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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|ý                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended March 29, 2003
|o                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to           
|Commission file number:    1-14330           

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POLYMER GROUP, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                                     |  | 57-1003983(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|4055 Faber Place Drive, Suite 201
North Charleston, South Carolina(Address of principal executive offices) |  | 29405(Zip Code)                               
|Registrant's telephone number, including area code:(843) 329-5151                                         

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

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act)  Yes / /        No /x/

Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Securities 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court.  Yes /x/        No / /

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

On
May 12, 2003 there were 8,125,869 shares of Class A common stock, 399,978 shares of Class B common stock and 118,449 shares of Class C common
stock outstanding. No shares of Class D or Class E were outstanding as of such date. The par value for each class of common shares is $.01 per share.

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POLYMER GROUP, INC.

INDEX TO FORM 10-Q

|                                 |         |    |                                                                                       | Page
|-------------------------------- | ------- | -- | ------------------------------------------------------------------------------------- | ----
|Part I.    Financial Information |         | 3 
|                                 | Item 1. |    | Financial Statements                                                                  |     
|                                 | Item 2. |    | Management's Discussion and Analysis of Financial Condition and
Results of Operations |     
|                                 | Item 3. |    | Quantitative and Qualitative Disclosures About Market Risk                            |     
|Part II.    Other Information    |         | 38
|Signatures                       |         | 39
|Exhibit Index                    |         | 42

2

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ITEM 1.    FINANCIAL STATEMENTS

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

|                                               |                                                                                                                                                   | Successor                 |         | Predecessor |        
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------- | ----------- | -------
|
|
|ASSETS                                         |                                                                                                                                                   |                           |         |             |        
|Current assets:                                |                                                                                                                                                   |                           |         |             |        
|                                               | Cash and equivalents                                                                                                                              |                           | $       | 30,193      |        
|                                               | Short-term investments                                                                                                                            |                           |         |            |        
|                                               | Accounts receivable, net                                                                                                                          |                           |         | 132,065     |        
|                                               | Inventories                                                                                                                                       |                           |         | 115,813     |        
|                                               | Other                                                                                                                                             |                           |         | 32,934      |        
|                                               |                                                                                                                                                   |                           |         |             |        
|                                               |                                                                                                                                                   | Total current assets      |         |             | 311,005
|                                               | Property, plant and equipment                                                                                                                     |                           |         | 361,600     |        
|                                               | Intangibles and loan acquisition costs, net                                                                                                       |                           |         | 34,907      |        
|                                               | Other                                                                                                                                             |                           |         | 11,221      |        
|                                               |                                                                                                                                                   |                           |         |             |        
|                                               |                                                                                                                                                   | Total assets              |         | $           | 718,733
|                                               |                                                                                                                                                   |                           |         |             |        
|LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) |                                                                                                                                                   |                           |         |             |        
|Liabilities Not Subject to Compromise          |                                                                                                                                                   |                           |         |             |        
|Current liabilities:                           |                                                                                                                                                   |                           |         |             |        
|                                               | Accounts payable                                                                                                                                  |                           | $       | 46,178      |        
|                                               | Accrued liabilities and other                                                                                                                     |                           |         | 63,652      |        
|                                               | Short-term borrowings                                                                                                                             |                           |         | 248         |        
|                                               | Current portion of long-term debt                                                                                                                 |                           |         | 9,488       |        
|                                               |                                                                                                                                                   |                           |         |             |        
|                                               |                                                                                                                                                   | Total current liabilities |         |             | 119,566
|Long-term debt, less current portion           |                                                                                                                                                   |                           | 479,470 |             |        
|Other non-current liabilities                  |                                                                                                                                                   |                           | 47,949  |             |        
|                                               |                                                                                                                                                   |                           |         |             |        
|Total liabilities not subject to compromise    |                                                                                                                                                   |                           | 646,985 |             |        
|Liabilities Subject to Compromise              |                                                                                                                                                   |                           |        |             |        
|                                               |                                                                                                                                                   |                           |         |             |        
|                                               | Total liabilities                                                                                                                                 |                           |         | 646,985     |        
|                                               |                                                                                                                                                   |                           |         |             |        
|Shareholders' equity (deficit):                |                                                                                                                                                   |                           |         |             |        
|                                               | Successor Class A common stock$.01 par value, 19,279,388 shares authorized, 8,125,869 shares issued and outstanding at March 29, 2003            |                           |         | 81          |        
|                                               | Successor Class B common stock$.01 par value, 800,000 shares authorized, 399,978 shares issued and outstanding at March 29, 2003                 |                           |         | 4           |        
|                                               | Successor Class C common stock$.01 par value, 118,453 shares authorized, 118,449 shares issued and outstanding at March 29, 2003                 |                           |         | 1           |        
|                                               | Predecessor series preferred stock$.01 par value, 10,000,000 shares authorized, 0 shares issued and outstanding at December 28, 2002             |                           |         |            |        
|                                               | Predecessor common stock$.01 par value, 100,000,000 shares authorized, 32,004,200 shares issued and outstanding at December 28, 2002             |                           |         |            |        
|                                               | Predecessor non-voting convertible common stock$.01 par value, 3,000,000 shares authorized, 0 shares issued and outstanding at December 28, 2002 |                           |         |            |        
|                                               | Additional paid in capital                                                                                                                        |                           |         | 73,304      |        
|                                               | (Deficit)                                                                                                                                         |                           |         | (1,485      | )      
|                                               | Accumulated other comprehensive (loss)                                                                                                            |                           |         | (157        | )      
|                                               |                                                                                                                                                   |                           |         |             |        
|                                               |                                                                                                                                                   |                           | 71,748  |             |        
|                                               |                                                                                                                                                   |                           |         |             |        
|                                               | Total liabilities and shareholders' equity (deficit)                                                                                              |                           | $       | 718,733     |        
|                                               |                                                                                                                                                   |                           |         |             |        

3

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

|                                                                                                       |                                                                                                | Successor |        | Predecessor |  
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- | --------- | ------ | ----------- | -
|
|Net sales                                                                                              |                                                                                                | $         | 64,067 |             | $
|Cost of goods sold                                                                                     |                                                                                                |           | 52,694 |             |  
|                                                                                                       |                                                                                                |           |        |             |  
|Gross profit                                                                                           |                                                                                                |           | 11,373 |             |  
|Selling, general and administrative expenses                                                           |                                                                                                |           | 8,250  |             |  
|Special charges                                                                                        |                                                                                                |           |       |             |  
|Plant realignment                                                                                      |                                                                                                |           | 8      |             |  
|                                                                                                       |                                                                                                |           |        |             |  
|Operating income (loss)                                                                                |                                                                                                |           | 3,115  |             |  
|Other (income) expense:                                                                                |                                                                                                |           |        |             |  
|                                                                                                       | Interest expense, net (contractual interest of $20,306 for the two months ended March 1, 2003) |           |        | 3,760       |  
|                                                                                                       | Investment (gain) loss, net                                                                    |           |        |            |  
|                                                                                                       | Foreign currency and other                                                                     |           |        | (31         | )
|                                                                                                       |                                                                                                |           |        |             |  
|                                                                                                       |                                                                                                |           | 3,729  |             |  
|                                                                                                       |                                                                                                |           |        |             |  
|Loss before reorganization items, income taxes and cumulative effect of change in accounting principle |                                                                                                |           | (614   | )           |  
|Reorganization items:                                                                                  |                                                                                                |           |        |             |  
|                                                                                                       | Gain on cancellation of prepetition indebtedness                                               |           |        |            |  
|                                                                                                       | Fresh start adjustments                                                                        |           |        |            |  
|                                                                                                       | Chapter 11 reorganization expenses                                                             |           |        |            |  
|                                                                                                       | Other                                                                                          |           |        |            |  
|                                                                                                       |                                                                                                |           |        |             |  
|                                                                                                       |                                                                                                |           |       |             |  
|                                                                                                       |                                                                                                |           |        |             |  
|(Loss) income before income taxes and cumulative effect of change in accounting principle              |                                                                                                |           | (614   | )           |  
|Income taxes                                                                                           |                                                                                                |           | 871    |             |  
|                                                                                                       |                                                                                                |           |        |             |  
|(Loss) income before cumulative effect of change in accounting principle                               |                                                                                                |           | (1,485 | )           |  
|Cumulative effect of change in accounting principle                                                    |                                                                                                |           |       |             |  
|                                                                                                       |                                                                                                |           |        |             |  
|Net (loss) income                                                                                      |                                                                                                | $         | (1,485 | )           | $
|                                                                                                       |                                                                                                |           |        |             |  
|Net (loss) income per common sharebasic
Average shares outstanding                                    |                                                                                                |           | 8,644  |             |  
|                                                                                                       |                                                                                                |           |        |             |  
|(Loss) income before cumulative effect of change in accounting principle                               |                                                                                                | $         | (0.17  | )           | $
|Cumulative effect of change in accounting principle                                                    |                                                                                                |           |       |             |  
|                                                                                                       |                                                                                                |           |        |             |  
|Net (loss) income                                                                                      |                                                                                                | $         | (0.17  | )           | $
|                                                                                                       |                                                                                                |           |        |             |  
|Net (loss) income per common sharediluted                                                             |                                                                                                |           |        |             |  
|                                                                                                       | Average shares outstanding                                                                     |           |        | 8,644       |  
|                                                                                                       |                                                                                                |           |        |             |  
|(Loss) income before cumulative effect of change in accounting principle                               |                                                                                                | $         | (0.17  | )           | $
|Cumulative effect of change in accounting principle                                                    |                                                                                                |           |       |             |  
|                                                                                                       |                                                                                                |           |        |             |  
|Net (loss) income                                                                                      |                                                                                                | $         | (0.17  | )           | $
|                                                                                                       |                                                                                                |           |        |             |  

4

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POLYMER GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
For the Two Months Ended March 1, 2003 and One Month Ended March 29, 2003
(In Thousands, Except Share Data)

|                                                            |                                                                                  | Common Stock                     |            |             |   |     |      | Accumulated
Other
Comprehensive
Income / (Loss) |         |          |   |          |        
|----------------------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------- | ---------- | ----------- | - | --- | ---- | ----------------------------------------------- | ------- | -------- | - | -------- | -------
|
|
|Predecessor:                                                |                                                                                  |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            | BalanceDecember 28, 2002                                                        |                                  | 32,004,200 |             | $ | 320 |      | $                                               | 243,722 |          | $ | (661,572 | )      
|                                                            | Comprehensive (loss) for the year ended December 28, 2002                        |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            |                                                                                  |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            | Net loss excluding effects of plan of reorganization and fresh start adjustments |                                  |           |             |   |    |      |                                                 |        |          |   | (8,329   | )      
|                                                            | Currency translation adjustment                                                  |                                  |           |             |   |    |      |                                                 |        |          |   |         |        
|                                                            | Marketable securities valuation                                                  |                                  |           |             |   |    |      |                                                 |        |          |   |         |        
|                                                            | Minimum pension liability                                                        |                                  |           |             |   |    |      |                                                 |        |          |   |         |        
|                                                            | Effect of plan of reorganization and fresh start adjustments:                    |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            |                                                                                  | Cancellation of old common stock |            | (32,004,200 | ) |     | (320 | )                                               |         | (243,722 | ) |          |       
|                                                            |                                                                                  | Issuance of new common stock     |            | 8,644,296   |   |     | 86   |                                                 |         | 73,304   |   |          |       
|                                                            |                                                                                  | Other fresh start adjustments    |            |            |   |     |     |                                                 |         |         |   |          | 669,901
|                                                            |                                                                                  |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|Comprehensive (loss) for the two months ended March 1, 2003 |                                                                                  |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            |                                                                                  |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|Successor:                                                  |                                                                                  |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            | BalanceMarch 1, 2003                                                            |                                  | 8,644,296  |             |   | 86  |      |                                                 | 73,304  |          |   |         |        
|                                                            |                                                                                  | Net loss                         |            |            |   |     |     |                                                 |         |         |   |          | (1,485 
|                                                            |                                                                                  | Currency translation adjustment  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            |                                                                                  |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            | BalanceMarch 29, 2003                                                           |                                  | 8,644,296  |             | $ | 86  |      | $                                               | 73,304  |          | $ | (1,485   | )      
|                                                            |                                                                                  |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            | Comprehensive (loss) for the one month ended March 29, 2003                      |                                  |            |             |   |     |      |                                                 |         |          |   |          |        
|                                                            |                                                                                  |                                  |            |             |   |     |      |                                                 |         |          |   |          |        

5

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

|                                            |                                                                                                    | Successor                                           |                                                     | Predecessor |      
|------------------------------------------- | -------------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ----------- | -----
|
|Operating Activities                        |                                                                                                    |                                                     |                                                     |             |      
|                                            | Net income (loss)                                                                                  |                                                     | $                                                   | (1,485      | )    
|                                            | Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |                                                     |                                                     |             |      
|                                            |                                                                                                    | Cumulative effect of change in accounting principle |                                                     |             |     
|                                            |                                                                                                    | Gain on cancellation of prepetition indebtedness    |                                                     |             |     
|                                            |                                                                                                    | Fresh start adjustments                             |                                                     |             |     
|                                            |                                                                                                    | Depreciation and amortization                       |                                                     |             | 3,344
|                                            |                                                                                                    | Foreign currency and other                          |                                                     |             | (31  
|                                            | Changes in operating assets and liabilities, net of effects of fresh start adjustments:            |                                                     |                                                     |             |      
|                                            |                                                                                                    |                                                     | Accounts receivable                                 |             |      
|                                            |                                                                                                    |                                                     | Inventories                                         |             |      
|                                            |                                                                                                    |                                                     | Accounts payable and accrued expenses               |             |      
|                                            |                                                                                                    | Other, net                                          |                                                     |             | 2,346
|                                            |                                                                                                    |                                                     |                                                     |             |      
|                                            |                                                                                                    |                                                     | Net cash (used in) provided by operating activities |             |      
|                                            |                                                                                                    |                                                     |                                                     |             |      
|Investing Activities                        |                                                                                                    |                                                     |                                                     |             |      
|                                            | Purchases of property, plant and equipment                                                         |                                                     |                                                     | (2,031      | )    
|                                            | Proceeds from sale of marketable securities classified as available for sale                       |                                                     |                                                     |            |      
|                                            | Other                                                                                              |                                                     |                                                     |            |      
|                                            |                                                                                                    |                                                     |                                                     |             |      
|                                            |                                                                                                    |                                                     | Net cash (used in) provided by investing activities |             |      
|                                            |                                                                                                    |                                                     |                                                     |             |      
|Financing Activities                        |                                                                                                    |                                                     |                                                     |             |      
|                                            | Proceeds from debt                                                                                 |                                                     |                                                     |            |      
|                                            | Payments of debt                                                                                   |                                                     |                                                     | (968        | )    
|                                            | Loan acquisition costs                                                                             |                                                     |                                                     |            |      
|                                            |                                                                                                    |                                                     |                                                     |             |      
|                                            |                                                                                                    |                                                     | Net cash (used in) financing activities             |             |      
|                                            |                                                                                                    |                                                     |                                                     |             |      
|Effect of exchange rate change on cash      |                                                                                                    |                                                     | 333                                                 |             |      
|                                            |                                                                                                    |                                                     |                                                     |             |      
|Net (decrease) in cash and equivalents      |                                                                                                    |                                                     | (1,590                                              | )           |      
|Cash and equivalents at beginning of period |                                                                                                    |                                                     | 31,783                                              |             |      
|                                            |                                                                                                    |                                                     |                                                     |             |      
|Cash and equivalents at end of period       |                                                                                                    | $                                                   | 30,193                                              |             | $    
|                                            |                                                                                                    |                                                     |                                                     |             |      

6

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Note 1.    Nature of Operations

Polymer Group, Inc. (the "Company" or "Polymer Group"), a global manufacturer and marketer of nonwoven and oriented polyolefin products, currently operates
in two market segments that include consumer and industrial and specialty. The Company undertook a comprehensive financial and business restructuring beginning in fiscal 2001 that continued into 2002.
After extensive reorganization efforts, the Company and each of its domestic subsidiaries filed voluntary petitions for Chapter 11 reorganization under the United States Bankruptcy Code in the South
Carolina Bankruptcy Court on May 11, 2002 (April 25, 2002 as to Bonlam (S.C.), Inc.). In its efforts to emerge from Chapter 11, the Company filed a Modified Plan (as defined) on
November 27, 2002 that was approved by the Bankruptcy Court on January 16, 2003 and accordingly the Company emerged from Chapter 11 effective March 5, 2003 (the "Effective Date").
For accounting purposes the Company recognized the emergence on March 1, 2003, which was the end of the February accounting period. The Company adopted "fresh-start accounting" as of
March 1, 2003, and the Company's emergence from Chapter 11 resulted in a new reporting entity. The reorganization value of the Company has been allocated to the underlying assets based on their
respective fair values at the date of emergence. Such allocation has been based on preliminary estimates which may be revised at a later date as additional information becomes available. References to
"Predecessor" refer to the old Polymer Group and its subsidiaries on and prior to March 1, 2003 and references to "Successor" refer to Polymer Group and its subsidiaries from March 2,
2003 through March 29, 2003, after giving effect to the implementation of fresh start reporting.

The
Modified Plan generally resulted in the: (i) restructuring of the Company's bank debt by entering into the Restructured Credit Facility (as defined): (ii) retirement of
in excess of $591.5 million of the Company's obligations under the senior subordinated notes; (iii) payment in full of virtually all critical business relations claims (as defined in the
Modified Plan); and (iv) cancellation of the Company's old common stock and issuance of new common stock and warrants. The Company entered in to Amendment No. 1 to the Restructured
Credit Facility ("Amendment No. 1"), effective as of March 29, 2003, to provide the Company with additional flexibility in meeting the financial covenants under terms of the Restructured
Credit Facility. A complete description of Amendment No. 1, and certain other matters is contained in Note 15. "Recent Developments."

Note 2.    Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim
financial information and include the accounts of the Company and its subsidiaries. The preparation of such financial statements assumes continuity of operations and realization of assets and
satisfaction of liabilities in the ordinary course of business. In accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy
Code," ("SOP 90-7"), all liabilities subject to compromise have been segregated in the consolidated balance sheets and classified as Liabilities Subject to Compromise, at the estimated
amount of allowable claims. Liabilities Not Subject to Compromise are separately classified as current and non-current. Revenues, expenses, realized gains and losses, and provisions for
costs resulting from the reorganization are reported separately as reorganization items in the consolidated statements of operations.

7

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The
consolidated financial statements of the Company do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements. The Condensed Consolidated Balance Sheets as of March 29, 2003 and December 28, 2002 contain summarized information; as a result, such data does not include the same detail
provided in the Company's Annual Report on Form 10-K for the year ended December 28, 2002. In the opinion of management, these unaudited consolidated financial statements
contain all adjustments of a normal recurring nature necessary for a fair presentation. Operating results for the two months ended March 1, 2003 and one month ended March 29, 2003 are
not necessarily indicative of the results that may be expected for fiscal 2003. The results for the one month ended March 29, 2003 are not comparable to the results for the two months ended
March 1, 2003.

All
material intercompany accounts are eliminated in consolidation. Certain amounts previously presented in the consolidated financial statements for prior periods have been reclassified
to conform to current classification. The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from those estimates. Investments in 20% to 50% owned affiliates are
accounted for on the equity method.

Revenue Recognition

Revenue from product sales is recognized at the time ownership of goods transfers to the customer and the earnings process is complete in accordance with Staff
Accounting Bulletin No. 101 ("SAB 101").

Accounts Receivable and Concentration of Credit Risks

The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other
information. The Company identifies delinquent accounts based on specific customer terms and typically does not accrue interest charges on customer balances. The recorded values are separately
maintained, even those balances that are fully reserved. Once management determines that the receivables are not recoverable, the amounts are removed from the financial records along with the
corresponding reserve balance. The allowance for doubtful accounts was approximately $13.7 million and $12.9 million at March 29, 2003 and December 28, 2002, respectively
which management believes is adequate to provide for credit loss in the normal course of business, as well as losses for customers who have filed for protection under the bankruptcy law.

8

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Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out method of accounting and, as of March 29, 2003
and December 28, 2002 consist of the following (in thousands):

Successor
March 29, 2003

Predecessor
December 28, 2002(Unaudited)Finished goods

$
53,570

$
56,126Work in process


20,056


17,515Raw materials


42,187


42,055$
115,813

$
115,696


Long-Lived Assets

The Company reviews the recoverability of the carrying value of long-lived assets in accordance with Statement of Financial Accounting Standard No.144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144") and Statement of Financial Accounting Standard No 142 "Goodwill and Other Intangible Assets"
("FAS 142"). As more fully discussed in Note 6. "Business Restructuring and Impairment," the Company recorded a non-cash asset impairment charge in fiscal 2002 of
approximately $317.9 million related to the write-down of goodwill and other intangibles and property, plant and equipment in accordance with FAS 142 and FAS 144. As
part of the Company's adoption of FAS 142 the Company completed a transitional impairment test in the fourth quarter of 2002, as permitted by the standard. The Company's transitional impairment
test resulted in a charge of $12.8 million which was reported as a cumulative effect of a change in accounting principle in the Company's annual results for fiscal 2002 and has been allocated
to the first fiscal quarter of 2002 for reporting purposes.

The
following table reconciles reported results to restated results for the three months ended March 30, 2002 (in thousands, except per share data):

As Reported

RestatedNet sales

$
191,180

$
191,180Gross profit


28,469


28,469Loss before cumulative effect of change in accounting principle


(29,573
)

(29,573
)Cumulative effect of change in accounting principle





12,774Net loss

$
(29,573
)
$
(42,347
)Per sharebasic and diluted:Loss before cumulative effect of change in accounting principle

$
(0.92
)
$
(0.92
)Cumulative effect of change in accounting principle





0.40Net loss

$
(0.92
)
$
(1.32
)(Deficit)

$
(271,510
)
$
(284,284
)


9

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Under
the provisions of FAS 142, goodwill and indefinite lived intangible assets are no longer amortized, but will be tested for impairment on at least an annual basis. Amortization
expense is presented in the following table (in thousands):

Successor

PredecessorOne Month Ended
March 29, 2003

Two Months Ended
March 1, 2003

Three Months Ended
March 30, 2002Amortization of:Goodwill

$


$


$
Intangibles with finite lives


480


220


782Amortization included in selling, general and administrative expense


480


220


782Loan acquisition costs included in interest expense, net


157


1,426


1,741Total amortization expense

$
637

$
1,646

$
2,523


Income Taxes

Deferred tax liabilities and assets are determined based upon temporary differences between the basis of certain assets and liabilities for income tax and
financial reporting purposes. A valuation allowance is recognized if it is likely that some portion of a deferred tax asset will not be realized in the future. Implementation of the Modified Plan
resulted in the Company recognizing cancellation of indebtedness income ("CODI"). All of the CODI is excluded from taxable income. However, the Company is required to reduce certain of its tax
attributes, including net operating loss carryforwards ("NOLs"), by an amount not to exceed the CODI it realized. In general, tax attributes will be reduced at the close of the 2003 tax year in the
following order: (i) net operating loss carryforwards; (ii) tax credits and capital loss carryforwards; and (iii) tax basis in assets. The Company is currently in the process of
determining the amount of the corresponding reduction of its tax attributes and/or asset basis. It is anticipated that the Company's net operating loss carryforwards will be entirely eliminated in
2003 as a result of the reorganization under the Modified Plan.

Foreign Currency Translation

All assets and liabilities in the balance sheets of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at
quarter-end exchange rates. Translation gains and losses are not included in determining net income but are accumulated as a separate component of shareholders' equity. However,
subsidiaries considered to be operating in highly inflationary countries use the U.S. dollar as the functional currency and translation gains and losses are included in determining net income. In
addition, foreign currency transaction gains and losses are included in determining net income.

10

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Net Income (Loss) Per Share

Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities and are computed using the number of common shares
outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if stock options were exercised and is based upon the weighted average number of common and
common equivalent shares outstanding for the period. Shares under option represent common equivalent shares. All stock options were cancelled under the Modified Plan. The numerator for both basic and
diluted earnings per share is net income (loss) applicable to common stock. A separate table illustrating the calculation of earnings per share has not been presented as such amount can be derived
from information contained in the statement of operations. There were no reconciling items between basic loss per share and diluted loss per share for the periods presented in this Quarterly Report on
Form 10-Q.

New Accounting Standards

In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations completed after June 30, 2001, and specifies criteria for the recognition and reporting of intangible assets apart from goodwill.

On
April 30, 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds Statement No. 4, which required all gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary
item, net of related income tax effect. Upon adoption of SFAS No. 145, companies will be required to apply the criteria in Accounting Principle Board Opinion No. 30, "Reporting the
Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" in determining the
classification of gains and losses resulting from the extinguishments of debt. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The provisions of SFAS No.145 have
been adopted by the Company in 2003. The gain recognized by the Company on the cancellation of indebtedness pursuant to the emergence from bankruptcy has been classified as a reorganization item in
the consolidated statements of operations.

On
July 30, 2002, the FASB issued SFAS No 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The Company will incur cost pursuant to SFAS 146 during 2003 related to its continued business restructuring efforts. Such
cost will be accounted for in accordance with the standard. Refer to Note 6. "Business Restructuring and Impairment."

On
December 31, 2002, the FASB issued SFAS No 148, "Accounting for Stock-Based CompensationTransition and Disclosure." SFAS 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of transition for an entity that changes to the fair value method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure provisions of SFAS 123 to require expanded and more prominent disclosure of the effects of an entity's accounting policy with respect to
stock-based employee

11

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compensation.
SFAS No. 148 is effective for fiscal year 2003. The Company does not anticipate that SFAS 148 will have a significant effect on its results of operations as a result of the
cancellation of all stock options under the 1996 Plan and 2001 Plan pursuant to the Modified Plan.

Note 3.    Chapter 11 Proceedings

Description of Chapter 11 Proceedings

On May 11, 2002 (the "Filing Date" or "Petition Date"), the Company and each of its domestic subsidiaries (together with the Company, the "Debtors") filed
voluntary petitions for "pre-negotiated" reorganization (the "Chapter 11 Filings" or the "Filings") under the Bankruptcy Code in the South Carolina Bankruptcy Court. The Chapter 11 Filings
were jointly administered for procedural purposes only. The Company's direct and indirect foreign subsidiaries and foreign joint venture entities did not file petitions under Chapter 11 and were not
the subject of any bankruptcy proceedings. To facilitate stabilizing operations during the Chapter 11 Filings, the Debtors secured a $125 million commitment (the "Commitment") for
debtor-in-possession financing (the "DIP Facility") from a group of financial institutions, some of which were Senior Secured Lenders (the "DIP Lenders") in order to provide
the Debtors sufficient liquidity, if needed, to operate during the Chapter 11 Filings. JPMorgan Chase Bank was the Agent for the DIP Lenders under the DIP Facility. Pursuant to the DIP Facility, the
Debtors paid certain fees to the DIP Lenders, including a structuring fee of 0.85% of the Commitment, an underwriting fee of 1.65% of the Commitment as well as certain other fees.

At
a hearing, which took place on August 15, 2002, and concluded on August 20, 2002, the South Carolina Bankruptcy Court approved the Company's Disclosure Statement
relating to the Plan of Reorganization, as amended and filed on August 21, 2002, over the committee's objection. The Plan was not confirmed and thus the Company filed the Modified Plan as more
fully discussed in Note 4. "Recapitalization."

Chapter 11 Costs and Financial Restructuring Expenses

Prior to the Petition Date, the Company classified expenses related to its financial restructuring efforts as "Special charges" in the consolidated statement of
operations. Such charges consist of professional and other related services that have been expensed as incurred. After the Petition Date, costs related to the Company's reorganization activities are
also expensed as incurred and have been classified as "Chapter 11 reorganization expenses" in accordance with SOP 90-7. The cumulative amount of costs and expenses related to the Company's
financial restructuring efforts, including bank financing fees through March 29, 2003 have been approximately $45.6 million.

Note 4.    Recapitalization

On November 27, 2002, the Company filed the Joint Amended Modified Plan of Reorganization (the "Modified Plan"). The Modified Plan consisted of:
(i) the restructuring of the Prepetition Credit Facility, including a payment (the "Secured Lender Payment") of $50.0 million on the Effective Date to the agent for the benefit of the
Senior Secured Lenders under the Prepetition Credit Facility, which Secured Lender Payment was exclusive of the proceeds (the "Chicopee Sale Proceeds") of the sale of the South Brunswick facility
owned by Chicopee, Inc., (ii) payment of 100% of the Chicopee Sale Proceeds to the agent for the benefit of the Senior Secured Lenders, (iii) a minimum

12

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$5.0 million
additional prepayment out of existing cash-on-hand, (iv) the retirement of in excess of $591.5 million of the Debtors' obligations under the
Senior Subordinated Notes, wherein each Holder of the Senior Subordinated Notes and other general unsecured creditors (other than claims of certain vendors who supplied goods and services to the
Debtors during the bankruptcy and with whom the Debtors intended to do business after emerging from bankruptcy ("Critical Vendor Claims") and claims held by non-debtor subsidiaries of the
Company ("Intercompany Claims") (together constituting the "Class 4 Claims") had the right to receive on, or as soon as practicable after the Effective Date, (x) its pro rata share of
Class A Common Stock in exchange for each $1,000 of its allowed claim or (y) at the election of each holder who was a Qualified Institutional Buyer (as defined in the Modified Plan and
the 1933 Securities Act), its pro rata share of Class C Common Stock, (v) the Critical Vendor Claims and Intercompany Claims were not impaired, (vi) each holder of an allowed
Class 4 Claim that elected to receive Class A Common Stock was given the option to take part in the new investment in the Convertible Notes (the "New Investment") by choosing to exercise
its subscription rights (the "Subscription Rights") thereto, which New Investment of $50 million was made in exchange for 10% subordinated convertible notes due 2006 (the "Convertible Notes"),
(vii) MatlinPatterson Global Opportunities Partners L.P. ("GOF") issued, or caused to be issued, letters of credit in the aggregated amount of $25 million (the "Exit Letters of
Credit") in favor of the agent under the Restructured Credit Facilities pursuant to a bank term sheet, for which GOF was entitled to 10% senior subordinated notes due 2007 (the "New Senior
Subordinated Notes") equal to the amount (if any) drawn against the Exit Letters of Credit (plus any advances made by GOF solely in lieu of drawings under the Exit Letters of Credit),
(viii) holders of the Company's existing common stock ("Old Polymer Common Stock") received 100% of the Class B Common Stock (which will not be diluted by any conversions of the
Convertible Notes) in exchange for their Old Polymer Common Stock interests; such Holders also received pro rata shares of the new Series A and Series B Warrants (as discussed below).

Under
the Modified Plan, all common stock of the reorganized Company (the "New Polymer Common Stock") was the same class (the "Class A Common Stock"), with the exception of
(i) separate classes (the "Class D Common Stock" and "Class E Common Stock") to be issued upon exercise of the Series A and Series B Warrants (as defined below),
(ii) the 4% of New Polymer Common Stock designated as "Class B Common Stock" issued to the holders of Old Polymer Common Stock, and (iii) a small percentage (the "Class C
Common Stock") issued to holders of Class 4 Claims, who contributed such stock to the Special Purpose Entity ("SPE"). The Class C Common Stock shall pay a dividend payable equal to the
lesser of (i) 1% per annum of the principal
amount of the promissory notes issued by the SPE or (ii) $1.0 million per annum. Shares of New Polymer Common Stock (other than Class A Common Stock) are convertible into shares
of Class A Common Stock on a one-for-one basis.

The
holders of Old Polymer Common Stock received two series of warrants, the Series A Warrants and Series B Warrants, which have (i) customary adjustments for stock
splits, stock dividends, and consolidations, (ii) specified anti-dilution protection for sales of securities by the reorganized Company ("New Polymer") at a price below the fair
market value of such securities if offered to all New Polymer common stock holders and (iii) specified anti-dilution protection for sales of securities by New Polymer at a discount
that exceeds 25% of the fair market value of such securities and which will not terminate upon a transaction with GOF or an affiliate of GOF. Except as set forth in the preceding sentence, the
Series A and Series B Warrants do not have anti-dilution

13

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provisions.
In addition, the cash dividend payment by New Polymer described above in connection with the Class C Common Stock is excluded from the calculation of cumulative distributions for
all purposes relating to the Series A Warrants, the Series B Warrants, the Class D Common Stock and the Class E Common Stock. The New Polymer Common Stock received by the
holders of Class 4 Claims and the Holders of Old Polymer Common Stock and which will be issued upon conversion of the Convertible Notes is subject to dilution upon the exercise of the
Series A Warrants and Series B Warrants.

The
Modified Plan also provided that, on the Effective Date, in consideration of GOF acting as the standby purchaser for the New Investment, and in consideration of GOF's role in
facilitating a consensual resolution of the disputes among the parties involved in the negotiation of the Modified Plan, New Polymer paid GOF a Standby Purchaser fee of $2.0 million and an
arrangement and plan facilitation fee of $2.0 million.

In
order to facilitate the issuance of a new senior subordinated note ("New Senior Subordinated Note") in the amount of any drawing under the Exit Letter of Credit, MatlinPatterson
Global Partners LLC, ("Matlin Global Partners") a limited liability company organized under the laws of Delaware, the Company and its domestic subsidiaries, as guarantors, entered into a Senior
Subordinated Note Purchase Agreement (the "Senior Subordinated Note Purchase Agreement"), dated as of March 5, 2003, and pursuant thereto, the Company issued to Matlin Global Partners a New
Senior Subordinated Note.

The
Senior Subordinated Note Purchase Agreement and Senior Subordinated Note provide that upon any drawing under the Exit Letter of Credit, the principal amount due under the New Senior
Subordinated Note will automatically increase by the amount of such drawing. The Company is required to pay interest on any amount outstanding under the New Senior Subordinated Note
semi-annually in arrears on January 1 and June 1 of each year, commencing on June 1, 2003, at a rate of 10% per annum, and default interest in an amount of 2% per
annum will
be payable on the principal amount in addition to the existing 10% rate. The Company shall, to the extent lawful, pay interest at a rate of 12% per annum on overdue interest.

The
Company's obligations under the Senior Subordinated Note Purchase Agreement and Senior Subordinated Note are guaranteed by the Company's domestic subsidiaries. Both the Company's
obligations under the Senior Subordinated Note and the guarantees thereof are subordinate to the indebtedness outstanding under the Company's Restructured Credit Facility.

The
Senior Subordinated Note Purchase Agreement contains customary representations and warranties and standard default terms. Additionally, the Senior Subordinated Note Purchase
Agreement contains affirmative and negative covenants of the Company with respect to (a) delivery of information, (b) of proceeds of asset sales, (c) limitation on restricted
payments, (d) corporate existence, (e) limitation on liens, (f) future domestic subsidiary guarantors, (g) designation of unrestricted subsidiaries, and (h) mergers
and similar transactions involving the Company or the guarantors.

14

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Note 5.    Fresh Start Accounting

Fresh-start reporting requires that the reorganization value of the Company be allocated to its assets in conformity with SFAS No. 141. Such allocation is
based on preliminary estimates which may be revised at a later date as information becomes available. The excess of the fair value of the specific tangible or identifiable intangible net assets over
the reorganization value, or negative goodwill, is to be allocated to non-current non-monetary assets on a pro-rata basis. Based on the consideration of many
factors and various valuation methods, the Company and its financial advisors determined the reorganization value of the Company as described in the Modified Plan. As part of the Modified Plan, the
Company's common stock was divided into five classes: Class A, Class B, Class C, Class D and Class E. As of the Effective Date, 8,125,869 shares of Class A,
399,978 shares of Class B and 118,449 shares of Class C common stock were outstanding. An additional 1,355,480 shares of Class A common stock has been reserved for issuance
pending the outcome of certain claims against the Company in connections with the Modified Plan. No shares of Class D or Class E common stock were outstanding as of such date. The
following table reflects the reorganization adjustments to old Polymer Group's consolidated balance sheet as of March 1, 2003 (in thousands):

|                                               |                                                         | Predecessor                                   |          | Modified Plan of
Reorganization |           | Fresh Start
Adjustments |          | Successor
|---------------------------------------------- | ------------------------------------------------------- | --------------------------------------------- | -------- | ------------------------------- | --------- | ----------------------- | -------- | ---------
|Assets                                         |                                                         |                                               |          |                                 |           |                         |          |          
|Current assets                                 |                                                         | $                                             | 308,411  |                                 | $         |                        |          | $        
|Property, plant and equipment                  |                                                         |                                               | 431,384  |                                 |           | (39,491                 | )(f)     |          
|Intangibles and loan acquisition costs, net    |                                                         |                                               | 38,315   |                                 |           | (26,341                 | )(e)(f)  |          
|Other assets                                   |                                                         |                                               | 13,296   |                                 |           |                        |          |          
|                                               |                                                         |                                               |          |                                 |           |                         |          |          
|                                               |                                                         | Total assets                                  |          | $                               | 791,406   |                         | $        | (65,832  
|                                               |                                                         |                                               |          |                                 |           |                         |          |          
|Liabilities and Shareholders' Equity (Deficit) |                                                         |                                               |          |                                 |           |                         |          |          
|Liabilities not subject to compromise          |                                                         |                                               |          |                                 |           |                         |          |          
|                                               | Accounts payable, accrued liabilities and other current |                                               | $        | 94,466                          |           | $                       | 3,950    | (a)      
|                                               | Short term borrowings                                   |                                               |          | 223                             |           |                         |         |          
|                                               | Long term debtPrepetition Credit Facility              |                                               |          | 484,877                         |           |                         | (484,877 | )(b)     
|                                               | Long term debtRestructured Credit Facility and Other   |                                               |          | 18,165                          |           |                         | 421,434  | (c)      
|                                               | Long term debtJunior Notes                             |                                               |          |                                |           |                         | 50,000   | (d)      
|                                               | Noncurrent liabilites                                   |                                               |          | 48,133                          |           |                         |          |          
|                                               |                                                         |                                               |          |                                 |           |                         |          |          
|                                               |                                                         | Total liabilites not subject to compromise    |          |                                 | 645,864   |                         |          | (9,493   
|Liabilites Subject to Compromise               |                                                         |                                               | 637,122  |                                 |           | (637,122                | )(e)     |          
|                                               |                                                         |                                               |          |                                 |           |                         |          |          
|                                               |                                                         | Total liabilities                             |          |                                 | 1,282,986 |                         |          | (646,615 
|Shareholders' equity (deficit)                 |                                                         |                                               | (491,580 | )                               |           | 580,783                 | (f)      |          
|                                               |                                                         |                                               |          |                                 |           |                         |          |          
|                                               |                                                         | Total liabilities and shareholders' (deficit) |          | $                               | 791,406   |                         | $        | (65,832  
|                                               |                                                         |                                               |          |                                 |           |                         |          |          

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15

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Note 6.    Business Restructuring and Impairment

The Company's restructuring program continued into 2002 on a smaller scale than that which was undertaken in 2001. Such restructurings included reductions in
headcount of approximately 54 employees and facility closing costs in the U.S. as business processes were rationalized in the Oriented Polymers Division. The total plant realignment charge in
2002 and 2001 related to the restructuring approximated $8.5 million. Cash outlays in 2002 and 2001 associated with the Company's business restructuring approximated $7.6 million. A
summary of the business restructuring activity during the three months ended March 29, 2003, accounted for in accordance with FAS 146, is presented in the following table (in thousands):

Employee Termination
and Facility Closing CostsPlant realignment liability as of December 28, 2002

$
8932003 plant realignment charge


122003 cash payments and adjustments


(168
)Plant realignment liability as of March 29, 2003

$
737


During
the fourth quarter of 2002, based upon further reviews of the Company's long-lived assets and the continued decline in operating profits over the course of 2002, the
Company recorded a non-cash charge of approximately $317.9 million, consisting of the write-down of goodwill and other intangibles ($83.9 million) and machinery,
equipment and buildings ($234.0 million) related predominantly to production assets within the U.S. and European Nonwovens business in accordance with FAS 142 and FAS 144.

16

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Note 7.    Debt

Debt
as of March 29, 2003 and December 28, 2002, consists of the following (in thousands):

Successor
March 29, 2003

Predecessor
December 28, 2002(Unaudited)Indebtedness, including current portion:Prepetition Credit Facility

$


$
484,478Restructured Credit Facility


421,433


Senior Subordinated Notes





587,482Junior Notes


50,000


Other


17,773


20,405$
489,206

$
1,092,365


Restructured Credit Facility

The Company's Restructured Credit Facility provides for secured revolving credit borrowings with aggregate commitments of up to $50.0 million and aggregate
term loans and term letters of credit of $435.3 million. Subject to certain terms and conditions, a portion of the Restructured Credit Facility may be used for revolving letters of credit. All
borrowings under the Restructured Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the
Company and certain non-domestic subsidiaries of the Company. The Restructured Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the
assets of the Company, its domestic subsidiaries and certain of its non-domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the
Company and of certain non-domestic subsidiaries of the Company, and (iii) a pledge of certain secured intercompany notes issued to the Company or one or more of its subsidiaries by
non-domestic subsidiaries. Commitment fees under the Restructured Credit Facility are equal to 0.75% of the daily unused amount of the revolving credit commitment. The Restructured Credit
Facility contains covenants and events of default customary for financings of this type, including leverage, senior leverage, interest coverage and adjusted interest coverage. The Restructured Credit
Facility terminates on December 31, 2006. The loans are subject to mandatory prepayment out of proceeds received in connection with certain casualty events, asset sales and debt and equity
issuances and from excess cash flow.

The
interest rate applicable to borrowings under the Restructured Credit Facility is based on a specified base rate or a specified Eurodollar base rate, at the Company's option, plus a
specified margin. The applicable margin for revolving credit loans bearing interest based on the base rate is 2.75%, and the margin for revolving credit loans bearing interest on a Eurodollar rate is
3.75%. The applicable margin for term loans bearing interest based on the base rate will range from 4.00% to 8.00%, and the margin for term loans bearing interest on a Eurodollar rate will range from
5.00% to 9.00%, in each case based on the Company's ratio of senior consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis. In addition, if the Company's ratio of
senior consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis exceeds 5.00 to 1, the Company is required to pay to the term loan lenders and the term letter of
credit lenders a fee of 1.00% on the outstanding balance under the term loans and the term letters

17

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of
credit. Refer to Note 16. "Recent Developments" for a description of Amendment No. 1 to the Restructured Credit Facility.

The
Company sold its Dayton, New Jersey ("South Brunswick") facility for approximately $10.2 million, net of expenses of $0.4 million, during December 2002 at no
material gain or loss. Proceeds from the sale were maintained in an escrow account outside of the Company's control prior to emergence from Chapter 11 and thus were classified within "Other
current assets" in the consolidated balance sheet at December 28, 2002. The proceeds from the sale of South Brunswick were used to reduce amounts outstanding under the Restructured Credit
Facility during the first quarter of 2003.

Convertible Subordinated Notes

In connection with the emergence from Chapter 11, the Company issued $50 million of 10% Convertible Subordinated Notes due 2007 (the "Junior Notes")
pursuant to an indenture dated as of March 5, 2003 (the "Junior Indenture"). The Junior Notes are unsecured subordinated indebtedness of the Company and are subordinated in right of payment to
all existing and future indebtedness of the Company which is not, by its terms, expressly junior to, orpari passuwith, the Junior Notes. The Junior
Notes are convertible into shares of Class A Common Stock, at an initial conversion price equal to $7.29 per share. The Junior Indenture contains several covenants, including limitations on:
(i) indebtedness; certain restricted payments; liens; transactions with affiliates; dividend and other payment restrictions affecting certain subsidiaries; guarantees by certain subsidiaries;
certain transactions including merger and asset sales; and (ii) certain restrictions regarding the disposition of proceeds of asset sales.

Subsidiary Indebtedness

The Company's China-based majority owned subsidiary ("Nanhai") has a bank facility with a financial institution in China that is scheduled to mature in
April 2004. At March 29, 2003, the approximate amount of outstanding indebtedness under the facility was $9.5 million. The Nanhai indebtedness is guaranteed 100% by the Company
and to support this guarantee, a letter of credit has been issued by the Company's agent bank in the amount of $10.0 million. As a result of the Company's 80% majority ownership of Nanhai and
full guarantee of the Nanhai bank debt, all amounts outstanding under the Nanhai bank facility are reflected in the Company's consolidated balance sheet. At March 29, 2003, Nanhai had cash and
cash equivalents on hand of approximately $3.4 million and working capital of approximately $10.7 million.

The
Company's Argentina-based majority owned subsidiary ("DNS") has two bank facilities denominated in U.S. dollars of approximately $6.2 million at March 29, 2003 with
current maturities of approximately $3.6 million. The facilities are scheduled to mature in 2004 and 2005 respectively. The full amount of such indebtedness is reflected on the Company's
consolidated balance sheet at March 29, 2003 as a result of the Company's 60% majority ownership of this subsidiary; however, the minority shareholder guarantees 40% of such indebtedness.
Because of the Argentine peso devaluation against the U.S. dollar, the Company is exposed to foreign currency remeasurement losses of the U.S. dollar denominated debt at DNS because the functional
currency of DNS is the Argentine peso. At March 29, 2003, DNS had cash and cash equivalents on hand of approximately

18

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$1.1 million
and working capital of $7.0 million, excluding current debt. Including current debt, DNS working capital was approximately $3.5 million at March 29, 2003.

In
order to support working capital requirements at Vateks Tekstil Sayani ve Ticaret AS ("Vateks"), an 80% majority owned subsidiary in Istanbul, Turkey, the Company has deposited
through the European parent company of Vateks, approximately $6.5 million with a member of its European bank group who in turn has funded an approximate equivalent amount to Vateks. The amount
owed by Vateks to the bank member is secured by this deposit.

Note 8.    Condensed Consolidating Financial Statements

Certain of the Company's wholly-owned subsidiaries unconditionally guarantee payment of the Company's Junior Notes, jointly and severally, on a senior
subordinated basis. Management has determined that separate complete financial statements of the guarantor entities would not be material to users of the financial statements; therefore, the following
sets forth condensed consolidating financial statements (in thousands):

Condensed Consolidating Selected Balance Sheet Financial Data
As of March 29, 2003
Successor

|                               |  | Combined Guarantor Subsidiaries |           | Combined Non-Guarantor Subsidiaries |   | The Company |  | Reclassifications and Eliminations |           | Consolidated
|------------------------------ |  | ------------------------------- | --------- | ----------------------------------- | - | ----------- |  | ---------------------------------- | --------- | ------------
|Working capital                |  | $                               | 76,432    |                                     | $ | 133,096     |  | $                                  | (4,373    | )           
|Total assets                   |  |                                 | 2,532,408 |                                     |   | 739,147     |  |                                    | 1,058,511 |             
|Total debt                     |  |                                 | 1         |                                     |   | 17,439      |  |                                    | 471,766   |             
|Shareholders' equity (deficit) |  |                                 | 1,460,416 |                                     |   | 222,972     |  |                                    | 71,748    |             

Condensed Consolidating Selected Balance Sheet Financial Data
As of December 28, 2002
Predecessor

|                               |  | Combined Guarantor Subsidiaries |           | Combined Non-Guarantor Subsidiaries |   | The Company |  | Reclassifications and Eliminations |           | Consolidated |  
|------------------------------ |  | ------------------------------- | --------- | ----------------------------------- | - | ----------- |  | ---------------------------------- | --------- | ------------ | -
|Working capital                |  | $                               | 94,832    |                                     | $ | 131,989     |  | $                                  | 556       |              | $
|Total assets                   |  |                                 | 2,342,690 |                                     |   | 615,516     |  |                                    | 1,103,031 |              |  
|Total debt                     |  |                                 | 3         |                                     |   | 25,310      |  |                                    | 478,061   |              |  
|Shareholders' equity (deficit) |  |                                 | 1,045,012 |                                     |   | 234,887     |  |                                    | (465,914  | )            |  

19

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Condensed Consolidating Statement of Operations Selected Financial Data
For the One Month Ended March 29, 2003
Successor

|                                                               |  | Combined Guarantor Subsidiaries |        | Combined Non-Guarantor Subsidiaries |   | The Company |  | Reclassifications and Eliminations |        | Consolidated |  
|-------------------------------------------------------------- |  | ------------------------------- | ------ | ----------------------------------- | - | ----------- |  | ---------------------------------- | ------ | ------------ | -
|Net sales                                                      |  | $                               | 31,990 |                                     | $ | 35,926      |  | $                                  |       |              | $
|Operating income (loss)                                        |  |                                 | (945   | )                                   |   | 3,642       |  |                                    | (87    | )            |  
|Interest expense, income taxes and other expense (income), net |  |                                 | (616   | )                                   |   | 1,608       |  |                                    | 1,398  |              |  
|Net income (loss)                                              |  |                                 | (329   | )                                   |   | 2,034       |  |                                    | (1,485 | )            |  

Condensed Consolidating Statement of Operations Selected Financial Data
For the Two Months Ended March 1, 2003
Predecessor

|                                                               |  | Combined Guarantor Subsidiaries |          | Combined Non-Guarantor Subsidiaries |   | The Company |   | Reclassifications and Eliminations |          | Consolidated |  
|-------------------------------------------------------------- |  | ------------------------------- | -------- | ----------------------------------- | - | ----------- | - | ---------------------------------- | -------- | ------------ | -
|Net sales                                                      |  | $                               | 67,515   |                                     | $ | 73,917      |   | $                                  |         |              | $
|Operating income (loss)                                        |  |                                 | (1,547   | )                                   |   | 7,203       |   |                                    | (129     | )            |  
|Interest expense, income taxes and other expense (income), net |  |                                 | (130,717 | )                                   |   | 7,337       |   |                                    | (534,410 | )            |  
|Net income (loss)                                              |  |                                 | 129,170  |                                     |   | (134        | ) |                                    | 534,281  |              |  

Condensed Consolidating Statement of Operations Selected Financial Data
For the Three Months Ended March 30, 2002
Predecessor

|                                                               |  | Combined Guarantor Subsidiaries |         | Combined Non-Guarantor Subsidiaries |   | The Company |  | Reclassifications and Eliminations |         | Consolidated |  
|-------------------------------------------------------------- |  | ------------------------------- | ------- | ----------------------------------- | - | ----------- |  | ---------------------------------- | ------- | ------------ | -
|Net sales                                                      |  | $                               | 101,006 |                                     | $ | 98,467      |  | $                                  |        |              | $
|Operating income (loss)                                        |  |                                 | (9,294  | )                                   |   | 11,379      |  |                                    | (2,598  | )            |  
|Interest expense, income taxes and other expense (income), net |  |                                 | (16,510 | )                                   |   | 9,799       |  |                                    | 39,749  |              |  
|Net income (loss)                                              |  |                                 | 7,216   |                                     |   | 1,580       |  |                                    | (42,347 | )            |  

20

---

Note 9.    Segment Information

The
Company's reportable market segments consist of Consumer and Industrial & Specialty and beginning in fiscal 2003, the Company is required to report operating data to its
senior lenders under the Restructured Credit Facility based upon the Company's primary operating divisions. Therefore, disclosures for the operating divisions have been presented in the following
table. Sales to P&G account for more than 10% of the Company's sales and are reported primarily in the Consumer segment. The loss of these sales would have a material adverse effect on this segment.
Generally, the Company's nonwoven products can be manufactured on more than one type of production line. Accordingly, certain costs attributed to each segment of the business were determined on an
allocation basis. The Company recorded unusual items during the first fiscal quarters of 2003 and 2002 consisting of plant realignment and special charges. These charges have not been allocated to the
segment data because the Company's management does not evaluate information that is not considered operating in nature on a segment-by-segment basis. Segment operating
performance is measured and evaluated before unusual or special items. Financial data by market segments and operating divisions follows (in thousands):

|                |                                                                           | Successor                |        | Predecessor |       
|--------------- | ------------------------------------------------------------------------- | ------------------------ | ------ | ----------- | ------
|
|Market Segments |                                                                           |                          |        |             |       
|                | Net sales                                                                 |                          |        |             |       
|                |                                                                           | Consumer                 |        | $           | 35,044
|                |                                                                           | Industrial and specialty |        |             | 29,023
|                |                                                                           |                          |        |             |       
|                |                                                                           | $                        | 64,067 |             | $     
|                |                                                                           |                          |        |             |       
|                | Operating income (loss)                                                   |                          |        |             |       
|                |                                                                           | Consumer                 |        | $           | 1,759 
|                |                                                                           | Industrial and specialty |        |             | 1,364 
|                |                                                                           |                          |        |             |       
|                |                                                                           |                          | 3,123  |             |       
|                |                                                                           | Plant realignment        |        |             | (8    
|                |                                                                           | Special charges          |        |             |      
|                |                                                                           |                          |        |             |       
|                |                                                                           | $                        | 3,115  |             | $     
|                |                                                                           |                          |        |             |       
|                | Depreciation and amortization expense included in operating income (loss) |                          |        |             |       
|                |                                                                           | Consumer                 |        | $           | 2,399 
|                |                                                                           | Industrial and specialty |        |             | 945   
|                |                                                                           |                          |        |             |       
|                |                                                                           | $                        | 3,344  |             | $     
|                |                                                                           |                          |        |             |       

|                    |                          | Successor |         | Predecessor
|------------------- | ------------------------ | --------- | ------- | -----------
|
|Identifiable assets |                          |           |         |            
|                    | Consumer                 |           | $       | 373,043    
|                    | Industrial and specialty |           |         | 294,961    
|                    | Corporate                |           |         | 50,729     
|                    |                          |           |         |            
|                    |                          | $         | 718,733 |            
|                    |                          |           |         |            

21

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|                    |                                                                           | Successor             |        | Predecessor |       
|------------------- | ------------------------------------------------------------------------- | --------------------- | ------ | ----------- | ------
|
|Operating Divisions |                                                                           |                       |        |             |       
|                    | Net sales                                                                 |                       |        |             |       
|                    |                                                                           | Nonwovens             |        | $           | 50,075
|                    |                                                                           | Oriented Polymers     |        |             | 13,992
|                    |                                                                           | Unallocated Corporate |        |             |      
|                    |                                                                           |                       |        |             |       
|                    |                                                                           | $                     | 64,067 |             | $     
|                    |                                                                           |                       |        |             |       
|                    | Operating income (loss)                                                   |                       |        |             |       
|                    |                                                                           | Nonwovens             |        | $           | 1,670 
|                    |                                                                           | Oriented Polymers     |        |             | 1,002 
|                    |                                                                           | Unallocated Corporate |        |             | 50    
|                    |                                                                           | Eliminations          |        |             | 401   
|                    |                                                                           |                       |        |             |       
|                    |                                                                           |                       | 3,123  |             |       
|                    |                                                                           | Plant realignment     |        |             | (8    
|                    |                                                                           | Special charges       |        |             |      
|                    |                                                                           |                       |        |             |       
|                    |                                                                           | $                     | 3,115  |             | $     
|                    |                                                                           |                       |        |             |       
|                    | Depreciation and amortization expense included in operating income (loss) |                       |        |             |       
|                    |                                                                           | Nonwovens             |        | $           | 3,466 
|                    |                                                                           | Oriented Polymers     |        |             | 666   
|                    |                                                                           | Unallocated Corporate |        |             | (272  
|                    |                                                                           | Eliminations          |        |             | (516  
|                    |                                                                           |                       |        |             |       
|                    |                                                                           | $                     | 3,344  |             | $     
|                    |                                                                           |                       |        |             |       

|                    |                   |   |         | Predecessor |  
|------------------- | ----------------- | - | ------- | ----------- | -
|
|
|
|Identifiable assets |                   |   |         |             |  
|                    | Nonwovens         |   | $       | 1,071,855   |  
|                    | Oriented Polymers |   |         | 164,106     |  
|                    | Corporate         |   |         | 2,720,761   |  
|                    | Eliminations      |   |         | (3,237,989  | )
|                    |                   |   |         |             |  
|                    |                   | $ | 718,733 |             | $
|                    |                   |   |         |             |  

22

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Note 10.    Geographic Information

Geographic data for the Company's operations are presented in the following table (in thousands):

|                                                                           |                   | Successor |        | Predecessor |  
|-------------------------------------------------------------------------- | ----------------- | --------- | ------ | ----------- | -
|
|Net sales to unaffiliated customers:                                       |                   |           |        |             |  
|                                                                           | United States     |           |        | 28,141      |  
|                                                                           | Canada            |           |        | 9,034       |  
|                                                                           | Europe            |           |        | 15,829      |  
|                                                                           | Asia              |           |        | 2,140       |  
|                                                                           | Latin America     |           |        | 8,923       |  
|                                                                           |                   |           |        |             |  
|                                                                           |                   | $         | 64,067 |             | $
|                                                                           |                   |           |        |             |  
|Operating income (loss)                                                    |                   |           |        |             |  
|                                                                           | United States     |           | $      | (520        | )
|                                                                           | Canada            |           |        | 789         |  
|                                                                           | Europe            |           |        | 1,040       |  
|                                                                           | Asia              |           |        | 249         |  
|                                                                           | Latin America     |           |        | 1,565       |  
|                                                                           |                   |           |        |             |  
|                                                                           |                   |           | 3,123  |             |  
|                                                                           | Plant realignment |           |        | (8          | )
|                                                                           | Special charges   |           |        |            |  
|                                                                           |                   |           |        |             |  
|                                                                           |                   | $         | 3,115  |             | $
|                                                                           |                   |           |        |             |  
|Depreciation and amortization expense included in operating income (loss): |                   |           |        |             |  
|                                                                           | United States     |           | $      | 1,451       |  
|                                                                           | Canada            |           |        | 468         |  
|                                                                           | Europe            |           |        | 659         |  
|                                                                           | Asia              |           |        | 275         |  
|                                                                           | Latin America     |           |        | 491         |  
|                                                                           |                   |           |        |             |  
|                                                                           |                   | $         | 3,344  |             | $
|                                                                           |                   |           |        |             |  

|                    |               |   |         | Predecessor
|------------------- | ------------- | - | ------- | -----------
|
|
|
|Identifiable assets |               |   |         |            
|                    | United States |   | $       | 87,778     
|                    | Canada        |   |         | 140,289    
|                    | Europe        |   |         | 306,958    
|                    | Asia          |   |         | 47,958     
|                    | Latin America |   |         | 135,750    
|                    |               |   |         |            
|                    |               | $ | 718,733 |            
|                    |               |   |         |            

23

---

Note 11.    Purchase Option and Subsidiary Matters

During the third quarter of 2002, the Company's 40% minority shareholder in DNS exercised an option under the Purchase and Option Agreement dated July 1,
2000 whereby the Company or the minority shareholder could elect to sell their respective ownership share of DNS to the other party. The completion of the purchase of shares under the option is
subject to approval of the Company's
lenders, which has not been obtained. In addition, the Company and the minority shareholder have not agreed to an acquisition price for such additional investment. The Company did not receive any
approval from the U.S. Bankruptcy Court to engage in such transaction.

The
Company acquired an 80% majority ownership position in Vateks during fiscal 1999. The acquisition agreement contained a purchase price adjustment based upon the achievement of
certain operating targets within an agreed-upon period after the acquisition date. Vateks did not achieve the operating targets and thus the Company sought to recover the short fall as
calculated pursuant to the provisions of the acquisition agreement. The Company and former majority shareholder did not agree on such amount and therefore, the settlement proceeded to arbitration. The
independent arbitrator concurred that the Company was entitled to receive an adjustment of the purchase price pursuant to the agreement. Accordingly, the Company and former shareholder agreed to a
settlement of approximately $1.8 million payable in installments between fiscal 2002 and 2004. The Company received approximately $0.6 million during fiscal 2002 representing the first
settlement installment. Such amount was accounted for as an adjustment to the purchase price of Vateks pursuant to the provisions of APB No. 16. Subsequent installment payments, in accordance
with the settlement agreement, have not been paid to the Company by the former majority shareholder. Accordingly, the Company is pursuing its alternatives relative to this matter.

Note 12.    Related Party Transactions

The Company leased a manufacturing facility from an affiliated entity that the Company believed was comparable to similar properties in the area. This lease was
terminated in January 2003 at no cost to the Company. The Company currently leases office space from an affiliate of a shareholder of the Company at an approximate annual rental charge of
$0.2 million. This facility previously served as the Company's corporate headquarters. Shared service costs are charged to the Company and approximated $0.2 million during the three
months ended March 29, 2003. The Company also entered into a Joint Development Agreement dated as of April 17, 2002 and a Supply Agreement dated April 30, 2002, with a third party
affiliated with certain of the Company's stockholders. During the three months ended March 29, 2003, no payments were made by either party under either of these agreements. The Company is
currently reviewing these agreements to determine their enforceability and the Company's rights, including the right to terminate, under these agreements.

Certain
of the Company's key employees provide services for an entity that is a shareholder of the Company ("InterTech"). InterTech and its affiliates pay such employees directly for
these services. The Company is currently reviewing this relationship.

Note 13.    Certain Matters

On December 19, 1997, DT Acquisition Inc. ("DTA"), a subsidiary of the Company, acquired substantially all of the outstanding common and first
preferred shares of Dominion Textiles Inc., a Company organized under the laws of Canada ("Dominion"), and on January 29, 1998, DTA acquired all remaining common and first preferred
shares, at which time Dominion underwent a

24

---

"winding-up."
All assets and liabilities of Dominion were transferred to DTA and all outstanding common shares and first preferred shares held by DTA were redeemed. Immediately thereafter,
pursuant to a purchase agreement, dated October 27, 1997, the apparel fabrics business of Dominion was sold, at no gain or loss, to Galey & Lord, Inc., ("Galey") and the Company
acquired the nonwovens and industrial fabrics operations. The Company and Galey finalized the acquisition cash settlement during 2000 pursuant to the Master Separation Agreement (the "MSA") dated
January 29, 1998. The result of such settlement was not material to the Company's financial condition. Under the MSA, the Company and Galey are required to share in the payment of certain
on-going costs, including taxes, for historical Dominion entities as required by the MSA. Because the Company originally acquired Dominion, the Company generally makes the payments and is
reimbursed by Galey. On February 19, 2002, Galey and its U.S. operating subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code and began
operating their businesses as debtors-in-possession. During March 2002, Galey informed the Company of its intention to reject the MSA as part of its bankruptcy
proceedings. If approved by the Bankruptcy Court, Galey's contemplated rejection of the MSA would result in the Company being required to fund expenditures that should be allocated to, and paid by,
Galey, which could potentially have a material adverse effect on the Company. At March 29, 2003, the amounts due from Galey for shared cash activity pursuant to the MSA, including amounts
associated with statutory tax payments, approximated $2.6 million (the "Galey Receivable"). The Company has fully reserved the Galey Receivable at March 29, 2003 due to the uncertainty
of collectibility at such date. All shared cash activity prior to the first quarter of 2002 relative to the MSA has been collected from Galey.

On
April 23, 2002, the Company filed a demand for arbitration against Johnson & Johnson ("J&J"). The primary issue in the arbitration is the Company's assertion that J&J
breached a supply agreement when: (i) J&J and its affiliates in the U.S., Canada and Europe failed both to purchase certain products from the Company and to allow the Company a reasonable
opportunity to compete for certain sales; and (ii) J&J failed to encourage its affiliates in other parts of the world to buy the Company's products. The arbitration is currently pending in the
State of New York.

Note 14.    Investment in Partially-Owned Equity Affiliate

As part of the acquisition of Dominion and through its wholly-owned subsidiary, DTA, the Company acquired a 50% equity interest in a Canadian-based manufacturer
of home furnishing products. The
Company's equity ownership of this entity is a 50% shared investment with Galey pursuant to the MSA; therefore, the Company's effective ownership approximates 25%. Thus the results of this entity are
not consolidated with those of the Company. At March 29, 2003, the Company's investment in this entity approximated $0.3 million. The Company received no dividends from this entity
during the three months ended March 29, 2003 nor has the Company guaranteed any of this entity's obligations.

Note 15.    Recent Developments

On March 11, 2003, the Company's Chief Executive Officer was replaced by James L. Schaeffer. The Company and its former Chief Executive Officer are
currently involved in a dispute with respect to the amount and timing of certain severance payments to be made to its former Chief Executive Officer, as well as other matters.

25

---

On
April 11, 2003, GOF entered into an agreement with the Company (the "GOF Agreement") pursuant to which GOF agreed to undertake certain actions solely for the purpose of
assisting the Company in maintaining compliance with the financial covenants contained in the Restructured Credit Facility during the period beginning on March 6, 2003, and ending on
January 4, 2004 as follows. GOF has agreed to amend the New Senior Subordinated Note and the Junior Notes it beneficially owns or controls (approximately $38 million aggregate principal
amount) to provide that interest that accrues from March 6, 2003 until January 31, 2005 on the New Senior Subordinated Note and from March 6, 2003 until January 5, 2004 on
the Junior Notes, may be paid by the Company issuing additional aggregate principal amount of debt securities rather than paying such interest in cash. In the event the Company is unable to meet the
senior leverage covenant, interest covenant or adjusted interest covenant contained in the Restructured Credit Facility, the Company is permitted to instruct the Agent under the Restructured Credit
Agreement to make a drawing under the Exit Letter of Credit and apply the amount of the drawing to repay indebtedness under the Restructured Credit Facility. GOF also has agreed that, in the event the
Company is unable to comply with the leverage covenant under the Restructured Credit Facility, GOF will convert such amount of its Junior Notes into Class A Common Stock. Finally, in the event
the Company has undertaken all the actions described above and is unable to meet the interest covenant solely for the 12-month period ending on the last day of the Company's third fiscal
quarter of 2003, GOF will purchase up to $10 million aggregate principal amount of additional senior subordinated notes (with interest payable in additional principal amount of senior
subordinated notes) or equity securities (the "New Investment") in order to allow the Company to repay indebtedness under the Restructured Credit Facility to meet such covenant. GOF's obligation to
take any of these steps is conditioned on Amendment No. 1 remaining in full force and effect.

As
of March 29, 2003, the Company and the Senior Secured Lenders under the Restructured Credit Facility, entered into Amendment No. 1. Amendment No. 1 permitted the
Company to take the actions described in the GOF Agreement, and also provides that in the event the Company repays indebtedness under the Restructured Credit Facility using the proceeds from the Exit
Letter of
Credit or New Investment, for purposes of the interest and adjusted interest covenants, the interest savings to the Company is calculated on a pro forma basis as if the cash pay indebtedness had been
repaid as of March 6, 2003.

Note 16.    Supplemental Financial Data

The cost of research and development, shipping and handling, and selling and advertising is charged to expense as incurred and is included in selling, general and
administrative expense in the consolidated statement of operations. A summary of these expenses is presented in the following table (in thousands):

|                         |  | Successor |       | Predecessor |   | Predecessor
|------------------------ |  | --------- | ----- | ----------- | - | -----------
|
|Research and development |  | $         | 1,044 |             | $ | 2,483      
|Shipping and handling    |  |           | 1,709 |             |   | 3,411      
|Selling and advertising  |  |           | 2,260 |             |   | 4,904      

26

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated
results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in this quarterly report on
Form 10-Q. In particular, this discussion should be read in conjunction with Note 3. "Chapter 11 Proceedings" and Note 4. "Recapitalization," which describe the filing
by the Company and its domestic subsidiaries of voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code on May 11, 2002 and the financial restructuring
associated with the Company's emergence from Chapter 11 effective March 5, 2003.

For
accounting purposes the Company recognized the emergence on March 1, 2003, which was the end of the February accounting period. For purposes of discussion of results of
operations, the one month ended March 29, 2003 (Successor) has been combined with two months ended March 1, 2003 (Predecessor).

Results of Operations

The following table sets forth the percentage relationships to net sales of certain income statement items.

|                                                                                                       |                            | Three Months Ended |     
|------------------------------------------------------------------------------------------------------ | -------------------------- | ------------------ | ----
|
|Net sales                                                                                              |                            | 100.0              | %   
|Cost of goods sold                                                                                     |                            |                    |     
|                                                                                                       | Materials                  |                    | 46.8
|                                                                                                       | Labor                      |                    | 10.3
|                                                                                                       | Overhead                   |                    | 26.0
|                                                                                                       |                            |                    |     
|                                                                                                       |                            | 83.1               |     
|                                                                                                       |                            |                    |     
|Gross profit                                                                                           |                            | 16.9               |     
|Selling, general and administrative expense                                                            |                            | 12.4               |     
|Plant realignment costs                                                                                |                            |                   |     
|Special charges                                                                                        |                            |                   |     
|                                                                                                       |                            |                    |     
|Operating income (loss)                                                                                |                            | 4.4                |     
|Other expense                                                                                          |                            |                    |     
|                                                                                                       | Interest expense, net      |                    | 7.3 
|                                                                                                       | Investment (gain)/loss     |                    | (0.1
|                                                                                                       | Foreign currency and other |                    | 0.9 
|                                                                                                       |                            |                    |     
|                                                                                                       |                            | 8.1                |     
|                                                                                                       |                            |                    |     
|Loss before reorganization items, income taxes and cumulative effect of change in accounting principle |                            | (3.7               | )   
|Reorganization items                                                                                   |                            | 275.5              |     
|                                                                                                       |                            |                    |     
|Income before income taxes and cumulative effect of change in accounting principle                     |                            | 271.8              |     
|Income taxes                                                                                           |                            | 1.3                |     
|                                                                                                       |                            |                    |     
|Income before cumulative effect of change in accounting principle                                      |                            | 270.5              |     
|Cumulative effect of change in a accounting principle                                                  |                            |                   |     
|                                                                                                       |                            |                    |     
|Net income (loss)                                                                                      |                            | 270.5              |     
|                                                                                                       |                            |                    |     

27

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Comparison of Three Months Ended March 29, 2003 and March 28, 2002

The following table sets forth components of the Company's net sales and operating income (loss) by market segment and operating division for the three months
ended March 29, 2003 and the corresponding change over the comparable period in 2002 (in thousands, except percent data).

|                        |                                         | Three Months Ended |         |         |   |         |        
|----------------------- | --------------------------------------- | ------------------ | ------- | ------- | - | ------- | -------
|
|Market Segments         |                                         |                    |         |         |   |         |        
|Net Sales               |                                         |                    |         |         |   |         |        
|                        | Consumer                                |                    | $       | 110,000 |   | $       | 107,730
|                        | Industrial & Specialty                  |                    |         | 86,976  |   |         | 83,450 
|                        |                                         |                    |         |         |   |         |        
|                        |                                         | $                  | 196,976 |         | $ | 191,180 |        
|                        |                                         |                    |         |         |   |         |        
|Operating income (loss) |                                         |                    |         |         |   |         |        
|                        | Consumer                                |                    | $       | 4,650   |   | $       | 5,484  
|                        | Industrial & Specialty                  |                    |         | 4,089   |   |         | (3,639 
|                        |                                         |                    |         |         |   |         |        
|                        |                                         |                    | 8,739   |         |   | 1,845   |        
|                        | Plant realignment costs                 |                    |         | (12     | ) |         | (176   
|                        | Special charges and other unusual items |                    |         |        |   |         | (2,168 
|                        |                                         |                    |         |         |   |         |        
|                        |                                         | $                  | 8,727   |         | $ | (499    | )      
|                        |                                         |                    |         |         |   |         |        
|Operating Division      |                                         |                    |         |         |   |         |        
|Net Sales               |                                         |                    |         |         |   |         |        
|                        | Nonwovens                               |                    | $       | 158,448 |   | $       | 153,576
|                        | Oriented Polymers                       |                    |         | 38,528  |   |         | 37,604 
|                        | Eliminations                            |                    |         |        |   |         |        
|                        |                                         |                    |         |         |   |         |        
|                        |                                         | $                  | 196,976 |         | $ | 191,180 |        
|                        |                                         |                    |         |         |   |         |        
|Operating income (loss) |                                         |                    |         |         |   |         |        
|                        | Nonwovens                               |                    | $       | 6,150   |   | $       | 1,066  
|                        | Oriented Polymers                       |                    |         | 2,374   |   |         | 1,962  
|                        | Unallocated Corporate                   |                    |         | (301    | ) |         | (1,183 
|                        | Eliminations                            |                    |         | 516     |   |         |       
|                        |                                         |                    |         |         |   |         |        
|                        |                                         |                    | 8,739   |         |   | 1,845   |        
|                        | Plant realignment costs                 |                    |         | (12     | ) |         | (176   
|                        | Special charges and other unusual items |                    |         |        |   |         | (2,168 
|                        |                                         |                    |         |         |   |         |        
|                        |                                         | $                  | 8,727   |         | $ | (499    | )      
|                        |                                         |                    |         |         |   |         |        

Net Sales

A reconciliation of the change in net sales between the three months ended March 29, 2003 and the three months ended March 30, 2002 is presented in
the following table (in thousands):

Net salesthree months ended March 30, 2002

$
191,180Change in sales due to:Volume


(166
)Price/mix


(2,545
)Foreign currency


8,507Net salesthree months ended March 29, 2003

$
196,976


28

---

Consolidated
net sales were approximately $197.0 million for the three months ended March 29, 2003, an increase of $5.8 million or 3.0% over net
sales of $191.2 million for the same fiscal period in 2002. The increase in net sales was due primarily to favorable foreign currencies versus the U.S. dollar offset by unfavorable price / mix.
Excluding the favorable effects of foreign currency translation, similar economic and business issues continued to impact both the Consumer and Industrial and Specialty market segments. The Company's
businesses continued to be unfavorably impacted by the general economic decline in the world-wide economy and the financial restructuring efforts associated with the Chapter 11 process,
including lost sales from existing customers. In addition, certain factors that have historically contributed to lower than anticipated net sales continued to negatively affect net sales during the
three months ended March 29, 2003. Within the Company's Nonwovens business, lower sales volume, predominantly in the U.S. medical markets and lower sales volume within the European hygiene
markets, offset volume gains in the Latin American business. Price / mix within the Nonwovens business was unfavorable within the U.S. and European markets. Sales volume was lower year over year
within the Oriented Polymers business offset somewhat by favorable price / mix in the industrial fabrics and agricultural markets.

Foreign
currencies, predominantly in Europe and Canada, were stronger against the U.S. dollar during the three months ended March 29, 2003 versus the same period in 2002. However,
the Argentine pesos continued to unfavorably impact the Company's results of operations. The increase in net sales between the three months ended March 29, 2003 and March 30, 2002 due to
favorable foreign currency translation in Europe and Canada was approximately $10.2 million offset by the continued decline of the Argentine peso of $1.7 million. Continued discussion of
foreign currency exchange rate risk is contained in Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Operating Income (Loss)

A reconciliation of the change in operating income (loss) between the three months ended March 30, 2002 and March 29, 2003 is presented in the
following table (in thousands):

Operating (loss)three months ended March 30, 2002

$
(499
)Change in operating income due to:Plant realignment and special charges


2,344Volume


613Cost savings and other initiatives related to plant realignment and business restructuring


4,014Lower depreciation and amortization


4,972Price/mix


(2,545
)Raw materials


(3,820
)Foreign currency


198Lower administrative costs associated with historic Dominion entities


642All other


2,808Operating incomethree months ended March 29, 2003

$
8,727


Consolidated
operating income was $8.7 million for the three months ended March 29, 2003. Excluding unusual items, which consist of plant realignment and special charges,
consolidated operating income increased of $6.9 million over operating income before unusual items of $1.9 million during the first three months of fiscal 2002. The increase in operating
income before unusual items was due to cost savings and other initiatives related to plant realignment and business restructuring of $4.0 million, lower depreciation and amortization of
approximately

29

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$5.0 million
resulting from a lower depreciable fixed asset base produced by asset impairment charges in the fourth quarter of fiscal 2002 and to the application of fresh start accounting,
lower administrative costs associated with historic Dominion entities of $0.6 million and all other of $3.6 million consisting of lower spending and favorable foreign currency
translation. Offsetting these favorable impacts were higher raw material costs of $3.8 million predominantly in the U.S. and Latin America Nonwovens business and lower price/mix of
$2.5 million.

As
discussed in Note 6. "Business Restructuring and Impairment," the Company undertook a comprehensive financial and business restructuring of its operations in the latter part of
fiscal 2001 in response to a confluence of negative economic and business factors. The restructuring continued on a smaller scale through 2002. Accordingly, the cash component of the restructuring
during 2002 included workforce reductions and plant realignment predominantly in certain of the Oriented Polymers U.S. Industrial and Specialty business. Manufacturing and operating cost savings have
been realized within each business segment for the duration of the realignment as a result of the restructuring initiatives. However, lower selling prices and higher raw material costs predominantly
offset the cost savings achieved during the three months ended March 29, 2003 within the Consumer and Industrial and Specialty segments.

The
Company recorded a non-cash charge in 2002 of approximately $317.9 million, consisting of the write-down of goodwill and other intangibles
($83.9 million) and machinery, equipment and buildings ($234.0 million) related predominantly to production assets within the U.S. and European Nonwovens business in accordance with
FAS 142 and FAS 144.

The
restructuring related charges have not been allocated to the Company's reportable business segments, for reporting purposes, because the Company's management does not evaluate such
charges on a segment-by-segment basis. Segment operating performance is measured and evaluated before unusual or special items.

Interest Expense and Other

As of the Petition Date and in accordance with SOP 90-7, the Company discontinued accruing interest on the senior subordinated notes and, as a result,
interest expense decreased $11.4 million from $25.8 million during the first three months of 2002 to $14.4 million during the same
period in 2003. Interest expense recognized by the Company during the one month ended March 29, 2003 resulted primarily from the Restructured Credit Facility. Refer to Note 7. "Debt" for
further discussion of the Restructured Credit Facility. Foreign currency and other losses decreased approximately $1.4 million, from $3.3 million during the first three months of 2002 to
$1.8 million for the same period in 2003.

Reorganization Items

Reorganization gains of $542.6 million were recognized in the three months ended March 29, 2003. The gains were due to the gain on cancellation of
prepetition indebtedness, offset by fresh start accounting adjustments and chapter 11 reorganization and other expenses.

Income Tax Expense

The Company recorded income taxes of $2.6 million during the three months ended March 29, 2003. Implementation of the Modified Plan resulted in the
Company recognizing CODI (as defined in Note 2. "Significant Accounting Policies"). All of the CODI is excluded from taxable income. However, the Company is required to reduce certain of its tax
attributes, including net operating loss carryforwards ("NOLs"), by an amount not to exceed the CODI it realized. In general, tax attributes will be reducted at the close of the 2003 tax year in the
following order: (i) net operating loss carryforwards; (ii) tax credits and capital loss carryforwards; and (iii) tax basis in assets. The

30

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Company
is currently in the process of determining the amount of the corresponding reduction of its tax attributes and/or asset basis. It is anticipated that the Company's net operating loss
carryforwards will be entirely eliminated in 2003 as a result of the reoganization under the Modified Plan. During the three months ended March 30, 2002 the Company incurred a
pre-tax loss of $29.6 million which produced an income tax benefit of approximately $8.3 million. However, due to the uncertainty of the Company's ability to realize the
asset associated with the tax benefit, a valuation allowance in the amount of $8.3 million was recorded at March 30, 2002.

Cumulative Effect of Change in Accounting Principle

As part of the Company's adoption of FAS 142, the Company completed a transitional impairment test in the fourth quarter of 2002, as permitted by the
standard. The Company's transitional impairment test resulted in a charge of $12.8 million which was reported as a cumulative effect of a change in accounting principle in the Company's annual
results for fiscal 2002 and has been allocated to the first fiscal quarter of 2002 for reporting purposes.

Net Income (Loss)

The Company's net income during the three months ended March 29, 2003 was approximately $532.8 million as a result of the factors described above,
as compared to a net loss of $42.3 million during the comparable period in 2002.

Liquidity and Capital Resouces

March 29,
2003

December 28,
2002(In Thousands)Balance sheet data:Cash and short-term investments

$
30,193

$
58,147Working capital


191,439


219,905Working capital, excluding current portion of long-term debt and liabilities subject to compromise


200,927


244,521Total assets


718,733


811,319Total debt


489,206


1,092,365Shareholders' equity (deficit)


71,748


(465,914
)


Three Months EndedMarch 29,
2003

March 30,
2002(In Thousands)Cash flow data:Net cash (used in) operating activities

$
(11,825
)
$
(3,687
)Net cash (used in) provided by investing activities


6,789


(2,328
)Net cash (used in) financing activities


(15,637
)

(962
)


31

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Operating Activities

The Company used cash in operations of $11.8 million during the three months ended March 29, 2003, an approximate $8.1 million increase over
the three months ended March 30, 2002. Cash used in operations was negatively impacted during the three months ended March 29, 2003 by operating losses predominantly within the
U.S. Nonwovens business and lower working capital efficiency within certain geographic regions. The Company had working capital of approximately $191.4 million at March 29, 2003.
Excluding the current portion of indebtedness, working capital was $200.7 million at March 29, 2003, compared to working capital, excluding current portion of indebtedness, at
December 28, 2002 of $244.5 million. Accounts receivable on March 29, 2003 was $132.1 million as compared to $117.4 million on December 28, 2002, an increase
of $14.7 million or 12.5%. Accounts receivable represented 63 days of sales outstanding at March 29, 2003 versus 57 days outstanding on December 28, 2002. The
increase in accounts receivable and in days sales outstanding is due primarily to longer collection cycles in Latin America during the three months ended March 29, 2003; weaker economic
conditions in Mexico/Colombia which has recovered somewhat in the second fiscal quarter of 2003; higher accounts receivable balances within the agriculture portion of the Oriented Polymers business
attributable to the normal business cycle within this unit; and timing of collections within the U.S. Nonwovens business. Inventories at March 29, 2003 were approximately $115.7 million,
an increase of $0.1 million over inventories of $115.7 million at December 28, 2002. The Company had approximately 66 days of inventory on hand at March 29, 2003 and
December 28, 2002. Accounts payable at March 29, 2003 and December 28, 2002 was $46.2 million, representing 26 days of accounts payable outstanding.

Prior
to the Petition Date, the Company classified expenses related to its financial restructuring efforts as "Special charges" in the consolidated statement of operations. Such charges
consist of professional and other related services that have been expensed as incurred. After the Petition Date, costs related to the Company's reorganization activities are also expensed as incurred
and have been classified as "Chapter 11 reorganization expenses" in accordance with SOP 90-7. The cumulative amount of costs and expenses related to the Company's financial restructuring
efforts, including bank financing fees, through March 29, 2003 have been approximately $45.6 million.

As
a result of the Company's financial condition, certain suppliers have requested alternative payment provisions. However, such alternative payment provisions have not currently had a
significant negative impact on the Company's liquidity.

Investing and Financing Activities

Capital expenditures during the three months ended March 29, 2003 totaled $5.1 million, an increase of $2.8 million from capital spending of
$2.3 million during the same period in fiscal 2002. During the fourth quarter of 2002, the Company entered into an agreement with Reifenhauser & Co. GmbH for the purchase and
installation of a Reicofil 3.1 SSXS nonwovens production line ("Line 5") at its San Luis Potosi, Mexico manufacturing site. The total commitment for Line 5 approximates $22.0 million.
Approximately $7.3 million has been funded toward Line 5, including building expansion, through the three months ended March 29, 2003. The remaining portion of the total commitment for
construction of Line 5 is expected to be funded during fiscal 2003 and 2004. The Company is evaluating certain financing alternatives for Line 5.

A
complete description of the Company's emergence from Chapter 11 is described in Note 4. "Recapitalization."

The
Company's Restructured Credit Facility provides for secured revolving credit borrowings with aggregate commitments of up to $50.0 million and aggregate term loans and term
letters of credit of $435.3 million. Subject to certain terms and conditions, a portion of the Restructured Credit

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Facility
may be used for revolving letters of credit. As of March 29, 2003, the Company had availability of $50.0 million under the revolving portion of the Restructured Credit Facility.
All borrowings under the Restructured Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of
the Company and certain non-domestic subsidiaries of the Company. The Restructured Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the
assets of the Company, its domestic subsidiaries and certain of its non-domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the
Company and of certain non-domestic subsidiaries of the Company, and (iii) a pledge of certain secured intercompany notes issued to the Company or one or more of its subsidiaries by
non-domestic subsidiaries. Commitment fees under the Restructured Credit Facility are equal to 0.75% of the daily-unused amount of the revolving credit commitment. The Restructured Credit
Facility contains covenants and events of default customary for financings of this type, including leverage, senior leverage, interest coverage and adjusted interest coverage. The Restructured Credit
Facility terminates on December 31, 2006. The loans are subject to mandatory prepayment out of proceeds received in connection with certain casualty events, asset sales and debt and equity
issuances and from excess cash flow.

The
interest rate applicable to borrowings under the Restructured Credit Facility is based on a specified base rate or a specified Eurodollar base rate, at the Company's option, plus a
specified margin. The applicable margin for revolving credit loans bearing interest based on the base rate is 2.75%, and the margin for revolving credit loans bearing interest on a Eurodollar rate is
3.75%. The applicable margin for term loans bearing interest based on the base rate will range from 4.00% to
8.00%, and the margin for term loans bearing interest on a Eurodollar rate will range from 5.00% to 9.00%, in each case based on the Company's ratio of senior consolidated indebtedness to consolidated
EBITDA calculated on a rolling four quarter basis. In addition, if the Company's ratio of senior consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis exceeds
5.00 to 1, the Company is required to pay to the term loan lenders and the term letter of credit lenders a fee of 1.00% on the outstanding balance under the term loans and the term letters of credit.

Refer
to Note 15. "Recent Developments" for a discussion of Amendment No. 1 to the Restructured Credit Facility.

Refer
to Note 13. "Certain Matters" for a complete description of the MSA between Galey (as defined) and the Company.

Effect of Inflation and Foreign Currency

Inflation generally affects the Company by increasing the cost of labor, equipment and raw materials. The Company's substantial foreign operations expose it to
the risk of foreign currency exchange rate fluctuations. If foreign currency denominated revenues is greater than costs, the translation of foreign currency denominated costs and revenues into U.S.
dollars will improve profitability when the foreign currency strengthens against the U.S. dollar and will reduce profitability when the foreign currency weakens.

New Accounting Standards

Refer to Note 2. "Significant Accounting Policies" for a complete discussion of recently issued standards and their anticipated effect on the Company's
results of operations.

Critical Accounting Policies And Other Matters

The Company's analysis and discussion of its financial condition and results of operations are based upon its consolidated financial statements that have been
prepared in accordance with

33

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generally
accepted accounting principles in the United States ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The Company evaluates these estimates and assumptions on an
ongoing basis, including but not limited to those related to inventories, bad debts, income taxes, intangible assets, restructuring related adjustments, pension and other post retirement benefits and
contingencies. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying
value of certain assets and liabilities. Actual results, under conditions and circumstances different from those assumed, may differ from estimates. The impact and any associated risks related to
estimates, assumptions, and accounting policies are discussed within Management's Discussion and Analysis of Operations and Financial Condition, as well as in the Notes to the Consolidated Financial
Statements, if applicable, where such estimates, assumptions, and accounting policies affect the Company's reported and expected results.

The
Company believes the following accounting policies are critical to its business operations and the understanding of results of operations and affect the more significant judgments
and estimates used in the preparation of its consolidated financial statements:

Revenue Recognition:Revenue from product sales is recognized at the time ownership of goods transfers to the customer and
the earnings process is complete in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 specifies how existing rules should be
applied to transactions in the absence of authoritative literature. Based on the guidelines of current accounting rules and SAB 101, revenue should not be recognized until it is realized or realizable
and earned.

Foreign Currency Translation:The Company accounts for and reports translation of foreign currency transactions and foreign
currency financial statements in accordance with SFAS No. 52, "Foreign Currency Translation." All assets and liabilities in the balance sheets of foreign subsidiaries whose functional currency
is other than the U.S. dollar are translated at quarter-end exchange rates. Translation gains and losses are not included in determining net income but are accumulated as a separate
component of shareholders' equity. However, subsidiaries considered to be operating in highly inflationary countries use the U.S. dollar as the functional currency and translation gains and losses are
included in determining net income. In addition, foreign currency transaction gains and losses are included in determining net income.

Business Combinations, Goodwill and Other Intangible Assets:In July 2001, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 141 "Business Combinations" ("FAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142").
FAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests
method is no longer permitted. FAS 141 also includes guidance on the initial recognition and measurement of goodwill and intangible assets acquired in a business combination that is completed
after June 30, 2001. FAS 142 supersedes Accounting Principles Bulletin No. 17, "Intangible Assets." FAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. The most significant changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized,
(2) goodwill will be tested for impairment at least annually, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the
amortization period of intangible assets with finite lives will no longer be limited to forty years. FAS 142 is effective for fiscal years beginning after December 15, 2001. The Company
recognized a non-cash charge of $96.7 million, of which approximately $12.8 million was

34

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recognized
as a cumulative effect of a change in accounting principle, for the write-down of goodwill and other intangibles in accordance with FAS 142 during fiscal 2002.

Impairment of Long-Lived Assets:In October 2001, the Financial Accounting Standards Board issued
Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 provides accounting guidance for financial accounting and
reporting for the impairment or disposal of long-lived assets. The statement supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). It also supersedes the accounting and reporting provisions of APB Opinion No. 30
"Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" related to
the disposal of a segment of a business. The statement is effective for fiscal years beginning after December 15, 2001. The company recognized a non-cash charge of
$234.0 million for the write-down of property, plant and equipment in accordance with FAS 144 during fiscal 2002.

Accounts Receivable and Concentration of Credit Risks:Accounts receivable potentially expose the Company to concentration of
credit risk, as defined by Statement of Financial Accounting Standards No. 105, "Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentration of Credit Risk." The Company provides credit in the normal course of business and performs ongoing credit evaluations on certain of its customers' financial condition,
but generally does not require collateral to support such receivables. The Company also establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.

Income Taxes:The Company records an income tax valuation allowance when the realization of certain deferred tax assets, net
operating losses and capital loss carryforwards is not likely. These deferred tax items represent expenses recognized for financial reporting purposes, which will result in tax deductions over varying
future periods. The Company has not provided U.S. income taxes for undistributed earnings of foreign subsidiaries that are considered to be retained indefinitely for reinvestment. Certain judgments,
assumptions and estimates may affect the carrying value of the valuation allowance and deferred income tax expense in the Company's consolidated financial statements.

Environmental

The Company is subject to a broad range of federal, foreign, state and local laws governing regulations relating to the pollution and protection of the
environment. The Company believes that it is currently in substantial compliance with environmental requirements and does not currently anticipate any material adverse effect on its operations,
financial condition or competitive position as a result of its efforts to comply with environmental requirements. Some risk of environmental liability is inherent, however, in the nature of the
Company's business, and there can be no assurance that material environmental liabilities will not arise.

Euro Conversion

On January 1, 1999, member countries of the European Monetary Union began a three-year transition from their national currencies to a new
common currency, the "euro". Permanent rates of exchange between members' national currency and the euro have been established and monetary, capital, foreign exchange, and interbank markets have been
converted to the euro. Euro currency has been issued and effective July 2002, the respective national currencies were withdrawn. The Company has operations in three of the participating
countries and has successfully transitioned to using both the euro and local currencies for commercial transactions. Costs of the euro conversion

35

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have
not had a material impact on the results of operations or the financial condition of the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Rate Risk

The Company manufactures, markets and distributes certain of its products in Europe, Canada, Latin America and the Far East. As a result, the Company's financial
results could be significantly affected by factors such as changes in foreign currency rates or weak economic conditions in the foreign markets in which the Company maintains a manufacturing or
distribution presence. If foreign currency denominated revenues are greater than costs, the translation of foreign currency denominated costs and revenues into U.S. dollars will improve profitability
when the foreign currency strengthens against the U.S. dollar and will reduce profitability when the foreign currency weakens. For example, during 2002 certain currencies of countries in which the
Company conducts foreign currency denominated business weakened against the U.S. dollar and had a significant impact on sales and operating income. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" within the Company's Annual Report on Form 10-K for 2002 for additional discussion of the foreign currency impact on the Company's
results of operations.

For
the three months ended March 29, 2003, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which the Company's sales are denominated
would have decreased operating income, before special items, by approximately $1.1 million. This calculation assumes that each exchange rate would change in the same direction relative to the U.S.
dollar. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting sales, changes in exchange rates also affect the volume of sales or the
foreign currency sales price as competitors' products become more or less attractive. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in
a potential change in sales levels or local currency prices.

Raw Material and Commodity Risks

The primary raw materials used in the manufacture of most of the Company's products are polypropylene and polyester fiber, polyethylene and polypropylene resin,
and, to a lesser extent, rayon, tissue paper and cotton. The prices of polypropylene and polyethylene are a function of, among other things, manufacturing capacity, demand and the price of crude oil
and natural gas liquids. During January 2003, several suppliers of key raw materials, including polypropylene and polyethylene, announced price increases to take effect beginning as early as
February 2003. To the extent the Company is not able to pass along all or a portion of such increased prices of raw materials, the Company's cost of goods sold would increase and its EBITDA
would correspondingly decrease. By way of example, if the price of polypropylene were to rise $.01 per pound, and the Company was not able to pass along any of such increase to its customers, the
Company would realize a decrease of approximately $2.0 million on an annualized basis in its reported EBITDA. There can be no assurance that the prices of polypropylene and polyethylene will
not continue to increase in the future or that the Company will be able to pass on any increases to its customers. Material increases in raw material prices that cannot be passed on to customers could
have a material adverse effect on the Company's results of operations and financial condition.

Safe Harbor Statement

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, the Company or its representatives have made or may

36

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make
forward-looking statements orally or in writing. Such forward-looking statements may be included in, but not limited to, various filings made by the Company with the Securities and Exchange
Commission, press releases or oral statements made with the approval of an authorized executive officer of the Company. Actual results could differ materially from those projected or suggested in any
forward-looking statements as a result of a variety of factors and conditions which include, but are not limited to: the emergence by the Company and its domestic subsidiaries from Chapter 11 of the
United States Bankruptcy Code, adverse economic conditions, demand for the Company's products, competition in the Company's markets, dependence on key customers, increases in raw material costs, the
amount of capital expenditures, fluctuations in foreign currency exchange rates, the Company's substantial leverage position, potential defaults in the Company's outstanding indebtedness, and other
risks detailed in documents filed by the Company with the Securities and Exchange Commission.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's principal executive officer and its principal financial officer, after evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14), have concluded that the Company's disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.

Changes in Internal Controls

There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's disclosure controls and
procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls. As a result, no corrective actions were
required or undertaken.

37

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 2. CHANGES IN SECURITITES

See Note 4. "Recapitalization" for a discussion of the Modified Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

On November 27, 2002, the Company distributed its Modified Plan to its Securities holders, which was voted on and approved by such holders as of
January 16, 2003. See Note 4. "Recapitalization" for a discussion of the Modified Plan.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

Exhibits required to be filed with this report on Form 10-Q are listed in the following Exhibit Index.

Reports on Form 8-K

On February 10, 2003, the Company filed a report on Form 8-K regarding the recent increase in raw material cost and the estimated effect
on the Company's EBITDA.

38

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|             |  |                     |  |                                                                                                       
|------------ |  | ------------------- |  | ------------------------------------------------------------------------------------------------------
|             |  | POLYMER GROUP, INC.
|             |  | By:                 |  | /s/JAMES L. SCHAEFFERJames L. Schaeffer Chief Executive Officer and
Acting Principal Financial Officer
|May 19, 2003 |  |                     |  |                                                                                                       

39

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CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I,
James L. Schaeffer, certify that:

|                   |  |                                                                
|------------------ |  | ---------------------------------------------------------------
|Date: May 19, 2003 |  | /s/JAMES L. SCHAEFFERJames L. Schaeffer Chief Executive
Officer

40

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CERTIFICATION OF ACTING CHIEF FINANCIAL OFFICER

I,
James L. Schaeffer, certify that:

|                   |  |                                                                        
|------------------ |  | -----------------------------------------------------------------------
|Date: May 19, 2003 |  | /s/JAMES L. SCHAEFFERJames L. Schaeffer Acting Chief Financial
Officer*

41

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EXHIBIT INDEX

|Exhibit
Number |  | Document Description                                                                                                                                                                                                          
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Amended and Restated Certificate of Incorporation of Polymer Group, Inc.                                                                                                                                                      
|3.2            |  | Amended and Restated By-Laws of Polymer Group, Inc.                                                                                                                                                                           
|4.1            |  | Indenture, dated as of March 5, 2003, among the Polymer Group, Inc., the Guarantors named therein and Wilmington Trust Company, as trustee.                                                                                   
|4.2            |  | Senior Subordinated Note Purchase Agreement, among Polymer Group, Inc., the Guarantors named therein and MatlinPatterson Global Opportunities Partners LP                                                                     
|10.1           |  | Third Amended, Restated and Consolidated Credit Agreement, dated March 5, 2003, by and among the Company, the Guarantors named therein, the lenders named therein and JPMorgan Chase Bank, as agent.                          
|10.2           |  | Amendment No. 1 to Third Amended, Restated and Consolidated Credit Agreement, dated as of March 29, 2003, by and among the Company, the Guarantors named therein, the lenders named therein and JPMorgan Chase Bank, as
agent.
|10.3           |  | Shareholders Agreement, dated March 5, 2003, among Polymer Group, Inc. and certain of its shareholders.                                                                                                                       
|10.4           |  | Letter Agreement, dated April 11, 2003, between Polymer Group, Inc. and MatlinPatterson Global Opportunities Partners LP                                                                                                      
|99.1           |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                         
|99.2           |  | Certification by the Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                  

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