant realignment costs


1,512


8,175


4,262


17,450Other costs


175


19


582


306$
1,687

$
20,350

$
4,844

$
30,247


Asset impairment charges

During the third quarter of fiscal 2007, based on a continuing weakening of sales, earnings and cash flows related to certain of the
Company's Canadian operations, the Company evaluated such assets within the Oriented Polymers segment for impairment and recorded a charge of $9.5 million, consistent with the provisions of
SFAS No. 144. Also, in conjunction with the closure of its Neunkirchen, Germany plant, the Company completed an evaluation of the Neunkirchen real property for impairment and, based on the
third-party appraisal of such assets, recorded a non-cash charge of approximately $3.0 million associated with the write-down of such assets, included in the nonwovens
segment, to estimated fair value less costs to sell.

11

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POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Restructuring and plant realignment costs

Accrued costs for restructuring and plant realignment efforts are included inAccounts payable and accrued
liabilitiesin the Consolidated Balance Sheets. These costs generally arise from restructuring initiatives intended to result in lower working capital levels and improved
operating performance and profitability through: (i) reducing headcount at both the plant and corporate levels and the realignment of management structures; (ii) improving manufacturing
productivity and reducing corporate costs; and (iii) rationalizing certain assets, businesses and employee benefit programs. The following table summarizes the components of the accrued
liability with respect to the Company's business restructuring activities as of, and for, the nine-month period ended September 27, 2008 (in thousands):

Balance accrued at beginning of year

$
5,9032008 restructuring and plant realignment costs


4,262Cash payments


(8,134
)Adjustments


123Balance accrued at end of period

$
2,154


The
restructuring and plant realignment costs in the three and nine month periods of fiscal 2008 are primarily comprised of (i) $0.4 million and $3.3 million,
respectively, of costs related to the previously announced closure of the Neunkirchen, Germany facility, (ii) $0.7 million and $0.9 million, respectively, of costs related to the
previously announced closing of the Landisville, New Jersey facility, (iii) $0.5 million of costs related to a management restructuring within the Company's Latin America operations, and
(iv) a reduction of $0.1 million and $0.4 million, respectively, in amounts previously accrued pertaining to the Company's severance plan for certain U.S. salaried employees in
accordance with the provisions of SFAS No. 112.

The
Company recognized $3.3 million of cash restructuring charges in the nine months ended September 27, 2008 related to the previously announced closure of the
Neunkirchen, Germany facility. Production activities at the facility ceased as of September 29, 2007. The current year charges include $0.6 million related to employee termination
expenses and $2.7 million related to equipment relocation and other associated shut-down costs.

On
May 30, 2008, the Board of Directors of the Company approved a plan to consolidate its operations in the U.S. In June 2008, the Company communicated a plan to affected
employees that it planned to close the Landisville, New Jersey plant by the end of the third quarter of fiscal 2008 to better align the Company's capabilities with its long-term strategic
direction. The plant closing includes the reduction of approximately 77 positions when such efforts are completed. Production activities at the facility ceased in August, 2008. During the nine months
ended September 27, 2008, the Company recognized $0.6 million of employee termination costs and $0.3 million of other associated shut-down costs. The Company estimates
that it will recognize total cash restructuring charges in fiscal 2008 of approximately $1.5 - $3.0 million, comprised of approximately $0.5 - $1.0 million for employee
termination expenses, which excludes severance amounts previously accrued pursuant to SFAS No. 112, and $1.0 - $2.0 million for equipment removal and other associated
shut-down costs.



The restructuring and plant realignment costs in the three and nine month periods of fiscal 2007 were principally associated with
(i) the Company's closure of two of its Nonwovens plants in the United States, which was communicated to affected employees in January 2007, in the amounts of $2.2 million

12

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

and
$7.0 million, respectively, (ii) the Company's closure of its plant in Neunkirchen, Germany, which was communicated to affected employees in July 2007, in the amount of
$5.6 million, which was recognized in the third quarter of fiscal 2007, (iii) a settlement loss, recognized in the first quarter of fiscal 2007, associated with a partial curtailment of
a defined benefit pension plan at one of the Company's Canadian operations in the amount of $3.8 million, and (iv) other costs of $0.4 million and $1.0 million,
respectively, primarily related to the relocation of the corporate headquarters to Charlotte, North Carolina.

Other costs

During the three and nine month periods of fiscal 2008, the Company incurred $0.2 million and $0.6 million, respectively,
of costs associated with the previously disclosed negotiations regarding the sale by the Company of certain assets in the Oriented Polymers segment. During the third quarter of fiscal 2008, the
Company terminated such negotiations and the sale transaction is not currently expected to occur.

During
the first nine months of fiscal 2007, the Company incurred approximately $0.3 million of additional third-party costs associated with the investigation by the Board of
Directors initiated in fiscal 2006 that led to the departure of the Company's then Chief Executive Officer and its Vice President, Global Purchasing, and the resulting hiring of its current Chief
Executive Officer.

Note 4. Inventories

Inventories are stated at the lower of cost or market primarily using the first-in, first-out method of
accounting and consist of the following (in thousands):

September 27,
2008

December 29,
2007Finished goods

$
78,052

$
71,855Work in process


19,672


20,125Raw materials and supplies


47,068


47,746$
144,792

$
139,726


Inventories
are net of reserves, primarily for obsolete and slow-moving inventories, of approximately $12.4 million and $13.0 million at September 27,
2008 and December 29, 2007, respectively. Management believes that the reserves are adequate to provide for losses in the normal course of business.

13

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 5. Intangibles and Loan Acquisition Costs

Intangibles and loan acquisition costs consist of the following (in thousands):

September 27,
2008

December 29,
2007Cost:Proprietary technology

$
2,541

$
2,328Loan acquisition costs


9,205


9,205Other


2,255


2,20714,001


13,740Less accumulated amortization


(6,006
)

(4,399
)$
7,995

$
9,341


Components
of amortization expense are shown in the table below (in thousands):

Three Months
Ended
September 27,
2008

Three Months
Ended
September 29,
2007

Nine Months
Ended
September 27,
2008

Nine Months
Ended
September 29,
2007Amortization of:Intangibles with finite lives, included in selling, general and administrative expenses

$
207

$
200

$
619

$
469Loan acquisition costs included in interest expense, net


345


345


1,036


1,034Total amortization expense

$
552

$
545

$
1,655

$
1,503


Intangibles are amortized over periods generally ranging from 4 to 6 years. Loan acquisition costs are amortized over the life of the
related debt.

Note 6. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities in the Consolidated Balance Sheets include salaries, wages, incentive compensation and other
fringe benefits of $21.3 million and $18.3 million as of September 27, 2008 and December 29, 2007, respectively.

14

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 7. Debt

Long-term debt consists of the following (in thousands):

September 27,
2008

December 29,
2007Credit Facility, as defined below, stated interest rates for U.S. dollar borrowings are based on a specified base plus a specified margin and are subject
to certain terms and conditions:First Lien Term Loaninterest at 5.73% and 7.09% as of September 27, 2008 and December 29, 2007, respectively; due in
mandatory quarterly payments of approximately $1.0 million, subject to additional payments from annual excess cash flows, as defined by the Credit Facility, with the balance due November 22, 2012

$
367,225

$
390,300Revolving Credit Facility Loaninterest at 6.25% as of September 27, 2008; balance due November 22, 2010


1,500


Argentine Facilities:Argentine Peso Loaninterest at 14.50% and 13.28% as of September 27, 2008 and December 29, 2007, respectively;
denominated in Argentine pesos with 32 quarterly payments of approximately $0.3 million that began in August 2008


8,223


7,617Argentine Peso Loan for working capital fundinginterest at 14.50% as of September 27, 2008; denominated in Argentine pesos
with 18 quarterly payments of approximately $0.1 million that began in July 2008


2,615


United States Dollar Loaninterest at 5.71% and 8.26% as of September 27, 2008 and December 29, 2007, respectively;
denominated in U.S. dollars with 32 quarterly payments of approximately $0.9 million that began in September 2008


26,742


24,524Other


891


863407,196


423,304Less: Current maturities


(9,994
)

(7,790
)$
397,202

$
415,514


Credit Facility

The Company's credit facility (the "Credit Facility"), which was entered into on November 22, 2005 and amended as of
December 8, 2006, consists of a $45.0 million secured revolving credit facility and a $410.0 million first-lien term loan at the original borrowing date.

All
borrowings under the 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. The

15

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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. Commitment fees under the Credit Facility are equal to 0.50% of the daily unused amount of the revolving credit commitment. The Credit Facility limits
restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Credit Facility contains covenants and events of default
customary for financings of this type, including leverage and interest expense coverage covenants, as well as default provisions related to certain types of defaults by the Company or its subsidiaries
in the performance of their obligations regarding borrowings in excess of $10.0 million. The Credit Facility requires that the Company maintain a leverage ratio of not more than 4.00:1.00, as
of September 27, 2008, with decreases over time, with the next change occurring April 4, 2009, at which time the leverage ratio requirement will be 3.50:1.00, thereby narrowing the
margin for
compliance. The interest expense coverage ratio requirement at September 27, 2008 was that it not be less than 2.75:1.00, with increases over time, with the next change occurring
April 4, 2009, at which time the requirement will be 3.00:1.00. The Company was in compliance with the debt covenants under the Credit Facility at September 27, 2008. These ratios are
calculated on a trailing four-quarter basis. As a result, any decline in the Company's future operating results will negatively impact its coverage ratios. Although the Company intends to
remain in compliance with these covenant requirements, the Company's failure to comply with these financial covenants, without waiver or amendment from its lenders, could have a material adverse
effect on its liquidity and operations, including limiting the Company's ability to borrow under the Credit Facility.

The
first-lien term loan requires mandatory payments of approximately $1.0 million per quarter and requires the Company to use a percentage of proceeds from excess
cash flows, as defined by the Credit Facility and determined based on year-end results, to reduce its then outstanding balances under the Credit Facility. Excess cash flows required to be
applied to the repayment of the Credit Facility are generally calculated as 50% of the net amount of the Company's available cash generated from operations adjusted for the cash effects of interest,
taxes, capital expenditures, changes in working capital and certain other items. The amounts of excess cash flows for future periods are based on year-end results. The Company currently
estimates that the excess cash flow payment with respect to fiscal 2008, which would be payable in March 2009, will be lower than the amount of repayments made on the first-lien term loan
during the first nine months of fiscal 2008 and that no additional excess cash flow payments will be due with respect to fiscal 2008. The Company has classified the mandatory payments of approximately
$1.0 million per quarter in theCurrent portion of long-term debtin the Consolidated Balance Sheets as of September 27, 2008
and December 29, 2007. No additional amounts were due under the excess cash flow provisions of the Credit Facility with respect to fiscal 2007.

The
interest rate applicable to borrowings under the Credit Facility is based on three-month London Interbank Offered Rate ("LIBOR") plus a specified margin. The applicable margin for
borrowings under both the first-lien term loan and the revolving credit facility is 225 basis points. The Company may, from time to time, elect to use an Alternate Base Rate ("ABR") for
its borrowings under the revolving credit facility based on the bank's base rate plus a margin of 75 to 125 basis points based on the Company's total leverage ratio. As of September 27, 2008,
there was $1.5 million of borrowings under the revolving credit facility. There were no borrowings under the revolving credit facility as of December 29, 2007. As of September 27,
2008, capacity under the revolving credit facility had been reserved for outstanding letters of credit in the amount of $2.0 million, as described below. Average daily borrowings under the
revolving credit facility, which were largely Alternate Base Rate-based borrowings, were $7.3 million at

16

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

an
average interest rate of 6.3% for the period from December 30, 2007 to September 27, 2008. The revolving credit portion of the Credit Facility matures on November 22, 2010.

In
accordance with the terms of the Credit Facility, the Company maintained its position in a cash flow hedge agreement originally entered into in February 2007. This cash flow hedge
agreement
effectively converts $240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085%. The cash flow hedge agreement terminates on June 29,
2009 and is described more fully in Note 11 to the consolidated financial statements. During a portion of the first nine months of fiscal 2007, the Company had a position in a prior cash flow
hedge agreement, which terminated on May 8, 2007 and effectively converted $212.5 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 3.383%.

Subject
to certain terms and conditions, a maximum of $25.0 million of the Credit Facility may be used for revolving letters of credit. As of September 27, 2008, the
Company has effectively reserved capacity under the revolving credit facility in the amount of $2.0 million relating to standby and documentary letters of credit outstanding. These letters of
credit are primarily provided to certain administrative service providers. None of these letters of credit had been drawn on at September 27, 2008. As of September 27, 2008, the Company
also had other outstanding letters of credit in the amount of $6.0 million primarily provided to certain raw material vendors. None of these letters of credit had been drawn on at
September 27, 2008.

Subsidiary Indebtedness

In fiscal 2006, the Company's operations in China entered into short-term credit facilities denominated in Chinese renminbi
with financial institutions in China. These short-term credit facilities, which were intended to finance working capital requirements, were extended in fiscal 2007 and paid in full during
fiscal 2008. In fiscal 2007 and fiscal 2008, the Company's operations in Argentina entered into short-term credit facilities intended to finance working capital requirements. Outstanding
indebtedness under these facilities was $9.3 million and $3.7 million at September 27, 2008 and December 29, 2007, respectively, which facilities mature at various dates
through March 2009. Borrowings under these facilities are shown inShort-term borrowingsin the Consolidated Balance Sheets.

In
January 2007, the Company's subsidiary in Argentina entered into an arrangement with banking institutions in Argentina to finance the installation of a new spunmelt line at the joint
venture facility near Buenos Aires, Argentina. The maximum borrowings available under the arrangement, not including any interest added to the debt, amount to 26.5 million Argentine pesos with
respect to an Argentine peso-denominated loan, and $30.3 million with respect to a U.S. dollar-denominated loan and are secured by pledges covering (i) the subsidiary's
existing equipment lines; (ii) the outstanding stock of the subsidiary; and (iii) the new machinery and equipment being purchased, as well as a trust assignment agreement related to a
portion of receivables due from certain major customers of the subsidiary. As of September 27, 2008, the outstanding indebtedness was approximately $37.6 million, consisting of
$10.8 million Argentine peso-denominated loans and a $26.7 million U.S. dollar-denominated loan. Current maturities of this debt amount to $5.1 million as of
September 27, 2008. The interest rate applicable to borrowings under these term loans is based on LIBOR plus 290 basis points for the U.S. dollar-denominated loan and Buenos Aires Interbanking
Offered Rate plus 475 basis points for the Argentine peso-denominated loan. Principal and interest payments began in July
2008 with the loans maturing as follows: approximately $2.6 million in September 2012, approximately $8.2 million in April 2016 and the balance of $26.7 million maturing in May
2016.

17

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

In
March 2006, one of the Company's wholly-owned Canadian subsidiaries entered into a term loan totaling approximately $0.6 million with an agency of the Canadian government,
which agency focuses on generating capital investment in the country, which currently provides for monthly payments of principal and interest at 6.25% per year. Based on the expectation that the
principal will be repaid by the end of fiscal 2008, this debt is shown inCurrent portion of long-term debtin the Consolidated Balance
Sheets as of September 27, 2008 and December 29, 2007.

Note 8. Income Taxes

During the three and nine months ended September 27, 2008, the Company recognized income tax expense of $2.5 million and
$7.7 million, respectively, on consolidated income before income taxes and minority interests of $4.2 million and $13.3 million, respectively. This income tax expense was
different than such expense determined at the U.S. federal statutory rate primarily due to losses in certain jurisdictions for which no income tax benefits are anticipated, foreign withholding taxes
for which tax credits are not anticipated, U.S. state income taxes, tax uncertainties under the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109" ("FIN 48"), foreign taxes calculated at statutory rates different than the U.S. federal statutory rate and the institution of a flat tax regime
in Mexico.

During
the three and nine months ended September 29, 2007, the Company recognized income tax expense of $5.2 million and $12.3 million, respectively, on consolidated
losses before income taxes and minority interests of $15.3 million and $5.5 million, respectively. This income tax expense was significantly higher than the U.S. federal statutory rate
primarily due to losses in certain jurisdictions for which no income tax benefits were recognized, foreign withholding taxes, for which tax credits were not anticipated, U.S. state income taxes, tax
uncertainties under FIN 48 and foreign taxes calculated at statutory rates different than the U.S. federal statutory rate.

On
December 31, 2006, the first day of fiscal 2007, the Company adopted the provisions of FIN 48 and FASB Staff Position No. FIN 48-1, "Definition of
Settlement in FASB Interpretation No. 48." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes," by prescribing a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. Under FIN 48, the financial statement effects of a tax position should initially be recognized when
it is more likely than not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not
recognition threshold should initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing
authority.

As
a result of the implementation of FIN 48, the Company increased the liability for unrecognized tax benefits by $5.9 million and reduced retained earnings by
$5.9 million for the cumulative effect of applying the standard. Additionally, with respect to pre-emergence tax positions, consistent with the provisions of AICPA Statement of
Position 90-7, "Financial Reporting of Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"), the Company increased the liability for unrecognized tax
benefits, included inOther noncurrent liabilitiesin the Consolidated Balance Sheets, by $2.4 million, decreased deferred tax liabilities by
$15.4 million, increased deferred tax assets by $0.1 million and increased additional paid-in capital by $13.1 million. With respect to the net $8.3 million
liability recorded for unrecognized tax benefits upon the adoption of FIN 48, $5.0 million represents penalties and interest.

18

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

At
implementation of FIN 48, the Company increased the liability for unrecognized tax benefits by $9.7 million, which included $5.0 million of interest and
penalties. Additionally, the Company increased its unrecognized tax benefits during fiscal 2007 by $4.6 million, which included $1.6 million of interest and penalties. During the nine
months ended September 27, 2008, the Company increased the liability for unrecognized tax benefits by $3.0 million, which included interest and penalties of $1.8 million.

Of
the total unrecognized tax benefits of $17.4 million as of September 27, 2008, $13.5 million represents the amount of unrecognized tax benefits that, if
recognized, would affect the effective income tax rate in future periods. There have not been any material decreases or reductions in the unrecognized tax benefits, since the adoption of
FIN 48, relating to settlements with taxing authorities or as a result of a lapse of the applicable statute of limitations.

Included
in the balance of unrecognized tax benefits at September 27, 2008 was $0.3 million related to tax positions for which it is reasonably possible that the total
amounts could significantly change during the next twelve months. This amount represents a decrease in unrecognized tax benefits comprised of items related to state settlement negotiations and the
lapse of statutes of limitations.

Management
judgment is required in determining tax provisions and evaluating tax positions. Although management believes its tax positions and related provisions reflected in the
consolidated financial statements are fully supportable, it recognizes that these tax positions and related provisions may be challenged by various tax authorities. These tax positions and related
provisions are reviewed on an ongoing basis and are adjusted as additional facts and information become available, including progress on tax audits, changes in interpretations of tax laws,
developments in case law and closing of statute of limitations. The Company's tax provision includes the impact of recording reserves and any changes thereto.

As
of September 27, 2008, the Company has a number of open tax years. The major jurisdictions where the Company files income tax returns include the United States, Canada, China,
The Netherlands, France, Germany, Mexico, Colombia, and Argentina. The U.S. federal tax returns have been examined through fiscal 2004 and the foreign jurisdictions generally remain open and subject
to examination by the relevant tax authorities for the tax years 2001 through 2007. Although the results of current tax audits and reviews related to open tax years have not been finalized, management
believes that the ultimate outcomes will not have a material adverse effect on the Company's financial position, results of operations or cash flows.

The
Company continues to recognize interest and/or penalties related to income taxes as a component of income tax expense.

There
were income tax refunds receivable of $4.4 million and $1.8 million at September 27, 2008 and December 29, 2007, respectively. These amounts are
included inOther current assetsin the Consolidated Balance Sheets.

Note 9. Pension and Postretirement Benefit Plans

The Company and its subsidiaries sponsor multiple defined benefit plans and other postretirement benefits that cover certain employees.
Benefits are primarily based on years of service and the employee's compensation. It is the Company's policy to fund such plans in accordance with applicable laws and regulations.

19

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Components
of net periodic benefit costs are as follows (in thousands):

Pension BenefitsThree Months
Ended

Nine Months
EndedSeptember 27,
2008

September 29,
2007

September 27,
2008

September 29,
2007Current service costs

$
633

$
603

$
1,893

$
1,787Interest costs on projected benefit obligation and other


1,684


1,414


5,048


4,187Return on plan assets


(1,875
)

(1,729
)

(5,622
)

(5,118
)Amortization of transition obligation and other


(24
)

(25
)

(72
)

(73
)Settlement loss











3,849Periodic benefit cost, net

$
418

$
263

$
1,247

$
4,632




Postretirement BenefitsThree Months
Ended

Nine Months
EndedSeptember 27,
2008

September 29,
2007

September 27,
2008

September 29,
2007Current service costs

$
9

$
45

$
27

$
133Interest costs on projected benefit obligation and other


84


118


254


348Amortization of transition obligation and other


(96
)

(72
)

(290
)

(211
)Periodic benefit cost, net

$
(3
)
$
91

$
(9
)
$
270


As
of September 27, 2008, the Company had contributed $4.6 million to its pension and postretirement benefit plans for the 2008 benefit year. The Company's contributions
include amounts required to be funded with respect to a defined benefit pension plan relating to one of the Company's Canadian operations. Such requirements include the funding of a projected benefit
obligation calculated based on actuarial assumptions prescribed by Canadian regulations ("Funding Valuation"). As of June 1, 2007 (the date of the most recent Funding Valuation), the projected
benefit obligation per the Funding Valuation exceeded the projected benefit obligation calculated in accordance with SFAS No. 87 "Employers' Accounting for Pensions." The Company presently
anticipates contributing an additional $0.4 million to fund its plans in 2008, for a total of $5.0 million.

During
the first quarter of fiscal 2006, as part of its restructuring and related cost reduction measures, the Company negotiated certain changes with the union representing the
employees of one of the Company's Canadian operations, including a partial curtailment of a defined benefit pension plan. No net gain or loss was incurred as a result of the partial curtailment.
However, based on elections made by plan participants during the second quarter of fiscal 2006, and as approved by Canadian regulatory authorities on January 16, 2007, the Company incurred a
settlement loss associated with employees who have exited the plan. The loss incurred as a result of the partial settlement of the defined benefit pension plan, consisting of the recognition of
previously unamortized actuarial losses in the amount of approximately $3.8 million, was recognized in the first quarter of fiscal 2007 commensurate with

20

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

governmental
approval of the terms of the settlement and upon fulfillment by the Company of its funding requirements in February 2007.

Note 10. Stock Option and Restricted Stock Plans

Stock Option Plan

The 2003 Stock Option Plan (the "2003 Option Plan"), which expires December 3, 2013, was approved by the Company's Board of
Directors and shareholders and is administered by the Compensation Committee of the Board of Directors. The 2003 Option Plan approved the issuance of 400,000 non-qualified stock options to
acquire shares of the Company's Class A Common Stock. The stock options provide for an exercise price of $6.00 per share, have a five-year life and vest, based on the achievement of
various service and financial performance criteria, over a four-year period, with the initial awards beginning their vesting terms as of January 4, 2004. Vesting of the stock
options is accelerated on the occurrence of a change in control. With respect to post-vesting restrictions, the 2003 Option Plan currently provides that each option must be exercised, if
at all, upon the earlier to occur of (i) the date that is five years after the award date of the option or (ii) concurrently upon the consummation of a change in control, as defined. As
of September 27, 2008 and December 29, 2007, the Company had outstanding grants of non-qualified stock options to purchase 355,435 shares and 380,675 shares of the Company's
Class A Common Stock, respectively. Accordingly, at September 27, 2008, there remain 44,565 stock options available to be awarded pursuant to the 2003 Option Plan.

The
Company accounts for the 2003 Option Plan in accordance with the methodology defined in SFAS No. 123(R). As of September 27, 2008, with respect to the 355,435 options
to purchase Class A Common Stock awarded under the 2003 Option Plan, 18,990 are subject to future vesting based on the attainment of future performance targets, which targets had not been
established as of September 27, 2008. Accordingly, pursuant to the provisions of SFAS No. 123(R), 336,445 options to purchase Class A Common Stock have been considered granted
under the 2003 Option Plan as of September 27, 2008. For fiscal 2007, the Company achieved 51% of its performance targets; accordingly, the Company recognized compensation costs for 51% of the
compensation attributable to performance-based awards for the 2007 fiscal year. On March 12, 2008, the Compensation Committee approved vesting of previously granted stock options and restricted
stock at rates in excess of the vesting earned based on actual performance for fiscal 2007. Actual performance for fiscal 2007 would have resulted in vesting approximately 51% of the stock options and
restricted stock grants subject to the annual financial performance vesting requirement under the Company's 2003 Option Plan and/or the Company's 2005 Stock Plan (defined below). The Compensation
Committee, in exercise of its discretion, granted participants vesting credit equal to 100% of target. As a result, the Company has recognized compensation expense in the first quarter of fiscal 2008
associated with the vesting of such awards not earned through the achievement of performance targets for fiscal 2007. The compensation costs related to the 2003 Option Plan were less than
$0.1 million for the three months ended September 27, 2008, and $0.7 million for the nine months ended September 27, 2008 and are included in Selling, general and administrative expensesin the Consolidated Statements of Operations. For the three and nine months ended September 29,
2007, such costs were $0.5 million and $1.4 million, respectively.

21

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Information
regarding the Company's stock options granted, as defined by SFAS No. 123(R), and outstanding as of September 27, 2008 is as follows:

Vested

Expected to
VestFor options granted and outstanding:Number of options


298,874


37,571Weighted average exercise price

$
6.00

$
6.00Weighted average remaining contractual term (years)


0.9


2.9Aggregate intrinsic value (in $000s)

$
1,704

$
214For nonvested options:Compensation cost not yet recognized (in $000s)




$
406Weighted average period of recognition (years)





1.2


SFAS
No. 123(R) requires the estimation of forfeitures when recognizing compensation expense and that the estimate of forfeiture be adjusted over the requisite service period
should actual forfeitures differ from such estimates. Changes in estimated forfeitures, if significant, are recognized through a cumulative adjustment, which is recognized in the period of change and
which impacts the amount of unamortized compensation expense to be recognized in future periods.

Restricted Stock Plans



The Company's shareholders and Board of Directors approved the 2004 Restricted Stock Plan for Directors (the "2004 Restricted Plan"),
which expires in 2014, for the issuance of restricted shares of the Company's Class A Common Stock to Directors of the Company, as defined in the 2004 Restricted Plan. The 2004 Restricted Plan
approved for issuance 200,000 restricted shares and is administered by a committee of the Company's Board of Directors not eligible to receive restricted shares under the 2004 Restricted Plan.

In
the first nine months of fiscal 2008 and fiscal 2007, the Company awarded 15,887 and 6,842 restricted shares, respectively, to members of the Company's Board of Directors for their
Board service to the Company. The cost associated with these restricted stock grants, which vest over periods ranging to eighteen months, totaled approximately $0.1 million and
$0.2 million for the three and nine months ended September 27, 2008, respectively, and are included inSelling, general and administrative
expensesin the Consolidated Statements of Operations. For the three and nine months ended September 29, 2007, these costs approximated $0.1 million and
$0.2 million, respectively.

Additionally,
in April 2007, 50,000 restricted shares were issued pursuant to the terms of the Executive Employment Agreement entered into with the Company's Chief Executive Officer (the
"Executive Employment Agreement"). Such shares vest over a four year service period effective April 23, 2007, and such vesting will be accelerated upon a change in control and the completion of
a minimum service period, as defined. The compensation costs associated with such restricted shares issued under the terms of the Executive Employment Agreement totaled $0.1 million and
$0.2 million for the three and nine months ended September 27, 2008, respectively, and are included inSelling, general and administrative
expensesin the Consolidated Statement of Operations. The compensation costs associated with such restricted shares totaled $0.1 million for the three and nine months
ended September 29, 2007. In addition, during the first nine months of fiscal 2008, 3,937 shares were surrendered to satisfy withholding requirements. Compensation cost not yet recognized for
such

22

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

nonvested
restricted shares issued under the terms of the Executive Employment Agreement was approximately $0.8 million as of September 27, 2008, and the weighted average period of
recognition for such compensation was 1.3 years as of September 27, 2008.

As
of September 27, 2008, there remain 62,437 shares of the Company's Class A Common Stock available to be awarded under the 2004 Restricted Plan.



The Polymer Group, Inc. 2005 Employee Restricted Stock Plan (the "2005 Stock Plan") was approved by the Company's shareholders
and Board of Directors and is administered by the Compensation Committee of the Company's Board of Directors. The 2005 Stock Plan, which expires in 2015, approved for issuance up to 482,000 restricted
shares to employees of the Company. The Compensation Committee may, from time to time, award up to 384,000 shares of restricted stock under the 2005 Stock Plan to such employees and in such amounts
and with specified restrictions as it determines appropriate in the circumstances. The award of restricted stock by the Compensation Committee in excess of the 384,000 shares will also require the
approval of the Board of Directors of the Company. Other than for certain shares initially
awarded and immediately vested on January 20, 2006, shares awarded under the 2005 Stock Plan primarily vest 25% on each of the grant's anniversary dates based on a combination of service and/or
the achievement of certain performance targets. Vesting of the restricted shares, other than those shares issued pursuant to the terms of the Executive Employment Agreement entered into with the
Company's Chief Executive Officer, may be accelerated on the occurrence of a change in control or other events, as defined. Vesting of shares awarded under the Executive Employment Agreement will be
accelerated under a change in control and the completion of a minimum service period, as defined.

During
the first nine months of fiscal 2008, 143,935 restricted shares were awarded to certain employees of the Company, of which 35,000 shares were awarded, and 40,000 shares are
available to be awarded in March 2009 based on achievement of 2008 performance targets, under the terms of the Executive Employment Agreement. In addition, 35,144 shares were surrendered during the
first nine months of fiscal 2008 by employees to satisfy withholding requirements and 11,100 shares were forfeited. During the first nine months of fiscal 2007, 65,800 restricted shares were awarded
to certain employees of the Company, of which 50,000 shares were awarded under the terms of the Executive Employment Agreement. In addition, during the first nine months of fiscal 2007, 12,453 shares
were surrendered by employees to satisfy withholding requirements and 4,010 shares were forfeited.

The
compensation costs associated with the 2005 Stock Plan totaled $0.2 million and $1.5 million for the three and nine months ended September 27, 2008,
respectively, and are included inSelling, general and administrative expensesin the Consolidated Statements of Operations. For the three and nine
months ended September 29, 2007, these costs approximated $0.4 million and $1.0 million, respectively. As of September 27, 2008, awards of 331,210 shares of the Company's
Class A Common Stock are outstanding and, excluding 40,000 shares available for award in March 2009 under the terms of the Executive Employment Agreement, 110,790 shares were available for
future grant under the 2005 Stock Plan.

The
Company accounts for the 2005 Stock Plan in accordance with the methodology defined in SFAS No. 123(R). As of September 27, 2008, of the 371,210 shares awarded and
outstanding, or available for award in March 2009, under the 2005 Stock Plan, 61,443 shares are subject to future vesting based on the attainment of future performance targets, which targets had not
been established as of September 27, 2008. Accordingly, pursuant to the provisions of SFAS 123(R), 309,767 restricted shares

23

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

are
considered granted and outstanding under the 2005 Stock Plan as of September 27, 2008. Compensation cost not yet recognized for nonvested restricted shares considered granted under the 2005
Stock Plan was approximately $1.6 million as of September 27, 2008, and the weighted average period of recognition for such compensation was 1.3 years as of September 27,
2008.



The Polymer Group, Inc. 2008 Long-Term Stock Incentive Plan (the "2008 LTI Stock Plan") was approved by the
Company's shareholders and Board of Directors and is administered by the Compensation Committee of the Company's Board of Directors. The 2008 LTI Stock Plan, which expires in 2018 unless terminated by
the Company's Board of Directors sooner, reserves for issuance under the Plan 425,000 shares of the Company's Class A Common Stock to employees of the Company. The Compensation Committee may,
from time to time, award a variety of equity-based incentives under the 2008 LTI Stock Plan to such employees and in such amounts and with specified restrictions as it determines appropriate in the
circumstances. Such awards may be granted under the 2008 LTI Stock Plan in the form of either incentive stock options, non-statutory stock options, stock appreciation rights, restricted
stock, restricted stock units, stock awards, performance awards or other types of stock awards that involve the issuance of, or that are valued by reference to, shares of the Company's Class A
Common Stock. Vesting, which will be determined by the Compensation Committee of the Company's Board of Directors, may be accelerated on the occurrence of a change in control or other events, as
defined.

During
the first nine months of fiscal 2008, various awards were approved and issued to certain employees of the Company under the 2008 LTI Stock Plan. These awards included 52,026
service-based restricted shares, 10,458 service-based restricted stock units and 125,186 restricted stock units that vest based on the achievement of 2008 performance targets and the completion of
requisite service periods. In addition, during the first nine months of fiscal 2008, 1,054 shares and 2,140 restricted stock units were forfeited. All restricted stock units will be settled in the
form of restricted shares upon vesting. The compensation costs associated with the 2008 LTI Stock Plan totaled $0.1 million and $0.1 million for the three and nine months ended
September 27, 2008, respectively, and are included inSelling, general and administrative expensesin the Consolidated Statements of Operations.
As of September 27, 2008, awards of 50,972 shares of the Company's Class A Common Stock and 133,504 restricted stock units are outstanding and 240,524 shares were available for future
grant under the 2008 LTI Stock Plan. Compensation cost not yet recognized for awards under the 2008 LTI Stock Plan was approximately $2.7 million as of September 27, 2008, and the
weighted average period of recognition for such compensation was 1.1 years as of September 27, 2008.

Note 11. Derivative and Other Financial Instruments and Hedging Activities

The Company uses derivative financial instruments to manage market risks and reduce its exposure to fluctuations in interest rates and
foreign currencies. All hedging transactions are authorized and executed under clearly defined policies and procedures, which prohibit the use of financial instruments for trading purposes.

The
Company uses interest-rate derivative instruments to manage its exposure related to movements in interest rates with respect to its debt instruments. As indicated in
Note 7 "Debt" to the consolidated financial statements, to mitigate its interest rate exposure as required by the Credit Facility, the Company has entered into a pay-fixed,
receive-variable interest rate swap, effectively converting the variable LIBOR-based interest payments associated with $240.0 million of the debt to fixed amounts at a LIBOR rate of 5.085%. The
notional amount of this contract, which became effective on May 8, 2007 and

24

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

expires
on June 29, 2009, was $240.0 million at both September 27, 2008 and December 29, 2007. Cash settlements are made quarterly and the floating rate is reset quarterly,
coinciding with the reset dates of the current Credit Facility. Previously, the Company had a similar pay-fixed, receive-variable interest rate swap contract, which effectively converted
the variable LIBOR-based interest payments associated with $212.5 million of the debt to fixed amounts at a LIBOR rate of 3.383%, which expired on May 8, 2007.

In
accordance with SFAS No. 133, the Company designated these swaps as cash flow hedges of the variability of interest payments with changes in the fair value of the swap recorded
toAccumulated other comprehensive incomein the Consolidated Balance Sheets. The fair value of the interest rate swap that expires on June 29,
2009, based on indicative price information obtained via a third party valuation, was an obligation of $3.2 million and $4.3 million as of September 27, 2008 and
December 29, 2007, respectively. Those amounts are included inOther noncurrent liabilitiesin the Consolidated Balance Sheets.

The
interest rate swap is valued on a recurring basis at fair value, as described above (Level 2 input, as defined by SFAS No. 157). The unrealized gain in the interest
rate swap's fair value of $1.1 million during the first nine months of fiscal 2008 was reported as an adjustment toAccumulated Other Comprehensive
Incomein the Consolidated Balance Sheet as of September 27, 2008.

The
impact of these swaps onInterest expense, netin the Consolidated Statements of Operations was an increase of $1.4 million and
$3.0 million for the three and nine months ended September 27, 2008, respectively. For the three and nine months ended September 29, 2007, the impact was a decrease of
$0.2 million and $1.7 million, respectively.

Note 12. Earnings Per Share and Shareholders' Equity

The following is a reconciliation of basic net earnings per common share to diluted net earnings per common share for the three and
nine months ended September 27, 2008 (in thousands, except per share data):

Net Income
(EPS Numerator)

Average Shares
Outstanding
(EPS Denominator)

Earnings Per
Common ShareThree months ended September 27, 2008Basic

$
3,422


19,335.5

$
0.18Potential shares exercisable/earned under share-based plans





300.8Less: shares which could be repurchased under treasury stock method





(162.4
)Diluted

$
3,422


19,473.9

$
0.18Nine months ended September 27, 2008Basic

$
7,226


19,257.8

$
0.37Potential shares exercisable/earned under share-based plans





300.8Less: shares which could be repurchased under treasury stock method





(140.4
)Diluted

$
7,226


19,418.2

$
0.37


25

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Under
the treasury stock method, shares represented by the exercise of 35,080 options and 98,073 nonvested restricted shares were not included in diluted earnings per
share for the three and nine month periods ended September 27, 2008 because to do so would have been anti-dilutive.

Calculations
have not been presented to reconcile basic earnings per common share to diluted earnings per common share for the three and nine months ended September 29, 2007 as
the impact of such calculations would be anti-dilutive. Average shares outstanding for the three and nine months ended September 29, 2007 were 19,387,680 and 19,345,681,
respectively.

As
of September 27, 2008, the Company's authorized capital stock consisted of the following classes of stock:

Type

Par Value

Authorized SharesPreferred stock

$
.01


173,000Class A common stock

$
.01


39,200,000Class B convertible common stock

$
.01


800,000Class C convertible common stock

$
.01


118,453Class D convertible common stock

$
.01


498,688Class E convertible common stock

$
.01


523,557


All
classes of common stock have similar voting rights. In accordance with the Amended and Restated Certificate of Incorporation, all shares of Class B, C, D and E Common Stock
may be converted into an equal number of shares of Class A Common Stock. The shares of preferred stock may be issued from time to time with such designation, preferences, participation rights
and optional or special rights (including, but not limited to, dividend rates, voting rights, maturity dates and the like) as determined by the Board of Directors.

All
authorized shares of the Class D Common Stock and Class E Common Stock are issuable upon the exercise, at $.01 per share, of Series A Warrants and
Series B Warrants, respectively ("Warrants"). Such Warrants have (i) customary adjustments for stock splits, stock dividends, and consolidations, (ii) specified
anti-dilution protection for sales of securities by the Company at a price below the fair market value of such securities if offered to common stockholders and (iii) specified
anti-dilution protection for sales of securities by the Company at a discount that exceeds 25% of the fair market value of such securities. Except as set forth in the preceding sentence,
the Warrants do not have anti-dilution provisions. The Warrants (a) are exercisable in the event of a notice provided by the Company of a distribution to shareholders of a minimum
amount ($600 million in the case of the Series A Warrants, and $1.15 billion in the case of the Series B Warrants), and (b) terminate upon the earlier to occur of
(i) March 4, 2010, or (ii) a change in control of the Company (as defined in the Warrant Certificates). Pursuant to the adjustment provisions of the Warrant Certificates, the
Company may be required, immediately prior to exercise of the warrants, to increase the authorized shares of Class D Common Stock and Class E Common Stock presented in the table above
relating to the Series A Warrants and the Series B Warrants, respectively, if the authorized shares are insufficient for the number of warrants to be exercised.

26

---





POLYMER GROUP, INC.        Notes to Consolidated Financial Statements

Note 13. Segment Information

The Company's reportable segments consist of its primary operating divisionsNonwovens and Oriented Polymers. This reflects
how the overall business is managed on a regular basis by the Company's senior management and reviewed by the Board of Directors. Each of these businesses sells to different end-use
markets, such as hygiene, medical, wipes and industrial markets. Sales to P&G accounted for more than 10% of the Company's sales in each of the periods presented. Sales to this customer are reported
primarily in the Nonwovens segment and the loss of these sales would have a material adverse effect on this segment. The Company recorded charges in the Consolidated Statements of Operations during
the three and nine months ended September 27, 2008 and the three and nine months ended September 29, 2007 relating to special charges, net that have not been allocated to the segment
data.

Financial
data by segment is as follows (in thousands):

Three Months Ended

Nine Months EndedSeptember 27,
2008

September 29,
2007

September 27,
2008

September 29,
2007Net salesNonwovens

$
257,834

$
216,447

$
730,960

$
665,525Oriented Polymers


43,203


39,739


134,723


128,713$
301,037

$
256,186

$
865,683

$
794,238Operating income (loss)Nonwovens

$
11,924

$
20,643

$
52,113

$
64,237Oriented Polymers


3,720


(1,415
)

6,631


897Unallocated Corporate


(4,934
)

(6,118
)

(18,763
)

(17,508
)10,710


13,110


39,981


47,626Special charges, net


(1,687
)

(20,350
)

(4,844
)

(30,247
)$
9,023

$
(7,240
)
$
35,137

$
17,379Depreciation and amortization expenseNonwovens

$
10,978

$
11,083

$
33,814

$
34,248Oriented Polymers


1,015


2,951


3,434


8,001Unallocated Corporate


131


157


388


502Depreciation and amortization expense included in operating income


12,124


14,191


37,636


42,751Amortization of loan acquisition costs


345


345


1,036


1,034$
12,469

$
14,536

$
38,672

$
43,785Capital spendingNonwovens

$
7,326

$
25,554

$
27,437

$
45,131Oriented Polymers


52


289


458


809Corporate


125


220


519


433$
7,503

$
26,063

$
28,414

$
46,373


27

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

September 27,
2008

December 29,
2007Division assetsNonwovens

$
770,046

$
761,750Oriented Polymers


82,474


85,428Corporate


9,149


12,197Eliminations


(94,145
)

(108,704
)$
767,524

$
750,671


Geographic
Data:

Geographic
data for the Company's operations, based on the geographic region that sales are made from, are presented in the following table (in thousands):

Three Months Ended

Nine Months EndedSeptember 27,
2008

September 29,
2007

September 27,
2008

September 29,
2007Net salesUnited States

$
119,203

$
105,405

$
346,526

$
348,357Canada


25,802


26,203


78,757


80,924Europe


50,688


45,464


154,034


148,367Asia


33,882


23,419


91,314


61,451Latin America


71,462


55,695


195,052


155,139$
301,037

$
256,186

$
865,683

$
794,238Operating income (loss)United States

$
(1,704
)
$
1,146

$
1,023

$
6,478Canada


1,693


(2,077
)

3,162


(2,329
)Europe


2,466


2,331


8,004


9,644Asia


4,814


3,623


12,098


8,328Latin America


3,441


8,087


15,694


25,50510,710


13,110


39,981


47,626Special charges, net


(1,687
)

(20,350
)

(4,844
)

(30,247
)$
9,023

$
(7,240
)
$
35,137

$
17,379Depreciation and amortization expenseUnited States

$
4,375

$
4,581

$
13,132

$
14,492Canada


505


2,397


1,876


6,357Europe


1,522


2,049


5,507


6,606Asia


2,240


2,001


6,566


5,789Latin America


3,482


3,163


10,555


9,507Depreciation and amortization expense included in operating income


12,124


14,191


37,636


42,751Amortization of loan acquisition costs


345


345


1,036


1,034$
12,469

$
14,536

$
38,672

$
43,785


28

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

September 27,
2008

December 29,
2007Identifiable assets (including intangible assets)United States

$
272,356

$
283,242Canada


46,777


47,736Europe


191,307


203,048Asia


105,415


102,225Latin America


245,924


217,338Eliminations


(94,255
)

(102,918
)$
767,524

$
750,671


Note 14. Foreign Currency and Other (Gain) Loss, Net

Components of foreign currency (gain) loss are shown in the table below (in thousands):

Three Months Ended

Nine Months EndedSeptember 27,
2008

September 29,
2007

September 27,
2008

September 29,
2007Included in operating income

$
2,348

$
464

$
495

$
(436
)Included in foreign currency and other gain, net


(3,596
)

(511
)

(4,002
)

(360
)$
(1,248
)
$
(47
)
$
(3,507
)
$
(796
)


For
international subsidiaries which have the U.S. dollar as their functional currency, local currency transactions are remeasured into U.S. dollars, using current rates of exchange for
monetary assets and liabilities. Gains and losses from the remeasurement of such monetary assets and liabilities are reported inForeign currency (gain) loss,
netin the Consolidated Statements of Operations. Likewise, for international subsidiaries which have the local currency as their functional currency, gains and losses from the
remeasurement of monetary assets and liabilities not denominated in the local currency are reported inForeign currency (gain) loss, netin the
Consolidated Statements of Operations. Additionally, currency gains and losses have been incurred on intercompany loans between subsidiaries, and to the extent that such loans are not deemed to be
permanently invested, such currency gains and losses are also reflected inForeign currency and other gain, netin the Consolidated Statements of
Operations.

The
Company includes gains and losses on receivables, payables and other operating transactions as a component of operating income inForeign currency (gain)
loss, net. Other foreign currency gains and losses, primarily related to intercompany loans and debt and other non-operating activities, are included in Foreign currency and other gain,
net.

Additionally,
included inForeign currency and other gain, netfor the nine months ended September 29, 2007 is the cash recovery
from the minority shareholder of the Company's Argentine subsidiary of legal and other costs associated with a prior period legal action of approximately $1.8 million.

Note 15. Commitments and Contingencies

The Company is not currently a party to any pending legal proceedings other than routine litigation incidental to the business of the
Company, none of which is deemed material.

29

---



POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

On
July 5, 2007, the Company received a call from the Division of Enforcement of the United States Securities and Exchange Commission (the "SEC") regarding the investigation in
fiscal 2006 by the Company's Audit Committee into certain transactions between the Company and an equipment supplier and related matters. In response to various requests from the SEC, the Company has
furnished documents and has met with the SEC to explain the Audit Committee's process and to otherwise respond to any questions. As of October 2, 2008, the Company has been notified that this
investigation has been completed as to the Company, against which the Division of Enforcement does not intend to recommend any enforcement action by the SEC.

The
Company has committed capital projects, including the installation of a new spunmelt line in San Luis Potosi, Mexico. Total remaining payments with respect to these major capital
expansion projects as of September 27, 2008 totaled approximately $42.9 million, which are expected to be substantially expended over fiscal year 2008 and through the third quarter of
fiscal 2009. On September 30, 2008, the Company entered into a series of foreign exchange forward contracts to manage its U.S.-dollar exposure on Euro-based obligations for firm
commitments related to a capital expenditure project. In accordance with SFAS No. 133, the Company designated the forward contracts as a fair value hedge of an unrecognized firm commitment. In
addition, the forward contracts, which mature at varying dates in fiscal 2009, are expected to be completely effective in hedging the specifically-covered unrecognized firm commitment. The Company
currently has approximately $33.3 million of notional amount in outstanding contracts with a third party financial institution.

Note 16. Supplemental Cash Flow Information

Noncash investing or financing activities in the first nine months of fiscal 2008 included the surrender of 39,081 shares of the
Company's Class A Common Stock to the
Company by participants in the 2005 Stock Plan and in the 2004 Restricted Plan in the amount of $0.5 million to satisfy employee withholding tax obligations.

Noncash
investing or financing activities in the first nine months of fiscal 2007 included the surrender of 12,453 shares of the Company's Class A Common Stock to the Company by
participants in the 2005 Stock Plan in the amount of $0.3 million to satisfy employee withholding tax obligations. Also, the Company recorded $5.0 million of property, plant and
equipment additions, for which payment had not been made as of September 29, 2007.

30

---





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 our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes
thereto contained in Item 1 of Part I to this Quarterly Report on Form 10-Q and as contained in our Annual Report on Form 10-K for the fiscal year
ended December 29, 2007. In addition, it should be noted that our gross profit margins may not be comparable to other companies since some entities classify shipping and handling costs in cost
of goods sold and others, including us, include such costs in selling, general and administrative expenses. Similarly some entities, including us, include foreign currency gains and losses resulting
from operating activities as a component of operating income, and some entities classify all foreign currency gains and losses outside of operating income.

Overview

We are a leading global innovator, manufacturer and marketer of engineered materials, focused primarily on the production of nonwovens.
Nonwovens are high value-added, high performance and low-cost alternative materials developed as an outgrowth of paper, textile and chemical technologies, with critical characteristics
including absorbency, tensile strength, softness and barrier properties. Our products, which typically comprise only a small percentage of the final product's total cost, are the critical substrates
and components for disposable consumer applications such as baby diapers, feminine hygiene products, household and personal wipes, disposable medical applications, such as surgical gowns and drapes,
and for various durable industrial applications including automotive interiors, furniture and bedding, filtration and protective apparel.

We
have one of the largest global platforms in our industry, with 17 manufacturing and converting facilities throughout the world, and a presence in eight countries. We are strategically
located near many of our key customers in order to increase our effectiveness in addressing local and regional demand as many of our products do not ship economically over long distances. We work
closely with our customers, which include well-established multi-national and regional consumer and industrial product manufacturers, and use innovative technologies to provide engineered
solutions to meet increasing consumer demand for more sophisticated products. We believe that we are one of the leading participants in the majority of the markets in which we compete and have, we
believe, one of the broadest and most advanced technology portfolios in the industry.

We
compete primarily in the worldwide nonwovens market. Based on certain industry sources, management estimates that this market is over $20.0 billion with an expected
5.0-9.0% compound annual growth rate (CAGR) over the next five years. Demand in developing regions is forecasted to grow in excess of a 10.0% CAGR over the same time period, driven
primarily by increased penetration of disposable products as per capita income rises. Demand in developed regions (North America, Western Europe and Japan) over this period is expected to increase by
a 2.0-4.0% CAGR, driven by increased penetration of certain products, the development of new applications for nonwovens and underlying market growth. We believe that future growth will
depend upon the continuation of improvements in raw materials and technology, which should result in the development of high-performance nonwovens, leading to new uses and markets. We
believe our unique global platform and technological leadership, with an increasing presence in the high-growth developing regions, will allow us to achieve long-term growth
and increased profitability. However, our growth rate may differ from the industry averages depending upon the regions and markets we choose to operate in, macroeconomic factors and the technology
that we develop.

Nonwovens
are categorized as either disposable (estimated to be approximately 50% to 55% of worldwide industry sales) or durable (estimated to be approximately 45% to 50% of worldwide
industry

31

---



sales).
We primarily compete in disposable products, which account for approximately 70% of our total nonwoven sales. We believe that disposable products are non-cyclical and will grow
rapidly in the future, driven primarily by the increasing adoption of these materials in developing economies due to rising per capita income and population growth. We sell a diverse array of durable
products to a variety of niche industrial end markets. Growth in these markets can be highly influenced by broader economic trends in a given market compared to the disposable products markets. Our
products are a mix of roll goods and downstream and integrated finished products. We endeavor to add value to our products through our printing, laminating and small roll converting capabilities and,
in some instances, convert product ourselves and sell directly to the end consumer. With this downstream presence we are a more valuable supplier to our customers with a more efficient distribution
chain and knowledge of the ultimate end product consumer.

The
Nonwovens segment develops and sells products in various consumer and industrial markets, including hygiene, industrial, medical and wiping. Nonwovens division sales were
approximately $885.7 million, $848.3 million and $763.7 million of our consolidated net sales for fiscal 2007, 2006 and 2005, respectively, and represented approximately 84%, 83%
and 80% of our total net sales in each of those years. In the hygiene market, our substrates are the critical components providing superior absorbency, barrier strength, fit and softness in diapers,
training pants, feminine sanitary protection and adult incontinence products. Our broad product offerings provide customers with a full range of these specialized and highly engineered components,
including top sheet, transfer layer, backsheet fabric, leg cuff fabric, sanitary protective facings, absorbent pads for incontinence guard, panty shield, and absorbent core applications. In addition,
our medical products are the principal, high-performance materials that are used in disposable surgical packs, apparel such as operating room gowns and drapes, face masks, shoe covers and
wound care sponges and dressings. We produce nonwoven products for the consumer wipes market, which includes personal care and facial wipes, baby wipes and household wipes. We also market a converted
line of wipes under our own industry-leading CHIX® brand directly to industrial, foodservice, and janitorial markets. We also serve a diverse collection of industrial niche end markets
that includes cable wrap, furniture and bedding, home furnishings, filtration, automotive interiors and landscape and agricultural applications.

The
Oriented Polymers segment utilizes extruded polyolefin processes and woven technologies to produce a wide array of products for industrial packaging, building products, agriculture
and protective apparel markets. The industrial packaging markets in which we compete include applications such as lumberwrap, steel wrap and fiberglass packaging. The building products applications
encompass structural concrete reinforcement fiber, as well as high-strength protective coverings and specialized components that are integrated into a variety of industrial products
(e.g., roofing substrates and flame-retardant fabric). We are focusing efforts on diversifying away from large volume, commodity products within this division through the continued innovation
of building and construction products to meet evolving customer requirements and the replacement of steel reinforcement with the less costly concrete fiber. Oriented Polymers segment sales were
approximately $174.0 million, $173.3 million and $185.1 million
for fiscal 2007, 2006 and 2005, respectively, and represented approximately 16%, 17% and 20% of our total net sales in each of those years.

In
2008, general worldwide economic conditions have experienced a downturn due to the sequential effects of the subprime lending crisis, general credit market crisis, collateral effects
on the finance and banking industries, increased energy costs, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and spending, adverse
business conditions and liquidity concerns. We have already seen softness in the durable goods applications in the industrial markets and expect those trends to continue; however, our overall business
model is one that is relatively defensive in that approximately two-thirds of our sales are generated from disposable products that are not as impacted by macro market swings.

32

---



Raw Materials

The primary raw materials used in the manufacture of most of our products are polypropylene resin, polyester fiber, polyethylene resin,
and, to a lesser extent, rayon and tissue paper. The prices of polypropylene, polyethylene and polyester are a function of, among other things, manufacturing capacity, demand and the price of crude
oil and natural gas liquids. We have not historically hedged our exposure to raw material increases, but we have certain customer contracts that contain price adjustment provisions which provide for
the pass-through of any cost increases or decreases in raw materials, although there is often a one-quarter lag between the time that we incur the new raw material cost and the
time that we adjust the selling price to our customers.

During
fiscal 2007 and through the first eight months of fiscal 2008, the cost of polypropylene resin, our most significant raw material, increased significantly and, since August of
2008, the cost of polypropylene resin has decreased significantly. Additionally, on a global basis, other raw material costs continue to fluctuate, including recent reductions in the cost of rayon
fiber, although in a much narrower range. These costs primarily fluctuate in response to certain global economic factors, including regional supply versus demand dynamics for the raw materials and the
volatile price of oil. In periods of rising raw material costs, to the extent we are not able to pass along price increases of raw materials, or to the extent any such price increases are delayed, our
cost of goods sold would increase and our operating profit would correspondingly decrease. Material increases in raw material prices that cannot be passed on to customers could have a material adverse
effect on our results of operations and financial condition. In periods of declining raw material costs, our cost of goods sold would decrease and our operating profit would correspondingly increase;
however, such increase would be offset, in whole or in part, by reductions in selling prices offered to
customers by contract or in light of current market conditions. See Item 3 "Quantitative and Qualitative Disclosures About Market Risk" included below.

Recent Expansion Initiatives

We have completed five expansions within the past four years, including three in high growth regions such as Latin America and Asia, to
address growing demand for regional hygiene and global medical products, which have resulted in overall improvements in both sales and profitability. Capital expenditures during this period totaled
$236.2 million and consisted of four commercially operating spunmelt facilities, including one that initiated commercial production during the first quarter of fiscal 2008, a retrofitted
hydroentanglement line to produce Spinlace products, maintenance capital spending and certain other smaller projects.

The
Cali, Colombia line, which was installed in the latter part of fiscal 2005, has performed at expected levels during fiscal 2007 and 2008. The Mooresville, North Carolina line, which
began production in the latter part of the second quarter of fiscal 2006, has performed at expected levels since its start up. The Suzhou, China line began operations in the latter part of the third
quarter of fiscal 2006. Despite the fact that the qualification process with customers on the Suzhou line for high grade finished medical fabric took longer than anticipated, the process was
substantially completed by the end of the third quarter of fiscal 2007, allowing for the transition from hygiene and lower grades of medical fabrics to a more profitable mix of finished medical fabric
sales.

Additionally,
in fiscal 2007, we were engaged in two major capital projects: (i) construction of a new spunmelt line at our facility near Buenos Aires, Argentina, which initiated
commercial production during the first quarter of fiscal 2008; and (ii) the retrofit of an existing hydroentanglement line at our Benson, North Carolina facility to produce
Spinlace products, which started up early in the fourth quarter of fiscal 2007. These lines have marginally contributed to sales during fiscal 2008.

We
have also commenced construction for the previously announced installation of a state-of-the-art spunmelt line in San Luis Potosi, Mexico to serve
hygiene and other customers in the U.S. and Mexico, which is expected to commence commercial production by the middle of fiscal 2009.

33

---



Plant Consolidation and Re-alignment

We review our businesses on an ongoing basis relative to current and expected market conditions, attempting to match our production
capacity and cost structure to the demands of the markets in which we participate, and strive to continuously streamline our manufacturing operations consistent with world-class standards. We
announced three plant consolidation plans in the U.S. and Europe that were initiated in fiscal 2007 and completed in early fiscal 2008 to better align our cost structure. We announced an additional
plant closing in the U.S. in May of 2008. Our strategy with respect to the consolidation efforts in the U.S. and Europe is focused on the elimination of cash fixed costs at the closed plant sites, and
the transfer of business and equipment to sites in regions with lower variable costs and which are closer to our customers, as necessary and practical, to retain the existing business with the
potential to expand sales volumes.

In
the future, we may or may not decide to undertake certain restructuring efforts to improve our competitive position, especially in the more mature markets of the U.S., Europe and
Canada. In such mature markets, the prices for commodity roll goods continue to fluctuate based on supply and demand dynamics relative to the assets employed in that geographic region. We actively and
continuously pursue initiatives to prolong the useful life of our long-lived assets through product and process innovation. In some instances we may decide, as was the case with our plans
to consolidate operations in the U.S. and Europe, and as further described in Note 3 "Special Charges, Net" to the unaudited interim consolidated financial statements included in Item 1
of Part I to this Quarterly Report on Form 10-Q, that our fixed cost structure will be enhanced through consolidation. To the extent further decisions are made to improve our
long-term performance, such actions could result in the incurrence of cash restructuring charges and asset impairment charges associated with the consolidation, and such charges could be
material.

Results of Operations

The following table sets forth the percentage relationships to net sales of certain Consolidated Statement of Operations items for the
three and nine months ended September 27, 2008 in comparison

34

---



to
such items for the three and nine months ended September 29, 2007 and in comparison with the 2006 and 2007 fiscal years:

Three months ended

Nine months endedFiscal year endedSeptember 27,
2008

September 29,
2007

September 27,
2008

September 29,
20072006

2007Net sales


100.0
%

100.0
%

100.0
%

100.0
%

100.0
%

100.0
%Cost of goods sold:Materials


53.9


54.1


56.8


53.3


56.3


53.7Labor


8.1


7.7


7.4


7.5


7.4


7.6Overhead


22.7


22.3


21.5


23.7


21.1


22.384.7


84.1


85.7


84.5


84.8


83.6Gross profit


15.3


15.9


14.3


15.5


15.2


16.4Selling, general and administrative expenses


10.8


10.2


10.0


10.2


10.5


10.4Special charges, net


3.8


5.8


0.5


8.0


0.5


3.8Foreign currency loss, net


0.1





0.8


0.2


0.1


0.0Operating income (loss)


0.6


(0.1
)

3.0


(2.9
)

4.1


2.2Other expense (income):Interest expense, net


2.9


3.0


2.6


3.4


2.9


3.1Foreign currency and other (gain) loss, net


0.1


(0.2
)

(1.0
)

(0.3
)

(0.3
)

(0.2
)Income (loss) before income tax expense and minority interests


(2.4
)

(2.9
)

1.4


(6.0
)

1.5


(0.7
)Income tax expense


0.8


0.8


0.9


2.0


0.9


1.5Minority interests, net of tax


0.2


0.2


(0.6
)

0.2


(0.2
)

0.2Net income (loss)


(3.4
)%

(3.9
)%

1.1
%

(8.2
)%

0.8
%

(2.4
)%


Comparison of Three Months Ended September 27, 2008 and September 28, 2007

Our reportable segments consist of our two operating divisions, Nonwovens and Oriented Polymers. For additional information regarding
segment data, see Note 13 "Segment Information" to the unaudited interim consolidated financial statements included in Item 1 of Part I to this Quarterly Report on
Form 10-Q. The following table sets forth components of our net sales and operating income (loss) by operating division for the three months ended September 27, 2008, the
three months ended September 29, 2007 and the corresponding change (in millions):

Three months
ended
September 27,
2008

Three months
ended
September 29,
2007

ChangeNet salesNonwovens

$
257.8

$
216.5

$
41.3Oriented Polymers


43.2


39.7


3.5$
301.0

$
256.2

$
44.8Operating income (loss)Nonwovens

$
11.9

$
20.6

$
(8.7
)Oriented Polymers


3.7


(1.4
)

5.1Unallocated Corporate, net of eliminations


(4.9
)

(6.1
)

1.210.7


13.1


(2.4
)Special charges, net


(1.7
)

(20.3
)

18.6$
9.0

$
(7.2
)
$
16.2


35

---



The
amounts for special charges, net have not been allocated to our reportable business divisions because our management does not evaluate such charges on a
division-by-division basis. Division operating performance is measured and evaluated before such items.

Net sales

Net sales were $301.0 million for the three months ended September 27, 2008, an increase of $44.8 million, or
17.5%, over the comparable period of fiscal 2007 net sales of $256.2 million. Net sales for fiscal 2008 improved in the Nonwovens segment over comparable 2007 results by 19.1%, and net sales in
fiscal 2008 in the Oriented Polymers segment increased 8.8% from 2007 results. A reconciliation of the change in net sales between the three months ended September 29, 2007 and the three months
ended September 27, 2008 is presented in the following table (in millions):

Nonwovens

Oriented
Polymers

TotalNet salesthree months ended September 29, 2007

$
216.5

$
39.7

$
256.2Change in sales due to:Volume


12.6


(1.3
)

11.3Price/mix


23.2


4.8


28.0Changes in foreign currency rates


5.5


0.0


5.5Net salesthree months ended September 27, 2008

$
257.8

$
43.2

$
301.0


As
raw material costs have increased, we have attempted to pass raw material costs along to our customers where allowable by contract terms and where acceptable based on
market conditions. In general, with respect to contracted business, there is usually a one-quarter lag between the change in raw material cost and the change in sales price.

The
net volume improvements of $12.6 million in Nonwovens sales includes improvements in all four geographic regions, with the more significant portion of the growth occurring in
Asia and Latin America. The sales increases in the U.S. and Europe were reduced by recent plant closures and our decision to exit certain marginally profitable business. The increases are attributable
to the continued expansion of sales in Latin America and Asia. Most of the growth in Latin America was in hygiene sales, including sales generated by our new facility in Argentina, and the growth in
Asia was paced by year-over-year growth in hygiene and medical sales. The improvement in price/mix was largely due to price increases resulting from the
pass-through of higher raw material costs. Oriented Polymers' net sales for 2008 increased $3.5 million from the three month period of fiscal 2007 and was primarily the result of
higher selling prices, partially offset by lower sales volumes. Oriented Polymers' sales volumes continued to be negatively impacted by reduced housing starts and a slowdown in the automotive sector
affecting the industrial business, a reduction in commodity industrial packaging volumes, and reduced sales to the protective apparel markets, caused in part by economic factors and raw material
supply interruptions.

Most
currencies were stronger against the U.S. dollar during 2008 compared to 2007. As a result, net sales increased $5.5 million due to the change in foreign currency rates.
Further discussion of foreign currency exchange rate risk is contained in Item 3 "Quantitative and Qualitative Disclosures About Market Risk" included below.

Gross margin

Gross margin in the three months ended September 27, 2008 declined to 14.3% from 15.5% in the three month period of fiscal 2007,
primarily driven by higher raw material costs, which were partially offset by improved price/mix of sales and lower depreciation charges, resulting from fiscal 2007 impairments, during fiscal 2008.
The raw material component of the cost of goods sold as a percentage

36

---



of
net sales increased from 53.3% in 2007 to 56.8% in 2008. On the strength of improved sales, initial benefits from certain of the consolidation and restructuring initiatives, generation of sales
from the new spunmelt lines and lower depreciation charges resulting from impairment charges recognized in fiscal 2007, our labor and overhead components of the cost of goods sold decreased as a
percentage of net sales from the three month period of fiscal 2007 to the comparable period of 2008. As a percentage of sales, labor decreased from 7.5% to 7.4% and overhead decreased from 23.7% to
21.5%. All of the above percentages were also impacted by higher sales due to increases in selling prices resulting from the pass-through of higher raw material costs.

Operating income (loss)

A reconciliation of the change in operating income (loss) between the three months ended September 29, 2007 and the three months
ended September 27, 2008 is presented in the following table (in millions):

Operating lossthree months ended September 29, 2007

$
(7.2
)Change in operating income due to:Price/mix


28.9Higher raw material costs


(30.8
)Volume


4.2Changes in foreign currency rates


(3.6
)Lower depreciation and amortization expense


2.1Lower special charges, net


18.7Lower share-based compensation costs


0.5Higher SG&A costs (excluding foreign currency translation, depreciation and amortization and share-based compensation costs)


(3.5
)All other


(0.3
)Operating incomethree months ended September 27, 2008

$
9.0


Consolidated
operating income was $9.0 million in the three months ended September 27, 2008 as compared to an operating loss of $7.2 million in the comparable period
in 2007, which improvement was significantly affected by an $18.7 million decrease in special charges, net and higher raw material costs of $30.8 million, which was partially offset by
sales price/mix improvements of $28.9 million primarily generated by price increases obtained through the pass-through of higher raw material costs. The costs of certain raw
materials, especially polypropylene resin, were significantly higher during the third quarter of fiscal 2008 compared to the third quarter of fiscal 2007. Operating income was positively impacted by
lower depreciation and amortization charges and lower share-based compensation costs and negatively impacted by higher SG&A costs.

Operating
income (loss) for the three months ended September 27, 2008 versus the three months ended September 29, 2007 included (i) a significant reduction in Latin
America due primarily to raw material cost increases, the impact of strengthening currencies, higher operating costs associated with the start-up of equipment and competitive and economic
pressures in the Mercosur region, partially offset by increased sales volume, and (ii) lower sales volumes, principally in the U.S. and Europe. These declines were partially offset by lower
manufacturing costs, primarily related to reduced depreciation resulting from impairment charges recognized in fiscal 2007.

Overall,
selling, general and administrative expenses increased $3.9 million, from $26.1 million in 2007 to $30.0 million in 2008, partially due to volume-related
increases in Latin America and Asia, strengthening of foreign currencies versus the U.S. dollar and increases in research and development and administrative costs on a global basis, and partly offset
by lower stock compensation costs. Selling, general and administrative costs as a percent of net sales decreased from 10.2% in the third quarter of

37

---



fiscal
2007 to 10.0% for the same period of fiscal 2008, which percentage is also impacted by higher sales due to increases in selling price resulting from the pass-through of higher raw
material costs.

Additionally,
economic conditions on a global basis began to deteriorate during the third quarter of fiscal 2008. This deterioration began to impact sales volumes into the industrial
markets late in the third quarter which resulted in manufacturing inefficiencies. We also recognized costs during the quarter associated with qualifying new fiber suppliers as certain existing
suppliers shut down capacity. However, demand in our disposable segments of hygiene, medical and wipes in mature markets remained stable during the quarter and grew in the developing regions.

Interest and Other Expense

Net interest expense decreased $0.7 million, from $8.7 million during the three months ended September 29, 2007 to
$8.0 million during the three months ended September 27, 2008. The decrease in net interest expense was largely due to the impact of lower interest rates on the term loan and a lower
level of term loan borrowings, partially offset by the effects of interest rate swap agreements, discussed below, and interest on borrowings drawn on our revolving credit facility.

During
fiscal 2007, we entered into a new cash flow hedge agreement, effective May 8, 2007 and maturing on June 29, 2009, which effectively converted $240.0 million
of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085%. This new agreement replaced the cash flow hedge agreement originally entered into in fiscal 2004, which
agreement terminated on May 8, 2007 and effectively converted $212.5 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 3.383%.

Foreign
currency and other gain, net improved by $2.6 million, from a gain of $0.6 million in the third quarter of fiscal 2007 to a gain of $3.2 million in the third
quarter of fiscal 2008.

Income Tax Expense

We recognized income tax expense of $2.5 million for the three months ended September 27, 2008 on consolidated income
before income taxes and minority interests of $4.2 million for such period. This income tax expense is different than such expense determined at the U.S. federal statutory rate primarily due to
losses in certain jurisdictions for which no income tax benefits are anticipated, foreign withholding taxes for which tax credits are not anticipated, U.S. state income taxes, tax uncertainties under
FIN 48, foreign taxes calculated at statutory rates different than the U.S. federal statutory rate and the institution of a flat tax regime in Mexico. During the three months ended
September 29, 2007, we recognized an income tax expense of $5.2 million on a consolidated loss before income taxes and minority interests of $15.3 million. This income tax expense
is significantly different than such expense determined at the U.S. federal statutory rate primarily due to losses in the U.S. and certain jurisdictions for which no income tax benefits were
recognized or where recognition was limited to the extent of existing deferred tax liabilities. Additionally, the income tax expense was impacted by foreign withholding taxes, for which tax credits
are not anticipated, U.S. state income taxes, and foreign taxes calculated at statutory rates different than the U.S. federal statutory rate.

Net Income (Loss)

As a result of the above, we recognized net income of $3.4 million, or $0.18 per share, for the three months ended
September 27, 2008 compared to a net loss of $20.9 million, or $1.08 per share, for the three months ended September 29, 2007.

38

---



Comparison of Nine Months Ended September 27, 2008 and September 29, 2007

Our reportable segments consist of our two operating divisions, Nonwovens and Oriented Polymers. For additional information regarding
segment data, see Note 13 "Segment Information" to the unaudited interim consolidated financial statements included in Item 1
of Part I to this Quarterly Report on Form 10-Q. The following table sets forth components of our net sales and operating income by operating division for the nine months
ended September 27, 2008, the nine months ended September 29, 2007 and the corresponding change (in millions):

Nine months
ended
September 27,
2008

Nine months
ended
September 29,
2007

ChangeNet salesNonwovens

$
731.0

$
665.5

$
65.5Oriented Polymers


134.7


128.7


6.0$
865.7

$
794.2

$
71.5Operating income (loss)Nonwovens

$
52.1

$
64.2

$
(12.1
)Oriented Polymers


6.6


0.9


5.7Unallocated Corporate, net of eliminations


(18.7
)

(17.5
)

(1.2
)40.0


47.6


(7.6
)Special charges, net


(4.9
)

(30.2
)

25.3$
35.1

$
17.4

$
17.7


The
amounts for special charges, net have not been allocated to our reportable business divisions because our management does not evaluate such charges on a
division-by-division basis. Division operating performance is measured and evaluated before such items.

Net sales

Net sales were $865.7 million for the nine months ended September 27, 2008, an increase of $71.5 million, or 9.0%,
over the comparable period of fiscal 2007 net sales of $794.2 million. Net sales for fiscal 2008 improved in the Nonwovens segment over comparable 2007 results by 9.8%, and net sales in fiscal
2008 in the Oriented Polymers segment increased 4.7% from 2007 results. A reconciliation of the change in net sales between the nine months ended September 29, 2007 and the nine months ended
September 27, 2008 is presented in the following table (in millions):

Nonwovens

Oriented
Polymers

TotalNet salesnine months ended September 29, 2007

$
665.5

$
128.7

$
794.2Change in sales due to:Volume


(7.1
)

(6.0
)

(13.1
)Price/mix


50.8


10.4


61.2Changes in foreign currency rates


21.8


1.6


23.4Net salesnine months ended September 27, 2008

$
731.0

$
134.7

$
865.7


39

---



As
raw material costs have increased, we have attempted to pass raw material costs along to our customers where allowable by contract terms and where acceptable based on market
conditions. In general, with respect to contracted business, there is usually a one-quarter lag between the change in raw material cost and the change in sales price.

The
net volume decline of $7.1 million in Nonwovens sales includes declines in the U.S. and Europe partially offset by growth in Asia and Latin America. The sales declines in the
U.S. and Europe were impacted by the plant closures that were completed in fiscal 2007 and our decision to exit certain marginally profitable business. The increases are attributable to the continued
expansion of sales in Latin America and Asia. Most of the growth in Latin America was in hygiene sales, including sales generated by our new facility in Argentina, and the growth in Asia was paced by
year-over-year growth in hygiene and medical sales. The improvement in price/mix was largely due to price increases resulting from the pass-through of higher raw
material costs. Oriented Polymers' net sales for 2008 increased $6.0 million from the nine-month period of fiscal 2007 and was primarily the result of higher selling prices,
partially offset by lower sales volumes. Oriented Polymers' sales volumes continued to be negatively impacted by reduced housing starts and a slowdown in the automotive sector affecting the industrial
business, a reduction in commodity industrial packaging volumes, and reduced sales to the protective apparel markets, caused in part by economic factors and raw material supply interruptions.

Most
currencies were stronger against the U.S. dollar during 2008 compared to 2007. As a result, net sales increased $23.4 million due to the changes in foreign currency rates.
Further discussion of foreign currency exchange rate risk is contained in Item 3 "Quantitative and Qualitative Disclosures About Market Risk" included below.

Gross margin

Gross margin in the nine months ended September 27, 2008 declined to 15.2% from 16.4% in the first nine months of fiscal 2007,
primarily driven by higher raw material costs, which were partially offset by improved price/mix of sales, ongoing manufacturing efficiency gains and lower manufacturing costs, including lower
depreciation charges resulting from fiscal 2007 impairments, during fiscal 2008. The raw material component of the cost of goods sold as a percentage of net sales increased from 53.7% in 2007 to 56.3%
in 2008. On the strength of improved sales, initial benefits from certain of the consolidation and restructuring initiatives, generation of sales from the new spunmelt lines and lower depreciation
charges resulting from impairment charges recognized in fiscal 2007, our labor and overhead components of the cost of goods sold decreased as a percentage of net sales from the nine month period of
fiscal 2007 to the comparable period of 2008. As a percentage of sales, labor decreased from 7.6% to 7.4% and overhead decreased from 22.3% to 21.1%. All of the above percentages were also impacted by
higher sales due to increases in selling prices resulting from the pass-through of higher raw material costs.

40

---





A reconciliation of the change in operating income between the nine months ended September 29, 2007 and the nine months ended
September 27, 2008 is presented in the following table (in millions):

Operating incomenine months ended September 29, 2007

$
17.4Change in operating income due to:Price/mix


68.1Higher raw material costs


(72.1
)Volume


(2.7
)Lower manufacturing costs


3.2Changes in foreign currency rates


(4.0
)Lower depreciation and amortization expense


5.1Lower special charges, net


25.4Higher SG&A costs (excluding foreign currency translation, depreciation and amortization and share-based compensation costs)


(4.7
)All other


(0.6
)Operating incomenine months ended September 27, 2008

$
35.1


Consolidated
operating income was $35.1 million in the nine months ended September 27, 2008 as compared to $17.4 million of income in the comparative period in 2007,
which improvement was significantly affected by a $25.4 million decrease in special charges, net and higher raw material costs of $72.1 million, which was mostly offset by sales
price/mix improvements of $68.1 million primarily generated by price increases obtained through the pass-through of higher raw material costs and the exit in fiscal 2007 of certain
marginally profitable business. The cost of certain raw materials, especially polypropylene resin, increased throughout the first eight months of fiscal 2008, and decreased significantly in September
2008. Operating income was positively impacted by lower manufacturing costs and lower depreciation and amortization charges and negatively impacted by higher SG&A costs.

Operating
income for the nine months ended September 27, 2008 versus the nine months ended September 29, 2007 included (i) a significant reduction in Latin America
due primarily to raw material increases, the impact of strengthening currencies, higher operating costs associated with the start-up of equipment and competitive and economic pressures in
the Mercosur region, partially offset by increased sales volume, and (ii) lower sales volumes, principally in the U.S. and Europe. These declines were partially offset by lower manufacturing
costs in most regions other than Latin America, including reduced depreciation resulting from impairment charges recognized in fiscal 2007.

Selling,
general and administrative expenses increased $8.5 million, from $82.8 million in 2007 to $91.3 million in 2008, partially due to executive separation and
termination costs of approximately $1.6 million, volume-related increases in Latin America and Asia, strengthening of foreign currencies versus the U.S. dollar and increases in research and
development and administrative costs on a
global basis. Selling, general and administrative costs as a percent of net sales increased from 10.4% in the first nine months of fiscal 2007 to 10.5% for the same period of fiscal 2008, which
percentage is also impacted by higher sales resulting from the pass-through of higher raw material costs.

Interest and Other Expense

Net interest expense decreased $0.2 million, from $24.9 million during the nine months ended September 29, 2007 to
$24.7 million during the nine months ended September 27, 2008. The decrease in net interest expense was largely due to the impact of reduced term loan borrowings and lower interest rates
on the term loan debt, net of the impact of higher interest charges associated with the increased level of borrowings related to the expansion project in Argentina and the effects of interest rate
swap agreements, discussed below.

41

---



During
fiscal 2007, we entered into a new cash flow hedge agreement, effective May 8, 2007 and maturing on June 29, 2009, which effectively converted $240.0 million
of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085%. This new agreement replaced the cash flow hedge agreement originally entered into in fiscal 2004, which
agreement terminated on May 8, 2007 and effectively converted $212.5 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 3.383%.

Foreign
currency and other gain, net improved by $0.8 million, from a gain of $2.0 million in the first nine months of fiscal 2007 to a gain of $2.8 million in the
first nine months of fiscal 2008. Included as a gain in Foreign currency and other gain, net for the nine months ended September 29, 2007 is the cash recovery of approximately
$1.8 million from a minority shareholder of our Argentine subsidiary for legal and other costs associated with a prior period legal action.

Income Tax Expense

We recognized income tax expense of $7.7 million for the nine months ended September 27, 2008 on consolidated income
before income taxes and minority interests of
$13.3 million for such period. This income tax expense is different than such expense determined at the U.S. federal statutory rate primarily due to losses in certain jurisdictions for which no
income tax benefits are anticipated, foreign withholding taxes for which tax credits are not anticipated, U.S. state income taxes, tax uncertainties under FIN 48, foreign taxes calculated at
statutory rates different than the U.S. federal statutory rate and the institution of a flat tax regime in Mexico. During the nine months ended September 29, 2007, we recognized income tax
expense of $12.3 million on a consolidated loss before income taxes and minority interest of $5.5 million. This income tax expense is significantly different than such expense determined
at the U.S. federal statutory rate primarily due to losses in the U.S. and certain jurisdictions for which no income tax benefits were recognized or where recognition was limited to the extent of
existing deferred tax liabilities. Additionally, the income tax expense was impacted by foreign withholding taxes, for which tax credits are not anticipated, U.S. state income taxes, and foreign taxes
calculated at statutory rates different than the U.S. federal statutory rate.

Net Income

As a result of the above, we recognized net income of $7.2 million, or $0.37 per share, for the nine months ended
September 27, 2008 compared to a net loss of $19.4 million, or $1.00 per share, for the nine months ended September 29, 2007.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity for operations and expansions are currently funds generated from operations and borrowing
availabilities under the Credit Facility, consisting of a revolving credit facility of $45.0 million and a first-lien term loan of $410.0 million at the original borrowing
date. The revolving credit portion of the Credit Facility terminates on November 22, 2010 and the remaining balance (after mandatory annual payments of $4.1 million and additional
payments, if any, under the excess cash flow provision of the Credit Facility or optional payments) of the first-lien term loan is due November 22, 2012. The Credit Facility, as
amended, contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. At September 27, 2008, we were in compliance
with all such financial covenants. Additionally, as of September 27, 2008, we had borrowings under the revolving credit facility of $1.5 million and capacity under the revolving credit
facility had been reserved for outstanding letters of credit in the amount of $2.0 million. As of September 27, 2008, we also had other outstanding letters of credit in the amount of
$6.0 million

42

---



primarily
for certain raw material vendors. None of these letters of credit had been drawn on at September 27, 2008.

September 27,
2008

December 29,
2007(In Millions)Balance sheet data:Cash and cash equivalents

$
27.6

$
31.7Working capital


176.3


176.0Total assets


767.5


750.7Total debt


416.5


427.0Total shareholders' equity


108.8


98.5




Nine Months EndedSeptember 27,
2008

September 29,
2007(In Millions)Cash flow data:Net cash provided by operating activities

$
34.4

$
25.8Net cash used in investing activities


(27.4
)

(45.8
)Net cash provided by (used in) financing activities


(11.3
)

21.5


Operating Activities

Net cash provided by operating activities was $34.4 million during the first nine months of fiscal 2008, an $8.6 million
increase from the $25.8 million provided by operating activities during the first nine months of fiscal 2007. We expect to see further impacts from the deterioration in global economic factors.
This is expected to be most visible in the durable goods sectors. Our overall business model is one that is relatively defensive in that approximately two-thirds of our sales are generated
from disposable products that are not as impacted by macro market swings.

We
had working capital of approximately $176.3 million at September 27, 2008 compared with $176.0 million at December 29, 2007. Accounts receivable at
September 27, 2008 was $158.1 million as compared to $139.5 million on December 29, 2007, an increase of $18.6 million. The increase in accounts receivable during
fiscal 2008 is primarily attributable to: (i) higher unit selling prices resulting from the pass-through of raw material cost increases, and (ii) increased sales, with longer
payment cycles, associated with the installation of our new spunmelt line in Argentina. Accounts receivable represented approximately 48 days of sales outstanding at September 27, 2008
and December 29, 2007.

Inventories
at September 27, 2008 were $144.8 million, an increase of $5.1 million from inventories at December 29, 2007 of $139.7 million, with
decreases in raw materials of $0.7 million and work-in-process of $0.4 million, respectively, and an increase in finished goods of $6.2 million. The
increase in inventories during fiscal 2008 is primarily related to increased raw material pricing and inventory builds associated with the installation of our new spunmelt line in Argentina, partially
offset by a decrease in raw materials driven by improvements in managing raw material inventory levels and efficiencies gained in our European business. We had inventory representing approximately
51 days of cost of sales on hand at September 27, 2008 compared to 56 days of cost of sales on hand at December 29, 2007.

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Accounts payable and accrued liabilities at September 27, 2008 were $167.1 million as compared to $150.4 million at December 29, 2007, an increase of
$16.7 million. Accounts payable and accrued liabilities represented approximately 59 days of cost of sales outstanding at September 27, 2008 compared to 60 days of cost of
sales outstanding at December 29, 2007. The increase in accounts payable and accrued liabilities from December 29, 2007 to September 27, 2008 was primarily impacted by increased
purchases of raw materials associated with the start-up of the new spunmelt line in Argentina and the related deferral of payments to vendors subsequent to the start-up period.
Accounts payable and accrued liabilities balances can also be impacted by the effects of currency movements, accruals with respect to incentive compensation plans and the timing of payroll cycles,
partially offset by faster payment of trade payables, including acceptance of vendor discounts, and changes in terms regarding purchases of raw materials from certain vendors, as well as the movement
of certain purchases of raw materials, for which there is limited availability, to vendors that require us to pay cash prior to delivery and reductions in restructuring accruals.

Our
restructuring and plant realignment activities in fiscal 2008 are discussed in Note 3 "Special Charges, Net" to the unaudited interim consolidated financial statements
included in Item 1 of Part I to this Quarterly Report on Form 10-Q.

The
restructuring and plant realignment costs in the first nine months of fiscal 2008 are comprised of: (i) $3.3 million of equipment relocation and other
shut-down costs related to the closure of the Neunkirchen, Germany facility, which ceased production activities as of September 29, 2007, (ii) $0.9 million of costs
related to the closure of the Landisville, New Jersey facility, which ceased production activities as of August 19, 2008, (iii) $0.5 million of costs related to a management
restructuring within our Latin America operations, and (iv) a reduction of $0.4 million of amounts previously accrued for severance costs of U.S. salaried employees.

During
the first nine month of fiscal 2008, we incurred $0.6 million of costs associated with the previously disclosed negotiations regarding the sale of certain assets in the
Oriented Polymers segment. During the third quarter of fiscal 2008, we terminated such negotiations and the sale transaction is not currently expected to occur.

The
restructuring and plant realignment costs in the first nine months of fiscal 2007 were principally associated with (i) the closure of two of its plants in the United States,
which was communicated to affected employees in January 2007, in the amount of $7.0 million, (ii) the closure of its plant in Neunkirchen, Germany, which was communicated to affected
employees in July 2007, in the amount of $5.6 million (iii) a settlement loss associated with a partial curtailment of a defined benefit pension plan at one of our Canadian operations in
the amount of $3.8 million, and (iv) other costs of $1.0 million, primarily related to the relocation of the corporate headquarters to Charlotte, North Carolina.

We
expect to make future cash payments of approximately $5.0 - $7.0 million associated with current restructuring initiatives, of which $2.2 million has been accrued
as of September 27, 2008. In addition, we currently anticipate future proceeds from the sale of idled facilities and equipment in the range of $5.0 - $15.0 million, which is
expected to be received primarily in fiscal 2009.

Investing and Financing Activities

Net cash used in investing activities amounted to $27.4 million and $45.8 million in the first nine months of fiscal 2008
and fiscal 2007, respectively. Capital expenditures during 2008 totaled $28.4 million, a decrease of $18.0 million from capital spending of $46.4 million in 2007. A significant
portion of the capital expenditures in 2008 related to the construction of a new spunmelt line at our facility near Buenos Aires, Argentina. Investing activities during 2008 and 2007 also include
proceeds from the sale of assets of $1.5 million and $0.6 million, respectively. We estimate our annual minimum sustaining capital expenditures to be $5.0 million to
$10.0 million. In response to additional working capital investments resulting from raw material price increases, we lowered our capital expenditures for the third

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quarter
of fiscal 2008 and have taken steps to keep our capital expenditures for the second half of fiscal 2008 to less than $20.0 million, enabling us to appropriately balance cash flows from
operations with capital expenditures.

On
September 30, 2008, we entered into a series of foreign exchange forward contracts to manage our U.S.-dollar exposure on Euro-based obligations for firm commitments
related to a capital expenditure project. In accordance with SFAS No. 133, we designated the forward contracts as a fair value hedge of an unrecognized firm commitment. In addition, the forward
contracts, which mature at varying dates in fiscal 2009, are expected to be completely effective in hedging our specifically-covered unrecognized firm commitment. We currently have approximately
$33.3 million of notional amount in outstanding contracts with a third party financial institution.

Net
cash used in financing activities amounted to $11.3 million in the first nine months of fiscal 2008, compared to $21.5 million of net cash provided by financing
activities in the first nine months of fiscal 2007. In 2008, we repaid, on a net basis, $11.3 million of debt whereas we borrowed, on a net basis, $24.2 million of debt during 2007. In
fiscal 2008, we repaid $23.1 million of term loans and $3.7 million of short-term borrowings in Asia and borrowed a net amount of $13.9 million associated with the new
spunmelt line in Argentina and a net amount of $1.5 million under the revolving credit facility. Additionally, in 2007 we repaid the remaining balance of $2.8 million related to an
advance received in 2006 from an equipment supplier.

Dividends

Our Board of Directors has not declared a dividend on our common stock since we emerged from Chapter 11 bankruptcy proceedings
on March 5, 2003.

The
Credit Facility limits restricted payments, including cash dividends, to $5.0 million in the aggregate since the effective date of the Credit Facility. We do not currently
have any plans to pay dividends on our common stock.

Liquidity Summary

As discussed more fully in Note 7 "Debt" to our unaudited interim consolidated financial statements included in Item 1 of
Part I to this Quarterly Report on Form 10-Q, we have a Credit Facility, which we entered into on November 22, 2005 and amended as of December 8, 2006, which
consists of a $45.0 million secured revolving credit facility maturing in 2010 and a first-lien term loan of $410.0 million at the original borrowing date, that matures in
2012.

All
borrowings under the Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of our direct and indirect domestic subsidiaries.
The Credit Facility and the related guarantees are secured by (i) a lien on substantially all of our assets, our domestic subsidiaries and certain of our non-domestic subsidiaries,
(ii) a pledge of all or a portion of the stock of our domestic subsidiaries and of certain of our non-domestic subsidiaries, and (iii) a pledge of certain secured
intercompany notes. Commitment fees under the Credit Facility are equal to 0.50% of the daily unused amount of the revolving credit commitment. The Credit Facility limits restricted payments to
$5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Credit Facility contains covenants and events of default customary for financings
of this type, including leverage and interest expense coverage covenants, as well as default provisions related to certain types of defaults by us or our subsidiaries in the performance of our
obligations regarding borrowings in excess of $10.0 million. The Credit Facility requires that we maintain a leverage ratio of not more than 4.00:1.00, as of September 27, 2008, with
decreases over time, with the next change occurring April 4, 2009, at which time the leverage ratio requirement will be 3.50:1.00, thereby narrowing the margin for compliance. The interest
expense coverage ratio requirement at September 27, 2008 was that it not be less than 2.75:1.00, with increases over time, with the next change occurring April 4, 2009, at which time

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the
requirement will be 3.00:1.00. On September 27, 2008, our leverage ratio was 3.83:1.00 and our interest expense coverage ratio was 3.57:1.00. Therefore, we were in compliance with the debt
covenants under the Credit Facility at September 27, 2008. However, as noted above, these ratios adjust automatically, effective April 4, 2009, and are calculated on a trailing
four-quarter basis. As a result, any decline in our future operating results will negatively impact our coverage ratios. While we intend to remain in compliance with these covenant
requirements, our failure to comply with these financial covenants, without waiver or amendment from our lenders, could have a material adverse effect on our liquidity and operations, including
limiting our ability to borrow under the Credit Facility.

The
first-lien term loan requires mandatory payments of approximately $1.0 million per quarter and requires us to use a percentage of proceeds from excess cash flows,
as defined by the Credit Facility and determined based on year-end results, to reduce our then outstanding balances under the Credit Facility. Excess cash flows required to be applied to
the repayment of the Credit Facility are generally calculated as 50% of the net amount of our available cash generated from operations adjusted for the cash effects of interest, taxes, capital
expenditures, changes in working capital and certain other items. We currently estimate that the excess cash flow payment with respect to fiscal 2008, which would be payable in March 2009, will be
lower than the amount of repayments made on the first-lien term loan during the first nine months of fiscal 2008 and that no additional amount will be due with respect to fiscal 2008. We
have classified the mandatory payments of approximately $1.0 million per quarter in theCurrent portion of long-term debtin our
unaudited interim Consolidated Balance Sheets as of September 27, 2008 and December 29, 2007 included in Item 1 of Part I to this Quarterly Report on
Form 10-Q.

The
interest rate applicable to borrowings under the Credit Facility is based on three-month London Interbank Offered Rate ("LIBOR") plus a specified margin. The applicable margin for
borrowings
under both the first-lien term loan and the revolving credit facility is 225 basis points. We may, from time to time, elect to use an Alternate Base Rate ("ABR") for our borrowings under
the revolving credit facility based on the bank's base rate plus a margin of 75 to 125 basis points based on our total leverage ratio. As of September 27, 2008, we had outstanding borrowings
under the revolving credit facility of $1.5 million. There were no borrowings under the revolving credit facility as of December 29, 2007. As of September 27, 2008, capacity under
the revolving credit facility had been reserved for outstanding letters of credit in the amount of $2.0 million. Average daily borrowings under the revolving credit facility, which were largely
Alternate Base Rate-based borrowings, were $7.3 million at an average interest rate of 6.3% for the period from December 30, 2007 (the first day of fiscal 2008) to
September 27, 2008. The revolving credit portion of the Credit Facility matures on November 22, 2010.

Additionally,
in accordance with the terms of the Credit Facility, we maintained our position in a cash flow hedge, effectively converting $240.0 million of notional principal
amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085%. The cash flow hedge agreement, which became effective May 8, 2007, terminates on June 29, 2009. Previously, we
had maintained a position in a cash flow hedge agreement, which matured on May 8, 2007, which effectively converted $212.5 million of notional principal amount of debt from a variable
LIBOR rate to a fixed LIBOR rate of 3.383%.

We
have also incurred third-party debt in fiscal years 2007 and 2008 to finance the ongoing installation of our new spunmelt line in Argentina. As of September 27, 2008, this debt
is comprised of long-term facilities of $37.6 million, for which we began to make principal and interest payments in the third quarter of fiscal 2008 with the loans maturing in 2012
through 2016. Current maturities of this debt amount to approximately $5.1 million. Additionally, in fiscal 2007 and fiscal 2008, our operations in Argentina entered into multiple
short-term credit facilities intended to finance working capital requirements. Outstanding indebtedness under these facilities was $9.3 million at September 27, 2008 which
facilities mature at various dates through March 2009 and are shown inShort-term borrowingsin our unaudited interim Consolidated Balance
Sheets. Total third-party debt incurred by our Argentine subsidiary amounted to $46.9 million as of September 27, 2008.

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We
have entered into factoring agreements to sell, without recourse, certain of our U.S. and non-U.S.company-based receivables to unrelated third party financial
institutions. Under the terms of the factoring agreement related to the sale of U.S. company-based receivables, the maximum amount of outstanding advances at any one time is $20.0 million,
which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. Under the terms
of the factoring agreement related to the sale of non-U.S. company-based receivables, the maximum amount of outstanding advances at any one time is $10.0 million, which limitation
is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and
the historical performance of the receivables sold. The sale of these receivables accelerated the collection of our cash, reduced credit exposure and lowered our net borrowing costs. The Credit
Facility entered into during November 2005 provides us the availability to increase the sale of non-U.S. based receivables, under factoring agreements, to $20.0 million.

With
respect to the restructuring and plant realignment activities discussed in Note 3 "Special Charges, Net" to our unaudited interim consolidated financial statements included
in Item 1 of Part I to this Quarterly Report on Form 10-Q, we expect to make future cash payments of approximately $5.0 - $7.0 million, of which
$2.2 million has been accrued as of September 27, 2008. Additionally, we currently anticipate future proceeds in the range of approximately $5.0 - $15.0 million from the
sale of idled facilities and equipment, most of which is expected to be received primarily in fiscal 2009.

As
discussed in Note 15, "Commitments and Contingencies" to our unaudited interim consolidated financial statements included in Item 1 of Part I to this Quarterly
Report on Form 10-Q, we have committed capital projects, including the installation of a new spunmelt line in San Luis Potosi, Mexico. Total remaining payments due related to these
expansion projects as of September 27, 2008 amounted to approximately $42.9 million, which are expected to be substantially expended over fiscal year 2008 and through the third quarter
of fiscal 2009. As discussed more fully in Note 7 "Debt" to our unaudited interim consolidated financial statements included in Item 1 of Part I to this Quarterly Report on
Form 10-Q, we obtained local financing to fund a substantial portion of the capital expansion in Argentina.

We
expect to see further impacts in certain of our businesses, primarily in the industrial sector, from the deterioration in global economic factors, and are experiencing significant
volatility in raw material pricing; however, based on our ability to generate positive cash flows from operations and the financial flexibility provided by the Credit Facility, as amended, we believe
that we currently have the financial resources necessary to meet our operating needs, fund our capital expenditures and make all necessary contributions to our retirement plans in the foreseeable
future.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Effect of Inflation

Inflation generally affects us by increasing the costs of labor, overhead and equipment. While Argentina is experiencing significant
inflation, the impact of inflation on our overall financial position and results of operations was minimal during the first nine months of both 2008 and 2007. However, we continue to be significantly
impacted by volatility in raw material costs. See "Quantitative and Qualitative Disclosures About Market Risk" included in Item 3 of Part I to this Quarterly Report on
Form 10-Q.

New Accounting Standards

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 157, "Fair Value Measurements" ("SFAS No. 157"), which clarifies the definition of fair value whenever another standard requires or permits assets or liabilities to be measured at
fair value. Specifically, the standard clarifies that fair value should be based

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on
the assumptions market participants would use when pricing the asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS
No. 157 does not expand the use of fair value to any new circumstances, and must be applied on a prospective basis except in certain cases. The standard also requires expanded financial
statement disclosures about fair value measurements, including disclosure of the methods used and the effect on earnings.

In
February 2008, FASB Staff Position ("FSP") FAS No. 157-2, "Effective Date of FASB Statement No. 157" ("FSP No. 157-2") was issued. FSP
No. 157-2 defers the effective date of SFAS No. 157 to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, for all
nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Examples of items within the
scope of FSP No. 157-2 are nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent
periods), and long-lived assets, such as property, plant and equipment and intangible assets measured at fair value for an impairment assessment under SFAS No. 144.

The
partial adoption of SFAS No. 157 on January 1, 2008 with respect to financial assets and financial liabilities recognized or disclosed at fair value in the financial
statements on a recurring basis did not have a material impact on our consolidated financial statements. See Note 11 "Derivative and Other Financial Instruments and Hedging Activities" to our
unaudited interim consolidated financial statements included in Item 1 of Part I to this Quarterly Report on Form 10-Q for the fair value measurement disclosures for
these assets and liabilities. We are in the process of analyzing the potential impact of SFAS No. 157 relating to our planned January 4, 2009 adoption of the remainder of the standard.

On
December 30, 2007 (the first day of fiscal 2008), we adopted SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment
of FASB Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value, which are not
otherwise currently required to be measured at fair value. Under SFAS No. 159, the decision to measure items at fair value is made at specified election dates on an
instrument-by-instrument basis and is irrevocable. Entities electing the fair value option are required to recognize changes in fair value in earnings and to expense upfront
costs and fees associated with the item for which the fair value option is elected. The new standard did not impact our consolidated financial statements as we did not elect the fair value option for
any instruments existing as of the adoption date. However, we currently plan to evaluate the fair value measurement election with respect to financial instruments we enter into in the future.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS No. 141(R)"). SFAS No. 141(R) changes how an entity accounts for the
acquisition of a business. While it retains the requirement to account for all business combinations using the acquisition method, the new rule will apply to a wider range of transactions or events
and requires, in general, acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed and noncontrolling ownership interests held in the acquiree, among
other items. We are continuing to review the provisions of SFAS No. 141(R), which applies prospectively to business combinations with an acquisition date on or after the beginning of our 2009
fiscal year.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements: an amendment of ARB No. 51" ("SFAS No. 160"). SFAS
No. 160 replaces the term minority interests with the newly-defined term of noncontrolling interests and establishes this line item as an element of stockholders' equity, separate from the
parent's equity. SFAS No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We are continuing to review the provisions of
SFAS No. 160, which is effective the first quarter of fiscal

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2009,
and currently expect this new accounting standard to result in changes in the presentation of minority interests in the consolidated financial statements, consistent with the new standard.

In
March 2008, the Financial Accounting Standards Board issued Statement 161, "Disclosures about Derivative Instruments and Hedging Activities: an amendment of FASB Statement
No. 133 ("SFAS No. 161"), to expand the disclosure framework in FASB Statement 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 161 requires companies
with derivative instruments to disclose information about how and why the company uses derivative instruments; how the company accounts for derivative instruments and related hedged items under
Statement 133; and how derivative instruments and related hedged items affect the company's financial position, financial performance, and cash flows. The expanded disclosure guidance also requires a
company to provide information about its strategies and objectives for using derivative instruments; disclose credit-risk-related contingent features in derivative agreements
and information about counterparty credit risk; and present the fair value of derivative instruments and related gains or losses in a tabular format. SFAS No. 161 is effective for fiscal years
and interim periods that begin after November 15, 2008. We intend to adopt SFAS No. 161 effective January 4, 2009 and apply its provisions prospectively by providing the
additional disclosures in our financial statements for the first quarter of 2009. We have not yet determined if it will also provide comparative information for prior periods.

In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with
generally accepted accounting principles in the U.S. We currently do not anticipate that this new accounting standard will have a significant impact on the consolidated financial statements.

Critical Accounting Policies and Other Matters

The discussion and analysis of our financial position and results of operations are based upon our consolidated financial statements
that have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of financial statements in conformity with
U.S. GAAP requires the appropriate application of certain accounting policies, many of which require management to make estimates and assumptions about future events that may affect the
reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Since future events and their impact cannot be determined with certainty, the
actual results will inevitably differ from the estimates. We evaluate these estimates and assumptions on an ongoing basis, including, but not limited to, those related to revenue recognition, accounts
receivable, including concentration of credit risks, inventories, income taxes, impairment of long-lived assets, stock-based compensation and restructuring. Estimates and assumptions are
based on historical and other factors believed to be reasonable under the circumstances. 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 our reported and expected results.

We
believe the following accounting policies are critical to our business operations and the understanding of results of operations and affect the more significant judgments and
estimates used in the preparation of our consolidated financial statements:

Revenue recognition:Revenue from product sales is recognized when title and risks of ownership pass to the customer. This is generally on the date of shipment to
the customer, or upon delivery to a place named by the customer, dependent upon contract terms and when collectibility is reasonably assured and pricing is fixed or determinable. Revenue includes
amounts billed to customers for shipping and handling.

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Provision
for rebates, promotions, product returns and discounts to customers is recorded as a reduction in determining revenue in the same period that the revenue is recognized. We base our estimate
of the expense to be recorded each period on historical returns and allowance levels. We do not believe the likelihood is significant that materially higher deduction levels will result based on prior
experience.

Accounts receivable and concentration of credit risks:Accounts receivable potentially expose us to a 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." We provide credit in the normal course of business and perform ongoing credit evaluations on our customers' financial condition as deemed necessary, but generally do not require collateral to
support such receivables. We also establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Also, in
an effort to reduce our credit exposure to certain customers, as well as accelerate our cash flows, we sell, on a non-recourse basis, certain of our receivables pursuant to factoring
agreements. At September 27, 2008, a reserve of $6.9 million has been recorded as an allowance against trade accounts receivable. We believe that the allowance is adequate to cover
potential losses resulting from uncollectible accounts receivable and deductions resulting from sales returns and allowances. While our credit losses have historically been within our calculated
estimates, it is possible that future losses could differ significantly from these estimates.

Inventory reserves:We maintain reserves for inventories valued using the first in, first out (FIFO) method. Such reserves for inventories can be specific to
certain inventory or general based on judgments about the overall condition of the inventory. General reserves are established based on percentage write-downs applied to inventories aged for certain
time periods, or for inventories that are slow-moving. Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory value
exceeds amounts to be recovered
through the expected sales price of such inventories, less selling costs. Estimating sales prices, establishing markdown percentages and evaluating the condition of the inventories require judgments
and estimates, which may impact the inventory valuation and gross profits. The actual amount of obsolete or unmarketable inventory has been materially consistent with previously established reserves.
We believe, based on our prior experience of managing and evaluating the recoverability of our slow moving or obsolete inventory, that such established reserves are materially adequate. If actual
market conditions and product sales were less favorable than we have projected, additional inventory writedowns may be necessary.

Income taxes:We record an income tax valuation allowance when, based on the weight of the evidence, it is more likely than not that some portion, or all, of the
deferred tax asset will not be realized. The ultimate realization of the deferred tax asset depends on our ability to generate sufficient taxable income of the appropriate character in the future and
in the appropriate taxing jurisdictions. In assessing the realization of the deferred tax assets, consideration is given to, among other factors, the trend of historical and projected future taxable
income, the scheduled reversal of deferred tax liabilities, the carryforward period for net operating losses and tax credits, as well as tax planning strategies available to us. Additionally, we have
not provided U.S. income taxes for undistributed earnings of certain foreign subsidiaries that are considered to be retained indefinitely for reinvestment. Certain judgments, assumptions and estimates
are required in assessing such factors and significant changes in such judgments and estimates may materially affect the carrying value of the valuation allowance and deferred income tax expense or
benefit recognized in our consolidated financial statements.

We
adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" ("FIN 48") effective
December 31, 2006, the first day of fiscal 2007. In accordance with FIN 48, we recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely
than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold,
we initially

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and
subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability
associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such
adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent
adjustments as considered appropriate by management.

A
number of years may elapse before a particular matter for which a liability related to an unrecognized tax benefit is audited and finally resolved. The number of years with open tax
audits varies by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits
is adequate.
Favorable resolution of an unrecognized tax benefit could be recognized as a reduction in the effective tax rate in the period of resolution. Unfavorable settlement of an unrecognized tax benefit
could increase the effective tax rate and may require the use of cash in the period of resolution. Accordingly, our future results may include favorable or unfavorable adjustments due to the closure
of tax examinations, new regulatory or judicial pronouncements, changes in tax laws or other relevant events.

Additionally,
consistent with the provisions of SOP 90-7, recognition of tax benefits from preconfirmation net operating loss carryforwards and other deductible
temporary differences not previously recognized will be applied to reduce goodwill to zero, then to reduce intangible assets that existed at the date of emergence from bankruptcy with any excess tax
benefits credited directly to Additional Paid-in Capital.

Impairment of long-lived assets:Long-lived assets, excluding goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable. For assets held and used, an impairment may occur if projected undiscounted cash flows are not adequate to cover the carrying
value of the assets. In such cases, additional analysis is conducted to determine the amount of the loss to be recognized. The impairment loss is determined by the difference between the carrying
amount of the asset and the fair value measured by future discounted cash flows. The analysis, when conducted, requires estimates of the amount and timing of projected cash flows and, where
applicable, judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of
such charge if an impairment loss is deemed to be necessary. In addition, future events impacting cash flows for existing assets could render a writedown necessary that previously required no
writedown.

For
assets held for disposal, an impairment charge is recognized if the carrying value of the assets exceeds the fair value less costs to sell. Estimates are required of fair value,
disposal costs and the time period to dispose of the assets. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment
loss is deemed to be necessary. Actual cash flows received or paid could differ from those used in estimating the impairment loss, which would impact the impairment charge ultimately recognized. As of
September 27, 2008, based on our current operating performance, as well as future expectations for the business, other than as disclosed in the notes to the unaudited interim consolidated
financial statements included herein in Item 1 of Part I to this Quarterly Report on Form 10-Q, we do not anticipate any material writedowns for long-lived
asset impairments. However, conditions could deteriorate, which could impact our future cash flow estimates, and there exists the potential for further consolidation and restructuring in the more
mature markets of the U.S., Europe and Canada, either of which could result in an impairment charge that could have a material effect on our consolidated financial statements.

Stock-based compensation:We account for stock-based compensation related to our employee share-based plans in accordance with the methodology defined in Statement
of Financial Accounting

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Standards
No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)"). The compensation costs recognized subsequent to the adoption of SFAS No. 123(R) related to all new grants and any
unvested portion of prior grants have been measured based on the grant-date fair value of the award. Consistent with the provisions of SFAS No. 123(R), awards are considered granted
when all required approvals are obtained and when the participant begins to benefit from, or be adversely affected by, subsequent changes in the price of the underlying shares and, regarding awards
containing performance conditions, when we and the participant reach a mutual understanding of the key terms of the performance conditions. Additionally, accruals for compensation costs for
share-based awards with performance conditions are based on the probability of the achievement of such performance conditions.

We
have estimated the fair value of each stock option grant by using the Black-Scholes option-pricing model. Under SFAS No. 123(R) and the option pricing model, the estimate of
fair value is based on the share price and other pertinent factors at the grant date (as defined pursuant to SFAS No. 123(R)), such as expected volatility, expected dividend yield,
risk-free interest rate, forfeitures and expected lives. Assumptions are evaluated and revised, as necessary, to reflect market conditions and experience. Although we believe the
assumptions are appropriate, differing assumptions would affect compensation costs.

Restructuring:Accruals have been recorded in conjunction with our restructuring actions. These accruals include estimates primarily related to facility
consolidations and closures, census reductions and contract termination costs. Actual costs may vary from these estimates. Restructuring-related accruals are reviewed on a quarterly basis, and changes
to the restructuring actions are appropriately recognized when identified.

Environmental

We are subject to a broad range of federal, foreign, state and local laws and regulations relating to the pollution and protection of
the environment. We believe that we are currently in substantial compliance with applicable environmental requirements and do not currently anticipate any material adverse effect on our operations,
financial condition or competitive position as a result of our efforts to comply with environmental requirements. Some risk of
environmental liability is inherent, however, in the nature of our business and, accordingly, there can be no assurance that material environmental liabilities will not arise.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks for changes in foreign currency rates and interest rates and we have exposure to commodity price risks,
including prices of our primary raw materials. The overall objective of our financial risk management program is to seek a reduction in the potential negative earnings impact of changes in interest
rates, foreign exchange rates and raw material pricing arising in our business activities. We manage these financial exposures, where possible, through operational means and by using various financial
instruments. These practices may change as economic conditions change.

Long-Term Debt and Interest Rate Market Risk

Our long-term borrowings under the Credit Facility are variable interest rate debt. As such, to the extent not protected by
interest rate hedge agreements, our interest expense will increase as interest rates rise and decrease as interest rates fall. It is our policy to enter into interest rate derivative transactions only
to meet our stated overall objective. We do not enter into these transactions for speculative purposes. To that end, as further described in notes 7 and 11 to our unaudited interim consolidated
financial statements included in Item 1 of Part I to this Quarterly Report on Form 10-Q, we have entered into an interest rate swap contract which effectively converts
$240.0 million of our variable-rate debt to fixed-rate debt. The interest rate swap contract matures on June 29, 2009 and

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effectively
fixes the LIBOR interest rate on that amount of debt at 5.085%. Hypothetically, a 1% change in the interest rate affecting all of our financial instruments not protected by the interest
rate swap contract would change annual interest expense by approximately $1.8 million.

Foreign Currency Exchange Rate Risk

We manufacture, market and distribute certain of our products in Europe, Canada, Latin America and Asia. As a result, our results of
operations could be significantly affected by factors such as changes in foreign currency rates in the foreign markets in which we maintain a manufacturing or distribution presence. However, such
currency fluctuations have much less effect on local operating results because we, to a significant extent, sell our products within the countries in which they are manufactured. During the first nine
months of both 2008 and 2007, certain currencies of countries in which we conduct foreign currency denominated business moved significantly versus the U.S. dollar and had a significant impact on
sales, with a lesser effect on operating income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" above.

We
have not historically hedged our exposure to foreign currency risk. However, in most foreign operations, there is a partial natural currency hedge due to similar amounts of costs of
materials and production as revenues in such local currencies. Also, we periodically review our hedge strategy with respect to our U.S. dollar exposure on certain foreign currency-based obligations
such as firm commitments related to certain capital expenditure projects. On September 30, 2008, we entered into foreign exchange forward contracts to manage our U.S.-dollar exposure on a
Euro-based unrecognized firm commitment for a capital expenditure project. We are also subject to political risk in certain of our foreign operations and have utilized insurance programs
in certain circumstances to potentially mitigate our political risk.

Raw Material and Commodity Risks

The primary raw materials used in the manufacture of most of our products are polypropylene resin, polyester fiber, polyethylene resin,
and, to a lesser extent, rayon and tissue paper. The prices of polypropylene, polyethylene and polyester are a function of, among other things, manufacturing capacity, demand and the price of crude
oil and natural gas liquids. We have not historically hedged our exposure to raw material increases, but we have certain customer contracts with price adjustment provisions which provide for the
pass-through of any cost increases or decreases in raw materials, although there is often a delay between the time we incur the new raw material cost and the time that we are able to
adjust the selling price to our customers. Raw material prices as a percentage of sales have increased from 53.3% in the three months ended September 29, 2007 to 56.8% in the three months ended
September 27, 2008.

During
fiscal 2007 and the first eight months of fiscal 2008, the cost of polypropylene resin, our most significant raw material, increased significantly, particularly during the May
2008 to August 2008 timeframe and, since August 2008, the cost of polypropylene resin has decreased significantly. Additionally, on a global basis, other raw material costs continue to fluctuate,
including
recent reductions in the cost of rayon fiber, in a much narrower range. These costs primarily fluctuate in response to certain global economic factors, including the regional supply versus demand
dynamics for the raw materials and the volatile price of oil.

In
periods of rising raw material costs, to the extent we are not able to pass along price increases of raw materials, or to the extent any such price increases are delayed, our cost of
goods sold would increase and our operating profit would correspondingly decrease. By way of example, if the price of polypropylene was to rise $.01 per pound, and we were not able to pass along any
of such increase to our customers, we would realize a decrease of approximately $4.1 million, on an annualized basis, in our reported pre-tax operating income. Material increases in
raw material prices that cannot be passed on to

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customers
could have a material adverse effect on our results of operations and financial condition. In periods of declining raw material costs, our cost of goods sold would decrease and our operating
profit would correspondingly increase; however, such increase would be offset, in whole or in part, by reductions to selling prices offered to customers by contract or in light of current market
conditions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" above.

ITEM 4. CONTROLS AND PROCEDURES

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the
effectiveness of our disclosure controls and procedures, as such item is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of
the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were
effective as of September 27, 2008.

There
were no changes in our internal control over financial reporting, as such item is defined in Exchange Act Rule 13a-15(f), during the quarter ended
September 27, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

We are not currently a party to any pending legal proceedings other than routine litigation incidental to the business of the Company,
none of which is deemed material.

ITEM 1A.    RISK FACTORS

The risk factors immediately following, which were not included in our 2007 Annual Report on Form 10-K ("2007
Form 10-K"), are being included herein to provide additional disclosure related to the risk factors disclosed in our 2007 Form 10-K. See our 2007
Form 10-K for an expanded description of other risks that we face.

Our business may be adversely affected by economic downturns

In 2008, general worldwide economic conditions have experienced a downturn due to the sequential effects of the subprime lending
crisis, general credit market crisis, collateral effects on the finance and banking industries, increased energy costs, concerns about inflation, slower economic activity, decreased consumer
confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. These conditions make it difficult for our customers, our vendors and us to accurately
forecast and plan future business activities, and they could cause U.S. and foreign businesses to slow spending on our products, primarily in the industrial sector, which would delay and lengthen
sales cycles. We cannot predict the timing or duration of any economic slowdown or the timing or strength of a subsequent economic recovery, worldwide, or in the specific end markets we serve. If
certain of the markets we serve significantly deteriorate due to these economic effects, our business, financial condition and results of operations may be materially and adversely affected.
Additionally, the downturn in economic conditions has negatively impacted the equity markets. As a result, we may experience changes in the funding positions of our defined benefit plans, which may
result in increased funding requirements in the future. These factors have also resulted in a tightening in the global credit markets which could impact our ability to renew or extend short-term
financing arrangements.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the third quarter of fiscal 2008, 2,471 shares of our Class B Common Stock were converted into 2,471 shares of our
Class A Common Stock. These conversions were exempt from registration based on Section 3(a)(9) of the Securities Act of 1933, as amended.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5.    OTHER INFORMATION



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ITEM 6.    EXHIBITS

Exhibits required to be filed with this Form 10-Q are listed below:

Exhibit
Number

Document Description31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 135032.2

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 135099.1

Press release, dated November 5, 2008, reporting financial results for the third quarter and nine months ended September 27, 2008


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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.Date: November 5, 2008

By:

/s/ VERONICA M. HAGEN Veronica M. Hagen Chief Executive OfficerDate: November 5, 2008

By:

/s/ ROBERT J. KOCOUREK Robert J. Kocourek Chief Financial Officer


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