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 April 4, 2009Oro

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was requried
to submit and post such files). 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 May 6, 2009 there were 19,753,082 shares of Class A common stock, 87,658 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.



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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


32Item 3.

Quantitative and Qualitative Disclosures About Market Risk


50Item 4.

Controls and Procedures


51PART II. OTHER INFORMATIONItem 1.

Legal Proceedings


53Item 1A.

Risk Factors


53Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


53Item 3.

Defaults Upon Senior Securities


53Item 4.

Submission of Matters to a Vote of Security Holders


53Item 5.

Other Information


53Item 6.

Exhibits


53Signatures


54


1

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Table of Contents

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. There can be no assurance 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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Table of Contents

ITEM 1.    FINANCIAL STATEMENTS

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

April 4,
2009

January 3,
2009ASSETSCurrent assets:Cash and cash equivalents

$
54,271

$
45,718Accounts receivable, net


119,880


134,003Inventories


109,372


121,906Deferred income taxes


1,974


1,826Other current assets


33,235


29,932Total current assets


318,732


333,385Property, plant and equipment, net


334,982


347,590Intangibles and loan acquisition costs, net


7,499


8,156Deferred income taxes


2,596


580Other assets


13,787


12,751Total assets

$
677,596

$
702,462LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Short-term borrowings

$
11,495

$
11,987Accounts payable and accrued liabilities


113,031


133,820Income taxes payable


6,220


4,266Current portion of long-term debt


37,040


9,173Total current liabilities


167,786


159,246Long-term debt


350,660


392,505Deferred income taxes


16,642


14,286Other noncurrent liabilities


41,660


43,214Total liabilities


576,748


609,251Commitments and contingenciesPolymer Group, Inc. shareholders' equity:Preferred stock0 shares issued and outstanding





Class A common stock19,446,924 and 19,400,455 issued and outstanding at April 4, 2009 and January 3, 2009, respectively


194


194Class B convertible common stock87,658 and 93,949 shares issued and outstanding at April 4, 2009 and January 3, 3009,
respectively


1


1Class C convertible common stock24,319 and 24,319 shares issued and outstanding at April 4, 2009 and January 3, 2009,
respectively





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





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





Additional paid-in capital


193,163


192,796Retained deficit


(121,533
)

(131,089
)Accumulated other comprehensive income


17,961


18,370Total Polymer Group, Inc. shareholders' equity


89,786


80,272Noncontrolling interests


11,062


12,939Total equity


100,848


93,211Total liabilities and equity

$
677,596

$
702,462


See Accompanying Notes.

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Table of Contents

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

Three Months
Ended
April 4, 2009

Three Months
Ended
March 29, 2008Net sales

$
227,243

$
273,773Cost of goods sold


174,615


230,867Gross profit


52,628


42,906Selling, general and administrative expenses


27,877


30,700Special charges, net


2,891


1,363Other operating income, net


(348
)

(1,292
)Operating income


22,208


12,135Other expense (income):Interest expense, net


7,618


8,707Gain on reacquisition of debt


(2,431
)

Foreign currency and other loss, net


2,160


487Income before income taxes


14,861


2,941Income tax expense


7,182


1,624Net income


7,679


1,317Net loss attributable to noncontrolling interests


1,877


107Net income attributable to Polymer Group, Inc.

$
9,556

$
1,424Earnings per common share attributable to Polymer Group, Inc. common shareholders:Basic

$
0.49

$
0.07Diluted

$
0.49

$
0.07


See
Accompanying Notes.

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Table of Contents

POLYMER GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In Thousands)

Three Months
Ended
April 4, 2009

Three Months
Ended
March 29, 2008Operating activities:Net income attributable to Polymer Group, Inc.

$
9,556

$
1,424Adjustments to reconcile net income attributable to Polymer Group, Inc. to net cash provided by operating activities:Asset impairment charge


1,600


Deferred income taxes


1,010


(826
)Depreciation and amortization


12,700


13,133Gain on reacquisition of debt


(2,431
)

Noncash compensation


423


1,849Changes in operating assets and liabilities:Accounts receivable, net


12,329


(5,161
)Inventories


11,170


5,432Other current assets


(3,303
)

(5,971
)Accounts payable and accrued liabilities


(20,272
)

5,909Other, net


1,208


(494
)Net cash provided by operating activities


23,990


15,295Investing activities:Purchases of property, plant and equipment


(3,439
)

(12,579
)Proceeds from sale of assets





1,000Acquisition of intangibles and other


(77
)

(102
)Net cash used in investing activities


(3,516
)

(11,681
)Financing activities:Proceeds from borrowings


10,762


8,763Repayment of borrowings


(9,624
)

(22,797
)Reacquisition of debt


(12,375
)

Net cash used in financing activities


(11,237
)

(14,034
)Effect of exchange rate changes on cash


(684
)

538Net increase (decrease) in cash and cash equivalents


8,553


(9,882
)Cash and cash equivalents at beginning of period


45,718


31,698Cash and cash equivalents at end of period

$
54,271

$
21,816


See
Accompanying Notes.

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Table of Contents

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 seventeen 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 hygiene, medical, 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 contained in the Annual Report on Form 10-K for the period ended January 3, 2009. 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
January 3, 2009 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 year presentation.

Revenue Recognition

Revenue from product sales is recognized when title and risks of ownership pass to the customer, which is on the date of shipment to
the customer, or upon delivery to a place named by the customer, depending 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 measurement of
severance-related liabilities, current and deferred income tax amounts, share-based compensation and obligations under the Company's pension and retirement benefit plans. Actual results could differ
from those estimates. These estimates are reviewed periodically to determine if a change is required.

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Table of Contents

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," ("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").

Gain on Reacquisition of Debt

The Company, through its subsidiaries, may make market purchases of its first lien term loan under its credit facility (see
Note 7 "Debt") from its existing lenders. Under these agreements, to the extent of the amount of debt acquired, the Company's subsidiary will acquire the rights and obligations of a lender
under the credit facility and the selling third-party lender will be released from its obligations under the credit facility. The Company accounts for such reacquisition of debt as a transfer of
financial assets resulting in a sale and derecognizes such
liability in accordance with the provisions of FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" and includes such amount
inGain on Reacquisition of Debtin the Consolidated Statements of Operations.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income of $18.0 million at April 4, 2009 consisted of $39.9 million of currency
translation gains (net of income taxes of $5.9 million), ($17.1) 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 $1.0 million) and $4.8 million of cash flow hedge losses. Accumulated other comprehensive income of $18.4 million at January 3, 2009 consisted
of $39.9 million of currency translation gains (net of income taxes of $6.9 million), ($17.0) 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 $1.8 million) and $4.5 million of cash flow hedge losses. Comprehensive income for

7

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

the
three months ended April 4, 2009 and the three months ended March 29, 2008 amounted to $7.3 million and $5.4 million, respectively.

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 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, which was adopted by the Company as of January 4, 2009, 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 "Derivative and Other Financial Instruments and Hedging
Activities" for the fair value measurement disclosures for these assets and liabilities.

In
April 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly," to provide additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased.
The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. The FSP emphasizes that, regardless of whether the volume and level of activity for an asset or
liability have decreased significantly and regardless of which valuation technique was used, the objective of a fair value measurement under SFAS No. 157, remains the sameto
estimate the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The
FSP also requires expanded disclosures. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009, and must be applied prospectively. The Company intends to adopt FSP FAS 157-4 effective July 4, 2009 and apply its provisions prospectively. The
Company is in the process of evaluating the impact FSP FAS 157-4 will have on valuing its financial assets and liabilities.

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

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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 unaudited interim 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. SFAS No. 141(R) eliminates the cost-based purchase method allowed under SFAS No. 141. The Company will apply the provisions of SFAS No. 141(R) to future
business combinations. In amending SFAS No. 141(R), the FASB also introduced changes to certain provisions of income tax accounting in SFAS No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). For reorganizations under SOP 90-7 undertaken before the adoption period of SFAS No. 141(R), release of a valuation allowance related to
pre-confirmation net operating losses and deductible temporary differences are now being reported as a reduction to income tax expense. Similarly, adjustments to uncertain tax positions
made after the confirmation date are now recorded in the income statement.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("SFAS No. 160"). SFAS No. 160 changes the accounting
for, and the financial statement presentation of, noncontrolling equity interests in a consolidated subsidiary. Under SFAS No.160, all entities are required to report noncontrolling (minority)
interests in subsidiaries as a component of consolidated equity in the consolidated financial statements. In addition, the Statement requires transactions between an entity and noncontrolling
interests that do not result in deconsolidation to be treated as equity transactions and provides new guidance on accounting for deconsolidation. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. SFAS No. 160 applies prospectively from the effective date except for the presentation and disclosure requirements, which must be applied
retrospectively.

The
Company adopted SFAS No. 160 on January 4, 2009. Accordingly, the Company has adjusted its comparative consolidated financial statements presented as
follows:



In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities: an amendment of FASB Statement No. 133" ("SFAS
No. 161") to expand the

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

disclosure
framework of SFAS No. 133, "Accounting for Derivative Instruments and 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 the derivative instruments and related hedged items under SFAS No. 133; and how derivative
instruments and related hedged items affect the unaudited interim consolidated financial statements. The expanded disclosure guidance also requires the 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 fair value of derivative instruments and related gains and losses in a tabular format. The Company adopted SFAS No. 161 as of January 4, 2009 and applied its provisions
prospectively by providing the additional disclosures in its unaudited interim consolidated financial statements.

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.

In
December 2008, the FASB issued FSP FAS 132(R)-1, "Employers Disclosures about Postretirement Benefit Plan Assets," which provides additional guidance regarding employers'
disclosures about plan assets of a defined benefit pension or other postretirement plan. This interpretation is effective for financial statements issued for fiscal years ending after
December 15, 2009. The Company will adopt the provisions of FSP 132(R)-1 as of January 2, 2010. The adoption of this interpretation will increase the disclosures in the
financial statements related to the assets of the Company's postretirement benefit plans.

In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments," to require, on an
interim basis, disclosures about the fair value of financial instruments for public entities. FSP FAS 107-1 and APB 28-1 is effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it concurrently adopts both FSP
FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,"
and FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments." The Company intends to adopt FSP
FAS 107-1 and APB 28-1 effective June 30, 2009.

In
April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets," to provide guidance for determining the useful life of
recognized intangible assets and to improve consistency between the period of expected cash flows used to measure the fair value of a recognized intangible asset and the useful life of the intangible
asset as determined under SFAS No. 142, "Goodwill and Other Intangible Assets". The FSP requires that an entity consider its own historical experience in renewing or extending similar
arrangements. However, the entity must adjust that experience based on entity-specific factors under SFAS No. 142. If the company lacks historical experience to consider for similar
arrangements, it would consider assumptions that market participants would use about renewal or extension, as adjusted for the entity-specific factors under SFAS 142. The Company adopted FSP
FAS 142-3 as of January 4, 2009. The Company capitalizes costs incurred to renew or extend the term of its intangible assets. In each of the three-month periods ended
April 4, 2009 and March 28, 2008, the Company incurred $0.1 million of renewal and extension costs for patents and trademarks related to several of its products. The
weighted-average period for amortizing the costs of patents and trademarks is six years. The Company currently expects to be able to continue to maintain

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

these
patents and trademarks and thus does not anticipate any significant effect on its expected future cash flows related to those products.

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

Accounts receivable potentially expose the Company to a 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. Also, in an effort to reduce its credit exposure to certain customers, as well as accelerate its cash flows, the Company has sold on a non-recourse basis, certain of its
receivables pursuant to factoring agreements. The provision for losses on uncollectible accounts is determined principally on the basis of past collection experience applied to ongoing evaluations of
the Company's receivables and evaluations of the risk of repayment. The allowance for doubtful accounts was approximately $9.1 million and $8.1 million at April 4, 2009 and
January 3, 2009, respectively, which management believes is adequate to provide for credit losses 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 10% and 11% of the Company's sales in the first quarter of fiscal 2009 and 2008, 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 is 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, 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 quarter of fiscal 2009, approximately $55.2 million of receivables have been sold under the terms of the factoring agreements, compared to approximately
$56.9 million during the first quarter of fiscal 2008. The sale of these receivables accelerated the collection of the Company's cash, reduced credit exposure and lowered the Company's net
borrowing costs. Such 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. The amount due from the factoring companies, net of advances received from the factoring companies, was $3.8 million and $6.1 million
at April 4, 2009 and January 3, 2009, respectively, and is shown 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, which are considered to be primarily related to the Company's financing
activities, are immaterial and are included inForeign currency and other loss, netin the Consolidated Statements of Operations.

11

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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 relocate its corporate offices, restructure certain operations or pursue certain transaction opportunities. 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
April 4, 2009

Three Months
Ended
March 29, 2008Asset impairment charges

$
1,600

$
Restructuring and plant realignment costs


1,284


1,352Other costs


7


11$
2,891

$
1,363


Asset impairment charges

During the first quarter of fiscal 2009, the Company recorded a non-cash impairment charge of $1.6 million related
to the write-down of assets held for sale in Neunkirchen, Germany to their estimated fair value less costs to sell.

The
following table shows assets held for sale as of April 4, 2009 that are measured at fair value on a non-recurring basis:

Period
Ended
April 4, 2009

Quoted Prices in
Active Markets
for
Identical Assets
Level 1

Significant
Other
Observable
Inputs
Level 2

Unobservable
Inputs
Level 3

Total
Gains
(Losses)Assets held for sale

$
4,065




$
4,065




$
(1,600
)


In
accordance with the provisions of SFAS No. 144, assets held for sale with a carrying amount of $5.7 million were written down to their fair value of $4.1 million
(net of costs to sell of $0.3 million) resulting in a loss of $1.6 million. This amount was included inSpecial Charges, netin the
Consolidated Statement of Operations. The loss reflects a decrease in the sales price at which certain property held for sale is currently being marketed based on local market conditions.

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

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

summarizes
the components of the accrued liability with respect to the Company's business restructuring activities as of, and for, the three month period ended April 4, 2009 (in thousands):

Balance accrued at beginning of year

$
2,6722009 restructuring and plant realignment costs


1,284Cash payments


(2,250
)Adjustments


24Balance accrued at end of period

$
1,730


The
restructuring and plant realignment costs in the first quarter of fiscal 2009 are comprised of: (i) $0.6 million of severance and other shut-down costs in
Europe, including costs associated with the previously announced closure of the Neunkirchen, Germany facility; (ii) $0.6 million of severance and other shutdown costs related to
facilities in the United States; and (iii) $0.1 million of severance costs related to restructuring initiatives in Canada.



The restructuring and plant realignment costs in the first quarter of fiscal 2008 are comprised of $1.6 million of equipment
relocation and other shut-down costs related to the previously announced closure of the Neunkirchen, Germany facility, which ceased production activities as of September 29, 2007,
and $0.2 million of credits pertaining to ongoing restructuring initiatives in the United States and Canada.

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):

April 4,
2009

January 3,
2009Finished goods

$
57,876

$
61,637Work in process


15,344


17,197Raw materials and supplies


36,152


43,072$
109,372

$
121,906


Inventories
are net of reserves, primarily for obsolete and slow-moving inventories, of approximately $11.4 million and $13.4 million at April 4, 2009
and January 3, 2009, respectively. Management believes that the reserves are adequate to provide for losses in the normal course of business.

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Table of Contents

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):

April 4,
2009

January 3,
2009Cost:Proprietary technology

$
2,742

$
2,667Loan acquisition costs


8,828


9,205Other


2,882


2,91014,452


14,782Less accumulated amortization


(6,953
)

(6,626
)$
7,499

$
8,156


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

Three Months EndedApril 4,
2009

March 29,
2008Amortization of:Intangibles with finite lives, included in selling, general and administrative expenses

$
222

$
210Loan acquisition costs included in interest expense, net


335


345Total amortization expense

$
557

$
555


Intangibles
are generally 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 $19.6 million and $20.7 million as of April 4, 2009 and January 3, 2009, respectively.

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 7. Debt

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

April 4,
2009

January 3,
2009Credit Facility, as defined below, 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average interest at 3.25% and 3.72% as of April 4, 2009 and January 3, 2009, 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

$
350,217

$
366,200Argentine Facility:Argentine Peso Loaninterest at 14.50% as of April 4, 2009 and January 3, 2009, denominated in Argentine pesos due in 29
remaining quarterly payments of approximately $0.2 million beginning in February 2010


6,489


7,170Argentine Peso Loan for working capitalinterest at 14.50% as of April 4, 2009 and January 3, 2009, denominated in
Argentine pesos due in 15 remaining quarterly payments of approximately $0.1 million beginning in January 2010


1,946


2,218United States Dollar Loaninterest at 5.72% as of April 4, 2009 and January 3, 2009, denominated in U.S. dollars due in 30
remaining quarterly payments of approximately $0.9 million beginning in March 2010


25,880


25,880Mexico Term Loaninterest at 8.84% as of April 4, 2009; denominated in U.S. dollars due in 22 quarterly payments scheduled to
begin in October 2009


3,000


Other


168


210387,700


401,678Less: Current maturities


(37,040
)

(9,173
)$
350,660

$
392,505


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 Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the assets of the

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POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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 3.50:1.00 as of April 4, 2009, with decreases over time, with the next change occurring April 3, 2010, at which time the leverage ratio
requirement will be 3.00:1.00, thereby narrowing the margin for compliance. The interest expense coverage ratio requirement at April 4, 2009 was that it not be less than 3.00:1.00, with
increases over time, with the next change occurring April 3, 2010, at which time the requirement will be 3.25:1.00. The Company was in compliance with the debt covenants under the Credit
Facility at April 4, 2009. 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 expects 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; however, the Company
currently estimates that the excess cash flow requirement with respect to fiscal 2009, which would be payable in March 2010, will be approximately $30.0 million and has classified this amount,
in addition to the mandatory payments of approximately $1.0 million per quarter, in theCurrent portion of long-term debtin the
Consolidated Balance Sheets as of April 4, 2009. The Company may, at its discretion and based on projected operating cash flows, the current market value of its term loan and anticipated cash
requirements, elect to make additional repayments of debt under the Credit Facility in excess of the mandatory debt repayments and excess cash flow payments, or may reacquire its debt in conjunction
with its debt repurchase program. No additional amounts were required to be paid under the excess cash flow provisions of the Credit Facility with respect to fiscal 2008.

The
Company, through its subsidiaries, may make market purchases of its first lien term loan under its Credit Facility from its existing lenders. Under these agreements, to the extent of
the amount of debt acquired, the Company's subsidiary will acquire the rights and obligations of a lender under the Credit Facility and the selling third-party lender will be released from its
obligations under the Credit Facility. The Company accounts for such reacquisition of debt as a transfer of financial assets resulting in a sale and derecognizes such liability in accordance with the
provisions of FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." During the three months ended April 4, 2009, the
Company reacquired $15.0 million of debt, via cash payment, and recognized a gain on such reacquisition of $2.4 million, net of the write-off of deferred financing fees

16

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

of
$0.2 million, and has included such amount inGain on Reacquisition of Debtin the Consolidated Statements of Operations.

The
interest rate applicable to borrowings under the Credit Facility is based on either three-month or one-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 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. There were
no borrowings under the revolving credit facility as of April 4, 2009 or January 3, 2009. As of April 4, 2009, capacity under the revolving credit facility has been reserved for
outstanding letters of credit in the amount of $2.8 million, as described below. There were no daily borrowings under the revolving credit facility for the period from January 4, 2009 to
April 4, 2009. 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, "Derivatives and Other Financial Instruments and Hedging Activities." Additionally, in February 2009, the Company entered into
another cash flow hedge agreement, which is effective June 30, 2009 and matures on June 30, 2011, and will effectively convert $240.0 million of notional principal amount of debt
from a variable LIBOR rate to a fixed LIBOR rate of 1.96%.

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 April 4, 2009, the Company has
effectively reserved capacity under the revolving credit facility in the amount of $2.8 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 April 4, 2009. As of April 4, 2009, the Company also had other
outstanding letters of credit in the amount of $3.0 million primarily provided to certain raw material vendors. None of these letters of credit had been drawn on at April 4, 2009.

Subsidiary Indebtedness

In fiscal 2008, the Company's operations in Argentina entered into short-term credit facilities to finance working capital
requirements. Total outstanding indebtedness under these short-term borrowing facilities was $11.5 million and $12.0 million at April 4, 2009 and January 3,
2009, respectively. These facilities mature at various dates through September 2009. As of April 4, 2009, the average interest rate of these borrowings was 8.29%. Borrowings under these
facilities are included 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, excluding any interest added to principal, 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 April 4, 2009, the outstanding indebtedness was approximately $34.3 million, consisting of
$8.4 million Argentine peso-denominated loans and a $25.9 million U.S. dollar-denominated loan. As of January 3, 2009, the outstanding indebtedness was approximately

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

$35.3 million,
consisting of $9.4 million Argentine peso-denominated loans and a $25.9 million U.S. dollar-denominated loan. Current maturities of this debt amount to
$4.9 million as of April 4, 2009. 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 $1.9 million in March 2013, approximately $6.5 million in August 2016 and the balance of $25.9 million maturing in December 2016.

In
April 2009, the Company amended its Argentine Facility to effectively defer all scheduled maturities under the facility for a period of twelve months; accordingly, the Company has
classified previously scheduled current maturities, in the amount of approximately $3.6 million, as long-term debt in its Consolidated Balance Sheet as of April 4, 2009 consistent with
the provisions of SFAS No. 6, "Classification of Short-Term Obligations Expected to be Refinanced".

In
March 2009, the Company's subsidiary in Mexico entered into a term credit facility (the "Mexico Credit Facility") with a banking institution in Mexico to finance a portion of the
installation of a new spunmelt line near San Luis Potosi, Mexico. The maximum borrowings available under the Mexico Credit Facility, excluding any interest added to principal, amount to
$14.5 million with respect to a U.S. dollar-denominated loan and are secured by pledges covering (i) the subsidiary's existing equipment lines; and (ii) the new machinery and
equipment being purchased. The interest rate applicable to borrowings under the Mexico Credit Facility is based on one-month LIBOR plus 780 basis points. A series of 22 principal payments
are scheduled to commence October 1, 2009 once the new line becomes operational, which is estimated to occur during the second quarter of fiscal 2009; interest payments will commence on
July 1, 2009. As of April 4, 2009, outstanding indebtedness under the Mexico Credit Facility was approximately $3.0 million. In April 2009, the Company's subsidiary in Mexico
borrowed the balance of the funds, or $11.5 million, available under the Mexico Credit Facility.

Note 8. Income Taxes

During the three months ended April 4, 2009, the Company recognized income tax expense of $7.2 million on consolidated
income before income taxes of $14.9 million. During the three months ended March 29, 2008, the Company recognized income tax expense of $1.6 million on consolidated income before
income taxes of $2.9 million. The Company's income tax expense in any period 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 the provisions of
Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, and Interpretation of FASB Statement No. 109 ("FIN 48"),
FIN 48 and foreign taxes calculated at statutory rates different than the U.S. federal statutory rate.

At
implementation of FIN 48, the Company recorded a liability for unrecognized tax benefits of $9.7 million, which included $5.0 million of interest and penalties.
Additionally, the Company increased its unrecognized tax benefits during fiscal 2007 and 2008 by $4.6 million and $2.2 million, respectively.

During
the three months ended April 4, 2009, the Company increased the liability for unrecognized tax benefits by $0.9 million, which included interest and penalties of
$0.5 million. During the three months ended March 29, 2008, the Company increased the liability for unrecognized tax benefits by $0.4 million, which included interest and
penalties of $0.3 million.

The
total unrecognized tax benefits of $17.4 million as of April 4, 2009 represent the amount of unrecognized tax benefits that, if recognized, would affect the effective
income tax rate in future periods. Included in the balance of unrecognized tax benefits at April 4, 2009 was $3.8 million related to tax

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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 negotiations of the settlement of foreign taxes 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 April 4, 2009, the Company has a number of open tax years. The major jurisdictions where the Company files income tax returns include Argentina, Canada, China, Colombia,
France, Germany, Mexico, The Netherlands, and the United States. 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 2008. 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 $1.3 million
and $2.3 million at April 4, 2009 and January 3, 2009, 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.

Components
of net periodic benefit costs for the three months ended April 4, 2009 and March 29, 2008 are as follows (in thousands):

Pension Benefits

Postretirement
Benefits2009

2008

2009

2008Current service costs

$
503

$
624

$
8

$
9Interest costs on projected benefit obligation and other


1,602


1,670


70


85Return on plan assets


(1,490
)

(1,861
)




Amortization of transition obligation and other


121


(23
)

(80
)

(97
)Periodic benefit cost, net

$
736

$
410

$
(2
)
$
(3
)


As
of April 4, 2009, the Company had contributed $3.3 million to its pension and postretirement benefit plans for the 2009 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

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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 $2.3 million to fund its plans in 2009, for a total of $5.6 million.

Note 10. Stock Option and Restricted Stock Plans

Stock Option Plan

The Polymer Group, Inc. 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. All options awarded 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 may be accelerated on the occurrence of a change in control, as defined in the 2003 Option Plan, or other events. With respect
to post-vesting restrictions, the 2003 Option Plan 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 of April 4, 2009 and January 3, 2009, the Company had awarded grants of
non-qualified stock options to purchase 176,622 shares and 178,622 shares of the Company's Class A Common Stock, respectively. In addition, 164,372 stock options expired without
exercise during fiscal 2008. Accordingly, at April 4, 2009, there remain 212,437 stock options not awarded pursuant to the 2003 Option Plan. In March 2009, the Board of Directors approved a
measure to cease making awards under 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 April 4, 2009, with respect to the 176,622 options to
purchase Class A Common Stock awarded under the 2003 Option Plan, 9,165 are subject to future vesting based on the attainment of future performance targets, which targets had not been
established as of April 4, 2009. Accordingly, pursuant to the provisions of SFAS No. 123(R), 167,457 options to purchase Class A Common Stock have been considered granted under
the 2003 Option Plan as of April 4, 2009. During the first three months of fiscal 2009, 18,055 options were forfeited as the performance targets for fiscal 2008 were not achieved. Of such
options forfeited, 16,055 are subject to 2009 performance targets and are considered re-granted options in fiscal 2009 in accordance with SFAS No 123(R). During the first three months of
fiscal 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. The Compensation Committee, in exercise of its discretion, granted participants vesting credit equal to 100% of target. As a
result, the Company 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. On March 12, 2008, the Compensation Committee, in exercise of its discretion, granted 58 participants vesting credit equal to 100% of target representing 46,603 additional awards with a
fair value at the grant date of $0.3 million. As a result, the Company 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

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

$0.6 million
for the three months ended March 29, 2008 and were included inSelling, general and administrative expensesin the
Consolidated Statements of Operations. Such costs for the three months ended April 4, 2009 were immaterial.

Information
regarding the Company's stock options granted, as defined by SFAS No. 123(R), and outstanding as of April 4, 2009 is as follows:

Vested

Expected
to VestFor options granted and outstanding:Number of options


128,183


39,275Weighted average exercise price

$
6.00

$
6.00Aggregate intrinsic value (in $000s)





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




$
300Weighted average period of recognition (years)





1.0


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 Polymer Group, Inc. 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 March 2009, the Company's Board of Directors approved an increase the number of shares reserved for issuance under the 2004 Restricted Plan from 200,000 shares to 300,000 shares.
The increase is subject to approval by the shareholders at the Annual Meeting of Shareholders scheduled for May 22, 2009.

In
the first three months of fiscal 2009 and fiscal 2008, the Company awarded 46,810 and 4,640 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 for each of the
periods noted above and was included inSelling, general and administrative expensesin the Consolidated Statements of Operations.

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.
Such shares vest over a four year service period effective April 23, 2007, and such vesting will be accelerated upon a change in control, as defined therein, and the completion of a minimum
service period. The compensation costs associated with such restricted shares issued under the terms of the Executive Employment Agreement totaled $0.1 million for the first quarter of fiscal
2009 and the first quarter of fiscal 2008 and were included inSelling, general and administrative expensesin the Consolidated Statements of
Operations. Compensation cost not yet recognized for such nonvested restricted shares issued under

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

the
terms of the Executive Employment Agreement was approximately $0.7 million as of April 4, 2009, and the weighted average period of recognition for such compensation was
1.1 years as of April 4, 2009.

As
of April 4, 2009, there remain 13,449 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 Board of
Directors and shareholders 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 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 shares 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 and March 12, 2008, 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, as defined in the 2005 Stock Plan, or other events. Vesting of shares awarded under the Executive Employment Agreement will be accelerated under a change in control,
as defined therein, and the completion of a minimum service period.

During
the first quarter of fiscal 2009, 32,237 restricted shares were considered re-granted to certain employees of the Company in accordance with SFAS No. 123(R). In addition,
6,143 shares were surrendered during the first quarter of fiscal 2009 by employees to satisfy withholding requirements and 32,747 shares were forfeited. During the first quarter of fiscal 2008, 50,298
restricted shares were awarded to certain employees of the Company. In addition, 8,536 shares were surrendered during the first quarter of fiscal 2008 by employees to satisfy withholding requirements
and 525 shares were forfeited.

The
compensation costs associated with the 2005 Stock Plan totaled $0.2 million and $1.1 million for the three months ended April 4, 2009 and March 29, 2008,
respectively, and were included inSelling, general and administrative expensesin the Consolidated Statements of Operations. As of April 4,
2009, awards of 348,034 shares of the Company's Class A Common Stock were outstanding and 133,966 shares were not awarded under the 2005 Stock Plan. In March 2009, the Board of Directors
approved a measure to cease making awards 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 April 4, 2009, of the 348,034 shares awarded and
outstanding under the
2005 Stock Plan, 31,459 shares are subject to future vesting based on the attainment of future performance targets, which targets had not been established as of April 4, 2009. Accordingly,
pursuant to the provisions of SFAS 123(R), 316,575 restricted shares are considered granted under the 2005 Stock Plan as of April 4, 2009. Compensation cost not yet recognized for
nonvested restricted shares considered granted under the 2005 Stock Plan was approximately $1.4 million as of April 4, 2009, and the weighted average period of recognition for such
compensation was 1.2 years as of April 4, 2009.

22

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)



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 425,000 shares of the Company's Class A Common Stock to employees of the Company. In March 2009, the Company's Board of Directors
approved an increase in the number of shares reserved for issuance under the 2008 LTI Stock Plan from 425,000 shares to 1,075,000 shares. The increase is subject to approval by the shareholders at the
Annual Meeting of Shareholders scheduled for May 22, 2009. 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, as defined therein, or other events.

During
fiscal 2008, various awards were approved and issued to certain employees of the Company under the 2008 LTI Stock Plan. As of January 3, 2009, awards of 45,947
service-based restricted shares of the Company's Class A Common Stock and 138,022 restricted stock units were outstanding and unvested. As to the restricted stock units, 122,512 awards would
vest based on the achievement of 2008 performance targets and the completion of requisite service periods. 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 for the first three months of fiscal 2009 and are included inSelling, general and
administrative expensesin the Consolidated Statements of Operations. There were no compensation costs related to the 2008 LTI Stock Plan in the first quarter of fiscal 2008.
During the first quarter of fiscal 2009, 122,512 performance-based
restricted stock units were forfeited since the performance criteria was not satisfied and the awards contained no carryforward provisions. As of April 4, 2009, awards of 45,947 shares of the
Company's Class A Common Stock and 15,510 restricted stock units were outstanding and unvested, and 363,543 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 $0.7 million as of April 4, 2009, and the weighted average period of recognition for such compensation
was 0.7 years as of April 4, 2009.

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

23

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

expires
on June 29, 2009, was $240.0 million. Cash settlements are made quarterly and the floating rate is reset quarterly, coinciding with the reset dates of the current Credit
Facility.

On
February 12, 2009, the Company entered into a pay-fixed, receive-variable interest rate swap, which will effectively convert the variable LIBOR-based interest
payments associated with $240.0 million of the Company's first-lien term loan to fixed amounts at a LIBOR rate of 1.96%. The notional amount of this contract, which becomes
effective on June 30, 2009 and expires on June 30, 2011, is $240.0 million.

In
accordance with SFAS No. 133, the Company designated these swaps as cash flow hedges of the variability of interest payments with changes in fair value of the swap recorded to Accumulated 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 $2.2 million and $4.5 million as of April 4, 2009 and January 3,
2009,
respectively. The fair value of the interest rate swap that expires on June 30, 2011, based on indicative price information obtained via a third-party valuation, was an obligation of
$2.6 million as of April 4, 2009. 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 loss in the interest
rate swap's fair value of $0.3 million during the first quarter of fiscal 2009 was reported as an adjustment toAccumulated Other Comprehensive
Incomein the Consolidated Balance Sheet as of April 4, 2009.

The
impact of these swaps onInterest expense, netin the Consolidated Statements of Operations were increases of $2.2 million and
$0.1 million for the three months ended April 4, 2009 and March 29, 2008, respectively.

On
September 30, 2008, the Company entered into a series of foreign exchange forward contracts with a third-party financial institution, the objective of which is to hedge the
changes in fair value of a firm commitment to purchase equipment attributable to changes in foreign currency rates between the Euro and U.S. dollar through the date of acceptance of the equipment. The
notional amount of the contracts with the third party, which expire on various dates through fiscal 2009, was $33.3 million. Cash settlements under the forward contracts coincide with the
payment dates on the equipment purchase contract. As of April 4, 2009 and January 3, 2009, the Company recorded $2.5 million and $1.4 million for the change in the fair
value of the foreign exchange forward contracts inAccounts payable and accrued liabilitiesand the $2.5 million and $1.4 million change
for the fair value of the firm commitment inOther Assets, respectively.

The
following table shows assets and liabilities as of April 4, 2009, that are measured at fair value on a recurring basis (in thousands):

Quoted Prices in
Active Markets for
Identical Assets
or Liabilities
Level 1

Significant
Other
Observable
Inputs
Level 2

Unobservable
Inputs
Level 3Derivative assets




$
2,470


Derivative liabilities





(7,240
)




24

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Tabular
information with respect to derivatives as of April 4, 2009 and January 3, 2009 are as follows:

April 4, 2009Asset Derivatives

Liability DerivativesBalance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
ValueDerivatives designated as hedging instruments under SFAS No. 133 Interest rate contracts



$


Other Noncurrent
Liabilities

$
4,770Foreign exchange contracts

Other Assets

2,470

Accounts Payable and Accrued Liabilities

2,470Total derivatives designated as hedging instruments under SFAS No. 133



$
2,470



$
7,240Derivatives not designated as hedging instruments under SFAS No. 133

N/A

$


N/A

$
January 3, 2009Asset Derivatives

Liability DerivativesBalance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
ValueDerivatives designated as hedging instruments under SFAS No. 133 Interest rate contracts



$


Other Noncurrent
Liabilities

$
4,458Foreign exchange contracts

Other Assets

1,388

Accounts payable and Accrued Liabilities

1,388Total derivatives designated as hedging instruments under SFAS No. 133



$
1,388



$
5,846Derivatives not designated as hedging instruments under SFAS No. 133

N/A

$


N/A

$



Amount of Gain (Loss)
Recognized in OCI on Derivative
(Effective Portion)

Amount of Gain (Loss) Reclassified
from Accumulated OCI into Income
(Effective Portion)(1)Derivatives in SFAS No. 133 Cash
Flow Hedging Relationships

2009

2008

2009

2008Derivatives designated as hedging instruments under SFAS No. 133Interest rate contracts

$
2,507

$
4,223

$
2,194

$
176Derivatives not designated as hedging instruments under SFAS No. 133


N/A


N/A


N/A


N/A


---

25

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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 quarter ended
April 4, 2009 (in thousands, except per share data):

Net Income
(EPS Numerator)

Average Shares
Outstanding
(EPS Denominator)

Earnings Per
Common ShareBasic

$
9,556


19,386.5

$
0.49Potential shares exercisable under share-based plans





4.4Less: shares which could be repurchased under treasury stock method





(2.7
)Diluted

$
9,556


19,388.2

$
0.49


Under
the treasury stock method, shares represented by the exercise of 167,457 options, and 50,495 nonvested restricted shares, were not included in diluted earnings per share
because to do so would have been anti-dilutive.

The
following is a reconciliation of basic net earnings per common share to diluted net earnings per common share for the quarter ended March 29, 2008 (in thousands, except per
share data):

Net Income
(EPS Numerator)

Average Shares
Outstanding
(EPS Denominator)

Earnings Per
Common ShareBasic

$
1,424


19,197.3

$
0.07Potential shares exercisable/earned under share-based plans





381.6Less: shares which could be repurchased under treasury stock method





(200.5
)Diluted

$
1,424


19,378.4

$
0.07


Under
the treasury stock method, shares represented by the exercise of 41,922 options, and 109,315 nonvested restricted shares, were not included in diluted earnings per share
because to do so would have been anti-dilutive.

As
of April 4, 2009, 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 the common stock have the same 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

26

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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 to purchase shares
of Class D common stock and Series B warrants to purchase shares of Class E common stock, 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.

A
reconciliation of equity attributable to Polymer Group, Inc. and the noncontrolling interests for the three months ended April 4, 2009 is as follows:

Polymer Group, Inc. ShareholdersTotal

Comprehensive
Income

Retained
Deficit

Accumulated
Other
Comprehensive
Income

Common
Stock

Paid-in
Capital

Noncontrolling
InterestBalance, January 3, 2009

$
93,211




($
131,089
)
$
18,370

$
195


192,796

$
12,939Compensation recognized on share-based awards


423














423Surrender of shares to satisfy withholding tax obligations


(56
)













(56
)Comprehensive income:Net income


7,679

$
7,679


9,556











(1,877
)Other comprehensive income (loss), net of tax:Cash flow hedge adjustment, net of reclassification adjustment


(312
)

(312
)




(312
)Employee benefit plans


484


484





484Currency translation adjustments


(581
)

(581
)




(581
)Other comprehensive income (loss)


(409
)

(409
)Comprehensive income


7,270

$
7,270Balance, April 4, 2009

$
100,848




($
121,533
)
$
17,961

$
195

$
193,163

$
11,062


27

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Table of Contents

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 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 months ended
April 4, 2009 and the three months ended March 29, 2008 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 EndedApril 4,
2009

March 29,
2008Net salesNonwovens

$
191,628

$
231,614Oriented Polymers


35,615


42,159$
227,243

$
273,773Operating incomeNonwovens

$
27,945

$
19,402Oriented Polymers


3,504


884Unallocated Corporate


(6,350
)

(6,788
)Eliminations





25,099


13,498Special charges, net


(2,891
)

(1,363
)$
22,208

$
12,135Depreciation and amortization expense included in operating incomeNonwovens

$
11,302

$
11,204Oriented Polymers


873


1,387Unallocated Corporate


190


197Depreciation and amortization expense included in operating income


12,365


12,788Amortization of loan acquisition costs


335


345$
12,700

$
13,133Capital spendingNonwovens

$
3,338

$
12,269Oriented Polymers


56


92Corporate


45


218$
3,439

$
12,579


28

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)



April 4,
2009

January 3,
2009Division assetsNonwovens

$
681,274

$
717,814Oriented Polymers


71,420


70,954Corporate


8,561


1,619Eliminations


(83,659
)

(87,925
)$
677,596

$
702,462


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 EndedApril 4,
2009

March 29,
2008Net salesUnited States

$
93,447

$
110,849Canada


17,941


25,158Europe


38,687


51,753Asia


24,204


28,045Latin America


52,964


57,968$
227,243

$
273,773Operating income (loss)United States

$
8,305

$
(809
)Canada


1,481


685Europe


847


2,805Asia


5,815


3,405Latin America


8,651


7,41225,099


13,498Special charges, net


(2,891
)

(1,363
)$
22,208

$
12,135Depreciation and amortization expense included in operating incomeUnited States

$
4,195

$
4,475Canada


375


852Europe


1,822


1,980Asia


2,333


2,128Latin America


3,640


3,353Depreciation and amortization expense included in operating income


12,365


12,788Amortization of loan acquisition costs


335


345$
12,700

$
13,133


29

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)



April 4,
2009

January 3,
2009Property, plant and equipment, netUnited States

$
110,719

$
114,707Canada


5,110


5,558Europe


34,451


37,354Asia


60,657


62,826Latin America


124,045


127,145$
334,982


347,590


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 EndedApril 4,
2009

March 29,
2008Included in operating income

$
36

$
(1,292
)Included in other expense (income)


2,031


301$
2,067

$
(991
)


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 inOther operating income,
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 inOther operating income, 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 reflected inForeign currency and other loss, 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 inOther operating income,
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 loss, net.

30

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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 are deemed material.

At
January 3, 2009, the Company had several major committed capital projects, including the installment of a new spunmelt line at the Company's facility in San Luis Potosi,
Mexico. Total remaining payments with respect to major capital expansion projects as of April 4, 2009 totaled
approximately $36.7 million, which are expected to be substantially expended through the third quarter of fiscal 2009. On September 30, 2008, the Company entered into a series of foreign
exchange forward contracts with a notional amount of $33.8 million 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.

Note 16. Supplemental Cash Flow Information

Noncash investing or financing activities in the first three months of fiscal 2009 included the surrender of 6,143 shares of the
Company's Class A Common Stock to the Company by participants in the various stock compensation plans in the amount of $0.1 million to satisfy employee withholding tax obligations.

Noncash
investing or financing activities in the first three months of fiscal 2008 included the surrender of 8,536 shares of the Company's Class A Common Stock to the Company by
participants in the various stock compensation plans in the amount of $0.2 million to satisfy employee withholding tax obligations. Also, the Company recorded $2.4 million of property,
plant and equipment additions, for which payment had not been made as of March 29, 2008.

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Table of Contents

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. 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

Polymer Group, Inc. is 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 furniture and bedding, filtration and protective apparel.

We
have one of the largest global platforms in our industry, with seventeen 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. According to certain industry sources, the nonwovens market is in excess of $20.0 billion in annual sales. Historically,
the global market has been expected to grow at a five-year compound annual growth rate (CAGR) of 6.0 to 8.0%. The recent decline in macro-economic conditions have negatively impacted
certain market segments, specifically durable products used in industrial applications. The recent severe and unexpected decline in the global marketplace has made long-term growth
forecasts difficult. Based on available data, we still expect continued growth in the market, specifically in the developing regions and in end-use market segments that are more disposable
in nature. Demand in certain developing regions is still forecasted to grow in excess of a 10.0% CAGR over the next five years. However, the overall growth rate expectation is lower than prior year
indications. Demand in developed regions (North America, Western Europe and Japan) over this period is expected to increase by a 1.0 to 3.0% CAGR, driven by increased penetration, the development of
new applications for nonwovens and a recovery of certain underlying markets beginning in 2010. 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 higher-growth developing regions, will allow us to achieve 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 and the technology that we develop.

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Table of Contents

The
Nonwovens segment develops and sells products in various consumer and industrial markets, including hygiene, medical, industrial, and wiping. Nonwovens segment sales were
approximately $971.4 million, $885.7 million and $848.3 million of our consolidated net sales for fiscal 2008, 2007 and 2006, respectively, and represented approximately 85%, 84%
and 83% of our consolidated net sales in each of those years.

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 sales). We primarily compete in disposable products, which account for approximately 70% of our total nonwoven sales. We believe that disposable products are less cyclical and will have
higher growth rates 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. 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 consumer of the end product.

The
Oriented Polymers segment provides flexible packaging products that utilize coated and uncoated oriented polyolefin fabrics. Oriented Polymers segment sales were approximately
$174.2 million, $174.0 million and $173.3 million for fiscal 2008, 2007 and 2006, respectively, and represented approximately 15%, 16% and 17% of our consolidated net sales in
each of those years.

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. These include concrete fiber, housewrap, lumberwrap, fiberglass packaging tubes, balewrap, steel wrap, coated bags for specialty chemicals and mineral fibers,
performance fabrics for firemen turnout gear and other performance fabrics. Our woven slit film component of the business primarily competes in niche markets, delivering more complex products versus
supplying uncoated markets such as carpet backing fabric, geotextiles and bags. 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, printed billboard material and specialized
components that are integrated into a variety of industrial products (e.g., roofing substrates and flame-retardant fabric). We maintain leading market positions in this segment, as evidenced by
our #2 position in North America in concrete fiber and flame-retardant performance fabrics. We are focusing efforts on diversifying away from large volume, commodity products within this division
through continued product innovation.

In
2008 and early 2009, 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 continue to see 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.

Raw Materials

The primary raw materials used to manufacture most of our products are polypropylene resin, polyester fiber, polyethylene resin and, to
a lesser extent, rayon and tissue paper. These primary raw materials are available from multiple sources and we purchase such materials from a variety of global suppliers. 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. Historically,

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the
prices of polypropylene and polyethylene resins and polyester fibers have fluctuated. We have not historically hedged the 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 lag between the time that we
incur the new raw material cost and the time that we adjust the selling price to our customers. 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. Increases in raw material costs
that cannot be passed on to customers could have a material adverse effect on our results of operations and financial condition. 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 $4.0 million, on an annualized basis, in our reported
pre-tax operating income. There can be no assurance that the prices of our raw materials, including polypropylene, polyethylene and polyester will not substantially increase in the future,
or that we will be able to pass on any increases to our customers not covered by contracts with price escalation clauses. In periods of declining raw material costs, our cost of goods would decrease
and our operating profit would correspondingly increase; however, such increases 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 in this Form 10-Q.

During
the first eight months of fiscal 2008, the cost of polypropylene resin, our largest volume raw material, increased significantly, particularly during the May 2008 to August 2008
timeframe and, during the fourth quarter of fiscal 2008, the cost of polypropylene resin decreased dramatically. During the first quarter of fiscal 2009, we have experienced a moderate increase in the
cost of polypropylene resin. Additionally, on a global basis, other raw material costs continue to fluctuate, in a much narrower range, in response to certain global economic factors, including the
regional supply versus demand dynamics for the raw materials and the volatile price of oil.

We
believe that the loss of any one or more of our suppliers would not have a long-term material adverse effect on us because other manufacturers with whom we conduct
business would be able to fulfill our requirements. However, the loss of certain of our suppliers could, in the short-term, adversely affect our business until alternative supply
arrangements were secured or alternative suppliers were qualified with customers. We have not experienced any significant disruptions in supply as a result of shortages in raw materials.

Recent Expansion Initiatives

In fiscal 2007, we completed 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 in the fourth quarter of fiscal 2007.

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

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

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announced
an additional plant closing in the U.S. in May of 2008, which ceased production in the third quarter of fiscal 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. During January 2009, we announced the decision to exit our automotive business as our
industrial business has been negatively impacted as a result of the current economic downturn.

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 consolidated financial statements included in Item 8 of Part II
to our 2008 Annual Report on Form 10-K, 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 cash restructuring charges and asset impairment charges associated with the consolidation, and such charges could be material.

Results of Operations

As described above in "Raw Materials" and in Item 3 "Quantitative and Qualitative Disclosures About Market Risk," we may be
significantly impacted by variability in raw material costs, including polypropylene resin and other resins and fibers. For the three months ended April 4, 2009, we generated an overall gross
margin of approximately 23%, which is significantly higher than historical gross margins, which ranged from 15% to 16% from fiscal 2006
through mid-fiscal 2008. There are many contributors to the improvement in gross margin, with the increase primarily generated by dramatic declines in raw material costs experienced during the fourth
quarter of fiscal 2008, which had a significant positive impact on gross margin for the first quarter of fiscal 2009. During the first quarter of fiscal 2009, there has been a moderate increase in the
cost of polypropylene resin; additionally, we expect to see reductions in contracted selling prices in the second quarter of fiscal 2009 due to the quarterly lag effect of the recent decline in
average raw material costs for the March quarter of fiscal 2009 versus the December quarter of fiscal 2008. Due to these factors, we expect to experience a decline in gross margin during the second
quarter of fiscal 2009 versus the gross margin generated for the first quarter of fiscal 2009. As a result, we do not consider the results generated for the first quarter of fiscal 2009 to be
indicative of financial performance expected for the remainder of the 2009 fiscal year.

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The
following table sets forth the percentage relationships to net sales of certain Consolidated Statement of Operations items for the three months ended April 4, 2009 in
comparison to such items for the three months ended March 29, 2008 and in comparison with the 2007 and 2008 fiscal years:

Fiscal Year Ended

Three Months Ended2008

2007

April 4,
2009

March 29,
2008Net sales


100.0
%

100.0
%

100.0
%

100.0
%Cost of goods sold:Materials


55.6


54.1


45.1


55.9Labor


7.3


7.7


8.4


7.5Overhead


21.0


22.3


23.3


20.983.9


84.1


76.8


84.3Gross profit


16.1


15.9


23.2


15.7Selling, general and administrative expenses


10.7


10.2


12.3


11.2Special charges, net


1.8


5.8


1.3


0.5Other operating (income) loss, net


0.4





(0.2
)

(0.4
)Operating income (loss)


3.2


(0.1
)

9.8


4.4Other expense (income):Interest expense, net


2.9


3.0


3.4


3.2Gain on reacquisition of debt








(1.1
)

Foreign currency and other (gain) loss, net


(0.1
)

(0.2
)

0.9


0.1Income (loss) before income taxes


0.4


(2.9
)

6.6


1.1Income tax expense


0.5


0.8


3.2


0.6Net income (loss)


(0.1
)

(3.7
)

3.4


0.5Net income (loss) attributable to noncontrolling interests


(0.6
)

0.2


(0.8
)

0.0Net income (loss) attributable to Polymer Group, Inc.


0.5
%

(3.9
)%

4.2
%

0.5
%


Comparison of Three Months Ended April 4, 2009 and March 29, 2008

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 April 4, 2009, the three
months March 29, 2008 and the corresponding change (in millions):

Three months endedApril 4,
2009

March 29,
2008

ChangeNet salesNonwovens

$
191.6

$
231.6

$
(40.0
)Oriented Polymers


35.6


42.2


(6.6
)$
227.2

$
273.8

$
(46.6
)Operating income (loss)Nonwovens

$
27.9

$
19.4

$
8.5Oriented Polymers


3.5


0.9


2.6Unallocated Corporate, net of eliminations


(6.3
)

(6.8
)

0.525.1


13.5


11.6Special charges, net


(2.9
)

(1.4
)

(1.5
)$
22.2

$
12.1

$
10.1


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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 $227.2 million for the three months ended April 4, 2009, a decrease of $46.6 million, or 17.0%,
from the comparable period of fiscal 2008 net sales of $273.8 million. Net sales for fiscal 2009 declined in the Nonwovens segment from comparable 2008 results by 17.3%, and net sales in fiscal
2009 in the Oriented Polymers segment decreased 15.6% from 2008 results. A reconciliation of the change in net sales between the three months ended April 4, 2009 and the three months ended
March 29, 2008 is presented in the following table (in millions):

Nonwovens

Oriented
Polymers

TotalNet salesthree months ended March 29, 2008

$
231.6

$
42.2

$
273.8Change in sales due to:Volume


(18.4
)

(8.6
)

(27.0
)Price/mix


(11.9
)

3.3


(8.6
)Foreign currency translation


(9.7
)

(1.3
)

(11.0
)Net salesthree months ended April 4, 2009

$
191.6

$
35.6

$
227.2


The
net volume decline of $18.4 million in Nonwovens sales includes declines in all regions, but predominantly in the U.S. and Europe. The sales volume declines in the U.S. and
Europe were primarily due to the U.S. plant closure in the third quarter of fiscal 2008, and recessionary impacts that are negatively affecting the industrial and wiping businesses located in the U.S
and European regions. Oriented Polymers' sales volumes continued to be negatively impacted by reduced housing starts affecting their industrial business, imported commodity products affecting
lumberwrap volumes and recessionary impacts.

Sales
in the Nonwovens segment were also negatively impacted by lower price/mix primarily due to price decreases resulting from the pass-through of lower raw material costs.
As raw material costs have decreased, we have reduced selling prices to our customers where required by contract terms, and where appropriate 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. Price/mix has improved in the Oriented Polymers' segment
primarily as a result of higher selling prices obtained in the agricultural and packaging businesses.

Most
currencies were weaker against the U.S. dollar during 2009 compared to 2008. As a result, net sales decreased $11.0 million due to the unfavorable foreign currency
translation. 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 for the three months ended April 4, 2009 improved to 23.2% from 15.7% in the first quarter of fiscal 2008,
primarily driven by lower raw material costs (which were partially offset by lower selling prices required by contract terms, and where appropriate based on market conditions), lower volumes and
higher manufacturing costs during fiscal 2009. The raw material component of the cost of goods sold as a percentage of net sales decreased from 55.9% in 2008 to 45.1% in 2009. Partially as a result of
lower sales volumes, coupled with higher spending in certain areas, our labor and overhead components of the cost of goods sold increased as a percentage of net sales from the three month period of
fiscal 2008 to the comparable period of 2009. As a percentage of sales, labor increased from

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7.5%
to 8.4%, or 0.9%, and overhead increased from 20.9% to 23.3%, or 2.4%. All of the above percentages were also impacted by lower raw material costs and the related reductions in selling prices.

Operating income

A reconciliation of the change in operating income (loss) between the three months ended March 29, 2008 and the three months
ended April 4, 2009 is presented in the following table (in millions):

Operating incomethree months ended March 29, 2008

$
12.1Change in operating income due to:Price/mix


(9.4
)Lower raw material costs


35.5Volume


(9.2
)Higher manufacturing costs


(5.8
)Foreign currency


(1.0
)Lower depreciation and amortization expense


0.4Lower special charges, net


(1.5
)Decreased share-based compensation costs


1.4All other


(0.3
)Operating incomethree months ended April 4, 2009

$
22.2


Consolidated
operating income was $22.2 million in the three months ended April 4, 2009 as compared to $12.1 million of income in the comparative period in 2008. The
cost of certain raw materials, especially polypropylene resin, decreased dramatically in the fourth quarter of fiscal 2008 and had a $35.5 million positive impact on operating income for the
first quarter of fiscal 2009, which was partially offset by sales price/mix of $9.4 million primarily resulting from price decreases related to the pass-through of lower raw
material costs. Operating income was also negatively impacted by lower sales volumes, higher manufacturing costs in certain locations, higher special charges, and unfavorable foreign currency
movement.

Selling,
general and administrative expenses decreased $2.8 million, from $30.7 million in 2008 to $27.9 million in 2009, due primarily to the movement of foreign
currencies versus the U.S. dollar and lower incentive compensation cost. On a regional basis, we incurred increases in certain locations which were effectively offset by decreases in other locations.
Selling, general and administrative costs as a percent of net sales increased from 11.2% in the first quarter of fiscal 2008 to 12.3% for the same period of fiscal 2009.

Interest and Other Expense

Net interest expense decreased $1.1 million, from $8.7 million during the three months ended March 29, 2008 to
$7.6 million during the three months ended April 4, 2009.
The decrease in net interest expense was largely due to the impact of reduced term loan borrowings and lower interest rates, partially offset by higher interest costs related to subsidiary debt
obligations.

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%. Additionally, in February 2009, the Company entered into another cash flow hedge agreement, which is
effective June 30, 2009 and matures on June 30, 2011, and will effectively convert $240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR
rate of 1.96%.

During
the three months ended April 4, 2009, we reacquired $15.0 million of debt, via cash payment, and recognized a gain on such reacquisition of $2.4 million, net
of the write-off of deferred financing fees of $0.2 million.

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Foreign
currency and other loss, net increased by $1.7 million, from $0.5 million in the first quarter of fiscal 2008 to $2.2 million in the first quarter of fiscal
2009, primarily due to movement in foreign currency rates.

Income Tax Expense

During the three months ended April 4, 2009, the Company recognized income tax expense of $7.2 million on consolidated
income before income taxes of $14.9 million. During the three months ended March 29, 2008, the Company recognized income tax expense of $1.6 million on consolidated income before
income taxes of $2.9 million. The Company's income tax expense in any period 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 and
foreign taxes calculated at statutory rates different than the U.S. federal statutory rate.

Net Loss Attributable to Noncontrolling interests

Noncontrolling interests represents the minority partners' interest in the income or loss of consolidated subsidiaries which are not
wholly owned by us. These interests include a 40% minority interest in Dominion Nonwovens Sudamerica S.A. (our Argentine subsidiary) and a 20% minority interest in Nanhai Nanxin
Non-Woven Co. Ltd. (one of our subsidiaries in China).

Net Income Attributable to Polymer Group, Inc.

As a result of the above, we recognized net income attributable to Polymer Group, Inc. of $9.6 million, or $0.49 per
share, for the three months ended April 4, 2009 compared to $1.4 million, or $.07 per share, for the three months ended March 29, 2008.

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 April 4, 2009, we were in compliance with
all such financial covenants. See "Liquidity Summary" below for further discussion of financial covenants. Additionally, as of April 4, 2009, we had no outstanding borrowings under the
revolving credit facility and capacity under the revolving credit facility had been reserved for outstanding letters of credit in the amount of $2.8 million. As of April 4, 2009, we also
had other outstanding letters of credit in the amount of $3.0 million primarily for certain raw material vendors. None of these letters of credit had been drawn on at April 4, 2009.

April 4,
2009

January 3,
2009(In Millions)Balance sheet data:Cash and cash equivalents

$
54.3

$
45.7Working capital


150.9


174.1Total assets


677.6


702.5Total debt


399.2


413.7Total equity


100.8


93.2


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Three Months EndedApril 4,
2009

March 29,
2008(In Millions)Cash flow data:Net cash provided by operating activities

$
24.0

$
15.3Net cash used in investing activities


(3.5
)

(11.7
)Net cash used in financing activities


(11.2
)

(14.0
)


Operating Activities

Net cash provided by operating activities was $24.0 million during the first three months of fiscal 2009, a $8.7 million
increase from the $15.3 million provided by operating activities during the first three months of fiscal 2008.

We
had working capital of approximately $150.9 million at April 4, 2009 compared with $174.1 million at January 3, 2009. Accounts receivable at
April 4, 2009 was $119.9 million as compared to $134.0 million on January 3, 2009, a decrease of $14.1 million. The net decrease in accounts receivable during the
first quarter is primarily attributable to (i) the effects of currency movements, (ii) lower unit selling prices resulting from the pass-through of raw material decreases and
(iii) increased reserves for potentially uncollectible accounts, partially offset by an increase in the days sales outstanding. Although accounts receivable represented approximately
48 days of sales outstanding at April 4, 2009 as compared to 44 days of sales outstanding at January 3, 2009, we believe that our increased reserves adequately protect us
against foreseeable increased collection risk.

Inventories
at April 4, 2009 were $109.4 million, a decrease of $12.5 million from inventories at January 3, 2009 of $121.9 million, with component
decreases in finished goods, work-in-process and raw materials of $3.7 million, $1.9 million and $6.9 million, respectively. The net decrease in inventory
during the first quarter is primarily attributable to (i) the effects of currency movements, (ii) lower unit costs related to inventory at the end of the first quarter of fiscal 2009
compared to year-end 2008 costs, and (iii) lower quantities of goods on hand at April 4, 2009, partially offset by a reduction in inventory reserves of approximately
$2.0 million during the March quarter of fiscal 2009. We had inventory representing approximately 57 days of cost of sales on hand at April 4, 2009 compared to 50 days of
cost of sales on hand at January 3, 2009.

Accounts
payable and accrued liabilities at April 4, 2009 were $113.0 million as compared to $133.8 million at January 3, 2009, a decrease of
$20.8 million. Accounts payable and accrued liabilities represented approximately 59 days of cost of sales outstanding at April 4, 2009 compared to 55 days of cost of sales
outstanding at January 3, 2009. The net decrease in accounts payable and accrued liabilities from January 3, 2009 to April 4, 2009 included the effects of currency movements, more
timely payment of trade payables in Latin America, and lower raw material unit
costs. Accounts payable and accrued liabilities balances can also be impacted by accruals with respect to incentive compensation plans and the timing of payroll cycles, acceptance of vendor discounts,
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 2009 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 quarter of fiscal 2009 are comprised of: (i) $0.6 million of severance and other shut-down costs in
Europe, including costs associated with the previously announced closure of the Neunkirchen, Germany facility; (ii) $0.6 million of severance and other shutdown costs related to
facilities in the United States; and (iii) $0.1 million of severance costs

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related
to restructuring initiatives in Canada. The restructuring and plant realignment costs in the first quarter of fiscal 2008 are comprised of $1.6 million of equipment relocation and other
shut-down costs related to the previously announced closure of the Neunkirchen, Germany facility, which ceased production activities as of September 29, 2007, net of
$0.2 million of credits pertaining to ongoing restructuring initiatives in the United States and Canada.

We
expect to make future cash payments of approximately $3.0 million to $5.0 million associated with approved restructuring initiatives, of which $1.7 million has
been accrued as of April 4, 2009.

Investing and Financing Activities

Net cash used for investing activities amounted to $3.5 million and $11.7 million in the first three months of fiscal
2009 and fiscal 2008, respectively. Capital expenditures during the first quarter of 2009 totaled $3.4 million, a decrease of $9.2 million from capital spending of $12.6 million
in the same period in 2008. A significant portion of the capital expenditures in 2009 related to the construction of a new spunmelt line at our facility near San Luis Potosi, Mexico. Also, investing
activities during 2008 included proceeds from the sale of assets of $1.0 million. We estimate our annual minimum sustaining capital expenditures to be $5.0 million to
$10.0 million. As business conditions and working capital requirements change, we actively manage our capital expenditures, enabling us to appropriately balance cash flows from operations with
capital expenditures.

Net
cash used in financing activities amounted to $11.2 million in the first three months of fiscal 2009, compared to $14.0 million of net cash used in financing activities
in the first three months of fiscal 2008. In the first quarter of 2009, we borrowed, on a net basis, $1.1 million of debt whereas we repaid, on a net basis, $14.0 million of debt during
the first quarter of 2008. Additionally, in the first quarter of 2009, we used $12.4 million to repurchase $15.0 million of our first-lien term loan.

Dividends

Our Board of Directors has never declared a dividend on our common stock.

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 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 $410.0 million first-lien term loan at the original borrowing date, which 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 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 3.50:1.00 as

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of
April 4, 2009, with decreases over time, with the next change occurring April 3, 2010, at which time the leverage ratio requirement will be 3.00:1.00, thereby narrowing the margin for
compliance. The interest expense coverage ratio requirement at April 4, 2009 was that it not be less than 3.00:1.00, with increases over time, with the next change occurring April 3,
2010, at which time the requirement will be 3.25:1.00. We were in compliance with the debt covenants under the Credit Facility at April 4, 2009. These ratios are calculated on a trailing
four-quarter basis. As a result, any decline in our future operating results will negatively impact its coverage ratios. Although we expect 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 the 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. The amounts of excess cash flows for future periods are based on year-end results; however, we currently estimate that the
excess cash flow payment with respect to fiscal 2009, which would be payable in March 2010, will be approximately $30.0 million and have classified this amount, in addition to the mandatory
payments of approximately $1.0 million per quarter, in theCurrent portion of long-term debtin the Consolidated Balance Sheets as of
April 4, 2009 included in Item 1 of Part I to this Quarterly Report on Form 10-Q. We may, in our discretion and based on projected operating cash flows, the
current market value of the term loan and anticipated cash requirements, elect to make additional repayments of debt under the Credit Facility in excess of the mandatory debt repayments and excess
cash flow payments and/or in conjunction with our debt repurchase program. No additional amounts were required to be made under the excess cash flow provisions of the Credit Facility with respect to
fiscal 2008.

In
February 2009, we entered into discussions with the Administrative Agent of our Credit Facility whereby one of our wholly owned subsidiaries would purchase assignments of our
first-lien term loan over the next two years via open market transactions at a discount to the carrying amount in order to effectively buy back up to $70.0 million of our term loan
as allowed under the provisions of the Credit Facility. In March 2009 we purchased, through a subsidiary, $15.0 million of our first-lien term loan.

The
interest rate applicable to borrowings under the Credit Facility is based on either three-month or one-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 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. There were no borrowings under
the revolving credit facility as of April 4, 2009 or January 3, 2009. As of April 4, 2009, capacity under the revolving credit facility has been reserved for outstanding letters
of credit in the amount of $2.8 million, as described below. There were no daily borrowings under the revolving credit facility for the period from January 4, 2009 to April 4,
2009. The revolving credit portion of the Credit Facility matures on November 22, 2010.

In
accordance with the terms of the Credit Facility, we maintained our 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 "Derivatives and Other Financial Instruments and Hedging Activities" to the unaudited interim consolidated financial statements included in
Item 1 of Part I to this Quarterly Report on Form 10-Q. Additionally, in February 2009, we entered into another cash flow hedge agreement, which is effective
June 29, 2009, matures June 29, 2011 and will effectively convert $240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 1.96%.

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We
have also incurred third-party debt in fiscal years 2008 and 2009 to finance the recent installation of our new spunmelt line in Argentina and our ongoing installation of our new
spunmelt line in Mexico. As of April 4, 2009, this debt is comprised of long-term facilities of $37.3 million, for which we began to make principal and interest payments in
the third quarter of fiscal 2008 with the loans maturing in 2013 through 2017. Current maturities of this debt amount to approximately $2.8 million. Additionally, our operations in Argentina
entered into multiple short-term credit facilities intended to finance working capital requirements. Outstanding indebtedness under these facilities was $11.5 million at
April 4, 2009, which facilities mature at various dates through September 2009 and are shown inShort-term borrowingsin our
unaudited interim Consolidated Balance Sheets.

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 permits us 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 $3.0 million to $5.0 million, of which
$1.7 million has been accrued as of April 4, 2009. Additionally, we currently anticipate future proceeds in the range of approximately $1.0 million to $4.0 million from the
sale of idled facilities and equipment, most of which is expected to be received 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 April 4, 2009 amounted to approximately $36.7 million, which are expected to be substantially expended 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 portion of the capital expansion in Mexico.

We
have experienced negative impacts in certain of our businesses, primarily in the industrial sector, from the deterioration in global economic conditions and are experiencing
significant volatility in raw material pricing. Additionally, as a result of recent increases in raw materials and expected reductions in contracted selling prices, we expect gross margins to decline
during the second quarter of fiscal 2009; 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 (including the expected $30.0 million excess cash flow payment payable in March 2010 under the
Credit Facility), fund our capital expenditures and make all necessary contributions to our retirement plans in the foreseeable future.

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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. The impact of inflation on our financial
position and results of operations was minimal during the first quarter of both 2009 and 2008. However, we continue to be impacted by
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 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 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, which we adopted as of January 4, 2009, 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" for the
fair value measurement disclosures for these assets and liabilities.

In
April 2009, the Financial Accounting Standards Board issued FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not Orderly," to provide additional guidance on estimating fair value when the volume and level of activity for an asset or liability
have significantly decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. The FSP emphasizes that, regardless of whether the volume and
level of activity for an asset or liability have decreased significantly and regardless of which valuation technique was used, the objective of a fair value measurement under SFAS No. 157,
remains the sameto estimate the price that would be received to sell an asset or transfer a
liability in an orderly transaction between market participants at the measurement date under current market conditions. The FSP also requires expanded disclosures. FSP FAS 157-4 is
effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, and must be applied prospectively. We intend
to adopt FSP FAS 157-4 effective June 30, 2009 and apply its provisions prospectively. We are in the process of evaluating the impact FSP FAS 157-4 will
have on valuing our financial assets and liabilities.

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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 unaudited interim 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. SFAS No. 141(R) eliminates the cost-based purchase method allowed under SFAS No. 141. We will apply the provisions of SFAS No. 141(R) to future business
combinations.

In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements" ("SFAS No. 160"). SFAS No. 160 changes the accounting
for, and the financial statement presentation of, noncontrolling equity interests in a consolidated subsidiary. Under SFAS No.160, all entities are required to report noncontrolling (minority)
interests in subsidiaries as a component of consolidated equity in the consolidated financial statements. In addition, the Statement requires transactions between an entity and noncontrolling
interests that do not result in deconsolidation to be treated as equity transactions and provides new guidance on accounting for deconsolidation. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. SFAS No. 160 applies prospectively from the effective date except for the presentation and disclosure requirements, which must be applied
retrospectively.

We
adopted SFAS No. 160 as of January 4, 2009. Accordingly,we adjusted our comparative consolidated financial statements presented as follows:



In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities: an amendment of FASB Statement No. 133" ("SFAS
No. 161") to expand the disclosure framework of SFAS No. 133, "Accounting for Derivative Instruments and and Hedging Activities." SFAS No. 161 requires companies with derivative
instruments to disclose information about how and why we use derivative instruments; how we account for the derivative instruments and related hedged items under SFAS No. 133; and how
derivative instruments and related hedged items affect the

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unaudited
interim consolidated financial statements. The expanded disclosure guidance also requires us to provide information about our strategies and objectives for using derivative instruments;
disclose credit-risk-related contingent features in derivative agreements and information about counterparty credit risk; and present fair value of derivative instruments and
related gains and losses in a tabular format. We adopted SFAS No. 161 as of January 4, 2009 and applied its provisions prospectively by providing the additional disclosures in our
unaudited interim consolidated financial statements.

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 our consolidated financial statements.

In
December 2008, the FASB issued FASB Staff Position FSP 132(R)-1, "Employers Disclosures about Postretirement Benefit Plan Assets," which provides additional guidance
regarding employers' disclosures about plan assets of a defined benefit pension or other postretirement plan. This interpretation is effective for financial statements issued for fiscal years ending
after December 15, 2009. We will adopt the provisions of FSP 132(R)-1 as of January 2, 2010. The adoption of this interpretation will increase the disclosures in the
financial statements related to the assets of our postretirement benefit plans.

In
April 2009, the FASB issued FASB Staff Position (FSP) FAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments," to
require, on an interim basis, disclosures about the fair value of financial instruments for public entities. FSP FAS 107-1 and APB 28-1 is effective for interim
and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it concurrently adopts
both FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly," and FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments." We intend to adopt FSP
FAS 107-1 and APB 28-1 effective June 30, 2009.

In
April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, "Determination of the Useful Life of Intangible Assets," to provide guidance for determining the
useful life of recognized intangible assets and to improve consistency between the period of expected cash flows used to measure the fair value of a recognized intangible asset and the useful life of
the intangible asset as determined under SFAS No. 142, "Goodwill and Other Intangible Assets". The FSP requires that an entity consider its own historical experience in renewing or extending
similar arrangements. However, the entity must adjust that experience based on entity-specific factors under SFAS No. 142. If the company lacks historical experience to consider for similar
arrangements, it would consider assumptions that market participants would use about renewal or extension, as adjusted for the entity-specific factors under SFAS 142. We adopted FSP
FAS 142-3 as of January 4, 2009. We capitalize costs incurred to renew or extend the term of its intangible assets. In each of the three-month periods ended April 4,
2009 and March 28, 2008, we incurred $0.1 million of renewal and extension costs for patents and trademarks related to several of its products. The weighted-average period for amortizing
the costs of patents and trademarks is six years. We currently expect to be able to continue to maintain these patents and trademarks and thus does not anticipate any significant effect on its
expected future cash flows related to those products.

Critical Accounting Policies And Other Matters

The analysis and discussion of our financial position and results of operations is 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

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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 Financial Condition and Results of Operations," 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, which is on the
date of
shipment to the customer, or upon delivery to a place named by the customer, depending 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. 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 April 4, 2009, a reserve of $9.1 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. 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. Reserves are also established based on percentage
write-downs applied to inventories aged for certain time periods, or for inventories that are slow-moving. 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. We believe, based on our prior experience of managing and

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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.

In
accordance with FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" ("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 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.

In
prior periods and 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 were 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.

In
December 2007, the FASB issued SFAS No. 141(R), effective for fiscal years beginning on or after December 15, 2008. In amending SFAS No. 141(R), the FASB also
introduced changes to certain provisions of income tax accounting in SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). For reorganizations under SOP 90-7
undertaken before the adoption period of SFAS No. 141(R), release of a valuation allowance related to pre-confirmation net operating losses and deductible temporary differences are
now being reported as a reduction to income tax expense. Similarly, adjustments to uncertain tax positions made after the confirmation date are now recorded in the income statement.

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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
April 4, 2009, based on our current operating performance, as well as future expectations for the business, 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 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.

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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 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 new interest rate swap contract would change
interest expense by approximately $1.6 million.

Additionally,
on February 12, 2009, the Company entered into a similar pay-fixed, receive variable interest rate swap contract to become effective June 30,
2009. The notional principal amount of this new contract, which expires on June 30, 2011, is $240.0 million and will effectively fix the LIBOR interest rate on that amount of debt at
1.96%.

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
quarter of both 2009 and 2008, certain currencies of countries in which we conduct foreign currency denominated business moved against 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, 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. Accordingly, on September 30, 2008, we entered into a series of foreign exchange forward
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financial
institution, the objective of which is to hedge the changes in fair value of a firm commitment to purchase equipment attributable to changes in foreign currency rates between the Euro and
U.S. dollar through the date of acceptance of the equipment. The notional amount of the contracts with the third party, which expire on various dates through fiscal 2009, was $33.3 million.
Cash settlements under the forward contracts coincide with the payment dates on the equipment purchase contract.

In
addition, 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.
Furthermore, in certain circumstances, we have utilized insurance programs to mitigate our currency risk exposure associated with the potential inconvertibility of local currency into U.S. dollars (or
other hard currency) and to transfer such hard currency out of the foreign countries where certain of our foreign businesses are domiciled.

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 costs as a percentage of sales have decreased from 55.9% in the first three months of 2008 to 45.1% in the first three months of 2009.

During
the first eight months of fiscal 2008, the cost of polypropylene resin, our largest volume raw material, increased significantly, particularly during the May 2008 to August 2008
timeframe and, during the fourth quarter of fiscal 2008, the cost of polypropylene resin decreased dramatically. During the first quarter of fiscal 2009, we have seen a moderate increase in the cost
of polypropylene resin. 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 $4.0 million, on an annualized basis, in our reported pre-tax operating income. 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 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" included 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

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and
Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of April 4, 2009.

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
April 4, 2009 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 our business, none of which
are deemed material.

ITEM 1A.    RISK FACTORS

Not applicable.

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

During the first quarter of fiscal 2009, 6,291 shares of our Class B Common Stock were converted into 6,291 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.

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



ITEM 6.    EXHIBITS

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

Exhibit
Number

Document Description10.1

Amended and Restated Polymer Group, Inc. Short-Term Incentive Compensation Plan31.1

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 May 13, 2009 reporting financial results for the first quarter of fiscal 2009


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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: May 13, 2009

By:

/s/ VERONICA M. HAGEN Veronica M. Hagen Chief Executive OfficerDate: May 13, 2009

By:

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


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